<PAGE>
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                      SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549-1004
                                        
                                   FORM 10-K
                                        
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
             OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                                        
    For the 53-Week Period Ended               Commission file number
          January 3, 1998                           No. 0-17540

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

                         MONTGOMERY WARD HOLDING CORP.
            (Exact name of Registrant as specified in its charter)

              Delaware                               36-3571585
     (State or other jurisdiction                 (I.R.S. Employer
   of incorporation or organization)             Identification No.)

        Montgomery Ward Plaza,                       60671-0042
          Chicago, Illinois                          (Zip code)
(Address of principal executive offices)

      Registrant's telephone number, including area code:  (312) 467-2000

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

        Title of each class          Name of each exchange on which registered
        -------------------          -----------------------------------------
          Not Applicable                               None

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

                Class A Common Stock, Series 1, $.01 Par Value
                               (Title of class)
                Class A Common Stock, Series 2, $.01 Par Value
                               (Title of class)
Voting Trust Certificates representing Shares of Class A Common Stock, Series 1,
                                $.01 Par Value
                               (Title of class)
Voting Trust Certificates representing Shares of Class A Common Stock, Series 2,
                                $.01 Par Value
                               (Title of class)
                     Class B Common Stock, $.01 Par Value

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   .
                                       ---    ---

At March 16, 1998, there were 18,322,247 shares of Class A Common Stock and
25,000,000 shares of Class B Common Stock of the Registrant outstanding.

--------------------------------------------------------------------------------
<PAGE>
 
Item 1.  Business

Forward-Looking Statements

  Information included in this Report on Form 10-K may constitute forward-
  looking statements that involve a number of risks and uncertainties. From time
  to time, information provided by the Company or statements made by its
  employees may contain other forward-looking statements. Factors that could
  cause actual results to differ materially from the forward-looking statements
  include but are not limited to: Bankruptcy Court actions or proceedings
  related to the bankruptcy, general economic conditions including inflation,
  consumer debt levels, trade restrictions and interest rate fluctuations;
  competitive factors including pricing pressures, technological developments
  and products offered by competitors; inventory risks due to changes in market
  demand or the Company's business strategies; and changes in effective tax
  rates.

  Readers are cautioned not to place undue reliance on these forward-looking
  statements, which speak only as of the date made. The Company undertakes no
  obligation to publicly update or revise any forward-looking statements,
  whether as a result of new information, future events or otherwise.

General

  Montgomery Ward Holding Corp., a Delaware corporation ("the Company" or "MW
  Holding"), and its wholly-owned subsidiary, Montgomery Ward & Co.,
  Incorporated ("Wards"), are engaged in retail merchandising and direct
  response marketing (including insurance) in the United States. See Note 21 to
  the Consolidated Financial Statements for financial information regarding
  these segments.

  Founded in 1872 and incorporated in Illinois in 1968, Wards is one of the
  nation's largest retail merchandising organizations. As of January 3, 1998,
  Wards operated 301 retail stores in 37 states with approximately 24 million
  square feet of selling space. In addition, Wards operated 6 outlet and
  liquidation centers which sell overstock merchandise, 17 distribution
  facilities and 78 product service centers.

  Wards offers life and health insurance, revolving credit insurance, club
  products and other consumer services through Signature Financial/Marketing,
  Inc., a Delaware corporation ("Signature"), and through Signature's
  subsidiaries (collectively, with Signature, "The Signature Group"). The
  Signature Group is one of the largest direct marketing companies in the United
  States.

Chapter 11 Filing

  On July 7, 1997 (the "Petition Date"), MW Holding and certain of its U.S.
  subsidiaries filed petitions for reorganization under Chapter 11 of the
  Bankruptcy Code in the United States Bankruptcy Court for the District of
  Delaware (the "Bankruptcy Court"). These related proceedings are being jointly
  administered under the caption "In re Montgomery Ward Holding Corp., a
  Delaware corporation, et. al.", Case No. 97-1409 (PJW), pursuant to an order
  of the Bankruptcy Court. The following U.S. subsidiaries were not included in
  the bankruptcy filings: Signature Financial/Marketing, Inc. and its direct and
  indirect subsidiaries; Marinco Insurance U.S.A., Inc. ("Marinco"); and
  Montgomery Ward Foundation.

  After a long period of negotiation, Wards was unable to reach an out-of-court
  settlement with its lenders. Accordingly, bankruptcy petitions were filed in
  order to obtain an opportunity to reorganize and begin implementing the
  Company's strategies while working to restructure its indebtedness. Pursuant
  to the Post-Petition Loan and Guaranty Agreement dated July 8, 1997, among
  Wards and Lechmere, Inc. ("Lechmere"), as borrowers; MW Holding and other
  debtor subsidiaries of MW Holding, as guarantors; General Electric Capital
  Corporation ("GE Capital"), as agent and lender; and various lenders, as
  amended (the "DIP Facility"), the lenders have agreed to provide up to $1
  billion in post-petition financing to Wards.

                                       1
<PAGE>
 
Item 1.  Business (continued)

Chapter 11 Filing (continued)

  As a result of the Chapter 11 filings, absent approval of the Bankruptcy
  Court, the Company is prohibited from paying, and creditors are prohibited
  from attempting to collect, claims or debts arising pre-petition. The
  consummation of a plan of reorganization is the principal objective of the
  Company's Chapter 11 case. A plan of reorganization sets forth the means for
  satisfying claims and interests in the Company and its debtor subsidiaries,
  including the Liabilities subject to compromise. The consummation of a plan of
  reorganization for the Company and its debtor subsidiaries will require the
  requisite vote of impaired creditors and stockholders under the Bankruptcy
  Code and confirmation of the plan by the Bankruptcy Court.

  The Company expects to reorganize its affairs under the protection of Chapter
  11 and to propose a Chapter 11 plan of reorganization for itself and the other
  filing subsidiaries, including Wards. The Bankruptcy Court has granted the
  Company's request to extend its exclusive right to file a plan of
  reorganization through May 1, 1998. The Company intends to request a further
  extension of the exclusivity period. There can be no assurance that the
  Bankruptcy Court will grant such further extension. Although management
  expects to file a plan of reorganization in 1998, which would contemplate
  emergence in 1999, there can be no assurance at this time that a plan of
  reorganization will be proposed by the Company or approved or confirmed by the
  Bankruptcy Court, or that such plan will be consummated. After the expiration
  of the exclusivity period, creditors of the Company have the right to propose
  alternative plans of reorganization. Any plan of reorganization, among other
  things, is likely to result in material dilution or elimination of the equity
  of existing shareholders as a result of the issuance of equity to creditors or
  new investors.

  At this time, it is not possible to predict the outcome of the Chapter 11
  filing, in general, or its effects on the business of the Company or on the
  interests of creditors or shareholders. The Company's independent auditors
  have issued a report expressing doubt about the Company's ability to continue
  as a going concern. See the Consolidated Financial Statements of the Company
  beginning on page 19.

Merchandising

  The major product offerings by the Company are apparel, furniture and home
  furnishings, appliances and electronics, jewelry, and automotive, including
  service.

  The Apparel offering includes branded, value-oriented merchandise in women's,
  men's, children's and intimate apparel as well as footwear and accessories.
  The apparel brand and price point offering is targeted at the large middle
  market between department stores and discounters. An offering of prominent
  name brands has been built, including Lee, Playtex, Bugle Boy, Bestform,
  Converse, Gloria Vanderbilt and Hanes. In addition, the Company has developed
  licensed and proprietary brands for certain product categories, such as Ship
  'N Shore in women's apparel and BIKE in activewear.

  Furniture and home furnishings include broad selections emphasizing name
  brands in furniture and small ticket lines for the bath, bedroom and kitchen.
  Furniture includes accessorized room groupings to provide customers the
  convenience of coordinated furniture pieces including major brands. The
  Company offers combined consumer electronics and appliance product categories,
  including video, audio, telephones, electronic games and kitchen, laundry and
  other major appliances. The product offering includes significant national
  brands plus some private label brands.

  Jewelry offers all major merchandise categories: diamonds, gemstones, gold and
  watches. Wards has become one of the largest fine jewelry retailers in the
  country, and its major vendor relationships enable it to offer highly featured
  products at outstanding prices.

                                       2
<PAGE>
 
Item 1.  Business (continued)

Merchandising (continued)

  Automotive focuses on the sale and installation of tires, batteries, brakes
  and shocks. Wards is one of the leading retailers of branded tires, including
  Goodyear, Firestone, Michelin, Bridgestone and B.F. Goodrich.

  Wards currently operates 295 full line stores and 6 stores featuring a variety
  of other formats, including free-standing automotive and limited line stores.
  Full line Wards stores average approximately 80,000 square feet of selling
  space.

  Wards' retail business is seasonal, with approximately one-third of sales
  occurring in the fourth quarter. The results of Wards' operations are also
  subject to changes in consumer demand associated with general economic
  conditions, which is especially true with respect to demand for durable goods
  and other "big ticket" merchandise. Wards' retail operations are supported by
  its corporate buying division which has its principal office in Chicago, and
  includes foreign purchasing offices in Hong Kong, Taiwan, Japan, and Korea. In
  addition to its buying staff, the corporate buying division employs technical
  teams to ensure quality control of Wards' merchandise.

Performance Initiatives

Facility Closings and Divestitures

  In 1997, management undertook a review of the retail operations of Wards, and
  determined that the number of different retail formats then in operation
  resulted in a lack of focus on Wards' core business. In August 1997, the
  Bankruptcy Court approved a motion filed by Wards to exit its non-core
  specialty retail businesses - Lechmere, Home Image by Lechmere and Electric
  Avenue & More. The closings, which took place in August 1997, resulted in a
  pre-tax charge of $330 million. Management also reviewed the performance of
  retail stores operating under the core retail format and closed 45
  underperforming retail stores in November 1997. In addition, two outlet and
  liquidation centers were closed. The closings were approved by the Bankruptcy
  Court in November 1997 and resulted in a pre-tax charge of $154 million.

  Wards also closed eight other underperforming retail stores and two other
  liquidation and outlet stores during 1997. The financial performance of the
  remaining retail stores will be reviewed on a continuing basis and additional
  stores may be closed (with the approval of the Bankruptcy Court) if such
  closures are warranted.

Other Divestitures

  In December 1997, the Bankruptcy Court approved the disposition of Wards'
  investment in the common stock and warrants to purchase common stock of
  ValueVision International, Inc. ("ValueVision"). In addition, the agreements
  relating to ValueVision's sales promotion rights with regard to the Wards
  credit cardholder file were restructured. Under the restructured agreements,
  Wards' obligation to purchase advertising from ValueVision was significantly
  reduced. Additionally, ValueVision and its affiliates agreed to cease
  solicitations to its customers using the Wards servicemarks after March 31,
  1998. ValueVision may continue to use the servicemark in connection with
  televised home shopping through July 31, 2008. The transaction was consummated
  on January 15, 1998.

New Merchandising Strategy

  Middle-income females aged 30 to 55 with family incomes of $25,000 to $50,000
  have been targeted as Wards' core fashion customer. Wards' core Hardlines
  customer is defined more broadly, representing both males and females with
  higher income levels and wider age distributions than the core fashion
  customer. These core customers share lifestyle characteristics and shopping
  preferences typical of today's time-pressed, value-conscious families with
  traditional/conservative values and fashion tastes.

                                       3
<PAGE>
 
Item 1.  Business (continued)

Performance Initiatives (continued)

New Merchandising Strategy (continued)

  Wards' strategic plan has been developed to focus its merchandise offering
  around categories of business that meet the needs of the targeted customer, as
  well as those categories that also offer opportunities to drive sales and
  gross margin rate improvements. Wards intends to leverage current areas of
  merchandising strength (major appliances, fine jewelry and furniture, for
  example) to drive near-term profit improvements and capture additional market
  share. Additionally, Wards has targeted certain categories, primarily family
  apparel, domestics, seasonal and home theater, as areas in which growth in
  terms of penetration and market position must be dramatically improved.
  Resources will be focused on developing "trend-right" assortments and
  substantially improving merchandising and marketing in these businesses.
  Finally, Wards will strive to improve the in-store execution of its important
  electronics, automotive and housewares businesses in order to maintain its
  market share, improve margins and achieve a service level comparable to its
  competitors.

Store Operations/Customer Service Strategy

  Wards is focused on improving its customer service and presenting retail
  stores that are bright, clean and easy to shop. Wards' goal is to provide
  knowledgeable and friendly sales associates coupled with quick and efficient
  completion of sales transactions at the register. Store policies and
  procedures are currently under review; the objective of the review is to shift
  time spent from non-service oriented tasks to customer-directed activities. 

  A customer-service culture is being instilled in both corporate headquarters
  and store associates. As a first step, a Director of Customer Service was
  appointed in 1997. The primary focus of this position is to improve service
  and coordination at all levels of the organization. Also in 1997, the "Kick It
  Up A Notch" program was initiated to reward store associates who provide
  exceptional customer service.

Logistics Strategy

  Wards is currently in the process of reviewing its logistics network to better
  serve the retail stores at an optimal cost to Wards. Improved management of
  the flow of goods through the network is expected to result in improved
  product velocity and reduced inventory levels, while still maintaining an
  optimal in-stock level at the retail level. A particular focus is improvement
  in the home delivery process, including the simplification of the current
  computer systems and implementation of an automated routing process. These
  changes are expected to allow a customer delivery to be scheduled for a more
  precise time window, thereby improving customer service while maximizing the
  productivity of routing staffs.

Systems Strategy

  Computerized information systems are currently under development that will
  support the merchandising, customer service and logistics strategies
  previously discussed. The systems under development are primarily focused on
  supply chain efficiencies (through the implementation of state-of-the-art
  buying and warehouse management systems) and customer service improvements
  (through the implementation of a new point of sale system and the enhancement
  of customer delivery systems). Additionally, a major initiative is underway to
  assure the ability of all continuing systems to process dates that occur in
  the next century. Based on Wards' plans and amounts already expended, the
  total future cost to address the date change issue is not expected to
  materially impact future cash flows.

                                       4
<PAGE>
 
Item 1.  Business (continued)

Direct Marketing

  The Signature Group, headquartered in Schaumburg, Illinois, is a leading
  provider of fee-based membership services offered to consumers through direct
  response marketing. Signature provides consumers with a broad range of
  continuity club products including credit card registration, auto, dining,
  dental and legal services as well as insurance products, including credit
  insurance and various supplemental life and health insurance policies.
  Signature's products typically are sold through affiliations with major bank,
  oil or retail credit cards, including the Wards proprietary credit card.
  Signature's clients include 14 of the top 20 issuers of bank credit cards, 8
  of the top 10 issuers of oil company credit cards and a number of leading
  retailers and affinity groups. Signature's teleservices unit also provides a
  variety of inbound and outbound telemarketing services as well as customer
  retention services to various financial, insurance and telecommunications
  clients.

  Established in 1966 as a wholly-owned subsidiary of Wards, Signature has over
  30 years of expertise developing targeted marketing programs. Signature is the
  largest outbound telemarketer for the credit card industry in the country,
  with over 8,000 employees in 41 locations. It operates 37 call centers with
  2,578 workstations and annually conducts over 70 million carefully scripted
  telemarketing presentations. Signature also mails over 400 million
  solicitations annually. The combination of leading-edge technology and
  marketing expertise allows Signature to offer a completely integrated
  marketing plan to its customers. Signature assigns a multi-functional account
  team to each client to manage every aspect of their marketing program, from
  the development and execution of marketing plans to the establishment of
  billing, fulfillment, customer service and post-marketing analysis. In
  addition to its proven experience marketing directly to consumers, Signature
  has developed a unique expertise in managing networks of independent
  contractors. For example, Signature's auto, dining, dental and legal services
  plans utilize networks of Signature-managed independent service providers and
  professionals to deliver value and quality customer service to the Company's
  customers. These networks have been developed over many years and are integral
  to the successful delivery of Signature's products.

  Signature works in partnership with its clients and other organizations to
  offer consumers convenience and significant savings when purchasing a wide
  array of high-quality goods and services. Signature has a total of 14.5
  million consumer members including 5.5 million Wards credit card customers and
  9.0 million other credit card customers. Signature has exclusive marketing
  rights to the entire Wards credit card file. It also markets on behalf of
  approximately 130 other clients, including some of the nation's largest
  financial institutions, retailers, airlines, oil companies, associates, unions
  and employer groups. Signature's major third party clients include American
  Airlines, AARP, American Express, Amoco, BancOne, Chase, Citicorp, Discover,
  FirstCard, General Electric, The Limited (Alliance Data Systems), Merrill
  Lynch, Mobil, Norwest Mortgage, Proffitt's, Shell, Texaco, TWA, United
  Airlines and Wells Fargo.

  Since 1994, Signature has aggressively sought to diversify its customer
  account base through the development of new third party client (non-Wards)
  relationships and business acquisitions. As of November 30, 1997, 9 million,
  or 62%, of the Company's total members were from third party clients, up
  significantly from 3.1 million, or 33%, of total members at the end of 1994.

  Signature has retained investment advisors to determine whether its core
  competencies and market opportunities could be maximized as a result of a sale
  or merger. The study (which includes the solicitation of bids, discussions
  with potential purchasers and the providing of information to such potential
  purchasers) has not been completed and management cannot provide any assurance
  as to whether a sale or merger with respect to Signature or any portion
  thereof may occur, or the timing of a transaction, if such a transaction does
  occur. Any transaction would require the approval of the Bankruptcy Court.

  See Note 21 to the Consolidated Financial Statements for restrictions on
  dividends which may be paid by insurance subsidiaries of Signature.

                                       5
<PAGE>
 
Item 1.  Business (continued)

Competition and Regulation

  The sale of merchandise by Wards is conducted under highly competitive
  conditions. Buying and selling are each done in open competitive markets.
  Wards' stores are in competition with specialty stores, department stores and
  other types of retail outlets in the areas in which they operate. The Company
  believes that merchandise assortments, brand names, competitive pricing and
  availability of services such as credit, delivery, installation and repair,
  are the principal factors which differentiate it from competitors.

  Certain of Signature's operations are highly regulated and conducted under
  highly competitive conditions. To date, Signature has been able to compete
  effectively with other companies which offer programs similar to those
  provided by Signature. Signature also competes with traditional methods of
  marketing by unaffiliated dentists and lawyers. Insurance companies operate
  pursuant to specific state statutes, rules and regulations and are required to
  file reports with such agencies at least quarterly.

  Telemarketing and direct mail solicitations are regulated at state and federal
  levels, and management believes that these activities will increasingly be
  subject to such regulation. Such regulation may limit Signature's ability to
  solicit new members or to offer more products and services to existing members
  and may materially adversely affect Signature's business and revenues.

  The requirements of environmental protection laws and regulations have not had
  a material effect upon Wards' operations. Compliance may, in certain cases,
  lengthen the lead time of expansion plans and could increase construction and
  operating costs.

Account Purchase Agreements

  Credit is extended to Wards' customers under an open-end revolving credit plan
  and is an important element in generating sales, especially in the big ticket
  businesses. Wards' private label credit card sales were 50.7% and 57.1% of
  total sales for 1997 and 1996, respectively. Bankcard sales were an additional
  21.2% and 19.9% of total sales for 1997 and 1996, respectively.

  Wards entered into a Bank Credit Card Program Agreement ("Card Agreement")
  effective April 1, 1996 with Monogram Credit Card Bank of Georgia
  ("Monogram"), and an Account-Related Agreement ("Account Related Agreement")
  effective April 1, 1996 with Montgomery Ward Credit Corporation ("Montgomery
  Ward Credit") (collectively referred to as the "Agreements") pursuant to which
  Monogram and Montgomery Ward Credit (collectively referred to as the
  "Montgomery Ward Credit Companies" or "MWCC"), both of which are affiliates of
  General Electric Capital Corporation ("GE Capital"), make payments to Wards as
  to their receivables generated by sales to customers of Wards, its affiliates
  and licensees who utilize the Wards private label credit card, and provide
  services to Wards, all of which are guaranteed by GE Capital. Under the
  Agreements, Monogram has the exclusive right to operate the Wards private
  label credit card system and the obligation to pay to Wards the face amount of
  Monogram's receivables generated by the Wards private label credit card
  system, up to $7 billion outstanding at any time. If Wards desires to receive
  payment for receivables generated by the Wards private label credit card
  system at any time when Montgomery Ward Credit Companies own $7 billion or
  more of such receivables and do not desire to finance additional receivables,
  alternative arrangements, such as the sale of receivables to banks or other
  financial institutions, would be required unless Monogram agrees to fund the
  excess. As of January 3, 1998, there were $4.2 billion of Wards private label
  credit card receivables owned by Montgomery Ward Credit Companies, and the
  average outstanding amount of such receivables owned by Montgomery Ward Credit
  Companies during 1997 was $4.5 billion.

  Under the Card Agreement, Wards is required to pay Monogram the excess
  interest costs on a monthly basis if a blended interest rate applicable to
  funding costs with respect to the receivables exceeds 10% per annum. This
  blended interest rate has been less than 10% since 1988.

                                       6
<PAGE>
 
Item 1.  Business (continued)

Account Purchase Agreements (continued)

  Wards generally bears the risk of credit losses due to non-payment by
  cardholders to the extent of (i) the amount of credit losses that are between
  3.9% and 5.0% of average outstanding receivables, plus (ii) 50% of credit
  losses that are between 5.0% and 8.0% of average outstanding receivables,
  subject to offsets described below relating to Wards' share of certain
  incremental increases in finance charges and late fees payable by cardholders.
  Wards is also responsible for losses on certain higher risk starter card
  accounts to the extent the loss percentage as to those accounts exceeds the
  loss percentage experience on the rest of the portfolio. Wards' net unpaid
  liability for credit losses for 1991 through 1997 is to be payable to
  Montgomery Ward Credit pursuant to a note (Continuation Note) due in early
  2003, which is to provide that: (i) the outstanding balance of such note
  cannot exceed $300 million, (ii) scheduled monthly principal payments ranging
  from $.4 million to $2.8 million are to be required through 2002, and (iii)
  starter card losses are to be payable currently. Interest on Wards' unpaid
  liability for credit losses is payable at a rate equal to rates on comparable
  borrowings of Wards. A remaining note of $15 million, consisting of losses
  incurred after July 7, 1997, is to be executed which provides for monthly
  principal payments in the amount of 5% of the scheduled monthly principal
  payments for the Continuation Note. Interest on notes outstanding as of July
  7, 1997, has been stayed by the Chapter 11 proceedings.

  In exchange for Wards' agreement to allow Montgomery Ward Credit to increase
  finance charge rates and late fees in selected states, Wards receives a share
  of incremental finance charges and late fees resulting from such increases.
  Such amount is available for offset against Wards' unpaid liability for its
  share of credit losses, and to the extent not currently paid or offset earns
  interest at the same rate as amounts owed by Wards to Montgomery Ward Credit.
  Effective April 1996, Monogram implemented additional finance charge and late
  fee increases in various states. The amount of these additional incremental
  finance charges and late fees are calculated each year pursuant to a formula
  specified in the Account Related Agreement, which makes certain of these
  amounts available to Wards. As the increased finance charge rate and late fees
  are added to the credit card balances, this will cause the amount of losses to
  increase. The higher finance charges and late fees also decrease the credit
  available by the credit card customer.

  In the event that, due to the increase in finance charge rates and late fees,
  refunds are required to be made, Wards and Montgomery Ward Credit have agreed
  in certain cases to share the financial risk. Legislation has from time-to-
  time been introduced in certain jurisdictions, which if enacted, may require
  rescinding all or a portion of such increases, in which case Wards' share of
  such increases may be substantially reduced.

  In connection with the foregoing arrangements, Wards paid $28 million in early
  1998 and has previously executed notes for certain of its unpaid share of
  credit losses which totaled $412 million through 1997. The incremental finance
  charges and late fee assessments due to Wards at the end of 1997 were $112
  million for a net obligation of $300 million.

  Monogram has the right of first refusal to implement certain new financing
  programs proposed by Wards.

  The Agreements are scheduled to expire on December 31, 2011, provided the
  terms shall continue thereafter from year to year unless either party gives
  ten years prior notice of its election to terminate. Except upon the
  occurrence of certain events of default, the Agreements may generally not be
  terminated by either party prior to December 31, 2011. Wards has not yet
  assumed these agreements and the Montgomery Ward Credit Companies have not
  exercised the provision in the Agreements allowing the Montgomery Ward Credit
  Companies to terminate the Agreements in the event of Wards' bankruptcy. Wards
  has agreed to pay Montgomery Ward Credit $2.5 million per month for the months
  of January 1998 through June 1998. Wards expects to execute an interim
  amendment to the Account Purchase Agreement ("Interim Agreement") which will
  provide the Company with the ability to utilize the private label credit card

                                       7
<PAGE>
 
Item 1.  Business (continued)

Account Purchase Agreements (continued)

  through the end of 1999. It is likely that the Interim Agreement will require
  monthly payments similar to those required for the first six months of 1998.
  GE Capital has guaranteed Montgomery Ward Credit Companies' obligations under
  the Agreements.

  Monogram makes payments in respect of Signature customer accounts receivable
  pursuant to the Card Agreement. In 1997, Signature paid approximately $5
  million to Montgomery Ward Credit for administrative services provided by
  Montgomery Ward Credit in connection with Signature products.

Associates

  At January 3, 1998, Wards and its subsidiaries employed the equivalent of
  46,000 full-time associates. During certain seasons, temporary associates are
  added and peak employment is approximately 59,000 associates during the
  Christmas season. Approximately 2,000 Wards associates are covered by various
  collective bargaining agreements. Wards has experienced no major labor-related
  interruption or curtailment of operations during the last 15 years.

Item 2.  Properties

  At January 3, 1998, the Company owned or leased 381 retail, distribution and
  other operating facilities. The Company's properties are located throughout
  the continental United States and cover approximately 49 million square feet.

  These properties are summarized as follows:
<TABLE>
<CAPTION>
                                       Number of       Approximate Total
           Use                         Locations          Square Feet
------------------------------         ---------       -----------------
<S>                                    <C>             <C> 
Montgomery Ward Retail Stores:
    Full Line                              295            38,829,000
    Limited Line                             6               473,000
Corporate Office Complex                     1             2,975,000
Miscellaneous Operating Locations           79             7,211,000
                                           ---            ----------
 
    Total Locations                        381            49,488,000
                                           ===            ==========
</TABLE>
  Owned and leased retail stores include approximately 24 million square feet of
  selling space and 15 million square feet devoted to storage, office and
  related uses. Miscellaneous operating locations include warehouses, office
  buildings and distribution centers, but exclude vacant land parcels and
  properties held for disposition. See Note 13 to the Consolidated Financial
  Statements for information with respect to leased properties.

                                       8
<PAGE>
 
Item 2.  Properties (continued)

  The nationwide scope of Wards' operations helps minimize the impact of changes
  in the economies of specific regions on the overall performance of its retail
  stores and allows Wards to merchandise to a variety of demographic profiles.

  The regional distribution of Wards retail stores, as of January 3, 1998, is
  indicated in the following table:
<TABLE>
<CAPTION>
 
                State                             Total
              ----------                        ---------
              <S>                               <C>
              Alabama                                2
              Arizona                                9
              Arkansas                               5
              California                            50
              Colorado                               8
              Florida                               15
              Georgia                                3
              Idaho                                  1
              Illinois                              20
              Indiana                                5
              Iowa                                   5
              Kansas                                 6
              Kentucky                               1
              Louisiana                              6
              Maryland                              16
              Michigan                              13
              Minnesota                              7
              Missouri                               7
              Montana                                2
              Nebraska                               1
              Nevada                                 3
              New Mexico                             3
              New York                               6
              North Carolina                         4
              North Dakota                           1
              Ohio                                   5
              Oklahoma                               5
              Oregon                                 8
              Pennsylvania                          15
              South Carolina                         2
              Tennessee                              2
              Texas                                 41
              Virginia                              14
              Washington                             3
              West Virginia                          5
              Wisconsin                              1
              Wyoming                                1
                                                   ---
                                       
              Total                                301
                                                   ===
</TABLE>

                                       9
<PAGE>
 
Item 3.  Legal Proceedings

  At the close of business on July 7, 1997, Montgomery Ward Holding Corp. and
  certain of its U.S. subsidiaries filed petitions for reorganization under
  Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
  the District of Delaware. These related proceedings are being jointly
  administered under the caption "In re Montgomery Ward Holding Corp., a
  Delaware corporation, et. al.", Case No. 97-1409 (PJW). The following U.S.
  subsidiaries were not included in the bankruptcy filings: Signature and its
  direct and indirect subsidiaries, Marinco; and Montgomery Ward Foundation. The
  filing of the petitions and the rejection of certain contracts created certain
  claims related to the filing. Among these cases is "Reliance Insurance Company
  v. Forum Insurance Company." This case alleges that Forum Insurance Company,
  an indirectly wholly-owned subsidiary of Signature, is liable under an
  indemnification agreement of which Wards is a signatory for the surety bonds
  issued to secure certain of Wards' obligations. The matter is now pending
  before the United States Bankruptcy Court for the District of Delaware. The
  potential liability related to the outcome of this claim cannot be estimated
  at this time.

  The Company and its subsidiaries are engaged in various litigation, including
  purported class actions, and have a number of unresolved claims. While the
  amounts claimed are substantial and the ultimate liability with respect to
  such litigation and claims cannot be determined at this time, management is of
  the opinion that such liability, to the extent not provided for through
  insurance or otherwise, is not likely to have a material impact on the
  financial condition or the results of operations of the Company.

  In 1979, a suit entitled "United States v. Midwest Solvent Recovery, Inc.,
  et.al." (Civil Action Number H-79-556) was initiated by the United States
  Department of Justice on behalf of the Environmental Protection Agency in the
  U.S. District Court for the Northern District of Indiana, and an Amended
  Complaint was filed in January 1984. This suit was against Standard T Chemical
  Company, Inc., a Delaware corporation and wholly-owned subsidiary of Wards
  ("Standard T"), which ceased operations in 1994 and is currently an inactive
  entity and is a debtor in the bankruptcy proceedings described above, and
  others involving two waste disposal sites and seeks reimbursement for the cost
  of surface clean-up, investigation studies concerning possible contamination
  of the soil and ground water and remedial action. In January 1990, the United
  States filed a second Amended Complaint seeking inter alia, treble damages and
  monetary sanctions. Standard T signed a consent decree, whereby it was
  obligated to provide a financial assurance up to $3 million for remediation of
  the site, which has been provided for in the financial statements. The Company
  currently anticipates that its obligation will not exceed that amount.

  In 1985, the New York Environmental Protection Agency brought an action for
  remediation of a site in Staten Island, New York against the owner of the
  property. The owner asserted that Standard T, among others, generated wastes
  that were disposed of by a prior owner of the site. Standard T is in the
  process of completing the clean-up of this site and has purchased the site
  from the owner for $1.45 million.

  In February 1986, Standard T, along with approximately 330 other companies,
  was notified by the United States Environmental Protection Agency that the
  agency was mandating a remediation of the contamination of the American
  Chemical Services, Inc. ("A.C.S.") site located in Griffith, Indiana, under
  authority vested in it by the Comprehensive Environmental Response,
  Compensation and Liability Act of 1980. Standard T and a Wards paint factory
  were each identified as a Potentially Responsible Party ("PRP"), under the
  terms of the Act, because of their alleged status as generators of hazardous
  waste ultimately disposed of at the A.C.S. site. The Company will pay its
  proportionate share of the costs of the studies, and may ultimately pay a
  share of the costs of abating the contamination of the A.C.S. site. One
  estimate by the EPA of future costs of abating contamination at the A.C.S.
  site is $69 million, of which $24 million has been paid by deminimus settling
  parties, with the Company alleged to be responsible for 4% of the remaining
  total costs. However, these costs cannot be estimated with any degree of
  accuracy at this time. Thus, the Company is currently not in a position to
  estimate the range or amount of potential exposure in this matter with a high
  degree of certainty.

                                      10
<PAGE>
 
Item 3.  Legal Proceedings (continued)

  Standard T and Wards are also involved at various stages with several other
  sites where Standard T and Wards have been notified or sued as a PRP. The
  potential liability related to these sites cannot be estimated at this time.

