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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549-1004

                                   ----------

                                    Form 10-K

                                   ----------

(Mark One)

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

                 For the fiscal year ended December 31, 1998 

                                       OR

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

             For the transition period from ___________________ to

                                   ----------

                          Commission file number 1-1861

                               The CIT Group, Inc.
             (Exact name of registrant as specified in its charter)

            Delaware                                             13-2994534
  (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                            Identification No.)

1211 Avenue of the Americas, New York, New York                     10036
   (Address of principal executive offices)                      (Zip Code)

       Registrant's telephone number, including area code: (212) 536-1950

                                   ----------

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

                                                        Name of each exchange on
          Title of each class                              which registered
          -------------------                           ------------------------
Class A Common Stock, par value $0.01 per share........  New York Stock Exchange
5 7/8% Notes Due October 15, 2008......................  New York Stock Exchange

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

                                      None

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No _____.

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      The aggregate market value of the voting stock held by  non-affiliates  of
the  registrant,  based on the New York  Stock  Exchange  Composite  Transaction
closing  price of the Class A Common  Stock  ($29.50 per share) on February  26,
1999,  was  $2,349,107,745.  For  purposes of this  computation,  all  officers,
directors,  and  5%  beneficial  owners  of  the  registrant  are  deemed  to be
affiliates.  Such  determination  should  not be deemed an  admission  that such
officers,  directors,  and  beneficial  owners are, in fact,  affiliates  of the
registrant.  At February 26, 1999,  162,114,331  shares of the Company's Class A
Common Stock, par value $0.01 per share, were outstanding.

      List hereunder the following  documents if  incorporated  by reference and
the Part of the Form 10-K (e.g.,  Part I, Part II, etc.) into which the document
is  incorporated:  (1) any  annual  report  to  stockholders;  (2) any  proxy or
information  statement;  and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.

                                      None

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<PAGE>

                               TABLE OF CONTENTS
--------------------------------------------------------------------------------

                                     Part I

Item 1.  Business .........................................................    1
            Overview ......................................................    1
            Industry Concentration ........................................    8
            Competition ...................................................    8
            Regulation ....................................................    8
Item 2.  Properties .......................................................   10
Item 3.  Legal Proceedings ................................................   10
Item 4.  Submission of Matters to a Vote of Security Holders ..............   10

                                     Part II

Item 5.  Market for Registrant's Common Equity and Related 
            Stockholder Matters ...........................................   11
Item 6.  Selected Financial Data ..........................................   12
Item 7.  Management's Discussion and Analysis of Financial 
and         Condition and Results of Operations ...........................   14
Item 7A. Quantitative and Qualitative Disclosure about 
            Market Risk ...................................................   14
Item 8.  Financial Statements and Supplementary Data ......................   29
Item 9.  Changes in and Disagreements with Accountants on 
            Accounting and Financial Disclosure ...........................   57

                                    Part III

Item 10. Directors and Executive Officers of the Registrant ...............   58
Item 11. Executive Compensation ...........................................   60
Item 12. Security Ownership of Certain Beneficial Owners 
            and Management ................................................   65
Item 13. Certain Relationships and Related Transactions ...................   67

                                     Part IV

Item 14. Exhibits, Financial Statement Schedule and Reports
            on Form 8-K....................................................   69

                           Forward-Looking Statements

      Certain statements contained in this filing are forward-looking statements
concerning  our  operations,   economic  performance  and  financial  condition.
Forward-looking statements are included, for example, in the discussions about:

      o     our liquidity, 
      o     our credit risk management,
      o     our asset/liability risk management,
      o     our operational and legal risks,
      o     Year 2000 issues, and
      o     how we may be affected by certain legal proceedings.

      These statements  involve risks and uncertainties that may be difficult to
predict. Therefore, actual results may differ materially from those expressed or
implied in those statements.  Factors that could cause such differences include,
but are not limited to:

      o     economic conditions and trends,
      o     changes  in  market  interest  rates,  in the  relationship  between
            short-term rates and long-term rates, or in the relationship between
            different interest rate indices,
      o     industry cycles and trends,
      o     changes in the  market for  equipment  and other  collateral  due to
            market conditions, oversupply, obsolescence or other factors,
      o     disruptions in the commercial paper or capital markets,
      o     changes in laws or regulations, and
      o     competitive conditions and trends.



                                       i
<PAGE>

                                     PART I

Item 1. Business

OVERVIEW

      The  CIT  Group,   Inc.,   ("we,"  "our,"  "us,"  or  "CIT"),  a  Delaware
corporation, is a leading diversified finance organization with over $26 billion
of managed assets at December 31, 1998. We offer secured commercial and consumer
financing  primarily in the United States to smaller,  middle-market  and larger
businesses  and to individuals  through a nationwide  distribution  network.  We
commenced  operations  in 1908 and have  developed a broad array of  "franchise"
businesses that focus on specific industries, asset types and markets, which are
balanced by client,  industry  and  geographic  diversification.  Our  principal
executive offices are located at 1211 Avenue of the Americas, New York, New York
10036 and our telephone number is (212) 536-1390.

      Our business focus is commercial and consumer finance and we offer a broad
array of  products to our  customers,  including  loans and  leases.  We operate
through three business segments:

      o     Equipment Financing and Leasing
      o     Commercial Finance
      o     Consumer

      Each segment  conducts its  operations  through  strategic  business units
which  market its  products  and  services  to satisfy  the  financing  needs of
specific customers, industries and markets.

      Our business segments are described in greater detail below.

Recent Developments

      On March 8, 1999,  we  announced  that we would  acquire  Newcourt  Credit
Group, Inc.  ("Newcourt") in an exchange of common stock. Under the terms of the
transaction, which will be accounted for on a purchase basis, 0.92 shares of our
common stock will be exchanged  for each  outstanding  share of Newcourt  common
stock. Based upon the closing price of $30.75 on March 5, 1999, the value of the
acquisition  is  approximately  $4.2  billion.  Following the  acquisition,  CIT
stockholders will own 54% of the combined company and Newcourt stockholders will
own 46%. The  transaction is expected to close during the third quarter of 1999,
and  is  conditioned  upon,  among  other  things,  regulatory  and  stockholder
approval.

      Newcourt is  headquartered  in Toronto,  Canada and its stock is traded on
the New York, Toronto, and Montreal Stock Exchanges. Newcourt is an independent,
non-bank financial services  enterprise with operations  primarily in the United
States, Canada and Europe. Newcourt orginates,  invests in and sells asset-based
financings  including  secured loans,  leases and conditional  sales  contracts.
Newcourt's  origination activities focus on the commercial and corporate finance
segments of the asset-based financing market.

Common Stock

      In  November  1998,  The  Dai-Ichi  Kangyo  Bank,   Limited  ("DKB")  sold
55,000,000  shares of Class A Common Stock in a secondary  public  offering (the
"Secondary Offering") for which it received all the proceeds. Prior to the sale,
DKB converted all of its Class B Common Stock into an identical number of shares
of  Class  A  Common  Stock,  which  is now  the  only  class  of  common  stock
outstanding.  DKB held  94.4% of the  combined  voting  power  and  77.2% of the
economic  interest of all of our outstanding  common stock prior to the sale. At
December 31, 1998,  DKB held 43.8% of the voting power and economic  interest of
our outstanding common stock.

      In November 1997, we issued  36,225,000  shares of Class A Common Stock in
an initial public  offering (the "IPO").  Prior to the IPO, DKB owned 80% of our
issued and outstanding  stock,  and The Chase Manhattan  Corporation,  ("Chase")
owned the  remaining  20%  common  stock  interest.  DKB had an option  expiring
December  15, 2000 to purchase the  remaining  20% common  stock  interest  from
Chase.  In November  1997,  we purchased  DKB's option at its fair market value,
exercised  the option to purchase the stock held by Chase and  recapitalized  by
converting the outstanding  common stock to 157,500,000 shares of Class B Common
Stock.  Twenty  percent of the Class B Common Stock shares (which had five votes
per 


                                       1
<PAGE>

share) were converted to Class A Common Stock shares (which has one vote per
share) and, in addition to an underwriter's overallotment option, were issued in
the IPO.  The  issuance of Class A Common  Stock  pursuant to the  underwriter's
overallotment resulted in an increase to stockholders' equity of $117.7 million.

Commercial Segments

      Our  commercial  operations  are  diverse  and  provide  a wide  range  of
financing and leasing  products to small,  midsize and larger companies across a
wide variety of industries, including aerospace, retailing,  construction, rail,
machine tool, business aircraft, apparel, textiles,  electronics and technology,
chemicals,  manufacturing, and transportation.  The secured lending, leasing and
factoring products of our commercial operations include direct loans and leases,
operating leases,  leveraged and single investor leases, secured revolving lines
of credit and term loans,  credit protection,  accounts  receivable  collection,
import and export financing and factoring,  debtor-in-possession  and turnaround
financing, and acquisition and expansion financing.

      The following  table sets forth the  financing  and leasing  assets of our
commercial  operations  at  December  31 of each of the  years in the  five-year
period ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                      December 31,
                                          --------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                   Dollars in Millions

<S>                                       <C>            <C>           <C>           <C>            <C>      
Equipment Financing and Leasing ......    $13,367.0      $11,709.7     $11,321.6     $10,591.6      $ 9,631.1
Commercial Finance ...................      4,996.2        4,250.8       3,838.1       3,973.0        4,057.9
                                          ---------      ---------     ---------     ---------      ---------
                                          $18,363.2      $15,960.5     $15,159.7     $14,564.6      $13,689.0
                                          =========      =========     =========     =========      =========
</TABLE>

      Commercial  transactions are generated through direct calling efforts with
borrowers,  lessees,  equipment  end-users,  manufacturers  and distributors and
through referral sources and other  intermediaries.  In addition,  our strategic
business  units  jointly   structure   transactions   and  refer  or  cross-sell
transactions to other CIT units to best meet customers' overall financing needs.
Our marketing  efforts are supplemented by the  Multi-National  Marketing Group,
which promotes our products to the U.S.  subsidiaries of foreign corporations in
need of asset-based  financing,  developing  business through referrals from DKB
and through direct calling efforts.  We also buy and sell  participations in and
syndications of finance  receivables  and/or lines of credit. In addition,  from
time to time in the normal course of business,  we purchase finance  receivables
in bulk to supplement our originations and sell selected finance receivables and
equipment under operating leases for risk management  and/or other balance sheet
management purposes.

Equipment Financing and Leasing

      Our Equipment  Financing and Leasing  operations  had total  financing and
leasing  assets of $13.4  billion at December  31, 1998,  representing  56.4% of
total  financing  and leasing  assets.  We conduct our  Equipment  Financing and
Leasing operations through two strategic business units:

      o     The CIT Group/Equipment  Financing ("Equipment  Financing"),  offers
            secured  equipment  financing  and  leasing and focuses on the broad
            distribution    of    its    products     through     manufacturers,
            dealers/distributors,  intermediaries  and  direct  calling  efforts
            primarily  with the  construction,  transportation  and machine tool
            industries.

      o     The CIT  Group/Capital  Finance  ("Capital  Finance") offers secured
            equipment  financing and leasing and focuses on the direct marketing
            of customized transactions,  particularly operating leases, relating
            primarily to commercial aircraft and rail equipment.

      Equipment Financing and Capital Finance personnel have extensive expertise
in managing  equipment  over its full life  cycle,  including  purchases  of new
equipment,  maintenance and repairs,  residual value  estimation and remarketing
via releasing or sale. Equipment Financing's and Capital Finance's equipment and
industry expertise enable them to evaluate  effectively residual value risk. For
example, Capital Finance can repossess commercial aircraft, if necessary, obtain
any required  maintenance  and repairs for such  aircraft,  and  recertify  such
aircraft  with  appropriate  authorities.  They manage the  equipment,  residual
value,  and/or the risk of equipment remaining idle for extended periods of time
or in amounts that could materially impact profitability by locating alternative
equipment  users  and/or  purchasers.  For each year in the period 1994  through
1998, Equipment Financing and Capital Finance have realized in excess of 100% of
the aggregate booked residual values in connection with their equipment sales.


                                       2
<PAGE>

      The  following  table  sets  forth  certain  information   concerning  the
financing and leasing assets of our Equipment  Financing and Leasing  segment at
December 31 of each of the years in the  five-year  period  ended  December  31,
1998.

<TABLE>
<CAPTION>
                                                                      December 31,
                                          --------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                   Dollars in Millions

<S>                                       <C>            <C>           <C>           <C>             <C>     
Finance receivables - loans ...........   $ 6,419.3      $ 6,091.7     $ 6,357.5     $ 6,383.4       $5,852.6
Finance receivables - leases ..........     4,173.6        3,712.4       3,562.0       3,095.2        2,910.6
Operating lease equipment, net ........     2,774.1        1,905.6       1,402.1       1,113.0          867.9
                                          ---------      ---------     ---------     ---------       --------
  Total financing and leasing 
    assets ............................   $13,367.0      $11,709.7     $11,321.6     $10,591.6       $9,631.1
                                          =========      =========     =========     =========       ========
</TABLE>

      On January 1, 1997,  $1,519.2  million of financing and leasing assets and
related marketing and servicing operations were transferred from Capital Finance
to  Equipment  Financing.  The  transferred  financing  and  leasing  assets and
operations  were  considered  more  complementary  to  the  Equipment  Financing
business and the transfers  were  undertaken to increase  Equipment  Financing's
nationwide   market  reach  and  further   utilize  its  existing   systems  and
infrastructure.  The  transfer  also  enabled  Capital  Finance  to focus on the
specialized commercial aircraft and railcar markets. 

Equipment Financing

      Equipment  Financing is the largest of our strategic  business  units with
total  financing  and  leasing  assets of $9.3  billion at  December  31,  1998,
representing  39.1%  of  our  total  financing  and  leasing  assets.  Equipment
Financing offers secured  equipment  financing and leasing  products,  including
direct secured loans, leases,  revolving lines of credit, operating leases, sale
and  leaseback  arrangements,  vendor  financing and  specialized  wholesale and
retail financing for distributors and manufacturers.

      Equipment Financing is a leading nationwide  asset-based equipment lender.
At December  31,  1998,  its  portfolio  included  significant  outstandings  to
customers  in a number of different  industries,  with  manufacturing  being the
largest  as  a  percentage  of  financing  and  leasing   assets,   followed  by
construction and  transportation.  The Equipment Financing portfolio at December
31, 1998 included many  different  types of equipment,  including  construction,
transportation, manufacturing equipment and business aircraft.

      Products are  originated  through  direct calling on customers and through
relationships with manufacturers,  dealers/distributors  and intermediaries that
have leading or significant marketing positions in their respective  industries.
This provides Equipment  Financing with efficient access to equipment  end-users
in many industries across a variety of equipment types.

      The  following  table  sets  forth  certain  information   concerning  the
financing  and leasing  assets of Equipment  Financing at December 31 of each of
the years in the five-year period ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                      December 31,
                                          --------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                   Dollars in Millions

<S>                                        <C>            <C>           <C>           <C>            <C>     
Finance receivables - loans .........      $5,683.6       $5,042.8      $3,859.0      $3,657.0       $3,081.7
Finance receivables - leases ........       2,814.0        2,360.6       1,757.8       1,272.9        1,188.0
Operating lease equipment, net ......         765.1          623.8         426.6         363.0          219.2
                                           --------       --------      --------      --------       --------
  Total financing and leasing 
     assets .........................      $9,262.7       $8,027.2      $6,043.4      $5,292.9       $4,488.9
                                           ========       ========      ========      ========       ========
</TABLE>

Capital Finance

      Capital  Finance  had  financing  and  leasing  assets of $4.1  billion at
December 31, 1998,  which  represented  17.3% of our total financing and leasing
assets. Capital Finance specializes in customized leasing and secured financing,
including operating leases, single investor leases, equity portions of leveraged
leases, sale and leaseback  arrangements,  as well as loans secured by equipment
relating  primarily to end-users of commercial  aircraft and  railcars.  Typical
Capital Finance customers are middle-market to larger-sized companies.

      Capital Finance has provided financing to commercial  airlines for over 30
years. The Capital Finance aerospace portfolio includes most of the leading U.S.
and  foreign   commercial   airlines.   Capital  Finance  has  developed  strong
relationships  with most major  airlines  and all major  aircraft  and  aircraft
engine  manufacturers.  This provides  Capital  Finance with access to technical
information,  which  supports  customer  service and provides  opportunities  to
finance new business.


                                       3
<PAGE>

      Capital  Finance  has  over 25  years  experience  in  financing  the rail
industry,  contributing  to its  knowledge  of asset  values,  industry  trends,
product  structuring  and customer needs. To strengthen its position in the rail
financing  market,  Capital  Finance formed a dedicated rail equipment  group in
1994  and  currently  maintains   relationships  with  several  leading  railcar
manufacturers,  and has a significant direct calling effort on all railroads and
rail shipping in the United States.  The Capital Finance rail portfolio includes
all of the U.S.  and  Canadian  Class I railroads  and  numerous  shippers.  The
Capital  Finance  operating lease fleet includes  primarily  covered hopper cars
used to ship  grain and  agricultural  products,  plastic  pellets  and  cement;
gondola cars for coal,  steel coil and mill  service;  open hopper cars for coal
and aggregates; center beam flat cars for lumber; and boxcars for paper and auto
parts.  Capital  Finance  also  has a fleet  of  locomotives  on  lease  to U.S.
railroads.

      New business is generated by Capital Finance through:

      o     direct  calling  efforts with  equipment  end-users  and  borrowers,
            including major airlines, railroads and shippers,

      o     relationships with aerospace, railcar and other manufacturers and

      o     intermediaries and other referral sources.

      The  following  table  sets  forth  certain  information   concerning  the
financing  and leasing  assets of Capital  Finance at December 31 of each of the
years in the five-year period ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                      December 31,
                                          ---------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                  Dollars in Millions

<S>                                        <C>            <C>           <C>           <C>            <C>     
Finance receivables - loans .........      $  735.7       $1,048.9      $2,498.5      $2,726.4       $2,770.9
Finance receivables - leases ........       1,359.6        1,351.8       1,804.2       1,822.3        1,722.6
Operating lease equipment, net ......       2,009.0        1,281.8         975.5         750.0          648.7
                                           --------       --------      --------      --------       --------
  Total financing and leasing 
     assets .........................      $4,104.3       $3,682.5      $5,278.2      $5,298.7       $5,142.2
                                           ========       ========      ========      ========       ========
</TABLE>

Commercial Finance

      At December 31, 1998,  the financing and leasing  assets of our Commercial
Finance segment totaled $5.0 billion,  representing 21.1% of total financing and
leasing  assets.  We conduct our  Commercial  Finance  operations  through three
strategic  business  units,  all of  which  focus  on  accounts  receivable  and
inventories as the primary source of security for their lending transactions.

      o     The CIT Group/Commercial  Services  ("Commercial  Services"),  which
            provides    secured    financing   as   well   as   factoring    and
            receivable/collection  management  products to companies in apparel,
            textile, furniture, home furnishings, and other industries.

      o     The CIT Group/Business  Credit ("Business  Credit"),  which provides
            secured   financing   primarily  to  middle-market  to  larger-sized
            borrowers.

      o     The CIT  Group/Credit  Finance  ("Credit  Finance"),  which provides
            secured  financing   primarily  to  smaller-sized  to  middle-market
            borrowers.

      The  following  table  sets  forth  certain  information   concerning  the
financing and leasing assets of Commercial Finance at December 31 of each of the
years in the five-year period ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                      December 31,
                                          --------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                   Dollars in Millions

<S>                                        <C>            <C>           <C>           <C>            <C>     
Commercial Services ..................     $2,481.8       $2,113.1      $1,804.7      $1,743.3       $1,896.2
Business Credit ......................      1,477.9        1,247.9       1,235.6       1,471.0        1,442.1
Credit Finance .......................      1,036.5          889.8         797.8         758.7          719.6
                                           --------       --------      --------      --------       --------
  Total financing and leasing 
    assets ...........................     $4,996.2       $4,250.8      $3,838.1      $3,973.0       $4,057.9
                                           ========       ========      ========      ========       ========
</TABLE>

      In  October  1997,  $95.0  million  of  small  ticket  commercial  finance
receivables were transferred from Business Credit to Credit Finance.


                                       4
<PAGE>

Commercial Services

      Commercial Services had total financing and leasing assets of $2.5 billion
at December 31, 1998, which represented 10.5% of our total financing and leasing
assets.  Commercial  Services offers a full range of domestic and  international
customized  credit  protection,  lending and  outsourcing  services that include
working capital and term loans,  factoring,  receivable management  outsourcing,
bulk purchases of accounts receivable, import and export financing and letter of
credit programs.

      Financing  is  provided  to  clients  through  the  purchase  of  accounts
receivable  owed to  clients  by  their  customers,  as well as by  guaranteeing
amounts due under letters of credit issued to the clients' suppliers,  which are
collateralized by accounts receivable and other assets. The purchase of accounts
receivable is  traditionally  known as "factoring" and results in the payment by
the client of a factoring fee which is commensurate  with the underlying  degree
of credit risk and recourse, and which is generally a percentage of the factored
sales volume.  When Commercial  Services "factors" (i.e.,  purchases) a customer
invoice from a client,  it records the customer  receivable as an asset and also
establishes  a liability  for the funds due to the client  ("credit  balances of
factoring  clients").  Commercial Services also may advance funds to its clients
prior to collection of receivables, typically in an amount up to 80% of eligible
accounts receivable (as defined for that transaction), charging interest on such
advances (in addition to any factoring  fees) and satisfying  such advances from
receivables collections.

      Clients  use  Commercial  Services'  products  and  services  for  various
purposes,  including improving cash flow, mitigating or reducing the risk of bad
debt  charge  offs,  increasing  sales,  improving  management  information  and
converting the high fixed cost of operating a credit and  collection  department
into a lower and variable expense based on sales volume.

      Commercial  Services  generates  business  regionally  from a  variety  of
sources,  including  direct calling efforts and referrals from existing  clients
and other sources.

Business Credit

      Financing and leasing  assets of Business  Credit  totaled $1.5 billion at
December  31,  1998 and  represented  6.2% of our total  financing  and  leasing
assets.  Business  Credit  offers  senior  revolving  and term loans  secured by
accounts   receivable,   inventories  and  fixed  assets  to  middle-market  and
larger-sized companies.  Clients use such loans primarily for growth, expansion,
acquisitions,  refinancings and  debtor-in-possession and turnaround financings.
Business Credit sells and purchases participation interests in such loans to and
from other lenders.

      Through  its  variable  interest  rate  senior  revolving  and  term  loan
products,  Business  Credit  meets its  customers'  financing  needs for working
capital,  growth,  acquisition and other financing  situations otherwise not met
through  bank  or  other  unsecured  financing  alternatives.   Business  Credit
typically  structures  financings on a fully secured basis, though, from time to
time,  it may look to a customer's  cash flow to support a portion of the credit
facility.  Revolving  and term loans are made on a variable  interest rate basis
based on published indexes such as LIBOR or a prime rate of interest.

      Business is originated through direct calling efforts and intermediary and
referral  sources.  Business  Credit has focused on increasing the proportion of
direct  business  origination  to  improve  its  ability  to  capture  or retain
refinancing opportunities and to enhance finance income.

Credit Finance

      Financing  and leasing  assets of Credit  Finance  totaled $1.0 billion at
December  31,  1998 and  represented  4.4% of our total  financing  and  leasing
assets.  Credit Finance  offers  revolving and term loans to  smaller-sized  and
middle-market  companies secured by accounts  receivable,  inventories and fixed
assets.  Such  loans are used by  clients  for  working  capital,  refinancings,
acquisitions,  leveraged buyouts, reorganizations,  restructurings,  turnarounds
and  Chapter  11  financing  and  confirmation   plans.   Credit  Finance  sells
participation   interests  in  such  loans  to  other   lenders  and   purchases
participation  interests  in such  loans  originated  by other  lenders.  Credit
Finance  borrowers  are  generally  smaller  and  cover a wider  range of credit
quality than those of Business  Credit.  While both  Business  Credit and Credit
Finance offer financing  secured by accounts  receivable,  inventories and fixed
assets,  Credit  Finance places a higher degree of reliance on collateral and is
generally more focused on credit monitoring in its business.


                                       5
<PAGE>

      Business is originated  through the sales and regional  offices as well as
intermediaries  and referral  relationships  and through direct calling efforts.
Credit  Finance has developed  long-term  relationships  with  selected  finance
companies, banks and other lenders and with many diversified referral sources.

Consumer

      At December 31, 1998,  our consumer  segment  financing and leasing assets
totaled $5.3 billion,  representing 22.2% of total financing and leasing assets.
Total  consumer   managed  assets  were  $7.8  billion  at  December  31,  1998,
representing  29.6% of our total managed assets. In addition to on balance sheet
receivables,  leases,  consumer  finance  receivables held for sale, and certain
investments,  managed assets include consumer loans  previously  securitized and
still serviced by us.

      Our consumer  business is focused  primarily on home equity lending and on
retail sales financing secured by recreation vehicles,  manufactured housing and
recreational  boats. Home equity lending is performed by The CIT  Group/Consumer
Finance  ("Consumer  Finance")  business  unit.  Sales  financing  for  consumer
products  sold through  dealers is performed  by The CIT  Group/Sales  Financing
("Sales  Financing")  business unit.  Sales Financing began providing  wholesale
inventory  financing  to  manufactured  housing and  recreational  boat  dealers
utilizing its dealer and  manufacturer  relationships in 1997, and to recreation
vehicle dealers in 1998.  Sales Financing also provides  contract  servicing for
securitization  trusts  and other  third  parties  through a  centralized  Asset
Service  Center  ("ASC").  Additionally,  in the  ordinary  course of  business,
Consumer Finance and Sales Financing purchase loans and portfolios of loans from
banks, thrifts and other originators of consumer loans.

      The following table sets forth certain information  regarding our consumer
business  segment at December 31 for each of the years in the  five-year  period
ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                      December 31,
                                          --------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                   Dollars in Millions
<S>                                        <C>            <C>           <C>           <C>             <C>    
Consumer Finance
   Financing and leasing assets ........   $2,244.4       $1,992.3      $2,005.5      $1,039.0        $ 570.8
   Finance receivables previously
      securitized and currently
      managed by us ....................      607.6          453.8            --            --             --
                                           --------       --------      --------      --------        -------
         Managed assets ................   $2,852.0       $2,446.1      $2,005.5      $1,039.0        $ 570.8
                                           ========       ========      ========      ========       ========

Sales Financing
   Financing and leasing assets ........   $3,009.9       $1,940.7      $1,349.8      $1,416.9       $1,471.2
   Finance receivables previously
      securitized and currently
      managed by us ....................    1,909.3        1,931.8       1,437.4         916.5          306.7
                                           --------       --------      --------      --------        -------
         Managed assets ................   $4,919.2       $3,872.5      $2,787.2      $2,333.4       $1,777.9
                                           ========       ========      ========      ========       ========

Total financing & leasing assets .......   $5,254.3       $3,933.0      $3,355.3      $2,455.9       $2,042.0
Consumer finance receivables
   previously securitized and
   currently managed by us .............    2,516.9        2,385.6       1,437.4         916.5          306.7
                                           --------       --------      --------      --------        -------
Total managed assets ...................   $7,771.2       $6,318.6      $4,792.7      $3,372.4       $2,348.7
                                           ========       ========      ========      ========       ========
</TABLE>

Consumer Finance

      Financing and leasing assets of Consumer  Finance  aggregated $2.2 billion
at December 31, 1998 and  represented  9.5% of our total  financing  and leasing
assets. The managed assets of Consumer Finance were $2.9 billion at December 31,
1998,  or  10.9%  of  our  total  managed  assets.  Consumer  Finance  commenced
operations in December 1992.  Its products  include both fixed and variable rate
closed-end loans and variable rate lines of credit.  Consumer Finance  primarily
originates,  purchases  and sells  loans  secured  by first or  second  liens on
detached, single family residential properties. Customers borrow for the purpose
of  consolidating  debts,   refinancing  an  existing  mortgage,   funding  home
improvements,  paying education  expenses and, to a lesser extent,  purchasing a
home, among other reasons.  Consumer Finance primarily  originates loans through
brokers, as well on a direct marketing basis and through correspondents.


                                       6
<PAGE>

      We believe that the network of Consumer Finance  offices,  located in most
major  U.S.  markets,  enables us to provide a  competitive,  extensive  product
offering  complemented by high levels of service delivery.  Through  experienced
lending professionals and automation, Consumer Finance provides rapid turnaround
time  from  application  to loan  funding,  a  characteristic  considered  to be
critical by its broker relationships.

Sales Financing

      The financing and leasing assets of Sales Financing, which aggregated $3.0
billion at December  31,  1998,  represented  12.7% of our total  financing  and
leasing  assets.  The managed  assets of Sales  Financing  were $4.9  billion at
December 31, 1998, or 18.8% of total managed assets.  Sales  Financing  provides
nationwide  retail  financing  for  the  purchase  of new  and  used  recreation
vehicles,  manufactured  housing and  recreational  boats.  During  1997,  Sales
Financing began providing wholesale  manufactured  housing and recreational boat
inventory  financing  directly to dealers,  and to recreation vehicle dealers in
1998. Sales Financing originates loans predominantly through recreation vehicle,
manufactured  housing and  recreational  boat  dealer,  manufacturer  and broker
relationships.

      The  following  table sets forth certain  information  with respect to the
managed  assets of Sales  Financing  at December 31 for each of the years in the
five-year period ended December 31, 1998.

<TABLE>
<CAPTION>
                                                                      December 31,
                                          --------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                   Dollars in Millions
<S>                                        <C>            <C>           <C>           <C>            <C>     
Retail finance receivables
  Recreation vehicles .................    $1,884.6       $1,596.5      $1,256.9      $1,144.2       $1,016.3
  Manufactured housing ................     1,695.9        1,471.9       1,202.5       1,032.3          690.0
  Recreational boat ...................     1,038.6          682.5         327.8         156.9           71.6
Wholesale inventory financing .........       300.1          121.6            --            --             --
                                           --------       --------      --------      --------       --------
Total managed assets ..................    $4,919.2       $3,872.5      $2,787.2      $2,333.4       $1,777.9
                                           ========       ========      ========      ========       ========
</TABLE>

Servicing

      The ASC centrally services and collects  substantially all of our consumer
finance  receivables  including loans originated or purchased by Sales Financing
or Consumer  Finance,  as well as loans originated or purchased and subsequently
securitized with servicing retained. The servicing portfolio also includes loans
owned by third  parties  that are  serviced  by Sales  Financing  for a fee on a
"contract" basis. At December 31, 1998, the consumer finance servicing portfolio
included  $1.0  billion  of  finance  receivables  serviced  for third  parties.

Securitization Program

      We generally fund our operations through offerings of commercial paper and
medium-term  and  longer  term  notes in the  capital  markets.  In an effort to
broaden  funding  sources and to provide an additional  source of liquidity,  we
established  a  securitization  program  in 1992 to  supplement  our  funding by
accessing  periodically  the  public and  private  asset  backed  securitization
markets.  Current  products  utilized in this  program  include  consumer  loans
secured by recreation vehicles,  recreational boats and residential real estate.
We have sold $4.1  billion of finance  receivables  since the  inception  of the
asset backed securitization  program, and the remaining pool balance at December
31, 1998 was $2.5 billion or 9.6% of our total managed assets.

