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


                                    FORM 10-K


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

                   For the fiscal year ended October 31, 1998

                                       OR

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

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


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

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

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

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

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

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

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


As of November 30, 1998, the number of shares  outstanding  of the  registrant's
common stock was 1,600,000.


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


<PAGE>


                         NAVISTAR FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                                    FORM 10-K

                           Year Ended October 31, 1998

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

PART II

Item 5.   Market for the Registrant's Common Equity and
             Related Stockholder Matters..............................     1
Item 6.   Selected Financial Data (A).................................     1
Item 7.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations (A)..................     2
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk..     9
Item 8.   Financial Statements........................................    10
             Statement of Financial Reporting Responsibility..........    33
             Independent Auditors' Report.............................    34
             Supplementary Financial Data.............................    35
Item 9.   Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure......................    38

PART III

Item 10.  Directors and Executive Officers of the
             Registrant (A)...........................................    38
Item 11.  Executive Compensation (A)..................................    38
Item 12.  Security Ownership of Certain Beneficial Owners
             and Management (A).......................................    38
Item 13.  Certain Relationships and Related
             Transactions (A).........................................    38

PART IV

Item 14.  Exhibits, Financial Statement Schedules and
             Reports on Form 8-K......................................    38

SIGNATURES- Principal Accounting Officer .............................    39
          - Directors.................................................    40
POWER OF ATTORNEY.....................................................    40
INDEX TO EXHIBITS.....................................................   E-1

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


<PAGE>





                                     PART I


Item 1.   Business

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

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

Item 2.   Properties

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

Item 3.   Legal Proceedings

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

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

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


                                     PART II


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

     See Note 13 to Consolidated Financial Statements.

Item 6.   Selected Financial Data

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


<PAGE>


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


     Certain   statements   under  this   caption,   which   involve  risks  and
uncertainties,  constitute  "forward-looking  statements"  under the  Securities
Reform  Act.  Navistar  Financial   Corporation's   actual  results  may  differ
significantly  from the results  discussed in such  forward-looking  statements.
Factors  that might  cause such a  difference  include,  but are not limited to,
those  discussed  under  the  headings  "Year  2000",   "Business  Outlook"  and
"Quantitative and Qualitative Disclosures About Market Risk."

Financing Volume

     In response to the continued strong U.S. economy, customer demand for Class
5 through 8 trucks in  fiscal  1998 was 13% and 15%  higher  than 1997 and 1996,
respectively.  The strong  economy  continued to contribute to high liquidity in
the commercial financing markets,  which gives the Corporation's  customers more
financing alternatives. This continuing, highly competitive financing market has
caused  the  Corporation  to  increase  marketing  efforts  for its  retail  and
wholesale  financing  products and services and to reduce  finance rates offered
during the fiscal year.

     Financing  support  provided to retail  customers over the last three years
was as follows:
<TABLE>
<CAPTION>
                                                    1998       1997       1996
<S>                                               <C>        <C>        <C>
Retail and Lease Financing: ($ millions)
Finance market share of new International
   trucks sold in the U.S.                         16.0%      13.2%      16.3%

Purchases of receivables and
   equipment leased to others                     $1,397     $1,036     $1,135

Serviced retail notes and lease
   financing balances (including
   sold notes) at October 31                      $2,579     $2,253     $2,200
</TABLE>

     As a result of the Corporation's higher finance market share and the higher
truck industry demand in 1998,  purchases of receivables and equipment leased to
others were 35% above 1997.  During fiscal 1998 the serviced  portfolio grew 14%
to $2.6 billion. Purchases of receivables and equipment leased to others in 1997
were below those of 1996 as a result of the lower finance market share.


<PAGE>


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


Financing Volume (continued)

     Financing support provided to Transportation's  dealers over the last three
years was as follows:
<TABLE>
<CAPTION>
                                                    1998       1997       1996
<S>                                               <C>        <C>        <C>
Wholesale Financing: ($ millions)
Percent of wholesale financing of
   new International trucks sold to
   Transportation's dealers in the U.S.              95%        94%        94%

Purchases of receivables                          $3,813     $2,773     $2,706

Serviced wholesale note balances
   (including sold notes) at
   October 31                                     $1,039     $  691     $  685
</TABLE>

     In spite of the strong liquidity in the commercial  financing  market,  the
Corporation's   finance   percentage  of  new   International   trucks  sold  to
Transportation's dealers increased slightly to 95% from 94% in 1997 and 1996. In
1998 the volume of receivables purchased was 38% higher than 1997 and 41% higher
than 1996 in response to the strong industry demand.

Results of Operations

     The components of net income over the last three years were as follows:
<TABLE>
                                                    1998       1997       1996
<S>                                                <C>        <C>        <C>
Income before income taxes: ($ millions)
  Finance operations                               $79.2      $68.6      $74.2
  Insurance operations                               6.0        6.0        6.3
    Income before income taxes                      85.2       74.6       80.5
  Taxes on income                                   32.3       28.9       31.1
    Net income                                     $52.9      $45.7      $49.4

Return on average equity                           18.5%      16.1%      18.1%
</TABLE>

     The Corporation's 1998 return on average equity was a record 18.5% in 1998,
compared with 16.1% and 18.1% in 1997 and 1996, respectively.  The increase over
1997 is primarily  due to the higher level of  wholesale  and retail  financing,
partially  offset by lower  financing  margins  and higher  costs to service the
larger portfolio.  Net income in 1997 was 7.5% lower than 1996, reflecting lower
average dealer  inventory  levels and gains on sales of retail notes,  partially
offset by a lower provision for losses during 1997.



<PAGE>


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


Results of Operations - Finance Operations:

     Retail note and lease financing  revenue for 1998 was $136 million compared
with $106 million and $98 million in 1997 and 1996, respectively. The 28% growth
in fiscal 1998 is due to higher retail financing activities and the shift of the
portfolio  to  operating  leases,  offset in part by lower  yields.  Included in
retail  note and lease  financing  revenue  is  operating  lease  revenue of $46
million, $29 million and $14 million in 1998, 1997 and 1996,  respectively.  The
higher  operating  lease revenue is the result of an increase in vehicles  under
operating  leases due to a market shift toward lease  financing.  For  operating
leases,  the  Corporation  recognizes  the entire  lease  payment as revenue and
records depreciation expense on the assets under lease.

     Also included in retail note and lease  finance  revenue are gains on sales
of retail note receivables of $15 million,  $13 million and $20 million in 1998,
1997 and 1996,  respectively.  The higher gains on sales in fiscal 1996 resulted
from higher margins on retail notes due to declining market interest rates prior
to the sale in November 1995. During a declining interest rate environment,  the
Corporation's  acquisition  spreads  may  improve as the  Corporation's  cost of
borrowing  differs from the time when interest rates are quoted to borrowers and
the time when such notes are acquired. In addition, unless hedged, the effective
interest  rate for each sale is based on a market  interest  rate at the time of
the sale,  which may be up to six  months  after the  Corporation  acquired  the
retail notes.

     In fiscal 1998 wholesale  note revenue  increased 20% to $43 million versus
1997, primarily as a result of the higher level of wholesale financing activity,
offset  in part by  lower  yields  in  response  to the  competitive  commercial
financing market. Wholesale note revenue decreased 36% in 1997 to $36 million as
a result of lower average outstanding note balances and lower yields in response
to the competitive commercial financing market.

     Borrowing  costs  increased  21% in 1998 to $88 million from $73 million in
1997  primarily  due to higher  average  receivable  funding  requirements.  The
Corporation's  weighted  average  interest rate on all debt was 6.4% in 1998 and
1997 and 6.5% in 1996. Borrowing costs decreased 11% in 1997 to $73 million from
$82 million in 1996 primarily due to lower wholesale funding  requirements.  The
ratio of debt to equity was 5.8:1,  4.3:1 and 4.7:1 at October 31,  1998,  1997,
and 1996, respectively.

