<PAGE>

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

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549
                                 -----------

                                  FORM 10-K

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

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                      OR

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

                        COMMISSION FILE NUMBER 1-8186

                          DAIN RAUSCHER CORPORATION
            (Exact name of registrant as specified in its charter)

                  DELAWARE                      41-1228350
     (State or other jurisdiction of          (IRS Employer
      incorporation of organization)      Identification Number)

     DAIN RAUSCHER PLAZA, 60 SOUTH SIXTH STREET
              MINNEAPOLIS, MINNESOTA                55402-4422
      (Address of principal executive offices)      (Zip Code)

      Registrant's telephone number, including area code (612) 371-2711
         Securities registered pursuant to Section 12(b) of the Act:

                                                  NAME OF EACH EXCHANGE
            TITLE OF EACH CLASS                    ON WHICH REGISTERED
            -------------------                   ---------------------
  Common Stock, par value $.125 per share      New York Stock Exchange, Inc.

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

                              Yes [X]     No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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. [X]

     As of March 3, 1999, 12,508,575 shares of common stock were outstanding, 
and the aggregate market value of the common shares (based upon the closing 
price at March 3, 1999, on the New York Stock Exchange) of Dain Rauscher 
Corporation, held by non-affiliates was approximately $256,206,669.

                     DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Proxy Statement of Registrant to be filed within 120 days
       of December 31, 1998 are incorporated in Part III of this report.

------------------------------------------------------------------------------
<PAGE>
                                    PART I

ITEM 1.        BUSINESS:

         (a)  GENERAL DEVELOPMENT OF BUSINESS.

         We (Dain Rauscher Corporation) are a Minneapolis, Minnesota-based 
holding company formed in 1973 that provides investment advice and services 
to individual investors in the western United States and investment banking 
services to corporate and governmental clients nationwide through our 
principal subsidiary, Dain Rauscher Incorporated ("DRI"). We also clear and 
settle securities trades on a fully-disclosed basis for 170 correspondent 
brokerage firms through our correspondent clearing unit, which is based in 
St. Louis, Missouri. Another subsidiary, Insight Investment Management Inc. 
("Insight"), serves as investment advisor to the Great Hall Investment Funds 
(five open-end money market mutual funds) and provides fixed income portfolio 
management services to a variety of private accounts. Dain Rauscher Lending 
Services Inc. was formed in 1997 to make certain types of loans to customers 
that are collateralized by customers' control and restricted securities. At 
December 31, 1998, we had approximately 3,600 employees located in 27 states. 
We are a Delaware corporation with executive offices located at Dain Rauscher 
Plaza, 60 South Sixth Street, Minneapolis, Minnesota 55402-4422. Our 
telephone number is (612) 371-2711.

         For further information on changes to our structure during 1998 see 
Item 7, "Management's Discussion and Analysis of Financial Condition and 
Results of Operations."

         (b)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         For a discussion of our results by segment see Item 7, "Management's 
Discussion and Analysis of Financial Condition and Results of Operations."

         (c)  NARRATIVE DESCRIPTION OF BUSINESS

SECURITIES BUSINESS

         GENERAL. Our broker-dealer subsidiary DRI conducts securities and 
investment banking activities. DRI deals in securities of and is a 
market-maker for entities based throughout the United States. DRI's equity 
research, trading and investment banking activities in recent years have 
evolved from a geographic orientation to one focused on selected industries. 
At December 31, 1998, DRI had 1,188 retail sales representatives and 111 
institutional sales representatives. DRI is a member firm of the New York 
Stock Exchange, Inc. ("NYSE") and is registered in the NASDAQ system as a 
market maker. At December 31, 1998, DRI was registered as a market maker for 
382 companies.

         Our operating results are sensitive to many factors outside of our 
control, including the general volatility of securities prices and interest 
rates, trading volume of securities, income and capital gains tax legislation 
and demand for investment banking services. Economic conditions in the 
regions in which we operate also affect operating results.

                                       1
<PAGE>

         Results by business line are discussed in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Revenue for each business line is generated from the following activities:


                                           DAIN RAUSCHER CORPORATION
                                               REVENUE BY SOURCE
                                            (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                            ------------------------------------------------------------------------
                                                     1998                       1997                      1996
                                            ------------------------------------------------------------------------
<S>                                              <C>                       <C>                       <C>
Commissions:
   Listed securities..................              $130,594                  $113,426                    $87,862
   Mutual funds.......................                89,170                    81,160                     62,679
   Over-the-counter securities........                45,033                    47,958                     46,845
   Insurance and annuity products.....                25,080                    20,782                     15,399
   Options, commodities and other.....                 9,790                    11,521                     10,299
                                                 -----------               -----------                -----------
      Total...........................               299,667                   274,847                    223,084
                                                 -----------               -----------                -----------

Principal Transactions:
   Equity securities..................                71,732                    75,699                     89,251
   Municipal securities...............                28,686                    32,100                     29,451
   Government securities..............                24,531                    19,289                     20,826
   Corporate fixed income securities..                12,544                    15,483                     20,371
   Mortgage-backed and other..........                13,099                     9,579                      9,141
                                                 -----------               -----------                -----------
      Total...........................               150,592                   152,150                    169,040
                                                 -----------               -----------                -----------

Investment Banking and Underwriting:
   Corporate..........................                68,910                    69,532                     67,749
   Municipal and other................                56,560                    41,748                     43,642
                                                 -----------               -----------                -----------
 Total................................               125,470                   111,280                    111,391
                                                 -----------               -----------                -----------

Interest:
   Customer margin accounts...........                88,994                    78,945                     66,770
   Trading inventories and other......                25,487                    28,705                     28,250
   Deposits and short-term
       investments....................                14,857                    14,842                     15,531
                                                 -----------               -----------                -----------
     Total............................               129,338                   122,492                    110,551
                                                 -----------               -----------                -----------

Asset Management:
   Individual and institutional
      accounts........................                37,571                    28,763                     21,697
   Money market funds.................                23,632                    17,541                     14,193
                                                 -----------               -----------                -----------
         Total........................                61,203                    46,304                     35,890
                                                 -----------               -----------                -----------

Correspondent Clearing................                17,873                    19,827                     15,806

Other.................................                36,192                    23,775                     17,554
                                                 -----------               -----------                -----------
      Total revenue...................           $   820,335               $   750,675                $   683,316
                                                 ===========               ===========                ===========
</TABLE>
                                       2
<PAGE>

         COMMISSIONS. As a securities broker, DRI acts as an agent in the 
purchase and sale of securities, options, commodities and futures contracts 
traded on various securities and commodities exchanges or in the 
over-the-counter ("OTC") market. DRI charges a brokerage commission when 
acting as an agent for the purchaser or seller of a security. If the security 
is listed on an exchange, the transaction is generally completed through 
DRI's own floor broker. If the security is traded in the OTC market, 
transactions are generally completed with a market maker in the security. In 
addition, DRI also earns commissions from transactions involving many other 
financial products, including mutual funds and insurance and annuity 
products. DRI earns commissions primarily from individual investors, however 
institutional commissions have increased in recent years.

         PRINCIPAL TRANSACTIONS. DRI is a dealer in corporate, tax-exempt and 
governmental fixed income securities and equity securities. DRI recognizes 
profits or losses on transactions from trading securities inventory. Trading 
securities requires a substantial capital commitment and exposes us to the 
risk of loss if market prices of the securities decrease. However, DRI marks 
trading securities held in inventory to market, recognizing any unrealized 
gains or losses on fluctuations in value as part of principal transactions 
revenue.

         See Item 8, "Note J to Consolidated Financial Statements", for 
further discussion on our inventory and risk management policies.

         INVESTMENT BANKING AND UNDERWRITING ACTIVITIES. DRI earns investment 
banking fees by assisting clients with financial needs planning and by 
advising them on raising and managing capital. We also help our clients 
implement financing plans by managing or co-managing public offerings of 
securities or by arranging private placements of securities with 
institutional or individual investors. Our Equity Capital Markets group 
originates, syndicates and distributes securities of companies in five key 
sectors: consumer, energy, financial services, health care and technology. 
Our syndicate department (part of Equity Capital Markets) coordinates the 
distribution of managed and co-managed corporate equity underwritings, 
accepts invitations to participate in competitive or negotiated underwritings 
managed by other investment banking firms, and allocates and merchandises 
DRI's selling allotments to our Private Client group branch offices, 
institutional clients and other broker-dealers. Our Fixed Income Capital 
Markets group originates, syndicates and distributes securities primarily of 
municipalities, state and local agencies, and health care organizations.

          Participation in equity and tax-exempt securities underwritings can 
expose us to significant risk, as it is possible that securities we have 
committed to purchase cannot then be resold at the initial offering price. We 
work under the provisions of federal and state securities laws and 
regulations that can impose substantial potential liabilities for violations 
in connection with an underwriters' sales of securities to the public. In 
addition to public offerings and private placements, DRI provides other 
consulting services, including valuations of securities and companies, 
arranging and evaluating mergers and acquisitions and advising clients with 
respect to financing plans and related matters.

         CUSTOMER FINANCING. A significant portion of DRI's' profitability is 
from net interest income, the majority of which is related to customer 
balances. Our customers conduct their transactions on either a cash or margin 
basis. Purchases on a cash basis require full payment by the settlement date 
(generally the third business day following the transaction date). DRI's 
balance sheet includes all our customers' debit and credit balances as well 
as those of the introducing correspondent firms serviced by our correspondent 
clearing unit. DRI is at risk in the event a customer fails to settle a trade 
and the value of the securities subsequently decline. When a customer 
purchases securities on a margin basis, DRI extends credit to the customer 
for a portion of the purchase price. The amount of the loan is subject to 
margin regulations of the Federal Reserve Board, the NYSE and our internal 
policies, which are generally more stringent than these regulations. DRI is 
at risk of loss for customers who are unable to pay on margin loans where the 
collateral is less than the amount of the loan as a result of declines in 
market value. We charge interest at a floating rate based on the amount a 
customer borrows. The rate is dependent on the customers' average margin 
balance, activity level, and our cost of funds. See Item 8, "Note J to 
Consolidated Financial Statements", for further discussion of these customer 
activities.

         Customers also accumulate credit balances in their accounts from 
receipt of dividends, interest or principal on securities we hold on their 
behalf, from funds received for the sale of securities, and from cash 
deposits made by customers. DRI pays interest to customers on their credit 
balances. DRI also uses available customer credit balances to lend funds to 
other customers purchasing securities on margin. DRI weekly calculates the 
amount of customer credit balances, if any, that must be segregated ("excess 
customer credit balances") from other customer funds, based on regulations 
designed to protect customer balances. Excess customer credit balances are 
invested in short-term securities in accordance with these regulations. See 
Item 8 "Note L to Consolidated Financial Statements" for further discussion 
of these regulatory requirements. DRI generates net interest income from the 
interest rate spread between the yield on customer debit balances and 
short-term investments and the rate paid to customers on credit balances. DRI 
is a member of the Securities Investor

                                       3
<PAGE>

Protection Corporation ("SIPC"), which insures customer accounts up to 
specified limits in the event of liquidation. We also maintain additional 
coverage in order to further protect customer accounts in excess of SIPC 
coverage.

         SECURITY REPURCHASE ACTIVITIES. DRI acts as principal in the 
purchase and sale to customers of U.S. government and government agency 
securities, including repurchase agreements in these securities and certain 
other money market instruments. DRI may match purchases and sales of these 
securities and is at risk to the extent that the contracts are not properly 
matched or its customers are unable to meet their obligations. These risks 
are higher during periods of rapidly changing interest rates or fluctuations 
in market conditions. In addition to requiring collateral, DRI takes physical 
possession of securities purchased under agreements to resell. These 
repurchase agreements provide DRI with the right to maintain the relationship 
between the market value of the collateral held and the amount owed. DRI 
typically enters into these contracts only with large, credit-worthy 
customers. DRI also utilizes securities sold under repurchase agreements as a 
means of financing portions of its trading inventories.

         RESEARCH ACTIVITIES. DRI has fixed income and equity research 
departments which provide analysis, investment recommendations and market 
information with an emphasis on companies in selected industry segments. At 
December 31, 1998, DRI had 36 securities analysts. We also purchase products 
from independent organizations to supplement our internal research activities.

         REGULATION. The securities industry is regulated by federal and 
state governments, the various securities and commodities exchanges and other 
self-regulatory bodies. Regulations cover all aspects of the securities 
business including sales practices, registration and distribution of 
securities, trade practices among broker-dealers, transactions with 
affiliates, conflicts of interest, uses and safekeeping of customers' funds 
and securities, capital levels of securities firms, record-keeping and the 
conduct of employees. Violations of these rules and regulations can result in 
censure, fines, suspensions, revocation of the right to do business and 
private rights of action for damages. DRI believes it has operated in 
compliance with applicable rules and regulations in all material respects.

         UNIFORM NET CAPITAL RULE.  See Item 8 "Note L to Consolidated 
Financial Statements."

CLEARING SERVICES

         DRI is also in the business of marketing correspondent clearing 
services. Our correspondents disclose to their customers that the customers' 
trades are being cleared and settled by us. As of December 31, 1998, DRI 
provided clearing services to 170 correspondents. Correspondent firms are 
charged fees based on their use of services.

MONEY MANAGEMENT AND OTHER SERVICES

         Our subsidiary, Insight, is a registered investment advisor 
providing fixed income portfolio management services to the Great Hall 
Investment Funds, Inc. ("Great Hall") and to individual and institutional 
clients. Great Hall is an open-end investment company that currently offers 
shares in five separate money market mutual funds.

COMPETITION

         DRI encounters intense competition in its business as a 
broker-dealer, competing directly with numerous firms, many of which have 
substantially greater capital and other resources. We also encounter 
competition from banks, insurance companies and financial institutions. 
During the past two years a number of commercial banks have acquired 
securities firms, gaining unprecedented entry into the securities industry. 
These acquisitions have brought new sources of capital into the securities 
industry, resulting in more formidable competitors. Additionally, competition 
among securities firms and other competitors for successful sales 
representatives, securities traders, securities analysts and investment 
bankers is intense and continuous.

         DRI competes with other securities firms and with banks, insurance 
companies and other financial institutions based on service, product 
selection, price, location and reputation in local markets. DRI does operate 
at a price disadvantage to discount brokerage firms, although these firms do 
not offer equivalent services. Insight competes with other fixed income 
portfolio managers principally on the basis of portfolio performance, price 
and service.

EMPLOYEES

         At December 31, 1998, we had approximately 3,600 full-time 
employees, none of whom were represented by a collective bargaining unit.

                                       4
<PAGE>

ITEM 2.       PROPERTIES:

         Our headquarters and administrative offices are located in two 
buildings in downtown Minneapolis, Minnesota, including the Dain Rauscher 
Plaza. One location contains back office and data processing operations. We 
also lease significant space in Dallas, Texas. DRI has an extensive branch 
office system, and leases office space in various locations throughout the 
country. We believe that our facilities are suitable and adequate to meet our 
needs, and are appropriately utilized.

ITEM 3.       LEGAL PROCEEDINGS:

         We are defendants in various pending actions, suits and proceedings 
before courts, arbitrators and governmental agencies. Certain of these 
actions claim substantial damages and, if determined adversely, could have a 
material adverse effect on our consolidated financial condition or results of 
operations. These actions are listed below. For a more detailed discussion of 
these actions and other litigation see Item 8, "Note I to the Consolidated 
Financial Statements."

         MIDWEST LIFE INSURANCE COMPANY RELATED CLAIMS

         KARSIAN, ET AL. v. INTER-REGIONAL FINANCIAL GROUP, INC., AND 
         DAIN BOSWORTH INCORPORATED, Case No. 93-M-1806 (U.S. Dist. Ct., 
         Colorado, filed 1993).

         NEBRASKA LIFE AND HEALTH INSURANCE GUARANTY ASS'N v.  
         INTER-REGIONAL FINANCIAL GROUP, INC. AND DAIN BOSWORTH 
         INCORPORATED, Docket 527, Page 023 (Nebraska Dist. Ct., Lancaster 
         County, filed 1995).

         JOHN A. DIXON, JR., AS COMMISSIONER OF INSURANCE AD HOC, FOR THE 
         STATE OF LOUISIANA v. THE MIDWEST LIFE INSURANCE COMPANY/MIDWEST  
         LIFE INSURANCE COMPANY, IN LIQUIDATION v. INTERRA FINANCIAL 
         INCORPORATED, DAIN BOSWORTH INCORPORATED AND THE CENTRAL NATIONAL 
         LIFE INSURANCE COMPANY OF OMAHA, Div. Action No. 97-716 (I.S. Dist. 
         Ct., Middle Dist. Of Louisiana, filed 1997).

         STATE OR ARIZONA SEC PROCEEDING

         SECURITIES AND EXCHANGE COMMISSION v. RAUSCHER PIERCE REFSNES,  
         INC., JAMES FELTHAM AND DAIN RAUSCHER INCORPORATED, No. DIV98-0027 
         PHX ROS (U.S. Dist. Ct., Arizona, filed 1998).