      Under a typical asset backed  securitization,  we sell a "pool" of secured
loans to a special purpose entity.  The special purpose entity,  in turn, issues
certificates  and/or notes that are  collateralized by the loan pool and entitle
the holders  thereof to participate  in certain loan pool cash flows.  We retain
the servicing of the  securitized  loans,  for which we earn a servicing fee. We
also  participate in certain  "residual"  loan pool cash flows (cash flows after
payment of principal and interest to  certificate  and/or note holders and after
losses). At the date of securitization, we estimate the "residual" cash flows to
be received  over the life of the  securitization,  record the present  value of
these cash flows as an interest-only  receivable, or I/O (a retained interest in
the  securitization),  and recognize a gain. The I/O is then  amortized  through
earnings over the estimated life of the related loan pool.

      In  estimating  residual  cash flows and the value of the related I/Os, we
make a variety of  financial  assumptions,  including  loan pool credit  losses,
prepayment  speeds  and  discount  rates.   These  assumptions  are  empirically
supported by both our historical  experience and anticipated  trends relative to
the  particular  


                                       7
<PAGE>

products securitized. Subsequent to recording the I/Os, we regularly review such
assets for valuation impairment.  These reviews are performed on a disaggregated
basis.  Fair values of I/Os are  calculated  utilizing  current and  anticipated
credit losses, prepayment speeds and discount rates and are then compared to our
carrying  values.  Our I/Os had a carrying  value at December 31, 1998 of $153.9
million, which approximated fair value.

Equity Investments

      The CIT Group/Equity  Investments and its subsidiary The CIT Group/Venture
Capital (together "Equity Investments")  originate and participate in merger and
acquisition transactions,  purchase private equity and equity-related securities
and arrange transaction  financing.  Equity Investments also invests in emerging
growth  opportunities  in  selected  industries,  including  the life  sciences,
information technology,  communications and consumer products industries. Equity
Investments made its first investment in 1991 and had total investments of $81.9
million at December 31, 1998.

INDUSTRY CONCENTRATION

      See the "Industry  Composition" and "Commercial Airline Industry" sections
of "Financing and Leasing Assets Composition" in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.

COMPETITION

      Our markets are highly  competitive and are  characterized  by competitive
factors that vary based upon product and geographic region.  Competitors include
captive  and  independent   finance  companies,   commercial  banks  and  thrift
institutions,  industrial banks,  leasing companies,  manufacturers and vendors.
Substantial  national  financial services networks have been formed by insurance
companies  and bank  holding  companies  that compete with us. On a local level,
community banks and smaller  independent finance and/or mortgage companies are a
competitive  force.  Some competitors have substantial  local market  positions.
Many of our  competitors  are large  companies  that have  substantial  capital,
technological and marketing resources. Some of these competitors are larger than
us and may have access to capital at a lower cost than us. Also, our competitors
include  businesses  that  are  not  related  to  bank  holding  companies  and,
accordingly,  may engage in activities, for example, short-term equipment rental
and  servicing,  which  currently  are  prohibited to us.  Competition  has been
enhanced in recent years by a strong economy and growing marketplace  liquidity.
The markets for most of our  products  are  characterized  by a large  number of
competitors.  However, with respect to some of our products, competition is more
concentrated.

      We compete  primarily on the basis of pricing,  terms and structure.  From
time to time, our competitors seek to compete aggressively on the basis of these
factors and we may lose  market  share to the extent we are  unwilling  to match
competitor pricing and terms in order to maintain interest margins and/or credit
standards.

      Other primary  competitive  factors include industry experience and client
service and relationships.  In addition, demand for our products with respect to
certain industries, such as the commercial airline industry, will be affected by
demand for such industry's services and products and by industry regulations.

REGULATION

      DKB is a bank  holding  company  within the  meaning  of the Bank  Holding
Company Act of 1956 (the  "Act"),  and is  registered  as such with the Board of
Governors  of the  Federal  Reserve.  As a result,  we are  subject  to  certain
provisions  of the Act and are subject to  examination  by the  Federal  Reserve
System (the "Federal  Reserve").  In general,  the Act limits the  activities in
which a bank holding company and its subsidiaries may engage to those of banking
or managing or controlling banks or performing  services for their  subsidiaries
and to continuing  activities which the Federal Reserve has determined to be "so
closely  related to banking or managing or  controlling  banks as to be a proper
incident  thereto."  Our  current  principal  business   activities   constitute
permissible activities for a nonbank subsidiary of a bank holding company.

      In  addition  to being  subject to the Act,  DKB is  subject  to  Japanese
banking laws,  regulations,  guidelines  and orders that affect our  permissible
activities.  We have entered into an agreement  with DKB in order to  facilitate
DKB's  compliance with  applicable U.S. and Japanese  banking laws, and with the
regulations,  


                                       8
<PAGE>

interpretations,  policies,  guidelines,  requests, directives and orders of the
applicable   regulatory   authorities   or  their  staffs  thereof  or  a  court
(collectively, the "Banking Laws"). That agreement prohibits us from engaging in
any new  activity or entering  into any  transaction  for which prior  approval,
notice or filing is required  under  Banking  Laws,  unless the  required  prior
approval is obtained,  prior notice is given or made by DKB and accepted or such
filings are made.  We are also  prohibited  from  engaging in any activity  that
would cause DKB, CIT or any affiliate of DKB or CIT to violate any Banking Laws.
If,  at any  time,  it is  determined  by DKB  that  any  of our  activities  is
prohibited by any Banking Law, we are required to take all  reasonable  steps to
cease such activities. Under the terms of that agreement, DKB is responsible for
making all determinations as to compliance with applicable Banking Laws.

      Two of our subsidiaries are investment  companies  organized under Article
XII of the New York  Banking  Law.  The  activities  of these  subsidiaries  are
restricted  by  state  banking  laws  and  these  subsidiaries  are  subject  to
examination  by state banking  examiners.  Also, any person or entity seeking to
purchase  "control" of the company would be required to apply for and obtain the
prior  approval  of the  Superintendent  of  Banks  of the  State  of New  York.
"Control"  is  presumed  to exist if a  person  or  entity  would,  directly  or
indirectly,  own, control or hold (with power to vote) 10% or more of our voting
stock.

      Our  operations are subject,  in certain  instances,  to  supervision  and
regulation by state and federal  governmental  authorities and may be subject to
various  laws  and  judicial  and  administrative   decisions  imposing  various
requirements and restrictions,  which,  among other things,  (i) regulate credit
granting activities,  (ii) establish maximum interest rates, finance charges and
other  charges,  (iii) regulate  customers'  insurance  coverages,  (iv) require
disclosures  to  customers,   (v)  govern  secured  transactions  and  (vi)  set
collection,  foreclosure,  repossession and claims handling procedures and other
trade practices.

      Our  consumer  finance  business  is subject to detailed  enforcement  and
supervision  by  state  authorities  under  legislation  and  regulations  which
generally  require  licensing of the lender.  Licenses are  renewable and may be
subject to suspension or revocation for violations of such laws and regulations.
Applicable  state laws generally  regulate  interest rates and other charges and
require certain  disclosures.  In addition,  most states have other laws, public
policies  and  general  principles  of  equity  relating  to the  protection  of
consumers,  unfair and deceptive  practices and practices  that may apply to the
origination,  servicing and collection of consumer  finance loans.  Depending on
the provision of the  applicable  law and the specific  facts and  circumstances
involved,  violations  of these  laws,  policies  and  principles  may limit our
ability to collect  all or part of the  principal  of or  interest  on  consumer
finance loans,  may entitle the borrower to a refund of amounts  previously paid
and, in addition, could subject us to damages and administrative sanctions.

      Federal  laws preempt  state usury  ceilings on first  mortgage  loans and
state  laws  which  restrict  various  types  of  alternative  dwelling  secured
receivables,  except in those states which have specifically opted out, in whole
or in part, of such preemption. Loans may also be subject to other federal laws,
including:  (i) the Federal  Truth-in-Lending  Act and  Regulation Z promulgated
thereunder,  which require  certain  disclosures  to borrowers and other parties
regarding  loan terms and regulates  certain  practices  with respect to certain
types of loans; (ii) the Real Estate Settlement  Procedures Act and Regulation X
promulgated thereunder, which require certain disclosures to borrowers and other
parties  regarding  certain  loan terms and  regulates  certain  practices  with
respect to such loans;  (iii) the Equal Credit  Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination in the extension of credit
and  administration of loans on the basis of age, race,  color,  sex,  religion,
marital status, national origin, receipt of public assistance or the exercise of
any  right  under the  Consumer  Credit  Protection  Act;  (iv) the Fair  Credit
Reporting Act, which regulates the use and reporting of information related to a
borrower's  credit  experience;  and (v) the Fair Housing Act,  which  prohibits
discrimination on the basis of, among other things, familial status or handicap.

      Depending on the  provisions of the  applicable law and the specific facts
and  circumstances  involved,  violations of these laws may limit our ability to
collect all or part of the  principal of or interest on  applicable  loans,  may
entitle the  borrower to rescind the loan and any mortgage or to obtain a refund
of amounts  previously  paid and, in addition,  could  subject us to damages and
administrative sanctions.

      The above federal and state  regulation  and  supervision  could limit our
discretion in operating our businesses.  For example, state laws often establish
maximum  allowable  finance charges for certain  consumer and commercial  loans.
Noncompliance  with  applicable  statutes  or  regulations  could  result in the
suspension 


                                       9
<PAGE>

or revocation of any license or registration at issue, as well as the imposition
of civil fines and criminal penalties. No assurance can be given that applicable
laws or regulations will not be amended or construed differently,  that new laws
and  regulations  will not be adopted or that interest  rates we charge will not
rise to state maximum  levels,  the effect of any of which could be to adversely
affect our business or results of operations.  Under certain circumstances,  the
Federal  Reserve has the  authority  to issue  orders  which could  restrict our
ability to engage in new  activities or to acquire  additional  businesses or to
acquire assets outside of the normal course of business.

Item 2. Properties

      The  operations of CIT and its  subsidiaries  are  generally  conducted in
leased office space located in numerous  cities and towns  throughout the United
States.  Such leased  office space is suitable  and  adequate for our needs.  We
utilize, or plan to utilize in the foreseeable future,  substantially all of our
leased office space.

Item 3. Legal Proceedings

      We are a defendant in various  lawsuits  arising in the ordinary course of
our business.  We  aggressively  manage our litigation and evaluate  appropriate
responses  to our  lawsuits  in light  of a number  of  factors,  including  the
potential impact of the actions on the conduct of our operations. In the opinion
of  management,  none of the  pending  matters  is  expected  to have a material
adverse  effect on our financial  condition or results of  operations.  However,
there  can be no  assurance  that  an  adverse  decision  in one or more of such
lawsuits will not have a material adverse effect.

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

      We did not submit any  matters to a vote of  security  holders  during the
fourth quarter of 1998.


                                       10
<PAGE>

                                     PART II

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

      Our Class A Common  Stock was priced at $27.00 per share and was listed on
the New York Stock  Exchange on November  13,  1997.  There are no shares of the
Class B Common Stock of CIT issued and  outstanding.  The  following  table sets
forth the high and low last  reported  sale prices for the Class A Common  Stock
for the periods indicated.

                                        1998                      1997
                                ---------------------     --------------------
Common Stock Prices             High             Low      High             Low
-------------------             ----            ----      ----            ----

First Quarter ...............  $33             $29 7/16       --             --
Second Quarter ..............  $37 1/2         $31 1/4        --             --
Third Quarter ...............  $36 1/4         $25 3/8        --             --
Fourth Quarter ..............  $31 13/16       $19 1/8   $32 5/8         $29 3/4

      The  declaration  and  payment  of  dividends  by us  is  subject  to  the
discretion of the Board of Directors,  which seeks to pay a reasonable  dividend
rate while retaining  sufficient capital to support foreseeable growth. Prior to
our IPO, we operated under a policy  requiring the payment of dividends equal to
and not exceeding 30% of net operating  earnings on a quarterly basis to our two
principal  shareholders.  Such  dividends  were paid to DKB and Chase based upon
their  respective stock ownership in CIT. In connection with the IPO in November
1997, we terminated our dividend  policy.  By agreement with DKB and Chase,  the
final cash dividend  under our  terminated  dividend  policy was paid to DKB and
Chase for the fourth quarter of 1997 (based upon net operating  earnings through
October 31, 1997) prior to the consummation of the IPO.

      Below are the dividends paid during the past two years:

      Dividends Paid                                   1998           1997
      -------------                                    ----           ----
                                                    (per share)    (Millions)

      First Quarter ..............................         *         $ 21.0
      Second Quarter .............................    $ 0.10           27.6
      Third Quarter ..............................      0.10           23.2
      Fourth Quarter .............................      0.10            7.5
                                                      ------         ------
        Year .....................................    $ 0.30         $ 79.3
                                                      ======         ======

      As of February 16, 1999, there were approximately  16,500  stockholders of
CIT, including both record holders and individual participants holding through a
registered clearing agency.

----------
*    No dividends were paid to stockholders.


                                       11
<PAGE>

Item 6. Selected Financial Data

      The following table sets forth selected consolidated financial information
regarding our results of operations and balance sheet. This data presented below
should be read in conjunction with Item 7. Management's  Discussion and Analysis
of  Financial  Condition  and  Results  of  Operations  and  Item  8.  Financial
Statements and Supplementary Data.

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                           -------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                       Dollars in Millions, except per share data
<S>                                        <C>            <C>           <C>            <C>            <C>    
Results of Operations
Net finance income .....................   $  974.3       $  887.5      $  797.9       $ 697.7        $ 649.8
Operating revenue ......................    1,229.7        1,193.3(1)    1,042.0         882.4          824.2
Salaries and general 
   operating expenses ..................      417.8          428.4         393.1         345.7          337.9
Provision for credit losses ............       99.4          113.7         111.4          91.9           96.9
Net income .............................      338.8          310.1         260.1         225.3          201.1
Net income per diluted share ...........       2.08           1.95          1.64          1.43           1.28

<CAPTION>
                                                                     At December 31,
                                           -------------------------------------------------------------------
                                            1998           1997           1996          1995           1994
                                            ----           ----           ----          ----           ----
                                                                   Dollars in Millions
<S>                                       <C>            <C>           <C>           <C>            <C>      
Balance Sheet Data
Finance receivables:
Commercial .............................  $15,589.1      $14,054.9     $13,757.6     $13,451.5      $12,821.2
Consumer ...............................    4,266.9        3,664.8       3,239.0       2,344.0        1,973.2
                                          ---------      ---------     ---------     ---------      ---------
Total finance receivables ..............  $19,856.0      $17,719.7     $16,996.6     $15,795.5      $14,794.4
Reserve for credit losses ..............      263.7          235.6         220.8         206.0          192.4
Operating lease equipment, net .........    2,774.1        1,905.6       1,402.1       1,113.0          867.9
Total assets ...........................   24,303.1       20,464.1      18,932.5      17,420.3       15,959.7
Commercial paper .......................    6,144.1        5,559.6       5,827.0       6,105.6        5,660.2
Variable rate senior notes .............    4,275.0        2,861.5       3,717.5       3,827.5        3,812.5
Fixed rate senior notes ................    8,032.3        6,593.8       4,761.2       3,337.0        2,619.4
Subordinated fixed rate notes ..........      200.0          300.0         300.0         300.0          300.0
Company-obligated mandatorily
  redeemable preferred securities of
  subsidiary trust holding solely
  debentures of the Company. ...........      250.0          250.0            --            --             --
Stockholders' equity ...................    2,701.6        2,432.9       2,075.4       1,914.2        1,793.0

<CAPTION>
                                                         At or for the Years Ended December 31,
                                              ----------------------------------------------------------------
                                                1998           1997          1996          1995          1994
                                                ----           ----          ----          ----          ----
<S>                                            <C>            <C>           <C>           <C>            <C>  
Selected Data and Ratios

Profitability
Net interest margin as a percentage 
  of average earning assets 
  ("AEA") (2) ..........................       4.75%          4.87%         4.82%         4.54%          4.77%
Return on average stockholders' 
  equity ...............................       13.2%          14.0%(5)      13.0%         12.1%          11.5%
Return on AEA (2) ......................       1.65%          1.70%(5)      1.57%         1.46%          1.48%
Ratio of earnings to fixed charges .....       1.49x          1.51x         1.49x         1.44x          1.52x
Salaries and general operating 
  expenses as a percentage of 
  average managed assets ("AMA")(3) ....       1.82%          2.16%(5)      2.22%         2.16%          2.44%
Efficiency ratio (4)                           40.1%          41.6%(5)      42.7%         43.1%          44.5%
</TABLE>


                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                           At or for the Years Ended December 31,
                                               -----------------------------------------------------------
                                                 1998         1997         1996        1995         1994
                                                 ----         ----         ----        ----         ----
<S>                                              <C>          <C>          <C>         <C>          <C>  
Credit Quality
60+ days contractual delinquency
  as a percentage of finance
  receivables ............................       1.75%        1.67%        1.72%       1.67%        1.20%
Net credit losses as a percentage of                                                               
  average finance receivables ............       0.42%        0.59%        0.62%       0.50%        0.61%
Reserve for credit losses as a                                                                     
  percentage of finance receivables ......       1.33%        1.33%        1.30%       1.30%        1.30%
Ratio of reserve for credit losses to                                                              
  trailing 12 months net credit losses ...       3.35x        2.33x        2.18x       2.67x        2.29x
                                                                                                   
Leverage                                                                                           
Total debt to stockholders' equity and                                                             
  Company-obligated  mandatorily                                                                
  redeemable preferred securities           
  of subsidiary trust holding solely        
  debentures of the Company ..............       6.32x        5.71x        7.04x       7.09x        6.91x
Total debt to stockholders' equity (6) ...       7.00x        6.40x        7.04x       7.09x        6.91x
                                            
Other                                       
Total managed assets (in millions) (7) ...  $26,216.3    $22,344.9    $20,005.4   $17,978.6    $16,072.1
Employees ................................      3,230        3,025        2,950       2,750        2,700
</TABLE>

--------------------------------------------------------------------------------
(1)   Includes a 1997 gain of $58.0  million  on the sale of an equity  interest
      acquired in connection with a loan workout. 

(2)   "AEA" means the average of finance receivables, operating lease equipment,
      consumer finance receivables held for sale and certain  investments,  less
      credit balances of factoring clients.

(3)   "AMA" means average  earning  assets plus the average of consumer  finance
      receivables previously securitized and currently managed by us.

(4)   Efficiency  ratio  reflects  the ratio of salaries  and general  operating
      expenses to the sum of operating  revenue less  depreciation  of operating
      lease equipment and minority  interest in subsidiary  trust holding solely
      debentures of the Company.

(5)   Excluding  the gain of $58.0  million  on the sale of an  equity  interest
      acquired  in a loan  workout and certain  nonrecurring  expenses,  (i) the
      return on average  stockholders' equity would have been 13.1% for the year
      ended December 31, 1997,  (ii) the return on AEA would have been 1.58% for
      the year ended December 31, 1997,  (iii) the  efficiency  ratio would have
      been 42.0% for the year ended  December  31,  1997 and (iv)  salaries  and
      general  operating  expenses as a percentage  of AMA would have been 2.06%
      for the year ended December 31, 1997.

(6)   Total debt includes, and stockholders' equity excludes,  $250.0 million of
      Company-obligated   mandatorily   redeemable   preferred   securities   of
      subsidiary  trust  holding  solely  debentures  of the  Company  issued in
      February 1997.

(7)   "Managed  assets"  include  (i)  financing  and  leasing  assets  and (ii)
      off-balance sheet consumer finance receivables  previously securitized and
      currently managed by us.


                                       13
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations. 
and
Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Overview

      For the year  ended  December  31,  1998,  our net income  totaled  $338.8
million,  increasing from $310.1 million in 1997 and $260.1 million in 1996. The
1998 earnings  represented the eleventh consecutive increase in annual earnings,
and the eighth  consecutive  year of record  earnings.  The 1998 results reflect
continued  significant  portfolio  growth,  lower  commercial  credit losses and
further improvements in operating efficiency. The improvements in 1997 over 1996
resulted  from  stronger  revenues  from a higher level of financing and leasing
assets and the 1997 special items described below.

      The following table summarizes our net income and related data,  excluding
the 1997 special items:

                                                      1998       1997     1996
                                                     ------     ------   ------
Net income (Dollars in Millions) ..................  $338.8     $287.5   $260.1
Earnings per diluted share (EPS) ..................  $ 2.08     $ 1.81   $ 1.64
Return of average stockholders' equity (ROE) ......    13.2%      13.1%    13.0%
Return on average earning assets (ROA) ............    1.65%      1.58%    1.57%

      1997 Special Items -- The 1997 earnings  included a one-time $58.0 million
pretax  gain on the  sale  of an  equity  interest  acquired  in a loan  workout
partially offset by certain non-recurring  expenses which principally related to
our 1997 fourth  quarter IPO.  Including  these  special  items,  net income was
$310.1 million, with EPS of $1.95, ROE of 14.0% and an ROA of 1.70%.

      Managed assets  totaled $26.2 billion in 1998,  $22.3 billion in 1997, and
$20.0  billion in 1996.  The 1998  increase of 17.3% over 1997  reflects  record
internally  generated new business,  with strong  performances  across all three
segments.  The 1997  increase of 11.7% over 1996 was  principally  the result of
strong growth in consumer receivables and operating leases. See "--Financing and
Leasing Assets" for additional information.

Net Finance Income

      We earn finance income on the loans and leases we provide to our borrowers
and equipment  users.  The interest expense is the cost to us of borrowing funds
used to make loans and purchase  equipment to lease to customers.  The excess of
finance  income over  interest  expense is net margin or "Net  Finance  Income."
Growing  net  finance   income  is  a  key  to   increasing   our  earnings  and
profitability.  A  comparison  of the  components  of 1998,  1997,  and 1996 net
finance income is set forth below.

                                                 Years Ended December 31,
                                          --------------------------------------
                                           1998           1997          1996
                                          --------     -----------   -----------
                                                   Dollars in Millions

Finance income ........................   $ 2,015.1     $ 1,824.7     $ 1,646.2
Interest expense ......................     1,040.8         937.2         848.3
                                          ---------     ---------     ---------
Net finance income ....................   $   974.3     $   887.5     $   797.9
                                          =========     =========     =========
Average earning assets ("AEA") ........   $20,495.8     $18,224.5     $16,543.1
Net finance income as a % of AEA ......        4.75%         4.87%         4.82%

      Net finance  income  increased  9.8% in 1998 from 1997,  and 11.2% in 1997
from 1996. The increases primarily reflect growth in our loans and leases, which
we refer to as earning  assets,  slightly offset by lower margins as a result of
the highly competitive environment.

      Finance income totaled $2,015.1 million in 1998, $1,824.7 million in 1997,
and $1,646.2 million in 1996. As a percentage of AEA (excluding  interest income
relating to short-term  interest bearing deposits),  finance income was 9.69% in
1998,  9.92%  in 1997  and  9.90%  in  1996.  The  decline  in  yield in 1998 is
principally  due to the 1998  decline  in market  interest  rates and the highly
competitive marketplace.


                                       14
<PAGE>

      Interest expense totaled $1,040.8 million in 1998,  $937.2 million in 1997
and $848.3 million in 1996. As a percentage of AEA, interest expense  (excluding
interest expense relating to short-term  interest-bearing deposits and dividends
related to preferred  capital  securities) was 4.94% in 1998,  5.05% in 1997 and
5.08% in 1996,  reflecting  lower  market  interest  rates.  We seek to mitigate
interest rate risk by matching the repricing  characteristics of our assets with
our  liabilities,  which is in part done through the use of interest rate swaps.
For further discussion, see "--Asset Liability Management."

Fees and Other Income

      Fees and other income  improved to $255.4 million during 1998, from $247.8
million  during  1997,  and  $244.1  million  during  1996 as set  forth  in the
following table.

                                                   Years Ended December 31,
                                            ------------------------------------
                                              1998          1997           1996
                                            --------      --------       -------
                                                      Dollars in Millions

Factoring commissions ...................   $ 95.7         $ 95.2         $ 91.0
Fees and other income ...................     90.7           73.8           83.6
Gains on sales of leasing                                 
   equipment ............................     45.2           30.1           36.6
Gains on securitizations ................     12.5           32.0           14.9
Gains on sales of venture                                 
   capital investments ..................     11.3           16.7           18.0
                                            ------         ------         ------
                                            $255.4         $247.8         $244.1
                                            ======         ======         ======
                                                         
      The 1998  increase  reflects  higher fees from  servicing  and  commercial
businesses  and  improved  gains on the sale of equipment  coming off lease.  We
realized in excess of 100% of equipment  residual  book value in 1998,  1997 and
1996.   These   increases   were  offset  by  sharply  lower  gains  on  reduced
securitization  activity.  Our fees and other income increased in 1997 from 1996
primarily due to higher  factoring  commissions  and gains from higher levels of
securitization  activity,  offset by lower gains on the sale of equipment coming
off lease.

Gain On Sale of Equity Interest Acquired in Loan Workout

      We  originated a loan in the 1980's to a  telecommunications  company that
subsequently went into default.  Pursuant to a workout  agreement,  the stock of
that company was  transferred  to us and a co-lender.  In 1991,  we received all
amounts due and retained an equity interest in such telecommunications  company,
which we sold in the second quarter of 1997 at a pretax gain of $58.0 million.

Salaries and General Operating Expenses

      Salaries  and general  operating  expenses  were  $417.8  million in 1998,
$428.4 million in 1997, and $393.1 million in 1996. The 1997 expense  included a
$10.0 million pretax charge relating to the termination of a long-term incentive
plan in connection with the IPO, higher  performance  based incentive  accruals,
and a provision for vacant leased space.  Without these items, 1997 salaries and
general operating expenses would have been $408.4 million.

      Our  personnel  increased  to 3,230 at December  31,  1998,  from 3,025 at
December 31, 1997 and 2,950 at December 31, 1996.

      Management monitors productivity via the analysis of efficiency ratios and
the ratio of salaries and general operating expenses to AMA. AMA is comprised of
average  earning  assets  plus  the  average  of  consumer  finance  receivables
previously securitized and currently managed by us. These ratios,  excluding the
non-recurring  pretax gain and expenses previously  described,  are set forth in
the following table.

                                                     Years Ended December 31,
                                                 -----------------------------
                                                  1998       1997        1996
                                                 ------     ------      ------
Efficiency ratio ............................     40.1%      42.0%       42.7%
Salaries and general operating                   
  expenses as a percentage of AMA ...........     1.82%      2.06%       2.22%
                                                
      The  improvement  in the  ratios  reflects  our  continuing  focus on cost
containment  and  ability to  leverage  our  existing  operating  structure  and
investments in technology.


                                       15
<PAGE>

      We manage expenditures using a comprehensive  budgetary process.  Expenses
are monitored  closely by business unit management and are reviewed monthly with
our senior management.  To ensure overall project cost control,  an approval and
review procedure is in place for major capital  expenditures,  such as purchases
of computer equipment, including post-implementation evaluations.

Reserve and Provision for Credit Losses/Credit Quality

      Our  consolidated  reserve for credit losses  increased to $263.7  million
(1.33% of finance  receivables) at December 31, 1998, from $235.6 million (1.33%
of finance  receivables) at December 31, 1997, and from $220.8 million (1.30% of
finance  receivables) at December 31, 1996.  These increases  primarily  reflect
growth in finance receivables in each year.

      The  relationship  of  the  consolidated  reserve  for  credit  losses  to
nonaccrual finance  receivables was 124.7% for 1998, 143.3% for 1997, and 133.3%
for 1996. Another measure of reserve adequacy and strength used by us and in our
industry is the ratio of the balance sheet reserve for credit losses to trailing
twelve  month net credit  losses  (recent  credit loss  experience).  This ratio
improved to 3.35 times at December  31,  1998,  from 2.33 times at December  31,
1997 and 2.18 times at December 31, 1996.

      Our  consolidated  reserve for credit losses is periodically  reviewed for
adequacy considering  economic conditions,  collateral values and credit quality
indicators,  including  charge-off  experience  and levels of past due loans and
nonperforming  assets. It is management's judgment that the consolidated reserve
for credit losses is adequate to provide for potential credit losses.  We review
finance receivables  periodically to determine the probability of loss, and take
charge-offs after considering such factors as the obligor's  financial condition
and the value of underlying collateral and guarantees. Automatic charge-offs are
recorded on consumer finance  receivables at intervals  beginning at 180 days of
contractual  delinquency,  based upon historical loss severity, with charge-offs
finalized upon disposition of the foreclosed property.  The consolidated reserve
for credit  losses is  intended  to provide  for future  events,  which by their
nature are uncertain.  Therefore, changes in economic conditions or other events
affecting   specific  obligors  or  industries  may  necessitate   additions  or
deductions to the consolidated reserve for credit losses.

      The provision for credit losses was $99.4 million for 1998, $113.7 million
for 1997,  and $111.4 million for 1996. Net credit losses were $78.8 million for
1998,  $101.0 million for 1997, and $101.5 million for 1996. Our net credit loss
experience is provided in the following table.

                                                     Years Ended December 31,
                                                 -------------------------------
                                                  1998        1997         1996
                                                 ------      ------       ------
Net credit losses as a percentage of 
  average finance receivables excluding
  consumer finance receivables held 
  for sale
Equipment Financing and Leasing ..............    0.18%       0.50%        0.56%
Commercial Finance ...........................    0.31%       0.41%        0.67%
Consumer .....................................    1.18%       1.09%        0.75%
                                                  ----        ----         ----
  Total ......................................    0.42%       0.59%        0.62%
                                                  ====        ====         ====
                                                           
      The  decrease  in our  commercial  segments'  net credit  losses  reflects
continued improvement in credit quality in our commercial  portfolio,  sustained
strength of the United States economy,  and higher  recoveries.  The increase in
our consumer net credit  losses is primarily  the result of portfolio  seasoning
and  changes in product  mix,  including  an  increase  in  wholesale  inventory
financing  losses.  As a  percentage  of average  managed  finance  receivables,
consumer net credit  losses were 0.92% for 1998,  0.91% for 1997,  and 0.70% for
1996.


                                       16
<PAGE>

Past Due and Nonperforming Assets

      The following table sets forth certain information concerning our past due
and nonperforming assets (and the related percentages of finance receivables) at
December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                                      ---------------------------------------------------------
                                                           1998                  1997                1996
                                                      ---------------       ---------------     ---------------
                                                                          Dollars in Millions
<S>                                                   <C>       <C>         <C>       <C>       <C>       <C>  
Finance receivables, past due 
  60 days or more
  Equipment Financing and Leasing ................    $149.9    1.41%       $127.3    1.30%     $150.8    1.52%
  Commercial Finance .............................      32.1    0.64%         41.6    0.98%       69.0    1.80%
  Consumer .......................................     166.0    3.89%        127.7    3.48%       72.5    2.24%
                                                      ------    ----        ------    ----      ------    ---- 
    Total ........................................    $348.0    1.75%       $296.6    1.67%     $292.3    1.72%
                                                      ======    ====        ======    ====      ======    ==== 

Nonperforming assets
  Equipment Financing and Leasing ................    $135.2    1.27%       $ 81.6    0.83%     $112.0    1.13%
  Commercial Finance .............................      14.5    0.29%         23.9    0.56%       48.4    1.26%
  Consumer .......................................     129.0    3.02%        101.9    2.78%       53.1    1.64%
                                                      ------    ----        ------    ----      ------    ---- 
    Total ........................................    $278.7    1.40%       $207.4    1.17%     $213.5    1.26%
                                                      ======    ====        ======    ====      ======    ==== 
</TABLE>

      Nonperforming assets reflect both finance receivables on nonaccrual status
and assets received in satisfaction of loans.