     Credit,  collection and administrative expenses increased to $36 million in
1998  from $31  million  and $28  million  in 1997 and 1996,  respectively.  The
increase  in 1998  compared  with 1997 and 1996 was  primarily  due to  employee
related costs to support the increase in financing  activity,  costs  associated
with year 2000 initiatives and marketing programs.


<PAGE>


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


Results of Operations - Finance Operations (continued)

     The provision for losses on receivables totaled $1 million in 1998 compared
with $3 million in 1997 and $9 million in 1996. The improvement in 1998 compared
to 1997 is primarily due to recovery of losses on one large  account.  Notes and
account write-offs, net of recoveries,  including sold notes, were less than one
million in 1998,  $2 million in 1997 and $5 million in 1996.  The  Corporation's
allowance for losses as a percentage of serviced  finance  receivables was .64%,
 .72% and .74% at October 31, 1998, 1997 and 1996, respectively.

     Depreciation  and other  expenses in 1998 increased to $30 million from $19
million in 1997 and $9 million in 1996.  The increase is primarily the result of
a larger investment in equipment under operating leases.

     Insurance Operations:

     Harco National Insurance  Company's  ("Harco") pretax income was $6 million
in each of the three  years ended  October  31,  1998.  Harco's  gross  premiums
written in 1998 were $47 million, 2% and 12% below 1997 and 1996,  respectively.
The  insurance  industry  continues to be over  capitalized  which  results in a
highly competitive market and places pressure on Harco's volume and margins. The
ratio of losses to earned premiums was 70% during 1998 and 1997, compared to 73%
in 1996.

Liquidity and Funds Management

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

     In January 1998,  Moody's,  Standard and Poors,  and Duff and Phelps raised
the Corporation's senior debt ratings from Ba2, BB and BB+ to Ba1, BB+ and BBB-,
respectively,  while the subordinated  debt ratings were also raised from B1, B+
and BB to Ba3, BB- and BB+, respectively.

     Operations  provided  $69  million  in cash in  1998  primarily  due to net
income.  The  cash  provided  by  operations  was used to pay  dividends  of $57
million.  Investing  activities  used  $418  million  in cash,  while  financing
activities,  excluding  dividends,  provided  $410  million.  During  1998,  the
purchase of $1,397 million of retail  receivables and equipment leased to others
was funded primarily with $953 million of proceeds from the sale of receivables,
principal collections on retail notes and lease receivables of $116 million, and
$410  million  net  increase  in  total  debt.  See  also  the   "Statements  of
Consolidated Cash Flow" on page 13.




<PAGE>


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


Liquidity and Funds Management (continued)

     Over the last three  years,  operations  provided  $182 million in cash and
proceeds  from the sale of retail  receivables  totaled  $2,893  million.  These
amounts were used  principally to fund the purchase of receivables and equipment
leased to others of $3,288, net of principal collections on the receivables, and
to pay dividends of $123 million.

     Receivable  sales were a  significant  source of funding in 1998,  1997 and
1996.  Through the asset-backed  public market, the Corporation has been able to
fund fixed rate retail  note  receivables  at rates  offered to  companies  with
investment  grade ratings.  During fiscal 1998,  1997 and 1996, the  Corporation
sold $1,001,  $987 and $985  million,  respectively,  of retail  notes,  through
Navistar  Financial Retail  Receivables  Corporation  ("NFRRC"),  a wholly-owned
subsidiary of the Corporation, to owner trusts, which in turn, issued securities
which  were  sold  to  investors.  On  August  28,  1998,  NFRRC  filed  a shelf
registration with the Securities and Exchange  Commission which provides for the
issuance  of an  additional  $2,500  million  of  asset-backed  securities.  The
aggregate  shelf  registration  available to NFRRC for issuance of  asset-backed
securities is $2,972 million.

     At October 31, 1998, Navistar Financial Securities  Corporation ("NFSC"), a
wholly-owned subsidiary of the Corporation, had a revolving wholesale note trust
that provides for the funding of $700 million of wholesale  notes.  All eligible
wholesale notes are sold to the trust through NFSC.  During 1998, a $100 million
tranche of investor  certificates matured and NFSC issued a $200 million tranche
of investor certificates.  As of October 31, 1998, the trust is comprised of one
$100 million  tranche of investor  certificates  maturing in 1999 and three $200
million tranches of investor certificates maturing in 2003, 2004 and 2008.

     During fiscal 1998 and 1997, the  Corporation  entered into  sale/leaseback
agreements  involving  vehicles  subject to retail  finance leases and operating
leases with end users. Total proceeds were $144 million and $111 million in 1998
and 1997, respectively. The outstanding capital lease obligations at October 31,
1998 were $213 million.

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

     As of October 31, 1998,  available  funding under the bank revolving credit
facility and the ABCP program was $124  million,  of which $22 million  provided
funding backup for the outstanding  short-term debt. The remaining $102 million,
when combined with  unrestricted  cash and cash  equivalents,  made $116 million
available to fund the general business purposes of the Corporation.

     In November 1998, the Corporation sold $545 million of retail notes, net of
unearned finance income, through NFRRC to a multi-seller asset-backed commercial
paper conduit sponsored by a major financial institution.


<PAGE>


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


Year 2000

     The  Corporation  has identified  all  significant  information  technology
("IT")  applications  that will  require  remediation,  which in some cases will
involve the replacement of systems, to ensure Year 2000 compliance. Internal and
external resources are being used to make the required modifications and to test
for Year 2000 compliance.  The Corporation  plans to complete the  modifications
and testing process of all significant IT systems by August 1999, which is prior
to any anticipated impact on its operating systems.

     As  of  October  31,  1998  the  Corporation  believes  it  has  remediated
approximately  55% of its  non-compliant IT systems.  Total costs connected with
the remediation of the Corporation's significant IT systems during 1998 and 1997
totaled  $3.7 million and $1.1  million,  respectively.  Estimated  future costs
total  $2.5  million.   Approximately  25%  of  the  total  costs,  representing
investment in new IT systems,  will be capitalized and depreciated over three to
five  years.  The  total  cost of the Year  2000  project  has not had nor is it
anticipated to have a material impact on the Corporation's financial position or
results of operations and will be funded through operating cash flows.

     While certain aspects of the  Corporation's  businesses  could operate on a
manual  basis for a period of time,  in the event Year 2000  compliance  for its
significant IT systems is not reached,  the Corporation  currently believes that
the most reasonably likely worst case scenario would be the inability to sustain
its  current  level  of  performance  and  customer  service.   Additionally,  a
significant  failure of the banking  systems or key  entities  in the  financial
markets  could  adversely  affect the  Corporation's  ability to access  various
credit and money markets.  The Corporation is therefore  committed to taking all
appropriate  actions to achieve  Year 2000  compliance  for its  significant  IT
systems  before the  millennium  change date.  The  Corporation  has developed a
detailed plan,  which includes an anticipated  remediation  completion  date for
each  significant IT system and a scheduled  overall  completion  date of August
1999.  Management  reviews the progress under the action plan on a weekly basis.
Whenever  management  concludes a material  risk exists  that a  significant  IT
system will not be  remediated  by the  scheduled  overall  completion  date,  a
contingency plan is developed.

     The Corporation has initiated  formal  communications  with all significant
third party  suppliers which provide  operational  support and non-IT systems to
determine the extent to which the  Corporation  would be vulnerable in the event
that one or more of those third  parties fail to  remediate  their own Year 2000
issues. The Corporation has received  assurances from its significant  suppliers
of cash  management  services that they will be able to operate in the Year 2000
and beyond, without interruption in service. While the Corporation believes that
it does not have significant exposure to other significant  suppliers' Year 2000
problems,  it is  seeking  compliance  assurances  from such  other  significant
suppliers.