  On April 29, 1997, MW Holding, Wards and Lechmere, were served with a
  complaint, purporting to represent a nationwide class, filed by certain
  bankrupt credit card holders of Wards and Lechmere credit cards. The complaint
  alleged that MW Holding, Wards and Lechmere, benefited from the actions taken
  by Hurley, Lechmere's previous credit card provider, and MWCC and Monogram
  (both of which are affiliates of GE Capital), Wards' and Lechmere's current
  credit card providers, in that the recoveries received from the bankrupt
  credit card holders, allegedly were in violation of the bankruptcy laws
  dealing with reaffirmations, and ultimately reduced Wards' and Lechmere's loss
  sharing obligations. Hurley, MWCC and Monogram took all actions related to
  bankruptcy reaffirmations.

  Management believes that the indemnification obligations contained in its
  various agreements with Hurley, MWCC and Monogram will relieve Lechmere, Wards
  and the Company of any material financial obligations related to the acts
  alleged in the complaint. All material actions pending against the Company,
  Wards and Lechmere in the litigation, have been stayed.

  In 1997, a suit entitled "Trent v. Montgomery Ward," was initiated by Karen
  Trent and four other plaintiffs alleging, on behalf of themselves and a class
  of other commissioned sales employees, fraud and breach of contract in the
  calculation of their sales commissions. This class action currently is being
  heard in the Federal District Court for the District of Wyoming. The suit
  claims that from 1992 to the present, Wards devised a commission sales plan
  that was designed to underpay commissions promised to employees and that Wards
  in fact paid employees less than the commissions they were supposed to have
  earned. Plaintiffs seek certification of the class and actual and punitive
  damages. Wards has denied the allegations and intends to aggressively defend
  this matter. The case currently is in the early stage of class discovery, and
  damage exposure cannot be determined at this time. A limited lifting of the
  bankruptcy automatic stay has been granted so that the class certification
  issue can be resolved.

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

  None.

                     EXECUTIVE OFFICERS OF THE REGISTRANT
                                        
  Listed below are the names and ages of the executive officers of the Company
  as of March 16, 1998, and the positions each has held during the past five
  years:

  Roger V. Goddu, 47, has been a director of the Company and Chairman and Chief
  Executive Officer of Wards since January 6, 1997. Prior thereto, he was with
  Toys "R" Us, where from 1996 until 1997, he was President-U.S. Merchandising,
  and from 1989 to 1995, he was Executive Vice President/General Merchandise
  Manager. Prior to 1989, Mr. Goddu was a Senior Vice President and General
  Merchandise Manager of Target, a division of Dayton Hudson Corporation.

  Thomas J. Austin, 50, has been Executive Vice President - Men's and Children's
  Apparel and Shoes of Wards since May 19, 1997. Prior thereto, Mr. Austin was
  Senior Vice President - Divisional Merchandise Manager of Kohl's Corporation,
  where he spent 15 years in various merchandising positions of increasing
  responsibility.

                                      11
<PAGE>
     
               EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
                                        
  Louis J. Caporale, 44, has been Executive Vice President - Women's Apparel and
  Fine Jewelry of Wards since May 27, 1997. Prior to joining Wards, Mr. Caporale
  was Senior Vice President - Divisional Merchandise Manager of Kohl's
  Corporation. From 1993 through 1997, he was Vice President - Divisional
  Merchandise Manager of Kohl's. Prior to joining Kohl's, Mr. Caporale held
  various merchandising positions with Federated Department Stores for 16 years.

  Don Civgin, 36, has been Vice President and Treasurer of the Company and
  Senior Vice President - Finance of Wards since May 8, 1997. Prior thereto, he
  was Vice President - Treasurer of Alliant Foodservice, Inc. from 1995 to 1997.
  From 1986 through 1995, Mr. Civgin held various financial management positions
  with Itel Corporation.

  Alan E. DiGangi, 51, has been Executive Vice President - Appliances,
  Electronics and Automotive of Wards since November 1996. Prior thereto, he was
  Executive Vice President Marketing of Wards from March 1996 through November
  1996. Mr. DiGangi was Executive Vice President, Electric Ave., Rooms &
  More/Soft Home of Wards from January 1996 through March 1996. Prior thereto,
  he was Senior Vice President, Electric Ave. & More from April, 1995 to
  January, 1996. From 1993 though 1995, Mr. DiGangi was Vice President of Wards,
  with responsibilities in Store Management, Field Operations, Marketing and
  Sales Promotion.

  Kevin Freeman, 47, has been Executive Vice President - Store Operations of
  Wards since May 1, 1997. Prior thereto, he was Executive Vice President of
  Store Operations for Caldor from 1994 until 1997. Mr. Freeman was Executive
  Vice President - Store Operations with Roses Stores from 1991 to 1994. Prior
  thereto, Mr. Freeman held various positions with Target, a division of Dayton
  Hudson Corporation, from 1978 to 1991, leaving as Senior Vice President of
  Store Operations.

  Thomas G. Grimes, 60, has been Executive Vice President - Home of Wards since
  November 7, 1997. Mr. Grimes joined the Company on February 24, 1997 as Chief
  Executive Officer of Lechmere, Inc. and President - Hardlines. Prior thereto,
  he was Managing Director of Trimingham Bros. Ltd. from January 1996 through
  February 1997. Prior to joining Trimingham Bros. Ltd., Mr. Grimes was Chairman
  and Chief Executive Officer of the John Breuner Company, a division of Batus
  Inc., from 1986.

  Spencer H. Heine, 55, has been an Executive Vice President, Secretary and
  General Counsel of the Company since September 30, 1991 and was a director
  from May 15, 1992 through January 6, 1997. Mr. Heine has been Executive Vice
  President, Secretary and General Counsel of Wards and President - Montgomery
  Ward Properties since April 12, 1994. Prior thereto, Mr. Heine served as
  Executive Vice President - Legal of Wards from September 30, 1991 through
  April 11, 1994. Mr. Heine was Chairman and Chief Executive Officer of
  Signature from March 8, 1993 through April 11, 1994 and is currently serving
  as interim Chief Executive Officer and will continue to do so until April 1,
  1998. Mr. Heine is a member of the Board of Directors of First Union Real
  Estate Investment, a real estate investment trust located in Cleveland, Ohio.

  Robert A. Kasenter, 51, has been an Executive Vice President of the Company
  since February 21, 1992. Mr. Kasenter has served as Executive Vice President,
  Human Resources of Wards since January 27, 1992 and was Senior Vice President-
  Human Resources and Customer Satisfaction from June 23, 1988 to January 26,
  1992.

  Thomas J. Paup, 49, has been an Executive Vice President and Chief Financial
  Officer of Wards since September 22, 1997. Prior to joining Wards, Mr. Paup
  was Senior Vice President, Finance and Distribution of Lord & Taylor, a
  division of The May Department Stores Company from 1990 to 1997.
 
  Karl Taylor, 37, has been Senior Vice President- Strategic & Merchandise
  Planning of Wards since March 3, 1997. Prior to joining Wards, Mr. Taylor was
  Vice President of Merchandise Planning and Allocation at Toys "R" Us from
  1993. Prior thereto, he was Director of Merchandise Planning and Allocation at
  Toys "R" Us from 1991 to 1993. Prior to joining Toys "R" Us, Mr. Taylor was
  with Arthur Andersen.

                                      12
<PAGE>
 
               EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
                                        
  John L. Workman, 46, has been Executive Vice President and Assistant Secretary
  of the Company since January 28, 1994 and served as a director from May 12,
  1995 through January 6, 1997. Mr. Workman has been Executive Vice President,
  Corporate Restructuring of Wards since September 1997. Prior thereto, he was
  Executive Vice President , Chief Financial Officer and Assistant Secretary of
  Wards from January 28, 1994. He served as Senior Vice President, Chief
  Financial Officer and Assistant Secretary from August 31, 1992 through January
  27, 1994.

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

  There is no established public trading market for the Common Stock of the
  Company. All shares are subject to restrictions on transfers contained in the
  Stockholders' Agreement dated as of June 17, 1988, as amended ("Stockholders'
  Agreement"), or the Terms and Conditions ("Terms and Conditions") imposed
  under the Montgomery Ward & Co., Incorporated Stock Ownership Plan ("Stock
  Ownership Plan"). Due to the bankruptcy filing and other factors, it is not
  expected that a market will develop in the near term.
 
  Transfers of shares of Class A Common Stock are restricted for a period of
  three years from certain applicable dates under the Stockholders' Agreement
  and the Terms and Conditions. Transfers of Class A shares purchased other than
  pursuant to the Stock Ownership Plan are restricted for a period of three
  years from the holder's first acquisition of any such shares, while transfers
  of shares received under the Stock Ownership Plan are restricted for a period
  of three years after the award of such shares, exercise of purchase rights for
  such shares or grant of options with respect to such shares, as applicable.
  After the applicable three-year periods, limited transfers of such shares
  which have become vested in accordance with the Stockholders' Agreement or the
  Terms and Conditions, as applicable, are permitted, subject to certain rights
  of first refusal. All of the Class B shares and virtually all of the
  outstanding Class A shares are eligible for transfer.

  Wards declared $6 million and paid $6 million in preferred stock dividends to
  the Company in 1997, which declared $8 million and paid $3 million of
  preferred stock dividends in 1997. Dividends declared of $2 million were
  automatically deemed added to the liquidation value of the preferred stock
  because the dividends were not paid. Additionally, dividends declared of $3
  million on June 30, 1997, have not been paid. The redemption provisions of the
  preferred stock have been stayed by the Chapter 11 proceedings. No further
  dividends will be declared or paid on the preferred stock prior to the
  approval of a plan of reorganization. Future payments of dividends, if any,
  are dependent upon the approval of a plan of reorganization.

  As of March 16, 1998, there were three holders of record of Class A Common
  Stock, Series 1, one such holder of Class A, Common Stock, Series 2, and one
  such holder of Class B Common Stock. No shares of Class A Common Stock, Series
  3, were outstanding as of that date. As of March 16, 1998, there were 89
  holders of record of Voting Trust Certificates representing beneficial
  ownership in shares of Class A Common Stock, Series 1, of which 651,467 shares
  are pledged as collateral for notes issued to effect the repurchase of shares.
  Due to the Chapter 11 filing, no payments may be made to satisfy the payment
  requirements for these notes. A noteholder can foreclose on the pledge of
  shares repurchased if note payments are not made within one year of becoming
  due; provided, however, that any such remedy has been stayed pursuant to the
  Chapter 11 filing. See Note 15 to the Consolidated Financial Statements. There
  were 193 holders of record of Voting Trust Certificates representing
  beneficial ownership in shares of Class A Common Stock, Series 2. The
  applicable voting trust will expire by its terms on June 21, 1998, and, absent
  further action, the holders of Voting Trust Certificates will become holders
  of Class A Common Stock at such time.

                                      13
<PAGE>
 
Item 6.  Selected Financial Data

  The following summary of certain financial information for each of the five
  fiscal years in the period ended January 3, 1998 has been derived from the
  Consolidated Financial Statements of MW Holding. Such information for each
  fiscal year should be read in conjunction with the Consolidated Financial
  Statements and notes thereto and the report of independent public accountants
  beginning on page 19.
<TABLE>
<CAPTION>
                                                                           As Of and For The
                                     -------------------------------------------------------------------------------------------
                                                                                                                       53-Week
                                                                                                                       Period
                                                                52-Week Period Ended                                    Ended
                                     -----------------------------------------------------------------------      --------------
 
(Dollars in millions, except             Jan. 1,            Dec. 31,           Dec. 30,            Dec. 28,            Jan. 3,
per share amounts)                        1994                1994               1995                1996               1998
                                     -------------      --------------     -------------       -------------      --------------
<S>                                    <C>                <C>                <C>                 <C>                <C>
Total Revenues                              $6,023              $7,029            $7,085              $6,620             $ 5,386
 
Net Income (Loss)                              101                 109                (9)               (237)             (1,152)
 
Net Income (Loss) Applicable
   to Common Shareholders                      101                 107               (13)               (249)             (1,160)
 
Net Income (Loss) per Class A
  Common Share                                2.29                2.48              (.33)              (6.33)             (31.67)
 
Total Assets                                 3,835               4,537             4,884               4,879               4,572
 
Long-Term Debt                                 213                 228               423                  87                 122
 
Obligations Under Capital
  Leases (a)                                    89                  81                66                  60                   -
 
Total Shareholders' Equity
  (Deficit)                                    607                 679               700                 433                (716)
 
Redeemable Preferred Stock                       -                  75               175                 175                 177
 
Cash Dividends per Common
  Share                                        .50                 .50                 -                   -                   -
</TABLE>
                                                                                
(a)  Excludes $51 million of Obligations under capital leases included in
     Liabilities subject to compromise as of January  3, 1998.

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

  The following discussion and analysis of results of operations for the Company
  compares 1997 to 1996, as well as 1996 to 1995. Wards is on a 52- or 53-week
  fiscal year basis, with 1997 being a 53-week year and 1996 and 1995 each being
  52-week years. All dollar amounts are in millions, and all income and expense
  items and gains and losses are shown before income taxes, unless specifically
  stated otherwise.

  The Company's retail business is seasonal, with approximately one-third of
  sales occurring in the fourth quarter.

                                      14
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Results of Operations:  1997 Compared with 1996

  Due to Wards' inability to reach an out-of-court settlement with its lenders,
  petitions for reorganization under Chapter 11 of the Bankruptcy Code were
  filed at the close of business on July 7, 1997. The Company's performance
  reflected difficult competitive conditions and financial pressures, as well as
  the negative impact of the aggressive markdowns and promotional advertising to
  liquidate inventory in the first half of 1997.

  Consolidated total revenues (net sales and direct response marketing revenues,
  including insurance) were $5,386, compared with $6,620 in 1996, a decrease of
  $1,234 or 19%. The $1,234 total revenue decrease consisted of a $1,345
  decrease in net sales (a 23% decrease) and a $111 increase (a 15% increase) in
  direct marketing revenues. After adjusting for the noncomparable impact of
  sales that occurred in the 53rd week, sales on a comparable store basis, which
  reflect only the stores in operation for all of 1997 and 1996, decreased 16%.
  $534 of the sales decrease reflects the closings of 101 retail stores and
  liquidation and outlet centers, including the exit of the Lechmere and
  Electric Avenue & More formats. 1997 sales results also reflect the Company's
  decision to exit certain product offerings, including personal computers. 1996
  third and fourth quarter sales for the affected product lines were $84.
  Additionally, the Company's management believes that merchandise shipment
  interruptions as a result of the bankruptcy filing and the decline in
  promotional offers to Wards' credit cardholders in the second half of 1997 (4
  in 1997 versus 19 in 1996), contributed to the sales decline. The increase in
  direct response marketing revenues was primarily due to increased clubs'
  memberships.

  Gross margin (net sales less cost of goods sold) dollars were $580, a decrease
  of $431, or 43%, from 1996. This decrease was due to the gross margin impact
  of the decreased sales of $298 and a decrease in the margin rate on sales of
  $167, offset by decreased occupancy costs of $34, primarily related to closed
  stores. The liquidation of slow moving and discontinued inventory, as well as
  the Chapter 11 filing, negatively impacted margin rates. As certain of the
  Company's vendors halted shipments for portions of the third quarter, a higher
  mix of third quarter sales represented sales of lower margin clearance
  merchandise. Gross margins showed substantial improvement in the fourth
  quarter of 1997. Despite a $579 decrease in 1997 fourth quarter sales, gross
  margin dollars increased by $4 and fourth quarter 1997 margin rates improved
  by 5 percentage points over fourth quarter 1996 rates.

  Operating, selling, general and administrative expenses increased $295, or
  15%, from the prior year. The increase was due to increased amortization and
  other direct-marketing related costs of Signature of $150; increased bad debt
  expense of $29; write-downs of investments and other unrealizable assets of
  $57 and decreased product service income of $66, offset by all other decreased
  expenses of $7.

  Net interest expense decreased $16, or 13%, from the prior year. The net
  decrease reflects a $39 increase in interest expense for the first and second
  quarters of 1997 offset by a $55 decrease in interest expense for the third
  and fourth quarters of 1997. The first half increase reflects increased
  borrowings (including borrowings under vendor financing programs) and an
  increase in the weighted-average borrowing rate. The Company has stopped
  accruing interest on its short-term debt in connection with the Chapter 11
  filing. Second-half 1997 borrowings under the DIP Facility were substantially
  below second-half 1996 borrowing levels.

  Reorganization costs of $553 were related to the Company's exit of its non-
  core strategies, certain dispositions of assets and various other expenses.
  See Note 4 to the Consolidated Financial Statements for the components of
  these costs.

  The income tax benefit was $375 as compared to a benefit of $138 for 1996. See
  Note 10 to the Consolidated Financial Statements for a discussion of
  management's determination of the benefit recorded and the related valuation
  allowance provided during 1997.

                                      15
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Results of Operations:  1996 Compared with 1995

  Management's identification of slow-moving inventory resulted in inventory
  liquidation efforts which negatively impacted 1996 results. From September
  through December, the Company accelerated efforts to reduce and redeploy
  inventory to allow for a shift in focus to items the Company believed would
  provide higher inventory turnover and improved merchandise assortments in the
  future. As of the beginning of fourth quarter 1996, over $300 in inventory was
  identified in items which would not be re-ordered and which was competitively
  disadvantaging the Company. Aggressive markdowns and promotional advertising
  to liquidate this inventory were initiated in the fourth quarter of 1996.

  At December 28, 1996, the remaining amount of this inventory was $130 before
  any additional markdowns. In December, the Company provided $54 for the loss
  on liquidation of this remaining inventory and also identified $55 of other
  inventory that would be sold at a loss and provided $19 for the loss on
  liquidation for this inventory as well. The Company believed that the
  liquidation of this inventory would position it with balanced inventory
  assortments to execute its strategic plan in future periods.

  The Company's performance reflected the impact of the change in inventory
  assortment and difficult competitive conditions discussed above with the
  consolidated net loss increasing $228 from the prior year's net loss of $9.
  The consolidated net loss applicable to common shareholders for 1996 was $249
  versus $13 in 1995.

  Consolidated total revenues (net sales and direct response marketing revenues,
  including insurance) were $6,620 compared with $7,085 in 1995, decreasing by
  $465 or 7%. The $465 total revenue decrease consisted of a $652 decrease in
  net sales and a $187 increase in direct marketing revenues. The change in
  total net sales represented a 10% decline. Specifically, Apparel sales
  declined 10%, Jewelry sales declined 11%, Home and Furniture sales declined
  9%, Electronics declined 10%, Appliances declined 8% and Automotive sales
  declined 6%. Sales on a comparable store basis, which reflect only the stores
  in operation for both 1996 and 1995, decreased 11%. The Company believes that
  the decline in net sales in 1996 reflected a decline in market share compared
  to competitors. The increase in direct response marketing revenues was
  primarily due to increased clubs' membership driven by the acquisition of the
  Amoco Motor Club business and increased insurance policy holder levels.

  Gross margin (net sales less cost of goods sold) dollars were $1,011, a
  decrease of $309, or 23%, from 1995. This decrease was due to the gross margin
  impact of the decreased sales of $163, a decrease in the margin rate on sales
  of $142, and increased occupancy costs of $7 related to increased depreciation
  on capital investments in new and existing stores, partially offset by
  decreased buying and other expenses of $3. The liquidation of slow moving and
  discontinued inventory and the continued competitive pressures also had a
  significant impact on margin rates.

  Operating, selling, general and administrative expenses increased $194, or
  11%, from the prior year. The increase includes the impact of new store
  openings of $16, increased provision for bad debt expense under the Account
  Purchase Agreements of $21, increased advertising and other promotional costs
  of $74, increased amortization of direct response and insurance acquisition
  cost of $61 and increased operating and administrative expenses of $7, and
  decreased income generated from the sale of product service contracts of $10.
  1995 included a provision for severance costs and relocation of certain
  administrative functions of both Wards and Lechmere of $25.

                                      16
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Results of Operations:  1996 Compared with 1995 (continued)

  Net interest expense increased $36, or 40%, from the prior year. The increase
  is due to increased borrowings resulting from a combination of higher average
  working capital levels and reduced cash flow resulting from slower than
  anticipated sales, partially offset by reduced capital expenditures for new
  and existing stores.

  Income tax benefit was $138 for 1996 as compared to an income tax benefit of
  $14 for 1995. See Note 10 to the Consolidated Financial Statements.

Discussion of Financial Condition

  Due to the inability of Wards to negotiate an out-of-court settlement with its
  lenders, MW Holding and certain of its subsidiaries have filed petitions for
  reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a result of
  the Chapter 11 filing, the Company and those subsidiaries have ceased making
  certain debt, interest, trade payable and other liability payments that arose
  prior to the Chapter 11 filing. Payments related to these liabilities are
  deferred, in most cases, until a plan for reorganization is confirmed by the
  Bankruptcy Court.

  Net cash used in the Company's operating activities totaled $192 for 1997
  compared to $356 for 1996, a decrease of $164. The lower cash usage is
  summarized as follows:
<TABLE>
    <S>                                                        <C>
     Cash impact of larger net loss                             $(610)
     Net cash received from facility closings                     155
     Increased cash provided by inventory
       and accounts payable                                       397
     Lower expenditures for direct response
       and insurance acquisition costs                             85
     All other cash from operations                               137
                                                                ----- 
                                                                $ 164
                                                                =====
</TABLE>
  As shown above, cash required for inventory was significantly reduced in 1997.
  This was primarily due to the sales decrease, an inventory reduction program
  and better receipts management. Cash required for accounts payable was also
  reduced significantly, primarily as a result of the Chapter 11 filing.

  Net cash used in the Company's investing activities totaled $93 in 1997,
  compared to net cash used of $148 in 1996. The net cash used in 1996 included
  Signature's acquisition of the Amoco Motor Club. 1997 cash used reflects the
  increase in investments of insurance operations.

  Net cash provided by financing activities totaled $442 for 1997, compared to
  $499 for 1996. The Company had borrowed to the full extent of its financing
  facilities prior to the Chapter 11 filing, with the exception of the Seasonal
  Credit Agreement. Net borrowings in the post-petition period under the DIP
  Facility were $50.

  Wards is the only subsidiary of the Company and, therefore, Wards and its
  subsidiaries are the Company's sole source of funds.

  Wards entered into the DIP Facility on July 8, 1997, which was approved by the
  Bankruptcy Court on July 31, 1997. Under the DIP Facility, the lenders have
  agreed to provide a revolving credit and letter of credit facility, the
  maximum amount of which is based on the book value of eligible inventory (as
  defined in the DIP Facility), the fair market value of eligible real property
  (as defined in the DIP Facility) and the earnings of Signature.

                                      17
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Discussion of Financial Condition (continued)

  In no case may borrowings exceed $1,000. Total borrowings outstanding were $50
  and letters of credit outstanding were $52 at January 3, 1998.

  Under the DIP Facility, Wards may select among several interest rate options,
  all of which are based on market rates plus a margin. A commitment fee is
  payable based on the unused amount of the facility. The facility expires on
  July 7, 1999, or earlier in the case of an event of default.

  The DIP facility imposes various restrictions on Wards, including limitations
  on capital expenditures. The DIP facility also requires the satisfaction of
  certain financial tests, including the achievement of specified earnings
  levels as defined in the DIP Agreement. As of January 3, 1998, the Company had
  met all such financial tests.

  The Company is currently in default of the terms of each of the Long-Term
  Credit Agreement, the Short-Term Credit Agreement and the Note Purchase
  Agreements and no future amounts may be drawn thereunder. The Company was in
  default of the Seasonal Credit Agreement, which was terminated as a result of
  the Chapter 11 filings. There were no borrowings outstanding under this
  agreement.

  Signature borrowed $102 under a Credit Agreement (Signature Credit Agreement)
  dated as of September 27, 1996 as amended and restated October 21, 1996 and
  amended December 23, 1996 between Signature and various lenders. The proceeds
  were used to repay the intercompany loan from Wards to Signature arising from
  Signature's acquisition of the Amoco Motor Club. During 1997, the maturity
  date was extended to January 31, 1998 and has not been repaid. In 1998, the
  lenders agreed that they will extend the maturity date to the earlier of May
  29, 1998 or the funding of a replacement loan facility, provided that
  Signature provide the lenders with certain security and other terms and
  conditions the new lenders may deem appropriate. In March 1998, Signature
  received a commitment from a new lender which would enable Signature to repay
  the amounts borrowed under the Signature Credit Agreement. Management expects
  to borrow the amounts required and repay the amounts due by May 29, 1998. If
  the new lender's commitment were to be terminated, the aforementioned
  extension agreement would also terminate.

  In 1997, Wards had facilities available under vendor financing programs
  (which are reflected in Liabilities subject to compromise) which totaled $725.
  At June 28, 1997, these facilities were principally drawn. These facilities
  are no longer available due to the Chapter 11 filing.

  The Company intends to improve its financial condition and reduce its
  dependence on borrowing by improving sales and gross margins and reducing
  expenses. Management has reevaluated the Company's merchandising, marketing,
  store operations and real estate strategies, and is in the early stages toward
  implementing the new strategy. See "Business - Performance Initiatives" for a
  discussion of the new strategies to be employed.

  On August 14, 1997, the Bankruptcy Court approved a motion filed by Wards to
  exit its non-core specialty retail store businesses - Lechmere, Home Image by
  Lechmere and Electric Avenue & More. The exit involved the closing of 44
  stores. On November 7, 1997, the Bankruptcy Court approved a motion to close
  45 underperforming retail stores and two outlet and liquidation centers. The
  closings generated positive cash flows and are expected to reduce future
  operating losses. The Company recorded a pre-tax charge of $484 associated
  with the exit of these businesses, which included losses and costs associated
  with liquidation of assets, rejection of leases, severance payments and other
  related costs.

  Future cash is also expected to continue to be provided by ongoing operations,
  receipt of payment for credit sales under the agreements with Montgomery Ward
  Credit Companies and borrowings under the DIP Facility.

                                      18
<PAGE>
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations (continued)

Discussion of Financial Condition (continued)

  As discussed in Note 2 to the Consolidated Financial Statements, the
  accompanying financial statements have been prepared on a going concern basis.
  The appropriateness of using the going concern basis is dependent upon, among
  other things, confirmation of a plan of reorganization, future profitable
  operations, the ability to comply with the terms of the DIP Facility and the
  ability to generate sufficient cash from operations and financing arrangements
  to meet obligations.

  As a result of the Chapter 11 filings, the interest rate exchange agreements
  with various banks were canceled. In connection with the cancellation, Wards
  incurred a liability of $3 which is included in Liabilities subject to
  compromise.

  Capital expenditures during 1997 of $66 were primarily related to the opening
  of a new distribution center, systems development, merchandise fixture and
  presentation programs, and retail facility improvements.

<TABLE>
<CAPTION>
                                                                    1997                  1996                1995
                                                            -----------------      ---------------     ---------------
 
<S>                                                           <C>                    <C>                 <C>
Total capital expenditures                                              $  66                $  75               $ 122
Capital appropriations authorized during the year                          76                   86                 152
Cancellations of prior year's appropriations                              (66)                 (34)                (75)
Unexpended capital appropriations at year-end                              57                  113               $ 136
</TABLE> 

  Wards is not contractually committed to spend all of the capital
  appropriations unexpended at January 3, 1998, but generally expects to do so.
  The DIP Agreement restricts the amount of capital expenditures Wards may make
  during the term of the Agreement. Capital expenditures for 1998 may not
  exceed $144.

  The Company's subsidiaries utilize software and related technologies that will
  be affected by the date change in the year 2000. The Company has completed its
  planning to address the changes and has assessed the level of effort required
  in order to affect these changes. The Company's plans include modifications to
  existing programs and purchase and installation of new software. Modification
  to existing programs began in 1996, and certain of the new software was
  purchased in 1997. Based on the Company's plans and amounts already expended,
  the total future cost to address the date change issue is not expected to
  materially impact future cash flows.
 
Item 8.  Financial Statements
<TABLE>
<CAPTION>
                                                                                        Page
                                                                                --------------------
             <S>                                                                      <C>
             Report of Independent Public Accountants                                     20
                                                                                     
             For the 53-Week Period Ended January 3, 1998 and the 52-Week Periods     
              Ended December 28, 1996 and December 30, 1995                          
                 Consolidated Statements of Income                                        21
                 Consolidated Statements of Shareholders' Equity                          23
                 Consolidated Statements of Cash Flows                                    26
                                                                                     
             Consolidated Balance Sheets at January 3, 1998 and December 28, 1996         22
                                                                                     
             Notes to Consolidated Financial Statements                                   28
</TABLE>

                                       19
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                   ----------------------------------------

To the Board of Directors and Shareholders
of Montgomery Ward Holding Corp.:

We have audited the accompanying consolidated balance sheets of MONTGOMERY WARD
HOLDING CORP. (a Delaware Corporation) AND SUBSIDIARIES (of which Montgomery
Ward Holding Corp. and certain of its U.S. subsidiaries filed petitions for
reorganization on July 7, 1997 under Chapter 11 of the United States Bankruptcy
Code), as of January 3, 1998 and December 28, 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for the fiscal years
ended January 3, 1998, December 28, 1996 and December 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Montgomery Ward
Holding Corp. and Subsidiaries as of January 3, 1998 and December 28, 1996 and
the results of their operations and their cash flows for the fiscal years ended
January 3, 1998, December 28, 1996 and December 30, 1995, in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, on July 7, 1997, the Company filed a
voluntary petition seeking to reorganize under Chapter 11 of the United States
Bankruptcy Code. The Chapter 11 filing was the result of violation of certain
debt covenants, recurring operating losses, deterioration of vendor support, and
cash flow deficiencies. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Although the Company is
currently operating as a Debtor-In-Possession under the jurisdiction of the
Bankruptcy Court, the continuation of the business as a going concern is
contingent upon, among other things, the ability to formulate a plan of
reorganization which will gain approval of the creditors and shareholders and
confirmation by the Bankruptcy Court, success of future operations, and the
ability to recover the carrying amount of assets and/or the amount and
classification of liabilities. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.


Arthur Andersen LLP
Chicago, Illinois
February 23, 1998

                                      20
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                         53-Week                         52-Week
                                                                         Period                           Period
                                                                          Ended                           Ended
                                                                         -------               ----------------------------
                                                                         Jan. 3,               Dec. 28,            Dec. 30,
(In millions, except per share amounts)                                   1998                   1996                1995
                                                                         -------               --------            --------
<S>                                                                      <C>                   <C>                 <C>
Revenues
  Net sales, including leased and licensed department sales              $ 4,534                $5,879              $6,531
  Direct response marketing revenues, including insurance                    852                   741                 554
                                                                         -------                ------              ------
      Total Revenues                                                       5,386                 6,620               7,085
                                                                         -------                ------              ------

Costs and Expenses
  Cost of goods sold, including net occupancy and buying expense           3,954                 4,868               5,211
  Operating, selling, general and administrative expenses, including
   benefits and losses of direct response operations (Notes 17 and 20)     2,295                 2,000               1,806
  Interest expense, net (Note 18)                                            111                   127                  91
                                                                         -------                ------              ------
      Total Costs and Expenses                                             6,360                 6,995               7,108
                                                                         -------                ------              ------

Loss before Reorganization Costs and Income Taxes                           (974)                 (375)                (23)
Reorganization Costs (Note 4)                                                553                     -                   -
                                                                         -------                ------              ------
Loss before Income Taxes                                                  (1,527)                 (375)                (23)
Income Tax Benefit (Note 10)                                                (375)                 (138)                (14)
                                                                         -------                ------              ------

Net Loss                                                                  (1,152)                 (237)                 (9)
Preferred Stock Dividend Requirements (Note 14)                                8                    12                   4
                                                                         -------                ------              ------

Net Loss Applicable to Common Shareholders                               $(1,160)               $ (249)             $  (13)
                                                                         =======                ======              ======
Net Loss per Common Share (Note 15)
  Class A                                                                $(31.67)               $(6.33)             $ (.33)
  Class B                                                                 (23.17)                (5.22)               (.27)
</TABLE>

                See notes to consolidated financial statements.