      The increase in consumer  delinquencies and nonperforming assets from 1997
to 1998 primarily  relates to the seasoning of home equity  receivables  and the
growth and expansion of the wholesale  inventory  financing product line. During
1998,  Equipment Financing and Leasing  nonperforming assets increased to a more
normal level from the particularly low 1997 year-end balance.

      From time to time,  financial or  operational  difficulties  may adversely
affect future  payments  relating to operating lease  equipment.  Such operating
lease  equipment  is not  included in the totals for past due and  nonperforming
assets. At December 31, 1998, operations at an oil refinery were subject to such
difficulties. The carrying value of this asset was $27.0 million at December 31,
1998. We do not believe these  difficulties  will have a material  effect on our
consolidated financial position or results of operations.

Depreciation on Operating Lease Equipment

      The operating lease  equipment  portfolio was $2.8 billion at December 31,
1998,  up from $1.9  billion at December 31, 1997 (a 45.6%  increase),  and $1.4
billion at December 31, 1996 (a 35.9%  increase from 1996 to 1997).  As a result
of this growth,  depreciation on operating lease equipment was $169.5 million in
1998,  $146.8 million in 1997, and $121.7 million in 1996. See  "--Financing and
Leasing  Assets"  for  further  discussion  on  growth  of our  operating  lease
portfolio.

Income Taxes

      The provision for federal and state and local income taxes totaled  $185.0
million in 1998,  compared with $178.0  million in 1997,  and $155.7  million in
1996.  The effective  income tax rate for 1998 declined to 35.3%,  compared with
36.5% in 1997, and 37.4% in 1996, primarily as a result of lower state and local
taxes.


                                       17
<PAGE>

Financing and Leasing Assets

      Our managed assets grew $3.9 billion (17.3%) to $26.2 billion in 1998, and
$2.3 billion (11.7%) to $22.3 billion in 1997. Financing and leasing assets grew
$3.7 billion  (18.7%) to $23.7 billion in 1998,  and grew $1.4 billion (7.5%) to
$20.0 billion in 1997.  Managed assets include  finance  receivables,  operating
lease   equipment,   consumer  finance   receivables  held  for  sale,   certain
investments,  and consumer finance receivables  previously securitized and still
serviced  by  us.  The  managed   assets  of  our  business   segments  and  the
corresponding strategic business units are presented in the following table.

<TABLE>
<CAPTION>
                                                           At December 31,                      % Change
                                                 -------------------------------------          --------
                                                    1998         1997          1996      '98 vs.'97  '97 vs.'96
                                                    ----         ----          ----      ----------  ----------
                                                           Dollars in Millions
<S>                                              <C>          <C>           <C>             <C>         <C>  
Equipment Financing:
  Finance receivables (1) ....................   $  8,497.6   $  7,403.4    $  5,616.8      14.8%       31.8%
  Operating lease equipment, net (1) .........        765.1        623.8         426.6      22.7%       46.2%
                                                 ----------   ----------    ----------      ----        ---- 
    Total ....................................      9,262.7      8,027.2       6,043.4      15.4%       32.8%
                                                 ----------   ----------    ----------      ----        ---- 
Capital Finance:
  Finance receivables (1) ....................      1,655.4      1,755.5       3,413.5      (5.7%)     (48.6%)
  Operating lease equipment, net (1) (2) .....      1,982.0      1,251.8         912.0      58.3%       37.3%
                                                 ----------   ----------    ----------      ----        ---- 
                                                    3,637.4      3,007.3       4,325.5      21.0%      (30.5%)
  Liquidating portfolio (2) (3) ..............        466.9        675.2         952.7     (30.9%)     (29.1%)
                                                 ----------   ----------    ----------      ----        ---- 
    Total ....................................      4,104.3      3,682.5       5,278.2      11.5%      (30.2%)
                                                 ----------   ----------    ----------      ----        ---- 
  Total Equipment Financing
    and Leasing ..............................     13,367.0     11,709.7      11,321.6      14.2%        3.4%
                                                 ----------   ----------    ----------      ----        ---- 
Commercial Services ..........................      2,481.8      2,113.1       1,804.7      17.4%       17.1%
Business Credit (4) ..........................      1,477.9      1,247.9       1,235.6      18.4%        1.0%
Credit Finance (4) ...........................      1,036.5        889.8         797.8      16.5%       11.5%
                                                 ----------   ----------    ----------      ----        ---- 
  Total Commercial Finance ...................      4,996.2      4,250.8       3,838.1      17.5%       10.8%
                                                 ----------   ----------    ----------      ----        ---- 
  Total Commercial Segments ..................     18,363.2     15,960.5      15,159.7      15.1%        5.3%
                                                 ----------   ----------    ----------      ----        ---- 
Other - Equity Investments ...................         81.9         65.8          53.0      24.5%       24.2%
                                                 ----------   ----------    ----------      ----        ---- 
Consumer Finance .............................      2,244.4      1,992.3       2,005.5      12.7%       (0.7%)
Sales Financing ..............................      3,009.9      1,940.7       1,349.8      55.1%       43.8%
                                                 ----------   ----------    ----------      ----        ---- 
  Total Consumer Segment .....................      5,254.3      3,933.0       3,355.3      33.6%       17.2%
                                                 ----------   ----------    ----------      ----        ---- 
  Total Financing and Leasing Assets .........     23,699.4     19,959.3      18,568.0      18.7%        7.5%
                                                 ----------   ----------    ----------      ----        ---- 
Finance receivables previously securitized:
  Consumer Finance ...........................        607.6        453.8            --      33.9%      100.0%
  Sales Financing ............................      1,909.3      1,931.8       1,437.4      (1.2%)      34.4%
                                                 ----------   ----------    ----------      ----        ---- 
  Total ......................................      2,516.9      2,385.6       1,437.4       5.5%       66.0%
  Total Managed Assets - Consumer
    Segment ..................................      7,771.2      6,318.6       4,792.7      23.0%       31.8%
                                                 ----------   ----------    ----------      ----        ---- 
  Total Managed Assets .......................   $ 26,216.3   $ 22,344.9    $ 20,005.4      17.3%       11.7%
                                                 ==========   ==========    ==========      ====        ==== 
</TABLE>

--------------------------------------------------------------------------------
(1)   On January 1, 1997,  $1,519.2 million of financing and leasing assets were
      transferred from Capital Finance to Equipment Financing.

(2)   Operating lease equipment,  net, of $27.0 million, $30.0 million and $63.5
      million are included in the  liquidating  portfolio  for 1998,  1997,  and
      1996, respectively.

(3)   Consists  primarily  of ocean  going  maritime  and  project  finance.  We
      discontinued marketing to these sectors in 1997.

(4)   In October 1997,  $95.0 million of finance  receivables  were  transferred
      from Business Credit to Credit  Finance.  

      Total  commercial  segments  grew 15.1% from 1997 to 1998.  Excluding  the
liquidating  portfolio,  the equipment financing and leasing segment grew 16.9%.
Growth in finance receivables was principally due to increases in transportation
($.3  billion),   and  construction  ($.1  billion),   and  the  purchase  of  a
telecommunications   leasing  portfolio  ($.2  billion).   The  operating  lease
portfolio  grew  primarily in railroad  equipment  ($.4 billion) and  commercial
aircraft ($.3  billion).  The  commercial  finance  segment  growth  (17.5%) was
primarily  due to higher new business  generation,  moderated  by high  customer
paydowns.


                                       18
<PAGE>

      The consumer  segment managed assets grew 23.0% in 1998 reflecting  strong
home equity  originations  and strong  growth in Sales  Financing  new  business
volume,  particularly in recreation  vehicle,  recreational  boat, and wholesale
inventory financing.

      Total  commercial  financing  and  leasing  assets  grew 5.3% in 1997,  as
compared to 1996,  due to strong  growth in the  operating  lease  portfolio and
commercial finance receivables.  The operating lease portfolio grew primarily in
commercial  aircraft  ($.2  billion),  railroad  equipment  ($.2  billion),  and
business  aircraft  ($.1  billion).  Commercial  finance  receivable  growth was
attributable  to an  improved  1997  retail  sales  environment  and  strong new
business  signings.  These  increases  were  partially  offset by high  customer
paydowns in the  commercial  financing  sector due to the strong economy and the
availability of alternative  sources of capital.  Portfolio growth was moderated
because  we decided  in 1997 to  liquidate  the  oceangoing  maritime  and power
generation project portfolios. We determined that the discontinued portfolios do
not generate sufficient returns to justify their risk profile.

      Consumer  managed  assets  increased  $1.5 billion to $6.3 billion in 1997
from $4.8 billion in 1996. This increase  reflects  strong  originations in home
equity,  recreation vehicle, and recreational boat products and the introduction
of wholesale inventory financing.

Financing and Leasing Assets Composition

      Our ten largest  financing  and leasing  asset  accounts in the  aggregate
represented 4.5% of our total financing and leasing assets at December 31, 1998,
and 4.2% at December 31, 1997.  All ten accounts  were  commercial  accounts and
were secured by equipment, accounts receivable and/or inventory.

Geographic Composition

      The following  table presents our financing and leasing assets by customer
location.

                                                  At December 31,
                                 ----------------------------------------------
                                         1998                      1997
                                 ---------------------      -------------------
                                  Amount       Percent       Amount     Percent
                                 --------      -------      -------     -------
                                                Dollars in Millions
United States
  West .......................   $ 5,583.2      23.6%       $ 4,642.1     23.3%
  Northeast ..................     5,143.9      21.7          4,501.9     22.6
  Midwest ....................     4,895.3      20.7          4,290.0     21.5
  Southeast ..................     3,492.3      14.7          2,802.9     14.0
  Southwest ..................     2,993.3      12.6          2,360.7     11.8
Foreign (principally 
  commercial aircraft) .......     1,591.4       6.7          1,361.7      6.8
                                 ---------     -----        ---------    ----- 
  Total ......................   $23,699.4     100.0%       $19,959.3    100.0%
                                 =========     =====        =========    ===== 

      Our managed asset geographic  diversity does not differ significantly from
our owned asset geographic diversity.

      Additionally,  our financing and leasing asset portfolio is diversified by
state.  At December 31, 1998,  with the exception of California  (12.5%),  Texas
(8.7%),  and New York (8.1%),  no state  represented more than 4.6% of financing
and leasing assets. Our 1996 managed and owned asset geographic  composition did
not  significantly  differ  from our 1997  managed  and owned  asset  geographic
composition.


                                       19
<PAGE>

Industry Composition

      The following  table  presents our  financing and leasing  assets by major
industry class.

                                                      At December 31,
                                        ----------------------------------------
                                                1998                1997
                                        ------------------    ------------------
                                          Amount   Percent    Amount     Percent
                                          ------   -------    ------     -------
                                                    Dollars in Millions

Manufacturing(1)
  (none greater than 4.4%) ..........   $ 5,117.0    21.6%   $ 4,440.4    22.2%
Commercial airlines (2) .............     2,325.4     9.8      2,077.6    10.4
Home mortgage (3) ...................     2,244.4     9.5      1,992.3    10.0
Construction equipment ..............     1,947.4     8.2      1,791.4     9.0
Retail ..............................     1,882.1     7.9      1,807.5     9.1
Transportation (4) ..................     1,777.6     7.5      1,283.7     6.4
Manufactured housing (5) ............     1,417.5     6.0      1,125.7     5.6
Other (none greater than 
  4.1%) (6) .........................     6,988.0    29.5      5,440.7    27.3
                                        ---------   -----    ---------   ----- 
Total ...............................   $23,699.4   100.0%   $19,959.3   100.0%
                                        =========   =====    =========   ===== 

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

(1)   Includes manufacturers of steel and metal products,  textiles and apparel,
      printing and paper products, and other industries.

(2)   See "Concentrations" for a discussion of the commercial airline portfolio.

(3)   On a managed asset basis, home mortgage outstandings were $2.9 billion, or
      10.9% of managed assets at December 31, 1998,  compared to $2.4 billion or
      10.9% at December 31, 1997.

(4)   Includes rail, bus, and over-the-road  trucking  industries,  and business
      aircraft.

(5)   On a managed  asset basis,  manufactured  housing  outstandings  were $1.7
      billion or 6.5% of managed  assets at December 31, 1998,  compared to $1.5
      billion or 6.5% at December 31, 1997.

(6)   On a  managed  asset  basis,  recreation  vehicle  outstandings  were $1.9
      billion or 7.2% of managed  assets at December 31, 1998,  compared to $1.6
      billion  or  7.2%  at  December  31,  1997.  On  a  managed  asset  basis,
      recreational boat outstandings were $1.0 billion or 4.0% of managed assets
      at December 31, 1998, compared to $682.5 million or 3.1% of managed assets
      at December 31, 1997.

      Our 1996  managed  and owned  asset  industry  composition  did not differ
significantly from our 1997 managed and owned asset industry composition.

Concentrations

Commercial Airline Industry

      Commercial airline financing and leasing assets totaled $2.3 billion (9.8%
of our total financing and leasing  assets) at December 31, 1998,  compared with
$2.1 billion (10.4%) in 1997.  This portfolio is secured by commercial  aircraft
and related equipment.  From 1992 through mid-1997, we limited the growth of the
aerospace portfolio due to weakness in the commercial airline industry, industry
overcapacity  and  declining  equipment  values.  In 1997,  we decided to resume
growing  the  aerospace  portfolio,  but will  continue  to monitor  this growth
relative to our total  financing and leasing  assets.  We continue to reduce our
Stage II exposure so that 96.6% of our  portfolio at December 31, 1998  consists
of Stage III aircraft versus 93.1% at December 31, 1997.


                                       20
<PAGE>

      The following  table presents  information  about the  commercial  airline
industry portfolio. See also "--Operating Lease Equipment."

                                                              At December 31,
                                                          ----------------------
                                                            1998          1997
                                                          --------     ---------
                                                           Dollars in Millions

Finance receivables
   Amount outstanding(1) ...........................      $1,230.7     $1,254.9
   Number of obligors ..............................            54           54
Operating lease equipment, net
   Net carrying value ..............................      $1,094.7     $  822.7
   Number of obligors ..............................            33           33
  Total ............................................      $2,325.4     $2,077.6
Number of obligors(2) ..............................            65           67
Number of aircraft(3) ..............................           206          225

--------------------------------------------------------------------------------
(1)   Includes  accrued rents on operating leases that are classified as finance
      receivables in the Consolidated Balance Sheets.

(2)   Certain obligors are obligors under both finance  receivable and operating
      lease transactions.

(3)   Regulations established by the Federal Aviation Administration (the "FAA")
      limit the  maximum  permitted  noise an  aircraft  may  make.  A Stage III
      aircraft meets a more restrictive  noise level requirement than a Stage II
      aircraft.  The FAA has  issued  rules  that  phase out the use of Stage II
      aircraft in the United States by the year 2000.  Similar  restrictions  in
      Europe  phase  out the use of  Stage II  aircraft  by the  year  2001.  At
      year-end 1998,  the portfolio  consisted of Stage III aircraft of $2,246.0
      million (96.6%) and Stage II aircraft of $55.9 million (2.4%) versus Stage
      III aircraft of $1,933.5  million  (93.1%) and Stage II aircraft of $115.7
      million (5.6%) at year-end 1997.

      We  continue to shift our  commercial  aircraft  product mix from  secured
financings  to operating  lease  equipment,  relying on our strong  industry and
equipment  management  and  remarketing  expertise  to  compete  effectively  in
commercial aircraft operating lease  transactions.  Operating lease transactions
accounted for 47.1% of the total commercial  airline  portfolio  outstandings at
December 31, 1998, 39.6% at December 31, 1997, and 32.7% at December 31, 1996.

Foreign Outstandings

      We are primarily a domestic  lender,  with foreign exposure limited mainly
to the  commercial  airline  industry.  Financing and leasing  assets to foreign
obligors were all U. S. dollar  denominated and totaled $1.6 billion at December
31,  1998.  The  largest  exposures  at  December  31,  1998 were to obligors in
Belgium, $142.4 million (0.60% of financing and leasing assets),  France, $136.4
million (0.58%), Mexico, $104.1 million (0.44%), the Republic of Ireland, $103.9
million (0.44%),  Canada, $100.5 million (0.42%), Brazil, $93.9 million (0.40%),
England, $93.0 million (0.39%), and the Netherlands,  $90.3 million (0.38%). Our
remaining  foreign  exposure  was  geographically   dispersed,   with  no  other
individual country exposure greater than $90.0 million.

      At December 31, 1997,  financing  and leasing  assets to foreign  obligors
totaled  $1.4  billion.  The  largest  exposures  at  December  31, 1997 were to
obligors in Mexico, $128.2 million (0.64%),  France, $125.9 million (0.63%), the
Republic of Ireland, $108.9 million (0.55%), England, $91.7 million (0.46%), and
Australia,   $90.6  million   (0.46%).   The  remaining   foreign  exposure  was
geographically  dispersed with no other individual country exposure greater than
$90.0 million of financing  and leasing  assets.  At December 31, 1996,  foreign
exposure  was  geographically  dispersed  with no  individual  country  exposure
greater than 0.76% of financing and leasing assets.

Highly Leveraged Transactions ("HLTs")

      We  use  the  following   criteria  to  classify  a  buyout  financing  or
recapitalization which equals or exceeds $20 million as an HLT:

o     The transaction at least doubles the borrower's liabilities and results in
      a leverage ratio (as defined) higher than 50%, or

o     The  transaction  results in a leverage  ratio  higher  than 75%, or 

o     The transaction is designated as an HLT by a syndication agent.

      HLTs that we originated or in which we participated totaled $561.1 million
(2.4% of financing  and leasing  assets) at December  31,  1998,  up from $341.1
million (1.7%) at December 31, 1997. The increase in HLT outstandings during the
year ended December 31, 1998 was due to new  originations.  Our HLT outstandings
are  generally  secured  by  collateral,  as  distinguished  from HLTs that rely
primarily on cash flows 


                                       21
<PAGE>

from  operations.  Our unfunded  commitments to lend in secured HLT transactions
were $287.6  million at  December  31,  1998,  compared  with $165.5  million at
year-end  1997.  At December 31, 1996,  HLT's that we  originated or in which we
participated totaled less than 2.0% of financing and leasing assets.

Risk Management

      Our  business  activities  contain  elements  of  risk.  We  consider  the
principal  types of risk to be credit risk  (including  credit,  collateral  and
equipment risk) and asset/liability  risk (including interest rate and liquidity
risk).

      We consider the  management of risk essential to conducting our commercial
and consumer businesses and to maintaining profitability.  Accordingly, our risk
management systems and procedures are designed to identify and analyze risks, to
set appropriate  policies and limits and to continually  monitor these risks and
limits by means of reliable  administrative  and  information  systems and other
policies and programs.

Credit Risk Management

      We have developed systems  specifically  designed to manage credit risk in
our commercial and consumer business segments. We evaluate financing and leasing
assets for credit and  collateral  risk during the credit  granting  process and
periodically after the advancement of funds.

      Our Executive Credit Committee  ("ECC") delegates credit authority to each
of our  strategic  business  units.  The ECC is  comprised  of members of senior
management, including the Chief Executive Officer, Vice Chairman, Executive Vice
President-Credit  Administration,  Senior Executive Vice President and Executive
Vice  President-Multi-National  Marketing Group.  Generally,  members of the ECC
must  approve  all  transactions  above the  strategic  business  units'  credit
authority  and all  transactions  outside of certain  established  target market
definitions and risk acceptance criteria.

      Each of our  strategic  business  units has  developed  and  implemented a
formal credit  management  process in accordance with formal uniform  guidelines
established by the ECC. These ECC guidelines set forth risk acceptance  criteria
for:

o     Acceptable maximum credit line;

o     Selected target markets and products;

o     Creditworthiness  of  borrowers,   including  credit  history,   financial
      condition, adequacy of cash flow and quality of management; and

o     The type and value of  underlying  collateral  and  guarantees  (including
      recourse from dealers and manufacturers.)

      We also employ a risk adjusted  pricing process where the perceived credit
risk is a factor in  determining  the interest  rate and/or fees charged for our
financing and leasing products. As economic and market conditions change, credit
risk management  practices are reviewed and modified,  if necessary,  to seek to
minimize the risk of credit loss.

      Compliance  with  established  corporate  policies and  procedures and the
credit management  processes at each strategic business unit are reviewed by the
credit  audit group of our  internal  audit  department.  The credit audit group
examines adherence with established credit policies and procedures and tests for
inappropriate credit practices, including whether potential problem accounts are
being detected and reported on a timely basis. The General Auditor, who oversees
the credit audit group, reports to the Chief Executive Officer of CIT and to the
Audit Committee.

      Commercial. We have developed systems specifically designed to effectively
manage credit risk in our two commercial  segments.  The process starts with the
initial  evaluation  of credit  risk and  underlying  collateral  at the time of
origination  and continues over the life of the finance  receivable or operating
lease,  including  collecting  past  due  balances  and  liquidating  underlying
collateral.

      Credit  personnel of the  applicable  strategic  business unit review each
potential  borrower's financial  condition,  results of operations,  management,
industry,  customer base,  operations,  collateral and other data, such as third
party credit  reports,  to  thoroughly  evaluate the  customer's  borrowing  and
repayment  ability.  


                                       22
<PAGE>

Borrowers are graded  according to credit  quality based upon our uniform credit
grading  system,  which grades both the borrower's  financial  condition and the
underlying  collateral.  Credit  facilities  are subject to approval  within our
overall credit approval and underwriting  guidelines and are issued commensurate
with the credit evaluation performed on each borrower.

      We review and monitor credit exposures on an ongoing basis to identify, as
early  as  possible,   those  customers  that  may  be  experiencing   declining
creditworthiness  or  financial   difficulty.   We  periodically   evaluate  our
commercial  segments' finance  receivables based upon credit criteria  developed
under our uniform credit grading system. We monitor  concentrations by borrower,
industry,  geographic region and equipment type and management adjusts limits as
conditions warrant to seek to minimize the risk of credit loss.

      Our Asset  Quality  Review  Committee  is  comprised  of members of senior
management,  including the Vice Chairman,  the Executive  Vice  President-Credit
Administration and the Chief Financial Officer. Periodically, the Committee will
meet with the President and CEO of CIT to review, among other topics,  levels of
geographic,  industry and customer  concentrations.  In addition,  the Committee
periodically  meets with senior executives of our strategic  business units, and
reviews the status of financing  and leasing  assets  greater  than  $500,000 to
obligors with higher risk profiles.

      Consumer. For consumer loans, our management has developed and implemented
proprietary automated credit scoring models for each loan type (e.g., recreation
vehicles,  manufactured housing, recreational boat and home equity) that include
both  customer  demographics  and credit  bureau  characteristics.  The profiles
emphasize, among other things, occupancy status, length of residence,  length of
employment,  debt to income ratio (ratio of total  installment  debt and housing
expenses to gross  monthly  income),  bank  account  references,  credit  bureau
information  and combined  loan to value ratio.  The models are used to assess a
potential borrower's credit standing and repayment ability considering the value
or adequacy of property  offered as  collateral.  Our credit  criteria  includes
reliance  on credit  scores,  including  those  based upon both our  proprietary
internal credit scoring model and external credit bureau scoring,  combined with
judgment.  The credit  scoring models are regularly  reviewed for  effectiveness
utilizing  statistical  tools. We regularly evaluate the consumer loan portfolio
using past due, vintage curve and other  statistical tools to analyze trends and
credit  performance  by  loan  type,   including  analysis  of  specific  credit
characteristics  and other selected  subsets of the  portfolios.  Adjustments to
credit  scorecards  and  lending  programs  are made  when  deemed  appropriate.
Individual   underwriters   are  assigned  credit  authority  based  upon  their
experience,  performance  and  understanding  of the  underwriting  policies and
procedures of our consumer  operations and a credit approval hierarchy exists to
ensure that all applications are reviewed by an underwriter with the appropriate
level of authority.

      See "--Reserve and Provision for Credit Losses/Credit Quality".

Asset/Liability Management

      Management strives to manage interest rate and liquidity risk and optimize
net finance  income  under  formal  policies  established  and  monitored by the
Capital  Committee.  The Capital  Committee  is  comprised  of members of senior
management,  including the Chief Executive Officer,  the Vice Chairman,  and the
Chief Financial Officer. Three members of the Capital Committee are also members
of our Board of  Directors.  The Capital  Committee  establishes  and  regularly
reviews interest rate sensitivity,  funding needs, liquidity,  and asset-pricing
to determine  short-term and long-term funding strategies,  including the use of
off-balance sheet derivative financial instruments.

      We use off-balance sheet derivatives for hedging purposes only, and do not
enter into derivative financial instruments for trading or speculative purposes.
To ensure both  appropriate use as a hedge and hedge accounting  treatment,  all
derivatives  entered  into are  designated,  according to the  applicable  hedge
objective,  against commercial paper, a specifically underwritten debt issue, or
a specific pool of assets.  Our primary hedge objectives  include the conversion
of variable  rate  liabilities  to fixed  rates,  the  conversion  of fixed rate
liabilities  to  variable  rates,   the  fixing  of  spreads  on  variable  rate
liabilities to various market indices and the  elimination of interest rate risk
on finance receivables classified as held for sale prior to securitization.


                                       23
<PAGE>

      We manage our derivative  positions so that the exposure to interest rate,
credit or foreign  exchange  risk is in  accordance  with the overall  operating
goals established by our Capital  Committee.  There is an approved,  diversified
list of creditworthy  counterparties used for derivative financial  instruments,
each of whom has  specific  credit  exposure  limits,  which are based on market
value. The Executive Credit Committee approves each counterparty and its related
market value and credit  exposure  limit  annually,  or more  frequently  if any
changes are  recommended.  Credit  exposures for each  counterparty are measured
based upon market value of the outstanding derivative instruments. Market values
are calculated  periodically for each swap contract,  summarized by counterparty
and reported to the Capital Committee.  For additional information regarding our
derivative  portfolio,  refer to "Note 7--Derivative  Financial  Instruments" in
Item 8. Financial Statements and Supplementary Data.

      Interest Rate Risk Management. Changes in market interest rates, or in the
relationships  between short-term and long-term market interest rates, or in the
relationships  between different  interest rate indices (i.e.,  basis risk), can
affect the interest rates charged on  interest-earning  assets  differently than
the interest rates paid on interest-bearing liabilities,  which can result in an
increase in interest expense relative to finance income.

      Our Capital Committee  actively manages interest rate risk by changing the
proportion of fixed and floating rate debt and by utilizing  primarily  interest
rate swaps and, to a lesser extent,  other derivative  instruments to modify the
repricing characteristics of existing interest-bearing liabilities.  Issuing new
debt or hedging the interest  rate on existing  debt through the use of interest
rate swaps and other derivative  instruments are both tools in managing interest
rate risk.  The  decision  to use one or the other or a  combination  of both is
driven  by the  relationship  between  the  relative  interest  rate  costs  and
effectiveness of the alternatives, and our liquidity needs. For example, a fixed
rate, fixed term loan  transaction may initially be funded by commercial  paper,
resulting in interest  rate risk. To reduce this risk, we may enter into a hedge
that has an  inverse  correlation  to the  interest  rate  sensitivity  created,
whereby  we would  pay a fixed  interest  rate and  receive a  commercial  paper
interest rate, thereby matching the fixed rate, fixed term loan with fixed rate,
fixed term debt.  Basis risk is  similarly  managed  through the issuance of new
debt or the utilization of interest rate swaps or other derivative instruments.

      We continuously  monitor and simulate through computer modeling our degree
of interest  rate  sensitivity  by measuring the  repricing  characteristics  of
interest-sensitive assets, liabilities,  and off-balance sheet derivatives.  The
Capital  Committee  reviews the results of this modeling  monthly.  The interest
rate  sensitivity  modeling  techniques  employed by us essentially  include the
creation of prospective  twelve month "baseline" and "rate shocked" net interest
income  simulations.  At the date that  interest  rate  sensitivity  is modeled,
"baseline"  net  interest  income is derived  considering  the current  level of
interest-sensitive  assets  and  related  run-off  (including  both  contractual
repayment  and  historical   prepayment   experience),   the  current  level  of
interest-sensitive  liabilities and related  maturities and the current level of
off-balance sheet derivatives.  The "baseline" simulation assumes that, over the
next  successive  twelve  months,  market  interest  rates  (as of the  date  of
simulation)  are held  constant  and that no new  loans are  extended.  Once the
"baseline" net interest income is calculated,  market interest rates, which were
previously  held  constant,  are raised  100 basis  points  instantaneously  and
parallel across the entire yield curve, and a "rate shocked"  simulation is run.
Interest rate sensitivity is then measured as the difference  between calculated
"baseline" and "rate shocked" net interest income.

      Utilizing our computer modeling, if no new fixed rate loans or leases were
extended and no actions to alter the existing  interest  rate  sensitivity  were
taken subsequent to December 31, 1998, an immediate hypothetical 100 basis point
parallel rise in the yield curve on January 1, 1999 would increase net income by
an  estimated  $3.4  million  after-tax  over the next twelve  months.  Although
management  believes  that this measure  provides a  meaningful  estimate of our
interest  rate  sensitivity,  it does not  adjust for  potential  changes in the
credit quality, size, composition and prepayment  characteristics of the balance
sheet and other business developments that could affect net income. Accordingly,
no assurance can be given that actual results would not differ  materially  from
the potential outcome simulated by our computer modeling.  Further,  it does not
necessarily  represent  management's current view of future market interest rate
movements.


                                       24
<PAGE>

      We  periodically  enter into  structured  financings  (involving  both the
issuance of debt and an interest rate swap with corresponding notional principal
amount and maturity)  that not only improve  liquidity and reduce  interest rate
risk,  but result in a lower  overall  funding  cost than could be  achieved  by
solely  issuing  debt.  For  example,  in order to fund  fixed  rate  assets,  a
medium-term  variable  rate note based upon the U. S. federal  funds rate can be
issued and coupled with an interest rate swap exchanging the U. S. federal funds
rate for a fixed interest rate. This creates, in effect, a lower cost fixed rate
medium-term obligation.

      Interest  rate swaps with  notional  principal  amounts of $4.3 billion at
December  31, 1998 and $3.6  billion at December  31,  1997 were  designated  as
hedges against outstanding debt and were principally used to, in effect, convert
the interest rate on variable rate debt to a fixed rate that sets our fixed rate
term debt  borrowing  cost over the life of the swap.  These  hedges  reduce our
exposure  to rising  interest  rates,  but also reduce the  benefits  from lower
interest rates.

      A comparative  analysis of the weighted average principal  outstanding and
interest  rates paid on our debt  before and after the effect of  interest  rate
swaps is shown in the following table.