<PAGE>


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


Year 2000  (continued)

     The costs of the project and the date on which the Corporation  believes it
will  complete  the  Year  2000  remediation  are  based  on  management's  best
estimates,  which were derived utilizing numerous  assumptions of future events,
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated.  Specific factors that might cause such material  differences
include,  but are  not  limited  to,  the  availability  and  cost of  qualified
personnel,  the ability to locate and correct all  relevant  computer  codes and
similar uncertainties.

New Accounting Standards

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

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments  and Hedging  Activities,"  to establish  accounting  and  reporting
standards for derivative instruments. This statement requires recognition of all
derivative  instruments in the statement of financial  position as either assets
or  liabilities,  measured  at fair value,  and is  effective  for fiscal  years
beginning after June 15, 1999. This statement  additionally  requires changes in
the fair value of derivatives to be recorded each period in current  earnings or
comprehensive  income,  depending on the intended  use of the  derivatives.  The
Corporation  is currently  assessing the impact of this statement on its results
of operations, financial condition and cash flows.

Business Outlook

     The truck industry in 1999 is forecasted to decrease  approximately 3% from
1998. The competitive  commercial financing market will continue to put pressure
on the  Corporation's  retail and  wholesale  financing  activity  and  margins.
Increased volatility in the capital markets is likely to put additional pressure
on the funding  rates  offered to the  Corporation  in the  asset-backed  public
market, commercial paper markets and other debt financing markets.



<PAGE>


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


Business Outlook (continued)

     Management  believes  that  collections  on  the  outstanding   receivables
portfolio plus cash available from the  Corporation's  various  funding  sources
will  permit   Navistar   Financial  to  meet  the  financing   requirements  of
Transportation's dealers and retail customers through 1999 and beyond.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The  Corporation is exposed to market risk primarily due to fluctuations in
interest  rates.  Interest rate risk arises from the funding of a portion of the
Corporation's  fixed  rate  receivables  with  floating  rate  debt and from the
Corporation's investment in fixed income securities. The Corporation has managed
exposure to interest  rate changes by funding  floating  rate  receivables  with
floating  rate debt and fixed rate  receivables  with fixed rate debt,  floating
rate debt and equity  capital.  Management  has reduced the net  exposure  which
results from the funding of fixed rate  receivables  with  floating rate debt by
generally  selling fixed rate receivables on a fixed rate basis and by utilizing
derivative  financial  instruments.  The  Corporation  does  not  use  financial
instruments for trading purposes.

     The  Corporation  maintains  investments  in  marketable  securities.   The
securities  are  classified  as  available  for  sale  and are  recorded  on the
Statements of  Consolidated  Financial  Condition at fair value with  unrealized
gains or losses reported as a separate component of shareowner's  equity, net of
applicable  deferred  taxes.  As of  October  31,  1998,  the fair  value of the
Corporation's  marketable  securities portfolio was $108 million,  consisting of
$91 million  invested  in debt  securities  and $17  million  invested in equity
securities.

     The  Corporation  measures its  interest  rate risk by  estimating  the net
amount  by which  the fair  value of all  interest  rate  sensitive  assets  and
liabilities,  including derivative financial  instruments,  would be impacted by
selected  hypothetical changes in market interest rates. Assuming a hypothetical
10% increase in interest  rates as of October 31, 1998,  the  estimated net fair
asset value would decrease by approximately $5 million.

     Equity price risk arises when the  Corporation  could incur economic losses
due to adverse changes in a particular stock index or price.  The  Corporation's
investments  in equity  securities are exposed to equity price risk and the fair
value of the portfolio is correlated to the S&P 500.  Management  estimates that
an immediate 10% change in the S&P 500 would affect the fair value of its equity
securities by approximately $1.7 million.


<PAGE>


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


   Navistar Financial Corporation and Subsidiaries:
     <S>                                                                     <C>
     Statements of Consolidated Income and Retained Earnings
       for the years ended October 31, 1998, 1997 and 1996................   11
     Statements of Consolidated Financial Condition as of
       October 31, 1998 and 1997 .........................................   12
     Statements of Consolidated Cash Flow for the years ended
       October 31, 1998, 1997 and 1996....................................   13
     Notes to Consolidated Financial Statements...........................   14
     Statement of Financial Reporting Responsibility......................   33
     Independent Auditors' Report.........................................   34
     Supplementary Financial Data.........................................   35
</TABLE>


<PAGE>




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


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

<TABLE>
<CAPTION>
  For the years ended October 31                      1998     1997      1996
  ---------------------------------------------------------------------------

<S>                                                 <C>      <C>       <C>
  Revenues
       Retail notes and lease financing..........   $135.8   $105.8    $ 97.7
       Wholesale notes...........................     43.3     36.1      56.6
       Accounts..................................     33.3     31.2      26.6
       Servicing fee income......................     21.6     20.0      20.5
       Insurance premiums earned.................     32.3     33.3      42.0
       Marketable securities.....................      9.6      8.5       9.4
           Total.................................    275.9    234.9     252.8

  Expenses
       Cost of borrowing:
           Interest expense......................     81.0     65.9      73.2
           Other.................................      7.1      7.0       8.4
           Total.................................     88.1     72.9      81.6
       Credit, collection and administrative.....     36.1     31.0      28.2
       Provision for losses on receivables.......      0.8      2.5       9.3
       Insurance claims and underwriting.........     35.6     35.1      44.4
       Depreciation expense and other............     30.1     18.8       8.8
           Total.................................    190.7    160.3     172.3

  Income Before Taxes............................     85.2     74.6      80.5

  Taxes on Income................................     32.3     28.9      31.1

  Net Income.....................................     52.9     45.7      49.4

  Retained Earnings
       Beginning of year.........................    113.1    107.4      84.0
       Dividends paid............................    (57.0)   (40.0)    (26.0)
       End of year...............................   $109.0   $113.1    $107.4
</TABLE>







                 See Notes to Consolidated Financial Statements.


<PAGE>




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


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

<TABLE>
<CAPTION>
As of October 31                                             1998         1997
------------------------------------------------------------------------------

<S>                                                      <C>          <C>
ASSETS

Cash and Cash Equivalents..............................  $   14.1     $   10.7
Marketable Securities..................................     108.0        114.2
Receivables
   Finance receivables.................................   1,523.7      1,223.2
   Allowance for losses................................     (12.8)       (12.0)
       Receivables, net................................   1,510.9      1,211.2

Amounts Due from Sales of Receivables..................     245.9        233.3
Equipment on Operating Leases, Net.....................     217.7        124.1
Repossessions..........................................      14.4         13.0
Other Assets...........................................     101.9        104.1

Total Assets...........................................  $2,212.9     $1,810.6


LIABILITIES AND SHAREOWNER'S EQUITY

Short-Term Debt........................................  $   21.8     $  141.0
Accounts Payable and Other Liabilities.................     193.9        191.3
Senior and Subordinated Debt...........................   1,611.2      1,082.7
Dealers' Reserves......................................      24.0         22.2
Unpaid Insurance Claims and Unearned Premiums..........      80.5         85.6

Commitments and Contingencies

Shareowner's Equity
   Capital stock (Par value $1.00, 1,600,000 shares
       issued and outstanding) and paid-in capital.....     171.0        171.0
   Retained earnings...................................     109.0        113.1
   Minimum pension liability adjustment................      (1.0)           -
   Unrealized gains on marketable securities...........       2.5          3.7
       Total...........................................     281.5        287.8

Total Liabilities and Shareowner's Equity..............  $2,212.9     $1,810.6

</TABLE>



                 See Notes to Consolidated Financial Statements.