                                      21
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                Jan. 3,        Dec. 28,
(In millions)                                                     1998           1996
                                                                -------        --------
<S>                                                             <C>            <C>
Assets
  Cash and cash equivalents (Note 1)                            $   189        $     32
  Short-term investments                                              1               3
  Investments of insurance operations (Note 6)                      358             317
                                                                -------        --------
        Total Cash and Investments                                  548             352

  Trade and other accounts receivable                               234             213
  Accounts and notes receivable from affiliates                       6              13
                                                                -------        --------
        Total Receivables                                           240             226

  Merchandise inventories                                         1,120           1,545
  Prepaid pension cost (Note 8)                                     366             347
  Properties, plants and equipment, net of accumulated
   depreciation and amortization (Note 9)                         1,067           1,308
  Direct response and insurance acquisition costs                   559             603
  Other assets (Notes 9 and 11)                                     373             498
  Deferred income taxes (Note 10)                                   299               -
                                                                -------        --------
        Total Assets                                            $ 4,572        $  4,879
                                                                =======        ========

Liabilities
  Short-term debt (Note 12)                                     $   102        $  1,028
  Trade accounts payable                                            442           1,585
  Federal income taxes payable (Note 10)                              -               4
  Accrued liabilities and other obligations (Note 7)                736           1,228
  Insurance policy claim reserves (Note 11)                         241             227
  Long-term debt (Note 12)                                          122              87
  Obligations under capital leases (Note 13)                          -              60
  Deferred income taxes (Note 10)                                     -              52
  Liabilities subject to compromise (Notes 3, 8, 12 and 13)       3,468               -
                                                                -------        --------
        Total Liabilities                                         5,111           4,271

Commitments and Contingent Liabilities (Notes 12 and 19)

Redeemable Preferred Stock (Note 14)                                177             175

Shareholders' Equity (Deficit)
  Common stock (Note 15)                                              1               1
  Capital in excess of par value                                     64              53
  Retained earnings (deficit)                                      (651)            509
  Unrealized gain on marketable equity securities                     9               9
  Less: Treasury stock, at cost                                    (139)           (139)
                                                                -------        --------
        Total Shareholders' Equity (Deficit)                       (716)            433
                                                                -------        --------
Total Liabilities and Shareholders' Equity                      $ 4,572        $  4,879
                                                                =======        ========
</TABLE>

                See notes to consolidated financial statements.

                                      22
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                (Dollars in millions, except per share amounts)

<TABLE>
<CAPTION>

                     Class A     Class B
                     Common      Common               Capital
                      Stock       Stock                 in                                Treasury      Total 
                      $.01        $.01                Excess                    Un-        Stock        Share-
                       Par         Par      Common    of Par     Retained     realized       at        Holders'
                      Value       Value     Stock      Value     Earnings      Gains        Cost        Equity
                     -------     -------    ------    ------     --------     --------    --------     -------- 
<S>                  <C>         <C>        <C>       <C>        <C>          <C>         <C>          <C> 
                       (In thousands)
Balance
  Jan. 1, 1995        19,280      25,000    $    -    $    23    $    771     $      2    $    (89)    $    707
 
Net loss                   -           -         -          -          (9)           -           -           (9)
 
Cash dividends
  paid                     -           -         -          -          (4)           -           -           (4)
 
Compensation
  expense on
  stock option
  grants/
  repurchases              -           -         -          5           -            -           -            5
 
Changes in un-
  realized gain
  on marketable
  securities               -           -         -          -           -            8           -            8
 
Shares repur-
  chased as
  Treasury stock      (1,052)          -         -          -           -            -         (25)         (25)
 
Shares issued
  upon exercise
  of options             980           -         1         17           -            -           -           18
 
Shares issued
  upon exercise
  of conversion
  rights                   2           -         -          -           -            -           -            -
                     -------     -------    ------    ------     --------     --------    --------     -------- 
Balance,
  Dec. 30, 1995       19,210      25,000    $    1    $    45    $    758     $     10    $   (114)    $    700
                     =======     =======    =======   =======    ========     ========    ========     ======== 
</TABLE>

                See notes to consolidated financial statements.

                                      23
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                (Dollars in millions, except per share amounts)

<TABLE>
<CAPTION>

                     Class A    Class B              Capital
                     Common     Common                 in
                      Stock      Stock               Excess                               Treasury      Total 
                      $.01       $.01                  of                      Un-          Stock      Share-
                       Par         Par      Common     Par      Retained     realized        at        Holders'
                      Value       Value     Stock     Value     Earnings       Gains        Cost        Equity 
                     -------   --------     ------   -------    --------     --------     --------     --------  
<S>                  <C>       <C>          <C>      <C>        <C>          <C>          <C>          <C> 
                        (In thousands)
Balance
  Dec. 31, 1995       19,210     25,000     $    1   $    45    $    758     $     10     $   (114)    $    700  
                                                                                                                 
Net loss                   -          -          -         -        (237)           -            -         (237) 
                                                                                                                 
Cash dividends                                                                                                   
  declared and                                                                                                   
  paid                     -          -          -         -          (9)           -            -           (9) 
                                                                                                                 
Cash dividends                                                                                                   
  declared                 -          -          -         -          (3)           -            -           (3) 
                                                                                                                 
Compensation                                                                                                     
  expense on                                                                                                     
  stock option                                                                                                   
  exercises and                                                                                                  
  other share                                                                                                    
  exchanges                -          -          -         5           -            -            -            5  
                                                                                                                 
Changes in un-                                                                                                   
  realized gain                                                                                                  
  on marketable                                                                                                  
  securities               -          -          -         -           -           (1)           -           (1) 
                                                                                                                 
Shares repur-                                                                                                    
  chased as                                                                                                      
  Treasury stock      (1,242)         -          -         -           -            -          (25)         (25) 
                                                                                                                 
Shares issued                                                                                                    
  upon exercise                                                                                                  
  of options             352          -          -         3           -            -            -            3  
                                                                                                                 
Shares issued                                                                                                    
  upon exercise                                                                                                  
  of conversion                                                                                                  
  rights                   2          -          -         -           -            -            -            -  
                     -------   --------     ------   -------    --------     --------     --------     --------  
Balance,
  Dec. 28, 1996       18,322     25,000     $    1   $    53    $    509     $      9     $   (139)    $    433
                     =======   ========     ======   =======    ========     ========     ========     ========  
</TABLE>

               See notes to consolidated financial statements.  

                                      24
<PAGE>

                        MONTGOMERY WARD HOLDING CORP. 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                (Dollars in millions, except per share amounts)

<TABLE>
<CAPTION>

                      Class A      Class B             Capital                                                             
                      Common       Common                in                                                               
                       Stock        Stock              Excess                                    Treasury        Total     
                       $.01         $.01                 of      Retained          Un-             Stock         Share-    
                        Par          Par     Common      Par     Earnings       realized            at          Holders'  
                       Value        Value     Stock     Value    (Deficit)        Gains            Cost         (Deficit)  
                      -------      -------   ------    -------   ---------      --------         --------       ---------          
<S>                   <C>          <C>       <C>       <C>       <C>            <C>              <C>            <C>  
                          (In thousands)
Balance
  Dec. 28, 1996        18,322      25,000    $    1    $    53   $     509      $      9         $  (139)       $   433
 
Net loss                    -           -         -          -      (1,152)            -               -         (1,152)
                            
Cash dividends              
  declared and              
  paid                      -           -         -          -          (3)            -               -             (3)
                            
Cash dividends              
  declared                  -           -         -          -          (5)            -               -             (5)
                            
Grants of                   
  restricted stock          
  and stock                 
  options by                
  majority share-           
  holder                    
  (Note 20)                 -           -         -         11           -             -               -             11
                      -------      -------   ------    -------   ---------      --------         --------       ---------          
Balance,
  Jan. 3, 1998         18,322       25,000   $    1    $    64   $    (651)     $      9         $  (139)       $  (716)
                      =======      =======   ======    =======   =========      ========         ========       =========          
</TABLE>
                See notes to consolidated financial statements.

                                      25
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>  
                                                        53-Week
                                                        Period
                                                         Ended     52-Week Period Ended
                                                        ------     --------------------
                                                        Jan. 3,    Dec. 28,    Dec. 30,
(In millions)                                            1998        1996        1995
                                                        -------    --------    --------
<S>                                                     <C>        <C>         <C>
Cash flows used for operating activities:
    Net loss                                            $(1,152)    $(237)      $  (9)
    Adjustments to reconcile net loss to net cash 
      used for operating activities:
        Provision for disposition of assets of
          Lechmere, Inc.                                    280        --          --
        Provision for closing of Wards and
          Electric Avenue & More stores                     204        --          --
        Net receipts of cash relating to disposition    
          of assets of Lechmere, Inc. and closing of
          Wards and Electric Avenue & More stores           155        --          --
        Depreciation and goodwill amortization              135       130         119
        Amortization of direct response and
          insurance acquisition costs                       250       209         148
        Deferred income taxes                              (375)     (110)        (20)
    Other                                                    40        --         (23)
Changes in operating assets and liabilities:
    Trade and other accounts receivable                     (28)      (32)        (54)
    Accounts and notes receivable from affiliates             7         9         (16)
    Merchandise inventories                                 191       225        (112)
    Prepaid pension cost                                    (19)      (13)        (11)
    Direct response and insurance acquisition costs        (206)     (291)       (220)
    Other assets                                             34        31          (5)
    Trade accounts payable                                  209      (222)         85
    Liabilities subject to compromise                       (12)       --          --
    Federal income taxes payable, net                        (4)       (2)         (9)
    Accrued liabilities and other obligations                85       (44)        (55)
    Insurance policy claim reserves                          14        (9)         --
                                                        -------     -----       -----
        Net cash used for operating activities          $  (192)    $(356)      $(182)
                                                        -------     -----       -----
</TABLE>

                See notes to consolidated financial statements.

                                      26
<PAGE>

                         MONTGOMERY WARD HOLDING CORP.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                             53-Week            52-Week
                                                             Period             Period
                                                              Ended              Ended
                                                             -------     ---------------------

                                                             Jan. 3,     Dec. 28,     Dec. 30,
(In millions)                                                 1998         1996         1995
                                                             -------     --------     --------

Cash flows used in investing activities:
<S>                                                          <C>              <C>     <C>
  Purchase of short-term investments                         $   (85)    $     (2)    $    (60)
  Purchase of investments of insurance operations               (939)        (756)        (791)
  Sale of short-term investments                                  87            -           62
  Sale of investments of insurance operations                    898          778          775
  Capital expenditures                                           (66)         (75)        (122)
  Disposition of properties, plants and equipment, net            12           19           39
  Investments                                                      -          (12)         (12)
  Acquisition of Amoco Enterprises, net of cash and cash
    equivalents                                                    -         (100)           -
                                                             -------     --------     --------
      Net cash used in investing activities                      (93)        (148)        (109)
                                                             -------     --------     --------

Cash flows provided by financing activities:
  Proceeds from issuance of short-term debt, net                 409          588           16
  Borrowings under Post-Petition Loan and Guaranty
    Agreement                                                    321            -            -
  Proceeds from issuance of long-term debt                         -            -          205
  Payments under Post-Petition Loan and Guaranty
    Agreement                                                   (271)           -            -
  Payments of long-term debt                                      (5)         (56)         (10)
  Payments of obligations under capital leases                    (9)          (7)          (7)
  Cash dividends paid                                             (3)          (9)          (4)
  Proceeds from issuance of common stock                           -            3           18
  Proceeds from issuance of preferred stock                        -            -          175
  Payments to redeem preferred stock                               -            -          (75)
  Purchase of treasury stock, at cost                              -          (20)         (23)
                                                             -------     --------     --------
      Net cash provided by financing activities                  442          499          295
                                                             -------     --------     --------

Increase (decrease) in cash and cash equivalents                 157           (5)           4
Cash and cash equivalents at beginning of period                  32           37           33
                                                             -------     --------     --------
Cash and cash equivalents at end of period                   $   189     $     32     $     37
                                                             =======     ========     ========
</TABLE>
                See notes to consolidated financial statements.

                                       27
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
1.   Major Accounting Policies

Business Segments

     Montgomery Ward Holding Corp. ("the Company" or "MW Holding") and its
     wholly owned subsidiary, Montgomery Ward & Co., Incorporated ("Wards"), are
     engaged in retail merchandising and direct response marketing (including
     insurance) in the United States. As of January 3, 1998, retail
     merchandising operations are conducted through Wards. The assets of Wards'
     wholly-owned subsidiary, Lechmere, Inc. ("Lechmere") were disposed of in
     fiscal 1997 (see Note 4) and Lechmere's retail merchandising operations
     closed. Direct response marketing operations are conducted primarily
     through Signature Financial/Marketing, Inc. ("Signature"), a wholly-owned
     subsidiary of Wards. Signature markets consumer club products and insurance
     products through its subsidiaries. See Note 21 for information regarding
     these segments.

Principles of Consolidation; Use of Estimates

     The consolidated financial statements include the Company and all
     subsidiaries. Investments in 20 percent to 50 percent owned affiliates,
     where significant influence exists, are accounted for using the equity
     method. All significant intercompany accounts and transactions are
     eliminated in consolidation. Certain prior period amounts have been
     reclassified to be comparable with the current period presentation.

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

Fiscal Year

     The Company operates on a 52- or 53- week fiscal year basis. The Company's
     fiscal year ends on the Saturday closest to December 31. The fiscal year
     ended January 3, 1998 included 53 weeks. The fiscal years ended December
     28, 1996 and December 30, 1995 included 52 weeks.

Cash and Cash Equivalents

     Cash and cash equivalents include cash on hand, time deposits and highly
     liquid debt instruments with an original maturity of three months or less.
     The carrying amount reported in the financial statements for cash and cash
     equivalents approximates the fair value of these assets.

     Cash and cash equivalents includes $110 million of restricted cash
     generated from the disposition of the assets of Lechmere. The proceeds may
     be used to pay Lechmere's post-petition obligations, or may be used for
     other purposes only pursuant to order of the Bankruptcy Court. In addition,
     the Company has approximately $32 million of cash held in segregated
     accounts by various banks who were lenders to the Company under the Long-
     term and Short-term Credit Agreements. This cash is being held subject to
     potential offset, pursuant to the order of the Bankruptcy Court.

                                       28
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
1.  Major Accounting Policies (continued)

Cash and Cash Equivalents (continued)

    Following is a summary of cash payments for interest and income taxes and
    non-cash financing and investing activities:


<TABLE>
<CAPTION>
                                                                  53-Week                 52-Week
                                                                   Period                  Period
                                                                   Ended                   Ended
                                                             -----------------   --------------------------
                                                                  Jan. 3,         Dec. 28,        Dec. 30,
(In millions)                                                       1998            1996            1995
                                                             -----------------   ------------   ------------
<S>                                                         <C>                 <C>             <C>
Cash paid (refunded) for:
  Income taxes                                                     $   2             $ (22)          $  24
  Interest                                                            83               119              82

Non-cash financing activities:
  Notes issued for purchase of treasury stock                          -                 5               2

Non-cash investing activities:
  Grants of restricted stock and stock options
    by majority shareholder                                           11                 -               -
  Increase in liquidation value of preferred
    stock                                                              2                 -               -
  Changes in unrealized gain on marketable
    securities                                                         -                (1)              8
  Gain on stock distribution                                           -                 -              16
</TABLE>


Investments of Insurance Operations

     The Company accounts for investments under Statement of Financial
     Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
     In Debt and Equity Securities". Under SFAS No. 115, all debt and equity
     securities are classified by management as "available-for-sale" and are
     stated at fair market value with all changes in unrealized gains or losses,
     net of applicable income taxes, included in Shareholders' Equity.


Merchandise Inventories

     Merchandise inventories consist primarily of products held for resale and
     are valued at the lower of the cost or market using the retail, first-in,
     first-out ("FIFO") method.


Properties, Plants and Equipment

     Depreciation is computed on a straight-line basis over the estimated useful
     life of the asset, with annual rates ranging between 2% and 3% for
     buildings and between 12% and 25% for fixtures and equipment. Leasehold
     improvements and assets under capital leases are amortized on a straight-
     line basis over no longer than the primary term of the lease. Depreciation
     expense includes amortization of assets under capital leases.
                      
                                      29
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.   Major Accounting Policies (continued)

Properties, Plants and Equipment (continued)

     Interest relating to construction in progress is capitalized and amortized
     over the useful life of the property. Pre-operating expenditures which are
     not capital in nature are charged against income in the year the store is
     opened. Normal maintenance and repairs are expensed as incurred. Major
     repairs that materially extend the lives of properties are capitalized.

     Unamortized software costs included in Other assets were $21 million and
     $30 million at January 3, 1998 and December 28, 1996 and the amortization
     of these costs were $9 million, $7 million and $5 million for the periods
     ended January 3, 1998, December 28, 1996 and December 30, 1995,
     respectively.

Intangible Assets
 
     Excess of cost over fair market value of net identifiable assets of
     acquired companies (goodwill) and other intangible assets are amortized on
     a straight-line basis over the estimated life. Intangible assets of $90
     million and $225 million at January 3, 1998 and December 28, 1996,
     respectively, are included in Other assets. The decrease in intangible
     assets from December 28, 1996 to January 3, 1998, relates primarily to the
     write-off of the Lechmere goodwill in connection with the disposition of
     the assets of Lechmere in 1997. Amortization of intangible assets was $11
     million, $8 million and $6 million for the periods ended January 3, 1998,
     December 28, 1996 and December 30, 1995, respectively.

Impairment of Long-lived Assets

     In the event facts and circumstances indicate the cost of any long-lived
     assets may be impaired, an evaluation of recoverability would be performed.
     If an evaluation is required, the estimated future undiscounted cash flows
     associated with the assets would be compared to the carrying amount of the
     assets to determine if a write-down to market value or discounted cash flow
     value is required.

Direct Response Marketing Revenues
 
     Life and accident and health insurance premiums, which are recognized as
     revenue when due from policyholders, are associated with related benefits
     and expenses to result in the recognition of profit over the terms of the
     policies. Property-liability insurance premiums and club membership dues
     are deferred and earned on a pro-rata basis over the terms of the policies
     and memberships. Unearned premiums and club memberships of $108 million and
     $119 million at January 3, 1998 and December 28, 1996, respectively, are
     included in Accrued liabilities and other obligations.  

Interest Rate Exchange and Cap Agreements

     Amounts paid or received pursuant to interest rate exchange and cap
     agreements are deferred and amortized as interest expense or income over
     the remaining life of the applicable agreement.

                                       30
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
1.  Major Accounting Policies (continued)


Direct Response and Insurance Acquisition Costs

     Costs of acquiring new club memberships and insurance business (primarily
     marketing expenditures) are deferred when considered recoverable. Such
     costs are amortized in proportion to the anticipated revenue to be
     recognized from club memberships (over a period not to exceed 10 years) and
     from insurance policies (over the life of the policy, which is generally 10
     years). The time period over which deferred policy and membership
     acquisition costs are being amortized and the recoverability of such costs
     could differ from estimates due to changing market conditions. Amortization
     periods and related amounts of deferred policy and membership acquisition
     costs are continually reviewed for potential impairment and as adjustments
     become necessary they are reflected in current operations.

     Present value of future profits represents costs allocated to the insurance
     and club memberships acquired and is being amortized in proportion to the
     anticipated revenue to be recognized from club memberships and from
     insurance policies. The initial amortization periods range from 5 to 20
     years.

     Amortization expense is categorized as follows:

<TABLE>
<CAPTION>
                                                              53-Week             52-Week
                                                              Period               Period
                                                               Ended                Ended
                                                            -----------           -----------
                                                              Jan. 3,              Dec. 28,
     (In millions)                                             1998                  1996
                                                            -----------           -----------
     <S>                                                   <C>                    <C>
     Deferred acquisition costs                              $      226            $      180
     Present value of future profits                                 24                    29
                                                             ----------            ----------
           Total                                             $      250            $      209
                                                             ==========            ==========
</TABLE>

Insurance Policy Claim Reserves

     Liabilities for future policy benefits have been determined principally by
     the net level premium method. These amounts have been computed using
     assumptions that include provisions for risk of adverse deviation. The
     assumptions developed for interest rates (average 6%-8%) and withdrawal
     rates are based on the experience of Montgomery Ward Life Insurance
     Company, a wholly-owned subsidiary of Signature. The principal mortality
     tables used to develop the assumed mortality rates are the 1960
     Commissioners' Standard Group Table, the 1955-1960, 1965-1970, and 1975-
     1980 Basic Mortality Tables and the 1969-1971 and 1979-1981 U.S. Life
     Tables. The reserve for claims and related adjustment expenses is based on
     estimates of the costs of individual claims reported and incurred, but not
     reported prior to year-end. While management believes the reserve for
     claims and related adjustment expenses is adequate, the reserve is
     continually reviewed and as adjustments become necessary, they are
     reflected in current operations.
                  
                                      31
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Major Accounting Policies (continued)

Income Taxes

      The Company accounts for income taxes in accordance with Statement of
      Financial Accounting Standards No. 109, "Accounting for Income Taxes"
      ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets and
      liabilities for the expected future tax consequences of temporary
      differences by applying enacted statutory tax rates to differences between
      the financial statement carrying amounts and tax bases of existing assets
      and liabilities. In addition, the amount of any future tax benefits is
      reduced by a valuation allowance to the extent such benefits are not
      expected to be realized on a more likely than not basis.

2.   Reorganization

     At the close of business on July 7, 1997 (the "Petition Date"), MW Holding
     and certain of its U.S. subsidiaries filed petitions for reorganization
     under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
     Court for the District of Delaware. These related proceedings are being
     jointly administered under the caption "In re Montgomery Ward Holding
     Corp., a Delaware corporation, et. al.", Case No. 97-1409 (PJW). The
     following U.S. subsidiaries were not included in the bankruptcy filings:
     Signature and its direct and indirect subsidiaries; Marinco Insurance
     U.S.A., Inc. ("Marinco"); and Montgomery Ward Foundation.

     After a long period of negotiation, Wards was unable to reach an out-of-
     court settlement with its lenders. Accordingly, bankruptcy petitions were
     filed in order to obtain an opportunity to reorganize and begin
     implementing the Company's strategies while working to restructure its
     indebtedness. Pursuant to the Post-Petition Loan and Guaranty Agreement
     dated July 8, 1997, among Wards and Lechmere, as borrowers; MW Holding and
     other debtor subsidiaries of MW Holding, as guarantors; General Electric
     Capital Corporation ("GE Capital"), as agent and lender; and various
     lenders, as amended (the "DIP Facility"), the lenders have agreed to
     provide up to $1 billion in post-petition financing to Wards.

     The Company expects to reorganize its affairs under the protection of
     Chapter 11 and to propose a Chapter 11 plan of reorganization for itself
     and the other filing subsidiaries, including Wards. The Bankruptcy Court
     has granted the Company's request to extend its exclusive right to file a
     plan of reorganization through May 1, 1998. Although management expects to
     file a plan of reorganization in 1998, which would contemplate emergence in
     1999, there can be no assurance at this time that a plan of reorganization
     will be proposed by the Company or approved or confirmed by the Bankruptcy
     Court, or that such plan will be consummated. After the expiration of the
     exclusivity period, creditors of the Company have the right to propose
     alternative plans of reorganization. Any plan of reorganization, among
     other things, is likely to result in material dilution or elimination of
     the equity of existing shareholders, as a result of the issuance of equity
     to creditors or new investors.

     As a result of the Chapter 11 filings, absent approval of the Bankruptcy
     Court, the Company is prohibited from paying, and creditors are prohibited
     from attempting to collect, claims or debts arising pre-petition. The
     consummation of a plan of reorganization is the principal objective of the
     Company's Chapter 11 case. A plan of reorganization sets forth the means
     for satisfying claims and interests in the Company and its debtor
     subsidiaries, including the Liabilities subject to compromise. The
     consummation of a plan of reorganization for the Company and its debtor
     subsidiaries will require the requisite vote of impaired creditors and
     stockholders under the Bankruptcy Code and confirmation of the plan by the
     Bankruptcy Court.
     
                                      32
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   Reorganization (continued)

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates continuity of operations, realization of assets
     and liquidation of liabilities in the ordinary course of business. However,
     as a result of the Chapter 11 filing and circumstances relating to this
     event, including the Company's leveraged financial structure and losses
     from operations, such realization of assets and liquidation of liabilities
     is subject to significant uncertainty. While under the protection of
     Chapter 11, the Company may sell or otherwise dispose of assets, and
     liquidate or settle liabilities, for amounts other than those reflected in
     the financial statements. Further, a plan of reorganization could
     materially change the amounts reported in the financial statements, which
     do not give effect to all adjustments of the carrying value of assets or
     liabilities that might be necessary as a consequence of a plan of
     reorganization.
 
     The appropriateness of using the going concern basis is dependent upon,
     among other things, confirmation of a plan of reorganization, future
     profitable operations, the ability to comply with the terms of the DIP
     Facility and the ability to generate sufficient cash from operations and
     financing arrangements to meet obligations.


3.   Liabilities Subject to Compromise

     The principal categories of claims classified as liabilities subject to
     compromise under reorganization proceedings are identified below. All
     amounts below may be subject to future adjustment depending on Bankruptcy
     Court action, further developments with respect to disputed claims,
     determination as to the value of any collateral securing claims, or other
     events. Additional claims may arise resulting from rejection of additional
     executory contracts or unexpired leases by the Company.

<TABLE>
<CAPTION>
                                                            January 3,
     (In millions)                                             1998
                                                          ----------------
     <S>                                                  <C>
     Accounts payable                                         $     1,340
     Long-term Credit Agreement                                       603
     Short-term Credit Agreement                                      456
     Note Purchase Agreements                                         276
     Other long-term debt                                               9
     Obligations under capital leases                                  51
     Lease and other contract rejection claims                        104
     Other liabilities                                                629
                                                              -----------
                                                              $     3,468
                                                              ===========
</TABLE>


     The Company has $83 million of liabilities due Signature and Marinco which
     have been eliminated in consolidation but are subject to compromise (see
     Note 22).

     As a result of the bankruptcy filing, no principal or interest payments
     will be made on any pre-petition debt without Bankruptcy Court approval or
     until a reorganization plan defining the repayment terms has been approved.
     Contractual interest expense not recorded on certain pre-petition debt
     totaled $61 million for the period from July 8, 1997 through January 3,
     1998.
                      
                                      33
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
3.   Liabilities Subject to Compromise (continued)

     Prior to the bankruptcy filing, the Company's debt consisted primarily of
     borrowings under the Long-term Credit Agreement, the Short-term Credit
     Agreement and Note Purchase Agreements. The Company was in default of the
     terms of each applicable loan agreement. Each of these agreements had a
     maturity date of August 29, 1997 and were to bear interest at varying
     rates. The Company was also in default of the terms of the Seasonal Credit
     Agreement, which was terminated as a result of the Chapter 11 filing. There
     were no borrowings outstanding under this agreement. The caption "Accounts
     payable," included in Liabilities subject to compromise, includes
     facilities Wards had available under vendor financing programs which
     totaled $725 million. At June 28, 1997, these facilities were principally
     drawn. These facilities are no longer available due to the Chapter 11
     filing.

     The Company had entered into interest rate exchange and cap agreements with
     various banks to offset the market risk associated with an increase in
     interest rates under both the Long-term and Short-term Credit Agreements.
     The aggregate notional principal amounts under the interest rate exchange
     agreements was $175 million. The interest rate exchange agreements were
     terminated upon the Company's bankruptcy filing. Pursuant to the early
     termination, the Company incurred a pre-petition liability of $3 million
     which has been included in Liabilities subject to compromise. The cap
     agreements, which all expired during fiscal 1997, were not terminated
     early.

     As part of the Chapter 11 reorganization process, the Company has attempted
     to notify all known or potential creditors of the Chapter 11 filing for the
     purpose of identifying all pre-petition claims against the Company.
     Generally, creditors whose claims arose prior to the Petition Date had
     until March 2, 1998 ("Bar Date") to file claims or be barred from asserting
     claims in the future. Claims arising from rejection of executory contracts
     by the Company, and claims related to certain other items were permitted to
     be filed by other dates set by the Bankruptcy Court. Differences between
     amounts shown by the debtors and claims filed by creditors are being
     investigated and will either be amicably resolved or adjudicated. The
     ultimate amount of and settlement terms for such liabilities are subject to
     the plan of the reorganization when confirmed, and accordingly are not
     presently determinable.


4.   Reorganization Costs

     Reorganization costs recorded in fiscal 1997 consisted of the following (in
     millions):


<TABLE>
     <S>                                                       <C>
     Loss on disposition of assets of Lechmere                  $     280
     Wards and Electric Avenue & More store closings                  204
     Other                                                             61
     Professional fees                                                 10
     Interest income                                                   (2)
                                                                ---------
                                                                $     553
                                                                =========
</TABLE>

     In August 1997, the Bankruptcy Court approved a motion filed by Wards to
     exit its non-core specialty retail store businesses - Lechmere, Home Image
     by Lechmere and Electric Avenue & More. The exit involved the closing of 44
     stores. The closings are expected to generate positive cash flows and
     reduce future operating losses. The Company recorded a pre-tax charge of
     $280 million associated with the closing of Lechmere and $50 million
     associated with the exit of Electric Avenue & More, which included losses
     and costs associated with liquidation of assets, rejection of leases,
     severance payments and other related costs.

                                      34
<PAGE>

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Reorganization Costs (continued)

   In November 1997, Bankruptcy Court approved a motion to close 45
   underperforming retail stores and two outlet and liquidation centers. The
   closings are expected to generate positive cash flows and reduce future
   operating losses. The Company recorded a pre-tax charge of $154 million
   associated with the closing of these stores, which includes losses and costs
   associated with the liquidation of assets, lease rejection claims, severance
   payments and other related costs.

   The net receipts of cash relating to the disposition of the assets of
   Lechmere and closing of Wards and Electric Avenue and More stores consist of
   proceeds from the liquidation of inventory of $175 million and proceeds from
   the sale of properties, plants and equipment of $36 million, net of other
   related costs and expenses of $56 million.

   Other reorganization costs represent expenses and losses associated with the
   restructuring of the Company's agreement with ValueVision International, Inc.
   (see Note 20), the exit of certain product lines, rejection of certain
   contracts, retention bonuses, and other expenses incurred as a result of the
   Chapter 11 filing.

   Professional fees incurred consisted of consulting and legal fees for
   bankruptcy activity and restructuring efforts on behalf of the Company and
   Creditors' Committee.

5. Acquisition of Amoco Enterprises, Inc.

   On December 31, 1995, Wards acquired all of the outstanding capital stock of
   Amoco Enterprises, Inc. (Enterprises), operator of the Amoco Motor Club and a
   wholly-owned subsidiary of Amoco Oil Holding Company. The purchase price was
   $100 million. The acquisition was financed through the use of the majority of
   the proceeds generated from the issuance of the Montgomery Ward Holding Corp.
   Senior Preferred Stock. On January 2, 1996, Wards' wholly-owned subsidiary,
   Signature, purchased Enterprises from Wards for $100 million, net of cash and
   cash equivalents.

   The allocation of the purchase price is summarized as follows (in millions):

<TABLE>
   <S>                                           <C>
   Cash and cash equivalents                     $  63
   Present value of future profits                 126
   Goodwill                                         67
   Other assets                                     22
   Trade accounts payable                           (3)
   Accrued liabilities and other obligations       (67)
   Deferred income taxes                           (45)
                                                 -----
                                                 $ 163
                                                 =====
</TABLE>

                                       35
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investments of Insurance Operations

Following is a summary of investments of insurance operations other than related
party investments. The market values for marketable debt and equity securities
are based on quoted market prices.

<TABLE>
<CAPTION>
(In millions)                                       January 3, 1998
                                    -----------------------------------------------
                                                   Gross         Gross
                                    Amortized    Unrealized    Unrealized    Market
       Type of Investment             Cost         Gains         Losses       Value
-------------------------------    ----------    ----------    ----------    ------
<S>                                <C>           <C>           <C>           <C> 
Fixed maturities:
 Bonds:
  United States Government
   and government agencies
   and authorities                 $       57    $        1    $        -    $   58
  Public utilities                         48             3             -        51
  All other corporate bonds                47             2             -        49
 Mortgage-backed securities                91             2             -        93
                                   ----------    ----------    ----------    ------
    Total fixed maturities                243             8             -       251
                                   ----------    ----------    ----------    ------
Equity securities:
 Common stock                              19             7             -        26
                                   ----------    ----------    ----------    ------
Policy loans                                7             -             -         7
Limited partnership                         5             -             -         5
Short-term investments                     69             -             -        69
                                   ----------    ----------    ----------    ------
    Total investments              $      343    $       15    $        -    $  358
                                   ==========    ==========    ==========    ======
</TABLE>

                                      36
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

6. Investments of Insurance Operations (continued)

<TABLE>
<CAPTION>
(In millions)                                                  December 28, 1996
                                                 ---------------------------------------------
                                                                Gross        Gross
                                                 Amortized    Unrealized   Unrealized   Market
          Type of Investment                       Cost         Gains        Losses     Value
----------------------------------------         ---------    ----------   ----------   ------
<S>                                              <C>          <C>          <C>          <C>
Fixed maturities:
  Bonds
    United States Government and           
     government agencies and authorities         $      52    $        -   $        -   $   52
    Public utilities                                    60             5            -       65
    All other corporate bonds                            9             1            -       10
  Mortgage-backed securities                           108             2           (1)     109
                                                 ---------    ----------   ----------   ------
      Total fixed maturities                           229             8           (1)     236
                                                 ---------    ----------   ----------   ------

Equity securities:
  Common stock                                          17             4            -       21
                                                 ---------    ----------   ----------   ------

Policy loans                                             7             -            -        7
Limited partnership                                      2             -            -        2
Short-term investments                                  51             -            -       51
                                                 ---------    ----------   ----------   ------
      Total investments                          $     306    $       12   $       (1)  $  317
                                                 =========    ==========   ==========   ======
</TABLE>

Proceeds from sales of investments in debt securities were $30 million, $26
million and $13 million for the periods ended January 3, 1998, December 28, 1996
and December 30, 1995, respectively. Proceeds from sales of equity securities
were $41 million, $9 million and $9 million for the periods ended January 3,
1998, December 28, 1996 and December 30, 1995, respectively.

