<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                   FORM 10-Q
 
(MARK ONE)
 
  [X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 1-6522
 
                            BANKBOSTON CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>  <C>
             MASSACHUSETTS                           04-2471221
    (STATE OR OTHER JURISDICTION OF               (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)
                                     
 
          100 FEDERAL STREET,                           02110
         BOSTON, MASSACHUSETTS                       (ZIP CODE)
    (ADDRESS OF PRINCIPAL EXECUTIVE
                OFFICE)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 434-2200
 
   FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
                            REPORT: NOT APPLICABLE
 
  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  X   No
 
  Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1998:
 
<TABLE>
   <S>                            <C>
   Common Stock, $1.00 par value  294,615,638
</TABLE>
 
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<PAGE>
 
                             BANKBOSTON CORPORATION
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
CONSOLIDATED SELECTED FINANCIAL DATA......................................   3
PART I FINANCIAL INFORMATION
     Management's Discussion and Analysis of Financial Condition and
      Results of Operations...............................................   4
     Financial Statements
     BankBoston Corporation and Subsidiaries
      Consolidated Balance Sheet..........................................  28
      Consolidated Statement of Income....................................  30
      Consolidated Statement of Changes in Stockholders' Equity...........  31
      Consolidated Statement of Cash Flows................................  32
     Notes to Financial Statements........................................  33
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................  45
Item 6. Exhibits and Reports on Form 8-K..................................  45
SIGNATURES................................................................  46
LIST OF TABLES
  Consolidated Average Balance Sheet--Nine Quarters.......................  38
  Consolidated Statement of Income--Nine Quarters.........................  39
  Average Balances and Interest Rates--Quarter............................  40
  Average Balances and Interest Rates--Nine Months........................  42
  Change in Net Interest Revenue--Volume and Rate Analysis................  44
</TABLE>
 
                                       2
<PAGE>
 
                            BANKBOSTON CORPORATION
 
                     CONSOLIDATED SELECTED FINANCIAL DATA
 
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                         1998         1997
                                                        -------      -------
<S>                                                     <C>          <C>
QUARTERS ENDED SEPTEMBER 30
INCOME STATEMENT DATA
Net interest revenue................................... $   625      $   571
Provision for credit losses............................      60           40
Noninterest income.....................................     385          448
Noninterest expense....................................     786          601
Net income.............................................     105          226
Per common share (1)
  Basic................................................     .35          .75
  Diluted..............................................     .35          .73
Market value per common share (1)
  High.................................................     58 11/16     45 7/8
  Low..................................................      33          36 9/16
Return on average common equity........................    8.75%       21.11%
Return on average total assets.........................     .57         1.36
NINE MONTHS ENDED SEPTEMBER 30
INCOME STATEMENT DATA
Net interest revenue................................... $ 1,868      $ 1,807
Provision for credit losses............................     260          160
Noninterest income.....................................   1,431        1,155
Noninterest expense....................................   2,094        1,723
Net income.............................................     585          645
Per common share (1)
  Basic................................................    1.96         2.07
  Diluted..............................................    1.94         2.04
Market value per common share (1)
  High.................................................     58 11/16     45 7/8
  Low..................................................      33          31 13/16
Return on average common equity........................   16.82%       19.56%
Return on average total assets.........................    1.10         1.34
AT SEPTEMBER 30
BALANCE SHEET DATA
Loans and lease financing.............................. $45,747      $42,461
Total assets...........................................  73,834       68,230
Deposits...............................................  46,420       44,655
Total stockholders' equity.............................   4,715        4,382
Book value per common share (1)........................   16.01        14.20
Regulatory capital ratios
 Risk-based capital ratios
  Tier 1...............................................     7.0%         7.8%
  Total................................................    11.3         11.7
 Leverage ratio........................................     6.8          7.2
</TABLE>
--------
(1) All per share information has been adjusted to reflect the Corporation's
    two-for-one stock split, effected in June 1998.
 
                                       3
<PAGE>
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
                             RESULTS OF OPERATIONS
 
                                    GENERAL
 
  This discussion and analysis updates, and should be read in conjunction
with, Management's Discussion and Analysis included in both the previously
filed 1998 Quarterly Reports on Form 10-Q and the 1997 Annual Report to
Stockholders of BankBoston Corporation (the Corporation), which is
incorporated by reference into its 1997 Annual Report on Form 10-K.
 
  The Corporation's net income for the quarter ended September 30, 1998 was
$105 million, compared with net income of $226 million for the third quarter
of 1997. Both net income per common share and diluted net income per common
share were $.35 for the third quarter of 1998, compared with net income per
common share and diluted net income per common share of $.75 and $.73,
respectively, for the third quarter of 1997.
 
  Net income for the first nine months of 1998 was $585 million, compared with
$645 million for the same period in 1997. Net income per common share was
$1.96 and diluted net income per common share was $1.94 for the first nine
months of 1998, compared with net income per common share and diluted net
income per common share of $2.07 and $2.04, respectively, for the same period
in 1997. All quarterly and nine-month per common share amounts reflect the
Corporation's two-for-one stock split which was effected in June 1998.
 
  During the third quarter of 1998, world financial markets experienced
significant volatility resulting from the economic crises in Russia and Asia
and speculation as to the economic future of other markets, such as those in
Latin America. This volatility placed pressure on U.S. capital markets, as
well as international markets, which, in turn, affected the Corporation's
domestic-based capital markets-related businesses, particularly its Boston-
based emerging markets and high yield trading units which generated combined
trading losses of approximately $78 million (approximately $50 million after-
tax or $.17 per common share on a diluted basis), compared with approximately
$16 million in combined trading profits for the same period in 1997. These
losses were offset, in part, by trading profits generated from the derivatives
and foreign exchange trading and sales units which benefited from increased
customer demand arising from the volatile market conditions, as well as by the
combined contribution of the Corporation's Argentine and Brazilian operations.
In the third quarter of 1998, operating income from Argentina and Brazil grew
more than 50 percent from the same period in 1997, mainly due to wider spreads
in Brazil, and to a lesser extent in Argentina, combined with growth in
Argentine loan and lease financing, including the acquisition of Deutsche Bank
Argentina, S.A. (Deutsche Argentina); as well as higher fee income, including
higher deposit, credit card and mutual fund fees from Argentina, and higher
trading profits from Brazil.
 
  In addition, the Corporation continued to explore strategic opportunities
focused on expanding its core businesses, and to explore, on an ongoing basis,
acquisition, divestiture and joint venture opportunities, as well as to
analyze its business investments in the context of customer demands,
competitive advantages, industry dynamics and earnings volatility. On August
31, 1998, the Corporation completed its acquisition from BankAmerica
Corporation of the investment banking operations of Robertson Stephens, which
management expects will strategically position the Corporation to offer
additional equity underwriting, trading and research capabilities to its
customers. Net income for the third quarter and the first nine months of 1998
included costs relating to this acquisition of approximately $80 million
(approximately $51 million after-tax or $.17 per common share on a diluted
basis), primarily reflecting the first installments of Robertson Stephens
bonus payments recorded in connection with the acquisition. Additionally, the
Corporation recorded charges of approximately $50 million (approximately $32
million after-tax or $.11 per common share on a diluted basis) in the third
quarter of 1998 related to a planned 25 percent reduction in staff of the
Emerging Markets Sales, Trading and Research unit; a realignment of its Asian
operations, including the anticipated closing of a representative office in
India and branch offices in Japan, the Philippines and Taiwan; and a writedown
of its 17.5 percent equity investment in Korean Merchant Banking Corporation
(KMBC).
 
 
                                       4
<PAGE>
 
  The uncertainties which prevail in the world financial markets will continue
to be affected by future events such as the timely and effective execution of
economic reforms in various countries; the use of monetary and fiscal policy
by various governments, including the United States; the extension of
financial aid to emerging markets; the political stability in various
countries; and the attitudes of the International Monetary Fund, the U.S. and
other governments and investors. While the ultimate impact of these
uncertainties to the Corporation can not be predicted, management will
continue to monitor these events and manage its businesses to maximize future
results within the parameters of established risk management processes.
 
  The Corporation may from time to time make written or oral statements that
are considered "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may
include financial projections, statements of plans and objectives for future
operations, estimates of future economic performance, and assumptions relating
thereto. The Corporation may include forward-looking statements in its filings
with the Securities and Exchange Commission, including this Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998, in its reports to
stockholders and other written materials, and in statements made by senior
management to analysts, rating agencies, institutional investors,
representatives of the media and others. The following factors, among others,
could cause actual results to differ materially from the results in forward-
looking statements made by the Corporation: significant changes and
developments in world financial markets, particularly in Asia, Russia and
Latin America, and the impact of these changes and developments on U.S.
capital markets and the Corporation's capital markets- related businesses; the
ability of various countries to institute timely and effective economic
reforms; the uses of monetary and fiscal policy by various governments;
changes in the competitive environment for financial services organizations
and the Corporation's responses to these changes; the Corporation's ability
and resources in both its domestic and international operations, such as in
Argentina where multiple initiatives are in process, to execute its
articulated business strategies and manage risks associated with integration
of acquisitions and expansion plans; changes in technology and the successful
allocation of technology resources across multiple projects, including efforts
to address the Year 2000 issue, the business redesign initiative and the
introduction of the euro; and the ability of the Corporation and its
competitors, vendors and customers to respond effectively to the Year 2000
issue. A discussion of additional risks and uncertainties that could cause
actual results to differ from forward-looking statements is included on page
29 of the Corporation's 1997 Annual Report to Stockholders, which is
incorporated by reference into its 1997 Annual Report on Form 10-K. When
relying on forward-looking statements to make decisions with respect to the
Corporation, investors and others are cautioned to consider these and other
risks and uncertainties.
 
            NET INTEREST REVENUE--(FULLY TAXABLE EQUIVALENT BASIS)
 
  This discussion of net interest revenue should be read in conjunction with
Average Balances and Interest Rates and Change in Net Interest Revenue--Volume
and Rate Analysis, presented elsewhere in this report. For this review of net
interest revenue, interest income that is either exempt from federal income
taxes or taxed at a preferential rate has been adjusted to a fully taxable
equivalent basis. This adjustment has been calculated using a federal income
tax rate of 35 percent, plus applicable state and local taxes, net of related
federal tax benefits.
 
  The following table presents a summary of net interest revenue, on a fully
taxable equivalent basis, and related average loans and lease financing and
average earning asset balances and net interest margin for United States and
International operations.
 
                                       5
<PAGE>
 
<TABLE>
<CAPTION>
                                                      1998     1997    CHANGE
QUARTERS ENDED SEPTEMBER 30                          -------  -------  -------
                                                      (DOLLARS IN MILLIONS)
<S>                                                  <C>      <C>      <C>
United States operations
  Net interest revenue.............................. $   413  $   420  $    (7)
  Average loans and lease financing.................  30,450   31,317     (867)
  Average earning assets............................  43,643   41,521    2,122
  Net interest margin...............................    3.75%    4.01%    (.26)%
International operations
  Net interest revenue.............................. $   217  $   157  $    60
  Average loans and lease financing.................  14,619   11,112    3,507
  Average earning assets............................  19,226   16,248    2,978
  Net interest margin...............................    4.47%    3.83%    0.64%
Consolidated
  Net interest revenue.............................. $   630  $   577  $    53
  Average loans and lease financing.................  45,069   42,429    2,640
  Average earning assets............................  62,869   57,769    5,100
  Net interest margin...............................    3.97%    3.96%     .01%
<CAPTION>
                                                      1998     1997    CHANGE
NINE MONTHS ENDED SEPTEMBER 30                       -------  -------  -------
                                                      (DOLLARS IN MILLIONS)
<S>                                                  <C>      <C>      <C>
United States operations
  Net interest revenue.............................. $ 1,265  $ 1,367  $  (102)
  Average loans and lease financing.................  30,364   31,597   (1,233)
  Average earning assets............................  42,307   41,789      518
  Net interest margin...............................    4.00%    4.37%    (.37)%
International operations
  Net interest revenue.............................. $   616  $   455  $   161
  Average loans and lease financing.................  13,964   10,496    3,468
  Average earning assets............................  19,474   15,296    4,178
  Net interest margin...............................    4.23%    3.98%    0.25%
Consolidated
  Net interest revenue.............................. $ 1,881  $ 1,822  $    59
  Average loans and lease financing.................  44,328   42,093    2,235
  Average earning assets............................  61,781   57,085    4,696
  Net interest margin...............................    4.07%    4.27%    (.20)%
</TABLE>
 
  On a consolidated basis, net interest revenue increased approximately $53
million and $59 million in the quarterly and nine-month comparisons,
respectively. These increases were primarily attributable to the Corporation's
international operations, particularly in Brazil and Argentina, as well as
growth in the domestic commercial loan portfolio.
 
  Domestic net interest revenue decreased $7 million in the quarterly
comparison and $102 million in the nine-month comparison. This decrease mainly
reflected the Corporation's divestiture of its National Consumer business;
reduced lending in lower-margin, competitively priced portfolios, including
indirect auto and residential mortgages; funding costs associated with the
Corporation's redemption of its preferred shares in the third quarter of 1998;
as well as funding costs of investments in bank-owned life insurance, the
earnings from which are reflected in noninterest income. This decrease was
partially offset by an increase in the Corporation's domestic commercial loan
portfolio, particularly in the third quarter of 1998. With respect to the
divestiture of
 
                                       6
<PAGE>
 
the National Consumer business, the quarterly comparison reflects a decline
from the Corporation's contribution of its national credit card portfolio,
with aggregate assets of approximately $1.2 billion, to a joint venture in the
first quarter of 1998. The nine-month comparison further reflected the sales
of Ganis Credit Corporation and Fidelity Acceptance Corporation (FAC),
national consumer businesses with aggregate assets of approximately $1.9
billion and a net interest margin impact of approximately 25 basis points.
Both the quarterly and nine-month comparisons reflected an increase in average
earning assets, mainly due to an increase in federal funds sold and securities
purchased under agreements to resell as well as an increase in investment
securities. These increases, however, had little impact on net interest
revenue and net interest margin.
 
  International net interest revenue increased $60 million in the quarterly
comparison and $161 million in the nine-month comparison. These increases
primarily reflected aggregate growth in average loans and leases from
Argentine and Brazilian operations of approximately $3.0 billion in the
quarterly comparison and $2.8 billion in the nine-month comparison. This
growth included the acquisition of Deutsche Argentina. Net interest margin
improved in both comparisons primarily due to wider spreads in Brazil, and to
a lesser extent in Argentina, which resulted from balance sheet positioning
and interest rate strategies that benefited from volatility in local markets
caused primarily by recent world economic events.
 
  The Corporation expects continued pressure on its domestic margin caused, in
part, by the decline in U.S. interest rates. However, the Corporation
anticipates that this pressure will be somewhat mitigated by short-term
opportunities in international operations, particularly in Brazil, to benefit
from local market volatility arising from recent world economic events. Future
levels of net interest revenue and margin will be affected by competitive
pricing pressure on retail deposits, loans and other products; the mix and
volume of assets and liabilities; the interest rate environment; the economic
and political conditions in the countries where the Corporation does business;
and other factors. As such, there can be no assurance as to the level of the
Corporation's future net interest revenues or net interest margins.
 
                          PROVISION FOR CREDIT LOSSES
 
  The provision for credit losses was $60 million in the third quarter of
1998, compared with $40 million in the third quarter of 1997. In the first
nine months of 1998, the provision for credit losses was $260 million,
compared with $160 million in the first nine months of 1997. The provision for
credit losses reflects management's assessment of the adequacy of the reserve
for credit losses, considering the current risk characteristics of the loan
portfolio and economic conditions. The level of provision in the first nine
months of 1998 included the impact of events in the International Private Bank
in the first quarter of 1998, as discussed in the section entitled "Reserve
for Credit Losses," as well as concern as to economic events in Asia,
particularly in Indonesia in the first quarter of 1998. The amount of future
provisions will continue to be a function of management's assessment of risks
based upon its quarterly review of the reserve for credit losses. These risks
include the longer-term impact of continued economic instability in world
financial markets and the status of adoption of necessary economic reforms in
various countries. Due to the economic volatility which has continued into the
fourth quarter of 1998, management currently expects increased pressure on the
ability of certain customers to repay their debts to the Corporation which
could, in turn, result in increased provisions. As such, there can be no
assurance as to the level of future provisions. See the "Reserve for Credit
Losses" section for discussion of the reserve for credit losses and net credit
losses.
 
                                       7
<PAGE>
 
                              NONINTEREST INCOME
 
  The following table presents the components of noninterest income.
 