<PAGE>




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

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

<TABLE>
<CAPTION>
  For the years ended October 31                       1998     1997       1996
 -------------------------------------------------------------------------------
<S>                                               <C>        <C>       <C>
  Cash Flow From Operations

    Net income...................................  $  52.9   $  45.7    $  49.4
      Adjustments to reconcile net income to
        cash provided from operations:
      Gains on sales of receivables..............    (15.3)    (13.4)     (20.2)
      Depreciation and amortization..............     35.4      22.5       15.3
      Provision for losses on receivables........      0.8       2.5        9.3
      Increase (decrease) in accounts payable
        to affiliated companies..................      5.3     107.0      (65.0)
      Other......................................    (10.5)    (22.3)     (17.3)
          Total..................................     68.6     142.0      (28.5)

  Cash Flow From Investing Activities

    Proceeds from sold retail notes..............    952.6     958.2      982.1
    Purchase of retail notes and
        lease receivables........................ (1,262.8)   (969.7)  (1,069.0)
    Principal collections on retail notes and
        lease receivables........................    116.4      93.8       70.2
    Acquisitions (over)under cash collections of
        wholesale notes and accounts receivable..   (105.8)    (59.9)     163.0
    Purchase of marketable securities............    (43.1)    (65.3)     (63.0)
    Proceeds from sales and maturities of
        marketable securities....................     50.3      84.8       67.7
    Purchase of equipment leased to others.......   (134.2)    (66.3)     (65.9)
    Sale of equipment leased to others...........      8.9      23.8        9.7
          Total..................................   (417.7)     (0.6)      94.8

  Cash Flow From Financing Activities

    Net (decrease) increase in short-term debt...   (119.2)     41.6       48.9
    Net increase (decrease) in bank
        revolving credit facility usage..........    422.0    (311.0)     (56.0)
    Net increase (decrease) in asset-backed
        commercial paper facility usage..........      6.0     (15.3)      88.1
    Principal payments on long-term debt.........    (43.6)    (21.6)    (117.5)
    Proceeds from long-term debt.................    144.3     208.9        -
    Dividends paid to Transportation.............    (57.0)    (40.0)     (26.0)
          Total..................................    352.5    (137.4)     (62.5)

  Increase in Cash and Cash Equivalents..........      3.4       4.0        3.8

  Cash and Cash Equivalents at Beginning of Year.     10.7       6.7        2.9

  Cash and Cash Equivalents at End of Year.......  $  14.1   $  10.7    $   6.7

  Supplementary disclosure of cash flow
    information:
    Interest paid................................  $  80.4   $  59.7    $  76.3
    Income taxes paid............................  $  36.4   $  23.8    $  32.2
</TABLE>


                 See Notes to Consolidated Financial Statements.


<PAGE>




                 NAVISTAR FINANCIAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   FOR THE THREE YEARS ENDED OCTOBER 31, 1998

                               MILLIONS OF DOLLARS



1. SUMMARY OF ACCOUNTING POLICIES


Principles of Consolidation

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

Nature of Operations

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

Estimates

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

Revenue on Receivables

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



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


1. SUMMARY OF ACCOUNTING POLICIES (continued)


Allowance for Losses on Receivables

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

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

Receivable Sales

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

Insurance Operations

     Insurance  premiums  written by the  Corporation's  wholly-owned  insurance
subsidiary, Harco National Insurance Company ("Harco"), are earned on a pro rata
basis  over the  terms of the  policies.  Commission  costs  and  premium  taxes
incurred in acquiring  business are deferred and  amortized on the same basis as
related premiums are earned.  The liability for unpaid insurance claims includes
provisions  for reported  claims and an estimate of  unreported  claims based on
past experience. Such provisions include an estimate of loss adjustment expense.
The estimated  liability for unpaid insurance  claims is regularly  reviewed and
updated. Any change in such estimate is reflected in current operations.

     Harco  limits  its  exposure  on  any  single  loss  occurrence  by  ceding
reinsurance to other insurance enterprises.  Reinsurance receivables,  including
amounts related to unpaid insurance claims and prepaid reinsurance premiums, are
reported as other assets in the Statements of Consolidated Financial Condition.

Income Taxes

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



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


1. SUMMARY OF ACCOUNTING POLICIES (continued)


Cash and Cash Equivalents

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

Marketable Securities

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

Derivative Financial Instruments

     All derivative financial instruments,  such as forward contracts,  interest
rate swaps and interest rate caps, are held for purposes other than trading. The
Corporation's policy prohibits the use of derivative  financial  instruments for
speculative  purposes.  The  Corporation  generally  uses  derivative  financial
instruments to reduce its exposure to interest rate volatility.

     The  Corporation  may use forward  contracts to hedge the fair value of its
fixed rate receivables  against changes in market interest rates in anticipation
of the sale of such receivables.  The principal balance of receivables  expected
to be sold by the  Corporation  equals or exceeds  the  notional  amount of open
forward  contracts.  The  Corporation  may use  interest  rate  swaps to  reduce
exposure to interest  rate  changes  when it sells fixed rate  receivables  on a
variable  rate  basis.  Gains or losses  incurred  with the  closing  of forward
contracts  and interest  rate swaps are included in the net gain or loss on sale
of receivables.

     For the protection of investors,  the  Corporation  may write interest rate
caps  when  fixed  rate  receivables  are sold on a  variable  rate  basis.  The
Corporation  will make payments  under the terms of the written caps if interest
rates exceed  certain  levels.  The written caps are recorded at fair value with
subsequent changes in fair value recognized in income.

New Accounting Standards

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


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


1. SUMMARY OF ACCOUNTING POLICIES (continued)


New Accounting Standards (continued)

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments  and Hedging  Activities,"  to establish  accounting  and  reporting
standards for derivative instruments. This statement requires recognition of all
derivative  instruments in the statement of financial  position as either assets
or  liabilities,  measured  at fair value,  and is  effective  for fiscal  years
beginning after June 15, 1999. This statement  additionally  requires changes in
the fair value of derivatives to be recorded each period in current  earnings or
comprehensive  income,  depending on the intended  use of the  derivatives.  The
Corporation  is currently  assessing the impact of this statement on its results
of operations, financial condition and cash flow.

Reclassification

     Certain  prior year  amounts  have been  reclassified  to conform  with the
presentation used in the 1998 financial statements.


2. TRANSACTIONS WITH AFFILIATED COMPANIES


Wholesale Notes, Wholesale Accounts and Retail Accounts

     In   accordance   with  the   agreements   between  the   Corporation   and
Transportation  relating to financing of wholesale notes, wholesale accounts and
retail accounts, the Corporation receives interest income from Transportation at
agreed upon  interest  rates  applied to the average  outstanding  balances less
interest amounts paid by dealers on wholesale notes and wholesale accounts.  The
Corporation  purchases  wholesale notes and accounts from  Transportation at the
principal amount of the receivables.  Revenue collected from  Transportation was
$67.2 in 1998, $54.7 in 1997 and $49.8 in 1996.

Retail Notes and Lease Financing

     In accordance with agreements  between the Corporation and  Transportation,
Transportation  may be liable for certain losses on the finance  receivables and
may be required to  repurchase  the  repossessed  collateral  at the  receivable
principal value.  Losses recorded by Transportation were $10.7 in 1998, $10.1 in
1997 and $9.5 in 1996.




<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


2. TRANSACTIONS WITH AFFILIATED COMPANIES (continued)


Support Agreements

     Under  provisions  of certain  public and private  financing  arrangements,
agreements  with  Transportation  and Navistar  provide  that the  Corporation's
consolidated  income before interest expense and income taxes will be maintained
at  not  less  than  125%  of  its  consolidated  interest  expense.  No  income
maintenance  payments were required  during the three-year  period ended October
31, 1998.

Administrative Expenses

     The Corporation pays a fee to Transportation  for data processing and other
administrative  services  based on the actual  cost of services  performed.  The
amount of the fee was $2.6 in 1998, $2.1 in 1997 and $2.4 in 1996.