The fixed investment maturities as of January 3, 1998 are as follows:

<TABLE>
<CAPTION>
                                  Amortized     Market
(In millions)                       Cost         Value
                                  ---------     ------
<S>                               <C>           <C>
Due in 1997                       $      29     $   30
Due in 1998 through 2002                 71         75
Due in 2003 through 2007                 33         34
Due in 2008 and beyond                   19         19
Mortgage-backed securities               91         93
                                  ---------     ------
                                  $     243     $  251
                                  =========     ======
</TABLE>

                                      37
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

6. Investments of Insurance Operations (continued)

   Consolidated realized gains on sales of investments before income taxes and
   changes in unrealized gains (losses) after income taxes on fixed maturities,
   mortgage loans and equity securities, including those investments held by 
   non-insurance related subsidiaries, are as follows:

<TABLE>
<CAPTION>
                                                    Fixed
                                                  Maturities
                                                 and Mortgage      Equity
(In millions)                                       Loans        Securities
                                                 ------------    ----------
<S>                                              <C>             <C>
53-week period ended January 3, 1998
    Realized                                     $          1    $        2
    Unrealized                                              -             -

52-week period ended December 28, 1996
    Realized                                     $          -    $        4
    Unrealized                                             (4)            3

52-week period ended December 30, 1995
    Realized                                     $          1    $        5
    Unrealized                                             10            (2)
</TABLE>

7. Accounts and Notes Receivable from Affiliates

   Wards entered into a Bank Credit Card Program Agreement ("Card Agreement")
   effective April 1, 1996 with Monogram Credit Card Bank of Georgia
   ("Monogram"), and an Account-Related Agreement ("Account Related Agreement")
   effective April 1, 1996 with Montgomery Ward Credit Corporation ("Montgomery
   Ward Credit") (collectively referred to as the "Agreements") pursuant to
   which Monogram and Montgomery Ward Credit (collectively referred to as the
   "Montgomery Ward Credit Companies" or "MWCC"), both of which are affiliates
   of General Electric Capital Corporation provide services to Wards, and MWCC
   makes payments to Wards as to their receivables generated by sales to
   customers of Wards, its affiliates and licensees who utilize the Wards
   private label credit card.

   Under the Agreements, Monogram has the exclusive right to operate the Wards'
   private label credit card system and the obligation to pay to Wards the face
   amount of Monogram's receivables generated by the Wards private label credit
   card system, up to $7 billion outstanding at any time. Sales of receivables
   to Montgomery Ward Credit under the prior arrangements, and payments in
   respect of receivables under the current Agreements, were $2.6 billion, $3.6
   billion and $3.9 billion for the periods ended January 3, 1998, December 28,
   1996 and December 30, 1995, respectively. At January 3, 1998 and December 28,
   1996, there were $4.2 billion and $5.2 billion, respectively, of Wards credit
   card receivables owned by Montgomery Ward Credit Companies. Amounts
   receivable from Monogram in connection with such receivables are included in
   Accounts and notes receivable from affiliates.
 
   Wards is exposed to both market risk and credit risk under the Agreements.
   Under the Agreements, Wards is required to pay Monogram the excess interest
   costs on a monthly basis if a blended interest rate applicable to funding
   costs with respect to the receivables exceeds 10% per annum. Since 1988, the
   blended interest rate has been less than 10%.

                                      38
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   Accounts and Notes Receivable from Affiliates (continued)

     Should Montgomery Ward Credit Companies, or their guarantor General
     Electric Capital Corporation, fail to perform their obligations under the
     Agreements, Wards would suffer an accounting loss up to the amount of
     Wards' share of finance charges and late fees (as described below), net of
     applicable reserves carried by Montgomery Ward Credit. Wards estimates that
     any accounting loss would be immaterial at January 3, 1998. Montgomery Ward
     Credit Companies' obligations under the Agreements are not collateralized.

     Wards generally bears a portion of the risk of credit losses due to non-
     payment by cardholders up to a maximum of 2.6% of average outstanding
     receivables, subject to offsets relating to Wards' share of certain
     incremental increases in finance charges and late fees payable by
     cardholders. Wards is also responsible for losses on certain higher risk
     starter card accounts to the extent the loss percentage as to those
     accounts exceeds the loss percentage experience of the rest of the
     portfolio.

     Wards' net unpaid liability for credit losses for 1991 through 1997 are to
     be payable to Montgomery Ward Credit pursuant to a note ("Continuation
     Note") due in early 2003, provided that the outstanding balance of such
     note cannot exceed $300 million. A remaining note in the amount of $15
     million, consisting of losses incurred after July 7, 1997, is to be
     executed which provides for monthly principal payments in the amount of 5%
     of the scheduled monthly principal payments for the Continuation Note.
     Starter card losses are payable currently. Interest on Wards' unpaid
     liability for credit losses is to be payable at a rate equal to rates on
     comparable borrowings of Wards. Interest on notes outstanding as of July 7,
     1997, has been stayed by the Chapter 11 proceeding.

     In exchange for Wards' agreement to allow MWCC to increase finance charge
     rates and late fees in selected states, Wards receives a share of
     incremental finance charges and late fees resulting from such increases.
     Such amount is available for offset against Wards' unpaid liability for its
     share of credit losses, and to the extent not currently paid or offset
     earns interest at the same rate as amounts owned by Wards to Montgomery
     Ward Credit. In the event that, due to the increase in finance charge rates
     and late fees, refunds are required to be made, Wards and MWCC have agreed
     in certain cases to share the financial risk.

     Wards has executed notes for its unpaid share of credit losses which
     totaled $412 million with respect to credit losses through 1997. The
     incremental finance charges and late fee assessments earned by Wards at the
     end of 1997 were $112 million for a net obligation of $300 million. As
     Wards' net unpaid liability for credit losses for 1991 through 1997
     exceeded the $300 million threshold, a payment of $28 million with respect
     to the excess was made in early 1998. At January 3, 1998, $288 million of
     the net obligation is included in Liabilities subject to compromise, and
     $40 million of the obligation is included in Accrued liabilities and other
     obligations. As the $300 million threshold has been reached, it is expected
     that future payments may be required depending upon the level of credit
     card losses.

                                       39
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7. Accounts and Notes Receivable from Affiliates (continued) 

   The Agreements are scheduled to expire on December 31, 2011, provided the
   terms shall continue thereafter from year to year unless either party gives
   ten years prior notice of its election to terminate. Except upon the
   occurrence of certain events of default, the Agreements may generally not be
   terminated by either party prior to December 31, 2011. Wards has not yet
   assumed these agreements and the Montgomery Ward Credit Companies have not
   exercised the provision in the Agreements allowing the Montgomery Ward Credit
   Companies to terminate the Agreements in the event of Wards' bankruptcy.
   Wards has agreed to pay Montgomery Ward Credit $2.5 million per month for the
   months of January 1998 through June 1998. Wards expects to execute an interim
   amendment to the Account Purchase Agreement ("Interim Agreement") which will
   provide the Company with the ability to utilize the private label credit card
   during the pendancy of the Bankruptcy case. It is likely that the Interim
   Agreement will require monthly payments similar to those required for the
   first six months of 1998. GE Capital has guaranteed Montgomery Ward Credit
   Companies' obligations under the Agreements.

8. Retirement Plans

   Retirement plans cover a majority of full-time associates of Wards and its
   subsidiaries. Retirement benefits are provided through a defined benefit
   pension plan as well as through a savings and profit sharing plan.

   The components of the net pension credit were as follows:

<TABLE>
<CAPTION>
                                                      53-Week            52-Week
                                                      Period             Period
                                                       Ended              Ended
                                                      -------     ---------------------
                                                      Jan. 3,     Dec. 28,     Dec. 30,
(In millions)                                          1998         1996         1995
                                                      -------     --------     --------
<S>                                                   <C>         <C>          <C>
Service cost-benefits earned during the period        $   (11)    $    (12)       $ (10)
Interest cost on projected benefit obligation             (48)         (48)         (51)
Actual return on assets                                   190          112          185
Deferral of unanticipated investment performance         (110)         (34)        (110)
Amortization of unrecognized prior service cost             1            1            -
Amortization of unrecognized net loss                      (3)          (6)          (3)
                                                      -------     --------     --------
Net pension credit                                    $    19     $     13     $     11
                                                      =======     ========     ========

Assumptions:
  Discount rate                                           7.7%         7.5%         8.5%
  Increase in future compensation                         3.0%         6.0%         6.0%
  Rate of return on plan assets                           9.5%         9.5%         9.5%
</TABLE>

                                      40
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE> 
<CAPTION> 

8.   Retirement Plans (continued)

     The funded status of the defined benefit pension plan was as follows:

                                                          Jan. 3,    Dec. 28,
      (In millions)                                        1998        1996
                                                         --------    --------
<S>  <C>                                                <C>         <C>  
      Acturial present value of accumulated benefit 
       obligation:

       Vested                                            $   (683)   $   (655)
       Nonvested                                               (1)         (2)
                                                         --------    --------
      Accumulated benefit obligation                         (684)       (657)

      Additional amounts related to projected increases 
       in compensation levels                                  (7)        (20)
                                                         --------    --------
      Projected benefit obligation                       $   (691)       (677)
      Plan assets at fair value, primarily in equity
       and fixed income securities                          1,071         946
                                                         --------    --------
      Plan assets in excess of projected     
       benefit obligation                                $    380    $    269
                                                         --------    --------
 
 
      Unrecognized net loss since initial 
       application of FAS 87                                   (1)         71
      Unrecognized prior service cost since 
       initial application of FAS 87                          (13)          7
                                                         --------    --------
 
                                                         $    366    $    347
                                                         ========    ========
</TABLE>

     The projected benefit obligation was determined using an assumed discount
     rate of 7.0% at January 3, 1998 and 7.7% at December 28, 1996 and an
     assumed rate of increase in future compensation levels of 3% for 1997 and
     6% for 1996. Excess unrecognized net gains and losses and prior service
     costs are amortized over the average future service period.
  
     The Company provides a 401(K) defined contribution plan to eligible
     employees. Company matching contributions for employees under the plan
     amounted to $4 million for the period ended January 3, 1998 and $6 million
     for the periods ended December 28, 1996 and December 30, 1995.
  
     Substantially all associates who retire after participation in the
     retirement plan for ten years and who were members of the health care plan
     for the year prior to retirement are eligible for certain post-retirement
     health care benefits, the cost of which is shared with the retirees.
     Certain associates who retired before January 1, 1996 are eligible for
     postretirement life insurance benefits. The postretirement healthcare
     benefits cease at age 65 for associates who retire on or after January 1,
     1996 and who do not meet certain age and service requirements. In 1992, the
     Company established a limit on its future annual contributions on behalf of
     retirees at a maximum of 125% of the projected 1992 company contributions.
     The Company continues to evaluate ways in which it can better manage
     retiree benefits and control costs. Any changes in the plan or revisions to
     assumptions that affect the amount of expected future benefits may have a
     significant effect on the amount of the reported obligation and annual
     expense.

                                      41
<PAGE>

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.  Retirement Plans (continued)

    The Company accounts for postretirement benefits under the provisions of
    SFAS No. 106, "Employers Accounting for Postretirement Benefits other than
    Pensions."

    The components of the net periodic postretirement benefit cost were as
    follows:
<TABLE>
<CAPTION>
                                                           53-Week         52-Week
                                                           Period          Period
                                                            Ended           Ended
                                                           -------     ---------------
(In millions)                                               1997       1996      1995
                                                           -------     ----      -----
<S>                                                        <C>         <C>       <C>
Service cost                                               $   1       $   1     $   2
Interest cost on accumulated post-retirement                                     
  benefit obligation                                           8           9        10
Curtailment gain on life insurance benefit termination         -           -        (3)
Amortization of prior service cost                            (2)         (1)        -
                                                           -------     -----     -----
Net periodic post-retirement benefit cost                  $   7       $   9     $   9
                                                           =======     =====     =====
</TABLE>
    The status of the Company's liability for postretirement benefits at January
    3, 1998, which is included in Liabilities subject to compromise, and
    December 28, 1996, which are included in Accrued liabilities and other
    obligations, is as follows:
<TABLE>
<CAPTION>
(In millions)                                                  1997       1996
                                                               -----      ----
<S>                                                            <C>        <C>
Accumulated post-retirement obligation:
    Retirees                                                   $  72         82
    Fully eligible active associates                              16         16
    Other active associates                                       21         22
                                                               -----      -----

      Total accumulated post-retirement benefit obligation       109        120

    Unrecognized prior service cost                               15         15
    Unrecognized net gain                                         14          5
                                                               -----      -----
    Accumulated post-retirement benefit obligation             $ 138      $ 140
                                                               =====      =====
</TABLE>
    The weighted average discount rate used in measuring the accumulated
    postretirement benefit obligation was 7% at January 3, 1998 and 7.7% at
    December 28, 1996. The assumed health care cost trend rate and the impact of
    a 1% increase in the medical trend rate on the accumulated postretirement
    benefit obligation, service cost and interest cost are not applicable due to
    caps established on current cost levels.

                                       42
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
9.   Properties, Plants and Equipment

     The details of the properties, plants and equipment accounts are shown
     below at cost:

<TABLE>
<CAPTION>
                                                                Jan. 3,          Dec. 28,                                   
     (In millions)                                               1998              1996                                     
                                                            --------------     --------------                              
                                                                                                                           
<S>                                                         <C>                <C>                                       
     Land                                                   $          164     $          193                              
     Buildings                                                         795                886                              
     Leasehold improvements                                            290                353                              
     Fixtures and equipment                                            522                585                              
     Assets under capital leases                                        92                 96                              
     Less accumulated depreciation and amortization                   (796)              (805)                             
                                                            --------------     --------------                              
     Properties, plants and equipment, net                  $        1,067     $        1,308                              
                                                            ==============     ==============                              
</TABLE>
                                                                               
     Depreciation expense for properties, plants and equipment was $117 million,
     $122 million and $115 million for 1997, 1996 and 1995, respectively. Assets
     held for disposition, representing primarily closed retail and warehouse
     facilities, of $76 million and $17 million at January 3, 1998 and December
     28, 1996, respectively, are included in Other assets. Losses of $16
     million, which are included in Reorganization Costs, were recognized in
     1997 in connection with the write-down of these properties to their net
     realizable values.

10.  Income Taxes

     As of January 3, 1998, the Company has a tax benefit of $733 million
     attributable to net operating loss ("NOL") carryforwards available, which
     expire beginning in 2010, targeted jobs tax credit ("TJTC") carryforwards
     of $8 million, which begin expire beginning in 2009 and alternative minimum
     tax ("AMT") credits of $3 million available to offset future federal income
     tax liabilities.

     The Company increased the valuation reserve relating to the realizeability
     of the NOL carryforwards in 1997. Management believes that the NOL
     carryforwards, net of the applicable valuation reserve, could be realized
     by selling appreciated non-operating assets, if necessary, to avoid
     allowing the carryforwards to expire without being used. Management has
     obtained third party valuations to establish the probable proceeds from
     such sales.

                                      43
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  Income Taxes (continued) 

     The approximate tax effects of temporary differences and carryforwards that
     give rise to the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
                                                                      Jan. 3,              Dec. 28,
(In millions)                                                          1998                  1996  
                                                                  ---------------       ---------------
<S>                                                               <C>                   <C>        
     Accrued liabilities                                          $           133       $           112
     Post-retirement benefits                                                  48                    55
     Insurance reserves                                                        66                    71
     Other deferred tax assets                                                 15                     4
                                                                  ---------------       ---------------
          Total deferred tax assets                                           262                   242
                                                                                                   
     Prepaid pension contribution                                            (131)                 (141)
     Direct response and insurance acquisition costs                         (199)                 (238)
     Properties, plants and equipment                                        (121)                 (159)
     Other deferred tax liabilities                                           (51)                  (51)
                                                                  ---------------       ---------------
          Total deferred tax liabilities                                     (502)                 (589)
                                                                                                   
     NOL, TJTC and AMT credit carryforwards                                   744                   327
     Valuation allowance                                                     (205)                  (32)
                                                                  ---------------       ---------------
       Net deferred tax asset (liability)                         $           299       $           (52)
                                                                  ===============       ================ 
</TABLE>
                                                                               
     Income tax expense (benefit) consists of: 

<TABLE>
<CAPTION>
                                               53-Week                        52-Week
                                                Period                        Period
                                                Ended                          Ended
                                            --------------       ---------------------------------
                                               Jan. 3,              Dec. 28,           Dec. 30,
     (In millions)                               1998                 1996               1995
                                            --------------       ---------------    --------------
<S>                                         <C>                  <C>                <C>
     Federal                                                                           
        Current                             $            2       $             2    $            7
        Deferred                                      (361)                 (134)              (20)
     State, local and foreign                          (16)                   (6)               (1)
                                            --------------       ---------------    --------------
        Total income tax benefit            $         (375)      $          (138)   $          (14)
                                            ==============       ===============    ============== 
</TABLE>

                                      44
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 

10.  Income Taxes (continued)

     A reconciliation of the statutory to effective federal income tax rate is
     as follows:

<TABLE>
<CAPTION>
                                                                   53-Week                         52-Week
                                                                    Period                         Period
                                                                    Ended                           Ended
                                                              ---------------     --------------------------------------
                                                                   Jan. 3,             Dec. 28,              Dec. 30,
                                                                     1998                1996                  1995
                                                              ---------------     ----------------     -----------------
<S>                                                            <C>                <C>                  <C>
     Federal income tax rate                                             (35)%                (35)%                 (35)%
     State taxes, net of reduction of federal tax    
        and NOL benefit                                                   (1)                  (1)                   (7)
     Tax credits                                                           -                   (2)                  (31)
     Deferred rate differential, net of adjustments                        -                    -                    (2)
     Permanent differences                                                 -                    1                    14
     Valuation allowance                                                  11                    -                     -
                                                              ---------------     ----------------     -----------------
     Effective income tax rate                                           (25)%                (37)%                 (61)%
                                                              ===============     ================     =================
</TABLE>

11.  Reinsurance

     The Company's insurance subsidiaries are involved in both the cession and
     assumption of reinsurance with other companies. Risks are reinsured with
     other companies to permit the recovery of a portion of the direct losses.
     Policy related liabilities and accruals, including incurred but not
     reported claims, are included in the financial statements as Insurance
     policy claim reserves, and reinsurance ceded is reflected as a component of
     Other assets. The Company remains liable to the extent the reinsuring
     companies cannot meet their obligations under these reinsurance treaties.

                                      45
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. Reinsurance (continued)

    Premium revenues, which are included in Direct response marketing revenues,
    are as follows:

<TABLE>
<CAPTION>
                                                                       Assumed                Percentage
                                                          Ceded         From                  of Amount
                                              Gross     to Other        Other        Net       Assumed
(In millions)                                 Amount    Companies     Companies     Amount      To Net
                                              ------    ---------     ---------     ------    ----------
<S>                                           <C>       <C>           <C>           <C>       <C>
53-Week Period ended January 3, 1998:
Life Insurance in force                       $4,693    $    (256)    $     923     $5,360          17.2%
                                              ======    =========     =========     ======    ========== 
Premiums                                 
  Life Insurance                                  49           (1)           11         59          18.6%
  Accident and health insurance                   75           (3)           59        131          45.0%
  Property and liability insurance                30           (9)           30         51          58.8%
  Other                                            -            -             6          6         100.0%
                                              ------    ---------     ---------     ------    ----------
      Total                                   $  154    $     (13)    $     106     $  247          42.9%
                                              ======    =========     =========     ======    ========== 

52-Week Period ended December 28, 1996:  
Life Insurance in force                       $5,764    $    (104)    $     176     $5,836           3.0%
                                              ======    =========     =========     ======    ========== 
Premiums                                 
  Life Insurance                                  59           (1)            7         65          10.8%
  Accident and health insurance                   94           (5)           11        100          11.0
  Property and liability insurance                76          (15)            -         61           0.0
                                              ------    ---------     ---------     ------    ----------
      Total                                   $  229    $     (21)    $      18     $  226           8.0%
                                              ======    =========     =========     ======    ========== 

52-Week Period ended December 30, 1995:  
Life Insurance in force                       $5,730    $     (84)    $     156     $5,802           2.7%
                                              ======    =========     =========     ======    ========== 
Premiums                                 
  Life Insurance                                  53           (1)            2         54           3.7%
  Accident and health insurance                   91           (5)           15        101          14.9%
  Property and liability insurance                73          (12)            -         61           0.0%
                                              ------    ---------     ---------     ------    ----------
      Total                                   $  217    $     (18)    $      17     $  216           7.9%
                                              ======    =========     =========     ======    ========== 
</TABLE>

                                      46
<PAGE>
 

                        MONTGOMERY WARD HOLDING CORP. 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  Short-Term and Long-Term Debt

     The long-term debt of Wards and its subsidiaries is as follows:

<TABLE>
<CAPTION> 
                                                                         Jan. 3,       Dec. 28,
     (In millions)                                                        1998           1996
                                                                       -----------   -------------
     <S>                                                               <C>           <C>
     Wards
       Post-Petition Loan and Guaranty Agreement                          $  50          $   -
       Commercial Development Revenue Bonds, due in 2013 at 4.5%
        interest rate, adjusted at three-year intervals                       -              5
       Other                                                                  -              2
     Wards' Real Estate Subsidiaries
       11.50% Secured Note, due serially to September 1, 2001                11             12
       7.50% Secured Note, due serially to November 30, 2002                  5              5
       9.45% Secured Notes, due serially to November 30, 2003                14             15
       7.75% Secured Notes, due serially to August 31, 2004                  16             17
       7.875% Secured Notes, due serially to December 15, 2005                7              7
       9.00% Secured Notes, due serially to January 1, 2006                  11             12
       Other                                                                  8              8
     Lechmere
       Other                                                                  -              4
                                                                       -----------   -------------
           Total long-term debt                                           $ 122          $  87
                                                                       ===========   =============
</TABLE>

                                                                                
     Maturities of long-term debt for the five years succeeding January 3, 1998
     are as follows: 1998--$14 million, 1999--$61 million, 2000--$11 million,
     2001--$10 million, 2002--$9 million, and thereafter --$17 million.

     Wards entered into the Post-Petition Loan and Guaranty Agreement ("DIP
     Facility") on July 8, 1997, which was approved by the Bankruptcy Court on
     July 31, 1997. Under the DIP Facility, the lenders have agreed to provide a
     revolving credit and letter of credit facility, the maximum amount of which
     is based on the book value of eligible inventory (as defined in the DIP
     Facility), the fair market value of eligible real property (as defined in
     the DIP Facility) and the earnings of Signature. In no case may borrowings
     exceed $1 billion. Total letters of credit outstanding were $52 million at
     January 3, 1998. The Company had $811 million of borrowing availability
     under the DIP Facility at January 3, 1998.

     Under the DIP Facility, Wards may select among several interest rate
     options, all of which are based on market rates plus a margin. A commitment
     fee is payable based on the unused amount of the facility. The facility
     expires on July 7, 1999, or earlier in the case of an event of default. The
     Company is currently in default of the terms of each of the Long-Term
     Credit Agreement, the Short-Term Credit Agreement and the Note Purchase
     Agreements and no future amounts may be drawn thereunder. The Company was
     also in default of the Seasonal Credit Agreement, which was terminated as a
     result of the Chapter 11 filings. There were no borrowings outstanding
     under this agreement.

                                      47
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        
12. Short-Term and Long-Term Debt (continued)

    Signature borrowed $102 under a Credit Agreement (Signature Credit
    Agreement) dated as of September 27, 1996 as amended and restated October
    21, 1996 and amended December 23, 1996 between Signature and various
    lenders. The proceeds were used to repay the intercompany loan from Wards to
    Signature arising from Signature's acquisition of the Amoco Motor Club.
    During 1997, the maturity date was extended to January 31, 1998 and has not
    been repaid. In 1998, the lenders agreed that they will extend the maturity
    date to the earlier of May 29, 1998 or the funding of a replacement loan
    facility, provided that Signature provide the lenders with certain security
    and other terms and conditions the new lenders may deem appropriate. In
    March 1998, Signature received a commitment from a new lender which would
    enable Signature to repay the amounts borrowed under the Signature Credit
    Agreement. Management expects to borrow the amounts required and repay the
    amounts due by May 29, 1998. If the new lender's commitment were to be
    terminated, the aforementioned extension agreement would also terminate.

    The Secured Notes of the real estate subsidiaries are secured by mortgage
    liens and/or assignments of rental agreements whereby the real estate
    subsidiaries have assigned to trustees certain monies payable under leases
    with Wards. As the Secured Notes of the real estate subsidiaries are
    adequately collateralized by the respective properties, these obligations
    are not considered subject to compromise. The obligation relating to the
    Commercial Development Revenue Bonds of $5 million is included in
    Liabilities subject to compromise at January 3, 1998.

13. Leases

    The Company leases real and personal property principally through
    noncancelable capital and operating leases, which generally provide for the
    payment of minimum rentals and, in certain instances, executory costs and
    additional rentals based upon a percentage of sales. The terms of the real
    estate leases typically contain renewal options for additional periods.

    At January 3, 1998, the minimum lease payments under all noncancelable
    operating leases with an initial term of more than one year, not including
    $29 million of future sublease rentals, and under capital leases are as
    follows:

<TABLE>
<CAPTION>
                                                  Capital       Operating
    (In millions)                                  Leases       Leases
                                                  -------       ---------
    <S>                                           <C>           <C>
    1998                                          $    11       $     100
    1999                                               11              84
    2000                                               10              71
    2001                                               10              61
    2002                                                9              55
    Thereafter                                         19             407
                                                  -------       ---------
      Total Minimum Lease Payments                $    70       $     778
                                                                =========
    Less: Executory costs, principally real       
      estate taxes to be paid by the lessor            (2)
    Less: Imputed interest                            (17)
                                                  -------
    Present value of net minimum capital          
      lease payments including portion due        
      within one year of $7                       $    51
                                                  =======
</TABLE>

                                       48
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
13.  Leases (continued)
 
     The obligations under capital leases have been included in Liabilities
     subject to compromise at January 3, 1998.
     
     Net rent expense charged to earnings was $136 million, $149 million and
     $140 million for the periods ended January 3, 1998, December 28, 1996 and
     December 30, 1995, respectively, after deducting rentals from subleases of
     $9 million, $10 million and $9 million for the periods ended January 3,
     1998, December 28, 1996 and December 30, 1995, respectively. Rent expense
     includes contingent lease rentals for capital and operating leases of $7
     million, $10 million, and $12 million for the periods ended January 3,
     1998, December 28, 1996 and December 30, 1995, respectively. These
     contingent lease rentals are generally based on sales revenues.

     Some rental agreements contain escalation provisions that may require
     higher future rent payments. Rent expense incurred under rental agreements
     which contain escalation clauses is recognized on a straight-line basis
     over the life of the lease.

14.  Redeemable Preferred Stock
 
     On December 29, 1995, Wards issued 1,750 shares of a new series of senior
     preferred stock ("MW Senior Preferred Stock"), par value of $1.00 per
     share, to GE Capital in exchange for $175 million in cash. Subsequent to
     year end 1995, Wards used a portion of the proceeds to finance the purchase
     of the Amoco Motor Club by its wholly-owned subsidiary, Signature. The
     subscription agreement for the MW Senior Preferred Stock contained an
     exchange option which gave GE Capital the option to exchange the MW Senior
     Preferred Stock for senior preferred stock of the Company with
     substantially the same terms. On January 31, 1996, GE Capital exercised
     this exchange option. On March 29, 1996, the Company's Certificate of
     Incorporation was amended to authorize the issuance of a new series of
     senior preferred stock ("New Senior Preferred Stock"). On March 29, 1996,
     the Company issued all of the 1,750 shares of New Senior Preferred Stock to
     GE Capital in exchange for the 1,750 shares of MW Senior Preferred Stock
     held by GE Capital. Dividends on the New Senior Preferred Stock are payable
     quarterly at an annual rate of $7,010 per share. The Company is required to
     redeem the New Senior Preferred Stock on June 30, 2002, with the option of
     redeeming all or any portion prior to June 30, 2002.

     On March 4, 1997, GE Capital, Wards and Lechmere amended the Program
     Agreement under which GE Capital provided funds to Wards and Lechmere to
     pay manufacturers and distributors of goods purchased by Wards and
     Lechmere. In exchange for a $150 million increase in the maximum amount of
     funds GE Capital agreed to provide, MW Holding agreed to issue shares of a
     new series of Preferred Stock having a liquidation value of $21 million. On
     April 1, 1997, GE Capital further increased its funding under the Program
     Agreement by $100 million and the Board of Directors of MW Holding agreed
     to issue additional shares of the new series of Preferred Stock.

     At its Annual Meeting held on May 29, 1997, the stockholders of MW Holding
     approved an amendment to its Certificate of Incorporation authorizing the
     issuance of up to 25,000 shares of preferred stock. The amendment allows
     future issuances of preferred stock by action of the Board of Directors
     without the need for further action by the stockholders. The Board of
     Directors designated 1,000 shares of the newly authorized preferred stock
     to be Series C Preferred Stock and MW Holding issued 352 shares of the
     Series C Preferred Stock to GE Capital in full payment of the obligations
     described above.

                                       49
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        
14.  Redeemable Preferred Stock (continued)

     All of the Series C Preferred Stock is required to be redeemed on September
     30, 2002 at a redemption price of $100,000 per share (the "Liquidation
     Value") plus unpaid accrued dividends. Dividends are payable quarterly at a
     rate per annum equal to 15%, with the first payment based on the number of
     days from and including March 4, 1997. If for any reason the full dividend
     on any payment date is not paid in cash on such date, the unpaid amount
     thereof will automatically, without further action, be deemed added to the
     Liquidation Value. MW Holding did not pay the dividend due June 30, 1997 of
     $2 million and such amount has been added to the liquidation value of the
     Series C Preferred Stock.

     MW Holding also did not pay dividends due on June 30, 1997 on its New
     Senior Preferred Stock. The redemption provisions of the Series C and New
     Senior Preferred Stock have been stayed by the Chapter 11 proceedings. No
     further dividends will be declared or paid on the Series C or New Senior
     Preferred Stock prior to the approval of a plan of reorganization.

15. Common Stock

     As of January 3, 1998, the Company has the following authorized classes of
     common stock:

          Class A Common Stock, Series 1; $.01 par value; 25,000,000 shares
          authorized; 18,222,706 shares issued and outstanding, net of 6,777,294
          shares held in treasury.

          Class A Common Stock, Series 2; $.01 par value; 5,412,000 shares
          authorized; 99,541 shares issued and outstanding, net of 2,118,090
          shares held in treasury.

          Class A Common Stock, Series 3; $.01 par value; 12,400,000 shares
          authorized; no shares issued or outstanding.

          Class B Common Stock; $.01 par value; 25,000,000 shares authorized,
          issued and outstanding; all owned by GE Capital.

     The Company has repurchased 5,982,897 shares held by certain former
     officers of the Company, Wards and Signature and their permitted
     transferees by making cash payments and issuing installment notes in the
     aggregate of approximately $54 million. As of January 3, 1998, the
     outstanding balance of these notes was $7 million. These installment notes
     bear interest at varying rates, are payable over multi-year periods
     (generally three to five years) and are secured by shares of common stock.
     These notes are classified as Liabilities subject to compromise. The
     Company does not have the capacity under its borrowing agreements to
     satisfy the payments for these notes. A noteholder may foreclose on the
     pledge of shares repurchased if note payments are not made within one year
     of becoming due; provided, however that the foreclosure remedy has been
     stayed by the Chapter 11 filing.