         ORANGE COUNTY RELATED SEC PROCEEDING

         SECURITIES AND EXCHANGE COMMISSION v. DAIN RAUSCHER, INC., KENNETH 
         D. OUGH AND VIRGINIA O. HORLER, Case No. SACV 98-639 GLT (Anx) (U.S. 
         Dist. CT., Central Dist. Of California, filed 1996).

ITEM 3. B.    LEGAL PROCEEDINGS:

         In addition, the following actions, suits or proceedings were settled
during 1998. For a more detailed discussion of these actions see Item 8, "Note I
to the Consolidated Financial Statements."

         MIDWEST LIFE INSURANCE COMPANY RELATED CLAIMS

         WASHINGTON LIFE AND HEALTH INSURANCE GUARANTY ASS'N v.  
         INTER-REGIONAL FINANCIAL GROUP, INC. AND DAIN BOSWORTH INCORPORATED

         IOWA LIFE AND HEALTH INSURANCE GUARANTY ASS'N v. INTER-REGIONAL  
         FINANCIAL GROUP, INC. AND DAIN BOSWORTH INCORPORATED (Iowa Dist. 
         Ct., Polk County)

         C. RANDOLPH, L. SCHNOBRICH, V. TROUMBLY, P. DUMKE, E. DAVIS AND 
         MINNESOTA LIFE AND HEALTH INSURANCE GUARANTY ASS'N v.  
         INTER-REGIONAL FINANCIAL GROUP, INC. AND DAIN BOSWORTH  
         INCORPORATED (Hennepin County, Minnesota Dist. Ct.)

         MONTANA LIFE AND HEALTH INSURANCE GUARANTY ASS'N v. INTER-REGIONAL 
         FINANCIAL GROUP, INC. AND DAIN BOSWORTH INCORPORATED, (Montana 
         First Judicial Court, Lewis & Clark County)

         NORTH DAKOTA LIFE AND HEALTH INSURANCE GUARANTY ASS'N v.  
         INTER-REGIONAL FINANCIAL GROUP, INC. AND DAIN BOSWORTH 
         INCORPORATED, (District Court, Cass County, North Dakota)

         SOUTH DAKOTA LIFE AND HEALTH INSURANCE GUARANTY ASS'N v.  
         INTER-REGIONAL FINANCIAL GROUP, INC. AND DAIN BOSWORTH 

                                      5

<PAGE>

         INCORPORATED, (South Dakota Second Judicial Circuit, Minnehaha 
         County)

         WYOMING LIFE AND HEALTH INSURANCE GUARANTY ASS'N v. INTER-REGIONAL 
         FINANCIAL GROUP, INC. AND DAIN BOSWORTH INCORPORATED, (Wyoming 
         District Court for Laramie County)

         OREGON LIFE AND HEALTH INSURANCE GUARANTY ASS'N v. INTER-REGIONAL 
         FINANCIAL GROUP, INC. AND DAIN BOSWORTH INCORPORATED, (Oregon 
         Circuit Court of Multnomah County)

         ORANGE COUNTY BANKRUPTCY LITIGATION

         THOMAS HAYES, AS LITIGATION REPRESENTATIVE FOR THE COUNTY OF ORANGE 
         AND AS ASSIGNEE OF THE DISTRICTS' EXCLUDED CLAIMS v. DAIN RAUSCHER 
         CORP., Case No. SACV 98-768 AHS (ANx) (U.S. Dist. Ct., Central Dist. 
         of California)

         COUNTY OF ORANGE, A POLITICAL SUBDIVISION OF THE STATE OF CALIFORNIA 
         v. RAUSCHER PIERCE REFSNES, INC., A CORPORATION and filed in the 
         Chapter 9 proceeding entitled IN RE COUNTY OF ORANGE, A POLITICAL 
         SUBDIVISION OF THE STATE OF CALIFORNIA in the United States 
         Bankruptcy Court for the Central District of California

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

         No matters were submitted to a vote of security holders during the 
fourth quarter ended December 31, 1998.

                                      6

<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

           The following officers have been designated by our Board of 
Directors as current "executive officers" for SEC reporting purposes. All 
officers are generally elected annually at the Board meeting held in 
conjunction with our annual stockholders meeting and hold such offices until 
the following year, subject to their earlier death, resignation or removal.

<TABLE>
<CAPTION>
                                                                         PRINCIPAL OCCUPATION AND
                                                                            BUSINESS EXPERIENCE
NAME                                        AGE                           FOR THE PAST FIVE YEARS
----                                        ---                          -------------------------
<S>                                         <C>       <C>
John C. Appel...............................50         Vice Chairman and Chief Financial Officer,  Dain Rauscher Corporation,
                                                       since October 1997.  Vice Chairman and Chief Financial Officer, Dain
                                                       Rauscher Incorporated, since January 1998. Chief Executive Officer,
                                                       Dain Bosworth, February 1997 to December 1997; President, Dain
                                                       Bosworth, 1994 to December 1997.  Executive Vice President, Dain
                                                       Rauscher  Corporation, 1990 to December 1997; Director, Dain Rauscher
                                                       Corporation, since 1995.  Member of the Dain Rauscher Corporation
                                                       Executive Committee.

Nelson D. Civello...........................53         Senior Executive Vice President, Fixed Income Capital Markets, Dain
                                                       Rauscher Incorporated, since October 1997.  Senior Executive Vice
                                                       President, Dain Rauscher Corporation, since October 1997.  Executive
                                                       Vice President, Fixed Income Group, Dain Bosworth, 1990 to December
                                                       1997.  Member of the Dain Rauscher Corporation Executive Committee.

B. J. French................................62         Senior Vice President, Dain Rauscher Corporation, since May 1996.
                                                       Senior Vice President, Dain Rauscher Incorporated, since January
                                                       1998.  Director of Corporate and Investor Communications, Dain
                                                       Rauscher Corporation, since 1991.

David J. Parrin.............................44         Senior Vice President and Controller of Dain Rauscher Corporation  and
                                                       Dain Rauscher Incorporated since April 1998; Senior Vice President and
                                                       Controller of U.S. Bancorp, May 1994 to April 1998;  Partner, Ernst &
                                                       Young 1989 to May 1994.

Carla J. Smith..............................41         Senior Vice President, Dain Rauscher Corporation, since 1994; General
                                                       Counsel and Secretary, Dain Rauscher Corporation, since 1991. Senior
                                                       Vice President, General Counsel and Secretary, Dain  Rauscher
                                                       Incorporated, since January 1998.

J. Scott Spiker.............................43         Senior Executive Vice President, Business Services Group, Dain
                                                       Rauscher Incorporated, since January 1998.  Senior Executive Vice
                                                       President, Dain Rauscher Corporation, since October 1997. Chairman of
                                                       the Board and Chief Executive Officer, Insight Investment Management
                                                       Inc., since January 1998.  President and Chief Executive  Officer,
                                                       Interra Advisory Services Inc., 1995 to December 1997.  Executive Vice
                                                       President, Dain Rauscher Corporation, May 1996 to October 1997; Senior
                                                       Vice President, Director of Strategic Planning and Corporate
                                                       Development, Dain Rauscher Corporation, 1994 and 1995.  Senior Vice
                                                       President, Manager Employee Benefit Services, Norwest Bank Minnesota,
                                                       N.A., 1989 to 1994.  Member of Dain Rauscher Corporation Executive
                                                       Committee.

Douglas  J. Strachan........................53         Senior Vice President, Dain Rauscher Corporation, since 1997.  Chief
                                                       Information Officer, Dain Rauscher Corporation, since 1996.  Senior
                                                       Vice President and Director, Information Sytems, Dain Rauscher
                                                       Corporation, since 1993.

                                      7

<PAGE>

Ronald A. Tschetter.........................57         Senior Executive Vice President, Private Client Group, Dain Rauscher
                                                       Incorporated, since October 1997.  Senior Executive Vice President,
                                                       Dain Rauscher Corporation, since October 1997.  Executive  Vice
                                                       President, Private Client Group, Dain Bosworth, 1991 to December
                                                       1997.  Member of the Dain Rauscher Corporation Executive Committee.

Irving Weiser...............................51         Chairman of the Board, Dain Rauscher Corporation, since 1995;  Chief
                                                       Executive Officer, Dain Rauscher Corporation, since 1990; President
                                                       and Director, Dain Rauscher Corporation, since 1985. Chairman of the
                                                       Board and Chief Executive Officer, Dain Rauscher Incorporated,  since
                                                       January 1998.  Chairman of the Board, Dain Bosworth, 1990 to December
                                                       1997; Chief Executive Officer, Dain Bosworth, 1990 to February 1997.
                                                       Chairman of the Board, Rauscher Pierce Refsnes, 1995 to December 1997;
                                                       Acting President and Chief Executive Officer, Rauscher Pierce Refsnes,
                                                       1995 to June 1996.  President, Dain Bosworth, 1990 to 1994. Member of
                                                       Dain Rauscher Corporation Executive Committee.

Kenneth J. Wessels..........................56         Senior Executive Vice President, Dain Rauscher Corporation and Dain
                                                       Rauscher Wessels group of Dain Rauscher Incorporated since March of
                                                       1998; Director, Dain Rauscher Corporation, since March 1998; Member of
                                                       Dain Rauscher Corporation Executive Committee.  CEO and Managing
                                                       Director, Wessels, Arnold & Henderson, LLC 1986 to March 1998.  CEO
                                                       and Managing Director, WAH Group, 1995 to March 1998.
</TABLE>

                                      8

<PAGE>

                                                    PART II

ITEM 5.       MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY 
              AND RELATED STOCKHOLDER MATTERS:

         (a)      MARKET INFORMATION.

         Our common stock trades on the NYSE under the symbol "DRC." Following
are the high and low sales prices per share by quarter for the last two years:

<TABLE>
<CAPTION>
                                                     1998                                1997

         QUARTER                                HIGH          LOW                  HIGH           LOW
         -------                            ----------     -----------         ---------       ----------
         <S>                                <C>            <C>                 <C>             <C>
         First                              $  69          $  53-1/2            $ 42-5/8       $ 34-3/4
         Second                                60-3/16        50-13/16            45-5/8         41-15/16
         Third                                 58-3/4         31-3/16             60-1/16        43-1/2
         Fourth                                37-13/16       27-5/16             69-3/16        56-15/16

</TABLE>

         (b)      HOLDERS.

         At February 28, 1999, there were approximately 6,500 holders of our 
common stock.

         (c)      DIVIDENDS.

         Cash dividends per common share paid by quarter for the last two 
years were as follows:

<TABLE>
<CAPTION>

QUARTER                   1998                   1997
------                    -----                 ------
<S>                       <C>                   <C>
First                     $0.22                  $0.18
Second                     0.22                   0.18
Third                      0.22                   0.18
Fourth                     0.22                   0.18
</TABLE>

         Whether or not cash dividends will continue to be paid in the future 
will depend on our future financial condition, earnings and available funds.

                                      9

<PAGE>

ITEM 6.       SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                 --------------------------------------------------------------------
(Dollars in thousands, except per-share amounts)     1998          1997           1996         1995          1994
                                                 -----------    ----------    -----------   -----------   -----------
<S>                                              <C>            <C>           <C>           <C>           <C>
OPERATING RESULTS:
Total revenue...........................         $   820,335    $  750,675    $   683,316   $   606,747   $   496,289
Pretax income...........................              12,484        76,755         87,402        56,271        39,795
Net income..............................               7,990        49,275         56,811        35,873        25,453

Pretax margin (net revenue).............                 1.7%         11.1%          14.0%         10.4%          8.7%
Return on average equity................                 2.5          16.5           22.8          17.3          13.5


Before non-recurring items:*
Net revenue.............................         $   740,583    $  692,102    $   625,756   $   541,970   $   457,351
Pretax operating income.................              47,484        91,755         87,402        56,271        39,795
Net operating income....................              30,390        58,875         56,811        35,873        25,453

Operating margin (net revenue)..........                 6.4%         13.3%          14.0%         10.4%          8.7%
Operating return on average equity......                 9.2          19.5           22.8          17.3          13.5

----------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Net income:
   Basic................................         $       .64    $     4.01    $      4.68   $      2.96   $      2.09
   Diluted..............................                 .61          3.77           4.49          2.85          2.03

Operating income:*
   Basic................................                2.45          4.80           4.68          2.96          2.09
   Diluted..............................                2.31          4.51           4.49          2.85          2.03

Cash dividends..........................                 .88           .72            .56       .42-2/3       .37-1/3
Book value..............................               26.27         26.00          22.66         18.44         16.20

----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION (AT YEAR END):
Total assets............................         $ 2,466,487    $2,304,401    $ 1,827,425   $ 2,021,908   $ 1,952,611
Long-term debt..........................             112,505        15,659         27,290        41,410        47,023
Shareholders' equity....................             329,773       319,091        275,886       222,494       195,420

Long-term debt-to-equity ratio..........                34.1%          4.9%           9.9%         18.6%         24.1%

----------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION:
Common shares outstanding at year end...              12,553        12,275         12,175        12,065        12,062
Average number of employees.............               3,608         3,525          3,379         3,285         3,133
Average number of investment
   executives...........................               1,271         1,267          1,263         1,271         1,205
Operating office locations at year end..                 103            96             91            91            95

----------------------------------------------------------------------------------------------------------------------
</TABLE>

*Nonrecurring items include: $5.6 million (after tax) gain from sale of 
investment securities and $15.2 million (after tax) in litigation-related 
expense in 4Q98; merger-related expense of $12.8 million (after tax) in 1Q98; 
and $9.6 million (after tax) restructuring charge in 3Q97.

                                      10

<PAGE>

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
              RESULTS OF OPERATIONS:


BUSINESS ENVIRONMENT

         We are primarily engaged in securities brokerage, investment banking 
and trading as a principal in equity and fixed income securities. All of 
these activities are highly competitive and sensitive to many factors outside 
of our direct control. Our business results may be affected by changes in 
interest rates, income tax legislation, financial market volatility or 
economic conditions, any of which can affect demand for investment banking 
and securities brokerage services. Changes in securities prices and trading 
volumes may also affect revenue. Consequently, our net earnings can vary 
significantly from period to period.

1998 OVERVIEW

        We posted 1998 net operating earnings of $30.4 million, or $2.31 per 
diluted share, on a 7% increase in net revenue to $741 million. That compares 
with net operating earnings of $58.9 million, or $4.51 per diluted share, in 
1997.

     Our 1998 net income was $8.0 million, or 61 cents per diluted share, 
compared with $49.3 million, or $3.77 per diluted share, in 1997. These 
results included a $12.8 million, after tax, first-quarter charge related to 
the acquisition of Wessels, Arnold and Henderson ("WAH"), and a $9.6 million, 
after tax, fourth-quarter charge related to the settlement of several 
significant litigation matters. This charge, which was $15.0 million pretax, 
included $23.8 million in litigation-related expense, offset by an $8.8 
million pretax gain on the sale of investment securities.

                                          INCOME STATEMENT HIGHLIGHTS
                                    (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                                -----------------------------
                                                   1998                1997
                                                ---------           ---------
<S>                                             <C>                 <C>
Revenue*.....................................   $811,548            $750,675
Interest expense.............................    (70,965)            (58,573)
                                                ---------           ---------

Net revenue*.................................    740,583             692,102
Expenses excluding interest
   and nonrecurring expenses.................    693,099             600,347
                                                ---------           ---------

Operating earnings before income taxes.......     47,484              91,755
Income tax expense from operations...........    (17,094)            (32,880)
                                                ---------           ---------

Net operating earnings.......................     30,390              58,875
Net nonrecurring items (net of tax)*.........    (22,400)             (9,600)
                                                ---------           ---------
Net income ..................................   $  7,990            $ 49,275
                                                ========            =========

EARNINGS PER SHARE:
From net operating earnings:
   Basic.....................................   $   2.45           $    4.80
   Diluted...................................   $   2.31           $    4.51

Net:
   Basic.....................................   $   0.64           $    4.01
   Diluted...................................   $   0.61           $    3.77
</TABLE>

*Excludes nonrecurring items, which include (after tax): $5.6 million gain 
from sale of investment securities and $15.2 million in litigation-related 
expense in 4Q98; merger-related expense of $12.8 million in 1Q98; and $9.6 
million restructuring charge in 3Q97.

                                     11

<PAGE>

         During 1998 we combined three entities into a single corporation. 
First, we completed the combination of our broker-dealer subsidiaries--Dain 
Bosworth Incorporated ("Dain Bosworth") and Rauscher Pierce Refsnes, Inc. 
("Rauscher Pierce Refsnes")--and our operations subsidiary into a new firm, 
Dain Rauscher Incorporated ("DRI"). As a result of this change, on January 2, 
1998, we changed our name to Dain Rauscher Corporation and our trading symbol 
on the New York Stock Exchange to "DRC." Next we completed the acquisition of 
WAH, a privately held investment banking, institutional equity sales and 
trading firm based in Minneapolis, on March 31, 1998. We accounted for this 
transaction as a purchase. The purchase price of $150 million included $120 
million in cash and $30 million in five-year, subordinated debentures. We 
paid the cash portion of the purchase price from both available cash and a 
subordinated commercial bank credit facility. As a result of the transaction, 
we recorded approximately $120 million of goodwill, which is being amortized 
over 25 years.