Accounts Payable

     Accounts payable and other liabilities include $136.8 and $131.5 payable to
Transportation at October 31, 1998 and 1997, respectively.


3. INDUSTRY SEGMENTS


     Information by industry segment is summarized as follows:

<TABLE>
<CAPTION>
                                                 1998        1997        1996
-------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>
Revenues:
    Finance operations...................... $  234.3    $  193.5    $  201.6
    Insurance operations....................     41.6        41.4        51.2
      Total revenues........................ $  275.9    $  234.9    $  252.8

Income before taxes:
    Finance operations...................... $   79.2    $   68.6    $   74.2
    Insurance operations....................      6.0         6.0         6.3
      Total income before taxes............. $   85.2    $   74.6    $   80.5

Assets at end of year:
    Finance operations...................... $2,067.0    $1,659.3    $1,626.9
    Insurance operations....................    145.9       151.3       166.9
      Total assets at end of year........... $2,212.9    $1,810.6    $1,793.8
</TABLE>

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


4. MARKETABLE SECURITIES


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

<TABLE>
<CAPTION>
                                              1998                  1997
                                    ------------------------------------------
                                     Amortized     Fair    Amortized     Fair
                                       Cost       Value      Cost       Value
------------------------------------------------------------------------------
<S>                                    <C>      <C>          <C>      <C>
U.S. government and
  agency securities..................  $  21.7  $  23.2      $  26.6  $  27.1
Mortgage and
  asset-backed securities............     38.2     38.7         37.8     38.2
Corporate debt and other securities..     28.4     28.6         30.3     30.1
  Total debt securities..............     88.3     90.5         94.7     95.4

Equity securities....................     15.6     17.5         13.5     18.8
  Total..............................  $ 103.9  $ 108.0      $ 108.2  $ 114.2
</TABLE>

     Net unrealized gains and losses on marketable securities were $4.1 and $6.0
at October 31, 1998 and 1997,  respectively.  Gross  unrealized  losses were not
material.

     Contractual  maturities of marketable  debt  securities at October 31, 1998
are as follows:

<TABLE>
<CAPTION>
                                                         Amortized       Fair
                                                           Cost         Value
------------------------------------------------------------------------------
<S>                                                        <C>        <C>
Due in one year or less...............................     $  12.9    $  12.9
Due after one year through five years.................        13.6       14.2
Due after five years through ten years................        14.1       14.8
Due after ten years...................................         9.5        9.9
                                                                 50.1       51.8
Mortgage- and asset-backed securities.................        38.2       38.7
    Total debt securities.............................     $  88.3    $  90.5
</TABLE>

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

     Proceeds from sales or maturities  of marketable  securities  available for
sale were $50.3  during 1998 and $84.8  during  1997.  The related net  realized
gains were $3.3 and $1.8 in 1998 and 1997, respectively.





<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


4. MARKETABLE SECURITIES (continued)


     All marketable  securities at October 31, 1998 and 1997 were held by Harco,
of which  $12.6 and $14.5,  respectively,  were on deposit  with  various  state
departments of insurance or otherwise restricted as to use.


5. FINANCE RECEIVABLES


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

<TABLE>
<CAPTION>
                                                            1998         1997
------------------------------------------------------------------------------
<S>                                                     <C>          <C>
Retail notes and lease financing......................  $  915.9     $  706.5

Wholesale notes.......................................     224.9         45.7

Accounts:
  Retail..............................................     312.9        396.6
  Wholesale...........................................      70.0         74.4
     Total............................................     382.9        471.0
        Total finance receivables.....................  $1,523.7     $1,223.2
</TABLE>

     Contractual  maturities of finance  receivables  including unearned finance
income at October 31, 1998, are summarized as follows:

<TABLE>
<CAPTION>
                                              Retail    Wholesale    Accounts
------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>
Due in fiscal year:
    1999   ...............................  $  281.6     $  141.7     $ 382.9
    2000   ...............................     242.1         83.2           -
    2001   ...............................     218.7            -           -
    2002   ...............................     174.5            -           -
    2003   ...............................     118.9            -           -
Due after 2003............................      27.9            -           -
       Gross finance receivables..........   1,063.7        224.9       382.9
Unearned finance income...................     147.8            -           -
       Total finance receivables..........  $  915.9     $  224.9     $ 382.9
</TABLE>

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




<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


5. FINANCE RECEIVABLES (continued)


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

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

<TABLE>
<CAPTION>
                                                          1998          1997
------------------------------------------------------------------------------
<S>                                                   <C>           <C>
Retail notes.....................................     $1,445.4      $1,422.2
Wholesale notes..................................        700.0         545.5
     Total.......................................     $2,145.4      $1,967.7
</TABLE>

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

     During fiscal 1998, in two separate sales,  the Corporation sold a total of
$1,001 of retail notes,  net of unearned  finance  income,  through NFRRC to two
individual owner trusts. The owner trusts, in turn, issued securities which were
sold to investors. On August 28, 1998, NFRRC filed a shelf registration with the
Securities  and  Exchange  Commission  which  provides  for the  issuance  of an
additional $2,500 of asset-backed  securities.  The aggregate shelf registration
available to NFRRC for issuance of asset-backed securities is $2,972.

     NFSC has in place a revolving  wholesale  note trust that  provides for the
continuous  sale of eligible  wholesale  notes up to $700.  During  1998, a $100
tranche of  investor  certificates  matured  and NFSC  issued a $200  tranche of
investor certificates. As of October 31, 1998 the trust is comprised of one $100
tranche of investor  certificates  maturing  in 1999 and three $200  tranches of
investor certificates maturing in 2003, 2004 and 2008.






<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


5. FINANCE RECEIVABLES (continued)


     NFRRC and NFSC have  limited  recourse  on the sold  receivables  and their
assets are  available  to satisfy  the claims of their  creditors  prior to such
assets becoming available to the Corporation or affiliated companies.  The terms
of receivable  sales require the  Corporation to maintain cash reserves with the
trusts as credit  enhancement.  The use of cash  reserves  held by the trusts is
restricted  under the terms of the  securitized  sales  agreements.  The maximum
exposure under all receivable  sale recourse  provisions at October 31, 1998 was
$259;  however,  management  believes  the  recorded  reserves  for  losses  are
adequate.

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

<TABLE>
<CAPTION>
                                                                 1998       1997
------------------------------------------------------------------------------
<S>                                                          <C>        <C>
Cash held and invested by trusts..........................   $100.4     $ 90.8
Subordinated retained interests in wholesale receivables..    114.5       99.9
Subordinated retained interests in retail receivables.....     34.9       47.4
Interest only receivables.................................      8.7        7.7
Allowance for credit losses...............................    (12.6)     (12.5)
     Total................................................   $245.9     $233.3
</TABLE>

6. INVESTMENT IN OPERATING LEASES


     Operating leases at year-end were as follows:

<TABLE>
<CAPTION>
                                                               1998       1997
------------------------------------------------------------------------------
<S>                                                          <C>        <C>
Investment in operating leases:
   Vehicles and other equipment, at cost..................   $271.1     $150.0
   Less:  Accumulated depreciation........................    (53.4)     (25.9)
      Net investment in operating leases..................   $217.7     $124.1
</TABLE>

     Future minimum  rentals on operating  leases are as follows:  1999,  $62.8;
2000, $53.7; 2001, $34.7; 2002, $17.7 and $5.4 thereafter.  Each of these assets
is depreciated on a straight-line  basis over the term of the lease in an amount
necessary to reduce the leased  vehicle to its estimated  residual  value at the
end of the lease term.