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                    ----------------------------------------------------------
                                                                            Before Swaps
                                                    ----------------------------------------------------------
                                                           1998                 1997                1996
                                                    -----------------     -----------------    ---------------
                                                                         Dollars in Millions
<S>                                                 <C>         <C>      <C>          <C>     <C>        <C>  
Commercial paper and variable 
  rate senior notes ............................    $ 9,672.6   5.53%    $ 9,574.2    5.61%   $ 9,952.2  5.48%
Fixed rate senior and subordinated 
  notes ........................................      7,476.5   6.31%      5,497.6    6.52%     3,917.0  6.83%
                                                    ---------            ---------            ---------
Composite ......................................    $17,149.1   5.87%    $15,071.8    5.94%   $13,869.2  5.86%
                                                    =========            =========            =========

<CAPTION>
                                                                           At December 31,
                                                    ----------------------------------------------------------
                                                                             After Swaps
                                                    ----------------------------------------------------------
                                                           1998                 1997                1996
                                                    -----------------     -----------------    ---------------
                                                                         Dollars in Millions
<S>                                                 <C>         <C>      <C>          <C>     <C>        <C>  
Commercial paper and variable 
  rate senior notes ............................    $ 7,069.9   5.47%    $ 6,443.2    5.54%   $ 6,774.3  5.42%
Fixed rate senior and subordinated 
  notes ........................................     10,079.2   6.39%      8,628.6    6.52%     7,094.9  6.68%
                                                     --------             --------             --------
Composite ......................................    $17,149.1   6.01%    $15,071.8    6.10%   $13,869.2  6.06%
                                                     ========             ========             ========
</TABLE>

      Our interest rate swaps  principally  convert  floating rate debt to fixed
rate debt. The weighted  average  composite  interest rate after swaps increased
from the composite interest rate before swaps in each period,  primarily because
a larger proportion of our debt, after giving effect to interest rate swaps, was
subject to a fixed interest rate.  However,  the weighted average interest rates
before swaps do not  necessarily  reflect the  interest  expense that would have
been incurred had we chosen to manage interest rate risk without the use of such
swaps.

      Interest rate swaps are further discussed in "Note 7--Derivative Financial
Instruments" in Item 8. Financial Statements and Supplementary Data.

Liquidity

      We manage  liquidity risk by monitoring the relative  maturities of assets
and liabilities and by borrowing funds, primarily in the U. S. money and capital
markets.  We use such cash to fund asset growth  (including the bulk purchase of
finance receivables and the acquisition of other finance-related businesses) and
to meet debt  obligations and other  commitments on a timely and  cost-effective
basis.  The  primary  sources  of  funding  are  commercial  paper   borrowings,
medium-term notes, other debt securities, and asset-backed securitizations.

      Commercial paper  outstanding  increased $584.5 million to $6.1 billion at
December 31, 1998 from $5.6 billion at December 31, 1997. During 1998, we issued
$3.9  billion  of  variable  rate term debt and $3.0  billion of fixed rate term
debt.  Repayments  of debt totaled $4.1 billion for 1998.  At December 31, 1998,
$4.8 billion of registered,  but unissued,  debt securities  remained  available
under  shelf  registration  statements,   including  $2.0  billion  of  European
Medium-Term Notes.


                                       25
<PAGE>

      Our commercial paper,  publicly issued variable rate and fixed rate senior
debt,  and  senior  subordinated  long-term  notes and  debentures  are rated by
Moody's  Investors  Service,  Duff & Phelps Credit Rating Company and Standard &
Poor's  Corporation.  At December 31, 1998,  commercial  paper  borrowings  were
supported by $5.0  billion of committed  revolving  credit-line  facilities.  At
December 31, 1998,  such  credit-line  facilities  represented  81% of operating
commercial paper outstanding (commercial paper outstanding less interest-bearing
deposits), as compared to 91% at December 31, 1997.

      As part of our  continuing  program of  accessing  the public and  private
asset-backed   securitization   markets  as  an  additional   liquidity  source,
recreation  vehicle,  recreational boat, and home equity finance  receivables of
$866.0 million were securitized during 1998. We securitized  recreation vehicle,
home equity and recreational  boat finance  receivables of $1.4 billion in 1997.
The decrease in  securitization  activity from 1997 to 1998 was primarily due to
less attractive market conditions.

      At December 31, 1998,  we had $2.0 billion of  registered,  but  unissued,
securities  available  under  shelf  registration  statements  relating  to  our
asset-backed  securitization  program.  In February 1999, we securitized  $424.3
million of  recreational  boat  receivables  included in assets held for sale at
December 31, 1998.

Capitalization

      The following table presents information regarding our capital structure.

                                                              At December 31,
                                                         -----------------------
                                                            1998         1997
                                                         ---------     ---------
                                                           Dollars in Millions

Commercial paper .....................................   $ 6,144.1     $ 5,559.6
Term debt ............................................    12,507.3       9,755.3
Company-obligated mandatorily redeemable 
  preferred securities of subsidiary trust 
  holding solely debentures of the Company ...........       250.0         250.0
Stockholders' equity .................................     2,701.6       2,432.9
                                                         ---------     ---------
Total capitalization .................................   $21,603.0     $17,997.8
                                                         =========     =========
Total debt to stockholders' equity and 
  Company-obligated mandatorily redeemable 
  preferred securities of subsidiary
  trust holding solely debentures of 
  the Company ........................................       6.32x         5.71x
Total debt and Company-obligated mandatorily 
  redeemable preferred securities of 
  subsidiary trust holding solely
  debentures of the Company to 
  stockholders' equity ...............................       7.00x         6.40x

      The  Company-obligated  mandatorily  redeemable  preferred  securities are
7.70%  Preferred  Capital  Securities  of CIT  Capital  Trust I, a  wholly-owned
subsidiary  of ours.  CIT Capital Trust I invested the proceeds of that issue in
Junior Subordinated Debentures of CIT having identical rates and payment dates.

      In November  1998, DKB sold  55,000,000  shares of Class A Common Stock in
the  Secondary  Offering  for which it received all the  proceeds.  Prior to the
sale, DKB converted all of its Class B Common Stock into an identical  number of
shares of Class A Common  Stock,  which is now the only  class of  common  stock
outstanding.  DKB held  94.4% of the  combined  voting  power  and  77.2% of the
economic  interest of all of our outstanding  common stock prior to the sale. At
December 31, 1998,  DKB held 43.8% of the voting power and economic  interest of
our outstanding common stock.

      In November 1997, we issued  36,225,000  shares of Class A Common Stock in
the IPO.  Prior to the IPO, DKB owned 80% of our issued and  outstanding  stock,
and Chase  owned the  remaining  20% common  stock  interest.  DKB had an option
expiring  December 15, 2000 to purchase the remaining 20% common stock  interest
from Chase.  In November  1997,  we  purchased  DKB's  option at its fair market
value,   exercised   the  option  to  purchase  the  stock  held  by  Chase  and
recapitalized by converting the outstanding  common stock to 157,500,000  shares
of Class B Common  Stock.  Twenty  percent  of the Class B Common  Stock  shares
(which had five votes per share) were  converted  to Class A Common Stock shares
(which  has  one  vote  per  share)  and,   in  addition  to  an   underwriter's
overallotment  option,  were issued in the IPO.  The  issuance of Class A Common
Stock  pursuant to the  underwriter's  overallotment  resulted in an increase in
stockholders' equity of $117.7 million.


                                       26
<PAGE>

Recent Accounting Pronouncements

      In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133,  "Accounting  for Derivative  Instruments  and Hedging  Activities"  ("SFAS
133"). This statement standardizes the accounting for derivative instruments and
hedging activities,  including certain derivative  instruments embedded in other
contracts.  Under the  standard,  entities are required to carry all  derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been  designated  and  qualifies  as part of a hedging
relationship and, if so, on the reason for holding it.

      If  certain  conditions  are  met,  entities  may  elect  to  designate  a
derivative  instrument  as a hedge of exposures to changes in fair values,  cash
flows, or foreign  currencies.  If the hedged exposure is a fair value exposure,
the gain or loss on the  derivative  instrument is recognized in earnings in the
period of change  together with the  offsetting  gain or loss on the hedged item
attributable  to the risk being  hedged.  If the hedged  exposure is a cash flow
exposure, the effective portion of the gain or loss on the derivative instrument
is  reported  initially  as  a  component  of  other  comprehensive  income  and
subsequently  reclassified into earnings when the forecasted transaction affects
earnings.  If the hedged exposure is a foreign  currency  exposure,  the gain or
loss on the derivative  instrument is reported in other comprehensive  income as
part of the cumulative translation  adjustment.  For a derivative not designated
as a hedging  instrument,  the gain or loss is  recognized  in  earnings  in the
period of change.  SFAS 133 is effective for all fiscal quarters of fiscal years
beginning  after June 15, 1999.  We have not yet  determined  the impact of SFAS
133.  However,  we anticipate  that  adoption of the  statement  will not have a
material impact on our financial position or results of operations.

Year 2000 Compliance

      Institutions  around the world are reviewing and modifying  their computer
systems to ensure they are Year 2000 compliant.  The issue, in general terms, is
that many existing computer  systems,  both information  technology  systems and
non-information  technology systems, contain date-based functions which use only
two digits to  identify a year in the date  field with the  assumption  that the
first two digits of the year are always "19". Consequently,  on January 1, 2000,
systems that are not Year 2000 compliant may read the year as 1900. Systems that
calculate, compare or sort using the incorrect date may malfunction.

      We  continue  to address  the Year 2000 issue as it relates to our systems
and business.  We have developed a comprehensive  Year 2000 project to remediate
our information technology ("IT") systems and to address Year 2000 issues in our
non-IT systems. The process of remediation includes the following phases:

      o     Planning

      o     Assessing

      o     Designing (as necessary)

      o     Programming (as necessary)

      o     Testing and validation

      We have  categorized  our IT systems as high,  medium or low priority with
respect to our ability to conduct  business.  As of December  31,  1998,  we had
successfully completed:

      o     the  planning,  assessing  and  designing  phases  for all of our IT
            systems

      o     the  programming  phase for 97% of our high and medium  priority  IT
            systems and 96% of all our IT systems

      o     the  testing  and  validation  phase for 96% of our high and  medium
            priority IT systems and 92% of all our IT systems.

      We  estimate  that,  at  December  31,  1998,  our Year 2000  project  was
approximately  94% completed for our high and medium priority IT systems and 91%
completed with respect to all our IT systems.  Our Year 2000 project  remains on
schedule to be completed by the end of the first quarter of 1999.

      A majority of the  software  used in our IT systems is provided by outside
vendors.  As of December  31,  1998,  approximately  97% of our vendor  provided
software or software  upgrades have been  designated by the software  vendors as
Year 2000  compliant.  We  implemented  a Year 2000  contingency  plan which now
addresses the 3% of our vendor provided  software which has not yet met our Year
2000 compliance deadlines.


                                       27
<PAGE>

      In  addition,  we continue to  formulate a  contingency  plan for business
continuation in the event of Year 2000 systems  failures.  This contingency plan
formulation is based upon our existing disaster recovery and business continuity
plans with  modifications  for Year 2000  risks.  We expect to  complete  our IT
systems  Year  2000  contingency  plan  by  June  30,  1999,  and to  test  this
contingency plan thereafter.

      Our non-IT  systems  used to conduct  business at our  facilities  consist
primarily of office equipment (other than computer and communications equipment)
and other  equipment at our leased office  facilities.  We have  inventoried our
non-IT systems and have sent Year 2000  questionnaires  to our office  equipment
vendors and landlords to determine the status of their Year 2000 readiness.

      Since  1997,  we have  been  actively  communicating  with  third  parties
concerning  the status of their Year 2000  readiness  by,  among  other  things,
sending written Year 2000 inquiries.  These third parties include our borrowers,
obligors, banks, investment banks, investors, vendors, manufacturers,  landlords
and suppliers of telecommunication  services and other utilities. As part of the
process of evaluating  our options and attempting to mitigate third party risks,
we  continue  to collect  and  analyze  information  from third  parties.  It is
difficult  to  predict  the  effect of such  third  party  non-readiness  on our
business.

      Significant  Year 2000  failures in our systems or in the systems of third
parties (or third parties upon whom they depend)  could have a material  adverse
effect on our financial condition and results of operations. We believe that our
reasonably  likely worst case Year 2000  scenario is (i) a material  increase in
our credit  losses due to Year 2000  problems for our borrowers and obligors and
(ii) disruption in financial  markets causing liquidity stress to us. The amount
of  these  potential  credit  losses  or the  degree  of  disruption  cannot  be
determined at this time.

      During the first quarter of 1999,  we will  continue with the  remediation
and testing of our IT  systems,  further  evaluate  third party Year 2000 risks,
continue to develop  contingency plans and take further steps designed to reduce
our exposure to these risks.

      The total cost of our Year 2000 project is expected to be approximately $8
million,  of which approximately $5.5 million has been incurred through December
31, 1998.  This amount includes the costs of additional  hardware,  software and
technology  consultants,  as  well  as the  cost  of our  systems  professionals
dedicated to achieving Year 2000 compliance for IT systems. We have included the
cost of the Year 2000 project in our annual budgets for information  technology.
We have postponed some non-Year 2000 IT expenditures and initiatives until after
2000 in order to concentrate  resources on the Year 2000 issue. We do not expect
that this will have a material  adverse  effect on our  financial  condition and
results of operations.

      All Year  2000  information  provided  herein  is a "Year  2000  Readiness
Disclosure" as defined in the Year 2000 Information and Readiness Disclosure Act
and is subject to the terms  thereof.  This Year 2000  information  is  provided
pursuant to  securities  law  requirements  and it may not be taken as a form of
covenant, warranty, representation or guarantee of any kind.


                                       28
<PAGE>

Item 8. Financial Statements and Supplementary Data.

                          INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors of
The CIT Group, Inc.:

      We have audited the  accompanying  consolidated  balance sheets of The CIT
Group,  Inc. and  subsidiaries as of December 31, 1998 and 1997, and the related
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for each of the years in the  three-year  period ended  December 31, 1998.
These consolidated  financial statements are the responsibility of the Company'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 consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the financial  position of The CIT
Group,  Inc. and  subsidiaries at December 31, 1998 and 1997, and the results of
their  operations and cash flows for each of the years in the three-year  period
ended  December  31,  1998 in  conformity  with  generally  accepted  accounting
principles.

                                                           KPMG LLP

Short Hills, New Jersey
January 28, 1999


                                       29
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     Assets

                                                                December 31,
                                                            --------------------
                                                              1998       1997
                                                              ----       ----
                                                             Dollars in Millions

Financing and leasing assets
Loans
    Commercial .........................................   $11,415.5  $10,342.5
    Consumer ...........................................     4,266.9    3,664.8
Lease receivables ......................................     4,173.6    3,712.4
                                                           ---------  ---------
    Finance receivables (Note 3) .......................    19,856.0   17,719.7
Reserve for credit losses (Note 4) .....................      (263.7)    (235.6)
                                                           ---------  ---------
    Net finance receivables ............................    19,592.3   17,484.1
Operating lease equipment, net (Note 5) ................     2,774.1    1,905.6
Consumer finance receivables held for sale .............       987.4      268.2
Cash and cash equivalents ..............................        73.6      140.4
Other assets (Notes 14 and 19) .........................       875.7      665.8
                                                           ---------  ---------
        Total assets ...................................   $24,303.1  $20,464.1
                                                           =========  =========

                      Liabilities and Stockholders' Equity

Debt (Notes 6 and 7)
Commercial paper .......................................   $ 6,144.1  $ 5,559.6
Variable rate senior notes .............................     4,275.0    2,861.5
Fixed rate senior notes ................................     8,032.3    6,593.8
Subordinated fixed rate notes ..........................       200.0      300.0
                                                           ---------  ---------
        Total debt .....................................    18,651.4   15,314.9
Credit balances of factoring clients ...................     1,302.1    1,202.6
Accrued liabilities and payables
    (Notes 12 and 14) ..................................       694.3      660.1
Deferred federal income taxes (Note 12) ................       703.7      603.6
                                                           ---------  ---------
        Total liabilities ..............................    21,351.5   17,781.2

Company-obligated mandatorily redeemable
    preferred securities of subsidiary
    trust holding solely debentures of
    the Company (Note 8) ...............................       250.0      250.0

Stockholders' equity (Notes 1 and 9)
Class A common stock, par value
    $0.01 per share;
    Authorized: 700,000,000 shares
    Issued: 163,144,879 shares in
        1998 and 37,173,527 shares
        in 1997
    Outstanding: 162,176,949 shares
        in 1998 and 37,173,527
        shares in 1997 .................................         1.7        0.4
Class B common stock, par value $0.01
    per share, 510,000,000 shares
    authorized and in 1997 126,000,000
    issued and outstanding .............................          --        1.3
Paid-in capital ........................................       952.5      948.3
Retained earnings ......................................     1,772.8    1,482.9
Treasury stock at cost (967,930
    shares; Class A) ...................................       (25.4)        --
                                                           ---------  ---------
        Total stockholders' equity .....................     2,701.6    2,432.9
                                                           ---------  ---------
        Total liabilities and
           stockholders' equity ........................   $24,303.1  $20,464.1
                                                           =========  =========

See accompanying notes to consolidated financial statements 


                                       30
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                                                     Years Ended December 31,
                                             -----------------------------------
                                               1998         1997         1996
                                             --------     --------     --------
                                                     Dollars in Millions
                                                 (except per share amounts)

Finance income ............................  $2,015.1     $1,824.7     $1,646.2
Interest expense ..........................   1,040.8        937.2        848.3
                                             --------     --------     --------
    Net finance income ....................     974.3        887.5        797.9
Fees and other income (Note 10) ...........     255.4        247.8        244.1
Gain on sale of equity interest 
    acquired in loan workout ..............        --         58.0           --
                                             --------     --------     --------
    Operating revenue .....................   1,229.7      1,193.3      1,042.0
                                             --------     --------     --------
Salaries and general operating 
    expenses (Notes 11, 14 and 15) ........     417.8        428.4        393.1
Provision for credit losses (Note 4) ......      99.4        113.7        111.4
Depreciation on operating lease 
    equipment (Note 5) ....................     169.5        146.8        121.7
Minority interest in subsidiary 
    trust holding solely
    debentures of the Company (Note 8) ....      19.2         16.3           --
                                             --------     --------     --------
    Operating expenses ....................     705.9        705.2        626.2
                                             --------     --------     --------
    Income before provision for 
       income taxes .......................     523.8        488.1        415.8
Provision for income taxes (Note 12) ......     185.0        178.0        155.7
                                             --------     --------     --------
    Net income ............................  $  338.8     $  310.1     $  260.1
                                             ========     ========     ========
Net income per basic share (Note 13) ......  $   2.09     $   1.96     $   1.65
Net income per diluted share (Note 13) ....  $   2.08     $   1.95     $   1.64

See accompanying notes to consolidated financial statements.


                                       31
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                Class A   Class B                                   Total     
                                    Common      Common    Common   Paid-in  Treasury   Retained  Stockholders'
                                     Stock       Stock    Stock    Capital    Stock    Earnings     Equity
                                    ------      -------  -------   -------  --------   --------  -------------
                                                                 Dollars in Millions              
<S>                                  <C>         <C>      <C>      <C>       <C>       <C>          <C>     
Balance, December 31, 1995 ........  $250.0                        $408.3              $1,255.9     $1,914.2
Net income ........................                                                       260.1        260.1
Cash dividends - regular ..........                                                       (98.9)       (98.9)
Cash dividends - special ..........                                                      (165.0)      (165.0)
Capital contribution ..............                                 165.0                              165.0
                                     ------      ----     ----     ------    ------    --------     --------
Balance, December 31, 1996 ........   250.0                         573.3               1,252.1      2,075.4
Net income ........................                                                       310.1        310.1
Cash dividends ....................                                                       (79.3)       (79.3)
Recapitalization to                                                                               
  Class B common                                                                                  
  stock shares (Note 1) ...........  (250.0)              $1.6      248.4                                0.0
Twenty percent of Class B                                                                         
  common shares bought                                                                            
  pursuant to option                                                                              
  agreement (Note 1) ..............                       (0.3)             $(808.0)                  (808.3)
Conversion of Class B                                                                             
  treasury stock shares to                                                                        
  Class A common stock                                                                            
  shares and issuance of                                                                          
  Class A to the public                                                                           
  (Note 1) ........................              $0.3                         808.0                    808.3
Issuance of underwriter's                                                                         
  overallotment of Class                                                                          
  A common stock shares,                                                                          
  net (Note 1) ....................               0.1               117.6                              117.7
Restricted Class A common                                                                         
  stock grants (Note 14) ..........                                   9.0                                9.0
                                     ------      ----     ----     ------    ------    --------     --------
Balance, December 31, 1997 ........     0.0       0.4      1.3      948.3       0.0     1,482.9      2,432.9
Net income ........................                                                       338.8        338.8
Cash dividends ....................                                                       (48.9)       (48.9)
Conversion of Class B                                                                             
  common stock to Class A                                                                         
  common stock shares                                                                             
  (Note 1) ........................               1.3     (1.3)                                          0.0
Repurchase of 967,930                                                                             
  shares of Class A common                                                                        
  stock (Note 9) ..................                                           (25.4)                   (25.4)
Costs relating to Class A                                                                         
  Common Stock                                                                                    
  offering (Note 1) ...............                                  (1.0)                              (1.0)
Restricted Class A common                                                               
  stock grants (Note 14) ..........                                   5.2                                5.2
                                     ------      ----     ----     ------    ------    --------     --------
Balance, December 31, 1998 ........  $  0.0      $1.7     $0.0     $952.5    $(25.4)   $1,772.8     $2,701.6
                                     ======      ====     ====     ======    ======    ========     ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       32
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    Years Ended December 31,
                                            ------------------------------------
                                               1998        1997        1996
                                               ----        ----        ----
                                                      Dollars in Millions

Cash flows from operations
Net income ..............................   $    338.8  $    310.1  $    260.1
Adjustments to reconcile net
  income to net cash flows
  from operations:
     Provision for credit losses ........         99.4       113.7       111.4
     Depreciation and amortization ......        195.9       168.6       140.3
     Provision for deferred federal
        income taxes ....................        100.2        80.3        54.1
     Gains on asset and receivable sales         (75.1)     (137.7)      (78.9)
     Increase in accrued liabilities
        and payables ....................         34.2        66.1       108.1
     Increase in other assets ...........        (89.2)      (54.0)      (65.9)
     Other ..............................         11.0         8.0        (3.7)
                                            ----------  ----------  ----------
        Net cash flows provided by
          operations ....................        615.2       555.1       525.5
                                            ----------  ----------  ----------
Cash flows from investing activities
Loans extended ..........................    (35,818.9)  (33,332.9)  (32,647.2)
Collections on loans ....................     32,463.4    31,419.7    31,132.2
Proceeds from asset and
  receivable sales ......................      1,381.3     1,747.5     1,144.9
Purchases of assets to be leased ........     (1,101.7)     (802.8)     (431.2)
Net increase in short-term
  factoring receivables .................       (255.4)     (238.8)       (0.3)
Purchases of finance receivables
  portfolios ............................       (600.0)     (176.6)     (661.3)
Proceeds from sales of assets
  received in satisfaction of loans .....         49.2        37.7        76.7
Purchases of investment securities ......        (36.9)      (27.5)      (20.8)
Other ...................................        (31.8)      (23.1)      (25.5)
                                            ----------  ----------  ----------
  Net cash flows used for
     investing activities ...............     (3,950.8)   (1,396.8)   (1,432.5)
                                            ----------  ----------  ----------
Cash flows from financing activities
Proceeds from the issuance of
  variable and fixed rate notes .........      6,863.5     4,532.7     4,776.0
Repayments of variable and fixed
  rate notes ............................     (4,111.5)   (3,556.1)   (3,461.8)
Net increase (decrease) in
  commercial paper ......................        584.5      (267.4)     (278.6)
Proceeds from nonrecourse
  leveraged lease debt ..................        155.3        43.7        58.1
Repayments of nonrecourse
  leveraged lease debt ..................       (148.7)     (162.3)     (146.2)
Cash dividends paid .....................        (48.9)      (79.3)     (263.9)
Purchase of treasury stock ..............        (25.4)         --          --
Proceeds from issuance of
  common stock, net .....................           --       926.0          --
Purchase of Class B common
  stock pursuant to
  option agreement ......................           --      (808.3)         --
Proceeds from the issuance
  of Company-obligated
  manditorily redeemable preferred
  securities of subsidiary
  trust holding solely debentures
  of the Company ........................           --       250.0          --
Capital contribution from stockholders ..           --          --       165.0
                                            ----------  ----------  ----------
  Net cash flows provided by
     financing activities ...............      3,268.8       879.0       848.6
                                            ----------  ----------  ----------
Net (decrease) increase in cash
  and cash equivalents ..................        (66.8)       37.3       (58.4)
Cash and cash equivalents,
  beginning of year .....................        140.4       103.1       161.5
                                            ----------  ----------  ----------
Cash and cash equivalents,
  end of year ...........................   $     73.6  $    140.4  $    103.1
                                            ==========  ==========  ==========
Supplemental disclosures
Interest paid ...........................   $  1,021.3  $    917.5  $    842.6
Federal and state and local
  income taxes paid .....................   $     81.4  $    102.1  $    102.5

See accompanying notes to consolidated financial statements.


                                       33
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--The Company

      The CIT  Group,  Inc.  (the  "Company"),  formerly  known as The CIT Group
Holdings, Inc., engages in secured commercial and consumer financing and leasing
activities through a nationwide distribution network.

      In  November  1998,  The  Dai-Ichi  Kangyo  Bank,   Limited  ("DKB")  sold
55,000,000  shares of Class A Common Stock in a secondary  public  offering (the
"Secondary Offering") for which it received all the proceeds. Prior to the sale,
DKB converted all of its Class B Common Stock into an identical number of shares
of  Class  A  Common  Stock,  which  is now  the  only  class  of  common  stock
outstanding.  DKB held  94.4% of the  combined  voting  power  and  77.2% of the
economic interest of all of the Company's  outstanding common stock prior to the
sale.  At December  31,  1998,  DKB held 43.8% of the voting  power and economic
interest of the Company's outstanding common stock.

      In November 1997, the Company issued  36,225,000  shares of Class A Common
Stock in an initial public offering (the "IPO"). Prior to the IPO, DKB owned 80%
of  the  Company's  issued  and  outstanding  stock,  and  The  Chase  Manhattan
Corporation  ("Chase")  owned the  remaining  20% of the issued and  outstanding
stock.  DKB had an option  expiring  December 15, 2000 to purchase the remaining
20% common stock interest from Chase.  In November  1997, the Company  purchased
DKB's  option at its fair market  value,  exercised  the option to purchase  the
stock held by Chase and  recapitalized the Company by converting the outstanding
common stock to  157,500,000  shares of Class B Common Stock.  Twenty percent of
the Class B Common Stock shares (which had five votes per share) were  converted
to Class A Common Stock  shares  (which has one vote per share) and, in addition
to an underwriter's  overallotment  option, were issued in the IPO. The issuance
of Class A Common Stock pursuant to the underwriter's  overallotment resulted in
an increase to the Company's stockholders' equity of $117.7 million.

Note 2--Summary of Significant Accounting Policies

Basis of Presentation

      The consolidated  financial  statements and accompanying notes include the
accounts  of  The  CIT  Group,  Inc.  and  its  subsidiaries.   All  significant
intercompany  transactions have been eliminated.  Prior period amounts have been
reclassified to conform to the current presentation.

Financing and Leasing Assets

      The  Company  provides  funding for a variety of  financing  arrangements,
including  term  loans,  lease  financing  and  operating  leases.  The  amounts
outstanding on loans and leases are referred to as finance receivables and, when
combined  with consumer  finance  receivables  held for sale,  net book value of
operating lease  equipment,  and certain  investments,  represent  financing and
leasing assets.

Income Recognition

      Finance  income  includes  interest on loans,  the  accretion of income on
direct financing leases, and rents on operating leases.  Related origination and
other nonrefundable fees and direct origination costs are deferred and amortized
as  an  adjustment  of  finance  income  over  the   contractual   life  of  the
transactions.  Income on  finance  receivables  other than  leveraged  leases is
recognized on an accrual  basis  commencing  in the month of  origination  using
methods that generally  approximate the interest method.  Leveraged lease income
is recognized  on a basis  calculated  to achieve a constant  after-tax  rate of
return  for  periods  in which the  Company  has a  positive  investment  in the
transaction, net of related deferred tax liabilities. Rental income on operating
leases is recognized on an accrual basis.

      The  accrual  of  finance  income on  commercial  finance  receivables  is
suspended  and an  account  is placed  on  nonaccrual  status  when  payment  of
principal  or  interest  is  contractually  delinquent  for 90 days or more,  or
earlier when, in the opinion of management, full collection of all principal and
interest  due is  doubtful.  Given the nature of  revolving  credit  facilities,
including  those  combined  with term loan  facilities  (advances  and  interest
accruals  increase  revolving loan balances and payments  reduce  revolving loan
balances),  the 


                                       34
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

placement of revolving  credit  facilities  on  nonaccrual  status  includes the
review of other  qualitative and  quantitative  factors,  and generally does not
result in the reversal of significant amounts of accrued interest. To the extent
the estimated  fair value of collateral  does not satisfy both the principal and
accrued  income  outstanding,  accrued  but  uncollected  income  at the date an
account is placed on nonaccrual  status is reversed and charged  against income,
though such amounts are generally not significant. Subsequent income received is
applied to the outstanding  principal  balance until such time as the account is
collected,  charged-off  or returned to accrual  status.  The accrual of finance
income  on  consumer  loans  is  suspended,   and  all  previously  accrued  but
uncollected  income is reversed,  when payment of principal  and/or  interest on
consumer finance receivables is contractually delinquent for 90 days or more.

      Fees and other income includes: (1) factoring commissions, (2) commitment,
facility,  letters of credit,  and syndication fees, (3) servicing fees, and (4)
gains  and  losses  from  the  sales  of  leasing  equipment,   venture  capital
investments, and the sales and securitizations of finance receivables.

Lease Financing

      Direct financing leases are recorded at the aggregate future minimum lease
payments plus estimated residual values less unearned finance income.  Operating
lease  equipment  is  carried  at  cost  less  accumulated  depreciation  and is
depreciated to estimated residual value using the straight-line  method over the
lease term or  projected  economic  life of the  asset.  Equipment  acquired  in
satisfaction of loans and subsequently  placed on operating lease is recorded at
the lower of  carrying  value or  estimated  fair  value  when  acquired.  Lease
receivables  include leveraged leases,  for which a major portion of the funding
is provided  by third party  lenders on a  nonrecourse  basis,  with the Company
providing the balance and acquiring title to the property.  Leveraged leases are
recorded at the aggregate  value of future minimum lease payments plus estimated
residual value,  less nonrecourse  third party debt and unearned finance income.
Management  performs  periodic reviews of the estimated  residual  values,  with
other than temporary impairment, if any, being recognized in the current period.

Reserve for Credit Losses on Finance Receivables

      The  consolidated  reserve for credit losses is periodically  reviewed for
adequacy considering  economic conditions,  collateral values and credit quality
indicators,  including  charge-off  experience  and levels of past due loans and
nonperforming  assets. It is management's judgment that the consolidated reserve
for credit  losses is adequate  to provide  for  potential  credit  losses.  The
Company reviews finance receivables periodically to determine the probability of
loss,  and takes  charge-offs  after  considering  such factors as the obligor's
financial condition and the value of underlying  collateral and guarantees.  The
consolidated reserve for credit losses is intended to provide for future events,
which by their nature are uncertain.  Therefore,  changes in economic conditions
or other  events  affecting  specific  obligors or  industries  may  necessitate
additions or deductions to the consolidated reserve for credit losses.