         With the acquisition of WAH, now included in the Equity Capital 
Markets Group, we significantly increased our equity capital markets 
capabilities. In connection with this acquisition, DRI recorded an expense of 
$20 million ($12.8 million after tax) in the first quarter of 1998. This 
charge included $16 million for severance in the elimination of approximately 
150 jobs, $2.5 million for office space consolidation; and the remaining $1.5 
million for converting systems and other integration costs. By the end of 
1998, we had spent approximately $17 million of this restructuring charge, 
$16 million of which was severance. We expect to charge any remaining costs 
to the restructuring reserve during the first quarter of 1999.

         In addition to the restructuring charge and the goodwill 
amortization resulting from the WAH acquisition, certain other expenses 
increased during 1998 due to the changes in our structure. Compensation 
expenses increased, partly as a result of transitional incentive compensation 
arrangements that we implemented to minimize turnover during the 
restructuring. These incentive agreements expired at the end of 1998. We also 
paid higher commissions on the higher revenue levels generated by employees 
as securities prices and trade volumes rose during the year. Compensation 
expense also increased with a modest rise in the number of employees, and 
general salary increases during the year. Additional office space, as a 
result of both the acquisition and also the opening of new retail and fixed 
income offices, increased occupancy costs during the year. These operating 
expense increases (with compensation being the largest) had a significant 
impact on our net operating earnings, which decreased 48% from 1997.

         Finally, during the fourth quarter, we recorded $23.8 million 
(pretax) in litigation expenses to settle several lawsuits regarding our 
alleged involvement in the bankruptcy of Orange County, California, and the 
failure of a former subsidiary, Midwest Life Insurance Company. We also 
realized an $8.8 million pretax gain from the sale of an equity investment. 
As a result, our fourth quarter 1998 results included a net nonrecurring 
expense of $9.6 million, after taxes. Although 1997 results also included a 
restructuring charge, the combined impact of the 1998 restructuring charge 
and litigation settlements were significantly higher than in the prior year. 
The effect of these nonrecurring items, in addition to the operating expense 
increases, resulted in an 84% decline in our net income in 1998.

                                     12

<PAGE>
1998 BUSINESS LINE INFORMATION

     Our business includes three major segments: Private Client Group, which 
includes securities and financial product sales for individual investors, 
correspondent clearing, and asset management for individual investors; Equity 
Capital Markets, which includes investment banking and underwriting, 
institutional sales, and over-the-counter and listed equity trading; and 
Fixed Income Capital Markets, which includes fixed income securities sales, 
trading, underwriting, and advisory services. All corporate expenses and 
miscellaneous revenues and expenses that are not allocated to individual 
business lines are included in Corporate. Corporate pretax income also 
includes the 1998 gain on the sale of an investment security.

<TABLE>
<CAPTION>

(Dollars in thousands)                                1998             1997          % CHANGE
                                                 ------------     ------------      ----------
<S>                                              <C>              <C>               <C>
Net Revenue:
   Private Client Group.....................     $    531,197     $    491,577               8%
   Equity Capital Markets...................           93,317           97,118              (4)
   Fixed Income Capital Markets.............          110,041           86,292              27
   Gain on sale of investment security......            8,787                -              nm
   Corporate................................            6,028           17,115              nm
                                                 ------------     ------------      ----------
       TOTAL................................     $    749,370     $    692,102               8%
                                                 ============     ============      ==========

Pretax income:
   Private Client Group.....................     $     51,134     $     60,460             (15)%
   Equity Capital Markets...................          (19,468)           3,891              nm
   Fixed Income Capital Markets.............           16,334            9,783              67
   Nonrecurring Items.......................          (43,787)         (15,000)             nm
   Corporate................................            8,271           17,621             (53)
                                                 ------------     ------------      ----------
       TOTAL................................     $     12,484     $     76,755             (84)%
                                                 ============     ============      ===========

Pretax margin on net revenue:
   Private Client Group.....................              9.6%            12.3%
   Equity Capital Markets...................            (20.9)             4.0
   Fixed Income Capital Markets.............             14.8             11.3
   Corporate................................               nm               nm
                                                 ------------     ------------
        TOTAL...............................              1.7%            11.1%
                                                 ============     ============
</TABLE>

         PRIVATE CLIENT GROUP: Private Client Group ("PCG") generates revenue 
primarily from commissions earned by investment executives on individual 
(retail) investor activity. Additional sources of revenue include asset 
management fees paid to the group by Insight Investment Management 
("Insight") from the Great Hall money market funds, and fees paid by 
customers for us to manage or arrange the management of their portfolios. PCG 
also earns interest from customers who have borrowed funds to settle trades 
(margin accounts). Revenue generated from correspondent (or trade) clearing 
is also included in PCG. Correspondent clearing fees are paid to us by 
outside (introducing) brokers to act as their representative with financial 
exchanges, and to clear and settle their clients' transactions.

         PCG's increased commission revenue in 1998 came from higher sales of 
mutual funds, listed securities and insurance products. The increase in both 
securities prices and trade volumes on the NASDAQ, NYSE and other exchanges 
drove much of this gain. Our investment executives completed more customer 
trades at generally higher prices than in prior years. Increases in 
investment executive productivity and growth from new offices further 
augmented commission revenue.

         Correspondent clearing income also increased slightly over the 
prior year, despite a small loss in the number of correspondents. This 
increase was primarily a result of higher interest revenue from larger 
customer margin borrowings during 1998. Asset management fees were also 
higher for 1998, as a result of higher levels of assets under administration 
during the year in both Great Hall Funds and in other fee-based managed 
account programs.

                                     13

<PAGE>

         PCG's interest revenue from margin loans to customers, based on 
debit balances in customer accounts, increased with higher levels of customer 
borrowings in 1998. The interest Private Client Group paid to customers on 
certain credit balances on deposit with us declined with lower interest 
rates. PCG net interest income is dependent upon the level of customer debit 
and credit balances, as well as the spread between the rate earned on those 
balances and the interest costs on borrowed funds. As long as there are 
favorable interest-rate spreads and the level of interest-bearing accounts 
remains stable, we expect net interest income to remain a significant 
component of earnings. The following chart summarizes PCG's net interest 
income from margin lending:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------------
(Dollars in thousands)                                           1998              1997              1996
                                                              ----------        ----------       ----------
<S>                                                           <C>               <C>              <C>
Net interest income from
Margin loans to customers:
   Average balance........................................    $1,076,900        $ 934,833        $  810,693
   Average interest rate spread...........................           2.5%             2.6%              2.5%
                                                              -----------       ---------        ----------
                                                              $   26,641        $  24,070        $   20,479
                                                              ==========        =========        ==========
</TABLE>

         Despite increased revenue, Private Client Group pretax income 
declined 15% for the year. Increased compensation expenses from transitional 
incentive programs implemented during our restructuring and recruiting 
activity during the year were the most significant factors in decreasing the 
pretax margin in 1998. Compensation and benefits were 55.1% of net revenue in 
1998 compared with 54.0% in 1997. Occupancy expenses were also higher as the 
result of opening new offices, and promotional and travel costs also increased 
partly as a result of the merger of our broker-dealers.

         EQUITY CAPITAL MARKETS: Equity Capital Markets ("ECM") revenue comes 
from several sources: underwriting fees from purchasing registered securities 
and selling them to customers or institutions through our institutional sales 
force or our Private Client Group; advisory fees, which may including 
valuations, private placements or initial public offerings (IPOs) and merger 
and acquisition (M&A) fees. ECM revenue also includes fees from our syndicate 
activities, which involve participating with other securities firms in 
underwriting secondary offerings, IPOs and other registered securities. All 
of these various fees are included as part of investment banking and 
underwriting fees on our consolidated statement of operations. ECM also makes 
a market (trades) and provides research coverage in certain over-the-counter 
and listed securities. These activities allow ECM to develop expertise in 
selected market sectors both to increase investment banking opportunities and 
to provide services to our institutional and retail customers. ECM trading 
gains and losses are included in principal transactions on our consolidated 
statement of operations. Commissions earned from transactions on registered 
securities sold through our Private Client Group are included in PCG's 
business line revenue.

         In general, 1998 ECM revenue was negatively affected by the changes 
required to merge Dain Bosworth and Rauscher Pierce Refsnes, as well as the 
acquisition of WAH. Investment banking revenue declined 18% for the year. IPO 
fee revenue was lower in 1998, as many companies responded to difficult 
market conditions in the third quarter by canceling or postponing IPOs 
scheduled for the last half of the year. M&A fees were also lower in 1998 for 
ECM, despite being up industry-wide. Although M&A fees did increase in the 
last half of the year, disruption related to the WAH integration prevented 
ECM from participating fully in M&A activity earlier in the year. Revenue 
from both equity trading and institutional equity sales increased 
approximately 10% during the year.

         ECM pretax income declined significantly from the prior year as 
expenses while revenue declined. Transitional incentive compensation programs 
caused much higher compensation expenses (86.9% of net revenue for 1998 
versus 70.9% in 1997.) All other operating expenses increased in 1998, led by 
occupancy and promotional and travel. Costs associated with integrating the 
three entities and establishing and operating the restructured Equity Capital 
Markets group accounted for part of these increases. Due to these increased 
costs and lower revenue, ECM's pre-tax margin was a negative 20.9% in 1998 
versus a positive 4%. in 1997.

                                       14
<PAGE>

         FIXED INCOME: Fixed Income Capital Markets ("FICM") revenue comes 
from municipal fixed income underwriting fees, as well as taxable and 
tax-exempt fixed income securities sales and trading. FICM underwriting fees 
come from purchasing the tax-exempt fixed income securities of 
municipalities, counties, cities, school districts and other community 
development organizations. These securities are then resold, primarily to our 
retail and institutional customers. FICM also generates revenue as a 
financial advisor to state and local governments and other community 
development organizations reviewing financing options or preparing for bond 
issues. These fees are all included in investment banking and underwriting 
fees on our consolidated statement of operations. FICM also makes a market in 
certain fixed income securities, primarily to offer these securities to our 
retail and institutional customers. This trading income, along with 
associated commissions, is included as part of principal transaction revenue 
on our consolidated statement of operations.

         Municipal and other tax-exempt underwriting fees increased 
significantly in 1998. Low interest rates resulted in more, and larger, fixed 
income offerings and debt refinancings by municipalities. The increase in 
these offerings also helped drive increases in our trading and sales revenues 
from fixed income securities. Revenue from taxable fixed income securities 
sales was also up substantially during the year as we increased the 
size of our sales force and these securities gained favor with investors.

         FICM earns interest from the fixed income securities purchased or 
held in inventory, as well as from entering into reverse repurchase 
transactions. FICM also pays interest on the short-term bank borrowings and 
repurchase agreements used to finance trading inventories as well as 
securities sold short to hedge inventory positions. FICM's net interest 
income increased slightly in 1998 from 1997.

         Pretax income increased from the prior year, even though 
compensation expense was higher as a direct result of the higher revenue 
levels. Compensation expense as a percent of net revenue, however, was 58.7% 
in 1998 and 59.4% in 1997. Other operating expenses also increased 
(particularly occupancy expenses from the opening of new offices) although at 
a lower rate than revenue, resulting in higher margins in 1998.

         CORPORATE: Corporate revenue consists primarily of asset management 
fees generated by our subsidiary Insight Investment Management, and net 
interest which is not allocated to a specific business line. Insight manages 
the Great Hall money market funds and certain institutional fixed income 
managed accounts. Great Hall asset management fees increased in 1998 as 
assets under management at Insight grew during the year. However, net 
interest declined as the cost of financing the WAH acquisition increased 
interest expense in 1998.

         Corporate expense includes goodwill amortization, professional fees,
and any nonrecurring expenses. Amortization of WAH goodwill represents a portion
of the increase in corporate expense during 1998. However, our two nonrecurring
charges, for the WAH merger and internal restructuring ($20 million pretax) and
fourth quarter litigation settlements ($23.8 million pretax), accounted for the
majority of the increase. Finally, the cash paid to acquire WAH decreased funds
available for investment, resulting in a decline in unallocated net interest
during 1998.

                                      15
<PAGE>

1997 OVERVIEW

        Consolidated net revenue increased 11% in 1997 over 1996. PCG was 
responsible for a significant portion of this increase with higher sales of 
mutual funds, listed securities, and insurance and annuity products, partly 
as a result of favorable market conditions. These favorable conditions and 
low interest rates contributed to increased margin borrowing by our customers 
in 1997, resulting in higher interest income for PCG during the year. 
Clearing revenue also increased during the year, as correspondent trade 
volumes increased. In 1997 Equity Capital Markets increased corporate 
underwriting and institutional equity sales; however, over-the-counter equity 
trading decreased, resulting in essentially flat revenue versus 1996. Another 
factor affecting ECM trading revenue was the industry-wide change in share 
pricing (from dollar fractions in eighths to sixteenths or less) resulting in 
smaller spreads in our share purchase versus sale price. Our Fixed Income 
Capital Markets Group increased both revenues and profits in 1997 as a result 
of increased tax-exempt bond sales, increases in trading revenues, and 
expense reductions from downsizing in 1996. However, FICM municipal 
underwriting fees declined in 1997 from the prior year. Finally, other 
revenue also increased during 1997 due to increased account and transaction 
fees from a higher number of IRA and cash management accounts.

         1997 results were also affected by a $15 million (pretax) 
restructuring charge. This charge was taken in 1997 in anticipation of the 
combination of our subsidiaries Dain Bosworth and Rauscher Pierce Refsnes 
into a single broker-dealer, DRI.

         Compensation and benefits expense varies according to the level of 
operating revenue, as well as the number of employees and earnings. 
Compensation and benefits increased in 1997 primarily as the result of 
increased commissions and benefits paid to revenue-producing employees 
generating higher levels of operating revenues, a 4% increase in the average 
number of employees, and general salary increases.

         Other expenses (excluding compensation and benefits and the 
restructuring charge) increased in 1997 principally due to: (1) increased 
travel and promotional costs associated with the generation of new business 
and the merger of our broker-dealer subsidiaries in January 1998; (2) 
increased occupancy costs associated with office expansions and office 
operating costs, including real estate taxes, and equipment upgrades; (3) 
costs associated with information system upgrades; (4) volume-driven 
increases in communications, market-data and clearing services; and (5) bad 
debt expenses.

LIQUIDITY AND CAPITAL RESOURCES

         Our assets consist mainly of cash or assets readily convertible into 
cash. We finance our assets primarily through customer credit balances 
(interest- and non-interest-bearing), repurchase agreements, deposits for 
securities loaned, other payables, short-term and subordinated bank 
borrowings and equity capital. Our financing requirements are directly 
affected by changes in the amount of our trading and underwriting securities, 
customer and broker receivables and securities purchased under agreements to 
resell. Repurchase agreements are our primary method of financing our trading 
inventories.

         We have various sources of capital to fund operations and growth, in 
addition to capital provided by earnings. Our broker-dealer subsidiary, DRI, 
maintains uncommitted lines of credit from a number of banks to finance 
transactions (principally trading and underwriting positions) and supplement 
internally generated capital. Trading securities and customers' margin 
securities collateralize the majority of these uncommitted lines of credit. 
On December 31, 1998, approximately $400 million of a total of $540 million 
in uncommitted lines of credit was unused. We also maintain a $50 million 
committed, unsecured revolving credit facility that we use for advances to 
DRI, irrevocable letters of credit and general corporate purposes. This 
facility was renegotiated in March 1998 and is annually renewable for three 
one-year periods. We renewed this facility in March 1999. Loans under this 
facility are unsecured and bear interest at a floating rate of Federal Funds 
plus 85 basis points. On December 31, 1998, all of this revolving credit 
facility was unused. Our subsidiary, Dain Rauscher Lending Services Inc., 
also maintains a $50 million uncommitted credit line to finance loans made to 
customers. As of December 31, 1998, $8.4 million was outstanding under this 
facility at a 6.1% interest rate.

         During 1998, DRI borrowed $80 million on a subordinated basis over 
four years to finance a portion of the purchase price of the WAH acquisition 
and refinance existing subordinated debt. We also issued $30 million (face 
amount) in five-year zero coupon subordinated debentures in connection with 
the acquisition of WAH. The discounted present value of the debentures at 
year end was $22.5 million.

                                      16
<PAGE>

         DRI is also subject to the Securities and Exchange Commission's 
Uniform Net Capital Rule (the "Rule"), which measures capitalization and 
liquidity, and restricts amounts of capital that may be transferred to 
affiliates. The Rule is designed to measure the general financial integrity 
and liquidity of a broker-dealer and the minimum net capital deemed necessary 
to meet the broker-dealer's continuing commitments to customers. The Rule 
provides for two methods of computing net capital. DRI uses what is known as 
the alternative method. Under this method, minimum net capital is defined as 
2% of customer debit balances. In addition to the SEC rule, the NYSE may also 
require a member organization to reduce its business if net capital is less 
than 4% of aggregate debit items and may prohibit a member firm from 
expanding its business and declaring cash dividends if its regulatory net 
capital is less than 5% of aggregate debit items. We exclude assets that are 
not readily convertible into cash and conservatively value trading securities 
when computing net capital. Failure to maintain the required net capital may 
subject a firm to suspension or expulsion by the NYSE, the SEC and other 
regulatory bodies and may ultimately require its liquidation. DRI has at all 
times maintained its net capital above both SEC and NYSE required levels. At 
December 31, 1998, regulatory net capital was $121.9 million at DRI, which 
was 9.5 % of aggregate debit balances and $57.6 million in excess of the 5% 
requirement. During the year, and prior to the combination, Dain Bosworth, 
Rauscher Pierce Refsnes, and our operations subsidiary all maintained 
regulatory net capital in excess of the minimum requirements.