     Each share of Class B Common Stock entitles the holder thereof to one vote.
     All shares of Class A Common Stock entitle the holders to a total of
     25,000,000 votes, or one vote per share if the total number of Class A
     shares issued and outstanding is less than 25,000,000.

                                       50
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
15.  Common Stock (continued)

     In 1997, the Company adopted Statement of Financial Accounting Standards
     Number 128, "Earnings per Share" ("FAS 128"). FAS 128 requires the
     presentation of "basic" earnings per share (income applicable to common
     shareholders divided by the weighted-average number of common shares
     outstanding during the period) and "diluted" earnings per share (which
     gives effect to all dilutive potential common shares that were outstanding
     during the period). All prior-period earnings per share data have been
     restated to conform to FAS 128. Basic and diluted earnings per share are
     the same for the periods ended January 3, 1998, December 28, 1996 and
     December 30, 1995, as all common stock equivalents are antidilutive, due to
     the net loss incurred during these periods.
<TABLE>
<CAPTION>
                                    For the 53-Week                  For the 52-Week                For the 52-Week
     (In millions,                    Period Ended                     Period Ended                   Period Ended
      except share                  January 3, 1998                 December 28, 1996               December 30, 1995
      and per share             --------------------------      ---------------------------     --------------------------
      amounts)                    Class A        Class B          Class A        Class B          Class A        Class B
                                -----------    -----------      -----------    ------------     -----------    -----------
     <S>                        <C>            <C>              <C>           <C>               <C>            <C>
     Net loss applicable to
       common shareholders      $       580    $       580      $       118    $       131      $         6    $         7
     Weighted average number
       of common shares
       outstanding               18,322,247     25,000,000       18,710,601     25,000,000       19,511,238     25,000,000
     Net loss per
       common share             $    (31.67)   $    (23.17)     $     (6.33)   $     (5.22)     $      (.33)   $       (.27)
</TABLE>


16.  Stock Ownership Plan

     The Montgomery Ward & Co., Incorporated Stock Ownership Plan was adopted
     effective July 19, 1988. A total of 1,000,000 Class A Common Stock, Series
     1, 5,412,000 shares of Class A Common Stock, Series 2, and 12,400,000
     shares of Class A Common Stock, Series 3, have been reserved for issuance
     under the plan. Key associates of Wards and its subsidiaries are eligible
     to participate and may receive awards, purchase rights and options. Awards
     are grants of shares for no consideration. The Stock Ownership Plan expires
     on July 19, 1998 and no additional stock options may be granted after such
     date.

     During 1991, the Board of Directors approved the Directors Plan. The
     Directors Plan was established to, among other things, allow outside
     directors to receive all or any portion of the fees for their services as
     directors of the Company and Wards via conversion rights in Series 1 or
     Series 2 shares. In 1997, 1996 and 1995, 706, 2,421 and 2,476 Series 1
     shares were issued from treasury stock as payment for directors fees,
     respectively.

                                      51
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        


16.  Stock Ownership Plan (continued)

     Following is a summary of activity under the plans:

<TABLE>
<CAPTION>
                                   January 3,               December 28,             December 30,
                                      1998                      1996                     1995
                             ----------------------   -----------------------  -----------------------
                                            Wtd.                     Wtd.                     Wtd.
                               Shares       Avg.       Shares        Avg.       Shares        Avg.
                               (000)     Ex. Price     (000)      Ex. Price     (000)      Ex. Price
                             ----------  ----------   --------    ----------   --------    ----------
     <S>                       <C>        <C>         <C>          <C>         <C>          <C>
     Outstanding,
       beg. of year            4,338      $17.87       5,165        $17.61      6,163        $17.76
       Granted                 4,721        7.32         340         23.95        673         24.90
       Exercised                   -           -        (352)         9.52       (980)        19.29
       Forfeited                (970)      18.61        (458)        21.14        (72)        19.22
       Canceled               (1,328)      11.54        (357)        23.86       (619)        24.15
                             ----------  ----------   --------    ----------   --------    ----------
     Outstanding,
       end of year             6,761      $11.64       4,338        $17.87      5,165        $17.61
                             ==========  ==========   ========    ==========   ========    ==========
     Exercisable,
       end of year             3,688      $15.23       3,981        $16.39      3,980        $15.92
                             ==========  ==========   ========    ==========   ========    ==========
</TABLE>


     5.3 million of the 6.8 million options outstanding at January 3, 1998 have
     exercise prices between $.20 and $18.75, with a weighted average exercise
     price of $8.38 and a weighted average remaining contractual life of 7.5
     years. 2.2 million of these options are exercisable. The remaining 1.5
     million options have exercise prices between $22.50 and $26.50, with a
     weighted average exercise price of $23.36 and a weighted average remaining
     contractual life of 6.02 years. All of these options are exercisable.

     In 1996, the Company adopted the disclosure only provisions of SFAS No.
     123, "Accounting for Stock-Based Compensation," requiring pro-forma net
     loss and net loss per common share be determined as though stock-based
     compensation expense had been recognized using an option pricing model.
     However, due to the Company's bankruptcy filing and the significant losses
     incurred in fiscal 1997, the Company does not believe the pro-forma net
     loss and net loss per common share would be materially different from the
     reported amounts.

17.  Operating, Selling, General and Administrative Expenses 

     Operating, selling, general and administrative expenses include insurance
     benefits, claims and losses related to direct response marketing operations
     of $150 million, $144 million and $100 million for the periods ended
     January 3, 1998, December 28, 1996 and December 30, 1995, respectively. The
     Company expenses production costs of print, radio and television
     advertisements on the date the advertising first takes place. Advertising
     expenses included in operating, selling, general and administrative
     expenses were $363 million, $392 million and $335 million for the periods
     ended January 3, 1998, December 28, 1996 and December 30, 1995,
     respectively.

                                      52
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

18.  Interest Expense, Net of Investment Income

     Net interest expense is as follows:

<TABLE>
<CAPTION>
                                                              53-Week            52-Week
                                                               Period            Period
                                                               Ended              Ended
                                                              --------   ----------------------
                                                               Jan. 3,     Dec. 28,    Dec. 30,
     (In millions)                                              1998         1996        1995
                                                              --------   ----------    --------
     <S>                                                      <C>        <C>           <C>
     Interest on short-term borrowings                          $ 63         $ 53        $47
     Interest on long-term debt and obligations under
       capital leases                                             14           44         32
     Miscellaneous interest, net                                  36           32         15
     Investment income                                            (2)          (2)        (3)
                                                              --------   ----------    ---------
           Total interest expense, net of investment income     $111         $127        $91
                                                              ========   ==========    =========
</TABLE>


19.  Litigation and Other Proceedings

     MW Holding, Wards and its subsidiaries are engaged in various litigation
     and have a number of unresolved claims. While the amounts claimed are
     substantial and the ultimate liability with respect to such litigation and
     claims cannot be determined at this time, management is of the opinion that
     such liability, to the extent not provided for through insurance or
     otherwise, is not likely to have a material impact on the financial
     condition and the results of operations of the Company.

20. Related Party Transactions

Bernard F. Brennan

     Substantially all shares of Class A Common Stock, except those held by
     Bernard F. Brennan, former Chairman and Chief Executive Officer, and a
     trust established for the benefit of his children, are held by a Voting
     Trust which was created in 1988. In 1994, a second voting trust was created
     to hold shares of Class A Series 3 Common Stock. As Voting Trustee, Bernard
     F. Brennan has sole voting power and control of all shares held by both
     Voting Trusts. The 1988 Voting Trust will expire June 21, 1998 or upon the
     occurrence of certain specified events in accordance with the Voting Trust
     Agreement. The 1994 Voting Trust has no expiration date but may expire upon
     the occurrence of certain specified events in accordance with the Voting
     Trust Agreement.

     In conjunction with a Relationship Agreement entered into between Mr.
     Brennan and the Company in December 1996, the Company provided a loan to
     Mr. Brennan of $12.5 million. Class A common stock of the Company owned by
     Mr. Brennan and his permitted transferees is pledged as collateral for this
     loan. The loan does not bear interest. In addition, Mr. Brennan is to be
     paid $1.5 million annually (for a five-year period) for consulting services
     he provides to the Company. The Company ceased payment for such consulting
     services upon the bankruptcy filing.


                                      53
<PAGE>
 
                        MONTGOMERY WARD HOLDING CORP. 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        
20.  Related Party Transactions (continued)

GE Capital Corporation

     Certain key executives in 1997 were granted restricted stock and stock
     options of General Electric Company ("GE"). Roger Goddu, Chairman and Chief
     Executive Officer, was granted 120,000 shares of GE restricted stock which
     had a fair market value of $6.1 million at the date of grant. The shares
     vest equally over a five-year period on each December 31, beginning on
     December 31, 1997, subject to continuing employment.

     Mr. Goddu and seven other key executives were granted GE stock options with
     a fair market value of $5.4 million at the grant date. The shares vest over
     periods ranging from four to six years, subject to continuing employment.
     The exercise price equaled in each case the fair market value of the common
     stock at the grant date. Upon the resignation of one executive, options
     which were granted to the executive were canceled.

     As a result of the above transactions, the Company recorded the grants of
     GE restricted stock and stock options of $11.5 million as a capital
     contribution and established an asset, unearned compensation expense. Total
     expense recorded related to the amortization of the unearned compensation
     was $2.2 million for the fiscal year ended January 3, 1998.

     The Company engages in various other transactions with GE Capital as
     described in Notes 2, 7, 14 and 15.

ValueVision International, Inc.

     On August 8, 1995, Wards purchased 1.28 million unregistered shares of
     common stock of ValueVision International, Inc. ("ValueVision") at $6.25
     per share, which represented approximately 4.4% of the issued and
     outstanding shares of common stock of ValueVision. Wards also received
     warrants to purchase an additional 25 million shares of common stock of
     ValueVision with exercise prices ranging from $6.50 to $17.00 per share,
     with an average exercise price of $9.16 per share.

     In July of 1996, the Company and ValueVision entered into an agreement
     whereby ValueVision acquired the assets and assumed certain liabilities of
     a joint venture of which the Company was a partner. Also, in July of 1996,
     ValueVision and Wards entered into an agreement for the expansion and
     restructuring of their ongoing marketing agreement. ValueVision issued to
     Wards vested warrants (Class P Warrants) to purchase 2.97 million shares of
     ValueVision common stock at an exercise price of $0.01 per share.

     The new warrants replaced 18 million unvested warrants (Class C-O Warrants)
     from an earlier grant. Concurrent with this agreement, ValueVision issued
     to Merchant Partners Limited Partnership ("Merchant Partners") vested Class
     P warrants to purchase 199,100 shares of ValueVision common stock at an
     exercise price of $0.01 per share. Wards recognized a pre-tax gain of $8
     million from these transactions, which is included in Operating, selling,
     general and administrative expense.

                                      54
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
20.  Related Party Transactions (continued)

ValueVision International, Inc. (continued)

     In September 1996, Wards and ValueVision exchanged warrants to purchase
     ValueVision common stock. Wards exchanged 6 million vested warrants (Class
     A-B Warrants) from the earlier grant of 25 million warrants which were
     exercisable at prices ranging from $6.50 to $6.75, in return for vested
     warrants (Class P Warrants) to purchase 2.2 million shares of ValueVision
     common stock at an exercise price of $0.01 per share. Wards recognized a
     pre-tax gain of $7 from this transaction which is included in Operating,
     selling, general and administrative expense and deferred revenue
     recognition on the exchange of warrants discussed above of $16 million,
     which was included in Accrued liabilities and other obligations.

     The earlier ValueVision warrants had been subject to certain vesting
     conditions and termination rights which did not apply to the replacement
     grant. A portion of the warrants were pledged as security for the
     performance of Wards' obligations under the ongoing marketing agreements.

     On December 30, 1997, the Bankruptcy Court approved a restructuring of the
     operating agreement between Wards and ValueVision. ValueVision agreed to
     cede exclusive use of the Wards' name for catalog and mail order catalog
     "syndicates" back to Wards in exchange for Wards' return to ValueVision of
     warrants covering the purchase of approximately 3.8 million shares of
     ValueVision common stock. In addition, ValueVision agreed to repurchase
     1.28 million shares of its stock owned by Wards, at a price of $3.80 per
     share. Under the new operating agreement, Wards' commitment to support
     ValueVision's television spot advertising purchases will be $2 million
     annually, for a period of three years. The transaction was consummated on
     January 15, 1998. In connection with this transaction, Wards recorded a
     loss on the sale of its investment in ValueVision of approximately $25
     million, which is included in Reorganization Costs.

Merchant Partners

     In July 1994, Wards became a limited partner in Merchant Partners. Wards
     made capital contributions to the partnership of $17 million in 1996, $4
     million in 1995 and $1 million in 1994. In December 1995, Merchant Partners
     made a partnership distribution of $22 million to Wards, resulting in a
     gain of $16 million. On December 31, 1996, Wards entered into an agreement
     under which Wards assigned, transferred and set over unto, the general
     partner of Merchant Partners Wards' entire right, title and interest in and
     to its limited partnership interest. The general partner assumed the
     performance of all of the covenants and obligations associated with the
     interest under the Limited Partnership Agreement. The agreement eliminated
     Wards' future obligations with respect to its interest in Merchant
     Partners. Wards recognized a charge to earnings of $7.8 million and $10
     million for the periods ended January 3, 1998 and December 28, 1996,
     respectively, which is included in Operating, selling, general and
     administrative expense.


                                      55
<PAGE>
 
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


21. Business Segments

    Wards and its subsidiaries are engaged in retail merchandising and direct
    response marketing, including insurance, in the United States. Following is
    information regarding revenues, earnings and assets of the Company by
    segment.

<TABLE>
<CAPTION>
                                       53-Week                   52-Week
                                       Period                     Period
                                        Ended                     Ended
                                       -------          --------------------------
                                       Jan. 3,          Dec. 28,          Dec. 30,
(In millions)                           1998              1996              1995
                                       -------          --------          --------
<S>                                    <C>              <C>               <C>
Total revenues
  Retail merchandising                 $ 4,534          $  5,879          $  6,531
  Direct response marketing                852               741               554
                                       -------          --------          --------
    Total                                5,386             6,620             7,085
                                       =======          ========          ========

Operating earnings (losses)            
  Retail merchandising                 $  (845)         $   (320)         $     31
  Direct response marketing                 31                71                70
  Corporate and other                     (160)             (126)             (124)
  Reorganization costs                    (553)                -                 -
                                       -------          --------          --------
    Total                              $(1,527)         $   (375)         $    (23)
                                       =======          ========          ========

Identifiable assets                    
  Retail merchandising                 $ 2,655          $  3,207          $  3,504
  Direct response marketing              1,212             1,203               920
  Corporate and other                      705               469               460
                                       -------          --------          --------
    Total                              $ 4,572          $  4,879          $  4,884
                                       =======          ========          ========

Depreciation and amortization          
  Retail merchandising                 $   116          $    119          $    118
  Direct response marketing                269               220               149
                                       -------          --------          --------
    Total                              $   385          $    339          $    267
                                       =======          ========          ========

Capital expenditures                   
  Retail merchandising                 $    47          $     58          $    109
  Direct response marketing                 19                17                13
                                       -------          --------          --------
    Total                              $    66          $     75          $    122
                                       =======          ========          ======== 
</TABLE>

                                      56
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

21. Business Segments (continued)

    Under the laws and regulations applicable to insurance companies, certain
    subsidiaries of Signature are limited in the amount of dividends they may
    pay without the approval of the Illinois Insurance Department and are
    prohibited from making any loans and advances to Wards and its affiliates.
    Under these laws, the restricted subsidiaries, which had aggregate retained
    earnings of $210 million, and aggregate total shareholders' equity of $267
    million, can pay dividends of $30 million during 1998 as determined on a
    statutory basis, subject to the ability of certain subsidiaries to generate
    earned surplus. Dividends received by Signature from insurance subsidiaries
    were $38 million, $44 million and $40 million for the periods ended January
    3, 1998, December 28, 1996 and December 30, 1995, respectively.

22. Condensed Combined Financial Statements

    The condensed combined financial statements as of January 3, 1998, of the
    Company and its subsidiaries who have filed for reorganization under 
    Chapter 11 are presented below:

                    CONDENSED COMBINED STATEMENT OF INCOME
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                      53-Week
                                                                       Period
                                                                       Ended
                                                                     ----------
                                                                     January 3,
(In millions)                                                           1998
                                                                     ----------
<S>                                                                  <C>
Net sales, including leased and licensed department sales            $    4,534
  Total costs and expenses                                                5,536
                                                                     ----------
Loss before reorganization costs and income taxes                        (1,002)
Reorganization costs                                                        553
                                                                     ----------
Loss before income taxes                                                 (1,555)
Income tax benefit                                                         (386)
                                                                     ----------
Net loss                                                                 (1,169)
Preferred stock dividend requirements                                        (8)
                                                                     ----------
Net loss applicable to common shareholders                           $   (1,177)
                                                                     ==========
                                                            
Net loss per common share                                   
  Class A                                                            $   (32.15)
  Class B                                                                (23.53)
</TABLE>

                                      57
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
22.  Condensed Combined Financial Statements (continued)

                        CONDENSED COMBINED BALANCE SHEET
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                                  Jan. 3,
(In millions)                                                      1998
                                                                  ------- 
                                               
Assets                                         
<S>                                                              <C> 
  Cash and cash equivalents                                       $   164
  Receivables                                                         165
  Intercompany receivables                                              7
  Investment in subsidiaries                                          528
  Merchandise inventories                                           1,120
  Prepaid pension cost                                                366
  Properties, plant and equipment,                                  
    net of accumulated depreciation                                 
    and amortization                                                1,030
  Other assets                                                        196
  Deferred income taxes                                               520
                                                                  -------
      Total Assets                                                $ 4,096
                                                                  ======= 
Liabilities                                    
  Trade accounts payable                                          $   442
  Accrued liabilities and other obligations                           642
  Liabilities subject to compromise                                 3,551
                                                                  ------- 
      Total Liabilities                                             4,635
                                               
Redeemable Preferred Stock                                            177
                                               
Shareholders' Deficit                          
  Common stock                                                          1
  Capital in excess of par value                                       64
  Accumulated deficit                                                (651)
  Unrealized gain on marketable equity securities                       9
  Less:  Treasury stock, at cost                                     (139)
                                                                  ------- 
      Total Shareholders' Deficit                                    (716)
                                                                  ------- 
      Total Liabilities and Shareholders' Equity                  $ 4,096
                                                                  ======= 
</TABLE>

Liabilities subject to compromise includes intercompany payables to Signature
and Marinco totaling $83 million.

                                       58
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22. Condensed Combined Financial Statements (continued)

                  CONDENSED COMBINED STATEMENT OF CASH FLOWS
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                                        53-Week
                                                                        Period
                                                                         Ended
                                                                        -------
                                                                        Jan. 3,
(In millions)                                                            1998
                                                                        -------
<S>                                                                     <C>
Cash flows from operating activities:
  Net loss                                                              $(1,169)
  Adjustments to reconcile net loss to net cash used for
    operating activities:
      Depreciation and goodwill amortization                                116
      Deferred income taxes                                                (379)
      Reorganization items                                                  679
      Changes in operating assets and liabilities, net                      453
                                                                        -------
        Net cash used for operating activities                             (300)

Cash flows from investing activities:
  Sale of short-term investments, net                                         2
  Capital expenditures                                                      (47)
  Disposition of properties, plants and equipment, net                       12
                                                                        -------
    Net cash used in investing activities                                   (33)
                                                                        -------

Cash flows from financing activities:
  Proceeds from issuance of short-term debt, net                            409
  Borrowings under Post-Petition Loan and Guaranty Agreement                321
  Payments under Post-Petition Loan and Guaranty Agreement                 (271)
  Payments of long-term debt                                                 (5)
  Payments of obligations under capital leases                              (13)
  Cash dividends received from Signature                                     15
  Cash dividends paid                                                        (3)
                                                                        -------
    Net cash provided by financing activities                               453
                                                                        -------

Increase in cash and cash equivalents                                       120
Cash and cash equivalents at beginning of period                             44
                                                                        -------
Cash and cash equivalents at end of period                              $   164
                                                                        =======
</TABLE>

                                      59
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


23. Parent Company Financial Information

    Following are the MW Holding balance sheets as of January 3, 1998 and
    December 28, 1996 and the statements of income and cash flows for the 53-
    week period ended January 3, 1998, and the 52-week periods ended December
    28, 1996 and December 30, 1995.

                                BALANCE SHEETS
                                        
<TABLE>
<CAPTION>
                                                                 Jan. 3,     Dec. 28,
(In millions)                                                      1998        1996
                                                                 -------     --------
<S>                                                              <C>         <C>
Assets                                                                       
  Deferred income taxes                                          $     2     $      4
  Investment in Wards                                               (623)         534
  Redeemable preferred stock of Wards                                175          175
  Other assets                                                         9            1
                                                                 -------     --------
        Total Assets                                             $  (437)    $    714
                                                                 =======     ========
Liabilities                                                                  
  Accounts payable to Wards                                      $    91     $     98
  Accrued liabilities                                                  -            8
  Liabilities subject to compromise                                   11            -
                                                                 -------     --------
        Total Liabilities                                            102          106
Redeemable Preferred Stock                                           177          175
Shareholders' Equity (Deficit)                                               
  Common stock                                                         1            1
  Capital in excess of par value                                      64           53
  Retained earnings (deficit)                                       (651)         509
  Unrealized gain on marketable equity securities                      9            9
  Less: Treasury stock, at cost                                     (139)        (139)
        Total Shareholders' Equity (Deficit)                        (716)         433
                                                                 -------     --------
        Total Liabilities and Shareholders' Equity (Deficit)     $  (437)    $    714
                                                                 =======     ========
</TABLE>

                                      60
<PAGE>
 

                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

23. Parent Company Financial Information (continued)

                             STATEMENTS OF INCOME
                                        
<TABLE>
<CAPTION>
                                                     Jan. 3,          Dec. 28,         Dec. 30,
(In millions)                                         1998              1996             1995
                                                   -----------       -----------     ------------
<S>                                                <C>               <C>             <C>
Miscellaneous expenses                             $        (1)      $        (2)    $         (1)
                                                   -----------       -----------     ------------
      Total costs and expenses                              (1)               (2)              (1)
                                                   -----------       -----------     ------------
Net loss before earnings of Wards                           (1)               (2)              (1)
Equity in net loss of Wards                             (1,151)             (235)              (8)
                                                   -----------       -----------     ------------
Net loss                                                (1,152)             (237)              (9)
Preferred stock dividend requirements                        8                12                4
                                                   -----------       -----------     ------------
  Net loss available for common shareholders       $    (1,160)      $      (249)    $        (13)
                                                   ===========       ===========     ============
</TABLE>

                           STATEMENTS OF CASH FLOWS
                                        
<TABLE>
<CAPTION>
                                                           53-Week                 52-Week
                                                            Period                  Period
                                                            Ended                   Ended
                                                          ----------      --------------------------
                                                           Jan. 3,         Dec. 28,        Dec. 30,
(In millions)                                                1998            1996            1995
                                                          ----------      ----------      ----------
<S>                                                       <C>             <C>             <C>
Net loss                                                  $   (1,152)     $     (237)     $       (9)
Adjustments to reconcile net loss to net cash                                                   
  provided by operations:                                                                       
    Change in undistributed earnings of subsidiary             1,157             235              12
    Compensation expense on stock option grants/                                                
      repurchases                                                  -               5               4
    Change in operating assets and liabilities:                                                 
      Other assets                                                 -               -              (1)
      Accounts payable to Wards                                   (2)             36              16
      Accrued liabilities and liabilities subject to                                            
        compromise                                                 -             (13)            (13)
                                                          ----------      ----------      ----------
Net cash provided by operating activities                 $        3      $       26      $        9
                                                          ----------      ----------      ----------
</TABLE>

                                      61
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
23. Parent Company Financial Information (continued)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Jan. 3,      Dec. 28,   Dec. 30,
(In millions)                                                           1998          1996      1995 
                                                                      ---------     --------  ---------
<S>                                                                  <C>          <C>        <C> 
Cash flows from financing activities:                                             
  Proceeds from issuance of common stock                              $       -     $      3  $      18     
  Proceeds from redemption of Wards preferred stock                           -            -         75     
  Proceeds from issuance of preferred stock                                   -          175          -     
  Purchase of Wards preferred stock                                           -         (175)         -     
  Cash dividends paid                                                        (3)          (9)        (4)    
  Payments to redeem preferred stock                                          -            -        (75)    
  Purchase of treasury stock, at cost                                         -          (20)       (23)    
                                                                      ---------     --------  ---------

Net cash used for financing activities                                       (3)         (26)        (9)
                                                                      ---------     --------  ---------      
Cash at end of period                                                 $       -     $      -  $       -
                                                                      =========     ========  =========
Non-cash investing activities:
  Grants of restricted stock and stock options by
    majority shareholder                                              $      11     $      -  $       -
  Increase in liquidation value of preferred stock                            2            -          -
  Change in unrealized gain on marketable
    securities                                                                -           (1)         8
 
Non-cash financing activities:
  Notes issued for purchase of treasury stock                         $       -     $      5  $       2
</TABLE>

                                       62
<PAGE>
 
                         MONTGOMERY WARD HOLDING CORP.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
24.  Quarterly Financial Data (unaudited)

     The quarterly operations of MW Holding are summarized as:

<TABLE>
<CAPTION>
                                                                                       Quarter
                                               -------------------------------------------------------------------------------------
(In millions)                                       First            Second             Third             Fourth             Year
                                               ------------      ------------     --------------      ------------      ------------
<S>                                              <C>               <C>              <C>                 <C>               <C>
53-week period ended January 3, 1998
  Net sales                                          $1,119            $1,151            $   947            $1,317        $ 4,534   
  Cost of goods sold                                    997             1,070                805             1,082          3,954   
  Net loss                                             (141)             (216)              (615)             (180)        (1,152)
  Net loss per Class A common share                   (3.71)            (6.10)            (16.97)            (4.91)        (31.67)
  Net loss per Class B common share                   (3.05)            (4.36)            (12.14)            (3.60)        (23.17)
                                                                                                                                    
52-week period ended December 28, 1996                                                                                              
  Net sales                                          $1,253            $1,354            $ 1,376            $1,896        $ 5,879   
  Cost of goods sold                                  1,038             1,080              1,105             1,645          4,868   
  Net income (loss)                                     (48)               22                (29)             (182)          (237)
  Net income (loss) per Class A common                                                                                              
     share                                            (1.31)              .49               (.84)            (4.67)         (6.33)
  Net income (loss) per Class B common                                                                                              
     share                                            (1.06)              .40               (.69)            (3.86)         (5.22)
</TABLE>

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

None.

                                      63
<PAGE>
 
                                   PART III
                                        
Item 10.  Directors and Executive Officers of the Registrant

Board of Directors

     The following persons currently serve as directors of the Company: Roger V.
     Goddu, Bernard F. Brennan, Tommy T. Cato, Silas S. Cathcart, James A.
     Parke, Denis J. Nayden, Gary C. Wendt and Edward D. Stewart. Under that
     certain Stockholders' Agreement dated as of June 17, 1988, as amended to
     date (the "Stockholders' Agreement"), the By-laws of the Company shall
     provide (and the By-laws of the Company do so provide), and the parties to
     the Stockholders' Agreement agree to vote, for the election of a Board of
     Directors consisting of ten members, three to be designated by Mr. Brennan
     (which three shall include Mr. Brennan), five to be designated by GE
     Capital and two to be designated by the Chief Executive Officer of Wards
     (which two shall include such Chief Executive Officer). Of the nominees
     listed below, Mr. Brennan has designated himself and Mr. Cato, GE Capital
     has designated Messrs. Cathcart, Parke, Nayden, Wendt and Stewart, and Mr.
     Goddu, who is the Chief Executive Officer of Wards, has designated himself
     as a director of the Company. Myron Lieberman, a director designated by Mr.
     Brennan, resigned on July 18, 1997. Mr. Brennan then designated Edwin G.
     Pohlmann to fill the vacant directorship. Due to the resignations of Mr.
     Pohlmann and Burnett W. Donoho, a directorship to be designated by Mr.
     Brennan and a directorship to be desginated by Mr. Goddu are each vacant.
     Pursuant to the Stockholders' Agreement, if GE Capital and its affiliates
     cease to own more than 50% of the number of shares of Common Stock
     purchased by them in June 1988, the number of directors which Mr. Brennan
     is permitted to designate will be increased by one, and the number of
     directors which GE Capital may designate shall be reduced by one. If GE
     Capital and its affiliates cease to own 20% or more of such shares of
     Common Stock, except as described below, GE Capital shall have no right to
     designate any directors, and the number of directors shall be reduced to
     nine, seven to be elected by the holders of Class A Common Stock, voting as
     a class, and two to be elected by the holders of Class B Common Stock,
     voting as a class, provided that, so long as the Account Purchase Agreement
     between Wards and Montgomery Ward Credit relating to the purchase by
     Montgomery Ward Credit of customer receivables of Wards remains in effect,
     and GE Capital or any of its affiliates owns any Common Stock, GE Capital
     will have the right to elect one of the two directors to be elected by the
     holders of Class B Common Stock.

     Also pursuant to the Stockholders' Agreement, if Mr. Brennan and his
     permitted transferees cease to own more than 50% of the number of shares of
     Common Stock held by them on December 1, 1996, the number of directors
     which GE Capital is permitted to designate will be increased by two and the
     number of directors which Mr. Brennan may designate shall be reduced by
     two. If Mr. Brennan and his permitted transferees cease to own 20% or more
     of such shares of Common Stock, Mr. Brennan shall no longer have the right
     to designate any directors and the directors that Mr. Brennan would have
     been entitled to designate (after taking into account the application of
     the preceding sentence) shall be designated by the Chief Executive Officer
     of Wards.

     The holder of the Senior Preferred Stock (currently GE Capital) has the
     right to elect one director to be an additional member of the Board of
     Directors (a) during the period following a default in the payment of
     accrued dividends on the Senior Preferred Stock for four consecutive
     quarters until such accrued dividends shall have been paid in full and (b)
     during the period following any failure to make a mandatory redemption of
     Senior Preferred Stock until such failure shall have been cured.

     Information with respect to ages of the directors is as of March 16, 1997
     and information as to their ownership of shares of the Company as of that
     date is provided under Item 12 below.

                                      64
<PAGE>
 
Item 10.  Directors and Executive Officers of the Registrant (continued)

Board of Directors (continued)

     Roger V. Goddu, 47, has been a director of the Company and Chairman and
     Chief Executive Officer of Wards since January 6, 1997. Prior thereto, he
     was with Toys "R" Us, where from 1996 until 1997, he was President-U.S.
     Merchandising, and from 1989 to 1995, he was Executive Vice
     President/General Merchandise Manager. Prior to 1989, Mr. Goddu was a
     Senior Vice President and General Merchandise Manager of Target, a division
     of Dayton Hudson Corporation.

     Bernard F. Brennan, age 59, has been a director of the Company since
     February 9, 1988, has been Chairman of the Company since June 17, 1988, was
     Chief Executive Officer of the Company from February 9, 1988 through
     December 10, 1996, and was President of the Company from February 9, 1988
     through September 10, 1992. Mr. Brennan served as Chief Executive Officer
     of Wards from May 13, 1985 through December 10, 1996. He served as
     President of Wards from May 13, 1985 through September 10, 1992. Mr.
     Brennan has been a director of Itel Corporation since 1988.

     Tommy T. Cato, age 56, has been a director of the Company since August 20,
     1997. Mr. Cato served as Executive Vice President of the Company from May
     15, 1992, until February 4, 1994. Mr. Cato was Executive Vice President -
     Logistics and Product Service of Montgomery Ward from November 8, 1990
     through February 3, 1994.
       
     Silas S. Cathcart, age 71, has been a director of the Company since June
     25, 1988. Mr. Cathcart is retired Chairman of Illinois Tool Works, Inc. and
     Kidder, Peabody Group, Inc. He is a director of Quaker Oats Company,
     Allegiance Corporation and General Electric Company.