<TABLE>
<CAPTION>
                                          THIRD QUARTER        NINE MONTHS
                                         ----------------- ---------------------
                                         1998  1997 CHANGE  1998    1997  CHANGE
                                         ----  ---- ------ ------  ------ ------
                                                     (IN MILLIONS)
<S>                                      <C>   <C>  <C>    <C>     <C>    <C>
Financial service fees
  Deposit and ATM-related fees.........  $ 78  $ 69  $  9  $  224  $  189  $ 35
  Letter of credit and acceptance
   fees................................    21    19     2      59      53     6
  Syndication and agent fees...........    17    22    (5)     51      60    (9)
  Other loan-related fees..............    11    11            33      29     4
  Advisory, brokerage and underwriting
   fees................................    42    12    30      75      29    46
  Other financial service fees.........    52    35    17     133     102    31
                                         ----  ----  ----  ------  ------  ----
    Total financial service fees.......   221   168    53     575     462   113
Mutual fund fees.......................    33    29     4      95      81    14
Personal trust fees....................    40    37     3     122     107    15
Other trust and agency fees............     9     7     2      27      20     7
Trading profits and commissions........   (52)   20   (72)    (22)     67   (89)
Securities portfolio gains, net........    17    11     6      53      52     1
Net equity and mezzanine profits.......    54    61    (7)    190     153    37
Net foreign exchange trading profits...    35    18    17      96      57    39
Writedown on Korean equity investment..   (20)        (20)    (20)          (20)
Gain on sale of FAC....................          68   (68)             68   (68)
Gain on sale of HomeSide, Inc. ........                       165           165
Other income...........................    48    29    19     150      88    62
                                         ----  ----  ----  ------  ------  ----
    Total..............................  $385  $448  $(63) $1,431  $1,155  $276
                                         ====  ====  ====  ======  ======  ====
</TABLE>
 
  Financial service fees increased $53 million in the quarterly comparison and
$113 million in the nine-month comparison. In both comparisons, the increase
in deposit and ATM-related fees was mainly due to higher deposit fees from
Argentine operations as well as the repricing of certain domestic products.
The increase in advisory, brokerage and underwriting fees in both comparisons
was generated through expansion of the capital markets businesses, including
approximately $20 million contributed by the acquired operations of Robertson
Stephens during September 1998. In the quarterly and nine-month comparisons,
other financial service fees increased, in part, due to higher credit card
fees from Argentine operations and the third quarter 1998 acquisition of the
OCA companies (OCA), a group of related companies forming the largest credit
card and consumer finance business in Uruguay.
 
  Mutual fund fees increased in the quarterly and nine-month comparisons,
primarily due to growth in mutual fund assets under management by Argentina
and the Private Bank. Personal trust fees also increased, mainly from growth
in domestic personal trust assets under management.
 
  In the quarterly and nine-month comparisons, trading profits and commissions
declined, primarily due to trading losses of approximately $78 million
incurred in the third quarter of 1998 by the Boston-based emerging markets and
high yield trading units, and offset partially by trading profits achieved by
other businesses, including the derivatives trading and sales unit as well as
Brazilian operations, which generated combined trading profits of
approximately $24 million. The trading losses reflected the high level of
volatility in world financial markets arising from the economic crises in
Russia and Asia and speculation as to the economic future of Latin American
markets, as well as the recent illiquidity in the domestic high yield bond
market. Net foreign exchange trading profits increased in the quarterly and
nine-month comparisons because of increased product demand, mainly arising
from the same volatile market conditions noted above.
 
                                       8
<PAGE>
 
  Compared with the third quarter of 1997, net equity and mezzanine profits
generated by the Corporation's Private Equity business declined slightly. In
the nine-month comparison, these profits reflected the strong performance of
the Private Equity business in the second quarter of 1998. As of September 30,
1998, the carrying value of the Private Equity portfolio was approximately
$1.3 billion, compared with approximately $.9 billion as of September 30,
1997.
 
  The Corporation's capital markets-related businesses, including the Private
Equity business, are particularly sensitive to market and economic conditions.
As such, with the continued level of uncertainty in financial markets,
management expects the profits of these businesses to remain under pressure.
 
  The third quarter of 1998 included a revaluation of the Corporation's 17.5
percent equity investment in KMBC, reflecting deterioration of that company's
financial condition resulting from the decline in the Korean economy.
 
  The nine-month comparison included a pre-tax gain from the first quarter
1998 sale of the Corporation's 26 percent interest in HomeSide, Inc., an
independent mortgage banking company. The growth in other income included
earnings on the Corporation's investment in bank-owned life insurance of
approximately $12 million in the quarterly comparison and $39 million in the
nine-month comparison, the funding costs of which contributed to a
corresponding decline in domestic net interest margin as previously discussed.
Both comparisons also reflected gains from the sales of various loans, as well
as the absence of an $11 million charge related to interest rate futures
contracts that had been used to hedge the funding of FAC, which was sold in
the third quarter of 1997.
 
                              NONINTEREST EXPENSE
 
  The following table presents the components of noninterest expense.
 
<TABLE>
<CAPTION>
                                           THIRD QUARTER       NINE MONTHS
                                          ---------------- --------------------
                                          1998 1997 CHANGE  1998   1997  CHANGE
                                          ---- ---- ------ ------ ------ ------
                                                      (IN MILLIONS)
<S>                                       <C>  <C>  <C>    <C>    <C>    <C>
Employee costs........................... $449 $318  $131  $1,170 $  939  $231
Occupancy and equipment..................   99   86    13     289    260    29
Professional fees........................   29   14    15      75     38    37
Advertising and public relations.........   30   25     5      84     73    11
Communications...........................   33   29     4      94     83    11
Amortization of goodwill.................   10    6     4      26     21     5
Other....................................  136  123    13     356    309    47
                                          ---- ----  ----  ------ ------  ----
  Total.................................. $786 $601  $185  $2,094 $1,723  $371
                                          ==== ====  ====  ====== ======  ====
</TABLE>
 
  In the quarterly and nine-month comparisons, the increase in noninterest
expense was primarily driven by growth and investment spending in Latin
America, including the acquisitions of Deutsche Argentina and OCA and the
branch expansion programs in Brazil and Argentina; and ongoing initiatives to
build the Corporation's various Wholesale Banking businesses, including the
acquisition of Robertson Stephens and the expansion of other capital markets
capabilities.
 
  In connection with the abovementioned acquisition of Robertson Stephens, the
Corporation recorded costs of approximately $80 million, primarily reflecting
the first installments of Robertson Stephens bonus payments recorded in
connection with the acquisition. In addition, the Corporation recorded charges
of approximately $30 million in the third quarter of 1998 related to a planned
25 percent reduction in staff of the Emerging Markets Sales, Trading and
Research unit, as well as a realignment of its Asian operations, including the
closing of offices in India, Japan, the Philippines and Taiwan. These charges
consisted of anticipated employee severance costs, costs of terminating
existing long-term lease obligations and other business contract losses.
 
                                       9
<PAGE>
 
  In addition to the growth in noninterest expenses as described above, the
quarterly and nine-month comparisons included costs incurred in connection
with the New England Regional Consumer business, including the merger of Rhode
Island Hospital Trust National Bank into BankBoston, N.A. and the redesign
project, the final results of which are being integrated into the
Corporation's business planning process. In both comparisons, these costs were
offset partially by the Corporation's divestiture of its National Consumer
business, as well as the absence of 1997 charges related to the integration of
BayBanks and the merger of Bank of Boston Connecticut into BankBoston, N.A.
The nine-month comparison also reflected higher incentive compensation
consistent with the strong year-to-date performance of various businesses, as
well as costs incurred in connection the realignments of the Corporation's
European operations and the Private Bank.
 
                          PROVISION FOR INCOME TAXES
 
  The provision for income taxes was $59 million in the third quarter of 1998,
compared with $152 million in the third quarter of 1997. For the first nine
months of 1998, the provision for income taxes was $360 million, compared with
$434 million for the first nine months of 1997. The decrease in the provision
resulted from lower taxable income in the third quarter of 1998. The
Corporation's effective tax rates were 36 percent and 38 percent in the third
quarter and the first nine months of 1998, respectively. In both the third
quarter and first nine months of 1997, the effective tax rate was 40 percent.
The decrease in the effective tax rates was primarily attributable to a change
in the mix of the Corporation's tax base.
 
                              FINANCIAL CONDITION
                          CONSOLIDATED BALANCE SHEET
 
  At September 30, 1998, the Corporation's total assets were $73.8 billion,
reflecting a $4.5 billion increase from total assets of $69.3 billion at
December 31, 1997. This increase was mainly attributable to a $2.0 billion
increase in available for sale securities, particularly U.S. government agency
mortgage-backed securities and foreign debt securities; a $1.8 billion
increase in total loans and lease financing, principally from growth in the
domestic commercial loan portfolio and Argentine operations, including the
acquisition of Deutsche Argentina; and a $2.3 billion increase in other
assets. The increase in other assets included goodwill from the 1998
acquisitions of Deutsche Argentina, Robertson Stephens and OCA; an increase in
the Corporation's investment in bank-owned life insurance; an increase in an
equity investment in a joint venture to which the Corporation contributed
certain lease financing assets in the second quarter of 1998; and an increase
in investments in limited partnerships by the Private Equity business.
 
  The Corporation's carrying value of its available for sale portfolio
reflected $28 million of pre-tax net unrealized appreciation at September 30,
1998. This net unrealized appreciation included $136 million of pre-tax net
unrealized appreciation related to U.S. Treasury and government agency
securities, substantially offset by $129 million of pre-tax net unrealized
depreciation related to foreign debt securities, including emerging markets
securities held in the Corporation's domestic-based portfolio. The potential
for and timing of a recovery in the value of the Corporation's foreign debt
securities, as well as the valuations of other securities in the portfolio,
will be a function of market and economic conditions, which continue to be
volatile.
 
  The increase in assets was primarily funded by increases in interest bearing
deposits, other funds borrowed and notes payable. Notes payable increased
approximately $1.5 billion from December 31, 1997, mainly due to the issuance
of $.5 billion of subordinated debt by BankBoston, N.A. and $1.2 billion of
senior medium-term notes by the Corporation, partially offset by the maturity
of $.1 billion of floating rate notes and $.1 billion of senior medium-term
notes originally issued by the Corporation.
 
  In June 1998, in anticipation of the Corporation's redemption of its
preferred stock, a wholly-owned trust of the Corporation issued $250 million
of capital securities and invested the proceeds in junior subordinated debt
issued by the Corporation. See Note 6 of the Financial Statements for further
discussion regarding these securities. In July 1998, the Corporation redeemed
all of its remaining preferred stock, including its adjustable
 
                                      10
<PAGE>
 
rate cumulative preferred stock, Series A, Series B and Series C, and its
fixed rate cumulative preferred stock, Series F, for a total redemption value
of $278 million, which equaled the aggregate carrying value of the preferred
stock.
 
  At the Corporation's annual meeting held on April 23, 1998, the
Corporation's stockholders approved an increase in the number of authorized
shares of common stock from 300 million shares to 500 million shares, and a
change in the par value of such stock from $1.50 to $1.00 per share. On that
same date, the Corporation's Board of Directors (the Board) also approved a
two-for-one stock split executed in the form of a stock dividend of one share
for every share held. Average common shares outstanding, per common share data
and stock options used for earnings per share computations for all periods
shown have been adjusted to reflect the impact of the stock split, which was
effected on June 22, 1998.
 
  In October 1998, the Board declared a quarterly dividend of $.29 per share
of common stock, payable on November 27, 1998 to shareholders of record on
November 2, 1998. The future level of dividends paid on the Corporation's
common stock will continue to be determined by the Board based on the
Corporation's liquidity, asset quality profile, capital adequacy and recent
earnings history, as well as economic conditions and other factors that the
Board deems relevant.
 
  The Corporation's tangible common equity and common equity to total assets
ratios were 5.4 percent and 6.4 percent, respectively, at September 30, 1998,
compared with 5.8 percent and 6.3 percent, respectively, at December 31, 1997.
The Corporation's Tier 1 and total capital ratios were 7.0 percent and 11.3
percent, respectively, at September 30, 1998, compared with 8.0 percent and
12.1 percent, respectively, at December 31, 1997. The Corporation's leverage
ratio at September 30, 1998 was 6.8 percent, compared with 7.4 percent at
December 31, 1997. The ratios at September 30, 1998 decreased from December
31, 1997 primarily as a result of the Corporation's acquisitions of Deutsche
Argentina, Robertson Stephens and OCA.
 
  The Corporation has a capital planning process that is designed to maintain
appropriate regulatory capital levels and ratios. As of September 30, 1998,
the Corporation and its bank subsidiaries met all capital adequacy
requirements to which they are subject.
 
                                RISK MANAGEMENT
 
  The Corporation has a risk management process in place for the
identification, measurement, monitoring and control of the risks inherent in
its business, including credit, liquidity, market, transaction, strategic,
compliance, reputation and transfer risks.
 
  Two significant transitory risks that impact these primary risk factors
include the Year 2000 issue and the introduction of the euro, a unified
currency scheduled for adoption by participating European countries on January
1, 1999.
 
                                   YEAR 2000
 
  The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Readiness and Disclosure Act of
1998.
 
  The Corporation has an extensive worldwide program in place to address its
exposure to the Year 2000 issue. This program is designed to assess,
prioritize, correct, monitor and report on certain key elements of the
project, including application systems; technical infrastructure, including
the hardware through which applications operate, networking services,
telecommunications and desktop technology; non-technology systems, including
equipment with embedded chip technology and physical and environment
infrastructure such as security systems; customers; wholesale fund providers,
including various governments; counterparties in treasury and capital markets
contracts; and vendors and service providers, including facilities management,
utilities and telecommunications suppliers and software vendors.
 
                                      11
<PAGE>
 
  The key elements of the Corporation's Year 2000 program have progressed
through the following phases:
 
  .  AWARENESS PHASE--the development of a comprehensive awareness strategy
     and structure for managing the project.
 
  .  INVENTORY PHASE--the identification of a comprehensive inventory,
     including application systems, technical infrastructure and non-
     technology components, that could be impacted by the Year 2000 issue.
 
  .  ASSESSMENT PHASE--the creation of detailed action plans to mitigate Year
     2000 risks associated with the inventoried items. These plans include
     timetables and resource requirements that reflect the items' potential
     impact on the Corporation's business and operations.
 
  .  REMEDIATION PHASE--the execution of action plans that include code
     enhancements and changes in application design, as well as software,
     hardware and non-technology component upgrades or replacements.
 
  .  CERTIFICATION PHASE--the execution of a pre-defined process by cross-
     functional teams, including business unit partners, in an effort to
     ensure that application systems, technical infrastructure and non-
     technology components meet specific Year 2000 certification
     requirements.
 
  .  READINESS TESTING PHASE--the testing of critical interdependencies
     between internal systems and business processes and third party
     technology interfaces using defined plans in an effort to ensure that
     certain requirements are met for the Year 2000. Integration testing
     focuses on internally dependent application systems, technology
     infrastructure and business processes. External testing focuses on
     critical technology interfaces with external service providers and
     customers from retail, wholesale and fiduciary activities.
 
  The Awareness, Inventory and Assessment phases were substantially completed
by early 1998. Remediation is expected to be largely complete for all
application systems, technical infrastructure and non-technology components by
the end of 1998, followed by the Certification phase which is expected to be
largely completed by the end of the first quarter of 1999. The Readiness
Testing phase began in the third quarter of 1998 and will continue through
mid-1999.
 
  The Corporation's Year 2000 initiative with respect to its customers,
wholesale fund providers, counterparties, vendors and service providers has
followed a strategy of identification, risk assessment, continuous monitoring
and education, and contingency planning. Critical third parties have been
identified. Risk assessments of credit customers, wholesale fund providers and
treasury and capital markets counterparties have been performed using
structured questionnaires combined with evaluations of potential monetary
impact on the Corporation. As of September 30, 1998, the Corporation had
largely assessed its exposure to credit customers, wholesale fund providers
and capital markets and treasury counterparties. The results of these efforts
have been incorporated into the Corporation's risk management processes,
including credit customer risk ratings. Additionally, strategies have been
developed to limit liquidity and settlement exposures. Although the
Corporation has inventoried and rated the importance of a substantial number
of its vendors and service providers, it is currently unable to predict the
final readiness of its critical vendors and service providers. Management
expects this element of the Corporation's Year 2000 program to remain
challenging due to the complexities of vendor and service provider management.
The Corporation will continue to educate its critical third parties on Year
2000 issues; to monitor their readiness and assess their potential impact on
the Corporation; and to develop the necessary contingency plans.
 