         DRI is a dealer in corporate, tax-exempt and governmental fixed 
income securities. While many of DRI's principal transactions are executed on 
behalf of clients, DRI also maintains a trading inventory for our own 
account. This inventory typically includes U.S. government or U.S. government 
agency securities and, in order to mitigate market and interest rate risk, is 
often hedged with a combination of short sales of similar securities, 
financial futures contracts or option contracts. Holdings of high-yield 
securities are not material.

SECURITIES LENDING AND BORROWING ACTIVITIES

         We borrow securities from and lend securities to other brokers and 
dealers to facilitate short sales and clearance and delivery of securities 
sold by customers if customers fail to deliver securities prior to settlement 
date. We also will arrange securities lending transactions between brokers 
and utilize available securities as collateral for short-term loans. When 
these stock loan transactions occur, the lending broker provides excess 
customer margin securities to the borrowing broker in return for a cash 
deposit, generally equivalent to 102% of the market value of the securities 
loaned. Both the lending and borrowing brokers mark the securities to market 
to maintain the ratio between the market value of the securities loaned and 
the cash collateral deposited. When the securities are no longer needed by 
the borrowing firm, they are returned to the lending broker, which returns 
the cash deposit, plus interest, to the borrowing broker.

         When we engage in stock lending, we collect cash deposits from 
brokers, invest the cash, and profit from the spread between the interest 
rate we pay to the borrowing broker on the cash deposit and the rate we earn 
from our investment. In lending transactions, we are at risk to the extent 
that we do not maintain the ratio between the market value of the securities 
we loaned and the value of the cash we hold. In stock borrowing transactions, 
we are at risk to the extent that securities we borrow decline in value and 
the lending broker fails to return our cash deposit.

OPTIONS AND FINANCIAL FUTURES

         We periodically hedge our fixed income trading inventories with 
financial futures or option contracts. We had no written option contracts at 
either December 31, 1998, or December 31, 1997. In addition, the average fair 
market value and trading revenue associated with these contracts during 1998 
were not material. Option and financial futures contracts expose us to 
off-balance-sheet market risk in the event that changes in interest rates do 
not closely correlate with the change in the hedged security's price. We 
conduct all transactions in futures contracts through regulated exchanges, 
which guarantee performance of counterparties and are settled in cash on a 
daily basis, thereby minimizing credit risk. Maintaining futures contracts 
typically requires that we deposit cash or securities with an exchange or 
other financial intermediary as security for our obligations. Fluctuations in 
the market value of the futures contract may require us to deposit additional 
cash or securities. When we write option contracts, we receive a premium from 
the purchaser in exchange for our obligation to purchase or sell securities 
upon the exercise of that option. We may be required to purchase securities 
at prices higher than prevailing market prices or sell securities at prices 
below prevailing market prices in order to fulfill our obligations under the 
contract. We do not enter into derivative financial instruments with 
off-balance-sheet risk other than those described. While we utilize certain 
types of derivatives to manage our risk exposure, derivative financial 
instruments held or issued were immaterial to our consolidated financial 
statements. Our exposure to credit risk is the fair value of trading 
securities we own.

                                      17
<PAGE>

MARKET RISK

        In 1997, the Securities and Exchange Commission issued market risk 
disclosure requirements designed to provide additional information regarding 
accounting and risk management policies for derivatives and other financial 
instruments. The SEC requirements provide for quantitative disclosure of the 
market risk inherent in derivatives and other financial instruments. 
Information regarding our derivatives held is included in Item 8, "Note J to 
Consolidated Financial Statements."

        Equity and fixed income securities in inventory are held primarily 
for trading purposes. As our trading inventories are marked to market, there 
are no unrecorded gains or losses in value. While a significant portion of 
our trading inventories have contractual maturities greater than five years, 
our trading inventories on average, turnover more than 10 times per year. We 
also hedge our fixed income trading inventories to protect against 
unfavorable interest rate fluctuations. Accordingly, the interest rate risk 
inherent in our inventories and financial instruments is less than for firms 
in other industries. The detail of inventories held for trading purposes is 
included in Item 8, "Note E to Consolidated Financial Statements."

SHARE REPURCHASING AND DIVIDENDS

         Our Board of Directors authorized programs to repurchase up to 
700,000 shares of our common stock. Purchases of common stock may be made 
from time to time in the open market, by block purchases, or in privately 
negotiated transactions. Repurchased shares are held as treasury stock and 
used for our employee stock option and other benefit plans, or for other 
corporate purposes. During 1998, no shares were repurchased. During 1997, we 
repurchased approximately 88,000 shares.

         We paid a regular quarterly cash dividend of $0.22 per share in each 
quarter of 1998. Our Board of Directors, based on our financial condition, 
earnings and available funds, will determine whether and at what levels 
dividends will continue to be paid.

EFFECT OF RECENT ACCOUNTING STANDARDS

         We adopted the provisions of SFAS 125, "Transfers and Servicing of 
Financial Assets and Extinguishments of Liabilities", on January 1, 1998. The 
adoption of SFAS 125 did not have a material effect on our consolidated 
financial statements. We have adopted the provisions of SFAS 131, 
"Disclosures about Segments of an Enterprise and Related Information", as of 
December 31, 1998. SFAS 131 requires disclosure of certain information by 
business segment, and had no effect on our consolidated financial statements. 
We have determined that SFAS 133, "Accounting for Derivative Instruments and 
Hedging Activities," will have no material effect on our consolidated 
financial statements.

INFLATION

         Our assets are not significantly affected by inflation, as they are 
primarily either cash or easily converted into cash, and turn over 
frequently. However, inflation affects many of our operating costs, and we 
may not be able to readily increase our prices to offset any increases in 
costs.

YEAR 2000 ISSUE AND TECHNOLOGY

        The technological problems that may occur upon reaching the Year 
2000 have been widely discussed. Since the early 1990s, we have taken steps 
to assess and implement upgrade plans, and test our hardware and software 
systems for Year 2000 compliance. In 1993, we consolidated the back-office 
operations of our subsidiary broker-dealers (Dain Bosworth and Rauscher 
Pierce Refsnes). With that consolidation, we upgraded or replaced the bulk of 
our mission-critical mainframe data processing systems. While we performed 
these upgrade and replacement projects primarily for competitive reasons, 
these systems were also made Year 2000-compliant at that time.

        Our Year 2000 Task Force is headed by our Chief Financial Officer and 
our Chief Information Officer. The Task Force analyzes our internal 
information technology ("IT") and non-IT systems, including critical 
outsourced systems supplied by vendors, for Year 2000 readiness. The Task 
Force also identifies and prioritizes our critical third-party relationships, 
including those with securities exchanges, vendors, clients, and transaction 
counterparties, and communicates with them about their plans and progress in 
addressing the Year 2000 problem. We have consulted with the Securities 
Industry Association ("SIA"), our outside auditors and other industry 
participants to formulate our Year 2000 program. We have completed a 
comprehensive Year 2000 project plan (the "Year 2000 Plan"), which covers our 
mission-critical IT and

                                      18
<PAGE>

non-IT systems and third-party interfaces. The Year 2000 Plan includes steps 
for inventory, assessment, remediation and testing, along with a detailed 
schedule for completing each of the segments.

        For systems that are not currently Year 2000-compliant, we have 
prepared and are executing modification or upgrade plans. To date, 
substantially all of our internal mainframe systems (not including external 
interfaces) have been assessed, modified, tested, implemented and run in 
daily production. We expect to complete necessary upgrades or replacements to 
achieve Year 2000 compliance for our remaining mission-critical systems by 
the end of the first quarter of 1999. We expect to upgrade and test our 
external interfaces as each service provider informs us that the external 
interface is ready for testing. We have identified approximately 300 
mainframe mission-critical interfaces with 80 third-parties. We have 
determined that approximately 90% of these interfaces are either Year 
2000-compliant or are not affected by Year 2000 sensitivity. The remaining 
interfaces will be evaluated during upcoming industry-wide testing. We will 
remediate any issues as necessary subsequent to this testing. We expect that 
testing, installation and certification of all of our mission-critical 
interfaces will be completed by July 1999. The Year 2000 Plan also calls for 
us to receive compliance status information directly from all 
mission-critical vendors. Based on this information, we will take appropriate 
action during 1999 to make our vendor relationships Year 2000 compliant.

        We also expect to participate in industry-wide testing coordinated by 
the SIA. The testing is currently planned for March and April 1999, and is 
intended to identify whether significant Year 2000 problems exist in placing, 
settling and clearing orders and trades among SIA-member firms, third-party 
vendors, and major exchanges. While there can be no assurance, we believe 
that our internal systems will not experience significant disruption in 
connection with the Year 2000.

        The assessment of our server systems, local and wide area network 
systems, voice systems and facilities is substantially completed. 
Remediation, often involving replacement of software with compliant versions, 
is now in process. Remediation and testing of these systems are scheduled to 
continue into the third quarter of 1999.

        During 1998 we spent approximately $1 million on Year 2000-related 
planning, testing and upgrades or replacements. Such costs have not had, and 
are not expected to have, a material effect on our consolidated financial 
statements. During 1999 we anticipate spending approximately $1.5 million on 
Year 2000-related testing. We believe that we will be able to fund any such 
future costs from operations.

        Our business is highly dependent on communications, trading, 
information and data processing systems. Although we have outsourced some 
communications, quotations and trading systems services, we maintain our own 
order-routing and back-office processing system. We have in place tested 
disaster recovery systems. However, if our internal systems, vendors, other 
information providers, the securities exchanges, clearing agencies and other 
securities firms, or financial institutions with which we transact business, 
experience any significant disruption in connection with the Year 2000, the 
disruption could affect our ability to conduct business and may have a 
material adverse effect on our financial results. We are developing written 
contingency plans to provide for continuity of processing under various 
scenarios.

        Readers are cautioned that forward-looking statements contained in 
the section "Year 2000 Issue" should be read in conjunction with our 
disclosures under the heading: "Forward Looking Statements" which follows.

                                      19
<PAGE>

FORWARD-LOOKING STATEMENTS

        This document contains certain "forward-looking statements" within 
the meaning of the Private Securities Litigation Reform Act of 1995 (the 
"Reform Act") that reflect our current views regarding future events and 
financial performance. The words "believe," "expect," "anticipate," 
"intends," "estimate," "forecast," "project," "should," and similar 
expressions are used to identify these "forward-looking statements". We 
desire to take advantage of the "safe harbor" provisions of the Reform Act. 
We wish to caution investors and potential investors that any forward-looking 
statements made by us or on our behalf are subject to uncertainties and other 
factors that could cause actual results to differ materially from those 
statements. These factors include, among others, (a) the volatile nature of 
the securities industry; (b) rapidly growing competition posed by other 
broker-dealers, including discount brokerages and on-line trading firms; (c) 
dependence on and competition for experienced personnel; (d) successful 
implementation and execution of our long-term strategies; (e) dependence on 
highly sophisticated and expensive systems and technology, including systems 
maintained and operated by third-parties over which we have no control; (f) 
dependence on external sources to finance day-to-day operations; (g) use of 
interest-rate sensitive derivative securities and other hedging instruments; 
(h) federal and state regulatory and legislative changes, including any 
changes affecting net capital requirements; and (i) adverse findings in 
existing litigation, increases in class actions, governmental agency 
enforcement proceedings, and other litigation-related risks. This is not an 
exhaustive list of factors that could have an adverse impact on our financial 
performance; other factors which are not identified here or known to us 
currently, may prove to be important and may adversely affect our results of 
operations. It is also not possible for our management to predict or assess 
the impact each factor will have on our business or the extent to which any 
factor, or a combination of factors, may cause results to differ materially 
from those contained in any forward-looking statements. You should also not 
place undue reliance on these forward-looking statements as they relate only 
to our views as of the date the statements are made. We undertake no 
obligation to publicly update or revise any forward-looking statements, even 
if new information, future events, or other conditions occur. See Exhibit 99 
for further discussion of the Reform Act.

ITEM 7.A.      MARKET RISK

        See Item 7, "Management's Discussion and Analysis" for discussion of 
market risk. Also see Item 8, "Note J to Consolidated Financial Statements", 
for further discussion on our inventory and risk management policies.

                                      20
<PAGE>

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF DECEMBER 31, 1998 AND 1997, AND FOR EACH OF
                           THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1998
                                             AND SUPPLEMENTARY DATA
                                                                                                             PAGE
                                                                                                             ----
<S>                                                                                                          <C>
Independent Auditors' Report................................................................................  22

Consolidated Financial Statements:

     Consolidated statement of operations...................................................................  23

     Consolidated balance sheet.............................................................................  24

     Consolidated statement of shareholders' equity.........................................................  25

     Consolidated statement of cash flows...................................................................  26

     Notes to consolidated financial statements.............................................................  27

Quarterly Financial Information (unaudited).................................................................  40
</TABLE>
                                      21

<PAGE>

                         INDEPENDENT AUDITORS' REPORT




Board of Directors and Shareholders
Dain Rauscher Corporation:

         We have audited the accompanying consolidated balance sheets of Dain 
Rauscher Corporation as of December 31, 1998 and 1997 and the related 
consolidated statement of operations, shareholders' equity and cash flows for 
each of the years in the three-year period ended December 31, 1998. In 
connection with our audits of the consolidated financial statements, we have 
also audited the financial statement schedule listed in the table of contents 
on page 45 hereof. These consolidated financial statements and financial 
statement schedule are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these consolidated financial 
statements and financial statement schedule 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 
Dain Rauscher Corporation as of December 31, 1998 and 1997, and the results 
of its operations and its cash flows for each of the years in the three-year 
period ended December 31, 1998, in conformity with generally accepted 
accounting principles. Also, in our opinion, the related financial statement 
schedule, when considered in relation to the basic consolidated financial 
statements taken as a whole, presents fairly, in all material respects, the 
information set forth therein.



                                          KPMG Peat Marwick LLP



Minneapolis, Minnesota
February 3, 1999

                                      22
<PAGE>

                                           DAIN RAUSCHER CORPORATION
                                      CONSOLIDATED STATEMENT OF OPERATIONS
                                    (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                             ---------------------------------------------
                                                                1998              1997             1996
                                                             ----------       ----------        ----------
<S>                                                          <C>              <C>               <C>
Revenue:
  Commissions.............................................   $  299,667       $  274,847        $  223,084
  Principal transactions..................................      150,592          152,150           169,040
  Investment banking and underwriting.....................      125,470          111,280           111,391
  Interest................................................      129,338          122,492           110,551
  Asset management........................................       61,203           46,304            35,890
  Correspondent clearing..................................       17,873           19,827            15,806
  Gain on sale of investment..............................        8,787                -                 -
  Other...................................................       27,405           23,775            17,554
                                                              ---------         --------         ---------

                                                                820,335          750,675           683,316

Interest expense..........................................      (70,965)         (58,573)          (57,560)
                                                              ---------         --------         ---------

Net revenue...............................................      749,370          692,102           625,756
                                                              ---------         --------         ---------

Operating expenses:
  Compensation and benefits...............................      486,021          427,599           385,905
  Communications..........................................       48,933           46,450            43,301
  Occupancy and equipment rental..........................       48,927           41,512            35,870
  Travel and promotional..................................       35,304           30,293            24,296
  Floor brokerage and clearing fees.......................       13,042           12,328            10,271
  Other...................................................       60,872           42,165            38,711
  Merger and restructuring charges..........................     20,000           15,000                 -
  Litigation settlements..................................       23,787                -                 -
                                                              ---------         --------         ---------

                                                                736,886          615,347           538,354
                                                              ---------         --------         ---------


Income before income taxes................................       12,484           76,755            87,402
Income tax expense........................................       (4,494)         (27,480)          (30,591)
                                                              ---------         --------         ---------

Net income................................................   $    7,990       $   49,275        $   56,811
                                                             ==========       ==========        ==========

Earnings per share:
  Basic...................................................   $     0.64       $     4.01        $     4.68
                                                             ==========       ==========        ==========

  Diluted.................................................   $     0.61       $     3.77        $     4.49
                                                             ==========       ==========        ==========
</TABLE>
See notes to consolidated financial statements.