<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


7. ALLOWANCE FOR LOSSES


     The allowance for losses on receivables is summarized as follows:

<TABLE>
<CAPTION>
                                                       1998     1997     1996
------------------------------------------------------------------------------
<S>                                                   <C>      <C>      <C>
Total allowance for losses at beginning of year.....  $24.5    $24.0    $19.6
Provision for losses................................    0.8      2.5      9.3
Net (losses) recoveries (charged)
   credited to allowance............................    0.1     (2.0)    (4.9)
       Total allowance for losses at end of year....  $25.4    $24.5    $24.0


Allowance pertaining to:
   Owned notes......................................  $12.8    $12.0    $11.6
   Sold notes.......................................   12.6     12.5     12.4
       Total........................................  $25.4    $24.5    $24.0
</TABLE>

8. TAXES ON INCOME


     Taxes on income are summarized as follows:

<TABLE>
<CAPTION>
                                                       1998     1997     1996
------------------------------------------------------------------------------
<S>                                                   <C>      <C>      <C>
Current:
   Federal..........................................  $24.7    $29.6    $26.4
   State and local..................................    3.3      4.1      4.4
       Total current................................   28.0     33.7     30.8

Deferred (primarily Federal)........................    4.3     (4.8)     0.3
       Total........................................  $32.3    $28.9    $31.1
</TABLE>

     The  effective  tax rate of  approximately  38% in each of the three  years
ended October 31, 1998 differs from the statutory United States Federal tax rate
of 35% primarily  because of state and local income  taxes.  Deferred tax assets
and liabilities at October 31 comprised the following:

<TABLE>
<CAPTION>
                                                               1998      1997
------------------------------------------------------------------------------
<S>                                                            <C>       <C>
Deferred tax assets:
   Other postretirement benefits...........................    $2.3      $3.0

Deferred tax liabilities:
   Depreciation and other..................................     5.8       2.2
   Unrealized gains on marketable securities...............     1.5       2.3
       Total deferred tax liabilities......................     7.3       4.5
       Net deferred tax liabilities........................    $5.0      $1.5
</TABLE>


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


9. SHORT-TERM DEBT


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

     Information regarding short-term debt is as follows:

<TABLE>
<CAPTION>
                                                     1998      1997      1996
------------------------------------------------------------------------------
<S>                                                <C>       <C>       <C>
Aggregate obligations outstanding:
   Daily average.................................  $106.1    $109.7    $ 68.2
   Maximum month-end balance.....................   148.8     145.0     117.8

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

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


10. SENIOR AND SUBORDINATED DEBT


     Senior and  subordinated  debt  outstanding  at October 31 is summarized as
follows:
<TABLE>
<CAPTION>
                                                             1998        1997
------------------------------------------------------------------------------
<S>                                                       <C>         <C>
Bank revolving credit facility, at variable
   rates, due March 2001...............................   $  815.0    $  393.0

Funding under asset-backed commercial
   paper program ("ABCP"), at variable
   rates, due March 2001...............................      400.7       399.9

Capital lease obligations, 4.75% to 5.62%,
   due serially through 2004...........................      213.3        95.8

Subordinated term debt:
   Senior Notes, 8 7/8%, due November 1998.............       82.2        94.0
   Senior Notes, 9%, due June 2002.....................      100.0       100.0
        Total senior and subordinated debt.............   $1,611.2    $1,082.7
</TABLE>



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


10.      SENIOR AND SUBORDINATED DEBT (continued)


     The weighted average interest rate on total debt, including short-term debt
and the effect of discounts and related amortization, was 6.4% in 1998 and 1997,
and 6.5% in 1996.  The  aggregate  annual  maturities  and required  payments of
senior and subordinated debt are as follows:

<TABLE>
                   <S>                                          <C>
                   Fiscal year ended October 31

                   1999                                         $  121.3
                   2000                                             47.7
                   2001                                          1,269.0
                   2002                                            141.8
                   2003 and thereafter                              31.4
                      Total                                     $1,611.2
</TABLE>
     At October 31, 1998, the  Corporation  had a $925  contractually  committed
bank  revolving  credit  facility  and a $400 ABCP  program  supported by a bank
liquidity facility. Available funding under the ABCP program is comprised of the
$400 liquidity facility plus $14 of trust certificates issued in connection with
the  formation  of the ABCP trust.  Under the terms of the ABCP  program,  Truck
Retail  Instalment  Paper  Company  ("TRIP"),  a  special  purpose  wholly-owned
subsidiary  of  the  Corporation,   purchases  eligible   receivables  from  the
Corporation.  All  assets  of  TRIP  are  pledged  to a  Trust  that  funds  the
receivables with A1/P1 rated commercial paper.

     Available  funding under the bank  revolving  credit  facility and the ABCP
program  was $124,  of which $22  provided  funding  backup for the  outstanding
short-term  debt at October 31, 1998.  The  remaining  $102 when  combined  with
unrestricted  cash and cash  equivalents made $116 available to fund the general
business purposes of the Corporation at October 31, 1998. Under the terms of the
bank revolving credit facility, the Corporation is required to maintain tangible
net  worth at a minimum  of $175 and a debt to  tangible  net worth  ratio of no
greater  than 7 to 1.  The  bank  revolving  credit  agreement  grants  security
interests in substantially all of the Corporation's  assets to the Corporation's
debtholders.  Compensating  cash  balances  are  not  required  under  the  bank
revolving credit facility. Facility fees are paid quarterly regardless of usage.

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

     During fiscal 1998 and 1997, the  Corporation  entered into  sale/leaseback
agreements  involving  vehicles  subject to retail finance and operating  leases
with end users. The balances are classified  under senior and subordinated  debt
as  capital  lease  obligations.  These  agreements  grant to the  purchasers  a
security interest in the underlying end user leases.




<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


11. POSTRETIREMENT BENEFITS


     Effective   October  31,  1998  the  Corporation   adopted  SFAS  No.  132,
"Employers'  Disclosures About Pensions and Other Postretirement  Benefits." The
information  for 1998,  1997 and 1996 has been presented in conformity  with the
requirements of SFAS No. 132.

     The  Corporation  provides  postretirement  benefits  to a majority  of its
employees.  Costs  associated with  postretirement  benefits include pension and
postretirement  health care  expenses  for  employees,  retirees  and  surviving
spouses and dependents.  In addition,  as part of the 1993  restructured  health
care  and  life  insurance  plans,   profit  sharing  payments  to  the  Retiree
Supplemental Benefit Trust are required.

     Generally, the pension plans are non-contributory. The Corporation's policy
is to fund its  pension  plans  in  accordance  with  applicable  United  States
government regulations.  At October 31, 1998, all legal funding requirements had
been met.

Postretirement Expense

     Net periodic benefit cost included in the Statements of Consolidated Income
is composed of the following:

<TABLE>
<CAPTION>
                                          Pension             Other Benefits
                                  ----------------------  ----------------------
                                   1998    1997    1996     1998    1997    1996
--------------------------------------------------------  ----------------------
<S>                              <C>     <C>     <C>      <C>     <C>     <C>
Service cost for benefits
  earned during the period.......$ 1.0   $ 0.8   $ 0.7    $ 0.4   $ 0.4   $ 0.4
Interest cost on obligation......  3.1     3.0     2.9      0.8     0.9     0.8
Net amortization costs and other.  0.1       -     0.1        -       -       -
Less expected return on assets... (4.7)   (4.0)   (3.6)    (0.7)   (0.5)   (0.5)
Net postretirement
  (income) expense...............$(0.5)  $(0.2)  $ 0.1    $ 0.5   $ 0.8   $ 0.7
</TABLE>

     "Amortization  costs" include  amortization of cumulative  gains and losses
over the expected  remaining  service life of employees and  amortization of the
initial transition  liability over 15 years and amortization of plan amendments.
Plan amendments are recognized over the remaining service life of employees.