     Denis J. Nayden, age 43, has been a director of the Company since June 25,
     1988. Mr. Nayden has been President and Chief Operating Officer of GE
     Capital since January 1, 1995. Mr. Nayden served as President and Chief
     Operating Officer of Kidder, Peabody Group, Inc. from June 1994 through
     December 1994. Prior thereto, Mr. Nayden was an Executive Vice President of
     GE Capital from February 1989 to June 1994. Mr. Nayden is a director of
     General Electric Capital Services, Inc. and GE Capital.

     James A. Parke, age 52, has been a director of the Company since March 31,
     1997 and previously was a director from April 27, 1990 through December 17,
     1996. He has been Senior Vice President - Finance of General Electric
     Financial Services since November 1989. Mr. Parke is a director of GE
     Capital, FGIC Corporation, Polaris Holding Co., and Financial Guaranty
     Insurance Co.

     Gary C. Wendt, age 56, has been a director of the Company since December
     17, 1996. Mr. Wendt has been Chairman and Chief Executive Officer of GE
     Capital since 1991. Mr. Wendt is a director of GE Capital, General Electric
     Capital Services, Inc. and FGIC Corporation.

     Edward D. Stewart, age 55, has been a director of the Company since
     December 10, 1996. Mr. Stewart has been an Executive Vice President of GE
     Capital since January 1, 1992. Mr. Stewart serves on the board of directors
     of GE Capital.

Executive Officers

     Information with respect to the executive officers of the Company is
     included in Part I of this Form 10-K.

                                      65
<PAGE>
 
Item 10.  Directors and Executive Officers of the Registrant (continued)

Section 16(a) Reporting

     Section 16(a) of the Securities Exchange Act of 1934, and the rules
     promulgated thereunder, requires the Company's executive officers,
     directors and holders of 10% or more of the Common Stock to file reports of
     ownership and changes in ownership with the Securities and Exchange
     Commission. GE Capital did not timely file with the SEC Forms 4, Statement
     of Changes in Beneficial Ownership, with respect to the purchase by GE
     Capital of Series C preferred stock of the Company on May 29, 1997. The
     Form 4 with respect to such transaction was due no later than June 10,
     1997. In addition, Mr. Pohlmann did not timely file with the SEC such a
     Form 4 with respect to his agreement to serve as trustee of the Family
     Trust, and consequent acquisition of beneficial ownership of the shares of
     Common Stock held in the Family Trust, on or about July 18, 1997. The Form
     4 with respect to such transaction was due no later than August 10, 1997.
     In addition, neither Mr. Parke nor Mr. Cato timely filed with the SEC a
     Form 3, Initial Statement of Beneficial Ownership of Securities, with
     respect to their appointments to the Board of Directors of the Company in
     May 1997 and August 1997, respectively. Such Forms 3 with respect to the
     appointments of Messrs. Parke and Cato were due no later than June 10, 1997
     and September 10, 1997, respectively.

Item 11.  Executive Compensation

     The Company (Montgomery Ward Holding Corp.) had no employees and paid no
     compensation in 1997. The following information details compensation
     accrued by Wards and its subsidiaries to executive officers of the Company.

                                      66
<PAGE>
 
Item 11. Executive Compensation (continued)

Summary Compensation Table

  The following table sets forth summary compensation information for (i) Mr.
  Goddu, who was the only person to serve as Chief Executive Officer during the
  Company's 1997 fiscal year, (ii) the four most highly compensated other
  executive officers who were serving as executive officers at the end of the
  Company's 1997 fiscal year and (iii) Burnett W. Donoho, who would have been
  among such four most highly compensated other executive officers but for the
  termination of his employment in December 1997 (collectively, the "Named
  Executive Officers").

<TABLE>
<CAPTION>
                                            Annual Compensation                            Long-Term Compensation
                            ---------------------------------------------------     -------------------------------------
                                                                     Other          Securities                   All
                                                                     Annual         Underlying      LTIP        Other
     Name and                            Salary         Bonus      Compensation      Options       Payout    Compensation
Principal Position          Year          ($)            ($)         ($)/1/           (#)          ($)         ($)/2/
------------------          ----        -------        -------     ------------     ----------     ------    ------------
<S>                         <C>         <C>            <C>            <C>           <C>              <C>      <C>
Roger V. Goddu              1997        985,215        350,000        10,296        2,596,219        -        2,849,330
  Chairman and Chief
  Executive Officer/3/
 
Thomas G. Grimes            1997        417,262        200,000         6,181          500,000        -           84,396
  Executive Vice
  President - Home/3/
 
Alan E. DiGangi             1997        425,000        125,000        18,673                -        -            2,352
  Executive Vice            1996        390,697              -         3,345                -        -          424,371
  President - Electric      1995        244,859         50,000         3,589           15,000        -            2,594
  Avenue and Auto
  Express
 
Thomas J. Austin            1997        247,312        300,000         3,543                -        -          109,749
  Executive Vice
  President - Mens
  and Childrens
  Apparel and Shoes/3/
 
Louis J. Caporale           1997        238,710        300,000         1,168                -        -          108,808
  Executive Vice
  President - Women's
  Apparel and Fine
  Jewelry/3/
 
Burnett W. Donoho           1997        718,750              -         3,811        1,000,000        -        2,438,727
    Vice Chairman/4/
</TABLE>

/1/  No named executive officer received perquisites exceeding $50,000 or 10%
     of salary and bonus.

/2/  Represents company matching contributions to the Savings and Profit Sharing
     Plan and company payments of premiums on group term life insurance
     policies. Hiring bonuses of $50,000 were separately paid to Messrs. Grimes,
     Austin, and Caporale in 1997. Relocation costs for Messrs. Goddu, Grimes,
     Austin, Caporale and Donoho for 1997 were paid in the amounts of $533,782,
     $34,396, $59,749, $58,808 and $98,085, respectively. Mr. Goddu was paid
     $2,221,948 as compensation for benefits accrued with Mr. Goddu's prior
     employer which were lost by Mr. Goddu in connection with the termination of
     his employment with such former employer and $93,600 representing an amount
     equivalent to dividends on non-vested GE restricted stock shares. For 1996,
     amounts paid to Mr. DiGangi include $281,250 under a retention plan and
     $140,025 under a security plan due to the triggering of a change of control
     event. See "Certain Arrangements." Mr. Donoho was paid $2,340,192 in
     connection with his termination of employment with Wards. $1,909,910 of
     these amounts were paid by GE Capital. See "Certain Arrangements."

/3/  Messrs. Goddu and Grimes joined Wards in January 1997. Messrs. Austin and
     Caporale joined Wards in May 1997.

/4/  Mr. Donoho joined Wards in January 1997 and his employment with Wards
     terminated in December 1997.
      
                                      67
<PAGE>
 
Item 11. Executive Compensation (continued)
 
Option Grants and Exercises

  The following tables set forth summaries of the terms of stock options granted
  to Messrs. Goddu, Grimes, and Donoho during the Company's 1997 fiscal year and
  the value of unexercised options held by Messrs. Goddu, Grimes, and DiGangi as
  of January 3, 1998, using assumed annual rates of stock price appreciation
  (without taking into account any impact on the value per share of Common Stock
  of events or conditions since the applicable date of grant, including the
  bankruptcy filing).  None of the Named Executive Officers exercised any stock
  options during the 1997 fiscal year.  No stock appreciation rights were
  granted to or exercised by any of the Named Executive Officers during the 1997
  fiscal year.

                       Option Grants in Last Fiscal Year
                                        
<TABLE>
<CAPTION>
                                                                                           Potential Realizable Value
                                                                                            at Assumed Annual Rates
                                                                                          of Stock Price Appreciation
                                                 Individual Grants                              for Option Term
                               ------------------------------------------------------     ---------------------------
                                                 Percentage
                                 No. of           of Total
                               Securities         Options
                               Underlying        Granted to    Exercise
                                 Options         Associates    or Base
                                 Granted         in Fiscal      Price      Expiration
      Name                         (#)              Year        ($/Sh)        Date          5% ($)         10% ($)
-----------------              ----------        ----------    --------    ----------     ----------      ----------
<S>                             <C>                 <C>         <C>         <C>           <C>             <C>
Roger V. Goddu                  2,596,219           55.0%       $7.32       12/20/06      11,951,717      30,287,997
 
Thomas G. Grimes                  500,000           10.6%       $7.32        1/28/07       2,301,754       5,833,097
 
Burnett W. Donoho               1,000,000           21.2%       $7.32        1/31/07         N/A/1/         N/A/1/
</TABLE>

/1/  Amounts were not computed as Mr. Donoho's employment with Wards terminated
     in December 1997.


                Aggregated Option Exercises in Last Fiscal Year
                       and Fiscal Year End Option Values
                                        
<TABLE>
<CAPTION>
                                             Number of Securities                     Value of Unexercised
                                            Underlying Unexercised                    In-the-Money Options 
                                            Options at FY-End (#)                         at FY-End/1/
                                        ------------------------------          -------------------------------
      Name                              Exercisable      Unexercisable          Exercisable       Unexercisable
----------------                        -----------      -------------          -----------       -------------
<S>                                       <C>              <C>                      <C>                 <C>
Roger V. Goddu                            649,055          1,947,164                $0                  $0
 
Thomas G. Grimes                                -            500,000                $0                  $0
 
Alan E. DiGangi                            29,300                  -                $0                  $0
</TABLE>


/1/  The stock was deemed to have value below the exercise price as the Company
     has filed for reorganization under Chapter 11 of the Bankruptcy Code.

                                      68
<PAGE>
 
Item 11.  Executive Compensation (continued)

Long-Term Incentive Plan Awards

     Prior to the bankruptcy filing, senior executives of Wards, generally
     Senior Vice Presidents and above, were eligible to participate in the
     Executive Long-Term Incentive Plan. The Executive Long-Term Incentive Plan
     generally consisted of three-year cycles that could be initiated annually.
     If specific objectives for the pre-tax earnings and return on equity for
     the Company and its subsidiaries established by the Incentive Compensation
     Committee were achieved for any designated cycle, cash was awarded based
     upon a target Executive Long-Term Incentive Plan payout, which was a
     percentage (determined by the Incentive Compensation Committee) of the base
     salary of each participant, but in no event would the target Executive 
     Long-Term Incentive Plan payout for any participant exceed $2,000,000 for
     any cycle. The plan has not been operational subsequent to the bankruptcy
     filing and no future benefits for outstanding cycles will be paid.

Executive Emergence Bonus Plan

     Certain senior executives of Wards participate in the Montgomery Ward
     Special Emergence Bonus Plan ("Emergence Bonus Plan"). The Emergence Bonus
     Plan provides for a lump sum bonus payment within 30 days of court approval
     of a plan of reorganization. To be eligible for the full bonus, the
     executive must be actively employed on the date of the court approval of
     the plan of reorganization or the executive must have separated from
     employment after a Change of Control (as defined in the Severance Plan
     described below) but within six months of approval of the plan of
     reorganization. If the plan of reorganization is approved as of April 1,
     1999, the bonus amount for Messrs. Goddu, Grimes, DiGangi, Austin and
     Caporale would be $1,250,000, $562,500, $531,250, $500,000 and $500,000,
     respectively. If the plan of reorganization is approved after April 1,
     1999, but prior to or as of October 1, 1999, the bonus amount for Messrs.
     Goddu, Grimes, DiGangi, Austin and Caporale would be $1,000,000, $450,000,
     $425,000, $400,000 and $400,000, respectively. If the plan of
     reorganization is approved after October 1, 1999, the bonus amount for
     Messrs. Goddu, Grimes, DiGangi, Austin and Caporale would be $500,000,
     $225,500, $212,500, $200,000 and $200,000, respectively.

Pension Plan

     Executive officers of Wards, in addition to many other associates,
     participate in a pension plan (the "Pension Plan"), which provides benefits
     defined by formulae based primarily on a participant's compensation,
     offset, with respect to periods prior to July 1, 1997, as provided by
     benefits provided by the participant's accounts in the Savings Plan
     ("Savings Plan"), in which executive officers of Wards, in addition to many
     other associates, participate. From 1989 through 1993, no more than
     $200,000, as adjusted annually under Section 401(a)(17) of the Internal
     Revenue Code of 1986, as amended (the "Code"), of any participant's
     compensation was considered for any purpose, including for purposes of the
     formulae, under the Pension Plan. Beginning in 1994, no more than $150,000,
     as adjusted, ($160,000 in 1997) of any participant's compensation is
     considered for any purpose, including for purposes of the formulae, under
     the Pension Plan. The monthly pension benefit to which current associates
     are entitled under the Pension Plan at the normal retirement age of 65 is
     generally based on different benefit formulae that are applicable to
     different years of service. The formula for service on and after July 1,
     1997 is a credit of $.70 to $1.35 (depending on age) for each $1
     contributed as a basic contribution (3% of compensation) to the Savings
     Plan. Such Pension Plan accounts will be credited with interest at a rate
     based on the 30-year rate earned by government securities. The formula for
     service after 1988 and before July 1, 1997 applies to credited service, as
     defined in the Pension Plan, earned during such period while making
     contributions to the Savings Plan and is based on "career earnings".

                                      69
<PAGE>
 
Item 11. Executive Compensation (continued)

Pension Plan (continued)

     A participant's annual benefit under such 1988 - 1997 formula is 1.5% of
     the participant's eligible pay for each year of credited service after 1988
     and before July 1, 1997.

     A participant's benefit determined under the Pension Plan based on the
     formulae through June 30, 1997 is reduced by an amount equivalent to an
     annuity which could be purchased with the participant's Basic Contribution
     and Transferred Contribution accounts in the Savings Plan as of June 30,
     1997. The Pension Plan formulae benefit is determined by adding the benefit
     under the formula in effect commencing July 1, 1997 to the participant's
     accrued benefit under the Pension Plan as of June 30, 1997, as determined
     under the formulae in effect prior to July 1, 1997.

     The following table sets forth the estimated annual benefits (calculated on
     a straight life annuity basis) upon retirement at age 65 (for executives
     who have not retired or resigned) under the Pension Plan, which is the only
     defined benefit plan under which associates of Wards can currently accrue
     benefits, to the Named Executive Officers (calculated on the basis of
     estimated years of service at retirement age; levels of compensation paid
     in calendar year 1997 assuming 6% annual increases for executives who have
     not retired or resigned and the Named Executive Officers make basic
     contributions (3% of compensation) to the Savings Plan; but with regard to
     Code limitations on compensation and benefits and without regard to any
     reduction for benefits under the Savings Plan):

<TABLE>
<CAPTION>
                                                     Estimated
                                                       Annual
                                                     Pension at
           Name of Participant                       Retirement
------------------------------------------           ----------
<S>                                                  <C>
Roger V. Goddu                                        $23,578      
Thomas G. Grimes                                        4,917      
Alan E. DiGangi                                        50,353      
Thomas J. Austin                                       19,527      
Louis J. Caporale                                      33,640      
Burnett W. Donoho                                     N/A /1/      
</TABLE>


  1  Mr. Donoho has resigned as an officer of Wards and will receive no payments
     under the Pension Plan.
 
Certain Arrangements

     In the course of recruiting new executives, promoting existing associates
     to executive positions, increasing the responsibilities of existing
     executives and retaining executives, Wards frequently enters into
     employment agreements which set forth the general terms of the compensation
     arrangements for such executive. Such agreements have, in the past,
     typically set forth, among other things, a recipient's base salary, the
     target annual bonus under the Senior Executive Performance Management
     Program ("PMP"), the maximum percentage of the target bonus under the PMP
     that can be earned, bonus guarantees, if any, relocation payments and the
     number of stock options, if any, that are expected to be initially granted
     to the executive in his or her new position. Of the executive officers
     named in the Summary Compensation Table, Messrs. Grimes, DiGangi, Austin
     and Caporale have agreements of this type, each of which were entered into
     in connection with the commencement of the executive's employment with
     Wards (other than the agreement with Mr. DiGangi, which was entered into
     connection with his retention as an executive officer of Wards).

                                      70
<PAGE>
 
Item 11.  Executive Compensation (continued)

Certain Arrangements (continued)

     The agreements with Messrs. Grimes, DiGangi, Austin and Caporale provide
     for, respectively, (i) annual base salary of $450,000, $425,000, $400,000
     and $400,000; and (ii) PMP target bonuses of $200,000, $125,000, $150,000
     and $150,000, in each case guaranteed at 100% for 1997 (the target bonuses
     for Messrs. Austin and Caporale were also guaranteed at 100% for 1998 and
     1999 and were prepaid for 1997 and 1998) and in each case with
     opportunities to earn up to 150% of such target bonuses. The agreement with
     Mr. Grimes states that he would receive options to purchase 500,000 Class A
     Shares at $7.32 per share, with such options vesting 40% on February 1,
     1998 and 30% on each of February 1, 1999 and 2000. On June 3, 1997, Mr.
     Grimes was granted all of such options.

     The agreements with Messrs. Grimes, Austin and Caporale provided for hiring
     bonuses of $50,000 each, which were paid in 1997. The agreements provide
     that Messrs. Austin and Caporale will also participate in a special bonus
     plan to offset an equity loss relating to their previous employer and each
     will receive a bonus with maximum payment of $500,000, which will vest as
     follows: $200,000 on May 1, 1998 and $150,000 on each of May 1, 1999 and
     2000. This bonus is to be paid on May 1, 2000. If the executive's
     employment is terminated prior to May 1, 2000, only the vested portion of
     the bonus will be paid. The Company agreed to reimburse Messrs. Grimes,
     Austin and Caporale for certain relocation costs in connection with their
     moves. The Company also agreed that Messrs. Austin and Caporale would each
     be recommended for a stock option of 300,000 shares of Montgomery Ward
     Holding Stock vesting in equal installments on May 1, 1998, 1999 and 2000.
     No stock options were issued to Messrs. Austin or Caporale pursuant to such
     provision due to the bankruptcy filing. In the case of a separation of
     employment initiated by the Company for a reason other than "Cause," the
     agreements provide that Mr. Grimes will receive his base salary for twenty-
     four months if terminated prior to February 1, 2000, and the continuation
     of the vesting of stock and stock options through February 1, 2000; and
     Messrs. Austin and Caporale will receive their base salaries through May 1,
     2000 (however, not less than twelve months) and the continuation of the
     vesting of stock and stock options through May 1, 2000. In addition, Mr.
     Grimes has the right to elect to leave Wards upon 30 days notice within 30
     days of a change of control where the Company is sold to a third party. Mr.
     Grimes in such situation would receive one years base salary in a lump sum.

     In February 1997, GE granted options to Messrs. Grimes and Donoho to
     purchase 20,000 and 30,000 shares, respectively, of GE common stock, with
     an exercise price of $105, which options vest 50% on September 7, 1999 and
     50% on September 7, 2001. Mr. Donoho's employment with Wards terminated in
     December 1997 and therefore no portion of the option ever became
     exercisable. On April 28, 1997, after the date of the option grants, the
     shares of GE common stock split 2-for-1. In June 1997, GE also granted
     options to each of Messrs. Austin and Caporale to purchase 40,000 shares,
     respectively, of GE common stock with an exercise price of $65.3125, which
     options vest 50% on September 27, 1999 and 50% on September 27, 2001.

     GE Capital has agreed to pay Messrs. Grimes, Austin and Caporale their base
     salary for the first three years of their 1997 employment agreements
     described above and the guaranteed bonus under such agreements if Wards
     fails to pay such amounts for any reason other than the executives'
     termination of employment either voluntarily by the executives or for cause
     by Wards. Under the same situation, GE also agreed to pay amounts to
     Messrs. Austin and Caporale under the special bonus plan designed to offset
     an equity loss relating to a prior employer.

                                      71
<PAGE>
 
Item 11. Executive Compensation (continued)

Certain Arrangements (continued)

     Mr. Goddu joined the Company as Chief Executive Officer and as Chairman and
     Chief Executive Officer of Wards effective January 6, 1997. In connection
     with his employment with Wards, Mr. Goddu, the Company and Wards entered
     into an Employment Agreement dated as of December 20, 1996 (the "Goddu
     Agreement"). The Goddu Agreement expires on December 31, 2001. During the
     term of the Goddu Agreement (unless his employment is earlier terminated),
     Mr. Goddu is to serve as Chairman of the Board and Chief Executive Officer
     of Wards and as Chief Executive Officer of the Company. Pursuant to the
     Goddu Agreement, Mr. Goddu is to receive a base salary of $1,000,000 per
     annum, increasing at a rate of $50,000 per year or such larger increase as
     the Board of Directors may determine. Mr. Goddu waived his annual increase
     for 1998 and has elected not to accept contractual annual increases until
     the Company successfully emerges from Chapter 11.

     In addition, the Goddu Agreement provides that Mr. Goddu is eligible to
     receive an annual cash bonus of up to 50% of his base salary, based on
     performance targets to be established from time to time by the Board of
     Directors or a committee thereof. For each of 1997, 1998 and 1999, Mr.
     Goddu's bonus is guaranteed to be at least $350,000 without regard to such
     targets. The bonus may be increased by up to an additional 50% of base
     salary based on the achievement of exceptional performance against the
     targets. The Goddu Agreement also provides that Mr. Goddu will be provided
     with a supplemental pension benefit on the same terms as his arrangement
     with his prior employer with an actuarial present value at age 60 of $3.9
     million. The Company also agreed to pay Mr. Goddu $2,221,948 as
     compensation for benefits accrued with Mr. Goddu's prior employer which
     were lost by Mr. Goddu in connection with the termination of his employment
     with such former employer.

     In the Goddu Agreement, the Company agreed that, subject to stockholder
     approvals which were obtained in May 1997, Mr. Goddu would be granted an
     option to purchase Series 3 Shares representing 5% of the outstanding
     shares of Common Stock (on a fully-diluted basis). For purposes of this
     calculation, the number of Series 3 Shares underlying such options is to be
     adjusted upwards from time to time until the last day of the Company's 1998
     fiscal year to give effect to grants of stock options after December 20,
     1996 to management employees of Wards covering up to 10% of the outstanding
     shares of Common Stock on a fully-diluted basis. Pursuant to the Goddu
     Agreement, Mr. Goddu's options are to have an exercise price of $7.32 per
     share and become exercisable on the basis of cumulative installments of 25%
     of the underlying Series 3 Shares on the last day of each of the Company's
     1997, 1998, 1999 and 2000 fiscal years, provided that no portion of the
     option shall become exercisable unless, at the applicable date of
     determination, Mr. Goddu is, and has been at all times since the grant of
     the option, employed by Wards.

     The exercisable portion of the option shall remain exercisable until the
     earliest of (i) three (3) months following the date of cessation of Mr.
     Goddu's employment with Wards, which occurs due to his voluntary
     termination or the termination of his employment by Wards for cause; (ii)
     the third anniversary of the date of cessation of Mr. Goddu's employment
     with Wards for any other reason; or (iii) the tenth anniversary of the date
     of grant of the option. Mr. Goddu's option was initially granted in May
     1997 with respect to 2,596,219 Series 3 Shares, subject to upward
     adjustment as described above.

     The Goddu Agreement also provides that, subject to certain limitations, the
     Company has certain rights to purchase the shares received by Mr. Goddu
     upon exercise of his options and that, subject to certain limitations, Mr.
     Goddu has certain rights to require the Company to purchase up to an
     aggregate amount of $75 million purchase price of such shares from and
     after December 31, 1997. The Goddu Agreement also provides that Wards would
     provide Mr. Goddu a loan in the principal amount of $2,000,000, payable in
     five years, and bearing interest at LIBOR plus 25 basis points payable in
     arrears on each January 8 during the loan term. The Company provided such
     loan to Mr. Goddu on January 8, 1997, and Mr. Goddu executed a Promissory
     Note (the "Goddu Note") with respect thereto on that date. As of March 7,
     1998, the outstanding balance of the loan including interest accrued
     thereon was $2,019,807.

                                      72
<PAGE>
 
Item 11. Executive Compensation (continued)

Certain Arrangements (continued)

     The Goddu Agreement provides that in the event his employment is terminated
     due to his death or disability, he (or his estate, as applicable) would be
     entitled to unpaid base salary through the month in which his death or
     disability occurs, an amount equal to 50% of his base salary in effect on
     the date of his death or disability (in lieu of any bonus), and a
     restatement of the Goddu Note to provide a maturity date of the third
     anniversary of Mr. Goddu's death or disability. In the event his employment
     is terminated by Wards for cause (as defined in the Goddu Agreement), he
     would be entitled to unpaid base salary through the month in which the
     termination of his employment occurs, and amounts outstanding under the
     Goddu Note will become immediately due and payable 90 days after such
     termination.

     In the event that his employment is terminated without cause or through a
     constructive termination, as provided in the Goddu Agreement, he would be
     entitled to a prorated bonus through the date of termination of employment,
     continuation of his then-current base salary for a period of 24 months and,
     in lieu of further bonus, an amount equal to $700,000 (which salary
     continuation and amount may be paid in a lump sum) and cancellation of Mr.
     Goddu's obligations under the Goddu Note.

     In the event his employment is terminated by the expiration of the Goddu
     Agreement, Mr. Goddu would be entitled to continuation of his then-current
     base salary for a period of 24 months and, in lieu of further bonus, an
     amount equal to $700,000 (which salary continuation and amount may be paid
     in a lump sum).

     Also in connection with Mr. Goddu's employment with Wards, Mr. Goddu and GE
     Capital entered into a letter agreement dated as of December 20, 1996 (the
     "Goddu Letter Agreement"). The Goddu Letter Agreement provides that on or
     before January 6, 1997, General Electric Company ("GE"), the indirect
     parent of GE Capital, would grant to Mr. Goddu 60,000 shares of common
     stock of GE, with restrictions lapsing on 12,000 of such shares on each
     December 31, beginning on December 31, 1997, and would grant to Mr. Goddu
     options to purchase 60,000 shares of common stock of GE with an exercise
     price equal to the NYSE closing price of such shares on the date of grant
     (which was $102.25 per share), which options will vest in cumulative annual
     installments of 20,000 underlying shares on January 6, 1999, January 6,
     2001 and January 6, 2003. Such shares and options were granted to Mr. Goddu
     on December 20, 1996. The Goddu Letter Agreement also provides that on an
     annual basis beginning in 1997, GE will grant to Mr. Goddu, at such time as
     similar grants are made to its employees, options to purchase up to 25,000
     shares of common stock of GE, up to an aggregate of 125,000 such shares,
     with exercise prices equal to the NYSE closing price of such shares on the
     applicable date of grant, and which options will vest 50% three years from
     the date of grant and 50% five years from the date of grant. In accordance
     with the terms of his letter agreement, options were granted to Mr. Goddu
     on September 12,1997. Such options will vest 50% on September 12, 2000 and
     50% on September 12, 2002. On April 28, 1997, after the date of the Goddu
     Letter Agreement, the shares of GE Common Stock split 2-for-1.

     In addition, in the Goddu Letter Agreement, GE Capital granted to Mr. Goddu
     an option to purchase from GE Capital that number of shares of Common Stock
     which equals 5% of the issued and outstanding shares of Common Stock on a
     fully-diluted basis. For purposes of this calculation, the number of shares
     of Common Stock underlying such options is to be adjusted upwards from time
     to time until the last day of the Company's 1998 fiscal year to give effect
     to the future grant of stock options to management employees of Wards
     covering up to 10% of the outstanding shares of Common Stock on a fully-
     diluted basis. Pursuant to the Goddu Letter Agreement, such options are to
     have an exercise price of $7.32 per share (the Fair Market Value per Share
     of a Class A Share, as determined pursuant to the Stockholders' Agreement)
     and become exercisable on the basis of cumulative installments of 25% of
     the underlying shares on December 31 of each year, beginning on December
     31, 1997, provided that no portion of the option shall become exercisable
     unless, at the applicable date of determination, Mr. Goddu is, and has been
     at all times since the grant of the option, employed by Wards.

                                      73
<PAGE>
 
Item 11. Executive Compensation (continued)

Certain Arrangements (continued)

     The Goddu Letter Agreement also provides that none of such options shall be
     exercisable unless the fair market value of the consolidated common equity
     of the Company (determined pursuant to the Stockholders' Agreement) is
     greater than $1 billion at any time during the period of Mr. Goddu's
     employment and for a period of twelve months thereafter. The exercisable
     portion of the option shall remain exercisable until the last day of the
     third month following the date of termination of Mr. Goddu's employment
     with Montgomery Ward. The Goddu Letter Agreement also provides that,
     subject to certain limitations, GE Capital has certain rights to purchase
     the shares received by Mr. Goddu upon exercise of such options and that,
     subject to certain limitations, Mr. Goddu has certain rights to require GE
     Capital to purchase up to an aggregate amount of $75 million purchase price
     of such shares from and after December 31, 1997.

     The Goddu Letter Agreement also provides that, to the extent that the
     Company cannot purchase the shares received by Mr. Goddu upon exercise of
     his options granted by the Company pursuant to limitations set forth in the
     Stockholders' Agreement, GE Capital would purchase such shares, up to an
     aggregate amount of $75 million purchase price of such shares.
     
     Mr. Donoho joined the Company as Chief Operating Officer and as Vice
     Chairman and Chief Operating Officer of Wards effective January 31, 1997.
     In connection with his employment, Mr. Donoho, the Company and Wards
     entered into an Employment Agreement dated as of January 31, 1997 ("Donoho
     Agreement"). The term of the Donoho Agreement was to expire on January 31,
     2001. Pursuant to the Donoho Agreement, Mr. Donoho was to receive a base
     salary of $750,000 per annum and be eligible to receive an annual cash
     bonus of up to 40% of his base salary. For each of 1997 and 1998, Mr.
     Donoho's bonus was guaranteed to be at least $250,000. In addition, the
     Donoho Agreement provided Mr. Donoho with a retention payment of $100,000
     for every full six months of active employment up to a maximum of $500,000
     total, all or any earned part of which would be paid on December 31, 1999.
     Under the Donoho Agreement, if Mr. Donoho was terminated without cause or
     in the event of a constructive termination, Mr. Donoho would be entitled
     to, among other things, 24 months of base salary and the greater of two
     years bonus or $500,000 (such payments to be discounted if paid in a lump
     sum) as well as earned benefits and for two years, outplacement services,
     reimbursement of COBRA health care premiums and personal, financial and
     legal counseling services up to $10,000.

     The Donoho Agreement provided, in part, that the Company would grant to Mr.
     Donoho an option to purchase 1,000,000 Series 3 Shares. Such options had an
     exercise price of $7.32 per share and were exercisable based on the
     following schedule -- 400,000 Series 3 Shares on February 1, 1998; 300,000
     Series 3 Shares on February 1, 1999; and 300,000 Series 3 Shares on
     February 1, 2000, provided that no portion of the option would become
     exercisable unless Mr. Donoho is, on the applicable date of determination,
     and has been at all times since the grant of the option, employed by Wards.
     Mr. Donoho was granted such options in May 1997. Mr. Donoho's employment
     with Wards terminated in December 1997 and therefore no portion of the
     option ever became exercisable.

     In connection with his termination of employment with Wards and in exchange
     for a general release and waiver of the Company, Wards and its affiliates
     (including with respect to his employment agreement) as well as noncompete
     and nonsolicitation provision effective through January 31, 2000, Mr.
     Donoho received a lump sum payment of $1,562,500 representing base salary
     through January 31, 2000, a lump sum payment of $500,000 representing
     guaranteed bonuses for 1997 and 1998, a payment of $200,000 representing
     the retention plan payment through January 31, 1998, continuation of
     executive health care coverage at the associate rate through January 31,
     2000, earned vacation in the amount of $57,692 and $20,000 in lieu of
     outplacement services. $1,909,910 of these amounts were paid by GE Capital.

                                      74
<PAGE>
 
Item 11. Executive Compensation (continued)

Certain Arrangements (continued)
 
  The Wards Executive Committee Severance Plan ("Severance Plan") provides that
  if the employment of certain senior executives is terminated other than for
  Cause (as defined in the Severance Plan), the executive will receive a lump
  sum payment equal to the greater of the executive's base salary for the
  remainder of the executive's employment agreement or the executive's base
  salary for 24 months. In addition, the executive will receive executive
  outplacement services and continue to participate in executive benefit plans.
  If such termination occurs within three years of a Change of Control (as
  defined in the Severance Plan), the lump sum payment is increased to three
  years base salary plus three times the executives' target bonus. Amounts
  otherwise payable under the Severance Plan are reduced dollar for dollar for
  any additional amounts representing base salary or bonus payable under the
  executive's employment contract or other severance plan.