Charge-off of Finance Receivables

      Finance receivables are reviewed periodically to determine the probability
of loss.  Charge-offs are taken after considering such factors as the borrower's
financial  condition  and the  value of  underlying  collateral  and  guarantees
(including recourse to dealers and manufacturers). Such charge-offs are deducted
from the carrying value of the related finance  receivables.  To the extent that
an  unrecovered  balance  remains due, a final  charge-off  is taken at the time
collection  efforts  are no longer  deemed  useful.  Automatic  charge-offs  are
recorded on consumer  finance  receivables  beginning at 180 days of contractual
delinquency based upon historical loss severity, with charge-offs finalized upon
disposition of foreclosed assets.

Impaired Loans

      Impaired  loans are measured  based upon 1) the present  value of expected
future cash flows  discounted at the loan's  effective  interest rate, or 2) the
fair value of the  collateral,  if the loan is  collateral  dependent.  Impaired
loans include any loan  transaction  on  nonaccrual  status or any troubled debt
restructuring  entered into after December 31, 1994,  subject to periodic review
by the Company's Asset Quality Review Committee 


                                       35
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

("AQR").  The AQR is comprised of members of senior  management,  which  reviews
finance  receivables  of $500,000 or more  meeting  certain  credit risk grading
parameters. Excluded from impaired loans are: 1) certain individual small dollar
commercial  nonaccrual  loans (under  $500,000) for which the  collateral  value
supports  the  outstanding  balance,  2)  consumer  loans,  which are subject to
automatic   charge-off   procedures,   and  3)  short-term   factoring  customer
receivables,  generally  having terms of no more than 30 days.  In general,  the
impaired loans are collateral dependent. Any shortfall between the value and the
recorded  investment  in the loan is  recognized  by  recording a provision  for
credit losses.

Long-Lived Assets

      A review for  impairment of  long-lived  assets,  such as operating  lease
equipment,  is performed  whenever events or changes in  circumstances  indicate
that  the  carrying  amount  of  long-lived   assets  may  not  be  recoverable.
Recoverability  of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset.  If such assets are  considered to be impaired,  the impairment to be
recognized is measured by the amount by which the carrying  amount of the assets
exceeds the fair value of the assets.  Assets to be disposed of are  reported at
the lower of the carrying amount or fair value less costs to sell.

Other Assets

      The Company adopted  Statement of Financial  Accounting  Standards No. 125
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of Liabilities"  ("SFAS 125"),  as amended,  on January 1, 1997. SFAS 125 uses a
"financial  components" approach that focuses on control to determine the proper
accounting  for financial  asset  transfers and  addresses  the  accounting  for
servicing   rights  on   financial   assets  in  addition  to  mortgage   loans.
Securitizations of finance receivables are accounted for as sales when legal and
effective control over the related receivables is surrendered.  Servicing assets
or  liabilities  are  recognized  when the servicing  rights are retained by the
seller.

      In  accordance  with the  transition  rules  set  forth in SFAS  125,  the
Company,  on January 1, 1997,  reclassified  as servicing  assets the portion of
previously  recognized excess servicing assets that did not exceed contractually
specified servicing fees. The remaining balances of previously recognized excess
servicing   assets  are  included  in  other  assets  and  are   classified   as
available-for-sale  investment securities subject to the provisions of Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". The adoption of SFAS 125 did not have a significant
impact on the Company's financial position or results of operations.

      At the time management  decides to proceed with a securitization of loans,
such loans are  considered  available  for sale,  classified as other assets and
carried at the lower of aggregate cost or market value.  Certain  consumer loans
are originated and sold to trusts which, in turn, issue asset-backed  securities
to investors.  The Company  retains the  servicing  rights and  participates  in
certain cash flows from the loans.  The present value of expected net cash flows
which exceeds the estimated cost of servicing is recorded at the time of sale as
"interest-only  receivables" with any related gain recognized.  The Company,  in
its estimation of residual cash flows and interest-only receivables,  inherently
employs a variety of financial  assumptions,  including loan pool credit losses,
prepayment  speeds  and  discount  rates.   These  assumptions  are  empirically
supported  by both  the  Company's  historical  experience,  market  trends  and
anticipated trends relative to the particular products  securitized.  Subsequent
to the recording of interest-only  receivables,  the Company  regularly  reviews
such  assets  for  valuation  impairment.  These  reviews  are  performed  on  a
disaggregated  basis.  Fair values of  interest-only  receivables are calculated
utilizing current and anticipated credit losses,  prepayment speeds and discount
rates and are then compared to the Company's carrying values.  Carrying value of
the  Company's   interest-only   receivables  at  December  31,  1998  and  1997
approximated fair value.

      The excess of  purchase  price over fair market  value of assets  acquired
(goodwill) in connection  with business  acquisitions is amortized on a straight
line basis over a period not to exceed 25 years.


                                       36
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Assets  received  in  satisfaction  of loans are  carried  at the lower of
carrying value or estimated fair value less selling costs,  with  write-downs at
the time of receipt recognized by recording a charge-off. Subsequent write-downs
of such assets,  which may be required due to a decline in estimated fair market
value after receipt, are reflected in general operating expenses.

      Fixed  assets  such  as  computer  equipment,   furniture,  and  leasehold
improvements are stated at cost less accumulated  depreciation and amortization.
Depreciation and amortization are computed  principally  using the straight-line
method over the estimated useful lives of the related assets.

Derivative Financial Instruments

      The Company  uses  interest  rate swap  agreements  as part of its overall
interest rate risk  management.  These  transactions  are entered into as hedges
against the effects of future interest rate fluctuations and,  accordingly,  are
not carried at fair value. The Company does not enter into derivative  financial
instruments for trading or speculative purposes.

      The net interest  differential,  including  premiums paid or received,  if
any, on interest rate swaps,  is recognized on an accrual basis as an adjustment
to finance income or as interest  expense to correspond with the hedged asset or
liability  position,   respectively.   If  early  termination  of  a  derivative
instrument  occurs, the net proceeds paid or received are deferred and amortized
over the shorter of the  remaining  original  contract life of the interest rate
swap or the maturity of the hedged asset or liability position.

      The Company also uses  derivative  instruments  to hedge the interest rate
associated with the anticipated  securitization  of loans. Such transactions are
designated as hedges against a securitization that is probable and for which the
significant  characteristics  and terms have been identified but for which there
is no legally  binding  obligation.  The loans to be securitized  are considered
held for sale and are included in consumer finance  receivables held for sale in
the accompanying balance sheets. The net interest differential on the derivative
instrument,  including  premium paid or received,  if any, is  recognized  as an
adjustment to the basis of the corresponding  assets at the time of sale. If the
anticipated  securitization  does not occur, the related hedge position would be
liquidated with any gain or loss recognized at such time, and the related assets
would be reclassified to finance receivables.

Income Taxes

      Deferred  tax assets and  liabilities  are  recognized  for the future tax
consequences   attributable  to  temporary  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective tax bases.  Deferred tax assets and liabilities are determined  using
enacted  tax  rates  expected  to apply in the  year in  which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  is  recognized  in income at the time of enactment of a
change in tax rates.

      Federal  investment tax credits  realized for income tax purposes on lease
financing  transactions have been deferred for financial  statement purposes and
are included in deferred  federal income taxes.  Such credits are amortized as a
reduction of the provision  for income taxes using an actuarial  method over the
related lease term.

Segment Reporting

      The Company adopted Statement of Financial  Accounting  Standards No. 131,
"Disclosures  about  Segments of an Enterprise and Related  Information"  ("SFAS
131") in 1998. SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of
a Business  Enterprise,"  replacing  the  "industry  segment"  approach with the
"management"  approach.  The management  approach is based on the way management
organizes the segments for making operating decisions and assessing performance.
SFAS 131 also  requires  disclosure  about  products and  services,  significant
account balances,  and geographic areas. The adoption of SFAS 131 did not affect
results of  operations  or financial  position but did affect the  disclosure of
segment information. See Note 21 -- Business Segment Information.


                                       37
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Comprehensive Income

      The Company adopted Statement of Financial  Accounting  Standards No. 130,
"Reporting  Comprehensive  Income" in 1998.  This  statement does not change the
reporting of net income.  However,  it requires that all items that are required
to be recognized  under  accounting  standards as  components  of  comprehensive
income be reported in a separate financial  statement that is displayed with the
same prominence as other financial statements. This statement also requires that
an enterprise  display the  accumulated  balance of other  comprehensive  income
separately from retained earnings and paid-in-capital in the equity section of a
statement of financial position. There were no significant  comprehensive income
items at December 31, 1998, 1997 or 1996.

Consolidated Statements of Cash Flows

      Cash and cash  equivalents  includes cash and  interest-bearing  deposits,
which  generally  represent  overnight  money market  investments of excess cash
borrowed in the commercial  paper market and maintained for liquidity  purposes.
Cash inflows and outflows from  commercial  paper  borrowings and most factoring
receivables  are presented on a net basis in the  Statements  of Cash Flows,  as
their term is generally less than 90 days.

Use of Estimates

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported  amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.

Note 3--Finance Receivables

      Included in lease  receivables at December 31, 1998 and 1997 are leveraged
lease receivables of $792.2 million and $716.5 million, respectively.  Leveraged
lease  receivables  exclude the portion of lease  receivables  offset by related
nonrecourse debt payable to third party lenders of $1.9 billion at both December
31, 1998 and 1997,  including  amounts  owed to  affiliates  of DKB that totaled
$431.0 million in 1998 and $459.0 million in 1997. Finance  receivables  exclude
$2.5 billion of consumer finance  receivables at December 31, 1998 ($2.4 billion
in 1997) previously securitized and currently managed by the Company.

      Commercial  and consumer  loans are  presented  net of unearned  income of
$557.0 million and $584.3  million at December 31, 1998 and 1997,  respectively.
Lease  receivables  are presented net of unearned income of $1.1 billion at both
December 31, 1998 and 1997.

      The  following  table sets  forth the  contractual  maturities  of finance
receivables.

                                                  At December 31,
                                   ---------------------------------------------
                                         1998                     1997
                                   ------------------      -------------------
                                    Amount    Percent       Amount     Percent
                                   --------   -------      --------    -------
                                                Dollars in Millions

Due within one year .............  $ 7,948.8    40.0%      $ 6,540.9     36.9%
Due within one to two years .....    3,146.0    15.9         2,797.1     15.8
Due within two to four years ....    3,458.3    17.4         3,288.0     18.6
Due after four years ............    5,302.9    26.7         5,093.7     28.7
                                   ---------   -----       ---------    -----
 Total ..........................  $19,856.0   100.0%      $17,719.7    100.0%
                                   =========   =====       =========    =====

      Information   about   concentrations  of  credit  risk  is  set  forth  in
"Geographic Composition", "Industry Composition" and "Concentrations" in Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.


                                       38
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The  following   table  sets  forth  the   information   regarding   total
nonperforming assets.

                                                      At December 31,
                                                   --------------------
                                                    1998          1997
                                                    ----          ----
                                                    Dollars in Millions

Nonaccrual finance receivables .................   $211.4        $164.4
Assets received in satisfaction of loans .......     67.3          43.0
                                                   ------        ------
  Total nonperforming assets ...................   $278.7        $207.4
                                                   ======        ======
Percent to finance receivables .................     1.40%         1.17%
                                                   ======        ======

      At December 31, 1998 and 1997, the recorded  investment in impaired loans,
which are  generally  collateral  dependent,  totaled  $74.1  million  and $53.2
million,  respectively.  No SFAS 114  reserve  for credit  losses  was  required
because the fair value of the collateral or the present value of expected future
cash flows equaled or exceeded the recorded  investment for such impaired loans.
The average monthly recorded investment in the impaired loans was $73.2 million,
$71.6 million and $89.4 million for the years ended December 31, 1998,  1997 and
1996, respectively.  Cash collected on impaired loans is applied to the carrying
amount. There was no finance income recorded on these loans during 1998, 1997 or
1996 after being classified as impaired. The amount of finance income that would
have been recorded  under  contractual  terms for year-end  impaired loans would
have been $16.1  million,  $19.9 million,  and $24.7 million in 1998,  1997, and
1996, respectively.

Note 4--Reserve for Credit Losses

      The following table presents changes in the reserve for credit losses.

                                                      At December 31,
                                                -----------------------------
                                                  1998      1997       1996
                                                  ----      ----       ----
                                                     Dollars in Millions

Balance, January 1 ...........................  $ 235.6    $ 220.8    $ 206.0
                                                -------    -------    -------
Provision for credit losses ..................     99.4      113.7      111.4
Portfolio acquisitions, net ..................      7.5        2.1        4.9
                                                -------    -------    -------
  Net addition to the reserve             
    for credit losses ........................    106.9      115.8      116.3
                                                -------    -------    -------
Finance receivables charged-off ..............   (103.7)    (123.5)    (122.2)
Recoveries on finance receivables         
  previously charged-off .....................     24.9       22.5       20.7
                                                -------    -------    -------
  Net credit losses ..........................    (78.8)    (101.0)    (101.5)
                                                -------    -------    -------
Balance, December 31 .........................  $ 263.7    $ 235.6    $ 220.8
                                                =======    =======    =======
Reserve for credit losses as a            
  percentage of finance receivables ..........      1.33%      1.33%      1.30%
                                                =======    =======    =======


                                       39
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 5--Operating Lease Equipment

      The following  table provides an analysis of operating  lease equipment by
equipment  type, net of accumulated  depreciation  of $457.2 million in 1998 and
$375.6 million in 1997.

                                                              At December 31,
                                                          ----------------------
                                                            1998          1997
                                                            ----          ----
                                                            Dollars in Millions

Commercial aircraft ...................................   $1,094.7      $  822.7
Railroad equipment ....................................      806.0         429.0
Business aircraft .....................................      318.7         295.6
Trucks, trailers and buses ............................      187.0         172.2
Manufacturing .........................................      147.2         101.3
Other .................................................      220.5          84.8
                                                          --------      --------
  Total ...............................................   $2,774.1      $1,905.6
                                                          ========      ========

      Included in the  preceding  table is equipment  not  currently  subject to
lease  agreements  of $27.2  million and $2.4  million at December  31, 1998 and
1997, respectively.

      Commitments  to  purchase  equipment  from  manufacturers  to be placed on
operating lease totaled $449.9 million at December 31, 1998. Agreements to lease
this  equipment to third  parties  have been entered into for $157.0  million at
December  31,  1998.  There  were no  commitments  to  purchase  equipment  from
manufacturers to be placed on operating lease at December 31, 1997.

      Rental income on operating  leases,  which is included in finance  income,
totaled  $314.1  million in 1998,  $231.8 million in 1997, and $182.4 million in
1996.   The  following   table   presents   future   minimum  lease  rentals  on
non-cancelable  operating  leases as of December  31, 1998.  Excluded  from this
table are variable  rentals  calculated on the level of asset usage,  re-leasing
rentals, and expected sales proceeds from remarketing  operating lease equipment
at lease  expiration,  all of which are important  components of operating lease
profitability.

                                                        Years Ended December 31,
                                                        ------------------------
                                                          Dollars in Millions

1999 ......................................................    $  353.2
2000 ......................................................       288.6
2001 ......................................................       237.0
2002 ......................................................       170.4
2003 ......................................................       120.3
Thereafter ................................................       208.1
                                                               --------
   Total ..................................................    $1,377.6
                                                               ========


                                       40
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 6--Debt

      The following table presents data on commercial paper borrowings.

                                                        At December 31,
                                               --------------------------------
                                                1998         1997        1996
                                                ----         ----        ----
                                                      Dollars in Millions

Borrowings outstanding .....................  $6,144.1     $5,559.6    $5,827.0
Weighted average interest rate .............      5.35%        5.86%       5.45%
Weighted average maturity ..................   38 days      43 days     32 days

                                                For the Years ended December 31,
                                               ---------------------------------
                                                1998         1997        1996
                                                ----         ----        ----
                                                      Dollars in Millions

Daily average borrowings ...................  $6,572.1     $6,320.7    $5,892.7
Maximum amount outstanding .................  $7,655.9     $7,039.4    $6,666.3
Weighted average interest rate .............      5.51%        5.56%       5.44%
(excluding amounts related to 
  interest bearing deposits)

      The following  tables present the contractual  maturities of total debt at
December 31, 1998.

<TABLE>
<CAPTION>
                                                                         At December 31,
                                                                      ---------------------
                                         Commercial  Variable rate     1998          1997
                                            paper     senior notes     Total         Total
                                            -----     ------------     -----         -----
                                                         Dollars in Millions
<S>                                       <C>          <C>           <C>              <C>  
Due in 1998 (rates ranging from
  5.58% to 5.90%) ......................  $     --     $     --      $      --     $8,021.1
Due in 1999 (rates ranging from
  4.40% to 5.88%) ......................   6,144.1      3,705.0        9,849.1        380.0
Due in 2000 (rates ranging from
  4.91% to 5.76%) ......................        --        550.0          550.0           --
Due in 2003 (rates ranging from
  5.81% to 5.96%) ......................        --         20.0           20.0         20.0
                                          --------     --------      ---------     --------
    Total ..............................  $6,144.1     $4,275.0      $10,419.1     $8,421.1
                                          ========     ========      =========     ========

<CAPTION>
                                                                         At December 31,
                                                                      ---------------------
                                              Fixed rate notes          1998          1997
                                           Senior     Subordinated     Total         Total
                                           ------     ------------     -----         -----
<S>                                       <C>            <C>          <C>          <C>     
Due in 1998 (rates ranging from
  5.63% to 8.75%) ......................  $     --       $   --       $     --     $1,650.0
Due in 1999 (rates ranging from
  5.38% to 6.63%) ......................   1,881.0           --        1,881.0      1,881.0
Due in 2000 (rates ranging from
  5.00% to 6.80%) ......................   2,222.0           --        2,222.0      1,095.0
Due in 2001 (rates ranging from
  5.50% to 9.25%) ......................   1,475.0        200.0        1,675.0        700.0
Due in 2002 (rates ranging from
  5.92% to 7.13%) ......................   1,050.0           --        1,050.0        950.0
Due in 2003 (rates ranging from
  5.57% to 6.00%) ......................     755.0           --          755.0           --
Due after 2003 (rates ranging from
  5.69% to 6.63%) ......................     658.6           --          658.6        628.6
                                          --------       ------       --------     --------
Face amount of maturities ..............   8,041.6        200.0        8,241.6      6,904.6
Issue discount .........................      (9.3)          --           (9.3)       (10.8)
                                          --------       ------       --------     --------
    Total ..............................  $8,032.3       $200.0       $8,232.3     $6,893.8
                                          ========       ======       ========     ========
</TABLE>


                                       41
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Fixed rate senior and  subordinated  debt outstanding at December 31, 1998
matures at various  dates  through 2008 at interest  rates ranging from 5.00% to
9.25%. The consolidated weighted average interest rates on fixed rate senior and
subordinated  debt  at  December  31,  1998  and  1997  were  6.11%  and  6.39%,
respectively.  Variable rate senior notes  outstanding at December 31, 1998 with
interest rates ranging from 4.40% to 5.81% mature at various dates through 2003.
The  consolidated  weighted average interest rates on variable rate senior notes
at December 31, 1998 and 1997 were 4.93% and 5.66%, respectively.

      The following table represents information on unsecured revolving lines of
credit with 53 banks that support  commercial  paper  borrowings at December 31,
1998.

                                                               Maturity Amount
                                                              ----------------
                                                             Dollars in Millions

April 1999 .....................................................   $1,240.0
April 2002 .....................................................    3,720.0
                                                                   --------
  Total credit lines ...........................................   $4,960.0
                                                                   ========

      The credit  line  agreements  contain  clauses  that allow the  Company to
extend the termination dates upon written consent from the participating banks.

Note 7--Derivative Financial Instruments

      As part of managing the exposure to changes in market interest rates,  the
Company,  as an end-user,  enters into various interest rate swap  transactions,
all of which are  transacted  in  over-the-counter  (OTC)  markets,  with  other
financial  institutions  acting as  principal  counterparties.  The Company uses
off-balance sheet derivatives for hedging purposes only, and does not enter into
derivative financial  instruments for trading or speculative purposes. To ensure
both appropriate use as a hedge and hedge accounting treatment,  all derivatives
entered into are designated,  according to hedge objective,  against  commercial
paper, a specifically  underwritten debt issue or a specific pool of assets. The
Company's  primary  hedge  objectives  include the  conversion  of variable rate
liabilities to fixed rates, the conversion of fixed rate liabilities to variable
rates,  the fixing of spreads on variable  rate  liabilities  to various  market
indices  and the  elimination  of  interest  rate  risk on  finance  receivables
classified  as held for sale  prior to  securitization.  The  notional  amounts,
rates, indices and maturities of the Company's off-balance sheet derivatives are
required to closely match the related  terms of the Company's  hedged assets and
liabilities.

      The following  table  presents the notional  principal  amounts,  weighted
average  interest  rates  expected to be  received  or paid and the  contractual
maturities of interest rate swaps at December 31, 1998.

<TABLE>
<CAPTION>

Years ending                 Floating to                     Fixed to                       Floating to
December 31,                 Fixed Rate                    Floating Rate                   Floating Rate
------------       -----------------------------   ----------------------------   ----------------------------
                                                   Notional Amounts in Millions
                   Notional    Receive      Pay    Notional   Receive      Pay    Notional    Receive     Pay
                    Amount      Rate       Rate     Amount     Rate       Rate     Amount      Rate      Rate
                   --------    -------     ----    --------   -------     ----    --------    ------     ----
<S>                <C>          <C>        <C>     <C>         <C>        <C>      <C>         <C>       <C>
1999 ............  $  925.0     5.42%      6.15%   $    --        --         --    $130.0      4.43%     5.71%
2000 ............     760.0     5.48%      6.95%      20.0     6.15%      5.07%        --        --        --
2001 ............   1,021.7     5.48%      6.12%     200.0     5.82%      5.22%        --        --        --
2002 ............     560.0     5.35%      5.69%        --        --         --        --        --        --
2003 ............     269.7     5.57%      6.03%        --        --         --        --        --        --
2004-2008 .......     204.1     5.62%      5.98%     200.0     5.92%      5.09%        --        --        --
                   --------     ----       ----    -------     ----       ----     ------      ----      ----
                   $3,740.5                        $ 420.0                         $130.0    
                   ========                        =======                         ======    
Weighted                                                                 
average rate ....               5.46%      6.22%               5.88%      5.15%                4.43%     5.71%
                                ====       ====                ====       ====                 ====      ==== 
</TABLE>
                                                                        
      All rates were those in effect at December  31, 1998.  Variable  rates are
based on the contractually  determined rate or other market rate indices and may
change significantly, affecting future cash flows.


                                       42
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The following  table presents the notional  principal  amounts of interest
rate swaps by class and the corresponding hedged liability position.

                        Notional Amounts
Interest Rate Swaps        in Millions                       Comments
------------------       ---------------                     ---------
Floating to fixed 
  rate swaps Hedging 
  commercial paper          $2,940.5      Effectively converts the interest rate
                                          on an equivalent amount of  commercial
                                          paper to a fixed rate.

  Hedging variable 
    rate notes                 800.0      Effectively converts the interest rate
                                          on an equivalent  amount  of  variable
                                          rate  notes  with  matched  terms to a
                                          fixed rate.
                            --------      --------------------------------------
  Total floating 
    to fixed
    rate swaps               3,740.5
                            --------
Fixed to floating 
  rate swaps
  Hedging fixed 
  rate notes                   420.0      Effectively converts the interest rate
                                          on an  equivalent amount of fixed rate
                                          notes to a variable rate.
Basis swaps
  Hedging variable 
    rate debt                  130.0      Effectively  fixes the  spread between
                                          the rates  on  an equivalent amount of
                                          variable rate notes and various market
                                          interest rate indices.
                            --------      --------------------------------------
Total interest
  rate swaps                $4,290.5
                            ========


      The  Company's  hedging  activity  increased  interest  expense  by  $23.4
million,  $24.2 million and $27.8 million in 1998, 1997 and 1996,  respectively,
over the interest  expense that would have been incurred with an identical  debt
structure but without the Company's hedging activity.  However, this calculation
of interest  expense  does not take into  account any actions the Company  could
have taken to reduce interest rate risk in the absence of hedging activity, such
as  issuing  more fixed  rate debt that  would  also tend to  increase  interest
expense.

      Basis swap agreements  involve the exchange of two different floating rate
interest  payment  obligations  and are used to manage  the basis  risk  between
floating rate indices.

      The Company is party to cross-currency interest rate swaps with a notional
principal amount of $218.6 million paying interest at a weighted average rate of
5.15% at December 31, 1998, that  effectively  converted yen  denominated  fixed
rate  debt  into  variable  rate  U.S.  dollar  obligations.  These  swaps  have
maturities ranging from 1999 to 2006 that correspond with the terms of the debt.

      The Company is exposed to credit risk to the extent a  counterparty  fails
to perform  under the terms of an interest  rate swap.  This risk is measured as
the market  value of  interest  rate swaps with a  positive  fair  value,  which
totaled  $37.2  million at December 31,  1998,  reduced by the effects of master
netting  agreements  as  presented  in  Note  18 --  Fair  Values  of  Financial
Instruments.   However,   due  to  the   investment   grade  credit  ratings  of
counterparties and limits on the exposure with any individual counterparty,  the
Company's actual counterparty credit risk is not considered significant.

Note 8--Preferred Capital Securities

      In  February  1997,  CIT Capital  Trust I (the  "Trust"),  a  wholly-owned
subsidiary of the Company,  issued  $250.0  million of 7.70%  Preferred  Capital
Securities  (the  "Capital  Securities")  in  a  private  offering.   The  Trust
subsequently  invested the offering proceeds in Junior  Subordinated  Debentures
(the "Debentures") of the Company, having identical rates and payment dates. The
Debentures of the Company represent the sole assets of the Trust. Holders of the
Capital Securities are entitled to receive cumulative distributions at an annual
rate of 7.70% through either the  redemption  date or maturity of the Debentures
(February 15,  2027).  Both the Capital  Securities  issued by the Trust and the
Debentures of the Company owned by the Trust are 


                                       43
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

redeemable  in whole or in part on or after  February 15, 2007 or at any time in
whole upon changes in specific tax  legislation,  bank regulatory  guidelines or
securities law.  Distributions by the Trust are guaranteed by the Company to the
extent that the Trust has funds available for distribution.  The Company records
distributions  payable on the Capital  Securities as an operating expense in the
Consolidated Statements of Income.

Note 9--Stockholders' Equity

      Under  the  most   restrictive   provisions  of  agreements   relating  to
outstanding  debt,  the Company  may not,  without the consent of the holders of
such debt, permit stockholders' equity to be less than $200.0 million.

      During 1998, the Company's  Board of Directors  authorized the purchase of
up to 2,000,000  shares of its common  stock to provide  shares for its employee
compensation  programs.  Stock  repurchases  are authorized to take place over a
twelve month period ending August 1999, and may be made from time to time in the
open market or in privately negotiated transactions.  Through December 31, 1998,
the Company repurchased 967,930 shares.

Note 10--Fees and Other Income

      The following table sets forth the components of fees and other income.

                                                     Years Ended December 31,
                                                 ------------------------------
                                                   1998       1997       1996
                                                  ------     ------     ------
                                                       Dollars in Millions

Factoring commissions ......................      $ 95.7     $ 95.2     $ 91.0
Fees and other income ......................        90.7       73.8       83.6
Gains on sales of leasing equipment ........        45.2       30.1       36.6
Gains on securitizations ...................        12.5       32.0       14.9
Gains on sales of venture capital                                     
  investments ..............................        11.3       16.7       18.0
                                                  ------     ------     ------
  Total ....................................      $255.4     $247.8     $244.1
                                                  ======     ======     ======

Note 11--Salaries and General Operating Expenses                    

      The  following  table sets forth the  components  of salaries  and general
operating expenses.

                                                     Years Ended December 31,
                                                 ------------------------------
                                                   1998       1997       1996
                                                  ------     ------     ------
                                                       Dollars in Millions

Salaries and employee benefits .............      $245.4     $253.5     $223.0
General operating expenses .................       172.4      174.9      170.1
                                                  ------     ------     ------
  Total ....................................      $417.8     $428.4     $393.1
                                                  ======     ======     ======


                                       44
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 12--Income Taxes

      The  effective tax rate of the Company  varied from the statutory  federal
corporate income tax rate as follows:

                                                      Years Ended December 31,
                                                   ----------------------------
                                                    1998       1997       1996
                                                    ----       ----       ----
                                                    Percentage of Pretax Income

Federal income tax rate .......................     35.0%      35.0%      35.0%
Increase (decrease) due to:
  State and local income taxes,
     net of federal income tax benefit ........      3.0        3.7        4.5
  Investment tax credits ......................     (0.2)      (0.2)      (0.3)
  Other .......................................     (2.5)      (2.0)      (1.8)
                                                    ----       ----       ---- 
Effective tax rate ............................     35.3%      36.5%      37.4%
                                                    ====       ====       ==== 

      The provision for income taxes is comprised of the following:

                                                      Years Ended December 31,
                                                   ----------------------------
                                                    1998       1997       1996
                                                    ----       ----       ----
                                                       Dollars in Millions

Current federal income tax provision .......      $ 60.4     $ 70.0     $ 72.9
Deferred federal income tax provision ......       100.2       80.3       54.1
                                                  ------     ------     ------
Total federal income taxes .................       160.6      150.3      127.0
State and local income taxes ...............        24.4       27.7       28.7
                                                  ------     ------     ------
  Total provision for income taxes .........      $185.0     $178.0     $155.7
                                                  ======     ======     ======

      The tax effects of  temporary  differences  that give rise to  significant
portions of the deferred federal income tax assets and liabilities are presented
below.

                                                            At December 31,
                                                        ----------------------
                                                          1998         1997
                                                          ----         ----
                                                          Dollars in Millions
ASSETS
   Provision for credit losses ...................      $ (88.9)      $ (93.3)
   Loan origination fees .........................        (11.3)         (9.2)
   Other .........................................        (24.3)        (47.1)
                                                        -------       -------
      Total deferred tax assets ..................       (124.5)       (149.6)
                                                        -------       -------
LIABILITIES
   Leasing transactions ..........................        778.3         679.0
   Market discount income ........................         33.7          55.8
   Amortization of intangibles ...................          8.7           9.9
   Depreciation of fixed assets ..................          0.7           1.5
   Prepaid pension costs .........................          0.6           1.0
   Other .........................................          3.1           1.8
                                                        -------       -------
      Total deferred tax liabilities .............        825.1         749.0
                                                        -------       -------
Net deferred tax liability .......................      $ 700.6       $ 599.4
                                                        =======       =======

      Also,  included  in  deferred  federal  income  taxes on the  Consolidated
Balance Sheets are  unamortized  investment tax credits of $3.1 million and $4.2
million at  December  31, 1998 and 1997,  respectively.  Included in the accrued
liabilities and payables  caption in the  Consolidated  Balance Sheets are state
and local  deferred  tax  liabilities  of $124.7  million and $103.6  million at
December 31, 1998 and 1997, respectively, arising from the temporary differences
shown in the above tables.