                                      23
<PAGE>
                                           DAIN RAUSCHER CORPORATION
                                           CONSOLIDATED BALANCE SHEET
                                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                -------------------------------
                                                                                     1998             1997
                                                                                ------------     -------------
<S>                                                                             <C>              <C>
Assets:
   Cash and cash equivalents................................................    $     47,273     $     35,909
   Receivable from customers................................................       1,172,398        1,170,160
   Receivable from brokers and dealers......................................         288,207          229,421
   Securities purchased under agreements to resell..........................         237,662          135,777
   Trading securities owned.................................................         379,901          541,511
   Equipment and leasehold improvements, at cost,
     less accumulated depreciation of $35,671 and $20,106...................          48,271           42,376
   Other receivables........................................................          83,957           80,867
   Deferred income taxes....................................................          48,219           44,868
   Goodwill, net of amortization of $5,499 and $1,859.......................         121,580            2,835
   Other assets.............................................................          39,019           20,677
                                                                                ------------     ------------

                                                                                $  2,466,487     $  2,304,401
                                                                                ============     ============

Liabilities and Shareholders' Equity:
   Short-term borrowings....................................................    $    127,415     $    179,000
   Customer drafts payable..................................................         109,396           83,499
   Payable to customers.....................................................         585,848          601,949
   Payable to brokers and dealers...........................................         690,459          580,970
   Securities sold under repurchase agreements..............................          38,354          170,906
   Trading securities sold, but not yet purchased...........................         240,825          127,364
   Accrued compensation.....................................................         139,703          128,463
   Other accrued expenses...................................................          92,209           97,500
   Subordinated and other debt..............................................         112,505           15,659
                                                                                ------------     ------------

                                                                                   2,136,714        1,985,310
Shareholders' equity:
   Common stock (1998:  issued 12,638,525 and outstanding 12,552,957
      shares; 1997:  issued 12,367,447 and outstanding 12,275,104 shares)...           1,580            1,546
   Additional paid-in capital...............................................         112,142           89,321
   Retained earnings........................................................         230,421          233,419
   Treasury stock, at cost..................................................         (14,370)         (5,195)
                                                                                ------------     -----------

                                                                                     329,773          319,091
                                                                                ------------     ------------

                                                                                $  2,466,487     $  2,304,401
                                                                                ============     ============
</TABLE>
See notes to consolidated financial statements.

                                      24
<PAGE>

                                           DAIN RAUSCHER CORPORATION
                                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                    (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                          COMMON STOCK
                                                     ----------------------    ADDITIONAL
                                                       SHARES                    PAID-IN    RETAINED       TREASURY   SHAREHOLDERS'
                                                     OUTSTANDING    AMOUNT       CAPITAL    EARNINGS        STOCK        EQUITY 
                                                     -----------  ---------    ---------    ----------     ---------  ------------ 
<S>                                                  <C>          <C>          <C>          <C>            <C>        <C>
Balance at December 31, 1995......................     12,065     $   1,508    $  76,623    $  144,363                 $   222,494
                                                     --------     ---------    ---------    ----------                 -----------

Net income........................................          -             -            -        56,811                      56,811
Repurchase and retirement of common stock.........        (59)           (7)           -        (1,334)                     (1,341)
Common stock issued under
   stock options plans............................        136            17        1,217             -                       1,234
Net restricted common stock issued and amortized..         33             4          342             -                         346
Stock credited to deferred
   compensation plan participants.................          -             -        3,134             -                       3,134
Cash dividends on common stock
   ($0.56 per share)..............................          -             -            -        (6,792)                     (6,792)
                                                     --------     ---------    ---------    ----------                 -----------
Balance at December 31, 1996......................     12,175         1,522       81,316       193,048                     275,886
                                                     --------     ---------    ---------    ----------                 -----------

Net income........................................          -             -            -        49,275                      49,275
Repurchase of common stock........................        (92)            -            -             -     $  (5,195)       (5,195)
Common stock issued under
   stock option plans.............................        146            18        1,761             -             -         1,779
Net restricted common stock issued and amortized..         46             6          393             -             -           399
Stock credited to deferred
   compensation plan participants.................          -             -        4,941             -             -         4,941
Cash dividends on common stock
   ($0.72 per share)..............................          -             -            -        (8,904)            -        (8,904)
Tax benefits from stock incentive plans...........          -             -          910             -             -           910
                                                     --------     ---------    ---------    ----------     ---------   -----------
Balance at December 31, 1997......................     12,275         1,546       89,321       233,419        (5,195)      319,091
                                                     --------     ---------    ---------    ----------     ---------   -----------

Net income........................................          -             -            -         7,990             -         7,990
Common stock issued under
   stock option plans.............................        202            25        3,250             -             -         3,275
Net restricted common stock issued and amortized..         69             9          644             -             -           653
Stock credited/issued to deferred
   compensation plan participants.................          7             -        8,314             -           415         8,729
Cash dividends on common stock
   ($0.88 per share)..............................          -             -            -       (10,988)            -       (10,988)
Shares purchased by trustee for deferred
   compensation plan participants*................          -             -        9,590             -        (9,590)            -
Tax benefits from stock incentive plans...........          -             -        1,023             -             -         1,023
                                                     --------     ---------    ---------    ----------     ---------   -----------
Balance at December 31, 1998......................     12,553     $   1,580    $ 112,142    $  230,421      $(14,370)  $   329,773
                                                     ========     =========    =========    ==========     =========
</TABLE>

*Shares held by a deferred plan were transferred from Additional Paid in 
Capital to Treasury Stock during 1998. This change, made in accordance with 
revised accounting rules regarding trusts, had no effect on total 
shareholders' equity.

See notes to consolidated financial statements.

                                     25
<PAGE>


                                           DAIN RAUSCHER CORPORATION
                                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------------
                                                                1998              1997             1996
                                                              ---------         --------         ---------
<S>                                                           <C>              <C>               <C>
Cash flows from operating activities:
   Net income.............................................    $   7,990         $ 49,275         $  56,811
   Adjustments to reconcile net earnings to cash
      provided by operating activities:
         Depreciation and amortization....................       19,088           11,764             9,563
         Deferred income taxes............................       (3,351)          (5,164)           (7,711)
         Non cash restructuring charges, net of tax.......       12,800            9,600                 -
         Other non cash items.............................       13,583            6,600             8,626

         Cash and short-term investments segregated
            for regulatory purposes.......................            -           15,000           396,000
         Net trading securities owned and trading
            securities sold, but not yet purchased........      281,144         (184,128)           31,823
         Other receivables................................       (2,650)          (5,182)            5,153
         Drafts payable and short-term borrowings
            of securities companies.......................       24,312          117,510           (52,442)
         Net receivable from customers....................      (18,339)        (402,005)         (384,511)
         Net payable to brokers and dealers...............       61,019          323,737            30,987
         Net securities under repurchase agreements.......     (234,437)          58,793           (64,239)
         Other accrued liabilities........................      (51,844)           3,749           ( 7,607)
         Accrued compensation.............................       11,063            9,219            23,256
         Other............................................       (8,675)         (12,080)           (2,202)
                                                                 ------         --------         ---------
Cash provided (used) by operating activities..............      111,703           (3,312)           43,507
                                                              ---------         --------         ---------

Cash flows from financing activities:
   Proceeds from:
      Issuance of subordinated debt.......................       80,000                -                 -
      Revolving credit agreement, net.....................            -           50,000                 -
      Issuance of common stock under stock option plans...        3,275            1,779             1,580
   Payments for:
      Revolving credit agreement, net.....................      (50,000)               -                 -
      Subordinated and other debt.........................      (15,659)         (11,631)          (14,120)
      Purchase of common stock............................            -           (5,195)           (1,341)
      Dividends on common stock...........................      (10,988)          (8,904)           (6,792)
                                                              ---------         --------         ---------
Cash provided (used) by financing activities..............        6,628           26,049           (20,673)
                                                              ---------         --------         ---------

Cash flows from investing activities:
    Payments for:
      WAH acquisition, net of cash acquired...............      (95,588)               -                 -
      Equipment, leasehold improvements and other.........      (22,133)         (22,983)          (15,841)
    Proceeds from:
      Gain from sale of investment security...............        8,787                -                 -
      Investment dividends and sales of 
        non-marketable securities.........................        1,967            1,768             1,227
                                                              ---------         --------         ---------
Cash (used) by investing activities.......................     (106,967)         (21,215)          (14,614)
                                                                -------         --------         ---------

Increase in cash and cash equivalents.....................       11,364            1,522             8,220
Cash and cash equivalents:
         At beginning of year.............................       35,909           34,387            26,167
                                                              ---------         --------         ---------
         At end of year...................................     $ 47,273         $ 35,909         $  34,387
                                                               ========         ========         =========
</TABLE>

Cash income tax payments totaled $3,630,000 in 1998, $32,111,000 in 1997, and
$32,841,100 in 1996. Cash interest payments totaled $68,401,000, $57,396,000,
and $56,901,000 in 1998, 1997 and 1996, respectively. During the years ended
December 31, 1998, 1997 and 1996, respectively, we had non-cash financing
activity of $8,729,000, $4,941,000 and $3,134,000 associated with the crediting
of common stock to deferred compensation plan participants. During the year
ending December 31, 1998, we had non-cash financing activity of $21.7 million
representing subordinated debentures issued as a portion of the consideration
paid for the acquisition.

See notes to consolidated financial statements.

                                      26
<PAGE>

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   DECEMBER 31, 1998

DAIN RAUSCHER CORPORATION

A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        NATURE OF BUSINESS: We ("Dain Rauscher Corporation") are a 
Minneapolis, Minnesota-based holding company that provides advice and 
services to individual investors in the western United States and investment 
banking services to corporate and governmental clients nationwide through our 
principal subsidiary, Dain Rauscher Incorporated ("DRI"). We also own Insight 
Investment Management Inc. ("Insight"), which manages the Great Hall money 
market funds and institutional fixed income accounts, and Dain Rauscher 
Lending Services Inc. ("Lending"), which makes certain types of loans that 
are collateralized by customers' control and restricted securities.

        BASIS OF PRESENTATION: The consolidated financial statements include 
DRI, Insight, and Lending as of December 31, 1998. All subsidiaries are 
wholly owned, and all inter-company balances and transactions have been 
eliminated in consolidation. Certain prior-year amounts in the consolidated 
financial statements have been reclassified to conform to the 1998 
presentation. We do not present a statement of comprehensive income as there 
are no comprehensive income items.

        We have made estimates and assumptions in reporting certain assets 
and liabilities and the disclosure of contingent liabilities in preparing 
these financial statements in conformity with generally accepted accounting 
principles. Actual results could differ from those estimates.

        We have also adopted SFAS Statement 131, "Disclosures about Segments 
of an Enterprise and Related Information." Accordingly, we provide net 
revenue and pretax income and margin information about our business lines. We 
do not provide balance sheet information by business line, as our assets are 
not allocated to a particular segment, and we do not currently track 
performance based on this information.

        CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on 
hand, cash in depository accounts with other financial institutions and money 
market investments with original maturities of 90 days or less.

        SECURITIES: Securities transactions and the related commission 
revenue and expense are recorded on settlement date, which is not materially 
different than if transactions were recorded on trade date.

        Trading securities owned; trading securities sold, but not yet 
purchased; and derivative financial instruments are stated at market value. 
We mark our securities to market and include resulting unrealized gains and 
losses in revenue from principal transactions. We determine market value by 
using public market quotations, quoted prices from dealers or recent market 
transactions, depending upon the underlying security.

        From time to time we receive equity instruments as compensation for 
certain underwriting transactions. We account for these equity instruments as 
investments and record them at the lower of cost or market, which is 
generally zero. We also have venture capital investments in securities that 
are currently non-marketable. These securities, which are accounted for at 
cost, are included in other assets on our consolidated balance sheet. When 
the restrictions expire on these investments and they become readily 
marketable, we mark them to their fair market value.

        REPURCHASE TRANSACTIONS: Securities purchased under agreements to 
resell (reverse repurchase agreements) and securities sold under repurchase 
agreements are accounted for as financing transactions. We record these at 
the contract amount that the securities will subsequently be resold or 
reacquired, plus accrued interest. These transactions generally can be 
terminated by us or our counterparties on short notice.

        OTHER RECEIVABLES: Included in other receivables are forgivable loans 
made to investment executives and other revenue-producing employees, 
typically in connection with their recruitment. These loans are forgivable 
based on continued employment and are amortized over the life of the loan, 
which is generally three to five years, using the straight-line method.

                                      27
<PAGE>

        RECEIVABLES FROM AND PAYABLES TO CUSTOMERS: The amounts receivable 
from customers primarily represent margin balances. Other customer 
receivables and payables result from cash transactions. We do not include in 
the consolidated financial statements either securities owned by customers 
and held as collateral for receivables or securities sold short by customers.

        TREASURY STOCK: Treasury stock is recorded at cost and includes 
common shares we repurchased, and shares for a deferred compensation plan 
reclassified from additional paid-in capital to treasury stock as a result of 
accounting standards issued in 1998. This reclassification had no net impact 
on total shareholders' equity.

        GOODWILL: Goodwill is primarily related to the 1998 acquisition of 
Wessels, Arnold and Henderson, LLC ("WAH"). We are amortizing this goodwill 
on a straight-line basis over 25 years. Prior to 1998, goodwill was not a 
material asset, and we therefore had not established a policy for evaluating 
goodwill impairment. We will continue to evaluate goodwill in accordance with 
the requirements of generally accepted accounting principles. In our opinion, 
no material impairment exists as of December 31, 1998.

        DEPRECIATION AND AMORTIZATION: Equipment is depreciated using the 
straight-line method over estimated useful lives of two to eight years. 
Leasehold improvements are amortized over the lesser of the estimated useful 
life of the improvement or the term of the lease.

        INCOME TAXES: We determine deferred tax liabilities and assets and 
any provision for income taxes based on the differences between the financial 
statement and tax bases of assets and liabilities at each year end.

        FAIR VALUES OF FINANCIAL INSTRUMENTS: Substantially all of our 
financial assets and liabilities are carried at market value or at amounts 
which, because of their short-term nature, approximate current fair value. 
The fair value of our borrowings, if recalculated based on current interest 
rates, would not differ significantly from the amounts recorded at December 
31, 1998.

        STOCK-BASED  COMPENSATION:  We account  for stock  option  grants  
under APB Opinion No. 25 ("APB 25"). We grant  options at fair market value on 
the date of the grant and,  accordingly,  do not  recognize  compensation 
expense.  Restricted stock grants typically vest over a four-year period.

        EARNINGS PER SHARE: Basic earnings per share is based upon the 
weighted average number of common shares outstanding during the reporting 
period. Diluted earnings per share takes into account the dilutive effect of 
potentially dilutive securities using the treasury stock method.

The components of earnings per share are:

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------------
(In thousands, except per-share data)                           1998              1997             1996
                                                              ---------         --------         ---------
<S>                                                       <C>                <C>             <C>
Net income................................................    $   7,990         $ 49,275         $  56,811
                                                              =========         ========         =========

Weighted average common shares outstanding................       12,404           12,277            12,132

Dilutive effect of stock options (net of tax benefits)....          463              579               435

Shares credited to deferred compensation
    plan participants.....................................          304              204                98
                                                              ---------         --------         ---------
                                                                 13,171           13,060            12,665
                                                              =========         ========         =========

Basic earnings per share..................................        $0.64            $4.01             $4.68
                                                              =========         ========         =========

Diluted earnings per share................................    $    0.61         $   3.77         $    4.49
                                                              =========         ========         =========
</TABLE>

                                      28
<PAGE>

     In 1996 and 1997 the number of options with an exercise price greater
than the average market price that were excluded from the calculation of
diluted earnings per share was not material. In 1998 we did not include in the
calculation of diluted earning per share a significant number of options priced
greater than our stock's average 1998 market price. See Note H for further
information on outstanding options.


B.   ACQUISITION

     On March 31, 1998, DRI acquired WAH, a privately held investment banking 
and institutional equity sales and trading firm based in Minneapolis. The 
transaction was accounted for as a purchase and, accordingly, the revenues 
and operating results of WAH are only included in the consolidated statement 
of operations since April 1, 1998.

     We paid $120 million of cash and issued five-year, subordinated 
debentures with a discounted value of $22 million ($30 million face amount) 
to acquire WAH. Goodwill of approximately $120 million was recorded and will 
be amortized over an estimated life of 25 years. The amortization of this 
goodwill is fully deductible for tax purposes.

     The following unaudited pro forma information has been prepared assuming 
that the acquisition of WAH had occurred at the beginning of the periods 
presented after including the impact of certain adjustments including 
amortization of goodwill, increased interest expense on acquisition debt and 
the related income tax effects. This pro forma financial information does not 
include the effect of the $20.0 million charge recorded by DRI in the quarter 
ended March 31, 1998 that was directly related to the acquisition of WAH.

<TABLE>
<CAPTION>

                                                                               YEAR ENDED
                                                                              DECEMBER 31,
                                                                          1998            1997
                                                                       --------------------------
<S>                                                                 <C>            <C>
Statement of Operations Data:
   Revenue........................................................     $   837,808    $   828,796
   Interest expense...............................................         (73,293)       (67,171)
                                                                       -----------    -----------
   Net revenue....................................................         764,515        761,625
   Operating expenses.............................................         732,091        663,533
                                                                       -----------    -----------
   Income before income taxes.....................................          32,424         98,092
   Merger and restructuring charge................................                        (15,000)
   Income tax expense.............................................         (11,672)       (29,761)
                                                                       -----------    -----------
   Net income.....................................................     $    20,752    $    53,331
                                                                       ===========    ===========
   Basic income per share.........................................     $      1.67    $      4.34
                                                                       ===========    ===========
   Diluted income per share.......................................     $      1.58    $      4.08
                                                                       ===========    ===========

</TABLE>

The pro forma financial information above is presented for informational
purposes only and is not necessarily indicative of the actual results that would
have been achieved had the merger been consummated prior to the dates or periods
indicated, nor is it necessarily indicative of future operating results.