  The Corporation expects to successfully complete its Year 2000 program in a
timely and effective manner that mitigates risk. However, the Corporation is
subject to risks and uncertainties due to the uniqueness of the Year 2000
issue; the significant interdependencies in business and financial markets and
the range of activities and events outside of the Corporation's control; as
well as the challenges created by recent acquisitions (i.e. Deutsche
Argentina, Robertson Stephens and OCA), including their integration into the
Corporation's Year 2000
 
                                      12
<PAGE>
 
program and the additional pressures placed on technology resources. Those
risks and uncertainties could result in service delays, inaccurate and
untimely information processing, funding delays, contract settlement and
counterparty failures, increased credit losses, and reputation risk. Because
the Corporation is still undergoing its certification and readiness testing
and monitoring the status and potential impact of third parties, the
Corporation is unable to predict with any certainty the extent of Year 2000
failures that could result, nor quantify the potential adverse effect that
such failures could have on the Corporation's results of operations,
liquidity, and financial condition. In addition to the previously discussed
initiatives, the Corporation is developing business resumption, remediation
and event contingency plans to prepare for potential systems failures at
critical dates, failures of critical third parties to effectively remediate
and certify their technologies, as well as any other unanticipated events that
could arise with the date change. The development of these plans includes the
identification of core business processes, critical to the Corporation's
business and operations, and an assessment of failure scenarios. These plans
will be subject to independent review by external consultants. The Corporation
expects that its contingency planning for the Year 2000 issue will be
substantially complete by the end of June 1999.
 
  The Corporation continues to expect that its total incremental costs of
managing its Year 2000 risks, including costs already incurred, will be
between $50-$75 million. The Corporation has not incurred, and is not likely
to incur, project costs that are material to any reporting period. The
majority of remaining costs are expected to be directed to the testing phase
as well as final efforts to mitigate both currently known and subsequently
discovered risks. Throughout the remainder of the project, the Corporation
will also continue to allocate internal resources to address the Year 2000
issue.
 
  Additional information with respect to the Year 2000 issue and the
Corporation's program to address this issue is included on page 37 of its 1997
Annual Report to Stockholders, which is incorporated by reference into its
1997 Annual report on Form 10-K.
 
  The Corporation's estimated costs and expected timetables made with respect
to its Year 2000 initiative represent forward-looking statements that could
differ materially from actual results due to changes in assumptions as the
program evolves and new information becomes available; the impact of recent
acquisitions; the Corporation's ability and resources to effectively execute
its Year 2000 program; the impact of external market pressures on technology
resources; the status of efforts by critical third parties to mitigate Year
2000 risks; and the extent to which unanticipated issues arise late in the
project.
 
                           INTRODUCTION OF THE EURO
 
  A cross-functional project team has been created to address the operational,
business and system issues arising from the introduction of the euro on
January 1, 1999. This introduction could impact a number of the Corporation's
products and services to global customers, particularly with respect to asset
management, cash management, treasury and payment activities. The euro project
has been progressing according to schedule. The Corporation anticipates that
its remaining efforts to address this issue will continue to progress in a
timely manner, and that its programs will result in effective management of
risks associated with the euro's introduction. However, there can be no
assurance that the currency's introduction will not have any adverse impact on
the Corporation, especially considering the interdependencies in global
financial markets. The Corporation has not incurred, nor does it expect to
incur, material costs in implementing this project.
 
                            CREDIT RISK MANAGEMENT
 
  Credit risk is defined as the risk of loss from a counterparty's failure or
inability to meet the payment or performance terms of a contract with the
Corporation. The Corporation's risk management process includes the management
of all forms of credit risk, including balance sheet and off-balance sheet
exposures. A discussion of the Corporation's credit risk management policies
is included on pages 37 and 38 of its 1997 Annual Report to Stockholders,
which is incorporated by reference into its 1997 Annual Report to Stockholders
on Form 10-K.
 
                                      13
<PAGE>
 
                                CREDIT PROFILE
 
  The components of the lending portfolio are as follows:
 
<TABLE>
<CAPTION>
                                   SEPT. 30  JUNE 30  MARCH 31  DEC. 31  SEPT. 30
                                     1998     1998      1998     1997      1997
                                   --------  -------  --------  -------  --------
                                                 (IN MILLIONS)
<S>                                <C>       <C>      <C>       <C>      <C>
United States operations
  Commercial, industrial and
   financial...................... $18,218   $16,275  $15,887   $15,268  $15,062
  Commercial real estate
    Construction..................     209       219      260       271      317
    Other.........................   4,089     3,876    3,736     4,211    3,845
  Consumer-related loans
    Residential mortgages.........   2,111     2,229    2,551     2,570    2,720
    Home equity loans.............   2,672     2,871    2,802     2,823    2,952
    Credit card...................     393       412      503     1,756    1,596
    Other.........................   2,693     2,753    2,801     2,956    3,118
  Lease financing.................   1,607     1,609    2,017     1,938    1,880
  Unearned income.................    (231)     (232)    (303)     (302)    (293)
                                   -------   -------  -------   -------  -------
                                    31,761    30,012   30,254    31,491   31,197
                                   -------   -------  -------   -------  -------
International operations
  Commercial and industrial.......   9,320     9,065    9,322     8,826    7,998
  Banks and financial
   institutions...................     835       696      766       860      729
  Governments and official
   institutions...................      73        82      102        95       94
  Consumer related
    Residential mortgages.........   1,383     1,318    1,302       947      893
    Credit card...................     339       248      226       182      155
    Other.........................   1,164     1,087      987       828      678
Lease financing...................     652       519      517       452      345
All other.........................     408       375      492       378      440
Unearned income...................    (188)     (148)    (146)      (79)     (68)
                                   -------   -------  -------   -------  -------
                                    13,986    13,242   13,568    12,489   11,264
                                   -------   -------  -------   -------  -------
      Total loans and lease
       financing.................. $45,747   $43,254  $43,822   $43,980  $42,461
                                   =======   =======  =======   =======  =======
</TABLE>
 
  Total loans and lease financing increased approximately $1.8 billion from
December 31, 1997, reflecting a $.3 billion increase in the domestic loan and
lease financing portfolio and a $1.5 billion increase in the international
loan and lease financing portfolio. The increase in the domestic portfolio
included a $2.9 billion increase in commercial, industrial and financial
loans, offset, in part, by a $2.2 billion decrease in consumer-related loans.
The increase in domestic commercial, industrial and financial loans was mainly
attributable to growth in a number of the special industry portfolios,
including Media and Telecommunications, Energy and Utilities, and
Environmental Services, as well as growth in the Asset Based Finance and
Diversified Finance portfolios. The decrease in consumer-related loans was
primarily due to the first quarter 1998 contribution of the Corporation's
national credit card portfolio of approximately $1.2 billion to a newly formed
national credit card venture, as well as a securitization of home equity loans
of approximately $.4 billion early in the third quarter of 1998 and continuing
reductions in residential mortgage and indirect auto loan balances. The
increase in international loans and lease financing, particularly in the
commercial and industrial and consumer-related loan portfolios, was primarily
driven by growth in Argentine portfolios, including the acquisition of
Deutsche Argentina. The international credit card portfolio also grew, in
part, due to the acquisition of OCA.
 
  The Corporation's total loan portfolio at September 30, 1998 and December
31, 1997 included $1.2 billion and $1.6 billion of highly leveraged
transaction (HLT) loans to 116 and 129 customers, respectively. The average
 
                                      14
<PAGE>
 
HLT loan size at September 30, 1998 and December 31, 1997 was approximately
$10.2 million and $12.0 million, respectively. The amount of unused
commitments for HLT's at September 30, 1998 was $.6 billion, compared with
$1.2 billion at December 31, 1997. The amount of unused commitments does not
necessarily represent the actual future funding requirements of the
Corporation, since a portion can be syndicated or assigned to others or may
expire without being drawn upon. At September 30, 1998, the Corporation had
one nonaccrual HLT loan of approximately $5 million. There were no nonaccrual
HLT loans at December 31, 1997. In addition, there was one credit loss of
approximately $7 million from HLT loans in the third quarter of 1998. There
were no credit losses from HLT loans in the same quarter of 1997.
 
  A discussion of the Corporation's HLT lending activities and policies, and
the effect of these activities on results of operations, is included on page
39 of its 1997 Annual Report to Stockholders, which is incorporated by
reference into its 1997 Annual Report to Stockholders on Form 10-K.
 
                           NONACCRUAL LOANS AND OREO
 
  The details of consolidated nonaccrual loans and OREO are as follows:
 
<TABLE>
<CAPTION>
                                    SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
                                      1998    1998     1998    1997     1997
                                    -------- ------- -------- ------- --------
                                              (DOLLARS IN MILLIONS)
<S>                                 <C>      <C>     <C>      <C>     <C>
United States
  Commercial, industrial and
   financial.......................   $ 71    $ 63     $ 43    $ 59     $ 68
  Commercial real estate
    Construction...................      2       2        3       3        4
    Other..........................     30      33       41      40       44
  Consumer-related
    Residential mortgages..........     36      42       46      50       51
    Home equity....................     18      15       15      14       26
    Credit card....................      6       6        6      26       22
    Other..........................     21      18       20      20       23
                                      ----    ----     ----    ----     ----
                                       184     179      174     212      238
                                      ----    ----     ----    ----     ----
International
  Commercial and industrial........    103     107       97      64       58
  Consumer-related
    Residential mortgages..........     39      36       34      28       31
    Credit card....................      7       6        4       4        3
    Other..........................     33      26       18      12        7
                                      ----    ----     ----    ----     ----
                                       182     175      153     108       99
                                      ----    ----     ----    ----     ----
    Total nonaccrual loans.........    366     354      327     320      337
OREO...............................     29      28       42      36       50
                                      ----    ----     ----    ----     ----
    Total..........................   $395    $382     $369    $356     $387
                                      ====    ====     ====    ====     ====
Nonaccrual loans and OREO as a
 percent of related asset
 categories........................    0.9%    0.9%     0.8%    0.8%     0.9%
</TABLE>
 
  Total nonaccrual loans and OREO at September 30, 1998 increased $39 million
from December 31, 1997, reflecting an increase in international nonaccrual
loans of $74 million, offset, in part, by a decrease in domestic nonaccrual
loans of $28 million. The increase in international nonaccrual loans was
primarily related to growth in Argentine and Indonesian nonaccrual loans of
approximately $44 million and $22 million, respectively. The increase in
Argentine nonaccrual loans reflected growth in Argentine loan portfolios,
including the acquisition of Deutsche Argentina. The increase in Indonesian
nonaccrual loans reflected Indonesia's continued economic difficulties. The
decrease in domestic nonaccrual loans reflected a $20 million decrease in
credit card nonaccrual loans and an $14 million decrease in residential
mortgage nonaccrual loans, resulting from the Corporation's
 
                                      15
<PAGE>
 
contribution of its national credit card portfolio to a new national credit
card venture in the first quarter of 1998 and reductions in residential
mortgage lending, respectively.
 
  In addition, the Corporation holds in available for sale securities
approximately $50 million of commercial paper of an international customer, on
which earnings are not being recognized.
 
  The level of nonaccrual loans and leases and OREO is influenced by the
economic environment, including interest rate trends and economic stability
and other internal and external factors. As such, no assurance can be given as
to future levels of nonaccrual loans and leases and OREO; however, sustained
volatility in world financial markets could result in future increases in the
level of nonaccrual loans.
 
                           RESERVE FOR CREDIT LOSSES
 
  The Corporation determines the level of its reserve for credit losses
considering evaluations of individual credits, net losses charged to the
reserve, changes in quality of the credit portfolio, levels of nonaccrual
loans and leases, current economic conditions, cross-border risks, changes in
size and character of the credit risks and other pertinent factors. The credit
risk of off-balance-sheet exposures is managed as part of the overall
extension of credit to individual customers and is considered in assessing the
overall adequacy of the reserve for credit losses. The amount of the reserve
for credit losses associated with off-balance-sheet exposures is not
significant. The amount of the reserve for credit losses is reviewed by
management quarterly.
 
  The reserve for credit losses at September 30, 1998 was $740 million,
compared with $712 million at December 31, 1997. At both periods, the reserve
for credit losses represented 1.62 percent of outstanding loans and lease
financing. The reserve for credit losses was 202 percent of nonaccrual loans
and leases at September 30, 1998, compared to 222 percent at December 31,
1997. The future level of the reserve for credit losses will continue to be a
function of management's evaluation of the Corporation's credit exposures
existing at the time, which will be affected by future events and general
economic conditions in the United States, Latin America, Asia and various
other overseas markets; the impact of the Corporation's strategic decisions on
various credit portfolios; and the potential impact that the Year 2000 issue
could have on the ability of the Corporation's customers to repay their
obligations. Therefore, no assurance can be given as to future levels of the
reserve.
 
  Net credit losses were as follows:
 
<TABLE>
<CAPTION>
                                     SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
                                       1998    1998     1998    1997     1997
                                     -------- ------- -------- ------- --------
                                                   (IN MILLIONS)
<S>                                  <C>      <C>     <C>      <C>     <C>
QUARTERS ENDED
United States
  Commercial, industrial and
   financial........................   $ 9      $ 5     $ 13     $ 8     $ 2
  Commercial real estate............    (1)      (1)      (1)             (2)
  Consumer-related
    Residential mortgages...........     1        1        2       2       1
    Home equity.....................     1        1        2       2       2
    Credit card.....................     6        6       20      25      24
    Other...........................    13       11       19      15      12
                                       ---      ---     ----     ---     ---
                                        29       23       55      52      39
                                       ---      ---     ----     ---     ---
International
  Commercial........................     7       13       76       1      15
  Consumer-related
    Credit card.....................     6        2        2       2       3
    Other...........................    17       13        8       5       4
                                       ---      ---     ----     ---     ---
                                        30       28       86       8      22
                                       ---      ---     ----     ---     ---
    Total...........................   $59      $51     $141     $60     $61
                                       ===      ===     ====     ===     ===
</TABLE>
 
                                      16
<PAGE>
 
  Net credit losses decreased $2 million and increased $8 million compared
with the third quarter of 1997 and second quarter of 1998, respectively.
Compared with the third quarter of 1997, the decrease in net credit losses was
principally driven by the divestiture of the national credit card portfolio in
the first quarter of 1998, as well as a decrease in net credit losses arising
from the international commercial portfolio. This decrease was almost entirely
offset by an increase in credit losses in the domestic commercial and
international consumer-related loan portfolios, the latter mainly driven by
growth in the Argentine loan and lease financing portfolio, including the
acquisition of Deutsche Argentina. Compared with the second quarter of 1998,
net credit losses increased mainly due to increases in the international
consumer-related portfolios, as well as increases in the domestic commercial,
industrial and financial and other consumer-related portfolios. These
increases were partially offset by a decrease in net credit losses in the
international commercial portfolio. In the first quarter of 1998, net credit
losses in the international commercial portfolio reflected a charge-off of
approximately $66 million related to a series of loans to related borrowers
that were initiated by a former officer in the Corporation's International
Private Bank business. The Corporation has completed its investigation of the
circumstances surrounding the above-mentioned loans and has taken disciplinary
action with respect to a number of individuals. The Corporation is also
vigorously pursuing collection of these loans, including claims under its
insurance coverage.
 
  The future level of charge-offs will continue to be affected by the impact
of global economic events on various domestic and international portfolios, as
well as the mix and size of various portfolios. As such, there can be no
assurance as to the level of future charge-offs. However, due to the economic
volatility which has continued into the fourth quarter of 1998, management
currently expects an increase in charge-offs in the future.
 
                           CROSS-BORDER OUTSTANDINGS
 
  In accordance with bank regulatory rules, cross-border outstandings are
amounts payable to the Corporation by residents of foreign countries
regardless of the currency in which the claim is denominated and local country
claims in excess of local country obligations. Excluded from cross-border
outstandings are the following:
 
  .  Local country claims that are funded by local country obligations
     payable only in the country where issued.
 
  .  Local country claims funded by non-local country obligations (typically
     U.S. dollars or other non-local currency) where the providers of funds
     agree that, in the event their claims cannot be repaid in the designated
     currency due to currency exchange restrictions in a given country, they
     may either accept payment in local currency or wait to receive the non-
     local currency until such time as it becomes available in the local
     market. At September 30, 1998, such outstandings related to emerging
     markets countries totaled $3.0 billion, compared with $2.8 billion at
     December 31, 1997.
 
  .  Claims reallocated as a result of external guarantees, cash collateral
     or insurance contracts issued primarily by U.S. government agencies.
 
  Cross-border outstandings include deposits in other banks, resale
agreements, trading securities, securities available for sale, securities held
to maturity, loans and lease financing, amounts due from customers on
acceptances, accrued interest receivable and revaluation gains on trading
derivatives.
 
  In addition to credit risk, cross-border outstandings have the risk that, as
a result of political or economic conditions in a country, borrowers are
unable to meet their contractual repayment obligations of principal and/or
interest when due because of the unavailability of, or restrictions on,
foreign exchange needed by borrowers to repay their obligations.
 
                                      17
<PAGE>
 
  The following table summarizes by country the Corporation's approximate
cross-border outstandings that individually amounted to 1.0 percent or more of
consolidated total assets at September 30, 1998 and December 31, 1997.
 