                                       45
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 13--Earnings Per Share

      In  February  1997,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial  Accounting Standards No. 128 "Earnings per Share" ("SFAS
128").  SFAS 128 establishes  standards for the  presentation and disclosure for
earnings per share ("EPS").  It also  simplifies the standards for computing EPS
and makes them comparable to international EPS standards.  SFAS 128 replaces the
presentation  of  primary  and fully  diluted  EPS with basic and  diluted  EPS,
respectively,  and requires the  reconciliation of the numerator and denominator
of basic EPS with that of diluted  EPS.  Basic EPS is computed  by dividing  net
income  by the  weighted-average  number of common  shares  outstanding  for the
period.  The diluted EPS computation  includes the potential  impact of dilutive
securities  including  stock options and restricted  stock grants.  The dilutive
effect of stock  options is computed  using the  treasury  stock  method,  which
assumes the  repurchase  of common  shares by the Company at the average  market
price  for the  period.  In  accordance  with SFAS 128,  options  which  have an
anti-dilutive   effect  are  not  included  in  the  denominator  and  were  not
significant  at December 31,  1998.  The  reconciliation  of the  numerator  and
denominator  of basic EPS with that of diluted  EPS is  presented  for the years
ended December 31, 1998, 1997, and 1996.

                                            For the Year Ended December 31, 1998
                                           -------------------------------------
                                             Income       Shares       Per-Share
                                           (Numerator) (Denominator)     Amount
                                           ----------- -------------     ------
                                                    Dollars in Millions
                                                (except per share amounts)
Basic EPS:
   Income available to common
     shareholders .....................      $338.8     161,987,897      $ 2.09
Effect of Dilutive Securities:                         
   Restricted shares ..................          --         936,250       (0.01)
   Stock options ......................          --         264,592          --
                                             ------     -----------      ------
Diluted EPS ...........................      $338.8     163,188,739      $ 2.08
                                             ======     ===========      ======
                                                      
                                            For the Year Ended December 31, 1997
                                           -------------------------------------
                                             Income       Shares       Per-Share
                                           (Numerator) (Denominator)     Amount
                                           ----------- -------------     ------
                                                    Dollars in Millions
                                                (except per share amounts)
Basic EPS:
   Income available to common 
     shareholders .....................      $310.1     158,134,315      $ 1.96
Effect of Dilutive Securities:
   Restricted shares ..................          --         948,527       (0.01)
   Stock options ......................          --          71,440          --
                                             ------     -----------      ------
Diluted EPS ...........................      $310.1     159,154,282      $ 1.95
                                             ======     ===========      ======

                                            For the Year Ended December 31, 1996
                                           -------------------------------------
                                             Income       Shares       Per-Share
                                           (Numerator) (Denominator)     Amount
                                           ----------- -------------     ------
                                                    Dollars in Millions
                                                (except per share amounts)
Basic EPS:
   Income available to common 
     shareholders .....................      $260.1     157,500,000      $ 1.65
Effect of Dilutive Securities:
   Restricted shares ..................          --         948,527       (0.01)
                                             ------     -----------      ------
Diluted EPS ...........................      $260.1     158,448,527      $ 1.64
                                             ======     ===========      ======


                                       46
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 14 -- Postretirement and Other Benefit Plans

Retirement and Postretirement Medical and Life Insurance Benefit Plans

      Substantially  all employees of the Company who have completed one year of
service  and are 21 years of age  participate  in The CIT Group  Holdings,  Inc.
Retirement Plan (the "Plan").  The retirement  benefits under the Plan are based
on the employee's age, years of benefit service,  and a percentage of qualifying
compensation  during  the final  years of  employment.  Plan  assets  consist of
marketable securities,  including common stock and government and corporate debt
securities.  The Company funds the Plan to the extent it qualifies for an income
tax  deduction.  Such  funding is  charged to  salaries  and  employee  benefits
expense.

      The Company also provides certain health care and life insurance  benefits
to eligible retired employees.  Salaried participants  generally become eligible
for retiree  health care benefits after reaching age 55 with 10 years of benefit
service and 11 years of medical plan participation. Generally, the medical plans
pay a stated percentage of most medical expenses reduced by a deductible as well
as by payments made by government  programs and other group coverage.  The plans
are unfunded.

      During  1998,  the  Company  adopted  Statement  of  Financial  Accounting
Standards  No.  132,  "Employers'  Disclosures  about  Pensions  and Other  Post
Retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about
pension  and  other  post  retirement  benefit  plans  but does not  change  the
measurement  or  recognition  of those  plans.  SFAS 132 also  standardizes  the
disclosure   requirements  to  the  extent   practicable,   requires  additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no longer useful.

      The following tables set forth the change in obligations, plan assets, and
funded status of the plans as well as the net periodic benefit cost.

<TABLE>
<CAPTION>
                                                              At or for the Years Ended December 31,
                                             ---------------------------------------------------------------
                                                   Retirement Benefits             Postretirement Benefits
                                             -------------------------------     ---------------------------
                                               1998        1997       1996       1998       1997        1996
                                               ----        ----       ----       ----       ----        ----
                                                                      Dollars in Millions
<S>                                           <C>         <C>         <C>        <C>        <C>        <C>  
Change in Benefit Obligations
Benefit obligation at beginning 
  of year ................................    $100.4      $ 84.0      $79.9      $35.0      $34.9      $40.4
Service cost .............................       6.3         5.2        5.3        1.5        1.3        1.1
Interest cost ............................       6.9         6.2        5.7        2.3        2.3        2.4
Actuarial (gain)/loss ....................       7.0         7.8       (4.1)       1.2       (1.3)      (7.3)
Benefits paid ............................      (2.5)       (2.8)      (2.8)      (2.8)      (2.2)      (1.7)
                                             -------     -------      -----      -----      -----      -----
Benefit obligation at end of year ........   $ 118.1     $ 100.4      $84.0      $37.2      $35.0      $34.9
                                             =======     =======      =====      =====      =====      =====

<CAPTION>
                                                              At or for the Years Ended December 31,
                                                   -------------------------------------------------------
                                                    Retirement Benefits            Postretirement Benefits
                                                   ---------------------           -----------------------
                                                    1998           1997             1998           1997
                                                    ----           ----             ----           ----
                                                                      Dollars in Millions
<S>                                                <C>            <C>              <C>            <C>   
Change in Plan Assets
Fair value of plan assets at 
  beginning of year ............................   $128.5         $109.9           $  0.0         $  0.0
Actual return on plan assets ...................      6.8           21.4               --             --
Employer contributions .........................       --             --              2.8            2.2
Benefits paid ..................................     (2.5)          (2.8)            (2.8)          (2.2)
                                                   ------         ------           ------         ------
Fair value of plan assets at 
  end of year ..................................   $132.8         $128.5           $  0.0         $  0.0
                                                   ======         ======           ======         ======
Reconciliation of Funded Status  
  at End of Year
Funded status ..................................   $ 14.7         $ 28.1           $(37.2)        $(35.0)
Unrecognized prior service cost ................     (1.5)          (1.6)              --             --
Unrecognized net (gain)/loss ...................     (4.7)         (18.2)            (6.2)          (8.3)
Unrecognized net transition obligation .........       --             --             22.9           24.6
                                                   ------         ------           ------         ------
Prepaid/(accrued) benefit cost .................   $  8.5         $  8.3           $(20.5)        $(18.7)
                                                   ======         ======           ======         ====== 
</TABLE>


                                       47
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
                                                                For the Years Ended December 31,
                                               --------------------------------------------------------------
                                                     Retirement Benefits            Postretirement Benefits
                                               ------------------------------    ----------------------------
                                                 1998        1997       1996        1998       1997      1996
                                                 ----        ----       ----        ----       ----      ----
<S>                                              <C>         <C>         <C>        <C>        <C>       <C>  
Weighted Average Assumptions
Discount rate ...............................    6.50%       7.00%       7.50%      6.50%      7.00%     7.50%
Rate of compensation increase ...............    4.25%       4.50%       4.50%      4.25%      4.50%     4.50%
Expected return on plan assets ..............   10.00%      10.00%      10.00%       --         --        --
</TABLE>

      For 1998,  the assumed health care cost trend rates decline to an ultimate
level  of  4.50%  in 2005  for all  retirees;  for  1997,  4.50% in 2004 for all
retirees; and for 1996, 4.75% in 2001 for employees prior to reaching age 65 and
4.75% in 1998 for retirees older than 65.

<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                             ----------------------------------------------------------------
                                                  Retirement Benefits              Postretirement Benefits
                                             ------------------------------    ------------------------------
                                                1998        1997       1996      1998        1997       1996
                                                ----        ----       ----      ----        ----       ----
                                                                      Dollars in Millions
<S>                                            <C>         <C>        <C>        <C>        <C>        <C>  
Components of Net Periodic 
  Benefit Cost
Service cost ................................  $ 6.3       $ 5.2      $ 5.3      $ 1.5      $ 1.3      $ 1.1
Interest cost ...............................    6.9         6.2        5.7        2.3        2.3        2.4
Expected return on plan assets ..............  (12.8)      (10.8)     (10.1)        --         --         --
Amortization of prior service cost ..........   (0.2)       (0.2)      (0.2)        --         --         --
Amortization of transition 
  obligation ................................     --          --         --        1.6        1.7        1.7
Amortization of gains .......................   (0.5)       (0.4)        --       (0.8)      (0.8)      (0.6)
                                              ------       -----      -----      -----      -----      -----
Total net periodic (benefit)/expense ........ $ (0.3)      $  --      $ 0.7      $ 4.6      $ 4.5      $ 4.6
                                              ======       =====      =====      =====      =====      =====
</TABLE>

      Assumed  healthcare  cost  trend  rates have a  significant  effect on the
amounts  reported for the  healthcare  plans. A  one-percentage  point change in
assumed health care cost trend rates would have the following effects:

                                                          For the Years Ended
                                                       -------------------------
                                                        Postretirement Benefits
                                                         1998             1997
                                                         ----             ----
                                                          Dollars in Millions

Effect of One-Percentage Point Increase on:
   Year-end benefit obligation .......................  $ 2.6            $ 2.4
   Total of service and interest cost components .....    0.4              0.3

Effect of One-Percentage Point Decrease on:
   Year-end benefit obligation .......................  $(2.4)           $(2.2)
   Total of service and interest cost components .....   (0.3)            (0.3)

Savings Incentive Plan

      Certain  employees of the Company  participate in The CIT Group  Holdings,
Inc.  Savings  Incentive  Plan.  This plan qualifies under section 401(k) of the
Internal Revenue Code. The Company's expense is based on specific percentages of
employee  contributions  and  plan  administrative  costs  and  aggregated  $9.6
million, $9.0 million and $9.1 million, for 1998, 1997, and 1996, respectively.

Corporate Annual Bonus Plan

      The CIT Group Bonus Plan ("Bonus  Plan") is an annual bonus plan  covering
certain executive officers and other employees.  The amount of awards depends on
a variety of factors, including corporate performance and individual performance
during the calendar year for which awards are made.  All or part of a cash award
for a particular year may be paid currently or deferred and paid upon retirement
in up to five annual  installments at the option of the participant.  All awards
are subject to appropriate taxes and deferred amounts are credited annually with
interest.  For the years ended December 31, 1998,  1997, and 1996,  expenses for
the Bonus Plan amounted to $18.6  million,  $18.5  million,  and $17.4  million,
respectively.


                                       48
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-Term Equity Compensation Plan

      The Company sponsors a Long-Term Equity Compensation Plan (the "ECP"). The
ECP allows the Company to issue to employees up to 12,503,000  shares of Class A
Common  Stock  through  grants  of  annual  incentive   awards,   incentive  and
non-qualified  stock  options,  stock  appreciation  rights,  restricted  stock,
performance shares, and performance units. Class A Common Stock issued under the
ECP may be either  authorized  but  unissued  shares,  treasury  shares,  or any
combination  thereof. All options granted have 10 year terms. Options granted in
1997 vest at various  anniversary  dates through 2002.  Options  granted in 1998
vest  one-third  on the  first  anniversary  of the  date of  grant  (1999),  an
additional  one-third on the second anniversary of the date of grant (2000), and
in full on the third anniversary of the date of grant (2001).

      Common stock data for the stock option plans is summarized as follows:

<TABLE>
<CAPTION>
                                                 1998                        1997
                                       --------------------------    --------------------------
                                                   Average Option               Average Option
                                         Shares   Price Per Share    Shares     Price Per Share
                                         ------   ---------------    ------     ---------------
<S>                                    <C>            <C>           <C>             <C>
Outstanding at beginning 
  of year ...........................  4,038,298      $27.00               --           --
Granted .............................    892,120      $29.08        4,047,816       $27.00
Exercised ...........................       (921)     $27.00               --           --
Forfeited ...........................   (163,388)     $27.01           (9,518)      $27.00
                                       ---------      ------        ---------       ------
Outstanding at end of year ..........  4,766,109      $27.39        4,038,298       $27.00
                                       ---------      ------        ---------       ------
Options exercisable at year end .....    903,438      $27.00            1,062       $27.00
                                       ---------      ======        ---------       ======
Weighted average fair value                                                        
  of options granted during                                                        
  the year ..........................     $ 9.41                       $ 8.32      
                                          ======                       ======      
</TABLE>
                                                                                
      Fair value was  determined  at the date of grant  using the  Black-Scholes
option pricing model which assumed the following:

<TABLE>
<CAPTION>

 Option                         Expected          Average           Expected             Risk Free
Issuance                   Option Life Range   Dividend Yield   Volatility Range    Interest Rate Range
--------                   -----------------   --------------   ----------------    -------------------
<S>                            <C>                  <C>           <C>                   <C>
  1998 ...................     3-5 years            1.37%         29.39%-40.93%         4.54%-5.63%
  1997 ...................     3-7 years            1.33%         29.48%-31.39%         5.76%-5.90%
</TABLE>

      The following table summarizes information about stock options outstanding
and options exercisable at December 31, 1998:

<TABLE>
<CAPTION>
                                   Options Outstanding                      Options Exercisable
                      ----------------------------------------------   ----------------------------
    Range of                            Remaining        Weighted                       Weighted
    Exercise             Number        Contractual        Average        Number         Average
     Price            Outstanding         Life        Exercise Price   Exercisable   Exercise Price
-----------------     -----------      -----------    --------------   -----------   --------------
<S>                    <C>             <C>                <C>            <C>             <C>   
 $27.00 - $33.06       4,766,109       9.12 years         $27.39         903,438         $27.00
</TABLE>

Restricted Stock

      In November 1997, the Company issued 948,527 shares of restricted  Class A
Common Stock in  connection  with the  termination  of the CIT Career  Incentive
Plan.  Restricted shares of 919,879 and 948,527 were outstanding at December 31,
1998 and 1997, respectively. Such shares were issued at fair market value, which
was  $27.00  per  share  on the  issue  date.  These  shares  vest on the  third
anniversary of the date of grant.  The holder of restricted  stock generally has
the rights of a stockholder  of the Company,  including the right to vote and to
receive cash dividends. For the years ended December 31, 1998 and 1997, expenses
in connection with  restricted  stock amounted to $5.2 million and $9.0 million,
respectively.


                                       49
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

CIT Career Incentive Plan

      Prior to the  termination of the CIT Career  Incentive Plan in conjunction
with the IPO,  phantom shares granted under the plan entitled the participant to
receive,  at the end of the three year performance period, a specified amount of
cash.  Following  the end of the  performance  period,  one-third of the phantom
shares vested  immediately  and one-third  vested at the end of each of the next
two years.  The Company  terminated the CIT Career Incentive Plan as of November
13, 1997 and  extinguished all phantom shares of stock, by making a cash payment
and granting restricted shares of Class A Common Stock and stock options. At the
employee's  option,  all or part of the cash component of the termination  could
either be paid in 1998 in cash or deferred  in up to five  annual  installments.
For the years ended December 31, 1997 and 1996,  amounts  charged to expense for
the CIT Career  Incentive  Plan  amounted  to $20.1  million  and $9.5  million,
respectively.  All charges  relating to the termination of the Career  Incentive
Plan are included in 1997 expense.

Employee Stock Purchase Plan

      In 1998, the Company adopted an Employee Stock Purchase Plan (the "ESPP").
Under the ESPP,  the  Company is  authorized  to issue up to  500,000  shares of
common stock to eligible employees.  Under the terms of the ESPP,  employees can
choose to have between 1% and 10% of their base salary  withheld to purchase the
Company's  stock at 85% of the fair market value.  During 1998, the Company sold
21,214 shares to employees under the ESPP.

Accounting for Stock-Based Compensation Plans

      The Company has elected to apply  Accounting  Principles  Board Opinion 25
("APB 25")  rather  than the  optional  provisions  of  Statement  of  Financial
Accounting  Standards No. 123 "Accounting for Stock-Based  Compensation"  ("SFAS
123") in accounting for its stock-based  compensation  plans.  Under APB 25, the
Company  does not  recognize  compensation  expense on the issuance of its stock
options  because the option  terms are fixed and the  exercise  price equals the
market price of the underlying stock on the grant date. As required by SFAS 123,
the  Company  has  determined  the pro forma  information  as if the Company had
accounted for stock options granted under the fair value method of SFAS 123. Had
the  compensation  cost of the  Company's  stock-based  compensation  plans been
determined  based on the  operational  provisions of SFAS 123, the Company's net
income for 1998 and net income per diluted share would have been $333.4  million
and $2.04,  compared to $338.8  million and $2.08,  as reported.  For 1997,  net
income and net income per  diluted  share  would have been  $288.7  million  and
$1.81, compared to $310.1 million and $1.95, as reported.

Note 15--Lease Commitments

      The Company has entered into noncancellable long-term lease agreements for
premises and  equipment.  The following  table presents  future minimum  rentals
under such noncancellable  leases that have initial or remaining terms in excess
of one year at December 31, 1998.

                                                        Years Ended December 31,
                                                        ------------------------
                                                          Dollars in Millions

      1999 ...............................................       $ 22.8
      2000 ...............................................         19.7
      2001 ...............................................         17.4
      2002 ...............................................         15.9
      2003 ...............................................         21.2
      Thereafter .........................................         28.0
                                                                 ------
         Total ...........................................       $125.0
                                                                 ======
                                                             

                                       50
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      In addition to fixed lease rentals,  leases require payment of maintenance
expenses  and  real  estate  taxes,  both of which  are  subject  to  escalation
provisions.  Minimum  payments have not been reduced by minimum sublease rentals
of $13.9 million due in the future under noncancellable subleases.

      Rental expense,  net of sublease income on premises and equipment,  was as
follows.

                                                       Years Ended December 31,
                                                     ---------------------------
                                                      1998      1997      1996
                                                      ----      ----      ----
                                                          Dollars in Millions

Premises .........................................   $ 17.1    $ 19.6    $ 18.0
Equipment ........................................      6.5       6.0       6.3
Less sublease income .............................     (1.3)     (1.2)     (1.2)
                                                     ------    ------    ------
   Total .........................................   $ 22.3    $ 24.4    $ 23.1
                                                     ======    ======    ======

Note 16--Legal Proceedings

      In the ordinary  course of business,  there are various legal  proceedings
pending against the Company. Management believes that the aggregate liabilities,
if any, arising from such actions will not have a material adverse effect on the
consolidated  financial  position,  results of  operations  or  liquidity of the
Company.

Note 17--Credit-Related Commitments

      In the normal course of meeting the financing needs of its customers,  the
Company  enters  into  various  credit-related   commitments.   These  financial
instruments  generate fees and involve,  to varying degrees,  elements of credit
risk in excess of the amounts recognized in the Consolidated  Balance Sheets. To
minimize  potential credit risk, the Company generally  requires  collateral and
other  credit-related  terms  and  conditions  from  the  customer.  At the time
credit-related  commitments are granted,  management  believes the fair value of
the underlying collateral and guarantees approximates or exceeds the contractual
amount of the  commitment.  In the event a customer  defaults on the  underlying
transaction,  the maximum  potential loss to the Company will be the contractual
amount outstanding less the value of all underlying collateral and guarantees.

      The   accompanying   table   summarizes   the   contractual   amounts   of
credit-related commitments.

<TABLE>
<CAPTION>
                                                                             At December 31
                                                    -----------------------------------------------------------
                                                          Due to expire            
                                                    ------------------------          Total            Total
                                                     Within           After        Outstanding      Outstanding
                                                    one year        one year          1998             1997
                                                    --------        --------       -----------      -----------
                                                                       Dollars in Millions
<S>                                                <C>               <C>            <C>             <C>      
Unused commitments to extend credit
   Financing and leasing assets ................   $ 1,684.9         $ 192.0        $ 1,876.9       $ 1,608.2
Letters of credit and acceptances
   Standby letters of credit ...................       152.2             4.2            156.4           209.6
   Other letters of credit .....................       189.5            10.6            200.1           181.1
   Acceptances .................................        12.2              --             12.2            24.0
Guarantees .....................................       169.9            68.9            238.8           200.9
Foreign exchange contracts .....................         2.2              --              2.2             1.1
</TABLE>

Note 18--Fair Values of Financial Instruments

      Statement of Financial  Accounting  Standards No. 107  "Disclosures  About
Fair Value of Financial  Instruments"  ("SFAS 107")  requires  disclosure of the
estimated fair value of the Company's financial  instruments,  excluding leasing
transactions accounted for under SFAS 13. The fair value estimates are made at a
discrete  point in time based on relevant  market  information  and  information
about the financial instrument. Since no established trading market exists for a
significant portion of the Company's financial instruments, fair value estimates
are based on  judgments  regarding  future  expected  loss  experience,  current


                                       51
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

economic conditions, risk characteristics of various financial instruments,  and
other factors. These estimates are subjective in nature, involving uncertainties
and matters of significant  judgment and,  therefore,  cannot be determined with
precision. Changes in assumptions or estimation methods may significantly affect
the estimated fair values. Because of these limitations,  management provides no
assurance that the estimated fair values presented would necessarily be realized
upon disposition or sale.

      Actual fair values in the  marketplace  are affected by other  significant
factors,  such as supply and demand,  investment  trends, and the motivations of
buyers  and  sellers,  which  are  not  considered  in the  methodology  used to
determine the estimated fair values presented. In addition, fair value estimates
are based on existing on-and  off-balance  sheet financial  instruments  without
attempting to estimate the value of future business  transactions  and the value
of assets and liabilities  that are part of the Company's  overall value but are
not considered  financial  instruments.  Significant assets and liabilities that
are not considered financial  instruments include customer base, operating lease
equipment, premises and equipment, assets received in satisfaction of loans, and
deferred tax balances. In addition, tax effects relating to the unrealized gains
and losses  (differences in estimated fair values and carrying  values) have not
been  considered in these  estimates  and can have a significant  effect on fair
value estimates.  The carrying amounts for cash and cash equivalents approximate
fair value  because they have short  maturities  and do not present  significant
credit risks. Credit-related commitments, as disclosed in Note 17, are primarily
short term floating rate contracts  whose terms and conditions are  individually
negotiated,  taking into  account the  creditworthiness  of the customer and the
nature,  accessibility and quality of the collateral and guarantees.  Therefore,
the fair value of credit-related  commitments,  if exercised,  would approximate
their contractual amounts.

      Estimated fair values,  recorded carrying values, and various  assumptions
used  in  valuing  the  Company's  financial   instruments,   excluding  leasing
transactions  accounted for under SFAS 13, at December 31, 1998 and 1997 are set
forth below.

<TABLE>
<CAPTION>
                                                             1998                              1997
                                                  ----------------------------    ------------------------------
                                                    Carrying       Estimated        Carrying         Estimated
                                                      Value       Fair Value          Value         Fair Value
                                                      Asset          Asset            Asset            Asset
                                                   (Liability)    (Liability)      (Liability)      (Liability)
                                                  -------------   ------------    -------------    -------------
                                                                          Dollars in Millions
<S>                                                <C>             <C>               <C>             <C>      
Finance receivables - loans (a) ................   $15,474.0       $15,772.2         $13,821.1       $14,028.2
Consumer finance receivables held for sale .....       987.4           987.4             268.2           268.2
Other assets (b) ...............................       469.3           480.9             383.9           420.9
Commercial paper (c) ...........................    (6,144.1)       (6,144.1)         (5,559.6)       (5,559.6)
Fixed rate senior notes and subordinated
   fixed rate notes (d) ........................    (8,232.3)       (8,365.5)         (6,893.8)       (6,924.1)
Variable rate notes (d) ........................    (4,275.0)       (4,272.3)         (2,861.5)       (2,856.5)
Credit balances of factoring clients &
   accrued liabilities and payables (e) ........    (1,833.6)       (1,833.6)         (1,714.0)       (1,714.0)
Company--obligated mandatorily redeemable
   preferred securities of subsidiary trust
   holding solely debentures of the 
   Company (f) .................................      (250.0)         (263.4)           (250.0)         (253.8)
Derivative financial instruments (g)
Interest rate swaps
Off--balance sheet assets ......................          --            11.6                --             1.2
Off--balance sheet liabilities                            --           (79.0)               --           (46.6)
Cross currency assets ..........................          --            25.6                --             5.2
Cross currency liabilities .....................          --            (2.7)               --           (12.0)
</TABLE>

--------------------------------------------------------------------------------
(a)   The fair value of performing  fixed-rate  loans was estimated based upon a
      present value  discounted  cash flow  analysis,  using interest rates that
      were being  offered at the end of the year for loans with similar terms to
      borrowers of similar  credit  quality.  Discount rates used in the present
      value  calculation  range  from 7.59% to 8.67% for 1998 and 8.21% to 9.20%
      for 1997. The maturities used represent the average contractual maturities
      adjusted for prepayments.  For floating rate loans that reprice frequently
      and have no significant change in credit quality,  fair value approximates
      carrying  value.  The net carrying value of lease finance  receivables not
      subject to fair value  disclosure  totaled  $4.1  billion in 1998 and $3.7
      billion in 1997.


                                       52
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(b)   Other assets subject to fair value  disclosure  include  accrued  interest
      receivable  and  investment  securities.  The  carrying  amount of accrued
      interest  receivable   approximates  fair  value.   Investment  securities
      actively traded in a secondary  market were valued using quoted  available
      market prices.  Investments not actively traded in a secondary market were
      valued based upon recent  selling price or present value  discounted  cash
      flow  analysis.  The  carrying  value of other  assets not subject to fair
      value  disclosure  totaled  $406.4  million in 1998 and $281.9  million in
      1997.

(c)   The estimated fair value of commercial paper  approximates  carrying value
      due to the relatively short maturities.

(d)   Fixed rate notes were valued using a present  value  discounted  cash flow
      analysis  with a discount  rate  approximating  current  market  rates for
      issuances  by the  Company  of  similar  term debt at the end of the year.
      Discount rates used in the present value calculation  ranged from 4.83% to
      6.04% in 1998 and 5.23% to 6.60% in 1997.  The  estimated  fair  value for
      variable rate notes  differs from carrying  value as a result of a foreign
      denominated issuance.

(e)   The  estimated  fair  value  of  credit  balances  of  factoring   clients
      approximates  carrying value due to their short settlement terms.  Accrued
      liabilities and payables with no stated  maturities have an estimated fair
      value  that  approximates  carrying  value.  The  carrying  value of other
      liabilities not subject to fair value disclosure totaled $866.5 million in
      1998 and $752.3 million in 1997.

(f)   Company-obligated  mandatorily  redeemable preferred capital securities of
      subsidiary  trust  holding  solely  debentures  of the Company were valued
      using a present value  discounted  cash flow analysis with a discount rate
      approximating  current market rates of similar issuances at the end of the
      year.

(g)   As previously disclosed in Note 7--Derivative  Financial Instruments,  the
      notional  principal  amount of interest  rate swaps  designated  as hedges
      against the Company's debt totaled $4.3 billion at December 31, 1998 ($0.7
      billion of which  related to interest  rate swaps whose fair market  value
      represented an asset and $3.6 billion related to interest rate swaps whose
      fair market value  represented  a liability,  after  adjusting  for master
      netting agreements) and $3.6 billion at December 31, 1997 ($0.8 billion of
      assets and $2.8 billion of liabilities).  The notional principal amount of
      cross currency  interest rate swaps totaled $218.6 million at December 31,
      1998  and  1997.  The  estimated  fair  values  of  derivative   financial
      instruments  are obtained  from dealer quotes and represent the net amount
      receivable  or payable to  terminate  the  agreement,  taking into account
      current market interest rates and counterparty credit risk.

Note 19--Investments in Debt and Equity Securities

      The  Company has decided to adopt early the  provisions  of  Statement  of
Financial   Accounting  Standards  No.  134,  "Accounting  for  Mortgaged-Backed
Securities  Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking  Enterprise" ("SFAS 134").  Among other provisions,  SFAS 134
requires  that after the  securitization  of  mortgage  loans held for sale,  an
entity   engaged  in  mortgage   banking   activities   classify  the  resulting
mortgage-backed  securities or other retained interests based on its ability and
intent to sell or hold those  investments.  At December  31, 1998 and 1997,  the
Company's  investments in debt and equity securities designated as available for
sale  and  subject  to the  provisions  of  Statement  of  Financial  Accounting
Standards  No.  115  "Accounting  for  Certain  Investments  in Debt and  Equity
Securities," as amended by SFAS 134,  totaled $238.6 million and $233.6 million,
respectively.  Included  in the  1997  balance  is  $38.2  million  relating  to
securitized home equity loans which were classified as trading. Unrealized gains
and losses,  representing the difference between carrying value and current fair
market value, were not significant.

      Included in the Company's  investments  in debt and equity  securities are
retained  interests in securitized assets of $222.8 million at December 31, 1998
and  $214.5   million  at  December  31,  1997.   Retained   interests   include
interest-only  receivables,  retained subordinated securities,  and cash reserve
accounts related to fifteen securitizations from 1992 through 1998. The carrying
value of the retained interests in securitized  assets is reviewed  periodically
for valuation impairment.

      Ranges of key economic  assumptions  used in calculating the fair value of
the retained  interests in securitized assets by type of product at December 31,
1998 were as follows:

<TABLE>
<CAPTION>
                                          Manufactured      Recreation            Home             Recreational
                                            Housing          Vehicle              Equity               Boat
                                          --------------   -------------     -----------------  -----------------
<S>                                         <C>            <C>               <C>                 <C>
Prepayment speed .....................      225%-290%(1)   21.5%-24.4%(2)    23.6%-29.9%(2)(3)   21.0%-21.5%(2)(3)
Expected credit losses (4) ...........    0.90%-1.75%      0.21%-1.15%       0.87%-0.95%         0.71%-0.92%
Weighted average discount rate .......          8.00%            8.00%            12.00%               8.50%
</TABLE>

--------------------------------------------------------------------------------
(1)   Based upon MHP, prepayment ramp commonly used in the manufactured  housing
      sector.  MHP  assumes  a  CPR  (constant  prepayment  rate)  for  a  newly
      originated loan equal to 3.7% in month one,  increasing to 6% in month 24,
      then remaining constant at 6%.

(2)   Based upon CPR. CPR expresses  prepayments  as a function of the declining
      amount of loans at a compound annual rate.

(3)   Implied cumulative remaining CPR based upon prepayment ramps developed for
      each individual collateral pool.

(4)   Annualized rate based upon average outstanding loan balances.


                                       53
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 20--Certain Relationships and Related Transactions

      The  Company  has in the past and may in the  future  enter  into  certain
transactions  with  affiliates  of the  Company.  It is  anticipated  that  such
transactions will be entered into at a fair market value for the transaction.