C.  MERGER AND RESTRUCTURING CHARGES

       As part of our acquisition of WAH, we recorded a charge of $20 million
($12.8 million after tax) in the first quarter of 1998. This charge included $16
million for severance in the elimination of approximately 150 jobs at DRI, $2.5
million for facilities consolidation; and the remaining $1.5 million for other
integration costs. By the end of 1998, we had spent approximately $17 of this
charge, primarily for severance. We expect to charge any remaining restructuring
costs to the reserve during the first quarter of 1999. We believe the remaining
$3 million restructuring reserve is adequate to cover all future expenditures
associated with this plan.

                                      29

<PAGE>

       In connection with the adoption of a formal restructuring plan to 
combine Dain Bosworth, Rauscher Pierce Refsnes and our former operations 
subsidiary into a single broker-dealer during the first quarter of 1998, we 
recorded a pretax charge of $ 15 million ($9.6 million after taxes), or 74 
cents per share diluted, against third-quarter 1997 earnings. All of the $15 
million of the restructuring costs resulted in cash expenditures, primarily 
during the fourth quarter of 1997 and first quarter of 1998. The composition 
of the $15 million charge was $12 million for severance and short-term 
retention payments to terminated employees; and $3 million for other 
expenditures including costs of changing our name, relocation, outplacement 
services and professional fees related to the restructuring. This 
restructuring has been completed as of December 31, 1998, and all amounts 
were spent.

D.  RECEIVABLE FROM AND PAYABLE TO BROKERS AND DEALERS

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                 -----------------------------
(In thousands)                                                                       1998             1997
                                                                                 ------------     ------------
<S>                                                                              <C>              <C>
Receivable from brokers and dealers:
  Deposits for securities borrowed..........................................     $   193,361       $  164,917
  Securities failed to deliver..............................................          80,954           58,673
  Clearing organizations, correspondent brokers and other...................          13,892            5,831
                                                                                 -----------       ----------
                                                                                 $   288,207       $  229,421
                                                                                 ===========       ==========
Payable to brokers and dealers:
  Deposits for securities loaned............................................     $   588,055       $  538,588
  Securities failed to receive..............................................          90,608           34,627
  Clearing organizations, correspondent brokers and other...................          11,796            7,755
                                                                                 -----------       ----------
                                                                                 $   690,459       $  580,970
                                                                                 ===========       ==========
</TABLE>

        Securities failed to deliver and receive represent the contract value 
of securities that have not been delivered or received subsequent to 
settlement date. Securities borrowed and securities loaned are recorded at 
the amount of cash collateral advanced or received in connection with the 
transaction. We, or our counterparties, may terminate these transactions on 
short notice. Securities borrowed transactions require us to deposit cash or 
other collateral with the lender. With respect to securities loaned, we 
receive cash or other collateral. The initial collateral advanced or received 
has a market value equal to or greater than the market value of the 
securities borrowed or loaned. We monitor the market value of the securities 
borrowed and loaned on a daily basis and request additional collateral or 
return excess collateral.

E.  TRADING SECURITIES

The market values of trading securities are as follows:

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                 ----------------------------
(In thousands)                                                                       1998             1997
                                                                                 -----------       ----------
<S>                                                                              <C>               <C>
Owned:
  U. S. government and government agency securities.........................     $   224,936       $  320,646
  Municipal securities......................................................         109,644          157,336
  Corporate fixed income and other securities...............................          36,239           42,957
  Equity securities.........................................................           9,082           20,572
                                                                                 -----------       ----------
                                                                                 $   379,901       $  541,511
                                                                                 ===========       ==========
Sold, but not yet purchased:
  U. S. government, government agency and municipal securities..............     $   236,184       $  122,265
  Corporate and other securities............................................           4,641            5,099
                                                                                 -----------       ----------
                                                                                 $   240,825       $  127,364
                                                                                 ===========       ==========
</TABLE>

                                               30

<PAGE>

Our principal transaction revenue from trading activities by type, including 
derivatives, is summarized below:

<TABLE>
<CAPTION>

                                                                                         DECEMBER 31,
                                                                                 ----------------------------
(In thousands)                                                                       1998             1997
                                                                                 ------------     -----------
<S>                                                                              <C>              <C>
Equity securities...........................................................     $    71,732       $   75,699
Municipal securities........................................................          28,686           32,100
Government securities.......................................................          24,531           19,289
Corporate fixed income securities...........................................          12,544           15,483
Mortgage-backed and other securities........................................          13,099            9,579
                                                                                 -----------       ----------
                                                                                 $   150,592       $  152,150
                                                                                 ===========       ==========

</TABLE>

F.  SHORT-TERM BORROWINGS

        Short-term borrowings of DRI only at December 31, 1998 and 1997, were 
$119.0 million and $129.0 million, respectively. These short-term borrowings 
were in bank loans on uncommitted lines of credit. The majority of these 
borrowings are collateralized by both trading securities we own and our 
customers' margin securities, and have a floating rate of interest 
approximately 50 basis points above the Federal Funds rate, which was 5.3 % 
at December 31, 1998. The market value of our trading securities pledged as 
collateral at December 31, 1998, was $139.4 million. We had agreements in 
place for uncommitted credit lines totaling approximately $540 million at 
year end.

        We have available revolving credit borrowings and irrevocable letters 
of credit under a commitment totaling $50 million. This facility was 
renegotiated in March 1998 and is annually renewable for three one-year 
periods. Loans under this facility are unsecured and bear interest at a 
floating rate of Federal Funds plus 85 basis points. Nothing was outstanding 
under this facility at year-end 1998. At December 31, 1997, $50.0 million was 
outstanding under the revolving credit facility at a 7% interest rate. We 
have maintained the levels of net worth and regulatory net capital required 
under this agreement.

           Our subsidiary, Lending, also maintains a $50 million uncommitted 
credit line to finance loans made to customers. Lending holds customers' 
securities as collateral for these loans. This credit line has a floating 
interest rate of 75 basis points over the Federal Funds rate. As of December 
31, 1998, $8.4 million was outstanding under this facility at a 6.1% interest 
rate.


G.  SUBORDINATED AND OTHER DEBT

<TABLE>
<CAPTION>

                                                                                        DECEMBER 31,
                                                                                 ----------------------------
(In thousands)                                                                       1998             1997
                                                                                 -------------     ----------
<S>                                                                              <C>               <C>
Subordinated debt payable to commercial banks...............................     $      80,000     $    9,000
Subordinated debentures.....................................................            22,505              -
Capital lease obligations ..................................................                 -          6,659
Litigation settlement notes.................................................            10,000              -
                                                                                 -------------     ----------
                                                                                 $     112,505     $   15,659
                                                                                 =============     ==========

</TABLE>

         On March 31, 1998, DRI entered into an $80 million subordinated term 
loan agreement with a group of banks which is unsecured and bears interest at 
160 basis points over 30, 60 or 180 day LIBOR. The agreement allows us to fix 
the interest rate for the remainder of the term, at any time. Principal 
payments of $5.0 million per quarter begin April 1, 1999 with the final 
payment due on December 31, 2002. Proceeds from the loan qualify as 
regulatory capital. We must comply with provisions in the agreement regarding 
both net worth and regulatory net capital.

         We also issued $30 million (face amount) in 5-year zero coupon 
subordinated debentures in connection with the acquisition of WAH. The 
discounted present value of the debentures at year end is $22.5 million. At 
December 31, 1998, the weighted average interest rate on all of our 
subordinated debt was 7.2 %. The $10 million in litigation settlement notes 
represents the present value of non-interest bearing notes payable in the 
settlement of litigation discussed further in Note I, Commitments and 
Contingent Liabilities.


                                  31

<PAGE>


H.  SHAREHOLDERS' EQUITY

        COMMON STOCK: Our common stock has a par value of $.125 per share; 
60,000,000 shares are authorized. At December 31, 1998, 5,008,297 shares of 
our common stock were reserved for issuance under all our incentive and 
retirement plans.

        Our Board of Directors approved the repurchase of up to 1,300,000 
shares under three separate authorizations in 1994, 1996, and 1997. 
We repurchased 688,000 shares under the 1994 and 1996 authorizations, 
including 59,000 in 1996 and 88,000 in 1997; none were repurchased in 1998. 
Approximately 612,000 shares are available for repurchase under previous 
authorizations at year-end 1998.

        STOCK COMPENSATION PLANS: We have two fixed stock compensation plans, 
the 1986 Stock Option Plan ("1986 Plan") and the 1996 Stock Incentive Plan 
("1996 Plan"). We made the final grants under the 1986 Plan in February 1996. 
The 1996 plan authorizes the grant of incentive and non-qualified options and 
the grant of restricted stock and other stock based awards. The 1996 Plan 
requires all option grants at not less than the fair market value of the 
shares at the date of grant. Options generally become exercisable at rates of 
20, 50 and 100 percent as of two, three and four years, after the date of 
grant and expire 10 years from date of grant. Options granted to outside 
directors become exercisable six months after grant date and expire five 
years after grant. At December 31, 1998, 1,578,245 shares of common stock 
were available for grant under the 1996 Plan; none are available under the 
1986 plan.

        We apply APB 25 and its interpretations in accounting for our stock 
option incentive plans. Accordingly, no compensation expense has been 
recognized in the consolidated financial statements for stock option grants. 
The following table summarizes the pro-forma effect of recognizing 
compensation expense as based on the criteria of SFAS 123:

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31,
                                                          ------------------------------------------------------
(In thousands, except per-share amounts)                     1998                  1997                  1996
                                                          -----------           ----------           -----------
<S>                                                       <C>                   <C>                  <C>
Net income:
  As reported....................................         $    7,990            $   49,275           $    56,811
  Pro forma......................................         $    4,596            $   47,914           $    56,392

Earnings per share:
Basic:
  As reported....................................         $     0.64            $     4.01           $      4.68
  Pro forma......................................         $     0.37            $     3.90           $      4.65
Diluted:
  As reported....................................         $     0.61            $     3.77           $      4.49
  Pro forma......................................         $     0.35            $     3.67           $      4.45

</TABLE>

        The weighted average per-share fair value of options granted during 
1998, 1997 and 1996, was $20.74, $17.55 and $7.96, respectively. The fair 
value of each option granted is estimated on the date of grant using the 
Black-Scholes option-pricing model with the following weighted average 
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend 
yields of 1.5%, 1.5% and 2.3%; expected volatility of 38.7% in 1998, 36.6% in 
1997 and 30.2% for 1996; risk-free interest rates of 4.5%, 4.8% and 5.0%; and 
expected lives of five years. Pro forma amounts may not be indicative of 
future results.

                                        32

<PAGE>



The following table summarizes the activity related to our stock option plans 
for each of the last three years:

<TABLE>
<CAPTION>

                                                        1998                      1997                      1996
                                            --------------------------  ------------------------  ----------------------
                                                            WEIGHTED                  WEIGHTED                  WEIGHTED
                                                             AVERAGE                   AVERAGE                   AVERAGE
                                                            EXERCISE                  EXERCISE                  EXERCISE
                                               SHARES         PRICE       SHARES        PRICE        SHARES       PRICE
                                             ---------      -------      ---------    --------     ---------   --------
<S>                                        <C>              <C>       <C>             <C>       <C>             <C>
Options outstanding at
beginning of year.......................      1,469,325     $ 26.51      1,304,045    $  17.14     1,243,987    $ 14.71

Granted.................................        851,152       58.11        419,800       49.90       260,600      24.86
Exercised...............................       (204,850)      16.83       (155,955)      12.90      (140,492)      9.66
Cancelled...............................        (93,800)      46.74        (98,565)      24.87       (60,050)     17.86
                                             ----------     -------     ----------    --------     ---------    -------
Options outstanding at end of year......      2,021,827     $ 39.85      1,469,325    $  26.51     1,304,045    $ 17.14
                                             ==========     =======     ==========    ========     =========    =======

Options exercisable at end of year......        589,413                    551,700                   405,980
                                             ==========                 ==========                 =========

Price range of outstanding options......   $4.58-$59.44               $4.58-$59.44              $4.58-$33.38
Price range of exercised options........   $4.58-$42.75               $4.67-$20.83              $4.58-$20.83

Weighted-average fair value of
options granted during the year.........         $20.74                     $17.55                     $7.96

Average market price                                        $ 48.88                   $  46.14                  $ 26.53

</TABLE>

The following table summarizes currently outstanding and exercisable options 
at December 31, 1998:

<TABLE>
<CAPTION>

                                                     OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                                            ------------------------------------    -----------------------------------
                                                WEIGHTED
                                                 AVERAGE            WEIGHTED                               WEIGHTED
                             NUMBER             REMAINING            AVERAGE             NUMBER             AVERAGE
      RANGE OF             OUTSTANDING         CONTRACTUAL          EXERCISE           EXERCISABLE         EXERCISE
   EXERCISE PRICES         AT 12/31/98            LIFE                PRICE            AT 12/31/98           PRICE
   ---------------       ---------------    ----------------    ----------------    ---------------     ---------------
  <S>                    <C>                <C>                 <C>                 <C>                 <C>
    $ 4.58-$ 4.67               43,900          1.4  years        $     4.62               43,900          $    4.62
    $10.00-$15.83              420,700          4.4  years             14.45              320,938              14.02
    $16.83-$22.38              329,775          5.2  years             21.45              224,575              21.01
    $25.38-$33.38               50,500          7.7  years             31.52                    -                   
    $42.75-$59.44            1,176,952          9.0  years             55.76                    -                  -
                            ----------                            ----------            ---------          ---------

                             2,021,827                            $    39.85             $589,413          $   15.99
                            ==========                            ==========             ========          =========

</TABLE>

        The closing price of our stock was $29.50 on December 31, 1998.

        Restricted shares awarded had weighted average per-share fair values 
at grant date of $33.61, $58.80 and $25.07 in 1998, 1997 and 1996, and 
resulted in compensation expense of $653,000, $399,000 and $355,000 in these 
respective years.


                                          33

<PAGE>



I.  COMMITMENTS AND CONTINGENT LIABILITIES

     LEASES: We lease office space, furniture and communications and data 
processing equipment under several noncancelable operating leases. Most 
office space lease agreements include rate increases and include the payment 
of real estate taxes, insurance and other expenses of occupancy.

Aggregate minimum rental commitments as of December 31, 1998, are as follows:

<TABLE>
<CAPTION>

                                                         OPERATING
(In thousands)                                             LEASES
                                                       ------------
<S>                                                    <C>
1999..............................................     $    23,188
2000..............................................          20,274
2001..............................................          18,288
2002..............................................          17,282
2003..............................................          14,735
Thereafter........................................          50,886
                                                       -----------
Total minimum lease payments......................     $   144,653
                                                       ===========

</TABLE>


     Rental expense for operating leases was $26,598,000, $27,679,000, and 
$25,558,000, for the years ended December 31, 1998, 1997 and 1996, 
respectively. Included in equipment and leasehold improvements at December 
31, 1997, is $2,230,000 for capitalized leases.

        LITIGATION: We are defendants in various actions, suits and 
proceedings before courts, arbitrators and governmental agencies. Certain of 
these actions, including those described below, claim substantial damages and 
could have a material adverse effect on our consolidated financial condition 
or results of operations, should these matters not be resolved in our favor. 
While the outcome of any litigation is uncertain, we believe, based in part 
upon consultation with our legal counsel, that the resolution of all matters 
pending or threatened against us will not have a material adverse effect on 
our consolidated financial condition or results of operations.

MIDWEST LIFE INSURANCE COMPANY LITIGATION: Until December 1998, we and Dain 
Bosworth ("DBI") were defendants in eleven actions brought in connection with 
losses suffered from single premium deferred annuities issued by Midwest Life 
Insurance Company ("MWL"), a former subsidiary we acquired in 1980 and sold 
in early 1986. The annuities were sold primarily through DBI's private client 
sales force. MWL was sold two times subsequent to its 1986 sale by us, was 
relocated from Nebraska to Louisiana by its final owner, Southshore Holding 
Corp., and was declared insolvent and ordered liquidated by the State of 
Louisiana in August 1991. Generally, MWL policyholders were reimbursed for 
their losses up to $100,000 per holder by state life and health insurance 
guaranty associations. The policyholders and the guaranty associations, 
between them, have received approximately $.30 for each $1.00 of loss in 
liquidation payments from the liquidator of MWL's estate.

In August 1998 following a jury trial, a judgment was entered against us in 
an action by the Washington guaranty association in the amount of $4.3 
million. In December 1998 we settled this case along with seven other 
guaranty association cases (cases brought by the guaranty associations in 
Iowa, Minnesota, Montana, North Dakota, South Dakota, Wyoming and Oregon), in 
which the plaintiffs sought a total of $37.1 million, plus prejudgment 
interest, punitive damages, attorney's fees and costs. The total settlement 
for all eight cases was $23.2 million, comprised of $13.2 million in cash and 
approximately $10 million (present value) of non-interest bearing notes. The 
notes are payable in four equal installments of $3 million beginning December 
1999.