  Certain senior executives of Wards were participants in each of a retention
  plan and a security plan. The retention plan provided that each participant
  would receive a retention award if such participant remained employed by Wards
  through March 1, 1997 or was terminated for any reason other than voluntary
  resignation or cause. In addition, in the event of a change of control of
  Wards prior to such date, the retention award would be payable at such time.
  The security plan, provided that in the event of a sale or change of control
  of Wards, each participant who was, at such time, actively employed by Wards
  or who was terminated for reasons other than voluntary resignation or cause
  within one year of such date would receive: (i) a bonus payable at the time of
  such date or change of control; (ii) an award supplement, at the discretion of
  the Board of Directors based on the recommendation of the Chief Executive
  Officer, with respect to the participant's contribution and cooperation in the
  transaction; (iii) enhanced severance of an additional twelve months base
  salary above the amount to which the participant would have been entitled
  under the severance plan described above if, during the first two years
  following the sale or change of control, the participant is either (x)
  terminated for any reason other than voluntary termination or cause or (y)
  demoted without the participant's prior written approval; (iv) continuation of
  benefits for the entire severance payment period; (v) out placement services;
  and (vi) certain tax preparation and financial planning services. The bonuses
  payable upon a change of control under the retention plan and the security
  plan were paid by Wards in January 1997 in connection with certain amendments
  to the Stockholders' Agreement which changed the makeup of the Board of
  Directors of the Company. The participants in the retention plan and the
  security plan consisted of eight (8) senior officers of the Company, including
  Mr. DiGangi, whose award under the retention plan was $281,250 and whose bonus
  under the security plan was $140,625.

Director Compensation Arrangements

  Prior to the filing by the Company and a number of its direct and indirect
  subsidiaries (including Wards) of petitions under Chapter 11 of the U.S.
  Bankruptcy Code in July 1997 (the "Bankruptcy Filing"), Messrs. Cathcart and
  Myron Lieberman, a former director, were paid director fees of $6,000 per
  fiscal quarter, plus $1,500 for each meeting such director attended of the
  Board of Directors of the Company and Wards, plus $1,500 for each meeting such
  director attended of a committee of the Company and Wards of which such
  director was a member, provided that for meetings of the Board of Directors of
  the Company held jointly with or immediately prior to or following meetings of
  the Board of Directors of Wards, the aggregate fees for such meetings were
  $1,500, and provided further that for meetings of committees of the Company
  held jointly with or immediately prior to or following meetings of committees
  of Wards the aggregate fees for such meetings were $1,500. Such directors fees
  were converted into Series 1 Shares pursuant to the Directors Fee Plan
  described below.

                                       75
<PAGE>
 
Item 11. Executive Compensation (continued)

Director Compensation Arrangements (continued)

  The Directors Plan (the "Directors Fee Plan") permits directors (as designated
  by the Directors Fee Plan Committee, as defined below) to receive Series 1 and
  Series 2 Shares. The plan provides for the establishment of a committee (the
  "Directors Fee Plan Committee") to (i) administer the Directors Fee Plan, (ii)
  estimate director fees payable to directors for the fiscal year and (iii)
  permit directors to elect to receive Class A Shares with a value determined by
  the Directors Fee Plan Committee not to exceed the estimated fees.

  Under the Directors Fee Plan, participating directors are automatically
  granted rights ("Conversion Rights") after the end of each fiscal quarter of
  the Company in a number determined by dividing the director fees for the
  fiscal quarter by the fair market value per share of the Company's Common
  Stock. The number of Class A Shares acquired pursuant to accelerated
  Conversion Rights (as described below) reduces the number of automatically
  granted Conversion Rights. The acquisition of Class A Shares by directors
  pursuant to Conversion Rights does not require any direct payment by a
  director, but the director fees which otherwise would be payable to the
  director are reduced by such fair market value of the Class A Shares acquired.
  If directors acquire Class A Shares pursuant to Conversion Rights, the Company
  will pay the directors an amount sufficient to pay all applicable federal and
  state taxes payable by the directors with respect to the Class A Shares
  acquired pursuant to Conversion Rights and the amount attributable to this
  payment. The Directors Fee Plan Committee decides based on the past service of
  the director whether there should be an acceleration of the grant of
  Conversion Rights based on an estimate of director fees for the fiscal year.
  If the grant of Conversion Rights is accelerated by the Directors Fee Plan
  Committee, the Directors Fee Plan Committee determines the number of Class A
  Shares to which the Conversion Rights relate, the value of the Class A Shares,
  the duration of the Conversion Rights and the limitations on the Class A
  Shares acquired pursuant to the Conversion Rights. It is currently anticipated
  that any Class A Shares acquired pursuant to accelerated Conversion Rights
  would be forfeited to the extent a director does not earn the anticipated
  director fees for the fiscal year.

  Directors of the Company or Wards other than members of the Directors Fee Plan
  Committee are eligible to participate in the Directors Fee Plan if designated
  by the Directors Fee Plan Committee. The Directors Fee Plan Committee is
  comprised of not fewer than two directors who are appointed by the Board of
  Directors and who serve at the pleasure of the Board of Directors. The current
  members of the Directors Fee Plan Committee are Messrs. Brennan and Stewart.
  Of the seven eligible directors, the Directors Fee Plan Committee has
  designated only Mr. Cathcart as a participant in the Directors Fee Plan.
  Pursuant to an irrevocable election made in 1992, Mr. Cathcart elected to
  receive all of the fees earned for service as a director of the Company and of
  Wards in Series 1 Shares. Through the date of the bankruptcy filing, Mr.
  Cathcart had acquired 8,987 Series 1 Shares and Mr. Lieberman, a former
  director, had acquired 10,235 Series 1 Shares, pursuant to Conversion Rights
  under the Directors Fee Plan. No shares have been distributed under the
  Directors Fee Plan since the bankruptcy filing.

  The Board of Directors may amend or terminate the Directors Fee Plan, except
  that no such action by the Board of Directors may change the terms and
  conditions of any Conversion Rights previously granted in a manner adverse to
  the holder of the Conversion Right without the consent of such holder. The
  Directors Fee Plan Committee has the right to make adjustments with respect to
  Conversion Rights if Wards or the Company dissolves or is liquidated or upon
  the occurrence of a public offering of shares of the Company.

                                      76
<PAGE>
 
Item 11. Executive Compensation (continued)

Director Compensation Arrangements (continued)

  In connection with the termination of the employment of Bernard F. Brennan as
  Chief Executive Officer of the Company and as Chairman and Chief Executive
  Officer of Wards, Mr. Brennan, the Company, Montgomery Ward and GE Capital
  entered into a Relationship Agreement dated as of December 10, 1996 (the
  "Relationship Agreement"). The Relationship Agreement provided the terms of
  Mr. Brennan's separation from the Company and Wards, including with respect to
  his continued participation as Chairman of the Company and a director of each
  of the Company and Wards. Pursuant to the Relationship Agreement, the Company
  loaned to Mr. Brennan $12.5 million in cash, without interest, for which the
  Company's sole recourse is the shares of Common Stock owned by Mr. Brennan and
  his permitted transferees. In the Relationship Agreement, Mr. Brennan agreed
  that within five business days after he or any permitted transferee sells any
  such shares or receives any proceeds with respect to any such shares (other
  than as a result of certain charity loans), such proceeds would be applied
  toward any outstanding balance of such loan, provided that if proceeds are
  received pursuant to the "put" provisions of the Stockholders' Agreement, only
  75% of such proceeds need be so applied. The Relationship Agreement also
  provides that amounts outstanding under the loan, if not paid sooner, shall be
  due and payable on the last to occur of the deaths of Mr. Brennan, his wife
  and his children.

  The Relationship Agreement provides that Mr. Brennan is engaged as a
  consultant to the Company and Wards for the lesser of five years or until the
  date on which he and his permitted transferees no longer own any shares of
  Common Stock. The Company and Wards agreed to make annual cash consulting
  payments totaling $1.5 million to Mr. Brennan in installments not less
  frequently than semi-monthly throughout the consulting period. During the
  Company's 1997 fiscal year, the Company and Wards paid $794,057 to Mr. Brennan
  in such consulting fees. Wards ceased payment of the consulting fees as of the
  Bankruptcy date. Also in the Relationship Agreement, the Company and Wards
  agreed to provide to Mr. Brennan certain other benefits. During the Company's
  1997 fiscal year, the Company and Wards paid $9,424 in such benefits. Mr.
  Brennan was also paid director fees of $12,935. Also in connection with his
  resignation, Mr. Brennan, the Company and GE Capital entered into an Amendment
  Agreement dated as of December 10, 1996 with respect to certain amendments to
  the Stockholders' Agreement and the Company's By-laws (the "Amendment
  Agreement"). Pursuant to the Amendment Agreement, Mr. Brennan's right to
  require the Company to purchase his shares of Common Stock will become
  effective on January 1, 1999. The Amendment Agreement also amended the
  Stockholders' Agreement to provide the director designation rights described
  herein and the supermajority requirements described herein. See Item 10.
  Finally, the Amendment Agreement provides Mr. Brennan and his affiliates with
  certain rights to participate in transfers of shares of Common Stock by GE
  Capital, provides for Mr. Brennan's and his affiliates' participation in
  certain sales of the stock or assets of the Company, and provides GE Capital,
  Mr. Brennan and their respective affiliates with a right of first refusal on
  new securities issued by the Company.

Compensation Committee Interlocks And Insider Participation

  Mr. Brennan, Chairman of the Company and a former executive officer of the
  Company, serves as a member of the Compensation Committee of Wards' Board of
  Directors. Robert A. Kasenter, Executive Vice President of the Company and
  Executive Vice President, Human Resources of Wards, serves as Secretary of the
  Compensation Committee of Wards' Board of Directors, although Mr. Kasenter is
  not a director of the Company or of Wards.

                                      77
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

  The following table sets forth the beneficial ownership, as of March 16, 1998,
  of Class A Shares (i) by each person who is a director of the Company (none of
  whom except the individuals identified beneficially owns any shares of the
  Company's equity securities), (ii) by each of the Named Executive Officers
  (none of whom except the individuals identified beneficially owns any shares
  of the Company's equity securities), (iii) by each person who is known to be a
  holder of more than 5% of Class A Shares and (iv) by all directors and
  executive officers of the Company as a group.

<TABLE>
<CAPTION>
      Individual or Group              Shares            %
  ---------------------------        ----------        ------
  <S>                                <C>               <C>
  Bernard F. Brennan (a)             16,122,247         88.0%
  Edwin G. Pohlmann (b)               2,892,500         15.8%
  Tommy T. Cato (c)                     227,875          1.2%
  Silas S. Cathcart (c)                  18,987          0.1%
  Roger V. Goddu (d)                    649,055          3.4%
  Thomas G. Grimes (e)                  200,000          1.1%
  Alan E. DiGangi (c) (f)                36,550          0.2%
  Tamara Brennan (g)                  2,200,000         12.0%
  All directors and executive                          
    officers as a group (20                            
    persons) (h)                     15,109,817         77.1%
</TABLE>

  (a) Comprised of 13,025,750 Class A Shares (71.1% of the Class A Shares and
      30.1% of the Company's common stock ("Common Stock") outstanding as of
      March 16, 1998) owned of record by Mr. Brennan and with respect to which
      Mr. Brennan has sole investment and voting power, and 3,096,497 Class A
      Shares (16.9% of the Class A Shares and 7.1% of the Common Stock
      outstanding as of March 16, 1998) owned of record by Mr. Brennan as voting
      trustee and with respect to which Mr. Brennan has sole voting power as
      voting trustee but no investment power. Does not include 2,200,000 Class A
      Shares (12.0% of the Class A Shares and 5.1% of the Common Stock
      outstanding as of March 16, 1998) which are owned by Edwin G. Pohlmann, as
      trustee of a trust (the "Family Trust") for the benefit of members of Mr.
      Brennan's family with respect to which Mr. Brennan has no voting or
      investment power, but with respect to which Tamara Brennan, Mr. Brennan's
      wife, may acquire shared voting and dispositive power. See Note (g) below.
      Mr. Brennan disclaims beneficial ownership of such 2,200,000 Class A
      Shares. Mr. Brennan's business address is 5000 Sawgrass Village Circle,
      Suite Five, Ponte Vedra, FL 32082.

  (b) Does not include 200,000 Class A Shares held by trusts for the benefit of
      members of Mr. Pohlmann's family, with respect to which Mr. Pohlmann has
      no voting or investment power. Includes 2,200,000 Class A Shares with
      respect to which Mr. Pohlmann has sole voting and investment power as
      trustee of the Family Trust. Such 2,200,000 Class A Shares are not
      deposited in the voting trust under which Mr. Brennan serves as voting
      trustee. See Note (c) below. All shares other than the 2,200,000 Class A
      Shares as to which Mr. Pohlmann has beneficial ownership are represented
      by Voting Trust Certificates and such shares are held in a voting trust
      (the "Voting Trust") as to which Mr. Brennan, as voting trustee, has sole
      voting power. Such voting trust will expire by its terms on June 21, 1998.
      Mr. Pohlmann's business address is 9300 Sante Fe Springs Road, Sante Fe
      Springs, CA 90670.

  (c) Represents ownership of Voting Trust Certificates with respect to shares
      held in the Voting Trust as to which Mr. Brennan, as voting trustee, has
      sole voting power and the persons indicated have sole investment power.
      Such voting trust will expire by its terms on June 21, 1998.

                                      78
<PAGE>
 

Item 12. Security Ownership of Certain Beneficial Owners and Management 
         (continued)

  (d) Includes 649,055 Class A Shares which may be acquired by Mr. Goddu
      pursuant to options exercisable on March 16, 1998. Does not include
      649,055 Class B Shares which may be acquired by Mr. Goddu from GE Capital
      pursuant to options exercisable on December 31, 1997, as described herein.
      See Item 11 above. Mr. Goddu's business address is Montgomery Ward Plaza,
      Chicago, IL 60671.

  (e) Represents 200,000 Class A Shares which may be acquired by Mr. Grimes
      pursuant to options currently exercisable.

  (f) Includes 29,300 Class A Shares which may be acquired by Mr. DiGangi
      pursuant to exercisable options.

  (g) Represents Class A Shares with respect to which Mrs. Brennan, if she were
      to elect to become an advisor to the trustee of the Family Trust, may
      acquire shared power to vote or direct the vote of, and shared power to
      dispose or direct the disposition of, such shares. See Notes (a) and (b)
      above.

  (h) Represents all Class A Shares with respect to which executive officers and
      directors have investment power, which is in each case sole investment
      power. Does not include 4,483,085 Class A Shares with respect to which Mr.
      Brennan has sole voting power as voting trustee, but with respect to which
      neither he nor any other executive officer or director of the Company has
      investment power. Includes 1,270,655 Class A Shares which may be acquired
      by executive officers or directors at purchase prices ranging from $0.20
      to $24.50 per share pursuant to options exercisable on March 16, 1998 or
      on April 1, 1998 (date within 60 days after March 16, 1998).

  GE Capital owns 100% of the 25,000,000 Class B Shares currently outstanding.
  Such shares represented 57.7% of the outstanding Common Stock as of March 16,
  1998. GE Capital has granted to Mr. Goddu an option, 25% of which is
  exercisable as of March 16, 1998, to purchase from GE Capital that number of
  shares of Common Stock which equals 5% of the issued and outstanding shares of
  Common Stock of the Company on a fully-diluted basis. For purposes of this
  calculation, the number of shares of Common Stock underlying such options is
  to be adjusted upwards from time to time until the last day of the Company's
  1998 fiscal year to give effect to the grant of stock options after December
  20, 1996 to management employees of Wards covering up to 10% of the
  outstanding shares of Common Stock on a fully-diluted basis. As of March 16,
  1998, pursuant to the foregoing, such option is exercisable with respect to
  649,055 Class B Shares (2.6% of the outstanding Class B Shares and 1.5% of the
  outstanding Common Stock). GE Capital's address is 260 Long Ridge Road,
  Stamford, Connecticut 06927.

  GE Capital owns 100% of the 1,750 shares of Senior Preferred Stock of the
  Company, having a liquidation value of $100,000 per share (the "Senior
  Preferred Stock") outstanding as of the date hereof, and 100.0% of the 352
  shares of Series C Preferred Stock of the Company, having a liquidation value
  of $100,000 per share (the "Series C Preferred Stock") outstanding as of the
  date hereof.

Item 13. Certain Relationships and Related Transactions

  In 1996, Wards and the Northern Trust Company (the "Bank"), arranged a line of
  credit which was available to certain executive officers of the Company (the
  "Line of Credit Program"). A committee of the Board of Directors of the
  Company determined which associates were eligible to borrow money under the
  Line of Credit program and the maximum amounts which each, respectively, could
  borrow. The bank held as collateral a number of Class A Shares of vested stock
  of the Company held by the individual, the fair market value of which was to
  be equal to twice the amount the individual borrowed. All loans are payable on
  June 21, 1998, and interest is payable monthly. Any loan may be prepaid
  without penalty. Interest accrues at the Bank's prime rate.

                                      79
<PAGE>
 

Item 13. Certain Relationships and Related Transactions (continued)

  The Company has agreed with the Bank that, in the event any individual should
  default upon his or her repayment obligations, the Company will purchase the
  note from the Bank or purchase the pledged stock from the Bank at the fair
  market value with the entire amount defaulted upon to be paid by the Company
  if, and to the extent, the defaulted amount exceeds the amount of the payment
  for the Class A Shares. This default remedy has been stayed by the Chapter 11
  filing. As of March 30, 1998, one loan is outstanding under the Line of Credit
  Program: Robert A. Kasenter, Executive Vice President of the Company, for
  $148,250.

  Wards entered into a Bank Credit Card Program Agreement ("Card Agreement")
  effective April 1, 1996 with Monogram Credit Card Bank of Georgia
  ("Monogram"), and an Account-Related Agreement ("Account Related Agreement")
  effective April 1, 1996 with Montgomery Ward Credit Corporation ("Montgomery
  Ward Credit") (collectively referred to as the "Agreements") pursuant to which
  Monogram and Montgomery Ward Credit (collectively referred to as the
  "Montgomery Ward Credit Companies"), both of which are affiliates of GE
  Capital, make payments to Wards as to their receivables generated by sales to
  customers of Wards, its affiliates and licensees who utilize the Wards'
  private label credit card, and provide services to Wards, all of which are
  guaranteed by GE Capital. Set forth below is a description of various
  transactions entered into in connection with the Agreements. Unless otherwise
  specified, information given is for aggregate transactions under both the Card
  Agreement and the Account Related Agreement. As of January 3, 1998, there were
  $4.2 billion of Wards' private label credit card receivables owned by the
  Montgomery Ward Credit Companies. During the 1997, 1996 and 1995 fiscal years,
  the Credit Companies paid to Wards, pursuant to the Agreements and predecessor
  agreements, approximately $2.6 billion, $3.6 billion and $3.9 billion,
  respectively, in respect of such receivables. As of March 16, 1998, the Credit
  Companies have paid approximately $360 million to Wards in respect of such
  receivables during the current fiscal year. Wards generally bears the risk of
  credit losses due to non-payment by cardholders to the extent of (i) the
  amount of credit losses that are between 3.9% and 5.0% of average outstanding
  receivables, plus (ii) 50% of credit losses that are between 5.0% and 8.0% of
  average outstanding receivables, subject to offsets described below relating
  to Wards' share of certain incremental increases in finance charges and late
  fees payable by cardholders.

  Wards' net unpaid liability for credit losses for 1991 through 1997 are to be
  payable to Montgomery Ward Credit pursuant to a note ("Continuation Note") due
  in early 2003, provided that the outstanding balance of such note cannot
  exceed $300 million. A remaining note in the amount of $15,123,200, consisting
  of losses unused after July 7, 1997, is to be executed which provides for
  monthly principal payments in the amount of 5% of the scheduled monthly
  principal payments for the Continuation Note. Starter card losses are payable
  currently. Interest on Wards' unpaid liability for credit losses is to be
  payable at a rate equal to rates on comparable borrowings of Wards. Interest
  on notes outstanding as of July 7, 1997, has been stayed by the Chapter 11
  proceeding.

  Wards has executed notes for its unpaid share of credit losses which totaled
  $412 million with respect to credit losses through 1997. The incremental
  finance charges and late fee assessments earned by Wards at the end of 1997
  were $112 million for a net obligation of $300 million. As Wards' net unpaid
  liability for credit losses for 1991 through 1997 exceeded the $300 million
  threshold, a payment of $28 million with respect to the excess was made in
  early 1998. At January 3, 1998, $288 million of the net obligation is included
  in Liabilities subject to compromise, and $40 million of the obligation is
  included in Accrued liabilities and other obligations. As the $300 million
  threshold has been reached, it is expected that future payments may be
  required depending upon the level of credit card losses.

  In exchange for Wards' agreement to allow the Montgomery Ward Credit Companies
  to increase finance charge rates and late fees in selected states, Wards
  receives a share of incremental finance charges and late fees resulting from
  such increases. Such amount is available for offset against Wards' unpaid
  liability for its share of credit losses. To the extent not currently paid or
  offset, such amounts earn interest at the same rate as amounts owned by Wards
  to Montgomery Ward Credit. The Montgomery Ward Credit Companies also provide
  administrative services in connection with Signature products.

                                      80
<PAGE>
 

Item 13. Certain Relationships and Related Transactions (continued)

Fees paid by Signature to the Montgomery Ward Credit Companies were
approximately $5 million, $6 million and $6 million for Wards' 1997, 1996 and
1995 fiscal years, respectively.

Lechmere Inc., a wholly-owned subsidiary of Wards ("Lechmere"), entered into an
Interim Consumer Credit Card Program Agreement (the "Lechmere Agreement")
effective as of March 13, 1996 with Monogram pursuant to which Monogram (among
other things) made payments to Lechmere in respect of Monogram's receivables
generated by sales to customers of Lechmere who utilized the Lechmere private
label credit card issued by Monogram pursuant to the Lechmere Agreement. Such
payments were equal to the face amount of such receivables. The Lechmere
Agreement, as executed, was scheduled to expire on the earlier of August 31,
1996 or the execution by the parties thereto of a long-term agreement. The long-
term agreement never was executed and the Lechmere Agreement was extended by
numerous letter agreements between the parties. Pursuant to an order of the
Bankruptcy Court overseeing Lechmere's bankruptcy (which, like the bankruptcy
Filing, was filed on July 7, 1997), Lechmere and Monogram continued to perform
under the Lechmere Agreement as though such agreement had been assumed by
Lechmere. On or around August 1, 1997 (before any assumption or rejection of the
Lechmere Agreement), Lechmere announced that its assets would be sold and
liquidated. Shortly thereafter, Monogram, Lechmere and Wards entered into a
stipulation and order for adequate protection defining the parties' respective
rights during the wind-down of the Lechmere credit card program and the
liquidation of receivables that arose in connection therewith. Pursuant to that
stipulation and order, purchases made using Lechmere cards ceased on or around
August 8, 1997. Lechmere, to date, has neither assumed or rejected the Lechmere
Agreement.

Wards and Lechmere also entered into an agreement on April 3, 1996 for the sale
of certain commercial customer receivables to Montgomery Ward Credit. During
1997, Montgomery Ward Credit paid $4.8 million to Wards and Lechmere pursuant to
this agreement and, as of March 16, 1998, Montgomery Ward Credit has paid
$485,000 to Wards in respect of such receivables during the current fiscal year.

Wards and Lechmere have entered into a Program Agreement dated October 12, 1989,
as amended on March 6, 1997, with GE Capital, under which GE Capital pays
certain manufacturers and distributors a discounted invoice price of products
acquired by Wards and Lechmere and whereby Wards and Lechmere reimburse GE
Capital for such payments according to an agreed-upon schedule. The aggregate
amount of outstanding payments and other amounts payable under the Program
Agreement is not to exceed $650 million at any one time. During the Company's
1997 fiscal year, Wards and Lechmere reimbursed approximately $147 million to GE
Capital under the Program Agreement and the largest amount payable at any time
during such fiscal year was approximately $650 million.

Wards entered into the Post-Petition Loan and Guaranty Agreement ("DIP
Facility") with GE Capital as agent and lender; and various other lenders, on
July 8, 1997, which was approved by the Bankruptcy Court on July 31, 1997. Under
the DIP Facility, the lenders have agreed to provide a revolving credit and
letter of credit facility, the maximum amount of which is based on the book
value of eligible inventory (as defined in the DIP Facility), the fair market
value of eligible real property (as defined in the DIP Facility) and the
earnings of Signature. In no case may borrowings exceed $1 billion. Total
letters of credit outstanding were $52 million at January 3, 1998. The Company
had $811 million of borrowing availability under the DIP Facility at January 3,
1998. Under the DIP Facility, Wards may select among several interest rate
options, all of which are based on market rates plus a margin. A commitment fee
is payable based on the unused amount of the facility. The facility expires on
July 7, 1999, or earlier in the case of an event of default. GE Capital's
portion of the commitment under the DIP Facility is $300 million.

GE, the indirect parent of GE Capital, is, in the ordinary course of its
business, a major supplier of consumer goods to Wards for sale at Wards' stores
in the ordinary course of its business.

As more fully described above, Mr. Goddu is indebted to the Company under the
Goddu Note in the initial principal amount of $2,000,000 and Mr. Brennan is
indebted to the Company in connection with the loan provided him pursuant to the
Relationship Agreement in the initial principal amount of $12,500,000. See Item
11 above.

In July 1997, Messrs. Austin and Caporale received loans at a 8-1/2% interest
rate from Wards aggregating $654,000 and $656,425, respectively. Messrs. Austin
and Caporale repaid within ninety days of such loans principal of $279,000 and
$222,300, respectively, and interest thereon. The remaining balances of such
loans is due July 11, 1999. The outstanding balance as of March 7, 1998 of the
loans to Messrs. Austin and Caporale is $394,288.63 and $457,074.16,
respectively.

                                      81
<PAGE>
 

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

  (a) 1. Financial Statements

<TABLE>
<CAPTION>
                                                                           Page
                                                                          ------
<S>                                                                       <C>
Report of Independent Public Accountants                                    20
For the 53-Week Periods Ended January 3, 1998,        
 and the 52-Week Periods Ended December 28,           
 1996 and December 30, 1995                           
    Consolidated Statements of Income                                       21
    Consolidated Statements of Shareholders' Equity                         23
    Consolidated Statements of Cash Flows                                   26
Consolidated Balance Sheets at January 3, 1998        
 and December 28, 1996                                                      22
Notes to Consolidated Financial Statements                                  28
</TABLE>

  2. Financial Statement Schedules

  Schedules have been omitted because they are not applicable, not required, not
  material, or the required information is given in the financial statements or
  notes thereto or combined with the information presented in other schedules or
  exhibits.

                                      82
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3.  Exhibits

     3.1           Third Restated Certificate of Incorporation of the Company,
                   filed June 28, 1994, incorporated by reference to Exhibit 3.2
                   (ii) of the Company's Registration Statement on Form S-1
                   (Registration No. 33-33252).

     3.1 (i)       Certificate of Amendment to Certificate of Incorporation of
                   Montgomery Ward Holding Corp. dated October 25, 1994,
                   incorporated by reference to Exhibit 3.2 (iv) of the
                   Company's Quarterly Report on Form 10-Q for the fiscal
                   quarterly period ended October 1, 1994.

     3.1 (ii)      Certificate of Amendment to Certificate of Incorporation of
                   Montgomery Ward Holding Corp. dated March 29, 1996,
                   incorporated by reference to Exhibit 3.1 (ii) of the
                   Company's Annual Report on Form 10-K for the fiscal year
                   ended December 28, 1996.

     3.1 (iii)     Certificate of Amendment to Certificate of Incorporation of
                   Montgomery Ward Holding Corp. dated May 29, 1997,
                   incorporated by reference to Exhibit 3.1 (iii) of the
                   Company's Quarterly Report on Form 10-Q for the fiscal
                   quarter quarterly period ended June 28, 1997.
 
     3.1 (iv)      Certificated of Stock Designation of Montgomery Ward Holding
                   Corp. dated May 29, 1997, incorporated by reference to
                   Exhibit 3.1 (iv) of the Company's Quarterly Report on Form 
                   10-Q for the fiscal quarterly period ended June 28, 1997.

     3.3           Amended and Restated By-laws of the Company, dated as of
                   December 29, 1994, incorporated by reference to Exhibit 3.3
                   of the Company's Annual Report on Form 10-K for the fiscal
                   year ended December 30, 1995.

     3.3 (i)       Amendment to By-laws of Montgomery Ward Holding Corp., dated
                   as of December 10, 1996, incorporated by reference to Exhibit
                   3.3 (i) of the Company's Annual Report on Form 10-K for the
                   fiscal year ended December 28, 1996.

     9.            Voting Trust Agreement dated as of June 21, 1988,
                   incorporated by reference to Exhibit 3(a) of the Company's
                   Registration Statement on Form S-1 (Registration No. 33-
                   23403).

     9. (i)        Voting Trust Agreement dated as of October 21, 1994,
                   incorporated by reference to Exhibit 9. (i) of the Company's
                   quarterly report on Form 10-Q for the fiscal quarterly period
                   ended October 1, 1994.

     10. (i)(A)(1) Stockholders' Agreement dated as of June 17, 1988, as amended
                   and restated as of December 29, 1994, incorporated by
                   reference to Exhibit 4. (e) to the Company's Registration
                   Statement on Form S-8 (Registration No. 33-57075).

     10. (i)(A)(2) Amendment Agreement dated as of December 10, 1996,
                   incorporated by reference to Exhibit 1 of the Company's
                   Current Report on Form 8-K for an event occurring January 6,
                   1997.

     10. (i)(A)(3) Montgomery Ward & Co., Incorporated Stock Ownership Plan
                   Terms and Conditions, as amended and restated, as of December
                   29, 1994, incorporated by reference to Exhibit 4. (f) of the
                   Company's Registration Statement on Form S-1 (Registration
                   No. 33-57075).

                                      83
<PAGE>
 
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
          (continued)

3.  Exhibits (continued)

     10. (i) (A) (4)     Amendment No. 17 to Stockholders' Agreement, dated as
                         of March 31, 1997, incorporated by reference to Exhibit
                         10. (i) (A) (3) of the Company's Quarterly Report on
                         Form 10-Q for the fiscal quarterly period ended March
                         19, 1997.

     10. (i) (B)         Stock Purchase Agreement dated March 6, 1988 between
                         Mobil Corporation, Marcor Inc. and BFB Acquisition
                         Corp. incorporated by reference to Exhibit 10. (i) (B)
                         of the Company's Registration Statement on Form S-1
                         (Registration No. 33-23403).

     10. (i) (C)         Subscription Agreement dated as of December 29, 1995
                         between General Electric Capital Corporation,
                         Montgomery Ward & Co., Montgomery Ward Holding Corp.,
                         and Bernard F. Brennan, incorporated by reference to
                         Exhibit 10. (i) (C) of the Company's Annual Report on
                         Form 10-K for the fiscal year ended December 30, 1995.

     10. (i) (F)         Note Purchase Agreements dated March 1, 1993 between
                         Montgomery Ward & Co., Incorporated and various
                         lenders, incorporated by reference to Exhibit 10. (i)
                         (F) of the Company's Annual Report on Form 10-K for the
                         fiscal year ended January 2, 1993.

     10. (i) (F) (1)     Amendment dated June 30, 1995 to Note Purchase
                         Agreements dated March 1, 1993 between Montgomery Ward
                         & Co., Incorporated and various lenders, incorporated
                         by reference to Exhibit 10. (i) (F) (1) of the
                         Company's quarterly report on Form 10-Q for the fiscal
                         quarterly period ended July 1, 1995.

     10. (i) (F) (2)     Limited waiver and First Amendment to Note Purchase
                         Agreements dated as of March 29, 1997 among Montgomery
                         Ward & Co., Incorporated and various lenders,
                         incorporated by reference to Exhibit 10. (i) (F) (2) of
                         the Company's Quarterly Report on Form 10-Q for the
                         fiscal quarterly period ended March 29, 1997.

     10. (i) (G)         U.S. $1,000,000,000 Post-Petition Loan and Guaranty
                         Agreement dated as of July 8, 1997, among Montgomery
                         Ward & Co., Incorporated and Lechmere, Inc. as
                         borrowers and various guarantors and General Electric
                         Capital Corporation as agent and lender and various
                         lenders, incorporated by reference to Exhibit 10. (i)
                         (G) of the Company's Quarterly Report on Form 10-Q for
                         the fiscal quarterly period ended June 28, 1997.