<TABLE>
<CAPTION>
                                                   PERCENTAGE OF
                        PUBLIC BANKS OTHER  TOTAL  TOTAL ASSETS  COMMITMENTS(1)
                        ------ ----- ------ ------ ------------- --------------
                                         (DOLLARS IN MILLIONS)
<S>                     <C>    <C>   <C>    <C>    <C>           <C>
September 30, 1998(2)
  Argentina............  $775  $ 75  $1,125 $1,975      2.7%          $ 15
  Brazil...............   375     5     480    860      1.2             15
December 31, 1997(2)
  Argentina............  $740  $  5  $1,035 $1,780      2.6%          $ 15
  Brazil...............   415   120     785  1,320      1.9            130
  Chile................   130   225     350    705      1.0             20
</TABLE>
--------
(1) Included within commitments are letters of credit, guarantees and the
    undisbursed portions of loan commitments.
(2) Cross-border outstandings in countries which fell between .75% and 1% of
    consolidated total assets were approximately as follows: September 30,
    1998--United Kingdom $575 million; December 31, 1997--None.
 
                          EMERGING MARKETS COUNTRIES
 
  At September 30, 1998 and December 31, 1997, approximately $5.5 billion and
$6.5 billion, respectively, of the Corporation's cross-border outstandings
were to emerging markets countries. These cross-border outstandings, of which
approximately 81 percent were loans at September 30, 1998, were mainly
composed of short-term trade credits, non-trade-related loans and leases,
government securities, capital investments in branches and subsidiaries, and
available for sale and trading positions managed by the Corporation's Emerging
Markets Sales, Trading & Research business.
 
                                 LATIN AMERICA
 
  At September 30, 1998, approximately $4.8 billion, or 88 percent, of cross-
border outstandings to emerging markets countries were to countries in Latin
America, compared with $5.2 billion, or 80 percent, at December 31, 1997.
Substantially all of these cross-border outstandings were to customers in
countries in which the Corporation maintained branch networks and/or
subsidiaries.
 
  During the third quarter of 1998, the Corporation's Argentine and Brazilian
operations continued to take advantage of market volatility through their
business mix and balance sheet strategies. In the third quarter of 1998,
operating income from Argentina and Brazil grew more than 50 percent from the
same period of 1997, mainly due to wider spreads in Brazil, and to a lesser
extent in Argentina, combined with growth in Argentine loan and lease
financing, including the acquisition of Deutsche Argentina; as well as higher
fee income, including higher deposit, credit card and mutual fund fees from
Argentina, and higher trading profits from Brazil.
 
  The Corporation has operated in Argentina since 1917, and is one of the
largest foreign banks in the country. In Argentina, the Corporation offers
products and services that include commercial and investment banking, credit
cards, residential mortgages, automobile loans, mutual funds, brokerage, and
custody.
 
  The Corporation's total assets in Argentina amounted to approximately $8.5
billion at September 30, 1998 and $6.6 billion at December 31, 1997. Included
in these assets were cross-border outstandings of $2.0 billion and $1.8
billion at September 30, 1998 and December 31, 1997, respectively. Compared
with December 31, 1997, Argentine loans and lease financing increased
approximately $1.4 billion, mainly due to the acquisition of Deutsche
Argentina.
 
                                      18
<PAGE>
 
  The Corporation's nonaccrual Argentine loans were $135 million and $91
million at September 30, 1998 and December 31, 1997, respectively. The
increase in nonaccrual loans was due primarily to growth in the Argentine loan
and lease financing portfolio, including the Corporation's acquisition of
Deutsche Argentina in January 1998 and the higher lever of consumer-related
lending. The percentage of nonaccrual loans to total Argentine loans and lease
financing was 2.2 percent at September 30, 1998, compared with 1.9 percent at
December 31, 1997. Net credit losses were $18 million in the third quarter of
1998, compared with $14 million in the third quarter of 1997.
 
  In 1997, the Corporation began a branch expansion program, under which it
planned to open approximately 70 new branches throughout Argentina to expand
its distribution capacity. All of the branch openings were completed by the
end of the second quarter of 1998. Additionally, in the first quarter of 1998,
the Corporation completed the acquisition of Deutsche Argentina, including its
branch network and approximately $1.0 billion of loans and $1.5 billion of
deposits. Subsequently, Deutsche Argentina was merged into BankBoston, N.A.
with systems integration completed in October 1998. The Corporation currently
has approximately 140 branches in Argentina.
 
  The Corporation has operated in Brazil since 1947, and has a major presence
in the country. In Brazil, the Corporation's offering of products and services
includes commercial banking, consumer banking with a strong emphasis on high
income consumers, trade financing, treasury and fee-based activities with a
particular emphasis on global capital markets, mutual funds, custody and
credit cards.
 
  The Corporation's total assets in Brazil amounted to approximately $6.4
billion at September 30, 1998, compared with approximately $6.2 billion at
December 31, 1997. Included in total assets are cross-border outstandings of
$.9 billion at September 30, 1998 and $1.3 billion at December 31, 1997.
 
  The Corporation's nonaccrual Brazilian loans were $14 million at September
30, 1998, compared with $12 million at December 31, 1997. The percentage of
nonaccrual loans to total Brazilian loans and lease financing was .4 percent
at the end of both periods. Net credit losses were $4 million in both the
third quarter of 1998 and 1997.
 
  In 1997, the Corporation announced a branch expansion program, under which
it planned to open approximately 30 new branches throughout Brazil in order to
increase its distribution capacity in that country. The program is progressing
on schedule with the opening of 21 new branches through September 30, 1998.
The Corporation expects to have approximately 64 branches in Brazil upon
completion of this program at the end of 1998.
 
  The Corporation's Argentine and Brazilian operations maintained currency
positions at both September 30, 1998 and December 31, 1997. For further
discussion of currency positions, see the "Market Risk Management" section.
 
  To date, the Corporation has not experienced significant credit difficulties
in its Latin American loan portfolio as a result of the world economic
situation; however, sustained economic volatility could negatively impact
credit quality in the Latin American countries in which the Corporation
operates. In addition, the individual economies in Latin America can be
influenced by events in other Latin American countries. In this regard, the
state of the Brazilian economy, including the effective execution of Brazilian
economic reforms, is important not only to the long-term economic welfare of
Brazil but also to the economies in other countries in Latin America in which
the Corporation operates. It is expected that the situation in Latin America,
particularly in Brazil, will continue to evolve and be influenced by economic
developments in other areas of the world, including Asia, as well as trends in
foreign investment. The Corporation has not experienced any collection
problems as a result of currency restrictions or foreign exchange liquidity
problems on its current portfolio of cross-border outstandings to Latin
America. If the actions implemented by Latin American governments do not
remain effective over time, the Corporation's Latin American operations,
including its cross-border outstandings, could experience adverse effects,
such as deterioration of credit quality and declines in levels of loans,
deposits
 
                                      19
<PAGE>
 
and fee income. Each of these countries is at a different stage of development
with a unique set of economic fundamentals; therefore, it is not possible to
predict what developments will occur and what impact these developments will
ultimately have on the economies of these countries or on the Corporation's
financial condition and results of operations.
 
                                     ASIA
 
  At September 30, 1998, approximately $775 million, or approximately 10
percent, of total cross-border outstandings were to countries in Asia,
compared with approximately $1.2 billion, or approximately 14 percent, at
December 31, 1997. The decrease in Asian cross-border outstandings reflects
the impact of the Corporation's efforts to actively manage and reduce its
Asian exposures. Substantially all of these cross-border outstandings were to
customers in countries in which the Corporation maintains branch networks
and/or subsidiaries.
 
  The following table presents a summary of the Corporation's total cross-
border outstandings in Asia at September 30, 1998 and December 31, 1997.
 
<TABLE>
<CAPTION>
                        SEPTEMBER 30, 1998             DECEMBER 31, 1997
                  ------------------------------ ------------------------------
                   CROSS-BORDER                   CROSS-BORDER
                  OUTSTANDINGS(1) COMMITMENTS(2) OUTSTANDINGS(1) COMMITMENTS(2)
                  --------------- -------------- --------------- --------------
                                          (IN MILLIONS)
<S>               <C>             <C>            <C>             <C>
South Korea(3)...      $315                          $  515           $ 35
Japan(4).........       160                             150
China............        75            $10              145             35
Indonesia........        60             10              200             15
Thailand.........        75                              90              5
Taiwan(4)........        55                              50              5
Philippines......        15              5               45             10
Other............        10             10               25             10
                       ----            ---           ------           ----
                       $765            $35           $1,220           $115
                       ====            ===           ======           ====
</TABLE>
--------
(1) Cross-border outstandings primarily consisted of loans and leases,
    deposits in other banks, due from customers on acceptances and
    derivatives.
(2) Included within commitments are letters of credit, guarantees, and the
    undisbursed portions of loan commitments.
(3) Includes the Corporation's 17.5 percent ownership interest in Korean
    Merchant Banking Corporation.
(4)Outstandings for Japan and Taiwan are not included in total emerging
markets countries outstandings.
 
  The Corporation's Asian nonaccrual loans, primarily from Indonesian-related
activities, were $24 million at September 30, 1998. For the first nine months
of 1998, Asia had net credit losses of $12 million, including net recoveries
of $2 million in the third quarter of 1998. Asian nonaccrual loans as of
December 31, 1997 and net credit losses for 1997 were not significant.
 
  In addition, during the third quarter of 1998, the Corporation approved a
realignment of its Asian operations, including the anticipated closing of a
representative office in India and branch offices in Japan, the Philippines
and Taiwan. Additionally, the Corporation recorded a writedown of its 17.5
percent equity investment in KMBC.
 
  Certain Asian countries continue to experience a significant economic and
financial crisis, including devalued currencies, erosion of investor
confidence and overcapacity across several industries. These events have led
to corporate and financial sector bankruptcies as well as social and political
instability, which could continue to result in a high level of volatility in
world financial markets. The ultimate impact of the Asian crisis on the
Corporation's financial condition and results of operations cannot be
predicted at this time, and will be dependent on future events, including the
success of the established IMF programs, the success of government programs,
 
                                      20
<PAGE>
 
the level of volatility in the various markets, the duration of these
unsettled market conditions and the state of the underlying economies in the
affected countries. As such, there can be no assurance on the level of future
Asian nonaccrual loans and charge-offs. These conditions, as well as
developments in other overseas markets, could also impact the Corporation's
operations in other countries, particularly in Argentina and Brazil, as well
as the financial results of the Corporation's domestic commercial businesses.
Management will continue to monitor these markets closely and manage its
portfolio in order to maximize its future results, all within the parameters
of the Corporation's established risk management processes.
 
                           LIQUIDITY RISK MANAGEMENT
 
  Liquidity risk is defined as the risk of loss from the Corporation's
inability to meet its obligations when they come due, without incurring
unacceptable costs. For additional information related to the Corporation's
liquidity risk management, see pages 47 and 48 of the Corporation's 1997
Annual Report to Stockholders, which is incorporated by reference into its
1997 Annual Report on Form 10-K.
 
  The Corporation's liquid assets, which consist primarily of interest bearing
deposits in other banks, federal funds sold and resale agreements, money
market loans and unencumbered U.S. Treasury and government agency securities,
were $8.2 billion at September 30, 1998, compared with $9.5 billion at
December 31, 1997. Also, the Corporation has access to additional funding
through the public markets. Management considers overall liquidity at
September 30, 1998 to be adequate to meet current obligations, to support
expectations for future changes in asset and liability levels and to carry on
normal operations.
 
                            MARKET RISK MANAGEMENT
 
  Market risk is defined as the risk of loss related to adverse changes in
market prices, such as interest rates and foreign currency exchange rates, of
financial instruments. The Corporation's market risk management process
includes the management of all forms of market risk, including balance sheet
and off-balance-sheet exposures. Market risk is managed within policies and
limits established by the Asset, Liability and Capital Committee (ALCCO) and
the Market Risk Committee (MRC) and approved by the Board. The MRC is
responsible for allocating the overall market risk limits set by ALCCO to the
Corporation's market risk-taking activities, considering the results of the
risk modeling process as well as other internal and external factors. Further
information with respect to the Corporation's management of market risk is
included on pages 48 through 50 of the Corporation's 1997 Annual Report to
Stockholders, which is incorporated by reference into its 1997 Annual Report
on Form 10-K.
 
                              TRADING ACTIVITIES
 
  The Corporation's trading activities involve providing risk management and
capital markets products and services to its customers, including interest
rate derivatives and foreign exchange contracts and debt and equity
underwriting and distribution. In addition, the Corporation takes proprietary
trading positions, including positions in high yield and emerging markets
fixed income securities and local currency debt and equity securities. The
risk positions taken by the Corporation in these financial instruments are
subject to ALCCO and MRC approved limits.
 
  The Corporation manages the market risk related to its trading businesses on
a daily basis using a Value-at-Risk (VAR) methodology. VAR is defined as the
statistical estimate of the potential loss amount that the Corporation could
incur from an adverse movement in market prices. The Corporation uses a 99%
confidence level, which means that the Corporation would not expect to exceed
the potential loss amount as calculated by VAR more than once out of every 100
trading days. The VAR methodology requires a number of key assumptions
including the probability distribution of market variables and the liquidity
of the underlying exposures. The VAR calculations include the effects of both
interest rate and foreign exchange rate risks. The
 
                                      21
<PAGE>
 
portion of the aggregate VAR associated with the Corporation's foreign
exchange trading activities is not significant. The calculations do not take
into account the potential diversification benefits of the different positions
taken across trading portfolios. At September 30, 1998, the aggregate VAR
limit for the Corporation's trading businesses was approximately $55 million.
The aggregate VAR exposure at September 30, 1998 and December 31, 1997 was
approximately $31 million and $35 million, respectively. The aggregate average
VAR exposure for the third quarter of 1998 and fourth quarter of 1997 was
approximately $30 million and $31 million, respectively. In addition to the
Corporation's VAR methodology, stress and scenario tests are performed
regularly to assess exposure to event risk in each major trading product line
and in the aggregate. While the VAR methodology is an effective tool for
managing market risk in the Corporation's trading businesses, it does not
preclude the occurrence of trading losses during periods of extreme
volatility, such as that experienced in the third quarter of 1998.
 
                        ASSET AND LIABILITY MANAGEMENT
 
  The Corporation's U.S. dollar denominated assets and liabilities are exposed
to interest rate risk. At September 30, 1998, U.S. dollar denominated assets
comprised the majority of the Corporation's balance sheet. The Corporation's
U.S. dollar denominated positions are evaluated and managed centrally through
the Global Treasury group, utilizing several modeling methodologies. The two
principal methodologies used are market value sensitivity and net interest
revenue at risk. The results of these methodologies are reviewed monthly with
ALCCO and at least quarterly with the Board.
 
  Market value sensitivity is defined as the potential change in market value,
or the economic value, of the Corporation's assets and liabilities resulting
from changes in interest rates. Net interest revenue at risk is defined as the
exposure of the Corporation's net interest revenue over the next twelve months
to an adverse movement in interest rates. Both of these methodologies are
designed to isolate the effects of market changes in interest rates on the
Corporation's existing positions, and they exclude other factors such as
competitive pricing considerations, future changes in the asset and liability
mix and other possible management actions. Therefore, they are not by
themselves measures of future levels of net interest revenue.
 
  These two methodologies provide different but complementary measures of the
level of interest rate risk; the longer-term view is modeled through market
value sensitivity, while the shorter-term view is evaluated through net
interest revenue at risk over the next twelve months. Under current ALCCO
directives, market value sensitivity cannot exceed 3 percent of total risk-
based capital and net interest revenue at risk cannot exceed 2 percent of
annual net interest revenue.
 
  The following table shows the Corporation's quarter-end and average U.S.
dollar denominated positions for market value sensitivity and net interest
revenue at risk at September 30, 1998 and December 31, 1997.
 
<TABLE>
<CAPTION>
                                SEPTEMBER 30, 1998 DECEMBER 31, 1997(1)
                                ------------------ ------------------------
                                QUARTER- QUARTERLY QUARTER-      QUARTERLY
                                  END     AVERAGE     END         AVERAGE
                                -------- --------- ----------    ----------
                                         (DOLLARS IN MILLIONS)
<S>                             <C>      <C>       <C>           <C>
Market value sensitivity(2)....   $106     $136            $154          $146
% of risk-based capital........    1.2%     1.7%            2.2%          2.1%
Net interest revenue at
 risk(3).......................   $  1     $  3      $        9    $       12
% of net interest revenue......     .1%      .1%             .4%           .5%
</TABLE>
--------
(1) Amounts have been restated for comparability.
(2) Based on a 100 basis point adverse upward interest rate shock.
(3) Based on the greater of a 100 basis point adverse interest rate shock or a
    200 basis point adverse change in interest rates over the next twelve-
    month period. At September 30, 1998 and December 31, 1997, the adverse
    position was based on a 100 basis point upward interest rate shock.
 