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


11. POSTRETIREMENT BENEFITS (continued)


Postretirement Expense (continued)

     The funded  status of the  Corporation's  plans as of October  31, 1998 and
1997  and  a  reconciliation  with  amounts  recognized  in  the  Statements  of
Consolidated Financial Condition are as follows:

<TABLE>
<CAPTION>
                                     Pension Benefits         Other Benefits
                                   --------------------    -------------------
                                     1998        1997        1998        1997
------------------------------------------------------------------------------
<S>                                   <C>        <C>         <C>        <C>
Change in benefit obligation
Benefit obligation at beginning
   of year..........................  $44.0      $38.7       $11.6      $11.2
Service cost........................    1.0        0.8         0.4        0.4
Interest on obligation..............    3.1        3.0         0.8        0.9
Actuarial net loss (gain)...........    6.1        4.0         1.5       (0.7)
Benefits paid.......................   (2.7)      (2.5)       (0.3)      (0.2)
Benefit obligation at end
   of year..........................  $51.5      $44.0       $14.0      $11.6

Change in plan asset
Fair value of plan assets at
   beginning of year................  $50.1      $42.7       $ 4.4      $ 3.9
Actual return on plan assets........    5.3        9.7         0.4        0.2
Employer contribution...............      -          -         2.1        0.4
Benefits paid.......................   (2.4)      (2.3)       (0.2)      (0.1)
Fair value of plan assets at
   year-end.........................  $53.0      $50.1       $ 6.7      $ 4.4

Funded status.......................  $ 1.5      $ 6.1       $(7.3)     $(7.2)
Unrecognized actuarial net
   (gain) loss......................   (1.1)      (6.5)        2.8        1.0
Unrecognized transition amount......    0.1        0.1           -          -
Unrecognized prior service cost.....    0.4        0.4           -          -
Net amount recognized...............  $ 0.9      $ 0.1       $(4.5)     $(6.2)

Amounts recognized in the
   Statements of Consolidated
   Financial Condition
   consists of:
      Prepaid benefit cost..........  $ 2.4      $ 1.7       $   -      $   -
      Accrued benefit liability.....   (3.1)      (1.6)       (4.5)      (6.2)
      Intangible asset..............      -          -           -          -
      Accumulated reduction in
         shareowner's equity........    1.6          -           -          -
            Net amount recognized...  $ 0.9      $ 0.1       $(4.5)     $(6.2)
</TABLE>


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


11. POSTRETIREMENT BENEFITS (continued)


Postretirement Expense (continued)

     The  accumulated  reduction  in  shareowner's  equity  is  recorded  in the
Statement of Financial Condition net of deferred income taxes of $0.6 at October
31, 1998.

     The projected benefit  obligation,  accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated  benefit obligations
in excess of plan assets were $3.3, $3.1, and $0.0, respectively,  as of October
31, 1998, and $2.4, $2.3 and $0.0, respectively, as of October 31, 1997.

     The weighted  average rate  assumptions  used in  determining  expenses and
benefit obligations were:

<TABLE>
<CAPTION>
                                           Pension             Other Benefits
                                    --------------------    -------------------
                                     1998   1997   1996     1998   1997   1996
 ------------------------------------------------------------------------------
<S>                                  <C>    <C>    <C>     <C>    <C>    <C>
    Discount rate used to determine
       present value of benefit
       obligation at year-end....... 6.7%   7.2%   7.9%     7.1%   7.4%   8.1%
    Expected long-term rate of
       return on plan asset for
       the year..................... 9.6%   9.6%   8.9%    10.8%  11.1%  10.5%
    Expected rate of increase in
       future compensation levels... 3.5%   3.5%   3.5%      N/A    N/A    N/A
</TABLE>

     For 1999,  the weighted  average rate of increase in the per capita cost of
covered  health care benefits is projected to be 9.7%.  The rate is projected to
decrease to 5.0% by the year 2005 and remain at that level each year thereafter.
The effect of changing the health care cost trend rate is as follows:

<TABLE>
<CAPTION>
                                               1-Percentage-     1-Percentage-
                                               Point Increase    Point Decrease
-------------------------------------------------------------------------------
<S>                                               <C>              <C>
Effect on total of service and interest cost
   components...................................  $0.2             $(0.2)
Effect on postretirement benefit obligation.....   2.0              (1.7)
</TABLE>



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


12. LEASES

     The Corporation is obligated under non-cancelable  operating leases for the
majority of its office  facilities  and  equipment.  These leases are  generally
renewable and provide that property taxes and  maintenance  costs are to be paid
by the lessee.  At October 31, 1998,  future  minimum  lease  commitments  under
non-cancelable  operating  leases with remaining terms in excess of one year are
as follows:

<TABLE>
             <S>                                               <C>
             Year Ended October 31,
             1999........................................      $ 1.8
             2000........................................        1.4
             2001........................................        0.3
             2002........................................        0.1
             2003........................................        0.1
             Thereafter..................................        0.1
             Total.......................................      $ 3.8
</TABLE>

13. SHAREOWNER'S EQUITY


     The number of authorized shares of capital stock as of October 31, 1998 and
1997, was 2,000,000 of which 1,600,000 shares were issued and  outstanding.  All
of the issued and outstanding  capital stock is owned by  Transportation  and no
shares are  reserved  for officers  and  employees,  or for  options,  warrants,
conversions and other rights.



<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


14. FINANCIAL INSTRUMENTS


Fair Value of Financial Instruments

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

<TABLE>
<CAPTION>
                                             1998                   1997
                                     ------------------------------------------
                                     Carrying     Fair      Carrying     Fair
                                       Value     Value       Amount     Value
-------------------------------------------------------------------------------
<S>                                  <C>        <C>         <C>       <C>
Financial assets:
   Finance receivables:
      Retail notes.................. $  775.3  $  797.6     $  607.0  $  619.0
      Wholesale notes and accounts..    607.8     607.8        516.7     516.7
   Amounts due from sales of
      receivables...................    245.9     243.8        233.3     230.3

Financial liabilities:
   Senior and subordinated debt.....  1,397.9   1,401.4        986.9     990.2
</TABLE>

     The carrying amount of cash and cash equivalents  approximates  fair value.
The cost and fair value of marketable securities are disclosed in Note 4.

     The fair  value of retail  notes is  estimated  by  discounting  the future
contractual cash flows using an estimated discount rate reflecting current rates
paid to purchasers of similar types of receivables with similar credit, interest
rate and  prepayment  risks.  For  wholesale  notes  and  retail  and  wholesale
accounts,  all of which reprice monthly,  the carrying amounts  approximate fair
value as a result of the short-term nature of the receivables.

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

     For fixed rate debt,  the fair value is  estimated  based on quoted  market
prices where available and, where not available, on quoted market prices of debt
with similar characteristics.

     The estimated fair values for all other financial  instruments  approximate
carrying values due to the short-term nature or variable interest terms inherent
in the financial instruments.


<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


14. FINANCIAL INSTRUMENTS (continued)


Derivatives Held or Issued for Purposes Other Than Trading

     The  Corporation  manages its exposure to fluctuations in interest rates by
limiting  the  amount  of fixed  rate  assets  funded  with  variable  rate debt
generally  by  selling  fixed  rate  receivables  on a fixed  rate  basis and by
utilizing   derivative   financial   instruments.   These  derivative  financial
instruments may include forward contracts, interest rate swaps and interest rate
caps.  The fair value of these  instruments  is  subject  to market  risk as the
instruments  may become less  valuable  due to changes in market  conditions  or
interest rates. The Corporation manages exposure to counter-party credit risk by
entering into derivative financial instruments with major financial institutions
that can be expected to fully  perform under the terms of such  agreements.  The
Corporation does not require  collateral or other security to support derivative
financial  instruments with credit risk. The Corporation's  counter-party credit
exposure is limited to the fair value of contracts with a positive fair value at
the reporting  date. At October 31, 1998, none of the  Corporation's  derivative
financial  instruments  had positive fair values.  Notional  amounts are used to
measure the volume of  derivative  financial  instruments  and do not  represent
exposure to credit loss.