      The Company's  interest-bearing  deposits  generally  represent  overnight
money  market  investments  of excess  cash that are  maintained  for  liquidity
purposes.  From time to time, the Company may maintain such deposits with DKB or
Chase.

      At December  31, 1998 and December 31,  1997,  the  Company's  credit line
coverage with 53 banks totaled $5.0 billion of committed  facilities.  DKB was a
committed bank under a $1.2 billion revolving credit facility and a $3.7 billion
revolving  credit facility with commitments of $67.5 million and $210.0 million,
respectively,  at December 31, 1998,  and with  commitments of $71.2 million and
$213.8  million,  respectively,  at December  31, 1997.  Additional  information
regarding these credit lines can be found in Note 6--Debt.

      The  Company  has  entered  into  interest  rate swap and  cross  currency
interest rate swap  agreements with financial  institutions  acting as principal
counterparties,  including  affiliates  of DKB.  The notional  principal  amount
outstanding on interest rate swap  agreements with DKB totaled $220.0 million at
both December 31, 1998 and 1997. The notional  principal  amount  outstanding on
foreign  currency  swaps with DKB totaled  $168.6  million at year-end  1998 and
1997, respectively.

      The Company has entered into  leveraged  leasing  arrangements  with third
party loan participants, including affiliates of DKB. Amounts owed to affiliates
of DKB are discussed in Note 3--Finance Receivables.

      At December 31, 1998 and 1997, the Company had entered into credit-related
commitments with DKB in the form of letters of credit totaling $12.2 million and
$15.2 million, respectively,  equal to the amount of the single lump sum premium
necessary to provide group life insurance  coverage to certain  eligible retired
employees and an amount to fund certain overseas finance receivables.

      The Company has entered  into cash  collateral  loan  agreements  with DKB
pursuant  to which DKB made four loans to  separate  cash  collateral  trusts in
order to provide  additional  security for payments on the  certificates  of the
related  contract  trusts.  These contract trusts were formed for the purpose of
securitizing   certain  recreation  vehicle  and  recreational   marine  finance
receivables.  During  1998,  the  Company  replaced  DKB's  position in two cash
collateral loan agreements with a total payment made to DKB of $5.9 million.  At
December  31,  1998 and  1997,  the  principal  amount  outstanding  on the cash
collateral loans with DKB was $34.3 million and $45.8 million, respectively.

      Prior to November  1997,  Chase had owned 20% of the Company.  At December
31, 1997,  Chase was both the agent and a committed  bank under the $1.2 billion
revolving credit facility and $3.7 billion revolving credit facility referred to
above, with commitments of $63.8 million and $191.2 million, respectively.

      The  Company  has  entered  into  interest  rate and cross  currency  swap
agreements with Chase acting as principle counterparties.  At December 31, 1997,
the notional  principal  outstanding on interest rate swap agreements with Chase
totaled $475.0 million.

      At December  31, 1997,  the Company  held a $9.0 million  letter of credit
from Chase as additional collateral on a $20.8 million business aircraft loan to
a third  party.  Chase was also  indebted  to the  Company in the amount of $6.7
million for financing  relating to the purchase of a business aircraft by Chase,
at December 31, 1997.

      The  Company  has  also  entered  into  various  noncancellable  long-term
facility lease agreements with Chase.  Rental expense paid to Chase totaled $0.5
million in 1997.

      During 1997,  the Company  purchased  finance  receivables  totaling $39.6
million from Chase, and entered into an arrangement with Chase pursuant to which
the Company provides  servicing for Chase's  recreation vehicle and recreational
boat  finance  receivables  portfolio,  which had a  remaining  balance  of $1.1
billion at December 31, 1997.


                                       54
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 21--Business Segment Information

      In  1998,  the  Company   adopted  SFAS  131.  The  prior  years'  segment
information has been restated to conform to the current presentation.

Management's Policy in Identifying Reportable Segments

      The  Company's  reportable  segments are  comprised of strategic  business
units  aggregated  into segments based upon the  commonality of their  products,
customers,  distribution  methods,  operations and servicing,  and the nature of
their regulatory environment.

Types of Products and Services

      CIT has  three  reportable  segments,  Equipment  Financing  and  Leasing,
Commercial Finance and Consumer.  Equipment Financing and Leasing offers secured
lending and leasing products to midsize and larger companies across a variety of
industries  including  aerospace,  construction,  rail,  machine tool,  business
aircraft, technology,  manufacturing, and transportation. The Commercial Finance
segment offers secured lending and receivables collection/management products to
small and midsize companies. These include secured revolving lines of credit and
term loans, credit protection, accounts receivable collection, import and export
financing and factoring,  and debtor-in-possession and turnaround financing. The
Company's  Consumer segment offers retail installment sale products to consumers
focused  primarily  on  home  equity  and  retail  sales  financing  secured  by
recreation vehicles, manufactured housing and recreational boats.

Segment Profit and Assets

      The accounting policies of the segments are the same as those described in
the Summary of Significant  Accounting  Policies.  Since the Company generates a
majority of its revenue from interest,  fees, and asset gains, management relies
primarily on net revenues to assess the performance of the segment.  The Company
evaluates  segment  performance  based on profit after income taxes,  as well as
asset growth,  credit risk management,  and other factors. The Company considers
significant long lived assets as equipment on operating lease.


                                       55
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The  following  table  presents  reportable  segment  information  and the
reconciliation of segment balances to the consolidated financial statement total
as of December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                        Equipment
                                        Financing   Commercial               Total      Corporate  Consolidated
                                       and Leasing   Finance    Consumer    Segments    and Other      Total
                                       -----------  ----------  --------    --------    ---------  ------------
                                                                  Dollars in Millions
<S>                                    <C>          <C>         <C>         <C>           <C>        <C>      
December 31, 1998
Operating revenue ..................   $   616.8    $  348.7    $  222.4    $ 1,187.9     $ 41.8     $ 1,229.7
Depreciation on operating leases ...       169.5          --          --        169.5         --         169.5
Income taxes .......................        93.3        84.7        27.2        205.2      (20.2)        185.0
Net income .........................       193.9       119.1        44.3        357.3      (18.5)        338.8
Total managed assets. ..............    13,367.0     4,996.2     7,771.2     26,134.4       81.9      26,216.3
Expenditures for operating leases ..     1,101.7          --          --      1,101.7         --       1,101.7

December 31, 1997
Operating revenue ..................       561.6       343.5       210.9      1,116.0       77.3       1,193.3
Depreciation on operating leases ...       146.8          --          --        146.8         --         146.8
Income taxes .......................        82.9        83.4        31.6        197.9      (19.9)        178.0
Net income .........................       163.4       112.7        49.6        325.7      (15.6)        310.1
Total managed assets. ..............    11,709.7     4,250.8     6,318.6     22,279.1       65.8      22,344.9
Expenditures for operating leases ..       802.8          --          --        802.8         --         802.8

December 31, 1996
Operating revenue ..................       510.5       346.0       169.0      1,025.5       16.5       1,042.0
Depreciation on operating leases ...       121.7          --          --        121.7         --         121.7
Income taxes .......................        69.1        84.5        26.4        180.0      (24.3)        155.7
Net income .........................       145.4       109.6        40.1        295.1      (35.0)        260.1
Total managed assets. ..............    11,321.6     3,838.1     4,792.7     19,952.4       53.0      20,005.4
Expenditures for operating leases ..       431.2          --          --        431.2         --         431.2
</TABLE>

      Revenues  derived from United States based  financing  and leasing  assets
were $2,129.9  million,  $2,001.6  million,  and $1,788.6  million for the years
ending December 31, 1998,  1997 and 1996,  respectively.  Revenues  derived from
foreign based financing and leasing assets were $140.6 million,  $128.9 million,
and $101.7  million for the years  ending  December 31,  1998,  1997,  and 1996,
respectively.

      United States based operating lease equipment,  net, was $1,960.7 million,
$1,397.5  million,  and $1,107.9  million at December 31, 1998,  1997, and 1996,
respectively.  Foreign based operating lease equipment, net, was $813.4 million,
$508.1  million,  and $294.2  million at  December  31,  1998,  1997,  and 1996,
respectively.


                                       56
<PAGE>

                      THE CIT GROUP, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 22--Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                                             1998
                                                  ----------------------------------------------------------
                                                   First        Second       Third       Fourth
                                                  Quarter       Quarter     Quarter      Quarter        Year
                                                  -------       -------     -------      -------        ----
                                                           Dollars in Millions (except per share data)
<S>                                               <C>           <C>          <C>          <C>          <C>   
Net finance income ............................   $228.0        $240.4       $246.8       $259.1       $974.3
Fees and other income .........................     66.4          60.7         69.0         59.3        255.4
Salaries and general operating expenses .......    101.7         104.0        105.3        106.8        417.8
Provision for credit losses ...................     22.5          21.9         30.6         24.4         99.4
Depreciation on operating lease equipment .....     38.3          40.4         42.7         48.1        169.5
Minority interest in subsidiary trust
   holding solely debentures of the Company ...      4.8           4.8          4.8          4.8         19.2
Provision for income taxes ....................     45.4          46.3         46.3         47.0        185.0
Net income ....................................   $ 81.7        $ 83.7       $ 86.1       $ 87.3       $338.8
Net income per diluted share ..................   $ 0.50        $ 0.51       $ 0.53       $ 0.54      $ 2.08

<CAPTION>
                                                                             1997
                                                  ----------------------------------------------------------
                                                   First        Second       Third       Fourth
                                                  Quarter       Quarter     Quarter      Quarter        Year
                                                  -------       -------     -------      -------        ----
                                                           Dollars in Millions (except per share data)
<S>                                               <C>           <C>          <C>          <C>          <C>   
Net finance income                                $214.0        $218.3       $226.0       $229.2       $887.5
Fees and other income                               57.7          49.4         78.9         61.8        247.8
Gain on sale of equity interest acquired
  in loan workout                                     --          58.0           --           --         58.0
Salaries and general operating expenses             99.9         110.6        103.6        114.3        428.4
Provision for credit losses                         27.0          29.0         35.8         21.9        113.7
Depreciation on operating lease equipment           32.1          33.9         42.3         38.5        146.8
Minority interest in subsidiary trust 
  holding solely debentures of the Company           1.9           4.8          4.8          4.8         16.3
Provision for income taxes                          40.7          53.7         43.1         40.5        178.0
Net income                                        $ 70.1        $ 93.7       $ 75.3       $ 71.0       $310.1
Net income per diluted share                      $ 0.44        $ 0.59       $ 0.48       $ 0.44       $ 1.95
</TABLE>

Note 23--Subsequent Event (Unaudited)

      On March 8, 1999,  the Company  announced  that it would acquire  Newcourt
Credit Group, Inc.  ("Newcourt") in an exchange of common stock. Under the terms
of the transaction, which will be accounted for on a purchase basis, 0.92 shares
of the Company's  common stock will be exchanged for each  outstanding  share of
Newcourt  common stock.  The  transaction  is expected to close during the third
quarter of 1999, and is  conditioned  upon,  among other things,  regulatory and
shareholder approval.

      Newcourt is  headquartered  in Toronto,  Canada and its stock is traded on
the New York, Toronto, and Montreal Stock Exchanges.

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

      None.


                                       57
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

Board of Directors

      We list below the names and ages,  followed by a biographical  summary, of
all members of our Board of Directors as of March 15, 1999. This information was
given to us by each Director. No family relationship exists among these persons.
Certain Directors are also directors or trustees of privately held businesses or
not-for-profit entities that are not referred to below.

Name                          Age  Current Position/Offices
----                          ---  ------------------------
Hisao Kobayashi ............  63   Senior Advisor, DKB
                                   Chairman of the Board of Directors of CIT

Albert R. Gamper, Jr. (1) ..  57   President & Chief Executive Officer of CIT

Daniel P. Amos .............  47   President and Chief Executive Officer of
                                   AFLAC Incorporated and American Family Life
                                   Assurance Company of Columbus

Yoshiro Aoki ...............  53   Managing Director and General Manager,
                                   New York Branch, DKB

Anthea Disney ..............  52   Chairman and Chief Executive Officer of News
                                   America Publishing Group

Takasuke Kaneko ............  56   Deputy President, DKB

Joseph A. Pollicino (1) ....  59   Vice Chairman of CIT

Paul N. Roth ...............  59   Partner, Schulte Roth & Zabel LLP

Peter J. Tobin .............  55   Dean, College of Business Administration, 
                                   St. John's University

Tohru Tonoike (1) ..........  48   Senior Executive Vice President of CIT

Alan F. White ..............  61   Senior Associate Dean, Massachusetts
                                   Institute of Technology, Alfred P. Sloan
                                   School of Management

--------------------------------------------------------------------------------
(1)   Messrs. Gamper, Pollicino, and Tonoike, who are listed above as Directors,
      are also  Executive  Officers  of CIT. 

      Hisao Kobayashi has served as a Director of CIT since December 1989 and as
Chairman  of the Board of  Directors  since  July  1992.  Since  May  1995,  Mr.
Kobayashi has served as a Senior  Advisor of DKB,  where he had been an employee
since 1959.  Prior to his appointment as a Senior Advisor,  Mr. Kobayashi served
in a number of executive  positions at DKB,  including  most  recently as Senior
Managing  Director  from May 1993 and  Managing  Director  from June  1991.  Mr.
Kobayashi is a director of AFLAC  Incorporated,  a life insurance  company,  and
Nippon Light Metal Co., Limited, a Japanese corporation.

      Albert R. Gamper,  Jr. has served as President and Chief Executive Officer
since December 1989 and as a Director since May 1984.  From May 1987 to December
1989,  Mr.  Gamper  served as Chairman  and Chief  Executive  Officer.  Prior to
December  1989,  Mr.  Gamper  also  held a  number  of  executive  positions  at
Manufacturers Hanover Corporation, where he had been employed since 1962.

      Daniel P. Amos has served as a Director  of CIT since  January  1998.  Mr.
Amos has served as President and Chief Executive Officer of AFLAC  Incorporated,
a life insurance company, and of its principal subsidiary,  American Family Life
Assurance  Company of Columbus,  since  August  1990.  Mr. Amos is a director of
AFLAC Incorporated and Georgia Power Company.

      Yoshiro Aoki has served as a Director of CIT since July 1997. Mr. Aoki has
been Managing  Director and General  Manager of the New York Branch of DKB since
May 1998,  Director and General  Manager of the New York Branch since June 1997,
and General  Manager of the New York Branch since May 1997.  Prior to such time,
Mr. Aoki served as General Manager of the Kabutocho Branch of DKB since May 1995
and as Assistant General Manager of the Personnel Division of DKB since February
1991.

      Anthea  Disney has served as  Director  of CIT since  December  1998.  Ms.
Disney has  served as  Chairman  and Chief  Executive  Officer  of News  America
Publishing  Group, a division of News Corporation  Ltd., since October 1997. Ms.
Disney has held a number of other  positions  with News  Corporation  Ltd. since
1973,  including  President  and  Chief  Executive  Officer  of  Harper  Collins
Publishers and Editor-in-Chief of I-Guide.


                                       58
<PAGE>

      Takasuke  Kaneko has served as a Director of CIT since June 1995.  He also
was a Director and Senior  Executive Vice President of CIT from December 1989 to
May 1993.  Mr.  Kaneko is Deputy  President of DKB, a position he has held since
June 1997. Previously, Mr. Kaneko served as Senior Managing Director of DKB from
May 1997 and as Managing Director since May 1995. Prior to such time, Mr. Kaneko
served in a number of other  positions  at DKB,  including  Director and General
Manager of the  International  Planning and  Coordination  Division since August
1994, Director and General Manager of the International  Planning Division since
June 1994 and General Manager of the  International  Finance  Division since May
1993.

      Joseph A.  Pollicino has served as a Director of CIT since August 1986 and
as Vice  Chairman  of its  Board of  Directors  since  December  1989.  Prior to
December 1989, Mr. Pollicino held a number of executive  positions at CIT and at
Manufacturers Hanover Corporation, where he had been employed since 1957.

      Paul N. Roth has served as a Director of CIT since December 1989. Mr. Roth
has been a partner in the New York law firm of Schulte Roth & Zabel LLP since it
was founded in 1969.

      Peter J. Tobin has served as a Director of CIT since May 1984.  Mr.  Tobin
has been Dean of the College of Business Administration at St. John's University
since August  1998.  From April 1996 to December  1997,  Mr. Tobin was the Chief
Financial Officer of The Chase Manhattan Corporation. From January 1992 to April
1996,  Mr. Tobin served as Chief  Financial  Officer of both  Chemical  Bank and
Chemical  Banking  Corporation,  and  prior to that he  served  in a  number  of
executive positions at Manufacturers Hanover Corporation.

      Tohru  Tonoike  has served as Senior  Executive  Vice  President  and as a
Director of CIT since April 1997.  Prior to April 1997, Mr. Tonoike was employed
by DKB since  April  1973,  where he served in a number of  executive  positions
including,  most  recently,  Head of the  Americas  Office in the  International
Planning and  Coordination  Division since  September  1996,  Assistant  General
Manager of Corporate Finance Division I since September 1993 and Head of the CIT
Office in the Americas Division since October 1992.

      Alan F. White has served as a Director of CIT since March 1998.  Mr. White
has served as Senior Associate Dean of the Alfred P. Sloan School of Management,
Massachusetts  Institute of Technology,  since 1991. Mr. White has held a number
of other  positions  with the Sloan School of Management  since 1973,  including
responsibility  for MIT programs in Asia, Europe, and Latin America and Director
of Executive  Education at MIT. He is a director of SBS  Technologies,  Inc. and
Celerity Solutions, Inc.

Executive Officers

      We list the names and ages and provide a biographical summary below of all
of our executive officers, in addition to Messrs. Gamper, Pollicino and Tonoike,
who are listed above as Directors,  as of March 15, 1999. No family relationship
exists among our executive officers or with any Director. The executive officers
were appointed by and hold office at the discretion of the Board of Directors.

Name                       Age   Current Position/Offices (1)
----                       ---   ----------------------------
Joseph M. Leone ........   45    Executive Vice President and Chief Financial
                                 Officer

William M. O'Grady .....   59    Executive Vice President - Administration

Ernest D. Stein ........   59    Executive Vice President, General Counsel and
                                 Secretary

--------------------------------------------------------------------------------
(1)   Certain  Executive  Officers  are also  directors or trustees of privately
      held or not-for-profit organizations that are not discussed below.

      Joseph M.  Leone has  served as our  Executive  Vice  President  and Chief
Financial  Officer  since July 1995.  Previously,  Mr. Leone served as Executive
Vice President of Sales  Financing,  a business unit of CIT, from June 1991, and
in a number of other  executive  positions  with CIT and  Manufacturers  Hanover
Corporation since May 1982.

      William  M.  O'Grady  has  served  as  our  Executive  Vice  President  of
Administration  since  January 1986 and  previously  served in a number of other
executive  positions  with CIT and with RCA  Corporation,  a prior owner of CIT,
from July 1965.

      Ernest  D.  Stein has  served as our  Executive  Vice  President,  General
Counsel and  Secretary  since  February  1994.  Previously,  Mr. Stein served as
Senior Vice  President  and Deputy  General  Counsel since April 1993, as Senior
Vice President and Assistant  General  Counsel since March 1992, and in a number
of  executive  positions  with  Manufacturers  Hanover  Corporation,   including
Executive Vice President and General Counsel since December 1985.


                                       59
<PAGE>

Item 11. Executive Compensation.

                COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Compensation of Directors

      Directors  who  are  not  employees  or  officers  of DKB or CIT or of any
subsidiary of either of them are paid an annual Board membership fee of $30,000,
an attendance  fee of $1,000 for each meeting of the Board of Directors,  and an
annual  membership  fee of $5,000 for service on any  committee  of the Board of
Directors.  In  addition,  such  Directors  are  eligible  for grants  under our
Long-Term Equity Compensation Plan.

Executive Compensation

      The  table  below  sets  forth  the  annual  and  long-term  compensation,
including  bonuses and  deferred  compensation,  of Messrs.  Gamper,  Pollicino,
Leone, O'Grady, and Stein (the "Named Executive Officers") for services rendered
in all capacities to CIT during the fiscal years ended December 31, 1998,  1997,
and 1996.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                             Long-Term Compensation
                                                                   ----------------------------------------------
                                              Annual Compensation                          Payouts
                                   ------------------------------------------  ----------------------------------
                                                         Other
                                                         Annual    Restricted  Securities              All Other
      Name and                                           Compen-     Stock     Underlying    LTIP       Compen-
 Principal Positions      Year     Salary    Bonus(1)   sation(2)   Awards(3)  Options(4)  Payouts(5)  sation (6)
 -------------------      ----     ------    --------   ---------   ---------  ----------  ----------  ---------
<S>                       <C>     <C>         <C>        <C>       <C>          <C>       <C>          <C>    
Albert R. Gamper, Jr. ..  1998    $663,471    $467,500   $37,778     $584,394         0            0   $32,939
President and Chief       1997    $632,320    $845,000   $79,531   $3,400,000   619,200   $4,122,261   $79,697
Executive Officer         1996    $600,002    $785,000   $74,319           $0         0    $ 722,369   $30,000

Joseph A. Pollicino ....  1998    $482,127    $312,500   $23,333     $390,645         0            0   $25,685
Vice Chairman             1997    $461,560    $580,000   $47,720   $2,100,000   337,800   $2,533,400   $24,795
                          1996    $439,998    $550,000   $44,775           $0         0    $ 433,400   $23,600

Joseph M. Leone ........  1998    $237,000    $120,000    $7,813     $150,023         0            0   $15,880
Executive Vice            1997    $212,962    $200,000   $18,579     $703,150   114,600    $ 829,486   $14,851
President and Chief       1996    $203,231    $170,000   $11,109           $0         0    $ 126,444   $14,129
Financial Officer

William M. O'Grady .....  1998    $240,000    $100,000    $7,051     $125,014         0            0   $16,000
Executive Vice            1997    $220,769    $175,000   $16,826     $634,550   108,700    $ 742,900   $15,164
President                 1996    $209,769    $150,000   $ 9,801           $0         0    $ 108,350   $14,391
Administration

Ernest D. Stein ........  1998    $220,000     $75,000    $5,145      $93,777         0            0   $15,200
Executive Vice            1997    $200,769    $130,000   $12,461     $463,050    79,200    $ 538,895   $14,364
President, General        1996    $192,692    $115,000   $ 6,744           $0         0     $ 75,845   $13,708
Counsel and Secretary
</TABLE>

--------------------------------------------------------------------------------
(1)   The amounts shown in the Bonus column for 1998  represent the cash amounts
      paid under CIT's annual bonus plan. All Named Executive  Officers  elected
      to receive 50% (the maximum  allowable  amount) of their bonus for 1998 in
      restricted stock rather than cash. Pursuant to the ECP, executive officers
      may elect to receive  some or all of their  annual  bonus  plan  awards in
      common stock rather than cash. The restricted stock awarded included a 25%
      premium in  recognition of the election to forego cash  compensation.  The
      shares  awarded will vest annually in one-third  increments  commencing in
      January 2000. For all Named Executive  Officers,  the amounts shown in the
      Restricted Stock Awards column for 1998 represent the fair market value on
      January  28,  1999 (the date of the grant) of the shares of Class A Common
      Stock  awarded  at  $32.4375  per  share.  CIT will pay  dividends  on the
      restricted stock awarded to each Named Executive Officer to the extent and
      on the same basis as paid to all other stockholders.

(2)   The payments set forth in 1998 under Other Annual Compensation  represents
      the dividends paid on restricted  stock awarded in 1997. The shares issued
      in 1997 were as follows:  Mr.  Gamper - 125,926  shares;  Mr.  Pollicino -
      77,778 shares; Mr. Leone - 26,043 shares; Mr. O'Grady - 23,502 shares; and
      Mr.  Stein -  17,150  shares.  Compensation  reported  for  1997  and 1996
      includes  dividends  paid  under  The  CIT  Group  Holdings,  Inc.  Career
      Incentive  Plan (the "CIT Career  Incentive  Plan").  For the  performance
      period  1993-


                                       60
<PAGE>

      1995,  Mr. Gamper was awarded  20,000 phantom  shares,  Mr.  Pollicino was
      awarded 12,000 phantom shares, Mr. Leone was awarded 3,500 phantom shares,
      Mr.  O'Grady was awarded  3,000  phantom  shares and Mr. Stein was awarded
      2,100 phantom shares. The shares awarded for the performance period 1993 -
      1995 were vested in one-third increments  commencing January 1996. For the
      performance  period 1996 - 1998 under the CIT Career  Incentive  Plan, Mr.
      Gamper was awarded 20,000 phantom shares, Mr. Pollicino was awarded 12,000
      phantom shares,  Mr. Leone was awarded 4,100 phantom  shares,  Mr. O'Grady
      was awarded 3,700  phantom  shares and Mr. Stein was awarded 2,700 phantom
      shares.  We terminated the CIT Career  Incentive Plan in conjunction  with
      our initial public offering in 1997.

(3)   The number and value at December 31, 1998 of  restricted  stock awarded in
      1997 based upon the closing  market  price of $31.8125 per share for CIT's
      Class  A  Common  Stock  was as  follows:  Mr.  Gamper  -  125,926  shares
      ($4,006,021);  Mr.  Pollicino - 77,778  Shares  ($2,474,313);  Mr. Leone -
      26,043 shares ($828,493); Mr. O'Grady - 23,502 ($747,657); and Mr. Stein -
      17,150 ($545,584).

(4)   Stock options to purchase Class A Common Stock awarded under the ECP.

(5)   The payments set forth under LTIP Payouts  represent  the payout of shares
      vested under the CIT Career  Incentive  Plan. The payouts in 1996 and 1997
      were for shares  awarded  for the  performance  period  1993 - 1995.  Also
      included  under LTIP Payouts for 1997 is the one-time cash payout  related
      to the  termination  of the CIT Career  Incentive Plan for the 1996 - 1998
      performance period.

(6)   The payments set forth under "All Other Compensation" include the matching
      employer  contribution  to each  participant's  account  and the  employer
      flexible retirement contribution to each participant's flexible retirement
      account under The CIT Group  Holdings,  Inc.  Savings  Incentive Plan (the
      "CIT Savings Plan"). We made the matching employer  contribution  pursuant
      to a compensation  deferral  feature of the CIT Savings Plan under Section
      401(k) of the Internal  Revenue Code of 1986.  Each of the Named Executive
      Officers  received a contribution of $6,400 under the employer match and a
      contribution of $6,400 under the employer flexible retirement account. The
      payments  set  forth  under  "All  Other   Compensation"   also   included
      contributions to each participant's  account under The CIT Group Holdings,
      Inc.  Supplemental  Savings Plan ("the "CIT  Supplemental  Savings Plan"),
      which is an unfunded  non-qualified  plan. For 1998,  they are as follows:
      Mr.  Gamper - $20,139,  Mr.  Pollicino - $12,885,  Mr Leone - $3,080,  Mr.
      O'Grady - $3,200 and Mr.  Stein - $2,400.  In 1997,  Mr.  Gamper  received
      payments  designed to cover the 1.45%  Medicare tax  liability  created by
      vesting in our deferred retirement benefits.

Stock Option Awards During 1998

      Stock  options  and other  rights  related to Class A Common  Stock may be
awarded to executives  under the ECP. There were no stock options awarded to the
Named  Executive   Officers  in  1998.  The  following  table  gives  additional
information on options exercised in 1998 by the Named Executive  Officers and on
the number and value of options held by the Named Executive Officers at December
31, 1998.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                         Number of
                                                        Securities               Value
                                                        Underlying            Unexercised
                                                        Unexercised          In-the-Money
                                                        Options at            Options at
                                                         12/31/98              12/31/98
                                 Shares                 -------------        -------------
                                Acquired      Value     Exercisable/         Exercisable/
        Name                   on Exercise  Realized    Unexercisable        Unexercisable
        ----                   -----------  --------    -------------        -------------
<S>                                 <C>       <C>      <C>                <C>
Albert R. Gamper, Jr. .........     0         $0       117,933/501,267    $567,553/$2,412,347
President and Chief
Executive Officer

Joseph A. Pollicino ...........     0         $0       64,333/273,467     $309,603/$1,316,060
Vice Chairman

Joseph M. Leone ...............     0         $0        19,333/95,267      $93,040/$458,472
Executive Vice President
and Chief Financial Officer

William M. O'Grady ............     0         $0        18,033/90,667      $86,784/$436,335
Executive Vice President
Administration

Ernest D. Stein ...............     0         $0        13,133/66,067      $63,203/$317,947
Executive Vice President, 
General Counsel and 
Secretary
</TABLE>


                                       61
<PAGE>

      The options reported are non-qualified stock options to purchase shares of
Class A Common Stock awarded under the ECP. The exercise price of the options is
$27.00  per share and the  closing  trading  price on the NYSE of Class A Common
Stock at December 31, 1998 was $31.8125.

Benefit Plans

Employee Stock Purchase Plan

      Subject  to  approval  by the  stockholders,  the Board of  Directors  has
adopted The CIT Group,  Inc.  Employee Stock  Purchase Plan (the "ESPP"),  which
offers our  employees  the  opportunity  to purchase  Class A Common  Stock at a
discount  through  payroll  deductions.   The  ESPP  is  intended  to  meet  the
requirements  of  Section  423 of the Code.  All of our  regular  full-time  and
part-time  employees are eligible to  participate in the ESPP beginning with the
first Offering Period that starts following their employment. Employees desiring
to  purchase  stock  through the ESPP may elect to  contribute  1% to 10% in any
payroll  period.  These payroll  deductions  accumulate  during the  three-month
"Offering  Period".  At the end of each Offering Period,  the payroll deductions
are used to purchase  Class A Common  Stock at a price equal to 85% of the lower
of the fair market value of the Class A Common Stock at the  beginning or end of
the Offering  Period.  (Prior to the  amendment of the ESPP on January 28, 1999,
effective  for the Offering  Period  commencing  on October 1, 1998,  the option
price per share  equaled 85% of the fair market value of a share of Common Stock
on the last day of the Offering  Period,  and effective for the Offering  Period
commencing on January 1, 1999,  the option price per share equaled the lesser of
(i) 85% of the fair market  value of a share of Common Stock on January 28, 1999
or (ii) 85% of the fair  market  value  of a share of  Common  Stock on the last
business  day of the  Offering  Period.) An employee  will  recognize no taxable
income  or gain  until he or she  sells the  Class A Common  Stock  and,  if the
employee  meets  certain  holding  period  requirements,  he or she will also be
entitled to favorable tax treatment upon such sale.

      We will use either treasury  shares,  authorized but unissued  shares,  or
publicly traded shares to satisfy  purchases under the ESPP. The adoption of the
ESPP by the stockholders of CIT is the subject of Proposal 3.

Retirement Plans

      Effective  January 1, 1990, The CIT Group Holdings,  Inc.  Retirement Plan
(the "CIT Retirement  Plan") was  established.  Assets necessary to fund the CIT
Retirement Plan were  transferred  from the MHC Retirement  Plan, Inc. (the "MHC
Retirement  Plan"),  the predecessor  plan in which our employees  participated.
Accumulated  years of benefit service under the MHC Retirement Plan are included
in the benefits  formula of the CIT Retirement  Plan,  which covers officers and
salaried employees who have one year of service and have attained age 21.