 
                                      22
<PAGE>
 
  During the second quarter of 1998, the Corporation implemented a new
interest rate risk model to measure the interest rate risk of its U.S. dollar
denominated assets and liabilities. The model has various enhanced
capabilities which include more complete automatic data feeds, increased
availability of data on a transaction or account level, expanded scenario
analysis, and automated reconciliations. The new model generates more refined
market value sensitivity and net interest revenue at risk position
calculations and provides for increased efficiency in the risk measurement
process. Consequently, the restated interest rate risk positions at December
31, 1997, presented in the above table, were lower than those generated under
the previous model due to the new model's enhanced capabilities as discussed
above.
 
  At September 30, 1998 and December 31, 1997, the Corporation's market value
sensitivity and net interest revenue at risk were negatively biased to rising
interest rates. The decrease in the market value sensitivity and net interest
revenue at risk was mainly attributable to the decrease in the sensitivity of
the core deposit portfolio, as well as a decrease in fixed rate loans.
 
  Non-U.S. dollar denominated interest rate risk is managed by the
Corporation's overseas units, with oversight by the Global Treasury group.
ALCCO establishes overall limits for its non-U.S. dollar denominated interest
rate risk using a combination of market value risk analysis and cumulative gap
limits for each country in which the Corporation has local market interest
rate risk. Limits are updated at least annually for current market conditions,
considering business and economic conditions in the country at a particular
point in time. The overseas units report as to compliance with these limits on
a regular basis.
 
  During the third quarter of 1998, the Corporation continued to structure its
balance sheet to take positions in the currencies of certain emerging markets
and other countries where it operates. These positions are generally taken as
dictated by prevailing market and economic conditions.
 
  The average currency positions during the quarters ended September 30, 1998
and December 31, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                     QUARTERLY AVERAGE
                                            ------------------------------------
                                            SEPTEMBER 30, 1998 DECEMBER 31, 1997
                                            ------------------ -----------------
                                                       (IN MILLIONS)
<S>                                         <C>                <C>
Argentina(1)...............................        $252              $160
Brazil(2)..................................         152                35
Chile(1)...................................          10                29
</TABLE>
--------
(1) Currency positions represent local currency assets funded by U.S. dollars
    in both periods presented.
(2) Currency positions represent local U.S. dollar assets funded by local
    currency liabilities during the third quarter of 1998 and local currency
    assets funded by U.S. dollars during the fourth quarter of 1997.
 
  Whenever these positions are taken, they are subject to limits established
by ALCCO. Compliance with these limits is reviewed regularly by market risk
management. To date, these positions have been liquid in nature and management
has been able to close and re-open these positions as necessary.
 
  The level of U.S. dollar and non-U.S. dollar exposure maintained by the
Corporation is a function of the market environment and may change from period
to period based on interest rate and other economic expectations.
                       DERIVATIVE FINANCIAL INSTRUMENTS
 
  Derivatives provide the Corporation with significant flexibility in managing
its interest rate risk and foreign exchange exposures, enabling it to manage
risk efficiently and respond quickly to changing market conditions while
minimizing the impact on balance sheet leverage. The Corporation routinely
uses non-leveraged rate-related derivative instruments, primarily interest
rate swaps, as part of its asset and liability management
 
                                      23
<PAGE>
 
practices. Derivatives not used for asset and liability management are
included in the derivatives trading portfolio and principally relate to
providing risk management products to the Corporation's customers. All
derivative activities are managed on a comprehensive basis, are included in
the overall market risk measures and limits described above, and are subject
to credit standards similar to those for balance sheet exposures.
 
  The following table summarizes the notional amounts and fair values of
interest rate derivatives and foreign exchange contracts included in the
Corporation's trading and asset and liability management (ALM) portfolios.
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 30, 1998
                          ------------------------------------------------------------------------------
                              TRADING PORTFOLIO(1)                     ALM PORTFOLIO(1)
                          -------------------------------  ---------------------------------------------
                                   FAIR VALUE(2)(3)(4)              FAIR VALUE(2)(3)
                          NOTIONAL ----------------------  NOTIONAL --------------------   UNRECOGNIZED
                           AMOUNT   ASSET      LIABILITY    AMOUNT  ASSET     LIABILITY   GAIN (LOSS)(5)
                          -------- ---------  -----------  -------- --------  ----------  --------------
                                                      (IN MILLIONS)
<S>                       <C>      <C>        <C>          <C>      <C>       <C>         <C>
Interest rate contracts
 Futures and forwards...  $11,509  $       8    $       8  $ 1,942                             $ (7)
 Interest rate swaps....   24,180        485          541   13,529  $    330    $     52        239
 Interest rate options
 Purchased(6)...........   27,840        113                 1,860        51                     51
 Written or sold(6).....   17,665                      94    1,360                    65        (65)
                          -------  ---------    ---------  -------  --------    --------       ----
Total interest rate
 contracts..............  $81,194  $     606    $     643  $18,691  $    381    $    117       $218
                          =======  =========    =========  =======  ========    ========       ====
Foreign exchange
 contracts
 Spot and forward
  contracts.............  $47,429  $     775    $     803  $ 3,523  $     16    $     14       $  2
 Options purchased......    3,338         77                     3
 Options written or
  sold..................    3,429                      69
                          -------  ---------    ---------  -------  --------    --------       ----
Total foreign exchange
 contracts..............  $54,196  $     852    $     872  $ 3,526  $     16    $     14       $  2
                          =======  =========    =========  =======  ========    ========       ====
</TABLE>
 
<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1997
                          -----------------------------------------------------------------------------
                              TRADING PORTFOLIO(1)                     ALM PORTFOLIO(1)
                          -------------------------------  --------------------------------------------
                                   FAIR VALUE(2)(3)(4)              FAIR VALUE(2)(3)
                          NOTIONAL ----------------------  NOTIONAL --------------------  UNRECOGNIZED
                           AMOUNT   ASSET      LIABILITY    AMOUNT  ASSET     LIABILITY  GAIN (LOSS)(5)
                          -------- ---------  -----------  -------- --------  ---------- --------------
                                                      (IN MILLIONS)
<S>                       <C>      <C>        <C>          <C>      <C>       <C>        <C>
Interest rate contracts
 Futures and forwards...  $42,842  $      36    $      69  $ 3,947  $     21                  $ 11
 Interest rate swaps....   20,451        113          160   11,162       132     $    11        96
 Interest rate options
 Purchased(6)...........   23,231         56                 2,765        13                     2
 Written or sold........   12,716                      53
                          -------  ---------    ---------  -------  --------     -------      ----
Total interest rate
 contracts..............  $99,240  $     205    $     282  $17,874  $    166     $    11      $109
                          =======  =========    =========  =======  ========     =======      ====
Foreign exchange
 contracts
 Spot and forward
  contracts.............  $25,793  $     476    $     442  $ 2,430  $     36     $    41      $ (5)
 Options purchased......    5,428        115
 Options written or
  sold..................    6,692                     107
                          -------  ---------    ---------  -------  --------     -------      ----
Total foreign exchange
 contracts..............  $37,913  $     591    $     549  $ 2,430  $     36     $    41      $ (5)
                          =======  =========    =========  =======  ========     =======      ====
</TABLE>
--------
(1) Contracts under master netting agreements are shown on a net basis for
    both the trading and ALM portfolios.
(2) Fair value represents the amount at which a given instrument could be
    exchanged in an arm's length transaction with a third party as of the
    balance sheet date. The fair value amounts of the trading portfolio are
    included in other assets or other liabilities, as applicable. The majority
    of derivatives that are part of the ALM portfolio are accounted for on the
    accrual basis and not carried at fair value. In certain cases, contracts,
    such as futures, are subject to daily cash settlements; as such, the fair
    value of these instruments is zero.
(3) At September 30, 1998 and December 31, 1997, the credit exposure of
    interest rate derivatives and foreign exchange contracts is represented by
    the fair value of contracts reported in the "Asset" column.
 
                                      24
<PAGE>
 
(4) The average asset and liability fair value amounts for interest rate
    contracts included in the trading portfolio for the quarters ended
    September 30, 1998 and December 31, 1997 were approximately $428 million
    and $486 million, respectively, and $182 million and $247 million,
    respectively. The average asset and liability fair value amounts for
    foreign exchange contracts included in the trading portfolio were
    approximately $677 million and $669 million, respectively, for the quarter
    ended September 30, 1998, and $538 million and $503 million, respectively,
    for the quarter ended December 31, 1997.
(5) Unrecognized gain or loss represents the amount of gain or loss, based on
    fair value, that has not been recognized in the income statement at the
    balance sheet date. This includes amounts related to contracts that have
    been terminated. Such amounts are recognized as an adjustment of yield
    over the period being managed. At September 30, 1998, there were $6
    million of unrecognized gains related to terminated contracts that are
    being amortized to net interest revenue over a weighted average period of
    39 months. At December 31, 1997, there were $7 million of unrecognized
    gains related to terminated contracts that were being amortized to net
    interest revenue over a weighted average period of 14 months.
(6) At September 30, 1998 and December 31, 1997, the ALM Portfolio included
    equity contracts entered into by the Corporation's Argentine operations.
    These contracts are linked to Argentine deposit products, where the holder
    receives payment based upon the changes in the prices of underlying
    emerging markets securities.
 
  The increase of $109 million in the net fair value of interest rate
contracts included in the ALM portfolio was primarily due to a decrease in
domestic interest rates, which resulted in an increase in the fair value of
the domestic receive fixed interest rate swap portfolio.
 
  Net trading gains or losses from interest rate derivatives are recorded in
trading account profits and commissions. The Corporation's interest rate
derivative trading activities primarily include providing risk management
products to its customers. Derivatives are also used to manage risk in other
trading portfolios, such as emerging markets securities. The results of these
derivative activities are combined with the results of the respective trading
portfolio to determine the overall performance of the trading business and, as
such, are not included in the results of derivative trading activities. Net
trading gains from interest rate derivative trading for the quarter and nine
months ended September 30, 1998 were $10 million and $18 million,
respectively, and for the quarter and nine months ended September 30, 1997
were $3 million and $12 million, respectively.
 
  Net trading gains from foreign exchange contracts are recorded in other
income. Net trading gains from foreign exchange activities, which include
foreign exchange spot, forward and options contracts, for the quarter and nine
months ended September 30, 1998 were $35 million and $96 million,
respectively, and for the quarter and nine months ended September 30, 1997
were $18 million and $57 million, respectively.
 
                                      25
<PAGE>
 
  The following table summarizes the remaining maturity of interest rate
derivative financial instruments entered into for asset and liability
management purposes as of September 30, 1998.
 
<TABLE>
<CAPTION>
                                                 REMAINING MATURITY
                         ------------------------------------------------------------------------
                                                                       SEPTEMBER 30, DECEMBER 31,
                                                                            1998         1997
                          1998    1999    2000   2001   2002   2003+       TOTAL         TOTAL
                         ------  -------  -----  -----  -----  ------  ------------- ------------
                                               (DOLLARS IN MILLIONS)
<S>                      <C>     <C>      <C>    <C>    <C>    <C>     <C>           <C>
INTEREST RATE SWAPS
Domestic
Receive fixed rate
 swaps(1)
 Notional amount........ $  450  $   825  $ 545  $ 350  $ 125  $2,220     $ 4,515      $ 4,699
 Weighted average
  receive rate..........   6.02%    5.93%  5.77%  6.16%  6.59%   6.44%       6.21%        6.26%
 Weighted average pay
  rate..................   5.69%    5.69%  5.67%  5.59%  5.69%   5.59%       5.63%        5.84%
Pay fixed rate swaps(1)
 Notional amount........ $   89  $   170  $ 125                $   73     $   457      $   344
 Weighted average
  receive rate..........   5.97%    5.29%  5.31%                 5.32%       5.43%        5.85%
 Weighted average pay
  rate..................   6.44%    5.37%  4.88%                 5.13%       5.41%        6.03%
Basis swaps(2)
 Notional amount........ $  215  $   200  $  50                $  292     $   757      $   725
 Weighted average
  receive rate..........   5.65%    5.67%  5.94%                 5.98%       5.80%        7.53%
 Weighted average pay
  rate..................   5.66%    5.69%  5.69%                 6.62%       6.04%        5.98%
Total Domestic Interest
 Rate Swaps
 Notional amount........ $  754  $ 1,195  $ 720  $ 350  $ 125  $2,585     $ 5,729      $ 5,768
 Weighted average
  receive rate(3).......   5.91%    5.79%  5.70%  6.16%  6.59%   5.69%       5.79%        6.39%
 Weighted average pay
  rate(3)...............   5.77%    5.65%  5.54%  5.59%  5.69%   5.69%       5.67%        5.87%
Total International
 Interest Rate Swaps
 Notional Amount(4)..... $   50  $ 7,733         $  15         $    2     $ 7,800      $ 5,394
OTHER DERIVATIVE
 PRODUCTS
Futures and
 forwards(5)............ $  654  $ 1,288                                  $ 1,942      $ 3,947
Interest rate options
 purchased(6)...........         $ 1,860                                  $ 1,860      $ 2,765
Interest rate options
 sold(6)................         $ 1,360                                  $ 1,360
                         ------  -------  -----  -----  -----  ------     -------      -------
Total Consolidated
 Notional Amount........ $1,458  $13,436  $ 720  $ 365  $ 125  $2,587     $18,691      $17,874
                         ======  =======  =====  =====  =====  ======     =======      =======
</TABLE>
--------
(1) Approximately $2.9 billion of the receive fixed rate swaps are linked to
    fixed rate notes payable, and the remaining $1.6 billion to floating rate
    loans. Of the swaps linked to notes payable, approximately $1.6 billion
    are scheduled to mature in 2003 and thereafter. The majority of the pay
    fixed rate swaps are linked to notes payable.
(2) Basis swaps represent swaps where both the pay rate and receive rate are
    floating rates. Most of the basis swaps are linked to notes payable.
(3) The majority of the Corporation's interest rate swaps accrue at LIBOR. In
    arriving at the variable weighted average receive and pay rates, LIBOR
    rates in effect as of September 30, 1998 have been implicitly assumed to
    remain constant throughout the terms of the swaps. Future changes in LIBOR
    rates would affect the variable rate information disclosed.
(4) At September 30, 1998 and December 31, 1997, the majority of the
    international portfolio is comprised of swaps entered into by the
    Corporation's Brazilian operations. These swaps typically include the
    exchange of floating rate indices that are limited to the Brazilian
    market.
(5) Represents contracts entered into by the Corporation's Brazilian
    operations in the local market which are linked to short-term interest
    bearing assets and liabilities.
(6) At September 30, 1998 and December 31, 1997, primarily includes equity
    contracts entered into by the Corporation's Argentine operations. These
    contracts are linked to Argentine deposit products where the holder
    receives payment based on changes in the prices of underlying Argentine
    securities.
 
  The Corporation routinely reviews its asset and liability derivative
positions to determine whether such instruments continue to function as
effective risk management tools. The utilization of derivative instruments is
modified from time to time in response to changing market conditions, as well
as changes in the characteristics and mix of the Corporation's related assets
and liabilities.
 
                                      26
<PAGE>
 
  Additional information on the Corporation's derivative products, including
accounting policies, is included on pages 51 and 52, and in Notes 1 and 23 to
the Financial Statements, in the Corporation's 1997 Annual Report to
Stockholders, which is incorporated by reference in its 1997 Annual Report on
Form 10-K.
 
                       RECENT ACCOUNTING PRONOUNCEMENTS
 
  In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 requires that all
derivative instruments, including certain derivative instruments embedded in
other contracts, be recorded on the balance sheet as either an asset or
liability measured at its fair value. Changes in the derivative's fair value
should be recognized currently in earnings unless the derivative is designated
as a hedge. When designated as a hedge, the fair value should be recognized
currently in earnings or in other nonowner changes in equity, depending on
whether such designation is as a fair value or as a cash flow hedge. With
respect to fair value hedges, the fair value of the derivative, as well as
changes in the fair value of the hedged item, are reported in the income
statement. With cash flow hedges, changes in the derivative's fair value are
reported in other nonowner changes in equity and reclassified to the income
statement in periods in which earnings are affected by the hedged variable
cash flows or forecasted transaction. SFAS 133 also requires a company to
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting treatment.
 
  SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999, and cannot be applied retroactively. The Corporation
intends to adopt the Statement as of January 1, 2000; however, it has not yet
quantified the financial statement impact of adoption, nor determined the
method of adoption. The Corporation anticipates that adoption could increase
volatility in earnings and other nonowner changes in equity, and could result
in certain modifications to systems and hedging methodologies.
 