Two remaining actions related to MWL are in the Colorado and Louisiana 
federal courts. In Colorado the plaintiffs are approximately 200 individual 
former MWL policyholders. In 1991, these individuals did not have guaranty 
association coverage, because Colorado had just created a state guaranty 
association and the MWL insolvency occurred prior to the effective date. 
Guaranty association coverage was extended to MWL policyholders in 1994 as a 
result of our lobbying efforts, and each policyholder was reimbursed for his 
or her losses up to $100,000, plus most accrued interest. By the time this 
occurred, however, many of the policyholders had already filed suit, and 
others were required to join as a condition of receiving their guaranty 
association reimbursement. The Colorado plaintiffs allege fraudulent 
misrepresentation, fraudulent nondisclosure, breach of fiduciary duty, 
negligent performance of an assumed duty to monitor and advise as to the 
safety of their MWL annuities, and negligent misrepresentation.


                                    34


<PAGE>

In July 1997, a Colorado jury returned a verdict awarding twelve of the 
plaintiffs damages of $4.75 million, including $1.3 million in compensatory 
damages, $1.65 million for emotional distress and $1.8 million in punitive 
damages. The court entered judgment in this amount, plus $2 million in 
prejudgment interest and costs. An appeal of the judgment is scheduled to be 
heard in March 1999. We believe the trial court erred by, among other things, 
withholding key evidence from the jury, including evidence of Dain Bosworth's 
successful efforts to obtain guaranty association coverage and reimbursement 
for the plaintiffs. While the appeal is pending, the parties have submitted 
proposals to the trial judge as to trial of the remaining plaintiffs' cases.

In the Louisiana case, the liquidator of the MWL estate alleges violations of 
the Racketeer Influenced and Corrupt Organizations Act ("RICO"), breach of 
fiduciary duty and conspiracy to breach fiduciary duty. The plaintiff is 
seeking to recover in excess of $59 million in compensatory damages, plus 
treble damages under RICO, interest, costs, attorneys' fees and other relief. 
The complaint challenges certain coinsurance transactions between MWL and 
Central National Life Insurance Company (also a defendant) in 1980. A motion 
to dismiss the case is pending.

In the remaining MWL cases, we believe that we have substantial and 
meritorious defenses and are vigorously defending ourselves.

ORANGE COUNTY: In December 1998, we settled a case brought against Rauscher 
Pierce Refsnes ("RPR") by Orange County, California, in which the County 
claimed RPR was its financial advisor on five 1994 note offerings totaling 
$975 million. The County claimed that RPR breached legal duties by failing to 
warn County officials of the risks of the Orange County Investment Pool 
("OCIP"), in which the County was investing the proceeds of the notes. The 
County sought at least $500 million in damages.

At the same time, we settled a related case brought on behalf of school 
districts for which Rauscher Pierce was financial advisor or underwriter on 
other 1994 note offerings, including a pooled $300 million offering involving 
many districts, the proceeds of which were deposited in OCIP. Again, the 
claim was based on alleged failure to warn the issuers of the risks in the 
County's investment strategy. The districts' representative sought over $50 
million. This case and the County action were settled for a total of $10 
million..

STATE OF ARIZONA: In January 1998, the SEC filed a federal court action 
against DRI (as successor to RPR) and a former employee in connection with a 
$130 million refunding issue by the State of Arizona in 1992, on which RPR 
served as financial advisor. The complaint alleges violations of antifraud 
provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 
and the Investment Advisor Act of 1940. RPR purchased government securities 
and sold them to the escrow trustee in the transaction at a markup of 
approximately 0.55% of our cost. The SEC alleges that we failed to disclose 
that we purchased and sold the government securities as a principal, that we 
expected to make a profit and the amount of the profit. The SEC also alleges 
that the markup was excessive and that we falsely represented that the 
securities were sold to the trustee at fair market value. We believe that we 
have substantial and meritorious defenses available and are vigorously 
defending ourselves in this action.

                                      35
<PAGE>

J.      OFF -BALANCE SHEET RISK

        We adopted the requirements of SFAS 119 "Disclosure about Derivative 
Financial Instruments and Fair Value of Financial Instruments," which defines 
a derivative as a future, forward, swap or option contract, or as an interest 
rate swap, floor, or collar. Generally, a derivative represents a future 
commitment to purchase or sell a financial instrument at specific terms and 
dates. These financial instruments may have market or credit risk which is 
not reflected in the market values included on our balance sheet.

        We have risk management policies that limit the size and risk of 
inventories. The policy includes a risk point methodology, which assigns risk 
points to certain inventories based on modified duration, which adjusts all 
securities to a one-year maturity. We also monitor our inventories for 
factors that include credit and concentration risk, contract length, and 
inventory age. These inventories are held primarily for distribution to our 
individual and institutional clients in order to meet those clients' needs. 
We do not enter into derivative financial instruments with off-balance-sheet 
risk other than those described in this footnote. While we utilize certain 
types of derivatives to manage our risk exposure, derivative financial 
instruments held or issued were immaterial to our consolidated financial 
statements.

         MARKET RISK: As part of our broker-dealer activities, we purchase 
and sell a variety of cash and derivative financial instruments in order to 
reduce our exposure to market risk. Market risk includes changes in interest 
rates, currency exchange rates, indices, or value fluctuations in the 
underlying financial instruments. Our hedging strategy involves the purchase 
and sale of derivative financial instruments to offset market risk associated 
with other transactions. We regularly sell securities not yet purchased 
(short sales) for our own account, primarily to hedge our fixed income 
trading securities. Short positions may expose us to market risk in the event 
prices increase, as we may be obligated to acquire the securities at 
prevailing market prices.

        We use notional (contract) amounts to measure our derivative 
activity. Notional amounts are not included on our balance sheet, as these 
contract amounts are not actually paid or received. Notional amounts allow us 
to calculate the cash flows to be exchanged and our involvement in any 
particular type of financial instrument; however these amounts are not 
indicative of overall market risk.

        At December 31, 1998 and 1997, we had open commitments to sell under 
futures contracts with notional amounts of $15.8 million and $20.6 million. 
During 1998, the average notional amounts for futures and options on futures 
contracts were $11.9 million and $16.8 million. The fair market value of 
these contracts was not material at December 31, 1998 or 1997.

        We may also pledge our customers' securities as collateral for bank 
loans, securities loaned or to satisfy margin deposit requirements of 
various exchanges. In the event our counterparty is unable to return the 
securities pledged, we may need to acquire the securities at prevailing 
market prices. In the case of repurchase agreements, we risk holding 
collateral at a market value less than that of the related pledged 
securities. To control these risks, we monitor the market value of securities 
pledged and require adjustments of collateral levels when necessary. At 
December 31, 1998, the market value of securities pledged approximated the 
borrowings outstanding.

         CREDIT RISK: The notional amounts of derivative instruments also do 
not represent our potential risk from counterparty nonperformance. We 
periodically hedge our fixed income trading securities owned or sold short by 
entering into financial futures or option contracts. Transactions in futures 
contracts are conducted through regulated exchanges, which guarantee 
performance of counterparties and are settled in cash on a daily basis, 
minimizing credit risk. We believe that our exposure to credit risk is 
represented by the fair value of trading securities owned.

                                      36
<PAGE>

         CUSTOMER ACTIVITIES: In the normal course of business, we execute, 
settle, and finance customer security transactions. Our customers' securities 
activities are transacted on either a cash or margin basis. As part of our 
customer transactions, we trade option contracts and also sell borrowed 
securities on their behalf (short sales). The risk with these transactions is 
that customers may fail to satisfy their obligations, requiring us to 
purchase or sell various financial instruments at prevailing market prices to 
fulfill customer obligations.

        We mitigate risk by requiring our customers to maintain margin 
collateral in compliance with both regulatory and internal guidelines. We 
monitor necessary margin levels daily and require customers to either deposit 
additional collateral or reduce margin positions. However, market declines 
could reduce the value of collateral to below the amount we have loaned, plus 
interest, before we are able to sell the collateral.

K.      SEGMENT INFORMATION

        Our business includes three major segments: Private Client Group, 
which includes securities sales to individual investors, correspondent 
clearing, and asset management for individual investors; Equity Capital 
Markets, which includes investment banking and underwriting and equity sales 
and trading; and Fixed Income Capital Markets, which includes fixed income 
securities sales, trading, underwriting, and advisory services. All corporate 
expenses and miscellaneous revenues and expenses, which are not allocated to 
individual business lines, are included in Corporate. Corporate pretax income 
in 1998 includes the gain on the sale of an investment security.

<TABLE>
<CAPTION>

(Dollars in thousands)                               1998             1997              1996
                                                 ------------     ------------      ------------
<S>                                              <C>              <C>               <C>
Net Revenue:
   Private Client Group.....................     $    531,197     $    491,577      $    432,499
   Equity Capital Markets...................           93,317           97,118            96,701
   Fixed Income.............................          110,041           86,292            82,642
   Gain on sale of investment securities....            8,787                -                 -
   Corporate ...............................            6,028           17,820            13,914
                                                 ------------     ------------      ------------
       TOTAL................................     $    749,370     $    692,102      $    625,756
                                                 ------------     ------------      ------------

Pretax income:
   Private Client Group.....................     $     51,134     $     60,460      $     42,576
   Equity Capital Markets...................          (19,468)           3,891            19,264
   Fixed Income.............................           16,334            9,783             7,448
   Nonrecurring items.......................          (43,787)         (15,000)                -
   Corporate ...............................            8,271           17,621            13,225
                                                 ------------     ------------      ------------
       TOTAL................................           12,484           76,755      $     87,402
                                                 ------------     ------------      ------------

Pretax margin on net revenue:
   Private Client Group.....................              9.6%            12.3%             11.0%
   Equity Capital Markets...................            (20.9)             4.0              19.9
   Fixed Income.............................             14.8             11.3               9.0
   Corporate ...............................               nm               nm                nm
                                                 ------------     ------------      ------------
       TOTAL................................              1.7%            11.1%             14.0%
                                                 ------------     ------------      ------------

</TABLE>

                                      37
<PAGE>

L.      REGULATORY REQUIREMENTS

        As a broker-dealer and member firm of the NYSE, DRI is subject to the 
Uniform Net Capital Rule (the "Rule") of the Securities and Exchange 
Commission ("SEC"). The Rule is designed to measure the general financial 
integrity and liquidity of a broker-dealer and the minimum net capital deemed 
necessary to meet the broker-dealer's continuing commitments to customers. 
The Rule provides for two methods of computing net capital. DRI uses what is 
known as the alternative method. Under this method, minimum net capital is 
defined as 2% of customer debit balances. In addition to the SEC rule, the 
NYSE may also require a member organization to reduce its business if net 
capital is less than 4% of aggregate debit items and may prohibit a member 
firm from expanding its business and declaring cash dividends if its 
regulatory net capital is less than 5 percent of aggregate debit items. We 
exclude assets which are not readily convertible into cash and conservatively 
value trading securities when computing net capital. Failure to maintain the 
required net capital may subject a firm to suspension or expulsion by the 
NYSE, the SEC and other regulatory bodies and may ultimately require its 
liquidation. DRI has maintained its net capital above both SEC and NYSE 
required levels. At December 31, 1998, DRI had net capital of $121.9 million, 
which was $57.6 million in excess of 5% of aggregate debit items.

        Rule 15c3-3 of the Securities Exchange Act of 1934 specifies when 
broker-dealers carrying customer accounts may be required to maintain cash or 
qualified securities in a special reserve account for the exclusive benefit 
of customers. Reserve amounts are computed in accordance with a formula 
defined in Rule 15c3-3. DRI transferred $42 million to a special reserve 
account on January 5, 1999 pursuant to the December 31, 1998 reserve 
calculation.

M.      EMPLOYEE BENEFIT PLANS

        We sponsor a retirement plan which covers substantially all full-time 
employees who are at least 21 years of age and have been employed for at 
least six months. Participants may contribute on a pretax basis up to 12% of 
eligible compensation to the plan subject to certain aggregate limitations; 
we then match 40% of the first 5% of eligible compensation. Matching 
contributions are limited to $3,000 per employee annually and are made in 
shares of our stock. The plan requires that we make a minimum contribution of 
3% of eligible compensation.

        At the end of each year, an additional profit-based contribution can 
be made at the discretion of our Board of Directors. No discretionary 
contribution was made for the year ended December 31, 1998.

        Our policy is to fund plan costs currently. Earnings have been 
charged for contributions, net of forfeitures, to the retirement plan as 
follows: $12,943,000, $15,759,000 and $18,901,000 for 1998, 1997 and 1996.

N.      INCOME TAXES

Income tax expense consists of the following:

<TABLE>
<CAPTION>

                                                                 YEAR ENDED DECEMBER 31,
                                                           ----------------------------------
(In thousands)                                               1998         1997         1996
                                                           --------     --------     --------
<S>                                                        <C>          <C>          <C>
Current:
  Federal................................................  $  6,608     $ 27,561     $ 32,896
  State..................................................     1,237        5,083        5,534

Deferred:
  Federal................................................    (2,823)      (4,360)      (6,710)
  State..................................................      (528)        (804)      (1,129)
                                                           --------     --------     --------
                                                           $  4,494     $ 27,480     $ 30,591
                                                           --------     --------     --------
                                                           --------     --------     --------

</TABLE>

                                      38

<PAGE>

A reconciliation of ordinary federal income taxes (based on a rate of 36 %) with
the actual tax expense provided on earnings is as follows:

<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31,
                                                            ----------------------------------
(Dollars in thousands)                                        1998         1997         1996
                                                            --------     --------     --------
<S>                                                         <C>          <C>          <C>
Ordinary federal income tax expense.......................  $  4,369     $ 26,864     $ 30,590
State income taxes, net of federal tax benefit............       804        3,229        3,249
Tax-exempt interest, net of related interest expense......    (1,372)      (1,428)        (872)
Other.....................................................       693       (1,185)      (2,376)
                                                            --------     --------     --------
                                                            $  4,494     $ 27,480     $ 30,591
                                                            --------     --------     --------
                                                            --------     --------     --------

Effective tax rate........................................      36.0%        35.8%        35.0%
                                                            --------     --------     --------
                                                            --------     --------     --------
</TABLE>

The tax effects of temporary differences that give rise to the deferred tax 
assets and deferred tax liabilities are:

<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                                               ---------------------
(In thousands)                                                                   1998         1997
                                                                               --------     --------
<S>                                                                            <C>          <C>
Deferred tax assets:
 Accruals not currently deductible..........................................   $ 43,308     $ 40,873
 Federal operating loss and AMT credit carryforward, acquired...............      2,128        1,120
 Fixed assets...............................................................      2,617        2,506
 Other......................................................................      3,278          597
                                                                               --------     --------
                                                                                 51,331       45,096
Deferred tax liabilities:
 Goodwill...................................................................     (1,913)           -
 Other......................................................................     (1,199)        (228)
                                                                               --------     --------

Net deferred income taxes                                                      $ 48,219     $ 44,868
                                                                               --------     --------
                                                                               --------     --------

</TABLE>

    We have determined that we are not required to establish a valuation 
allowance for the deferred tax asset. Our assumption is that it is more 
likely than not that the deferred tax asset will be realized principally 
through future reversals of existing taxable temporary differences, through 
carryback to taxable income in prior years, and, to a lesser extent, future 
taxable income. Our conclusion that it is more likely than not that the 
deferred tax asset will be realized is based on federal taxable income of 
over $156 million in the carryback period, substantial state taxable income 
in the carryback period, as well as prospects for continued earnings.

                                      39
<PAGE>

<TABLE>
<CAPTION>

                                               DAIN RAUSCHER CORPORATION
                                        QUARTERLY FINANCIAL INFORMATION
                              (UNAUDITED, IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)

                                                 FIRST            SECOND             THIRD           FOURTH
                                                QUARTER           QUARTER           QUARTER          QUARTER
                                            -------------     ------------      ------------    -------------
<S>                                         <C>               <C>               <C>              <C>
1998

Net revenue............................     $     172,447     $    188,016      $    180,860     $    208,047
                                            =============     ============      ============     ============
Income (loss) before income taxes......     $     (3,163)     $     18,488      $      5,479     $    (8,320)
                                            =============     ============      ============     ============
Net Income (loss)......................     $     (2,024)     $     11,832      $      3,507     $    (5,325)
                                            =============     ============      ============     ============
Per-share data:
   Basic net earnings (loss)...........     $       (.16)     $        .96      $        .28     $      (.43)
                                            =============     ============      ============     ============
   Diluted net earnings (loss).........     $       (.16)     $        .90      $        .27     $      (.43)
                                            =============     ============      ============     ============
   Dividends ..........................     $         .22     $        .22      $        .22     $        .22
                                            =============     ============      ============     ============


1997

Net revenue............................     $     165,962     $    156,131      $    181,368     $    188,641
                                            =============     ============      ============     ============
Income before income taxes.............     $      24,389     $     17,499      $     10,991     $     23,876
                                            =============     ============      ============     ============
Net income.............................     $      15,755     $     11,137      $      7,056     $     15,327
                                            =============     ============      ============     ============
Per-share data:
   Basic net earnings..................     $        1.29     $        .91      $        .57     $       1.24
                                            =============     ============      ============     ============
   Diluted net earnings................     $        1.22     $        .86      $        .54     $       1.16
                                            =============     ============      ============     ============
   Dividends ..........................     $         .18     $        .18      $        .18     $        .18
                                            =============     ============      ============     ============

</TABLE>


                                                40
<PAGE>


ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
              FINANCIAL DISCLOSURE:

         None.