      Subject to certain  exceptions,  at the  normal  retirement  age of 65, an
employee's  pension is 1.25% of final average salary, as defined below, for each
of the first 20 years of  benefit  service  as a  participant  and 0.75% of such
salary for each year of the next 20 years of benefit  service.  In  general,  an
employee  who was a  participant  in the MHC  Retirement  Plan  before 1985 will
receive a pension of not less than 2.0% of final average  salary for each of the
first 20 years of benefit  service as a participant  and 1.0% of such salary for
each  of  the  next  20  years  of  benefit  service,  reduced  by  0.4%  of the
participant's covered compensation for each year of such benefit service up to a
maximum of 35 years and further  reduced by the value of certain  benefits under
the CIT  Savings  Plan.  An  employee  who was a  participant  in the former CIT
Retirement Plan on June 30, 1986 will not receive a pension of less than 1.1% of
final average  salary up to certain  Social  Security  limits plus 1.5% of final
average salary in excess of the Social Security limits, for each year of benefit
service to a maximum of 35 years,  reduced  by  certain  benefits  under the CIT
Savings Plan.  "Final average  salary" is the highest average salary received in
any five consecutive  years in the last ten years.  "Salary"  includes all wages
paid by CIT, including before-tax contributions made to the CIT Savings Plan and
salary reduction  contributions  pursuant to any Section 125 Plan, but excluding
commissions,   bonuses,  incentive  compensation,   overtime,  reimbursement  of
expenses, directors' fees, severance pay and deferred compensation.  This salary
is comparable to the "Salary"  shown in the Summary  Compensation  Table.  After
completing  five years of service,  an employee  whose  employment  with CIT has
terminated  is entitled to a benefit,  as of the  employee's  normal  retirement
date,  equal to the benefit earned to the date of termination of employment,  or
an  actuarially  reduced  benefit  commencing  at any time  after  age 55 if the
participant  is eligible for early  retirement  under the CIT  Retirement  Plan.
Certain  death  benefits  are  available  to  eligible   surviving   spouses  of
participants.


                                       62
<PAGE>

      Since various laws and regulations set limits on the amounts  allocable to
a participant  under the CIT Savings Plan and benefits  under the CIT Retirement
Plan,  we  have  established  the  CIT  Supplemental  Retirement  Plan.  The CIT
Supplemental  Retirement Plan provides  retirement benefits on an unfunded basis
to  participants  who retire from CIT (whose  benefits  under the CIT Retirement
Plan would be  restricted  by the limits) of an amount  equal to the  difference
between the annual retirement  benefits permitted and the amount that would have
been paid but for the limitations imposed.

      The amounts set forth in the table are the amounts  which would be paid to
employees  hired  before 1985  pursuant to the CIT  Retirement  Plan and the CIT
Supplemental  Retirement Plan at a participants'  normal retirement age assuming
the indicated  final average salary and the indicated  years of benefit  service
and assuming  that the straight life annuity form of benefit will be elected and
that CIT  Supplemental  Retirement  Plan benefits will be paid in the form of an
annuity.  The amounts may be  overstated  to the extent that they do not reflect
the reduction for any benefits under the CIT Savings Plan.

                               PENSION PLAN TABLE

                     Annual Benefits Based on Years of Credited Service (1)
                     ------------------------------------------------------
Final
Average
Salary of
Employee           15         20         25         30         35         40
---------          --         --         --         --         --         --
150,000           43,016     57,355     64,194     71,033     77,872     85,372
200,000           58,016     77,355     86,694     96,033    105,372    115,372
250,000           73,016     97,355    109,194    121,033    132,872    145,372
300,000           88,016    117,355    131,694    146,033    160,372    175,372
350,000          103,016    137,355    154,194    171,033    187,872    205,372
400,000          118,016    157,355    176,694    196,033    215,372    235,372
450,000          133,016    177,355    199,194    221,033    242,872    265,372
500,000          148,016    197,355    221,694    246,033    270,372    295,372
550,000          163,016    217,355    244,194    271,033    297,872    325,372
600,000          178,016    237,355    266,694    296,033    325,372    355,372
650,000          193,016    257,355    289,194    321,033    352,872    385,372
700,000          208,016    277,355    311,694    346,033    380,372    415,372
750,000          223,016    297,355    334,194    371,033    407,872    445,372
800,000          238,016    317,355    356,694    396,033    435,372    475,372

--------------------------------------------------------------------------------
(1)   At December 31, 1998, Messrs. Gamper, Pollicino,  Leone, O'Grady and Stein
      had 31, 34, 14, 29 and 5 years of benefit service respectively.

Executive Retirement Plan

      The  Named  Executive   Officers  are  participants  under  the  Executive
Retirement  Plan. The benefit  provided is life insurance equal to approximately
three times salary  during such  participant's  employment,  with a life annuity
option payable monthly by CIT upon retirement. The participant pays a portion of
the annual premium and we pay the balance on behalf of the  participant.  We are
entitled to recoup our payments from the proceeds of the policy in excess of the
death benefit. Upon the participant's retirement, a life annuity will be payable
out of our  current  income and we  anticipate  recovering  the cost of the life
annuity out of the proceeds of the life insurance  policy payable upon the death
of the participant.

      In  addition  to  the  table  of  pension  benefits  shown  above,  we are
conditionally  obligated to make annual payments under the Executive  Retirement
Plan in the amounts indicated to the Named Executive Officers at retirement: Mr.
Gamper,  $403,130,  Mr. Pollicino,  $255,642,  Mr. Leone, $155,392, Mr. O'Grady,
$120,053, and Mr. Stein, $72,351.  

Compensation Committee Interlocks and Insider Participation

      There  are  no  interlocking  relationships  between  any  member  of  the
Compensation  Committee  and any of our  executive  officers  that would require
disclosure  under the  rules of the  Securities  and  Exchange  Commission.  The
Compensation Committee consists entirely of independent, non-employee directors.


                                       63
<PAGE>

Employment Agreements

      Messrs.  Gamper and Pollicino  have  employment  agreements  with CIT that
extend until December 31, 1999.  Mr.  Gamper's  agreement  provides that he will
serve as the Chief Executive Officer and President.  Mr.  Pollicino's  agreement
provides that he will serve as the Vice Chairman. Each will serve as a member of
our Board of Directors. The agreements provide for the payment of an annual base
salary of not less than the amount that each  received  prior to the date of his
last extension on April 1, 1997. Pursuant to their employment  agreements,  each
individual's  base salary and  performance is reviewed by the Board of Directors
during the term of the agreement  pursuant to our normal  practices,  subject to
increases  but  not  to  decreases.   The  employment   agreements  provide  for
participation in all executive bonus and incentive compensation plans.

      Mr. Leone, Mr. O'Grady, and Mr. Stein also have employment agreements with
CIT that extend until December 31, 2000. Mr.  Leone's,  Mr.  O'Grady's,  and Mr.
Stein's  respective  agreements provide for the payment of an annual base salary
of not less than the amount  received  prior to the date of their last extension
on  November  1, 1998,  to be  reviewed  by the Chief  Executive  Officer or his
designee  pursuant  to our normal  practices,  subject to  increases  but not to
decreases.  The  employment  agreements  also provide for  participation  in all
executive bonus and incentive compensation plans.

Termination And Change-In-Control Arrangements

      Mr. Gamper's and Mr.  Pollicino's  employment  agreements with CIT provide
that if their  employment  is  terminated  "without  Cause"  (as  defined in the
agreement),  or if they resign for "Good  Reason" (as defined in the  agreement)
they will be entitled to receive  severance  payments equal to their base salary
for thirty-six months provided that they do not violate the  confidentiality  or
non-competition  provisions  of the agreement  (the latter of which,  subject to
certain  exceptions,  extend for up to two years from the date of termination of
employment),  in which case we would have no  obligation  to make any  remaining
payments.  Further,  they will be entitled to receive,  among other things,  all
previously  earned and accrued  entitlements  and benefits of CIT, full employee
welfare benefit coverage,  outplacement  services, any awards due under the ECP,
and all benefits payable under our Executive Benefits Program.

      Each of the employment agreements of Mr. Leone, Mr. O'Grady, and Mr. Stein
provide that if his employment is terminated  "without Cause" (as defined in the
agreement) or if he resigns for "Good Reason" (as defined in the agreement),  he
will be entitled to receive severance payments equal to two times his total cash
compensation (as defined in the agreement) provided that he does not violate the
confidentiality or non-competition provisions of the agreement, in which case we
would have no obligation to make any remaining payments.  The severance payments
are reduced by any "special payment" received. Further, upon such termination or
resignation,   he  will  be  entitled  to  all  previously  earned  and  accrued
entitlements  and benefits,  continued  employee welfare benefit coverage for 24
months,  two years  benefit  service and age credit for purposes of  calculating
benefits under CIT's  Retirement Plan and Executive  Retirement Plan (as defined
in the agreement),  outplacement services, any awards due under the ECP, and all
benefits payable under our Executive Benefits Program.

      If CIT terminates Messrs. Gamper, Pollicino , Leone, O'Grady, or Stein for
Cause,  or if they  terminate  their  employment  for any reason other than Good
Reason, they will be entitled to all previously earned and accrued  entitlements
and benefits of CIT.

      If,  during  the  term  of Mr.  Gamper's  and Mr.  Pollicino's  employment
agreements,  a "Change of Control"  (as defined in the  agreement)  occurs on or
prior to  December  31,  1999,  they each will be entitled to receive a "special
payment". With respect to Mr. Gamper, the amount of such a special payment shall
equal the sum of his prior four years annual  bonuses  under the CIT Bonus Plan,
and with  respect to Mr.  Pollicino,  the amount of such special  payment  shall
equal the sum of his prior three years annual bonuses under the CIT Bonus Plan.

      Notwithstanding  the foregoing  provision,  the special  payments shall be
forfeited  if  during  the  one-year  period  following  the date of a Change of
Control: (i) their employment is involuntarily terminated by CIT for cause; (ii)
they  voluntarily  terminate  employment with CIT for any reason other than good
reason;  or (iii)  they  breach  any  non-compete  or  confidentiality  covenant
contained in their employment agreements.


                                       64
<PAGE>

      In the event of a Change of  Control  during the term of  employment,  Mr.
Gamper and Mr.  Pollicino  may elect,  on 90 days'  notice,  to terminate  their
employment and have such  termination  deemed "Good Reason" upon the anniversary
of the Change of Control. In the event the first anniversary of such a Change of
Control  occurs  after the end of the term,  the term shall be  extended  to the
first anniversary of the Change of Control.

      If a Change of Control occurs on or prior to December 31, 2000, Mr. Leone,
Mr. O'Grady, and Mr. Stein will be entitled to receive a "special payment".  The
amount of such special payment shall equal the sum of their respective prior two
years  annual  bonuses  under the CIT Bonus Plan.  The special  payment  will be
payable over a two year period.  Notwithstanding  the above, the special payment
will be forfeited if during the two year period  commencing  on the date of such
Change of Control (a) their  employment is  involuntarily  terminated by CIT for
cause, (b) they voluntarily  terminate  employment with CIT for any reason other
than "Good Reason" as defined in their respective employment agreements,  or (c)
they breach the non-compete or  confidentiality  provisions in their agreements.
In addition,  if during the term of their respective  employment  agreements,  a
"Change of Control"  (as defined in the  agreement)  occurs,  the terms of their
employment agreements are extended until the second anniversary of the Change of
Control.

      In the event Messrs.  Gamper,  Pollicino,  Leone, O'Grady, or Stein become
subject to excise taxes under Section 4999 of the Internal  Revenue Code,  their
employment  agreements  provide a gross up  payment  equal to the amount of such
excise taxes.

      Under the ECP, if a  participant's  employment  is terminated by CIT, or a
successor  to CIT,  on or after a  Change  of  Control  and  prior to the  first
anniversary  of such  Change of Control:  (i) all  options and SARs,  other than
options granted in  consideration of the termination of the CIT Career Incentive
Plan or otherwise  granted in connection with the initial public offering,  held
by the  participant,  if any,  shall become  immediately  exercisable;  (ii) all
restrictions and limitations  imposed on restricted stock, other than restricted
stock granted in  consideration  of the termination of the CIT Career  Incentive
Plan or otherwise  granted in connection with the initial public offering,  held
by the  participant,  if any,  shall  lapse.  The  vesting  of all  Options  and
restricted  stock granted in  consideration of the termination of the CIT Career
Incentive  Plan or  otherwise  granted in  connection  with the  initial  public
offering would be  accelerated in the event the  participant is terminated on or
after the  Change of  Control  and during the  five-year  period  following  the
initial public offering.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

                             PRINCIPAL SHAREHOLDERS

Security Ownership of Certain Beneficial Owners

      The table below shows,  as of February  16, 1999,  the name and address of
each person known to us that  beneficially  owns in excess of 5% of any class of
Voting Stock.

<TABLE>
<CAPTION>
                                                                     Amount and Nature of
                                                                     Beneficial Ownership
                                                           ---------------------------------------------
    Title of Class           Name and Address of            Sole Voting and  Shared Voting and  Percent
       of Stock               Beneficial Owner             Investment Power  Investment Power   of Class
       --------               ----------------             ----------------  ----------------   --------
<S>                                                            <C>               <C>              <C>
Class A Common Stock     The Dai-Ichi Kangyo Bank,             71,000,000                 0       43.8%
                         Limited
                         1-5, Uchisaiwaicho, 1-chome
                         Chiyoda-ku, Tokyo 100
                         Japan

Class A Common Stock     Wellington Management
                         Company, LLP                                   0        10,767,381       6.65%
                         75 State Street
                         Boston, MA 02109
</TABLE>


                                       65
<PAGE>

Security Ownership Of Directors And Executive Officers

      The table below shows,  as of February  16, 1999,  the number of shares of
Class A Common Stock owned by each Director,  by the Named  Executive  Officers,
and by the Directors and Named Executive Officers as a group.

                                          Amount and Nature
                                       of Beneficial Ownership      Percentage
    Name of Individual             (Class A Common Stock)(1)(2)(3)   of Class
    ------------------             -------------------------------   --------
Hisao Kobayashi ....................              4,100                   *
Albert R. Gamper, Jr. (4) ..........            279,247                   *
Daniel P. Amos (5) .................            107,030                   *
Yoshiro Aoki .......................                  0                   *
Anthea Disney ......................                  0                   *
Takasuke Kaneko ....................                  0                   *
Joseph A. Pollicino ................            155,279                   *
Paul N. Roth .......................              9,000                   *
Peter J. Tobin .....................             10,000                   *
Tohru Tonoike ......................                  0                   *
Alan F. White ......................              2,366                   *
Joseph M. Leone ....................             55,203                   *
William M. O'Grady .................             50,593                   *
Ernest D. Stein ....................             43,361                   *
All Directors and executive
 officers as a group (14 persons) ..            716,179                   *

--------------------------------------------------------------------------------
*     Represents less than 1% of the total outstanding Class A Common Stock.

(1)   Includes  shares of Restricted  Stock issued in lieu of cash in connection
      with the 1998 CIT Bonus Plan,  for which the holders  have voting  rights,
      but for which  ownership  has not vested,  in the following  amounts:  Mr.
      Gamper - 18,016 shares,  Mr. Pollicino - 12,043 shares,  Mr. Leone - 4,625
      shares, Mr. O'Grady - 3,854 shares, and Mr. Stein - 2,891 shares.

(2)   Includes  shares of Restricted  Stock  awarded under the Long-Term  Equity
      Compensation  Plan in connection  with the  termination  of The CIT Career
      Incentive  Plan, for which the holders have voting  rights,  but for which
      ownership has not vested, in the following  amounts:  Mr. Gamper - 125,926
      shares,  Mr. Pollicino - 77,778 shares, Mr. Roth - 5,000 shares, Mr. Tobin
      - 5,000 shares,  Mr. Leone - 26,043  shares,  Mr. O'Grady - 23,502 shares,
      and Mr. Stein - 17,150 shares.

(3)   Includes shares of stock issuable  pursuant to stock options awarded under
      the  Long-Term  Equity  Compensation  Plan that  have  vested or will vest
      within 60 days after March 30, 1999, in the following amounts:  Mr. Gamper
      - 117,933 shares,  Mr. Pollicino - 64,333 shares, Mr. Amos - 1,666 shares,
      Mr. White - 1,666 shares,  Mr. Leone - 19,333 shares, Mr. O'Grady - 18,033
      shares, and Mr. Stein - 13,133 shares.

(4)   Includes  1,100  shares  owned by Mr.  Gamper's  daughter and 1,100 shares
      owned by Mr.  Gamper's  son, as to which Mr. Gamper  disclaims  beneficial
      ownership.

(5)   Includes  56,464  shares  owned by the  Daniel  P. Amos and  Shannon  Amos
      Foundation,  Inc., a Georgia nonprofit  corporation,  as to which Mr. Amos
      disclaims beneficial ownership,  and 7,000 shares owned by Lapaul, Inc., a
      Georgia corporation, each of which is controlled by Mr. Amos.

Section 16(a) Beneficial Ownership Reporting Compliance

      Based on our records and other information,  we believe that our Directors
and officers complied with all applicable SEC filing  requirements for reporting
beneficial  ownership of our equity  securities for 1998, except as noted below.
Hisao Kobayashi  inadvertently failed to file Form 4 for November 1998 to report
that he  purchased  2,000  shares  of  Class A  Common  Stock  in our  Secondary
Offering. Mr. Kobayashi filed a Form 4 to report the purchase in March 1999.


                                       66
<PAGE>

Item 13. Certain Relationships and Related Transactions.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      CIT has in the past and may in the future enter into certain  transactions
with our affiliates.  Such  transactions  have been, and it is anticipated  that
such  transactions  will continue to be, entered into at a fair market value for
the transaction.

      Paul N. Roth, a director of CIT, is a partner of Schulte Roth & Zabel LLP,
which provides legal services to CIT. Schulte Roth & Zabel LLP has been retained
in the past and will continue in the future to serve as outside counsel for DKB.

Relationship with DKB

      DKB  beneficially  owns 71,000,000  shares of Class A Common Stock of CIT,
which represents  approximately  43.8% of the outstanding  Class A Common Stock.
DKB is our largest stockholder and may be able to exercise significant influence
over the election of the members of our Board of Directors and over our business
and affairs,  including any determinations  with respect to (i) mergers or other
business  combinations  involving us, (ii) the  acquisition  or  disposition  of
assets by us, (iii) the incurrence of  indebtedness  by us, (iv) the issuance of
any additional Common Stock or other equity  securities,  and (v) the payment of
dividends with respect to the Common Stock.

      Set forth below are descriptions of certain agreements,  relationships and
transactions between CIT and DKB.

Regulatory Compliance Agreement

      DKB is subject to U.S. and Japanese banking laws, regulations, guidelines,
and orders that affect  permissible  activities of CIT. DKB and CIT have entered
into a regulatory compliance agreement (the "Regulatory  Compliance  Agreement")
in order to  facilitate  DKB's  compliance  with  applicable  U.S.  and Japanese
banking  laws,  or  the  regulations,  interpretations,   policies,  guidelines,
requests, directives, and orders of the applicable regulatory authorities or the
staffs thereof or a court  (collectively,  the "Banking  Laws").  That Agreement
prohibits us from engaging in any new activity or entering into any  transaction
for which  prior  approval,  notice or filing is  required  under  Banking  Laws
without the required  prior approval  having been obtained,  prior notice having
been given or made by DKB and accepted or such filings  having been made. We are
also  prohibited  from engaging in any activity that would cause DKB, CIT or any
affiliate  of DKB or CIT to violate any  Banking  Laws.  If, at any time,  it is
determined  by DKB that any activity  then  conducted by us is prohibited by any
Banking  Law,  we are  required  to take all  reasonable  steps  to  cease  such
activity.

      Under the terms of the Regulatory Compliance Agreement, DKB is responsible
for making all determinations as to compliance with applicable Banking Laws.

      The Regulatory  Compliance  Agreement expires upon the earlier of the date
on which  DKB owns no shares of  Common  Stock or DKB,  in its sole  discretion,
requests  and obtains an opinion of counsel that (i) DKB will not be required to
receive prior  approval  from or give notice to or make filings with  applicable
regulatory  authorities  under the Banking Laws as a result of CIT or any of its
subsidiaries engaging in any activity and (ii) DKB and CIT are no longer subject
to the  jurisdiction  of the  Banking  Laws with  respect to the  activities  or
transactions in which CIT may engage.

Registration Rights Agreement

      DKB  and  CIT  entered  into  a   registration   rights   agreement   (the
"Registration Rights Agreement"),  which provides that, upon the request of DKB,
its  subsidiaries  or  certain  transferees  of  Common  Stock  from  DKB or its
subsidiaries (each, a "Qualified  Transferee"),  we will use our best efforts to
effect the registration  under the applicable  federal and state securities laws
of any of the  shares  of  Class A  Common  Stock  that DKB may hold or that are
issued or issuable upon  conversion of any other  security that DKB may hold and
of any other  securities  issued or  issuable  in  respect of the Class A Common
Stock,  in each  case  for  sale in  accordance  with 


                                       67
<PAGE>

the intended  method of  disposition of the holder or holders making such demand
for  registration,  and we will take such other  actions as may be  necessary to
permit the sale  thereof in other  jurisdictions,  subject to certain  specified
limitations.  DKB, any of its subsidiaries, or any Qualified Transferee also has
the right,  which it may exercise at any time and from time to time,  subject to
certain  limitations,  to include any such shares and other  securities in other
registrations  of equity  securities of CIT initiated by us on our own behalf or
on behalf of our other stockholders. The Company will pay all costs and expenses
in connection with each such registration  which DKB, any subsidiary  thereof or
any Qualified  Transferee  initiates or in which any of them  participates.  CIT
paid such costs and expenses in  connection  with the  Secondary  Offering.  The
Registration   Rights  Agreement  contains   indemnification   and  contribution
provisions: (i) by DKB and its permitted assigns for our benefit; and (ii) by us
for the benefit of DKB and other  persons  entitled to effect  registrations  of
Class A Common Stock (and other  securities)  pursuant to its terms, and related
persons.

Tax Allocation Agreement

      DKB does not include us in its  consolidated  group for federal income tax
purposes.  DKB  includes  us in its  consolidated  group  for state  income  tax
purposes  only  in  the  State  of  California.  Pursuant  to a  Tax  Allocation
Agreement,  dated as of October 23, 1991 (the "Tax Allocation  Agreement"),  CIT
and certain other  subsidiaries  of DKB file a consolidated  unitary  California
franchise  tax return and have  elected to file that return on a "water's  edge"
basis.  Under the Tax Allocation  Agreement,  we are obligated to pay to DKB the
California  franchise  tax that we would have paid if we were filing on the same
basis  we  would  have  filed  on had we not  entered  into  the Tax  Allocation
Agreement,  and our  liability  cannot  exceed the tax  liability  we would have
incurred had we not entered into the Tax Allocation  Agreement.  DKB absorbs any
residual  cost or  benefit of the filing of a  consolidated  unitary  California
franchise tax return.

Other Transactions

      At December 31, 1998,  our credit line coverage with 53 banks totaled $5.0
billion of committed facilities.  At December 31, 1998, DKB was a committed bank
under a $1.2 billion  revolving  credit  facility  and a $3.7 billion  revolving
credit  facility,   with  commitments  of  $67.5  million  and  $210.0  million,
respectively.

      We have entered into interest rate swap and cross  currency  interest rate
swap agreements with financial institutions acting as principal  counterparties,
including affiliates of DKB. At December 31, 1998, the notional principal amount
outstanding on interest rate swap agreements with DKB and its affiliates totaled
$220.0 million.  The notional  principal amount  outstanding on foreign currency
swaps totaled $168.6 million with DKB at year-end 1998.

      We have entered into leveraged leasing  arrangements with third party loan
participants,  including  affiliates of DKB. Leveraged lease receivables,  which
are  included in lease  receivables  on our  financial  statements,  exclude the
portion of lease receivables offset by related nonrecourse debt payable to third
party lenders,  including  amounts owed to affiliates of DKB that totaled $431.0
million at year-end 1998.

      At December 31, 1998, we had entered into credit-related  commitments with
DKB in the form of letters of credit totaling $12.2 million, equal to the amount
of the  single  lump sum  premium  necessary  to provide  group  life  insurance
coverage to certain  eligible  retired  employees  and an amount to fund certain
overseas finance receivables.

      We have entered into cash  collateral loan agreements with DKB pursuant to
which DKB made loans to four separate cash collateral trusts in order to provide
additional  security for payments on the  certificates  of the related  contract
trusts.  These  contract  trusts  were  formed for the  purpose of  securitizing
certain recreational vehicle and recreational marine finance receivables. During
1998, we replaced DKB's position in two cash  collateral  loan agreements with a
total payment made to DKB of $5.9 million.  At December 31, 1998,  the principal
amount outstanding on the cash collateral loans was $34.3 million.


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<PAGE>

                                     PART IV

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

(a)   The  following  documents  are  filed  with the  Securities  and  Exchange
      Commission as part of this report:

      1.    The financial  statements of The CIT Group, Inc. and Subsidiaries as
            set forth on pages 29-57.

      2.    All schedules are omitted because they are not applicable or because
            the  required  information  appears  in the  consolidated  financial
            statements or the notes thereto.

      3.    The  following is an index of the  Exhibits  required by Item 601 of
            Regulation S-K filed with the Securities and Exchange  Commission as
            part of this report:

            3.1      Amended and Restated  Certificate of  Incorporation  of The
                     CIT Group,  Inc., dated November 12, 1997  (incorporated by
                     reference  to Exhibit  3.1 to Form 8-A filed by the Company
                     on October 29, 1997).

            3.2      By-Laws of The CIT Group,  Inc.,  dated  November  12, 1997
                     (incorporated by reference to Exhibit 3.2 to Form 8-A filed
                     by the Company on October 29, 1997).

            4.1      Form of certificate  of Class A Common Stock  (incorporated
                     by  reference  to  Exhibit  4.1 to Form  8-A  filed  by the
                     Company on October 29, 1998).

            4.2      Upon the request of the Securities and Exchange Commission,
                     the Company will furnish a copy of all instruments defining
                     the rights of holders of long-term debt of the Company.

            10.1     Regulatory  Compliance  Agreement,  dated November 18, 1997
                     (incorporated by reference to Exhibit 10.4 to Amendment No.
                     2 to Form S-2 filed by the Company on November 12, 1997).

            10.2     Registration  Rights  Agreement,  dated  November  18, 1997
                     (incorporated by reference to Exhibit 10.5 to Amendment No.
                     2 to Form S-2 filed by the Company on November 12, 1997).

            10.3     Employment  Agreement of Albert R. Gamper, Jr., dated April
                     1,  1997,   comparable  to  the  agreement  for  Joseph  A.
                     Pollicino  (incorporated  by  reference  to Exhibit 10.6 to
                     Amendment  No.  2 to  Form  S-2  filed  by the  Company  on
                     November 12, 1997).

            10.4     Employment  Agreement of Joseph M. Leone, dated November 2,
                     1998,  comparable to the  agreements for William M. O'Grady
                     and Ernest D. Stein.

            10.5     The CIT Group  Bonus Plan  (incorporated  by  reference  to
                     Exhibit  10 (d) to Form 10-K filed by the  Company  for the
                     fiscal year ended December 31, 1992).

            10.6     The CIT Group  Holdings,  Inc.  Supplemental  Savings  Plan
                     (incorporated  by reference  to Exhibit  10(f) to Form 10-K
                     filed by the Company for the fiscal year ended December 31,
                     1992).

            10.7     The CIT Group Holdings,  Inc. Supplemental  Retirement Plan
                     (incorporated  by reference  to Exhibit  10(g) to Form 10-K
                     filed by the Company for the fiscal year ended December 31,
                     1992).

            10.8     The CIT Group Holdings,  Inc. Executive Retirement Plan and
                     New Executive Retirement Plan, each effective as of January
                     1, 1995  (incorporated  by  reference  to Exhibit  10.12 to
                     Amendment  No.  2 to  Form  S-2  filed  by the  Company  on
                     November 12, 1997).

            10.9     The CIT Group,  Inc.  Long-Term Equity  Compensation  Plan,
                     dated  November  1,  1997  (incorporated  by  reference  to
                     Exhibit  10.13 to Amendment  No. 2 to Form S-2 filed by the
                     Company on November 12, 1997).


                                       69
<PAGE>

            10.10    The CIT Group,  Inc.  Employee Stock  Purchase Plan,  dated
                     November 1, 1998.

            10.11    Agreement and Plan of Reorganization between The CIT Group,
                     Inc. and Newcourt Credit Group,  Inc., dated as of March 7,
                     1999  (incorporated  by reference to Exhibit 99 to Form 8-K
                     filed by the Company on March 16, 1999).

            12       Computation of Ratios of Earnings to Fixed Charges.

            21       Subsidiaries of the Registrant.

            23       Consent of KPMG LLP.

            24       Powers of Attorney

            27       Financial Data Schedule (filed electronically)

     (b) A Current  Report on Form 8-K, dated October 5, 1998 was filed with the
Securities and Commission  reporting the Company's  announcement  of results for
the quarter ended  September  30, 1998,  the  declaration  of a dividend for the
quarter ended September 30, 1998 and the filing of a registration statement with
the Securities  and Exchange  Commission for 49 million shares of Class A Common
Stock of the Company.

A  Current  Report on Form 8-K,  dated  December  2,  1998,  was filed  with the
Securities  and Commission  regarding the election of an additional  director to
the Board of Directors of the Company.


                                       70
<PAGE>

                                   SIGNATURES

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

                                   THE CIT GROUP, INC.

                                   By:           /S/ ERNEST D. STEIN
                                       -----------------------------------------
                                                    Ernest D. Stein
                                       Executive Vice President, General Counsel
                                                     and Secretary

March 18, 1999

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

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

   ALBERT R. GAMPER, JR.*
-----------------------------
   Albert R. Gamper, Jr.
 President, Chief Executive 
    Officer and Director
(principal executive officer)

      HISAO KOBAYASHI*
------------------------------
      Hisao Kobayashi
          Director

       DANIEL P. AMOS*
------------------------------
       Daniel P. Amos
          Director

        YOSHIRO AOKI*
------------------------------
        Yoshiro Aoki
          Director


------------------------------
        Anthea Disney
          Director

      TAKASUKE KANEKO*               *By: /s/ ERNEST D. STEIN     March 18, 1999
------------------------------            -------------------
      Takasuke Kaneko                       Ernest D. Stein
          Director                          Attorney-In-Fact

    JOSEPH A. POLLICINO*
------------------------------
    Joseph A. Pollicino
          Director

              
------------------------------
        Paul N. Roth
          Director

       PETER J. TOBIN*
------------------------------
       Peter J. Tobin
          Director

       TOHRU TONOIKE*
------------------------------
       Tohru Tonoike
          Director

       ALAN F. WHITE*
------------------------------
       Alan F. White
          Director

     /s/ Joseph M. Leone                                          March 18, 1999
------------------------------
       Joseph M. Leone
Executive Vice President and
   Chief Financial Officer
(principal accounting officer)

      Original powers of attorney  authorizing Albert R. Gamper,  Jr., Ernest D.
Stein,  and  James  P.  Shanahan  and  each of them  to  sign on  behalf  of the
above-mentioned  directors  are  held  by  the  Corporation  and  available  for
examination by the Securities and Exchange Commission pursuant to Item 302(b) of
Regulation S-T.


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