                                      27
<PAGE>
 
                             BANKBOSTON CORPORATION
 
                           CONSOLIDATED BALANCE SHEET
 
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1998          1997
                                                      ------------- ------------
<S>                                                   <C>           <C>
                       ASSETS
Cash and due from banks..............................    $ 3,380      $ 4,006
Interest bearing deposits in other banks.............      1,045        1,592
Federal funds sold and securities purchased under
 agreements to resell................................      1,731        2,017
Trading securities...................................      1,625        1,833
Securities
  Available for sale.................................     11,910        9,865
  Held to maturity (fair value of $602 in 1998 and
   $621 in 1997).....................................        594          618
Loans and lease financing
  United States operations...........................     31,761       31,491
  International operations...........................     13,986       12,489
                                                         -------      -------
    Total loans and lease financing (net of unearned
     income of $419 in 1998 and $381 in 1997)........     45,747       43,980
Reserve for credit losses............................       (740)        (712)
                                                         -------      -------
  Net loans and lease financing......................     45,007       43,268
Premises and equipment, net..........................      1,289        1,042
Due from customers on acceptances....................        344          462
Accrued interest receivable..........................        554          552
Other assets.........................................      6,355        4,013
                                                         -------      -------
TOTAL ASSETS.........................................    $73,834      $69,268
                                                         =======      =======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                       28
<PAGE>
 
                             BANKBOSTON CORPORATION
 
                    CONSOLIDATED BALANCE SHEET--(CONTINUED)
 
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 30, DECEMBER 31,
                                                        1998          1997
                                                    ------------- ------------
<S>                                                 <C>           <C>
       LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
  Domestic offices
   Noninterest bearing.............................    $ 6,204      $ 8,507
   Interest bearing................................     26,646       25,104
  Overseas offices
   Noninterest bearing.............................      1,206        1,085
   Interest bearing................................     12,364       11,065
                                                       -------      -------
      Total deposits...............................     46,420       45,761
Funds borrowed
  Federal funds purchased..........................        591        1,003
  Term federal funds purchased.....................      2,144        2,530
  Securities sold under agreements to repurchase...      2,198        1,789
  Other funds borrowed.............................      8,281        6,401
Acceptances outstanding............................        344          460
Accrued expenses and other liabilities.............      3,710        3,026
Notes payable......................................      4,436        2,941
Guaranteed preferred beneficial interests in
 Corporation's junior subordinated debentures......        995          747
                                                       -------      -------
TOTAL LIABILITIES..................................     69,119       64,658
                                                       -------      -------
Commitments and contingencies
Stockholders' equity
  Preferred stock without par value
   Authorized shares--10,000,000
   Issued and outstanding shares--3,673,941 in
    1997...........................................                     278
  Common stock, par value $1.00 in 1998 and $1.50
   in 1997
   Authorized shares--500,000,000 in 1998 and
    300,000,000 in 1997
   Issued shares--307,376,853 in 1998 and
    154,002,254 in 1997
   Outstanding shares--294,596,378 in 1998 and
    145,706,594 in 1997............................        307          231
Surplus............................................      1,123        1,219
Retained earnings..................................      3,768        3,472
Net unrealized gain on securities available for
 sale, net of tax..................................         17           53
Cumulative translation adjustments, net of tax.....        (13)         (11)
Treasury stock, at cost (12,780,475 shares in 1998
 and 8,295,660 shares in 1997).....................       (487)        (632)
                                                       -------      -------
TOTAL STOCKHOLDERS' EQUITY.........................      4,715        4,610
                                                       -------      -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........    $73,834      $69,268
                                                       =======      =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       29
<PAGE>
 
                             BANKBOSTON CORPORATION
 
                        CONSOLIDATED STATEMENT OF INCOME
 
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                            QUARTERS ENDED   NINE MONTHS ENDED
                                             SEPTEMBER 30      SEPTEMBER 30
                                            ---------------- ------------------
                                             1998     1997     1998      1997
                                            -------  ------- --------  --------
<S>                                         <C>      <C>     <C>       <C>
INTEREST INCOME
  Loans and lease financing, including
   fees.................................... $ 1,092  $   973 $  3,134  $  2,948
  Securities...............................     196      169      576       502
  Trading securities.......................      24       30       90        86
  Federal funds sold and securities
   purchased under agreements to resell....      71       60      250       181
  Deposits in other banks..................      27       35       87       106
                                            -------  ------- --------  --------
    Total interest income..................   1,410    1,267    4,137     3,823
                                            -------  ------- --------  --------
INTEREST EXPENSE
  Deposits of domestic offices.............     240      238      716       701
  Deposits of overseas offices.............     219      190      669       532
  Funds borrowed...........................     238      207      655       599
  Notes payable............................      88       61      229       184
                                            -------  ------- --------  --------
    Total interest expense.................     785      696    2,269     2,016
                                            -------  ------- --------  --------
NET INTEREST REVENUE.......................     625      571    1,868     1,807
  Provision for credit losses..............      60       40      260       160
                                            -------  ------- --------  --------
  Net interest revenue after provision for
   credit losses...........................     565      531    1,608     1,647
                                            -------  ------- --------  --------
NONINTEREST INCOME
  Financial service fees...................     221      168      575       462
  Trust and agency fees....................      82       73      244       208
  Trading profits and commissions..........     (52)      20      (22)       67
  Net securities gains.....................      17       11       53        52
  Other income.............................     117      176      581       366
                                            -------  ------- --------  --------
    Total noninterest income...............     385      448    1,431     1,155
                                            -------  ------- --------  --------
NONINTEREST EXPENSE
  Salaries.................................     385      264      982       781
  Employee benefits........................      64       54      188       158
  Occupancy expense........................      58       50      168       152
  Equipment expense........................      41       36      121       108
  Other expense............................     238      197      635       524
                                            -------  ------- --------  --------
    Total noninterest expense..............     786      601    2,094     1,723
                                            -------  ------- --------  --------
Income before income taxes.................     164      378      945     1,079
Provision for income taxes.................      59      152      360       434
                                            -------  ------- --------  --------
NET INCOME................................. $   105  $   226 $    585  $    645
                                            =======  ======= ========  ========
NET INCOME APPLICABLE TO COMMON STOCK...... $   104  $   217 $    576  $    617
                                            =======  ======= ========  ========
PER COMMON SHARE
Net income
  Basic.................................... $   .35  $   .75 $   1.96  $   2.07
  Diluted.................................. $   .35  $   .73 $   1.94  $   2.04
Dividends declared......................... $   .29  $   .26 $    .87  $    .73
AVERAGE NUMBER OF COMMON SHARES (IN
 THOUSANDS)
  Basic.................................... 294,379  290,766  293,570   297,750
  Diluted.................................. 296,361  295,684  296,050   303,148
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       30
<PAGE>
 
                             BANKBOSTON CORPORATION
 
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                    1998    1997
NINE MONTHS ENDED SEPTEMBER 30                                     ------  ------
<S>                                                                <C>     <C>
BALANCE, BEGINNING OF PERIOD...................................... $4,610  $4,934
Net income........................................................    585     645
Other nonowner changes in equity
  Change in unrealized gain on securities available for sale, net
   of tax and reclassification adjustment.........................    (36)     (8)
  Change in foreign currency translation adjustment, net of tax...     (2)     (3)
                                                                   ------  ------
    Total nonowner changes in equity..............................    547     634
                                                                   ------  ------
Common stock issued in connection with
  Exercise of stock options.......................................     37      17
  Dividend reinvestment and common stock purchase plan............     17      16
  Restricted stock grants, net of forfeitures.....................     16       7
  Business combinations...........................................              7
  Other, principally employee benefit plans.......................     31      27
Cash dividends declared
  Preferred stock.................................................    (10)    (28)
  Common stock....................................................   (255)   (218)
Purchases of treasury stock.......................................           (784)
Redemption of preferred stock.....................................   (278)   (230)
                                                                   ------  ------
BALANCE, END OF PERIOD............................................ $4,715  $4,382
                                                                   ======  ======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                       31
<PAGE>
 
                             BANKBOSTON CORPORATION
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                1998     1997
NINE MONTHS ENDED SEPTEMBER 30                                --------  -------
<S>                                                           <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................  $    585  $   645
Reconciliation of net income to net cash provided from (used
 for) operating activities
 Provision for credit losses................................       260      160
 Depreciation and amortization..............................       137      118
 Provision for deferred taxes...............................       (32)      64
 Net gains on sales of securities and other assets..........      (399)    (267)
 Change in trading securities...............................       208     (625)
 Net change in interest receivables and payables............        25
 Other, net.................................................      (455)    (477)
                                                              --------  -------
 Net cash provided from (used for) operating activities.....       329     (382)
                                                              --------  -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided from (used for) interest bearing deposits
 in other banks.............................................       547     (357)
Net cash provided from (used for) federal funds sold and
 securities purchased under agreements to resell............       286   (1,190)
Securities available for sale
 Sales......................................................     8,485    4,758
 Maturities.................................................     2,089    2,126
 Purchases..................................................   (12,559)  (8,494)
Securities held to maturity
 Maturities.................................................        54       92
 Purchases..................................................       (30)     (48)
Net cash used for lending and lease activities of nonbank
 entities...................................................      (266)    (270)
Proceeds from sales of loan portfolios by bank
 subsidiaries...............................................     1,207    1,295
Net cash used for lending and lease activities of bank
 subsidiaries...............................................    (2,057)  (2,513)
Proceeds from sales of other real estate owned..............        37       20
Expenditures for premises and equipment.....................      (395)    (233)
Proceeds from sales of business units, premises and
 equipment..................................................       427       94
Payments for purchase business combinations, net of cash
 acquired...................................................      (606)
Purchase of investment in bank-owned life insurance.........      (400)
Other, net..................................................       253       21
                                                              --------  -------
 Net cash used for investing activities.....................    (2,928)  (4,699)
                                                              --------  -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided from (used for) deposits..................      (792)   1,824
Net cash provided from funds borrowed.......................     1,491    3,427
Repayments of notes payable.................................      (380)    (955)
Net proceeds from issuance of notes payable.................     1,875      915
Net proceeds from issuance of guaranteed preferred
 beneficial interests in Corporation's junior subordinated
 debentures.................................................       248      247
Net proceeds from issuance of common stock..................        84       58
Redemption of preferred stock...............................      (278)    (230)
Purchases of treasury stock.................................               (784)
Dividends paid..............................................      (265)    (246)
                                                              --------  -------
 Net cash provided from financing activities................     1,983    4,256
Effect of foreign currency translation on cash..............       (10)      (4)
                                                              --------  -------
NET CHANGE IN CASH AND DUE FROM BANKS.......................      (626)    (829)
CASH AND DUE FROM BANKS AT JANUARY 1........................     4,006    4,273
                                                              --------  -------
CASH AND DUE FROM BANKS AT SEPTEMBER 30.....................  $  3,380  $ 3,444
                                                              ========  =======
Interest payments made......................................  $  2,242  $ 2,021
Income tax payments made....................................  $    257  $   324
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       32
<PAGE>
 
                            BANKBOSTON CORPORATION
 
                         NOTES TO FINANCIAL STATEMENTS
 
1. The accompanying interim consolidated financial statements of BankBoston
Corporation (the Corporation) are unaudited. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the information contained herein have been made. Certain
amounts reported in prior periods have been reclassified for comparative
purposes. This information should be read in conjunction with the
Corporation's 1997 Annual Report on Form 10-K.
 
2. ACQUISITIONS
 
  In August 1998, the Corporation completed its acquisition of the investment
banking operations of BancAmerica Robertson Stephens from BankAmerica
Corporation for $400 million in cash. The acquired operations were merged into
the Corporation's Section 20 subsidiary, BancBoston Securities Inc., which was
renamed BancBoston Robertson Stephens Inc.  In connection with the acquisition
and in addition to the purchase price, the Corporation agreed to pay $400
million in cash compensation and stock options to employees over the next
three and one-half years, of which $75 million was recorded in the third
quarter of 1998. The acquisition was accounted for as a purchase and,
accordingly, the assets and liabilities of the acquired operations were
recorded at their estimated fair values as of the acquisition date. Goodwill
resulting from the acquisition is being amortized over a twenty-five year
period. The acquisition has been included in the accompanying consolidated
financial statements since the acquisition date. Pro forma results of
operations including the acquisition for the nine months ended September 30,
1998 and the year ended December 31, 1997 are not presented, since the results
would not have been significantly different in relation to the Corporation's
results of operations.
 
3. SECURITIES
 
  A summary comparison of securities available for sale by type is as follows:
 
<TABLE>
<CAPTION>
                                         SEPTEMBER 30, 1998   DECEMBER 31, 1997
                                         ----------------------------------------
                                                   CARRYING            CARRYING
                                           COST      VALUE     COST      VALUE
                                         --------- ------------------- ----------
                                                    (IN MILLIONS)
<S>                                      <C>       <C>        <C>      <C>
U.S. Treasury........................... $     828 $     843  $    936  $    943
U.S. government agencies and
 corporations--
 mortgage-backed securities.............     6,619     6,740     5,798     5,860
States and political subdivisions.......        38        39        54        54
Foreign debt securities.................     2,266     2,137     1,391     1,375
Other debt securities...................     1,192     1,210       890       895
Marketable equity securities............       313       315       187       216
Other equity securities.................       626       626       522       522
                                         --------- ---------  --------  --------
                                         $  11,882 $  11,910  $  9,778  $  9,865
                                         ========= =========  ========  ========
</TABLE>
 
  Other equity securities included in securities available for sale are not
traded on established exchanges and are carried at cost.
 
                                      33
<PAGE>
 
                             BANKBOSTON CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  A summary comparison of securities held to maturity by type is as follows:
 
<TABLE>
<CAPTION>
                                       SEPTEMBER 30, 1998   DECEMBER 31, 1997
                                      -------------------- --------------------
                                      AMORTIZED            AMORTIZED
                                        COST    FAIR VALUE   COST    FAIR VALUE
                                      --------- ---------- --------- ----------
                                                    (IN MILLIONS)
<S>                                   <C>       <C>        <C>       <C>
U.S. Treasury........................   $  7       $  7      $  6       $  6
U.S. government agencies and
 corporations--
 mortgage-backed securities..........    495        503       520        523
Foreign debt securities..............     13         13        11         11
Other debt securities................      1          1
Other equity securities..............     78         78        81         81
                                        ----       ----      ----       ----
                                        $594       $602      $618       $621
                                        ====       ====      ====       ====
</TABLE>
 
  Other equity securities included in securities held to maturity represent
securities, such as Federal Reserve Bank and Federal Home Loan Bank stock,
which are not traded on established exchanges and have only redemption
capabilities. Fair values for such securities are considered to approximate
cost.
 
4. LOANS AND LEASE FINANCING
 
  The following are the details of loan and lease financing balances:
<TABLE>
<CAPTION>
                                                      SEPTEMBER 30, DECEMBER 31,
                                                          1998          1997
                                                      ------------- ------------
                                                            (IN MILLIONS)
<S>                                                   <C>           <C>
United States operations
  Commercial, industrial and financial...............    $18,218      $15,268
  Commercial real estate
    Construction.....................................        209          271
    Other............................................      4,089        4,211
  Consumer-related
    Residential mortgages............................      2,111        2,570
    Home equity......................................      2,672        2,823
    Credit card......................................        393        1,756
    Other............................................      2,693        2,956
  Lease financing....................................      1,607        1,938
  Unearned income....................................       (231)        (302)
                                                         -------      -------
                                                          31,761       31,491
                                                         -------      -------
International operations
  Commercial and industrial..........................      9,320        8,826
  Banks and other financial institutions.............        835          860
  Governments and official institutions..............         73           95
  Consumer-related
    Residential mortgages............................      1,383          947
    Credit card......................................        339          182
    Other............................................      1,164          828
  Lease financing....................................        652          452
  All other..........................................        408          378
  Unearned income....................................       (188)         (79)
                                                         -------      -------
                                                          13,986       12,489
                                                         -------      -------
                                                         $45,747      $43,980
                                                         =======      =======
</TABLE>
 
                                       34
<PAGE>
 
                            BANKBOSTON CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. RESERVE FOR CREDIT LOSSES
 
  An analysis of the reserve for credit losses is as follows:
 
<TABLE>
<CAPTION>
                                           QUARTERS ENDED    NINE MONTHS ENDED
                                            SEPTEMBER 30       SEPTEMBER 30
                                           ----------------  ------------------
                                            1998     1997      1998      1997
                                           -------  -------  --------  --------
                                                     (IN MILLIONS)
<S>                                        <C>      <C>      <C>       <C>
BALANCE, BEGINNING OF PERIOD.............. $   734  $   845  $    712  $    883
Provision.................................      60       40       260       160
Reserves of entities sold.................              (95)                (95)
Reserves of entities acquired.............       5                 19
Domestic credit losses
  Commercial, industrial and financial....     (11)      (4)      (37)      (31)
  Commercial real estate..................      (1)      (2)       (5)       (6)
  Consumer-related
    Residential mortgages.................      (1)      (1)       (5)       (5)
    Credit card...........................      (6)     (26)      (32)      (71)
    Home equity...........................      (2)      (3)       (5)       (8)
    Other.................................     (17)     (18)      (57)     (105)
International credit losses...............     (41)     (26)     (168)      (57)
                                           -------  -------  --------  --------
      Total credit losses.................     (79)     (80)     (309)     (283)
                                           -------  -------  --------  --------
Domestic recoveries
  Commercial, industrial and financial....       2        2         9         6
  Commercial real estate..................       2        4         8        11
  Consumer-related
    Residential mortgages.................                          1         3
    Credit card...........................                2         1         4
    Home equity...........................       1        1         1         2
    Other.................................       4        6        14        24
International recoveries..................      11        4        24        14
                                           -------  -------  --------  --------
      Total recoveries....................      20       19        58        64
                                           -------  -------  --------  --------
Net credit losses.........................     (59)     (61)     (251)     (219)
                                           -------  -------  --------  --------
BALANCE, END OF PERIOD.................... $   740  $   729  $    740  $    729
                                           =======  =======  ========  ========
</TABLE>
 
  At September 30, 1998, loans for which impairment has been recognized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan," totaled $207 million, of
which $27 million related to loans with no valuation reserve and $180 million
related to loans with a valuation reserve of $84 million. At December 31,
1997, impaired loans totaled $166 million, of which $34 million related to
loans with no valuation reserve and $132 million related to loans with a
valuation reserve of $40 million. For the quarters ended September 30, 1998
and 1997, average impaired loans were approximately $209 million and $201
million, respectively. For the nine months ended September 30, 1998 and 1997,
average impaired loans were approximately $190 million and $220 million,
respectively. Interest recognized on impaired loans during these periods was
not material.
 
6. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S JUNIOR
SUBORDINATED DEBENTURES
 
  Since November 1996, the Corporation has formed five wholly-owned grantor
trusts, BankBoston Capital Trust I, II, III, IV and V (collectively, the
Trusts), for the exclusive purpose of issuing capital securities
 
                                      35
<PAGE>
 
                            BANKBOSTON CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
(Trust Securities) and investing the proceeds from the sale of such securities
in junior subordinated debentures issued by the Corporation.
 
  In the fourth quarter of 1996, BankBoston Capital Trust I issued $250
million of its 8 1/4% Trust Securities, and BankBoston Capital Trust II issued
$250 million of its 7 3/4% Trust Securities. Both issues of Trust Securities
have a liquidation preference of $1,000 per Trust Security, pay distributions
semiannually, can be prepaid at the option of the Trusts, in whole or in part,
on or after December 15, 2006, and are scheduled to mature on December 15,
2026. In June 1997, BankBoston Capital Trust III issued $250 million of its
floating rate Trust Securities. These Trust Securities have a liquidation
preference of $1,000 per Trust Security, pay distributions quarterly at LIBOR
plus .75%, can be prepaid at the option of Trust III, in whole or in part, on
or after June 15, 2007, and are scheduled to mature on June 15, 2027. At
September 30, 1998, the interest rate on these floating rate Trust Securities
was 6.25%. In addition, in June 1998, BankBoston Capital Trust IV issued $250
million of its floating rate Trust Securities. These Trust Securities have a
liquidation preference of $1,000 per Trust Security, pay distributions
quarterly at LIBOR plus .60%, can be prepaid at the option of Trust IV, in
whole or in part, on or after June 8, 2003, and are scheduled to mature on
June 8, 2028. At September 30, 1998, the interest rate on these floating rate
Trust Securities was 6.19%. The Corporation has fully, irrevocably and
unconditionally guaranteed all of the Trusts' obligations under the Trust
Securities.
 
  The Corporation owns all of the common securities of the Trusts, the sole
assets of which are their respective subordinated debentures. The principal
amount of subordinated debentures held by each Trust equals the aggregate
liquidation amount of its Trust Securities and its common securities. The
subordinated debentures bear interest at the same rate, and will mature on the
same date, as the corresponding Trust Securities.
 
7. COMMON STOCK AND EARNINGS PER SHARE
 
  In April 1998, stockholders of the Corporation approved an increase in the
number of authorized shares of common stock from 300 million shares to 500
million shares, and a change in the par value of such stock from $1.50 per
share to $1.00 per share. In addition, the Corporation announced the approval
by its Board of Directors of a two-for-one split of the Corporation's common
stock, to be executed in the form of a stock dividend of one share for every
share held. The stock dividend was paid on June 22, 1998. Average common
shares outstanding, per common share data and stock options for all periods
shown have been adjusted to reflect the effect of the stock split.
 
  A summary of the Corporation's calculation of earnings per share is as
follows:
 
<TABLE>
<CAPTION>
                                              QUARTERS ENDED   NINE MONTHS ENDED
                                               SEPTEMBER 30      SEPTEMBER 30
                                             ----------------- -----------------
                                               1998     1997     1998     1997
                                             -------- -------- -------- --------
                                                        (IN MILLIONS)
<S>                                          <C>      <C>      <C>      <C>
Net income.................................  $    105 $    226 $    585 $    645
Less preferred dividends...................         1        9        9       28
                                             -------- -------- -------- --------
Net income applicable to common stock......  $    104 $    217 $    576 $    617
                                             ======== ======== ======== ========
<CAPTION>
                                                    (SHARES IN THOUSANDS)
<S>                                          <C>      <C>      <C>      <C>
Weighted average number of common shares
 outstanding used in calculation of basic
 earnings per share........................   294,379  290,766  293,570  297,750
Incremental shares from the assumed
 exercise of dilutive stock options as of
 the beginning of the period...............     1,982    4,918    2,480    5,398
                                             -------- -------- -------- --------
Weighted average number of common shares
 outstanding used in calculation of diluted
 earnings per share........................   296,361  295,684  296,050  303,148
                                             ======== ======== ======== ========
  Basic earnings per common share..........  $    .35 $    .75 $   1.96 $   2.07
                                             ======== ======== ======== ========
  Diluted earnings per common share........  $    .35 $    .73 $   1.94 $   2.04
                                             ======== ======== ======== ========
</TABLE>
 
                                      36
<PAGE>
 
                            BANKBOSTON CORPORATION
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
8. CONTINGENCIES
 
  The Corporation and its subsidiaries are defendants in a number of legal
proceedings arising in the normal course of business. Management, after
reviewing all actions and proceedings pending against or involving the
Corporation and its subsidiaries, considers that the aggregate loss, if any,
resulting from the final outcome of these proceedings should not be material
to the Corporation's financial condition or results of operations.
 
9. NONOWNER CHANGES IN EQUITY
 
  Effective January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income." Under this standard, the Corporation is required to
report as comprehensive income, or nonowner changes in equity, all changes to
stockholders' equity that result from transactions and other economic events
during the reporting period, other than transactions with stockholders in
their capacity as owners. For the Corporation, such nonowner changes in equity
consist of net income and other nonowner changes, composed of unrealized gains
and losses on securities available for sale and foreign currency translation
adjustments.
 
  The Corporation has reported nonowner changes in equity for the nine months
ended September 30, 1998 and 1997 in the accompanying consolidated statement
of changes in stockholders' equity on a net-of-tax basis. The changes in
unrealized gain on securities available for sale have also been presented net
of reclassification adjustments related to net securities gains that were
realized from sales of such securities during the respective periods. These
gains, on an after-tax basis, amounted to $33 million and $31 million for the
nine months ended September 30, 1998 and 1997, respectively. Tax provisions
(benefits) related to other nonowner changes in equity for the nine months
ended September 30, 1998 and 1997 were as follows: change in unrealized gain
on securities available for sale, $(2) million and $16 million, respectively;
reclassification adjustment, $20 million and $21 million, respectively; and
change in foreign currency translation, $(1) and $(2) million, respectively.
 
10. PREFERRED STOCK REDEMPTION
 
  In July 1998, the Corporation redeemed all of the outstanding shares of its
adjustable rate cumulative preferred stock, Series A, B and C, and its 7 7/8%
cumulative preferred stock, Series F, at their total aggregate carrying value
of $278 million, plus dividends payable through their respective redemption
dates.
 
                                      37
<PAGE>
 
CONSOLIDATED BALANCE SHEET AVERAGES BY QUARTER
 
LAST NINE QUARTERS
 
<TABLE>
<CAPTION>
                               1996                    1997                        1998
                          --------------- ------------------------------- -----------------------
                             3       4       1       2       3       4       1       2       3
                          ------- ------- ------- ------- ------- ------- ------- ------- -------
<S>                       <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
         ASSETS                                        (IN MILLIONS)
Interest bearing
 deposits in other
 banks..................  $ 1,256 $ 1,405 $ 1,961 $ 1,748 $ 1,737 $ 1,683 $ 1,579 $ 1,077 $   962
Federal funds sold and
 securities purchased
 under agreements to
 resell.................    1,708   2,047   2,189   1,896   2,018   2,322   2,524   3,252   3,483
Trading securities......    1,467   1,459   1,498   1,590   1,924   1,769   2,072   2,248   1,663
Mortgages held for
 sale...................       21      44
Securities..............    8,249   8,029   9,261   9,488   9,661  10,538  10,606  11,188  11,692
Loans and lease
 financing..............   41,223  41,835  41,732  42,112  42,429  43,242  43,706  44,196  45,069
                          ------- ------- ------- ------- ------- ------- ------- ------- -------
 Total earning assets...   53,924  54,819  56,641  56,834  57,769  59,554  60,487  61,961  62,869
Other assets............    6,125   6,237   6,583   7,112   7,935   8,538   9,223   9,275   9,632
                          ------- ------- ------- ------- ------- ------- ------- ------- -------
 TOTAL ASSETS...........  $60,049 $61,056 $63,224 $63,946 $65,704 $68,092 $69,710 $71,236 $72,501
                          ======= ======= ======= ======= ======= ======= ======= ======= =======
    LIABILITIES AND
  STOCKHOLDERS' EQUITY
Deposits
Domestic offices
 Noninterest bearing....  $ 6,694 $ 6,837 $ 6,951 $ 7,229 $ 7,182 $ 7,535 $ 7,482 $ 7,031 $ 6,186
 Interest bearing.......   26,003  25,121  24,622  24,657  24,713  24,825  25,594  25,786  26,147
Overseas offices
 Noninterest bearing....      491     455     599     626     709     883   1,134   1,178   1,019
 Interest bearing.......    9,429   9,618   9,727   9,734  10,385  11,009  11,564  11,409  11,187
                          ------- ------- ------- ------- ------- ------- ------- ------- -------
 Total deposits.........   42,617  42,031  41,899  42,246  42,989  44,252  45,774  45,404  44,539
Federal funds purchased
 and repurchase
 agreements.............    4,739   5,167   5,923   5,776   6,047   6,318   5,337   5,358   6,825
Other funds borrowed....    3,562   4,190   4,943   5,690   6,320   6,412   6,972   7,696   7,598
Notes payable(1)........    2,674   2,983   3,316   3,351   3,336   3,524   3,749   4,392   5,149
Other liabilities.......    1,698   1,860   2,191   2,216   2,464   3,106   3,148   3,508   3,618
Stockholders' equity....    4,759   4,825   4,952   4,667   4,548   4,480   4,730   4,878   4,772
                          ------- ------- ------- ------- ------- ------- ------- ------- -------
 TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY..  $60,049 $61,056 $63,224 $63,946 $65,704 $68,092 $69,710 $71,236 $72,501
                          ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
--------
(1) Amounts for 1997 and 1998 include guaranteed preferred beneficial interests
    in Corporation's junior subordinated debentures.
 
                                       38
<PAGE>
 
CONSOLIDATED STATEMENT OF INCOME BY QUARTER--TAXABLE EQUIVALENT BASIS
 
LAST NINE QUARTERS
 
<TABLE>
<CAPTION>
                              1996                  1997                      1998
                          -------------  ---------------------------  ---------------------
                            3      4       1      2      3      4       1      2       3
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
                                     (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                       <C>    <C>     <C>    <C>    <C>    <C>     <C>    <C>     <C>
NET INTEREST REVENUE....  $591.4 $611.2  $620.0 $615.9 $571.1 $621.5  $603.3 $639.5  $624.9
Taxable equivalent
 adjustment.............     5.0    5.2     5.0    4.5    5.4    9.6     3.7    5.4     4.7
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
 Total net interest
  revenue...............   596.4  616.4   625.0  620.4  576.5  631.1   607.0  644.9   629.6
Provision for credit
 losses.................    57.0   60.0    60.0   60.0   40.0   40.0   140.0   60.0    60.0
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
 Net interest revenue
  after provision for
  credit losses.........   539.4  556.4   565.0  560.4  536.5  591.1   467.0  584.9   569.6
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
NONINTEREST INCOME
Financial service fees..   140.4  146.6   137.5  155.7  168.4  193.6   162.8  191.7   220.6
Trust and agency fees...    61.6   65.0    66.0   69.4   72.8   74.8    79.3   82.1    82.3
Trading profits and
 commissions............    20.7   17.2    19.3   27.9   19.9   (8.6)   34.0   (3.7)  (52.1)
Net securities gains....     7.1    (.8)    8.8   31.9   11.3   27.4    24.8   11.4    16.6
Other income............   106.7  111.5    98.1   91.9  175.8  121.2   288.1  175.9   117.7
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
 Total noninterest
  income................   336.5  339.5   329.7  376.8  448.2  408.4   589.0  457.4   385.1
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
NONINTEREST EXPENSE
Salaries................   244.2  254.5   257.7  260.2  263.8  283.0   292.7  305.1   384.4
Employee benefits.......    49.1   44.4    52.7   51.3   54.0   56.3    60.9   63.3    64.1
Occupancy expense.......    51.1   50.6    50.8   52.1   49.6   51.3    54.4   55.8    58.3
Equipment expense.......    34.2   36.2    35.6   35.8   36.1   38.4    40.1   39.6    40.8
Acquisition, divestiture
 and restructuring
 expense................   180.0
Other expense...........   153.8  162.2   147.4  178.5  197.8  171.5   212.9  183.6   238.0
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
 Total noninterest
  expense...............   712.4  547.9   544.2  577.9  601.3  600.5   661.0  647.4   785.6
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
Income before income
 taxes..................   163.5  348.0   350.5  359.3  383.4  399.0   395.0  394.9   169.1
Provision for income
 taxes..................    78.5  141.3   138.7  142.8  152.3  154.7   153.0  147.6    59.4
Taxable equivalent
 adjustment.............     5.0    5.2     5.0    4.5    5.4    9.6     3.7    5.4     4.7
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
                            83.5  146.5   143.7  147.3  157.7  164.3   156.7  153.0    64.1
                          ------ ------  ------ ------ ------ ------  ------ ------  ------
NET INCOME..............  $ 80.0 $201.5  $206.8 $212.0 $225.7 $234.7  $238.3 $241.9  $105.0
                          ====== ======  ====== ====== ====== ======  ====== ======  ======
PER COMMON SHARE(1)
Net Income
 Basic..................  $  .23 $  .63  $  .64 $  .68 $  .75 $  .79  $  .80 $  .81  $  .35
 Diluted................     .23    .62     .63    .68    .73    .78     .79    .80     .35
Cash dividends
 declared...............     .22    .22     .22    .26    .26    .26     .29    .29     .29
</TABLE>
--------
(1) All per share information has been adjusted to reflect the Corporation's
    two-for-one stock split, effected in June 1998.
 
                                       39
<PAGE>
 
         AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
 
<TABLE>
<CAPTION>
                                                     QUARTER ENDED SEPTEMBER 30,
                                                                1998
                                                     ---------------------------
                                                     AVERAGE             AVERAGE
                                                     VOLUME  INTEREST(1)  RATE
                                                     ------- ----------- -------
                                                        (DOLLARS IN MILLIONS)
<S>                                                  <C>     <C>         <C>
                      ASSETS
Interest Bearing Deposits with Other Banks
 U.S...............................................  $   139   $    2      5.51%
 International.....................................      823       25     12.03
                                                     -------   ------
  Total............................................      962       27     11.09
                                                     -------   ------     -----
Federal Funds Sold and Resale Agreements
 U.S...............................................    2,351       30      5.13
 International.....................................    1,132       41     14.32
                                                     -------   ------
  Total............................................    3,483       71      8.12
                                                     -------   ------     -----
Trading Securities
 U.S...............................................      926       16      6.88
 International.....................................      737        8      4.20
                                                     -------   ------
  Total............................................    1,663       24      5.70
                                                     -------   ------     -----
Securities
 U.S.
 Available for sale (2)............................    9,179      140      6.11
 Held to maturity..................................      598       11      6.82
 International
 Available for sale (2)............................    1,915       48      9.70
                                                     -------   ------
  Total............................................   11,692      199      6.74
                                                     -------   ------     -----
Loans and Lease Financing (Net of Unearned Income)
 U.S...............................................   30,450      640      8.33
 International.....................................   14,619      454     12.33
                                                     -------   ------
  Total loans and lease financing (3)..............   45,069    1,094      9.63
                                                     -------   ------     -----
 Earning assets....................................   62,869    1,415      8.92
                                                               ------     -----
 Nonearning assets.................................    9,632
                                                     -------
  Total Assets.....................................  $72,501
                                                     =======
       LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
 U.S.
 Savings deposits..................................  $16,174   $  105      2.57%
 Time deposits.....................................    9,973      138      5.50
 International.....................................   11,187      216      7.67
                                                     -------   ------
  Total............................................   37,334      459      4.88
                                                     -------   ------     -----
Federal Funds Purchased and Repurchase Agreements
 U.S...............................................    6,658       90      5.35
 International.....................................      167        2      3.91
                                                     -------   ------
  Total............................................    6,825       92      5.31
                                                     -------   ------     -----
Other Funds Borrowed
 U.S...............................................    5,635       85      5.98
 International.....................................    1,963       61     12.42
                                                     -------   ------
  Total............................................    7,598      146      7.65
                                                     -------   ------     -----
Notes Payable
 U.S. (4)..........................................    4,732       79      6.58
 International.....................................      417        9      8.74
                                                     -------   ------
  Total............................................    5,149       88      6.75
                                                     -------   ------     -----
 Total interest bearing liabilities................   56,906      785      5.47
                                                               ------     -----
 Demand deposits U.S...............................    6,186
 Demand deposits International.....................    1,019
 Other noninterest bearing liabilities.............    3,618
 Stockholders' Equity..............................    4,772
                                                     -------
  Total Liabilities and Stockholders' Equity.......  $72,501
                                                     =======
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE
 INTEREST EARNING ASSETS
 U.S...............................................  $43,643   $  413      3.75%
 International.....................................   19,226      217      4.47%
                                                     -------   ------
  Total............................................  $62,869   $  630      3.97%
                                                     =======   ======
</TABLE>
--------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
  securities' amortized cost.
(3) Loans and lease financing includes nonaccrual balances.
(4) Amounts include guaranteed beneficial interests in Corporation's junior
  subordinated debentures.
 