                                        PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

         See Part I, Item 4 of this Annual Report for information with 
respect to our executive officers. Other information required in Item 10 will 
be contained in our definitive Proxy Statement to be filed pursuant to 
Regulation 14A within 120 days after the close of the fiscal year for which 
this Report is filed and is incorporated herein by reference.

ITEM 11.      EXECUTIVE COMPENSATION:

         The information required in Item 11 will be contained in our 
definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 
days after the close of the fiscal year for which this Report is filed and is 
incorporated herein by reference, except that, pursuant to Item 402(a)(8) of 
Regulation S-K, the information to be contained in our definitive Proxy 
Statement in response to paragraphs (k) and (l) of Item 402 is not 
incorporated by reference herein.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

         The information required in Item 12 will be contained in our 
definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 
days after the close of the fiscal year for which this Report is filed and is 
incorporated herein by reference.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

         The information required in Item 13 will be contained in our 
definitive Proxy Statement to be filed pursuant to Regulation 14A within 120 
days after the close of the fiscal year for which this Report is filed and is 
incorporated herein by reference.

                                 PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K:

(a)           Documents filed as part of this Report:

<TABLE>
<CAPTION>

                                                                                                                       PAGE
                                                                                                                      ------
<S>                                                                                                                   <C>
      1.      Financial statements:
              Reference is made to the table of contents to financial statements and financial statement
              schedule hereinafter contained........................................................................    45
      2.      Financial statement schedules:
              Reference is made to the table of contents to financial statements and financial statement
              schedule hereinafter contained for all other financial statement schedules............................    45

</TABLE>


                                                           41

<PAGE>


3. Exhibits:

<TABLE>
<CAPTION>

  ITEM NO.                     ITEM                                                  METHOD OF FILING
  --------                     ----                                                  ----------------
  <S>       <C>                                                    <C>
    2.1     Agreement and Plan of Merger, dated February 8,        Filed as Exhibit 2.1 to the Company's Report on Form 
            1998 among Dain Rauscher Corporation, Dain             8-K dated March 31, 1998.
            Rauscher Incorporated and Wessels, Arnold &
            Henderson Group, L.L.C. and Wessels, Arnold &
            Henderson, L.L.C..

    3.1     Restated Certificate of Incorporation of               Incorporated by reference to Exhibit 4.1 to the 
            the Company.                                           Company's Quarterly Report on Form 10-Q/A dated March 31, 1998,
                                                                   File No. 333-26947.

    3.2     Amended and Restated Bylaws of the Company.            Incorporated by reference to Exhibit 3.1 to the Company's 
                                                                   Quarterly Report on Form 10-Q dated September 30, 1996.

    4.1     Rights Agreement dated April 30, 1997.                 Incorporated by reference to the Company's Registration 
                                                                   Statement on Form 8 dated May 1, 1997.

    4.2     Credit Agreement dated June 27, 1997.                  Incorporated by reference to Exhibit 4.1 to the
                                                                   Company's Quarterly Report on Form 10-Q dated June 30, 1997.

    4.3     First Amendment to Credit Agreement dated              Incorporated by reference to Exhibit 10.8 to the Company's 
            December 22, 1997.                                     Annual Report on Form 10-K dated  December 31, 1997.
                                                                   
    4.4     Amended and restated credit agreement dated            Filed herewith.
            March 20, 1998.

    10.1*   1986 Stock Option Plan, as amended on April 24,        Incorporated by reference to Exhibit 10(b) to the 
            1987, May 9, 1990, March 3, 1993, and April 27,        Company's Current Report on Form 8-K dated July 15, 1993.
            1993.

    10.2    Form of Indemnity Agreement with Directors and         Incorporated by reference to Exhibit 10(c) to the
            Officers of the Company.                               Company's Annual Report on Form 10-K for the  year
                                                                   ended December 31, 1990.

    10.3*   Form of Non-Employee Director Retirement               Incorporated by reference to Exhibit 10(g) to the
            Compensation Agreement.                                Company's Annual Report on Form 10-K for the year
                                                                   ended December 31, 1992.

    10.4*   IFG Executive Deferred Compensation Plan dated         Incorporated by reference to Exhibit 10(a) to the
            March 31, 1993.                                        Company's Current Report on Form 8-K dated July 15, 1993.

    10.5    Trust Agreement for IFG Executive Deferred             Incorporated by reference to Exhibit 10.5 to the
            Compensation Plan dated February 11, 1994.             Company's Annual Report on Form 10-K dated December
                                                                   31, 1994.

    10.7*   1996 Stock Incentive Plan.                             Incorporated by reference to Exhibit 10 to the
                                                                   Company's Quarterly Report on Form 10-Q dated March 31, 1996.

    10.8*   Offer of Employment and Amended Offer of               Incorporated by reference to Exhibit 10.8 to the 
            Employment Agreements between the Company and          Company's Annual Report on Form 10-K dated December 31,
            William A. Johnstone dated May 28, 1996, and           1997.
            October 9, 1997, respectively.

    10.10*  Employment Agreement between the Company and           Incorporated by reference to Exhibit 10 to the 
            Kenneth J. Wessels dated March 31, 1998.               Company's Quarterly Report on Form 10-Q/A dated March
                                                                   31, 1998

    10.11*  Revised Employment Agreement between the               Filed herewith.
            Company and Kenneth J. Wessels dated March 4,
            1999.

    11      Computation of net earnings per share.                 Filed herewith. 

    21      List of subsidiaries.                                  Filed herewith. 

    23      Independent Auditors' consent.                         Filed herewith. 

    24      Power of Attorney.                                     Filed herewith. 

    27      Financial Data Schedule.                               Filed herewith. 

    99      Cautionary Statements for Purposes of the "Safe        Filed herewith.
            Harbor" Provision of the Private Securities 
            Litigation Reform Act of 1995


</TABLE>

*          Management contract or compensatory plan or arrangement required to
           be filed as an exhibit pursuant to Item 14(c) of this report.


                                        42

<PAGE>


(b) One report on Form 8-K was filed during the fourth quarter of 1998.

         (1)  Item Reported

           Exhibit 99 - Press release announcing registrant's settlement of
litigation.

           Date of earliest event reported - December 3, 1998.

           Financial Statements Filed - None



REPORT FOR EMPLOYEE STOCK PURCHASE PLAN:

         The financial statements required by Form 11-K with respect to our
Retirement Plan will be filed by amendment hereto within 180 days of such plan's
fiscal year end as permitted by Rule 15d-21.




                                        43
<PAGE>


                                   SIGNATURES


PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN
THE CAPACITIES INDICATED:

        SIGNATURE                                         TITLE


      Irving Weiser                          Chairman of the Board, President, 
-----------------------                          Chief Executive Officer
      Irving Weiser                           (Principal Executive Officer)
                                                      and Director

      John C. Appel                      Vice Chairman, Chief Financial Officer
------------------------                      (Principal Financial Officer)
      John C. Appel                                   and Director

   Kenneth J. Wessels                        Senior Executive Vice President
------------------------                              and Director
   Kenneth J. Wessels

     David J. Parrin                      Senior Vice President and Controller
------------------------                     (Principal Accounting Officer)
     David J. Parrin

    J. Evans Attwell
------------------------                                Director
    J. Evans Attwell

     Susan S. Boren
------------------------                                Director
     Susan S. Boren

 F. Gregory Fitz-Gerald
------------------------                                Director
 F. Gregory Fitz-Gerald

    Walter F. Mondale
------------------------                                Director
    Walter F. Mondale

    C.A. Rundell, Jr.
------------------------                                Director
    C.A. Rundell, Jr.

     Robert L. Ryan
------------------------                                Director
     Robert L. Ryan

 Arthur R. Schulze, Jr.
------------------------                                Director
 Arthur R. Schulze, Jr.


                                  44


<PAGE>

                           DAIN RAUSCHER CORPORATION

              FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                  AS OF DECEMBER 31, 1998 AND 1997 AND FOR EACH
                     OF THE YEARS IN THE THREE-YEAR PERIOD
                            ENDED DECEMBER 31, 1998

                              TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                         PAGE
                                                                         ----
<S>                                                                     <C>
Independent Auditors' Report.............................................. 22

Consolidated Financial Statements:

     Consolidated statement of operations................................. 23

     Consolidated balance sheet........................................... 24

     Consolidated statement of shareholders' equity....................... 25

     Consolidated statement of cash flows................................. 26

     Notes to consolidated financial statements........................... 27

Financial Statement Schedule:

     Schedule III - Condensed financial information of the registrant..... 46

</TABLE>

         Schedules not listed above have been omitted because they are either 
not applicable or the required information has been provided in the 
consolidated financial statements or notes thereto.

                                      45
<PAGE>

                 SCHEDULE III --CONDENSED FINANCIAL INFORMATION
                               OF THE REGISTRANT

                           DAIN RAUSCHER CORPORATION
                                (PARENT COMPANY)

                            STATEMENT OF OPERATIONS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                              ----------------------------------------------
                                                                1998              1997             1996
                                                              ----------        ----------       ----------
<S>                                                         <C>               <C>              <C>
Revenue:
   Management fees........................................    $       -         $ 18,941         $   9,373
   Gain on sale of investment securities..................        8,787                -                 -
   Facilities rental......................................            -              964             1,058
   Interest...............................................            -            2,043             1,743
                                                              ---------         --------         ---------

                                                                  8,787           21,948            12,174
                                                              ---------         --------         ---------
Expenses:
   Compensation and benefits..............................            -           12,475             8,010
   Interest...............................................            -            2,218             2,011
   Other operating expenses...............................          260           12,823             8,619
   Litigation settlement..................................       23,787                -                 -
   Restructuring charge...................................            -           15,000                 -
                                                              ---------         --------         ---------

                                                                 24,047           42,516            18,640
                                                              ---------         --------         ---------
Loss before income taxes and equity in
   subsidiaries' earnings.................................      (15,260)         (20,568)           (6,466)
Income tax benefit........................................        5,494            7,851             2,520
                                                              ---------         --------         ---------
Loss before equity in subsidiaries' earnings..............       (9,766)         (12,717)           (3,946)

Equity in subsidiaries' earnings..........................       17,756           61,992            60,757
                                                              ---------         --------         ---------

Net income................................................    $   7,990         $ 49,275         $  56,811
                                                              =========         ========         =========

</TABLE>

See notes to condensed financial information.

                                      46
<PAGE>
                 SCHEDULE III -- CONDENSED FINANCIAL INFORMATION
                        OF THE REGISTRANT -- (CONTINUED)

                            DAIN RAUSCHER CORPORATION
                                (PARENT COMPANY)

                                  BALANCE SHEET
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                ------------------------------
                                                                                     1998             1997
                                                                                 ------------     ------------
<S>                                                                              <C>               <C>
Assets:
  Cash......................................................................     $     1,039       $      974
  Advances to subsidiaries..................................................          17,893           70,119
  Equipment and leasehold improvements, at cost, less
    accumulated depreciation of $27,279 and $13,489, respectively...........          22,445           18,360
  Investment in subsidiaries, at cost, on an equity basis...................         325,298          312,436
  Other assets..............................................................          24,635            7,870
                                                                                 -----------       ----------
                                                                                 $   391,310       $  409,759
                                                                                 ===========       ==========

Liabilities and Shareholders' Equity:

  Short-term borrowings.....................................................     $         -       $   50,000
  Accounts payable and accrued expenses.....................................          29,032           34,027
  Capital lease obligations and other debt..................................          32,505            6,641
                                                                                 -----------       ----------
                                                                                      61,537           90,668
                                                                                 -----------       ----------
Shareholders' equity:
  Common stock..............................................................           1,580            1,546
  Additional paid-in capital................................................         112,142           89,321
  Retained earnings.........................................................         230,421          233,419
  Treasury stock............................................................         (14,370)          (5,195)
                                                                                 -----------       ----------
                                                                                     329,773          319,091
                                                                                 -----------       ----------
                                                                                 $   391,310       $  409,759
                                                                                 ===========       ==========

</TABLE>

See notes to condensed financial information.

                                      47
<PAGE>
                SCHEDULE III -- CONDENSED FINANCIAL INFORMATION
                       OF THE REGISTRANT -- (CONTINUED)

                           DAIN RAUSCHER CORPORATION
                               (PARENT COMPANY)

                            STATEMENT OF CASH FLOWS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------
                                                                 1998              1997             1996
                                                              ---------        ---------         ---------
<S>                                                         <C>               <C>              <C>
Cash flows from operating activities:
Net earnings..............................................    $   7,990         $ 49,275         $  56,811
Non-cash items included in earnings:
   Equity in net earnings of subsidiaries.................      (17,756)         (61,992)          (60,788)
   Depreciation, amortization and other...................            -            7,899             4,014
                                                              ---------        ---------         ---------

                                                                 (9,766)          (4,818)               37

Change in operating assets and liabilities................       14,761            9,917             7,054
                                                              ---------        ---------         ---------

Cash provided by operating activities.....................        4,995            5,099             7,091
                                                              ---------        ---------         ---------

Cash flows from financing activities:
   Proceeds from:
      Revolving credit agreement..........................            -           50,000                 -
      Issuance of common stock............................        3,275            1,779             1,580
      Advances from subsidiaries, net.....................       52,226                -                 -
Payments for:
      Advances to subsidiaries, net.......................            -          (41,030)           (2,803)
      Dividends on common stock...........................      (10,988)          (8,904)           (6,792)
      Capital leases and other  debt......................       (6,639)          (1,288)           (2,454)
      Purchases of common stock...........................            -           (5,195)           (1,341)
      Revolving credit agreement..........................      (50,000)               -                 -
                                                              ---------        ---------         ---------


Cash provided (used) by financing activities..............      (12,126)          (4,638)          (11,810)
                                                              ---------        ---------         ---------

Cash flows from investing activities:
      Gain from sale of investment........................        8,787                -                 -
      Dividends from subsidiaries.........................        4,894           10,648            13,170
      Investment in Lending...............................            -             (500)                -
      Purchases of investments from subsidiary............       (2,400)               -                 -
      Purchases of fixed assets...........................       (4,085)         (10,705)           (8,299)
                                                              ---------        ---------         ---------

Cash provided (used) by investing activities..............        7,196             (557)           (4,871)
                                                              ---------        ---------         ---------

Increase (decrease) in cash...............................           65              (96)              152

Cash at beginning of year.................................          974            1,070               918
                                                              ---------        ---------         ---------

Cash at end of year.......................................    $   1,039        $     974         $   1,070
                                                              =========        =========         =========

</TABLE>

See notes to condensed financial information.

                                      48
<PAGE>
                SCHEDULE III -- CONDENSED FINANCIAL INFORMATION
                       OF THE REGISTRANT -- (CONTINUED)

                          DAIN RAUSCHER CORPORATION
                              (PARENT COMPANY)

                   NOTES TO CONDENSED FINANCIAL INFORMATION


A.    The condensed financial statements of Dain Rauscher Corporation (Parent
      Company) should be read in conjunction with the consolidated financial
      statements of Dain Rauscher Corporation, and the notes thereto beginning
      in Item 8.

      Prior to 1998, the Parent Company received management fees from its
      subsidiaries in return for human resources, finance, purchasing,
      communications and other services performed for the benefit of the
      subsidiaries. Other holding company and corporate expenses were absorbed
      by the Parent Company prior to 1998. With the merger of the Parent
      Company's three broker-dealer subsidiaries into a single entity during the
      1998 first quarter, Parent Company employees and operating expenses were
      transferred to its subsidiaries, principally DRI. In 1998 the Parent
      Company's Statement of Operations includes only non-recurring or
      infrequent items.

      Certain prior-year amounts in the Parent Company's financial statements
      have been reclassified to conform to the 1998 presentation. The
      reclassifications include restating prior-year amounts related to the
      Parent Company's capitalization of its former operations subsidiary via
      advances from Dain Bosworth and Rauscher Pierce Refsnes.

B.    Investments in subsidiaries are carried at cost plus equity in
      undistributed earnings. See Note L to Consolidated financial statements
      for information regarding net capital requirements of the broker-dealer
      subsidiary which could result in restriction on the ability of the
      subsidiary to transfer funds to the parent in the form of loans, advances
      or cash dividends.

C.    COMMITMENTS:

      The Parent Company has guaranteed the repayment of any advances to Dain
      Rauscher Lending Services Inc. from a $50 million uncommitted credit
      facility available to finance certain loans made to customers
      collateralized by securities. As of December 31, 1998, $8.4 million was
      outstanding under this facility at a 6.1% interest rate. See Note F to
      consolidated financial statements for further discussion of this credit
      facility.

        LEASES: We lease office space, furniture and communications and data
      processing equipment under several noncancelable operating leases. Most
      office space lease agreements include rate increases and include the
      payment of real estate taxes, insurance and other expenses of occupancy.
      All lease payments are being made by DRI. DRC is the guarantor of the
      lease for our headquarters location, however we anticipate that DRI will
      continue to make the payments for this lease and this expense will not be
      reflected on DRC's statement of operations.

                                      49