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

     As of  October  31,  1998,  outstanding  derivative  financial  instruments
consisted of the following:

<TABLE>
<CAPTION>
                                                   Notional
                                                    Amount         Fair Value
------------------------------------------------------------------------------
<S>                                                <C>                <C>
 Forward interest rate contracts in anticipation of:
 November 1998 sale of retail receivables......    $450               $(5.2)
 May 1999 sale of retail receivables...........    $ 50               $(0.1)
</TABLE>

     Fair values of forward  interest rate  contracts are based on quoted market
prices.  There were no derivative financial  instruments  outstanding at October
31, 1997.



<PAGE>






                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               MILLIONS OF DOLLARS


15. LEGAL PROCEEDINGS


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


16. SUBSEQUENT EVENT


     In  November  1998,  the  Corporation  sold  $545 of retail  notes,  net of
unearned finance income, through NFRRC to a multi-seller asset-backed commercial
paper conduit sponsored by a major financial institution.


17. QUARTERLY FINANCIAL INFORMATION  (unaudited)

<TABLE>
<CAPTION>
                                                     1998
                             --------------------------------------------------
                               1st        2nd        3rd        4th      Fiscal
                             Quarter    Quarter    Quarter    Quarter     Year
-------------------------------------------------------------------------------
<S>                           <C>        <C>        <C>       <C>        <C>
Revenues..................... $62.6      $64.1      $79.3     $69.9      $275.9
Interest expense.............  15.7       20.3       23.2      21.8        81.0
Provision for (recovery of)
  losses on receivables......   0.4        0.8       (2.6)      2.2         0.8
Net income...................  13.4       10.7       17.7      11.1        52.9
</TABLE>

<TABLE>
<CAPTION>

                                                     1997
                             --------------------------------------------------
                               1st        2nd        3rd        4th      Fiscal
                             Quarter    Quarter    Quarter    Quarter     Year
-------------------------------------------------------------------------------
<S>                           <C>        <C>        <C>       <C>        <C>
Revenues..................... $58.1      $57.3      $62.5     $57.0      $234.9
Interest expense.............  14.3       17.2       16.7      17.7        65.9
Provision for loss
  on receivables.............   0.7        0.5        0.3       1.0         2.5
Net income...................  13.4        9.3       13.4       9.6         5.7
</TABLE>




<PAGE>



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

                 Navistar Financial Corporation and Subsidiaries



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



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

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

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




    John J. Bongiorno
    President and Chief Executive Officer




    Phyllis E. Cochran
    Vice President and Controller



<PAGE>




                 Navistar Financial Corporation and Subsidiaries

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

                          Independent Auditors' Report



Navistar Financial Corporation:

We have audited the accompanying  consolidated  financial statements of Navistar
Financial  Corporation and its  subsidiaries as of October 31, 1998 and 1997 and
for each of the three years in the period ended October 31, 1998, listed in Item
8.  These  consolidated  financial  statements  are  the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the  accompanying  consolidated  financial  statements  present
fairly, in all material  respects,  the financial position of Navistar Financial
Corporation and its subsidiaries as of October 31, 1998 and 1997 and the results
of their  operations  and their  cash  flow for each of the  three  years in the
period ended October 31, 1998 in conformity with generally  accepted  accounting
principles.





/s/DELOITTE & TOUCHE LLP
   Deloitte & Touche LLP
   December 14, 1998
   Chicago, Illinois



<PAGE>




                          SUPPLEMENTARY FINANCIAL DATA


                Five Year Summary of Financial and Operating Data

                           Dollar amounts in millions

<TABLE>
<CAPTION>

                                  1998       1997      1996      1995      1994
-------------------------------------------------------------------------------
<S>                           <C>       <C>       <C>       <C>       <C>
Results of Operations:
   Revenues...................$  275.9  $   234.9 $   252.8 $   228.2 $   210.8
   Net income ................    52.9       45.7      49.4      36.2      34.0
   Dividends paid ............    57.0       40.0      26.0       9.0      25.6

   Percent of net income to
      average shareowner's
      equity..................    18.5%     16.1%     18.1%     15.0%     15.1%

Financial Data:
   Finance receivables, net ..$1,510.9  $1,211.2  $1,193.6  $1,370.9  $1,094.0
   Total assets .............. 2,212.9   1,810.6   1,793.8   1,874.7   1,534.8

   Total debt ................ 1,633.0   1,223.7   1,305.8   1,330.3   1,091.5
   Shareowner's equity .......   281.5     287.8     279.7     256.7     225.6

   Debt to equity ratio ......   5.8:1     4.3:1     4.7:1     5.2:1     4.8:1
   Senior debt to capital
      funds ratio.............   3.1:1     2.1:1     3.2:1     3.4:1     3.0:1


Number of employees at
      October 31..............     394       358       352       360       353
</TABLE>

<PAGE>





                    SUPPLEMENTARY FINANCIAL DATA (Continued)



Gross Finance Receivables and Leases Acquired
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
($ Millions)                      1998      1997      1996      1995      1994
-------------------------------------------------------------------------------
<S>                           <C>       <C>       <C>       <C>       <C>
Wholesale notes.............. $3,812.8  $2,772.8  $2,705.8  $2,979.4  $2,306.6

Retail notes and leases:
   New.......................  1,358.0     976.2   1,064.1   1,075.0     861.9
   Used .....................    309.2     270.3     281.7     242.3     217.2
     Total...................  1,667.2   1,246.5   1,345.8   1,317.3   1,079.1

   Total .................... $5,480.0  $4,019.3  $4,051.6  $4,296.7  $3,385.7
</TABLE>



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

At October 31 ($ Millions)        1998      1997      1996      1995      1994
-------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>        <C>       <C>
Original amount of notes
  and leases.................   $ 33.6    $ 31.8    $ 14.0     $ 4.2     $ 3.1
Balance of notes and leases..     16.5      16.2       8.0       2.2       1.3
Balance as a percent of
  total outstanding..........     0.57%     0.64%     0.32%     0.10%     0.07%
</TABLE>



Retail Note and Lease Repossessions (including sold notes)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                  1998      1997     1996       1995      1994
-------------------------------------------------------------------------------
<S>                               <C>       <C>      <C>        <C>       <C>
Retail note and lease repossessions
  acquired as a percentage
  of average serviced retail
  note and lease balances....     2.26%     2.69%    3.08%      0.92%     0.93%
</TABLE>



<PAGE>




                    SUPPLEMENTARY FINANCIAL DATA (Continued)




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

($ Millions)                       1998     1997     1996       1995      1994
-------------------------------------------------------------------------------
<S>                                <C>      <C>      <C>        <C>       <C>

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


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


Percent  net  losses   (recoveries)   to  related   average  gross   receivables
   outstanding:
     Retail notes and leases .....  .01%     .09%     .22%       .02%      .04%
     Wholesale notes ............. (.04)    (.02)    (.02)      (.13)      .03
     Accounts.....................    -        -        -       (.05)      .08
         Total ...................    -      .06%     .14%      (.03)%     .04%
</TABLE>




<PAGE>




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

     None

                                    PART III


 Items 10, 11, 12 and 13

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

                                     PART IV


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

 Financial Statements

     See Index to Financial Statements in Item 8.

 Financial Statement Schedules

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

 Exhibits, Including Those Incorporated By Reference

     See Index to Exhibits.

 Reports on Form 8-K

     No reports on Form 8-K were filed for the three  months  ended  October 31,
1998.


<PAGE>






                                    SIGNATURE




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



                         NAVISTAR FINANCIAL CORPORATION
                                  (Registrant)




    By:  /s/PHYLLIS E. COCHRAN                               December 21, 1998
            Phyllis E. Cochran
            Vice President and Controller
            (Principal Accounting Officer)