                                       40
<PAGE>
 
         AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
 
<TABLE>
<CAPTION>
                                         QUARTER ENDED SEPTEMBER 30, 1997
                                        --------------------------------------
                                         AVERAGE                     AVERAGE
                                         VOLUME       INTEREST (1)    RATE
                                        ------------ -------------- ----------
                ASSETS                        (DOLLARS IN MILLIONS)
<S>                                     <C>          <C>            <C>
Interest Bearing Deposits with Other
 Banks
 U.S..................................  $        220    $        4         6.84%
 International........................         1,517            31         8.17
                                        ------------    ----------
  Total...............................         1,737            35         8.00
                                        ------------    ----------   ----------
Federal Funds Sold and Resale
 Agreements
 U.S..................................           476             7         5.77
 International........................         1,542            53        13.68
                                        ------------    ----------
  Total...............................         2,018            60        11.81
                                        ------------    ----------   ----------
Trading Securities
 U.S..................................         1,124            18         6.22
 International........................           800            12         6.10
                                        ------------    ----------
  Total...............................         1,924            30         6.17
                                        ------------    ----------   ----------
Securities
 U.S.
 Available for sale(2)................         7,742           128         6.61
 Held to maturity.....................           642            10         6.28
 International
 Available for sale(2)................         1,277            36        11.33
                                        ------------    ----------
  Total...............................         9,661           174         7.11
                                        ------------    ----------   ----------
Loans and Lease Financing (Net of
 Unearned Income)
 U.S. ................................        31,317           659         8.35
 International........................        11,112           315        11.25
                                        ------------    ----------
  Total loans and lease financing(3)..        42,429           974         9.11
                                        ------------    ----------   ----------
 Earning assets.......................        57,769         1,273         8.74
                                                        ----------   ----------
 Nonearning assets....................         7,935
                                        ------------
  Total Assets........................  $     65,704
                                        ============
 LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
 U.S.
 Savings deposits.....................  $     14,673    $      101         2.71%
 Time deposits........................        10,040           143         5.65
 International........................        10,385           184         7.03
                                        ------------    ----------
  Total...............................        35,098           428         4.83
                                        ------------    ----------   ----------
Federal Funds Purchased and Repurchase
 Agreements
 U.S. ................................         5,819            84         5.76
 International........................           228             5         8.17
                                        ------------    ----------
  Total...............................         6,047            89         5.85
                                        ------------    ----------   ----------
Other Funds Borrowed
 U.S. ................................         4,669            70         5.96
 International........................         1,651            48        11.51
                                        ------------    ----------
 Total................................         6,320           118         7.41
                                        ------------    ----------   ----------
Notes Payable
 U.S.(4)..............................         2,945            51         6.95
 International........................           391            10         9.85
                                        ------------    ----------
  Total...............................         3,336            61         7.29
                                        ------------    ----------   ----------
 Total interest bearing liabilities...        50,801           696         5.43
                                                        ----------   ----------
 Demand deposits U.S. ................         7,182
 Demand deposits International........           709
 Other noninterest bearing
  liabilities.........................         2,464
 Stockholders' Equity.................         4,548
                                        ------------
  Total Liabilities and Stockholders'
   Equity.............................  $     65,704
                                        ============
NET INTEREST REVENUE AS A PERCENTAGE
 OF AVERAGE INTEREST EARNING ASSETS
 U.S. ................................  $     41,521    $      420         4.01%
 International........................        16,248           157         3.83%
                                        ------------    ----------
  Total...............................  $     57,769    $      577         3.96%
                                        ============    ==========
</TABLE>
--------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
    securities' amortized cost.
(3) Loans and lease financing includes nonaccrual balances.
(4) Amounts include guaranteed preferred beneficial interests in Corporation's
    junior subordinated debentures.
 
                                       41
<PAGE>
 
         AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
 
<TABLE>
<CAPTION>
                                                          NINE MONTHS ENDED
                                                         SEPTEMBER 30, 1998
                                                     ---------------------------
                                                     AVERAGE             AVERAGE
                                                     VOLUME  INTEREST(1)  RATE
                                                     ------- ----------- -------
                       ASSETS                           (DOLLARS IN MILLIONS)
<S>                                                  <C>     <C>         <C>
Interest Bearing Deposits with Other Banks
 U.S...............................................  $   114   $    4      5.63%
 International.....................................    1,090       82     10.05
                                                     -------   ------
  Total............................................    1,204       86      9.64
                                                     -------   ------     -----
Federal Funds Sold and Resale Agreements
 U.S...............................................    1,367       55      5.39
 International.....................................    1,723      195     15.13
                                                     -------   ------
  Total............................................    3,090      250     10.82
                                                     -------   ------     -----
Trading Securities
 U.S...............................................    1,094       49      6.05
 International.....................................      899       41      6.04
                                                     -------   ------
  Total............................................    1,993       90      6.04
                                                     -------   ------     -----
Securities
 U.S.
 Available for sale(2).............................    8,753      423      6.53
 Held to maturity..................................      615       30      6.56
 International
 Available for sale(2).............................    1,798      133      9.74
                                                     -------   ------
  Total............................................   11,166      586      7.02
                                                     -------   ------     -----
Loans and Lease Financing (Net of Unearned Income)
 U.S...............................................   30,364    1,910      8.41
 International.....................................   13,964    1,228     11.75
                                                     -------   ------
  Total loans and lease financing(3)...............   44,328    3,138      9.46
                                                     -------   ------     -----
 Earning assets....................................   61,781    4,150      8.98
                                                               ------     -----
 Nonearning assets.................................    9,358
                                                     -------
  Total Assets.....................................  $71,139
                                                     =======
       LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
 U.S.
 Savings deposits..................................  $15,398   $  303      2.64%
 Time deposits.....................................   10,448      433      5.54
 International.....................................   11,384      649      7.62
                                                     -------   ------
  Total............................................   37,230    1,385      4.98
                                                     -------   ------     -----
Federal Funds Purchased and Repurchase Agreements
 U.S...............................................    5,660      232      5.48
 International.....................................      185        7      4.96
                                                     -------   ------
  Total............................................    5,845      239      5.46
                                                     -------   ------     -----
Other Funds Borrowed
 U.S...............................................    5,634      252      5.99
 International.....................................    1,790      164     12.22
                                                     -------   ------
  Total............................................    7,424      416      7.49
                                                     -------   ------     -----
Notes Payable
 U.S.(4)...........................................    4,074      204      6.71
 International.....................................      361       25      9.20
                                                     -------   ------
  Total............................................    4,435      229      6.91
                                                     -------   ------     -----
 Total interest bearing liabilities................   54,934    2,269      5.52
                                                               ------     -----
 Demand deposits U.S...............................    6,895
 Demand deposits International.....................    1,110
 Other noninterest bearing liabilities.............    3,427
 Stockholders' Equity..............................    4,773
                                                     -------
  Total Liabilities and Stockholders' Equity.......  $71,139
                                                     =======
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST
 EARNING ASSETS
 U.S...............................................  $42,307   $1,265      4.00%
 International.....................................   19,474      616      4.23%
                                                     -------   ------
  Total............................................  $61,781   $1,881      4.07%
                                                     =======   ======
</TABLE>
--------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
    securities' amortized cost.
(3) Loans and lease financing includes nonaccrual balances.
(4) Amounts include guaranteed preferred beneficial interests in Corporation's
    junior subordinated debentures.
 
                                       42
<PAGE>
 
         AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
 
<TABLE>
<CAPTION>
                                                         NINE MONTHS ENDED
                                                         SEPTEMBER 30, 1997
                                                    ----------------------------
                                                    AVERAGE              AVERAGE
                                                    VOLUME  INTEREST (1)  RATE
                                                    ------- ------------ -------
                      ASSETS                           (DOLLARS IN MILLIONS)
<S>                                                 <C>     <C>          <C>
Interest Bearing Deposits with Other Banks
 U.S. ............................................  $   363    $   16      5.94%
 International....................................    1,452        90      8.25
                                                    -------    ------
  Total...........................................    1,815       106      7.79
                                                    -------    ------     -----
Federal Funds Sold and Resale Agreements
 U.S. ............................................      607        25      5.39
 International....................................    1,427       156     14.64
                                                    -------    ------
  Total...........................................    2,034       181     11.88
                                                    -------    ------     -----
Trading Securities
 U.S. ............................................      975        45      6.14
 International....................................      697        41      7.89
                                                    -------    ------
  Total...........................................    1,672        86      6.87
                                                    -------    ------     -----
Securities
 U.S.
 Available for sale(2)............................    7,584       367      6.51
 Held to maturity.................................      663        31      6.25
 International
 Available for sale(2)............................    1,224       117     13.19
                                                    -------    ------
  Total...........................................    9,471       515      7.27
                                                    -------    ------     -----
Loans and Lease Financing (Net of Unearned Income)
 U.S. ............................................   31,597     2,058      8.71
 International....................................   10,496       892     11.36
                                                    -------    ------
  Total loans and lease financing(3)..............   42,093     2,950      9.37
                                                    -------    ------     -----
 Earning assets...................................   57,085     3,838      8.99
                                                               ------     -----
 Nonearning assets................................    7,207
                                                    -------
  Total Assets....................................  $64,292
                                                    =======
       LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
 U.S.
 Savings deposits.................................  $14,768    $  299      2.70%
 Time deposits....................................    9,897       413      5.57
 International....................................    9,951       521      7.01
                                                    -------    ------
  Total...........................................   34,616     1,233      4.76
                                                    -------    ------     -----
Federal Funds Purchased and Repurchase Agreements
 U.S. ............................................    5,757       251      5.82
 International....................................      159        11      9.22
                                                    -------    ------
  Total...........................................    5,916       262      5.91
                                                    -------    ------     -----
Other Funds Borrowed
 U.S. ............................................    4,173       187      5.98
 International....................................    1,483       150     13.58
                                                    -------    ------
  Total...........................................    5,656       337      7.98
                                                    -------    ------     -----
Notes Payable
 U.S.(4)..........................................    2,811       146      6.92
 International....................................      523        38      9.81
                                                    -------    ------
  Total...........................................    3,334       184      7.37
                                                    -------    ------     -----
 Total interest bearing liabilities...............   49,522     2,016      5.44
                                                               ------     -----
 Demand deposits U.S..............................    7,121
 Demand deposits International....................      645
 Other noninterest bearing liabilities............    2,291
 Stockholders' Equity.............................    4,713
                                                    -------
  Total Liabilities and Stockholders' Equity......  $64,292
                                                    =======
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE
 INTEREST EARNING ASSETS
 U.S. ............................................  $41,789    $1,367      4.37%
 International....................................   15,296       455      3.98%
                                                    -------    ------
  Total...........................................  $57,085    $1,822      4.27%
                                                    =======    ======
</TABLE>
--------
(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the
    securities' amortized cost.
(3) Loans and lease financing includes nonaccrual balances.
(4) Amounts include guaranteed preferred beneficial interests in Corporation's
    junior subordinated debentures.
 
                                       43
<PAGE>
 
           CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS
 
  The following tables present, on a fully taxable equivalent basis, an
analysis of the effect on net interest revenue of volume and rate changes. The
change due to the volume/rate variance has been allocated to volume.
 
              THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
 
<TABLE>
<CAPTION>
                                               INCREASE (DECREASE)
                                                DUE TO CHANGE IN
                                               ---------------------
                                                 VOLUME      RATE     NET CHANGE
                                               ----------  ---------  ----------
                                                       (IN MILLIONS)
<S>                                            <C>         <C>        <C>
Interest income
  Loans and lease financing
    U.S. .....................................  $     (18) $      (1)   $ (19)
    International.............................        109         30      139
                                                                        -----
                                                                          120
                                                                        -----
  Other earning assets
    U.S. .....................................         44        (12)      32
    International.............................        (14)         4      (10)
                                                                        -----
                                                                           22
                                                                        -----
Total interest income.........................        115         27      142
Total interest expense........................         64         25       89
                                                                        -----
Net interest revenue..........................                          $  53
                                                                        =====
 
 NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
                                    30, 1997
 
<CAPTION>
                                               INCREASE (DECREASE)
                                                DUE TO CHANGE IN
                                               ---------------------
                                                 VOLUME      RATE     NET CHANGE
                                               ----------  ---------  ----------
                                                       (IN MILLIONS)
<S>                                            <C>         <C>        <C>
Interest income
  Loans and lease financing
    U.S.......................................  $     (78) $     (70)   $(148)
    International.............................        305         31      336
                                                                        -----
                                                                          188
                                                                        -----
  Other earning assets
    U.S.......................................         80         (3)      77
    International.............................         59        (12)      47
                                                                        -----
                                                                          124
                                                                        -----
Total interest income.........................        314         (2)     312
Total interest expense........................        172         81      253
                                                                        -----
Net interest revenue..........................                          $  59
                                                                        =====
</TABLE>
 
                                       44
<PAGE>
 
                         PART II -- OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
  Robertson Stephens Litigation. As previously disclosed, on August 31, 1998,
the Corporation acquired the investment banking business of BancAmerica
Robertson Stephens ("Robertson Stephens") from BankAmerica Corporation. At the
time of the sale, Robertson Stephens was a defendant in several lawsuits in
various state and federal courts claiming damages, some in large dollar
amounts, arising out of Robertson Stephens' actions in connection with the
proposed or actual underwriting or placement of securities. Pursuant to the
terms of the sale, these lawsuits are now the responsibility of the
Corporation.
 
  Management, after reviewing all actions and proceedings pending against the
Corporation, including the above-mentioned lawsuits, considers that the
aggregate loss, if any, resulting from the final outcome of these proceedings
should not be material to the Corporation's results of operations or financial
condition.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
  (a) Exhibits.
 
<TABLE>
<CAPTION>
   <C>   <S>
   12(a) --Computation of the Corporation's Consolidated Ratio of Earnings to
          Fixed Charges (excluding interest on deposits).
   12(b) --Computation of the Corporation's Consolidated Ratio of Earnings to
          Fixed Charges (including interest on deposits).
   12(c) --Computation of the Corporation's Consolidated Ratio of Earnings to
          Fixed Charges and Preferred Stock Dividend Requirements (excluding
          interest on deposits).
   12(d) --Computation of the Corporation's Consolidated Ratio of Earnings to
          Fixed Charges and Preferred Stock Dividend Requirements (including
          interest on deposits).
   27    --Financial Data Schedules.
</TABLE>
 
  (b) Current Reports on Form 8-K.
 
  During the third quarter of 1998, the Corporation filed two Current Reports
on Form 8-K, dated July 16, 1998 and August 31, 1998, respectively, which
contained information pursuant to Items 5 and 7 of Form 8-K. The Corporation
also filed a Current Report on Form 8-K, dated October 15, 1998, which
contained information pursuant to Items 5 and 7 of Form 8-K.
 
                                      45
<PAGE>
 
                                   SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS 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.
 
                                          BankBoston Corporation
 
                                                  /s/ Charles K. Gifford
                                          _____________________________________
                                                    Charles K. Gifford
                                                 Chairman of the Board and
                                                  Chief Executive Officer
 
                                                  /s/ Susannah M. Swihart
                                          _____________________________________
                                                    Susannah M. Swihart
                                                Vice Chair, Chief Financial
                                                   Officer and Treasurer
 
Date: November 13, 1998
 
                                       46