     10. (i) (G) (1)     Waiver and First Amendment to Post-Petition Loan and
                         Guaranty Agreement dated as of July 30, 1997,
                         incorporated by reference to Exhibit and 10. (i) (G)
                         (1) of the Company's Quarterly Report on Form 10-Q for
                         the fiscal quarterly period ended June 28, 1997.

     10. (i) (G) (2)     Waiver to Post-Petition Loan and Guaranty Agreement
                         among Montgomery Ward & Co., as borrower; Montgomery
                         Ward Holding Corp. and other debtor subsidiaries of
                         Montgomery Ward Holding Corp., as guarantors; General
                         Electric Capital Corporation, as agent and lender; and
                         various lenders dated as of August 12, 1997,
                         incorporated by reference to Exhibit 10. (i) (G) (2) of
                         the Company's Quarterly Report on Form 10-Q for the
                         fiscal quarterly period ended September 27, 1997.

     10. (i) (G) (3)     Waiver to Post-Petition Loan and Guaranty Agreement
                         among Montgomery Ward & Co., as borrower; Montgomery
                         Ward Holding Corp. and other debtor subsidiaries of
                         Montgomery Ward Holding Corp., as guarantors; General
                         Electric Capital Corporation, as agent and lender; and
                         various lenders dated as of September 24, 1997,
                         incorporated by reference to Exhibit 10. (i) (G) (3) of
                         the Company's Quarterly Report on Form 10-Q for the
                         fiscal quarterly period ended September 27, 1997.

                                      84
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3. Exhibits (continued)

     10. (i)(G)(4) Waiver to Post-Petition Loan and Guaranty Agreement among
                   Montgomery Ward & Co., as borrower; Montgomery Ward Holding
                   Corp. and other debtor subsidiaries of Montgomery Ward
                   Holding Corp., as guarantors; General Electric Capital
                   Corporation, as agent and lender; and various lenders dated
                   as of November 7, 1997.
 
     10. (i)(H)    Long Term Credit Agreement dated as of September 15, 1994
                   among Montgomery Ward & Co., Incorporated, various banks, The
                   First National Bank of Chicago, as Documentary Agent, The
                   Bank of Nova Scotia, as Administrative Agent, The Bank of New
                   York, as Negotiated Loan Agent and Bank of America National
                   Trust and Savings Association, as Advisory Agent,
                   incorporated by reference to Exhibit 10. (i) (G) of the
                   Company's Quarterly Report on Form 10-Q for the fiscal
                   quarterly period ended October 1, 1994.

     10. (i)(H)(1) Amended Schedule 1 to the Long Term Credit Agreement dated as
                   of September 15, 1994 among Montgomery Ward & Co.,
                   Incorporated, various banks, The First National Bank of
                   Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                   Administrative Agent, The Bank of New York, as Negotiated
                   Loan Agent and Bank of America National Trust and Savings
                   Association, as Advisory Agent incorporated by reference to
                   Exhibit 10. (i) (H) (1) of the Company's Quarterly Report on
                   Form 10-Q, for the fiscal quarterly period ended September
                   30, 1995.

     10. (i)(H)(2) Amendment dated March 19, 1996 to the Long Term Credit
                   Agreement dated as of September 15, 1994 among Montgomery
                   Ward & Co., Incorporated, various banks, The First National
                   Bank of Chicago, as Documentary Agent, The Bank of Nova
                   Scotia, as Administrative Agent, The Bank of New York, as
                   Negotiated Loan Agent and Bank of America National Trust and
                   Savings Association, as Advisory Agent, incorporated by
                   reference to Exhibit 10. (i) (H) (2) of the Company's
                   Quarterly Report on Form 10-Q for the fiscal quarterly period
                   ended March 30, 1996.

     10. (i)(H)(3) Amendment to Long Term Credit Agreement dated as of September
                   15, 1994 among Montgomery Ward & Co., Incorporated, various
                   banks, The First National Bank of Chicago, as Documentary
                   Agent, The Bank of Nova Scotia, as Administrative Agent, The
                   Bank of New York, as Negotiated Loan Agent and Bank of
                   America National Trust and Savings Association, as Advisory
                   Agent, which became effective September 6, 1996, incorporated
                   by reference to Exhibit 10. (i) (H) (3) of the Company's
                   Quarterly Report on Form 10-Q for the fiscal quarterly period
                   ended September 28, 1996.

     10. (i)(H)(4) Amendment to Long Term Credit Agreement dated as of December
                   23, 1996 among Montgomery Ward & Co., Incorporated, various
                   banks, The First National Bank of Chicago, as Documentary
                   Agent, The Bank of Nova Scotia, as Administrative Agent, The
                   Bank of New York, as Negotiated Loan Agent and Bank of
                   America National Trust and Savings Association, as Advisory
                   Agent, incorporated by reference to Exhibit 10. (i) (H) (5)
                   of the Company's Annual Report on Form 10-K for the fiscal
                   year ended December 28, 1996.

     10. (i)(H)(5) Waiver and Fourth Amendment to Long Term Credit Agreement
                   dated as of March 29, 1997 among Montgomery Ward & Co.,
                   Incorporated and various banks, incorporated by reference to
                   Exhibit 10. (i) (H) (5) of the Company's Annual Report on
                   Form 10-Q for the fiscal quarterly period ended March 29,
                   1997.

                                      85
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3.  Exhibits (continued)

     10. (i)(I)    Short Term Credit Agreement dated as of September 15, 1994
                   among Montgomery Ward & Co., Incorporated, various banks, The
                   First National Bank of Chicago, as Documentary Agent, The
                   Bank of Nova Scotia, as Administrative Agent, The Bank of New
                   York, as Negotiated Loan Agent and Bank of America National
                   Trust and Savings Association, as Advisory Agent,
                   incorporated by reference to Exhibit 10. (i) (H) of the
                   Company's Quarterly Report on Form 10-Q for the fiscal
                   quarterly period ended October 1, 1994.

     10. (i)(I)(1) Amended Schedule 1 to the Short Term Credit Agreement dated
                   as of September 15, 1994 among Montgomery Ward & Co.,
                   Incorporated, various banks, The First National Bank of
                   Chicago, as Documentary Agent, The Bank of Nova Scotia, as
                   Administrative Agent, the Bank of New York, as Negotiated
                   Loan Agent and Bank of America National Trust and Savings
                   Association, as Advisory Agent, incorporated by reference to
                   Exhibit 10. (i) (I) (1) of the Company's Quarterly Report on
                   Form 10-Q for the fiscal quarterly period ended September 30,
                   1995.

     10. (i)(I)(2) Amendment dated March 19, 1996 to the Short Term Credit
                   Agreement dated as of September 15, 1994 among Montgomery
                   Ward & Co., Incorporated, various banks, The First National
                   Bank of Chicago, as Documentary Agent, The Bank of Nova
                   Scotia, as Administrative Agent, The Bank of New York, as
                   Negotiated Loan Agent and Bank of America National Trust and
                   Savings Association, as Advisory Agent, incorporated by
                   reference to Exhibit 10. (i) (I) (2) of the Company's
                   Quarterly Report on Form 10-Q for the fiscal quarterly period
                   ended March 30, 1996.

     10. (i)(I)(3) Amendment dated September 6, 1996 to the Short Term Credit
                   Agreement dated as of September 15, 1994 among Montgomery
                   Ward & Co., Incorporated, various banks, The First National
                   Bank of Chicago, as Documentary Agent, The Bank of Nova
                   Scotia, as Administrative Agent, The Bank of New York, as
                   Negotiated Loan Agent and Bank of America National Trust and
                   Savings Association, as Advisory Agent, incorporated by
                   reference to Exhibit 10. (i) (I) (3) of the Company's
                   Quarterly Report on Form 10-Q for the fiscal quarterly period
                   ended September 28, 1996.

     10. (i)(I)(4) Confirmation of New Bank executed by The Industrial Bank of
                   Japan, Limited, Chicago Branch and The Bank of Nova Scotia,
                   as Administrative Agent, pursuant to Section 2.6(c) of the
                   Short Term Credit Agreement dated as of September 15, 1994
                   among Montgomery Ward & Co., Incorporated, various banks, The
                   First National Bank of Chicago, as Documentary Agent, The
                   Bank of Nova Scotia, as Administrative Agent, The Bank of New
                   York, as Negotiated Loan Agent and Bank of America National
                   Trust and Savings Association, as Advisory Agent, as amended
                   and extended, and (b) a letter dated October 24, 1996 from
                   The Bank of Nova Scotia, as Administrative Agent, to the
                   Banks and other Agents who are parties to said Short Term
                   Credit Agreement transmitting an attached revised Schedule 1
                   to such Agreement, incorporated by reference to Exhibit 10.
                   (i) (I) (4) of the Company's Quarterly Report on Form 10-Q
                   for the fiscal quarterly period ended September 28, 1996.

                                      86
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3.  Exhibits (continued)

     10. (i)(I)(5) Amendment dated December 23, 1996 to the Short Term Credit
                   Agreement dated as of September 15, 1994 among Montgomery
                   Ward & Co., Incorporated, various banks, The First National
                   Bank of Chicago, as Documentary Agent, The Bank of Nova
                   Scotia, as Administrative Agent, The Bank of New York, as
                   Negotiated Loan Agent and Bank of America National Trust and
                   Savings Association, as Advisory Agent, incorporated by
                   reference to Exhibit 10. (i) (I) (5) of the Company's Annual
                   Report on Form 10-K for the fiscal year ended December 28,
                   1996.

     10. (i)(I)(6) Waiver and Fourth Amendment to Short Term Credit Agreement
                   dated as of March 29, 1997 among Montgomery Ward & Co.,
                   Incorporated and various banks, incorporated by reference to
                   Exhibit 10. (I) (I) (6) of the Company's Quarterly Report on
                   Form 10-Q for the fiscal quarterly period ended March 29,
                   1997.

     10. (i)(J)    Note Purchase Agreement dated July 11, 1995 between
                   Montgomery Ward & Co., Incorporated and various lenders,
                   incorporated by reference to Exhibit 10. (i) (J) of the
                   Company's Quarterly Report on Form 10-Q for the fiscal
                   quarterly period ended July 1, 1995.

     10. (i)(J)(1) Limited waiver and First Amendment to Note Purchase
                   Agreements dated as of March 29, 1997 among Montgomery Ward &
                   Co., Incorporated and various lenders, incorporated by
                   reference to Exhibit 10. (i) (F) (2) of the Company's
                   Quarterly Report on Form 10-Q for the fiscal quarterly period
                   ended March 29, 1997.

     10. (i)(L)    Credit Agreement dated as of September 27, 1996 as amended
                   and restated as of October 21, 1996, among Signature
                   Financial/Marketing, Inc., various lenders, The Bank of New
                   York, as Documentation Agent and The Bank of Nova Scotia, as
                   Administrative Agent, incorporated by reference to Exhibit
                   10. (i) (L) of the Company's Annual Report on Form 10-K for
                   the fiscal year ended December 28, 1996.

     10. (i)(L)(1) Amendment to Credit Agreement dated as of December 23, 1996
                   among Signature Financial/Marketing, Inc., various lenders,
                   The Bank of New York, as Documentation Agent and The Bank of
                   Nova Scotia, as Administrative Agent, incorporated by
                   reference to Exhibit 10. (i) (L) (1) of the Company's Annual
                   Report on Form 10-K for the fiscal year ended December 28,
                   1996.

     10. (i)(L)(2) Waiver Letter dated as of March 27, 1997 addressed to
                   Signature Financial/Marketing, Inc. from the Bank of New York
                   and The Bank of Nova Scotia, incorporated by reference to
                   Exhibit 10. (i) (L) (2) of the Company's Quarterly Report on
                   Form 10-Q for the fiscal quarterly period ended March 29,
                   1997.

     10. (i)(L)(3) Correction Letter Agreement dated as of March 27, 1997 among
                   Signature Financial/Marketing, Inc., The Bank of New York and
                   The Bank of Nova Scotia, incorporated by reference to Exhibit
                   10. (i) (L) (3) of the Company's Quarterly Report on Form 10-
                   Q for the fiscal quarterly period ended March 29, 1997.

     10. (i)(L)(4) Waivers and Recision of Acceleration dated July 15, 1997,
                   among The Bank of New York, The Bank of Nova Scotia and
                   Signature Financial/Marketing, Inc., incorporated by
                   reference to Exhibit 10. (i) (L) (4) of the Company's
                   Quarterly Report on Form 10-Q for the fiscal quarterly period
                   ended June 28, 1997.

                                      87
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3.  Exhibits (continued)

     10. (i)(L)(5) Waiver, Amendment and Extension Agreement dated as of August
                   29, 1997, among Signature Financial Marketing, Inc., various
                   lenders, The Bank of New York, as Documentation Agent and The
                   Bank of Nova Scotia, as Administrative Agent.

     10. (i)(M)    Credit Agreement dated October 4, 1996 among Montgomery Ward
                   & Co., Incorporated, various lenders, The Bank of Nova
                   Scotia, as Administrative Agent, and The Bank of New York, as
                   Documentation Agent, incorporated by reference to Exhibit 10.
                   (i) (M) of the Company's Quarterly Report on Form 10-Q for
                   the fiscal quarterly period ended September 28, 1996.

     10. (i)(M)(1) Amendment to Credit Agreement dated as of December 23, 1996
                   among Montgomery Ward & Co., Incorporated, various lenders,
                   The Bank of Nova Scotia, as Administrative Agent, and The
                   Bank of New York, as Documentation Agent, incorporated by
                   reference to Exhibit 10. (i) (M) (1) of the Company's Annual
                   Report on Form 10-K for the fiscal year ended December 28,
                   1996.

     10. (i)(M)(2) Second Amendment to Credit Agreement dated as of December 23,
                   1996 among Montgomery Ward & Co., Incorporated, various
                   lenders, The Bank of Nova Scotia, as Administrative Agent,
                   and The Bank of New York, as Documentation Agent,
                   incorporated by reference to Exhibit 10. (i) (M) (2) of the
                   Company's Annual Report on Form 10-K for the fiscal year
                   ended December 28, 1996.

     10. (i)(M)(3) Waiver and Third Amendment to Credit Agreement dated as of
                   March 29, 1997 among Montgomery Ward & CO., Incorporated and
                   various lenders, incorporated by reference to Exhibit 10. (i)
                   (M) (3) of the Company's Quarterly Report on Form 10-Q for
                   the fiscal quarterly period ended March 29, 1997.

     10. (i)(N)    Asset Purchase, License & Agency Agreement for the Purchase
                   of Certain Assets of Lechmere, Inc. and Montgomery Ward &
                   Co., Incorporated, by Schottenstein Bernstein Capital Group
                   LLC dated August 14, 1997, incorporated by reference to
                   Exhibit 10. (i) (N) of the Company's Quarterly Report on Form
                   10-Q for the fiscal quarterly period ended September 27,
                   1997.

     10. (i)(O)    Agency Agreement between Schottenstein Bernstein Capital
                   Group LLC and Montgomery Ward & Co., Incorporated, as of
                   August 14, 1997, incorporated by reference to Exhibit 10. (i)
                   (O) of the Company's Quarterly Report on Form 10-Q for the
                   fiscal quarterly period ended September 27, 1997.

     10. (i)(P)    Agency Agreement dated as of October 31, 1997 between the
                   joint venture composed of Gordon Brothers Partners, Inc.,
                   Hilco Trading, Inc./Garcel, Inc. D/B/A Great American Asset
                   Management and Alco Capital Group, Inc., as agent and
                   Montgomery Ward & Co., Incorporated.

                                      88
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3.  Exhibits (continued)

     10. (ii)(A)*    Interim Consumer Credit Card Program dated as of April 1,
                     1996, as amended, restated and renamed the Bank Credit Card
                     Program Agreement dated as of April 1, 1996 by and between
                     Monogram Credit Card Bank of Georgia and Montgomery Ward &
                     Co., Incorporated, incorporated by reference to Exhibit 10.
                     (ii) (A) of the Company's Annual Report on Form 10-K for
                     the fiscal year ended December 28, 1996.

     10. (ii)(B)*    Account Purchase Agreement dated as of June 24, 1988, as
                     amended, restated and renamed the Account-Related Agreement
                     and dated as of April 1, 1996 by and between Montgomery
                     Ward Credit Corporation and Montgomery Ward & Co.,
                     Incorporated, incorporated by reference to Exhibit 10. (ii)
                     (B) of the Company's Annual Report on Form 10-K for the
                     fiscal year ended December 28, 1996.

     10. (ii)(C)(1)  Letter Agreement dated as of April 1, 1996 between
                     Signature Financial/Marketing, Inc., Monogram Credit Card
                     Bank of Georgia, Montgomery Ward Credit Corporation, and
                     Montgomery Ward & Co., Incorporated, incorporated by
                     reference to Exhibit 10. (ii) (C) (1) of the Company's
                     Annual Report on Form 10-K for the fiscal year ended
                     December 28, 1996.

     10. (ii)(C)(2)  Letter Agreement dated as of April 1, 1996 between
                     Signature Financial/Marketing, Inc. and Montgomery Ward
                     Credit Corporation, incorporated by reference to Exhibit
                     10. (ii) (C) (2) of the Company's Annual Report on Form 
                     10-K for the fiscal year ended December 28, 1996.

     10. (ii)(C)(3)  Letter Agreement dated September 17, 1996 between
                     Montgomery Ward & Co., Incorporated, Monogram Credit Card
                     Bank of Georgia and Montgomery Ward Credit Corporation,
                     incorporated by reference to Exhibit 10. (ii) (C) (3) of
                     the Company's Annual Report on Form 10-K for the fiscal
                     year ended December 28, 1996.

     10. (ii)(C)(4)* Letter Agreement dated as of August 2, 1995 between
                     Monogram Retailer Credit Services, Inc. and Montgomery Ward
                     & Co., Incorporated, incorporated by reference to Exhibit
                     10. (ii) (C) (4) of the Company's Annual Report on Form 
                     10-K for the fiscal year ended December 28, 1996.

     10. (ii)(D)*    Interim Consumer Credit Card Program Agreement dated as of
                     March 13, 1996 between Monogram Credit Card Bank of Georgia
                     and Lechmere, Inc., incorporated by reference to Exhibit
                     10. (ii) (D) of the Company's Annual Report on Form 10-K
                     for the fiscal year ended December 28, 1996.

     10. (ii)(D)(1)* Letter Agreement dated January 23, 1996 between Montgomery
                     Ward & Co., Incorporated, Montgomery Ward Credit and
                     General Electric Capital Corporation, incorporated by
                     reference to Exhibit 10. (ii) (D) (1) of the Company's
                     Annual Report on Form 10-K for the fiscal year ended
                     December 28, 1996.

     10. (ii)(D)(2)  Letter Agreement dated March 13, 1996 between Montgomery
                     Ward & Co., Incorporated, Lechmere, Inc., General Electric
                     Capital Corporation and Montgomery Ward Credit Corporation,
                     incorporated by reference to Exhibit 10. (ii) (D) (2) of
                     the Company's Annual Report on Form 10-K for the fiscal
                     year ended December 28, 1996.

* Confidential treatment has been requested from the Secretary of the
  Commission, with respect to portions of this document.

                                       89
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3.  Exhibits (continued)

     10. (ii)(E)*   MWCC Program Agreement dated as of April 3, 1996 between
                    Montgomery Ward Credit Corporation, Montgomery Ward & Co.,
                    Incorporated and Lechmere, Inc., incorporated by reference
                    to Exhibit 10. (ii) (E) of the Company's Annual Report on
                    Form 10-K for the fiscal year ended December 28, 1996.

     10. (ii)(F)    Letter Agreement dated July 7, 1997, among Montgomery Ward &
                    Co., Incorporated, Monogram Credit Card Bank of Georgia,
                    Montgomery Ward Credit Corporation and Lechmere, Inc.,
                    incorporated by reference to Exhibit 10. (ii) (F) of the
                    Company's Quarterly Report on Form 10-Q for the fiscal
                    quarterly period ended June 28, 1997.

     10. (iii)(A)   Program Agreement dated October 12, 1989 between Montgomery
                    Ward & Co., Incorporated and General Electric Capital
                    Corporation, incorporated by reference to Exhibit 10. (iii)
                    (A) of the Company's Annual Report on Form 10-K for the
                    fiscal year ended December 28, 1996.

     10. (iii)(B)   Amendment to Program Agreement dated March 4, 1997 between
                    General Electric Corporation, Montgomery Ward & Co.,
                    Incorporated and Lechmere, Inc., incorporated by reference
                    to Exhibit 10. (iii) (B) of the Company's Annual Report on
                    Form 10-K for the fiscal year ended December 28, 1996.

     10. (iii)(C)   Waiver letter of General Electric Capital Corporation dated
                    March 27, 1997, incorporated by reference to Exhibit 10.
                    (iii) (C) of the Company's Quarterly Report on Form 10-Q
                    for the fiscal quarterly period ended March 27, 1997.

     10. (iii)(D)   Letter Agreement dated June 25, 1997 among General Electric
                    Capital Corporation, Montgomery Ward Holding Corp.,
                    Montgomery Ward & Co., Incorporated and Lechmere, Inc.,
                    incorporated by reference to Exhibit 10. (iii) (D) of the
                    Company's Quarterly Report on Form 10-Q for the fiscal
                    quarterly period ended June 28, 1997.

     10. (iv)(A)    Montgomery Ward & Co., Incorporated Stock Ownership Plan,
                    amended and restated as of May 20, 1994, incorporated by
                    reference to Exhibit 10. (iv) (A) (ii) (A) of the Company's
                    Registration Statement on Form S-1 (No. 33-33252).
 
     10. (iv)(A)(1) Amendment No. 1 to the Amended and Restated Montgomery Ward
                    & Co. Stock Ownership Plan dated October 20, 1994,
                    incorporated by reference to Exhibit 10. (iv) (A) (iii) of
                    the Company's Quarterly Report on Form 10-Q for the fiscal
                    quarterly period ended October 1, 1994.

     10. (iv)(A)(2) Amendment No. 2 to the Amended and Restated Montgomery Ward
                    & Co., Incorporated Stock Ownership Plan, dated as of May
                    29, 1997, incorporated by reference to Exhibit 10. (iv) (A)
                    (2) of the Company's Quarterly Report on Form 10-Q for the
                    fiscal quarterly period ended June 28, 1997.

* Confidential treatment has been requested from the Secretary of the
  Commission, with respect to portions of this document.

                                       90
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3.  Exhibits (continued)

     10. (iv)(B)    Montgomery Ward & Co., Incorporated Long-Term Incentive
                    Plan, incorporated by reference to Exhibit 10. (iv) (B) of
                    the Company's Registration Statement on Form S-1
                    (Registration No. 33-23403).

     10. (iv)(B)(i) Montgomery Ward & Co., Incorporated Executive Long-Term
                    Incentive Plan, incorporated by reference to Exhibit 10.
                    (iv) (B) (1) of the Company's Registration Statement on Form
                    S-1 (No. 33-33252).

     10. (iv)(C)    Montgomery Ward & Co., Incorporated Performance Management
                    Program, incorporated by reference to Exhibit 10. (iv) (C)
                    of the Company's Registration Statement on Form S-1
                    (Registration No. 33-23403).

     10. (iv)(C)(i) Montgomery Ward & Co., Incorporated Senior Executive
                    Performance Management Program, incorporated by reference to
                    Exhibit 10. (iv) (C) (i) of the Company's Registration
                    Statement on Form S-1 (No. 33-33252).

     10. (iv)(D)    Montgomery Ward & Co., Incorporated Retirement Security Plan
                    (as amended and restated effective as of January 1, 1994),
                    incorporated by reference to Exhibit 10. (iv) (D) of the
                    Company's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 1994.

     10. (iv)(D)(1) First Amendment to the Montgomery Ward & Co., Incorporated
                    Retirement Security Plan dated October 9, 1995, incorporated
                    by reference to Exhibit 10. (iv) (D) (1) of the Company's
                    Annual Report on Form 10-K for the fiscal year ended
                    December 28, 1996.

     10. (iv)(D)(2) Second Amendment to the Montgomery Ward & Co., Incorporated
                    Retirement Security Plan dated October 31, 1996,
                    incorporated by reference to Exhibit 10. (iv) (D) (2) of the
                    Company's Annual Report on Form 10-K for the fiscal year
                    ended December 28, 1996.

     10. (iv)(D)(3) Third Amendment to the Montgomery Ward & Co., Incorporated
                    Retirement Security Plan, incorporated by reference to
                    Exhibit 10. (iv) (D) (3) of the Company's Quarterly Report
                    on Form 10-Q for the fiscal quarterly period ended March 27,
                    1997.

     10. (iv)(D)(4) Fourth amendment to the Montgomery Ward & Co., Incorporated
                    Retirement Security Plan, incorporated by reference to
                    Exhibit 10. (iv) (D) (4) of the Company's Quarterly Report
                    on Form 10-Q for the fiscal quarterly period ended June 28,
                    1997.

     10. (iv)(D)(5) Fifth amendment to the Montgomery Ward & Co., Incorporated
                    Retirement Security Plan effective September 17, 1997.

     10. (iv)(E)    Montgomery Ward & Co., Incorporated Supplemental Retirement
                    Plan, incorporated by reference to Exhibit 10. (iv) (E) of
                    the Company's Registration Statement on Form S-1
                    (Registration No. 33-23403).

     10. (iv)(F)    Montgomery Ward Holding Corp. Directors Fee and Stock
                    Ownership Plan, incorporated by reference to Exhibit 10.
                    (iv) (F) of the Company's Registration Statement on Form S-1
                    (Registration No. 33-41161).

                                      91
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3. Exhibits (continued)

     10. (iv)(G)    Montgomery Ward Holding Corp. Senior Officer Severance Plan,
                    incorporated by reference to Exhibit 10. (iv) (G) of the
                    Company's Annual Report on Form 10-K for the fiscal year
                    ended January 2, 1993.

     10. (iv)(G)(1) Montgomery Ward & Co., Incorporated Executive Committee
                    Severance Plan.

     10. (iv)(H)    Montgomery Ward & Co., Incorporated Savings and Profit
                    Sharing Plan (as amended and restated as of January 1,
                    1994), incorporated by reference to the Company's Annual
                    Report on Form 10-K for the fiscal year ended December 31,
                    1994.

     10. (iv)(H)(1) First Amendment to the Montgomery Ward & Co., Incorporated
                    Savings and Profit Sharing Plan dated as of October 31,
                    1996, incorporated by reference to Exhibit 10. (iv) (H) (1)
                    of the Company's Annual Report on Form 10-K for the fiscal
                    year ended December 28, 1996.

     10. (iv)(H)(2) Second Amendment to the Montgomery Ward & Co., Incorporated
                    Savings and Profit Sharing Plan, incorporated by reference
                    to Exhibit 10. (iv) (H) (2) of the Company's Quarterly
                    Report on Form 10-Q for the fiscal quarterly period ended
                    June 28, 1997.

     10. (iv)(I)    Montgomery Ward & Co., Incorporated Success Plan,
                    incorporated by reference to Exhibit 10. (iv) (I) of the
                    Company's Registration Statement on Form S-1 (No.33-33252).

     10. (iv)(J)    Form of Montgomery Ward Special Retention Plan document
                    entered into with the following persons: Alan E. DiGangi,
                    Spencer H. Heine, Carol J. Harms, Robert A. Kasenter,
                    Frederick E. Meiser, Edwin G. Pohlmann, Robert J. Stevenish
                    and John Workman, incorporated by reference to Exhibit 10.
                    (iv) (J) of the Company's Quarterly Report on Form 10-Q for
                    the fiscal quarterly period ended March 30, 1996.

     10. (iv)(L)    Form of Montgomery Ward Change of Control Security Plan
                    document entered into with the following persons: Alan E.
                    DiGangi, Spencer H. Heine, Carol J. Harms, Robert A.
                    Kasenter, Frederick E. Meiser, Edwin G. Pohlmann, Robert J.
                    Stevenish and John Workman, incorporated by reference to
                    Exhibit 10. (iv) (L) of the Company's Quarterly Report on
                    Form 10-Q for the fiscal quarterly period ended March 30,
                    1996.

     10. (v)        Relationship Agreement effective December 10, 1996 between
                    Bernard F. Brennan, Montgomery Ward Holding Corp.,
                    Montgomery Ward & Co., Incorporated and General Electric
                    Capital Corporation, incorporated by reference to Exhibit
                    10. (v) of the Company's Annual Report on Form 10-K for the
                    fiscal year ended December 28, 1996.

     10. (vi)(A)    Employment Agreement effective December 20, 1996 between
                    Montgomery Ward & Co., Incorporated, Montgomery Ward Holding
                    Corp., and Roger V. Goddu, incorporated by reference to
                    Exhibit 10. (vi) of the Company's Annual Report on Form 10-K
                    for the fiscal year ended December 28, 1996.

     10. (vi)(B)    Letter Agreement dated December 20, 1996 between General
                    Electric Capital Corporation and Roger V. Goddu.

                                      92
<PAGE>
 
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (continued)

3. Exhibits (continued)

     10. (vi)(C)    Letter Agreement dated November 3, 1997 between Montgomery
                    Ward & Co., Incorporated and Roger V. Goddu, regarding Court
                    Approval of Executive Compensation Plan for Executive
                    Committee Members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

     10. (vii)(A)   Employment Agreement effective January 31, 1997 between
                    Montgomery Ward & Co., Incorporated, Montgomery Ward Holding
                    Corp., and Burnett Donoho, incorporated by reference to
                    Exhibit 10. (vii) of the Company's Annual Report on Form 10-
                    K for the fiscal year ended December 28, 1996.

     10. (vii)(B)   General Release and Agreement Not to Sue dated January 23,
                    1998 between Montgomery Ward & Co., Incorporated and Burnett
                    Donoho.
 
     10. (viii)     Line of Credit Agreement effective December 19, 1996 between
                    Montgomery Ward & Co., Incorporated and The Northern Trust
                    Company, incorporated by reference to Exhibit 10. (viii) of
                    the Company's Annual Report on Form 10-K for the fiscal year
                    ended December 28, 1996.

     10. (ix)(A)    Employment Agreement effective November 3, 1997, between
                    Montgomery Ward & Co., Incorporated and Alan E. DiGangi.

     10. (ix)(B)    Letter agreement dated November 3, 1997, between Montgomery
                    Ward & Co., Incorporated and Alan E. DiGangi, regarding
                    court approval of Executive Compensation Plan for Executive
                    Committee members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

     10. (x)(A)     Employment Agreement effective January 28, 1997, between
                    Montgomery Ward & Co., Incorporated and Thomas Grimes,
                    incorporated by reference to Exhibit 10. (x) of the
                    Company's Annual Report of Form 10-K for the fiscal year
                    ended December 28, 1996.

     10. (x)(B)     Letter Agreement dated February 18, 1997 between General
                    Electric Capital Corporation and Thomas Grimes.

     10. (x)(C)     Letter Agreement dated November 3, 1997, between Montgomery
                    Ward & Co., Incorporated and Thomas Grimes, regarding court
                    approval of Executive Compensation Plan for Executive
                    Committee members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

     10. (xi)(A)    Employment Agreement effective April 15, 1997, between
                    Montgomery Ward & Co., Incorporated and Thomas J. Austin.

     10. (xi)(B)    Letter Agreement dated April 30, 1997 between General
                    Electric Capital Corporation and Thomas J. Austin.

     10. (xi)(C)    Letter Agreement dated November 3, 1997, between Montgomery
                    Ward & Co., Incorporated and Thomas J. Austin, regarding
                    court approval of Executive Compensation Plan for Executive
                    Committee members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

                                      93
<PAGE>
 
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
          (continued)

3.  Exhibits (continued)
 
     10. (xii) (A) Employment Agreement effective April 15, 1997, between
                   Montgomery Ward & Co., Incorporated and Louis J. Caporale.

     10. (xii) (B) Letter Agreement dated April 30, 1997 between General
                   Electric Capital Corporation and Louis. J. Caporale.
 
     10. (xii) (C) Letter agreement dated November 3, 1997, between Montgomery
                   Ward & Co., Incorporated and Louis J. Caporale, regarding
                   court approval of Executive Compensation Plan for Executive
                   Committee members and Montgomery Ward & Co., Incorporated
                   Special Emergence Bonus Plan.

     10. (xiv)     Employment Agreement dated April 11, 1997 between Montgomery
                   Ward & Co., Incorporated and Spencer H. Heine, incorporated
                   by reference to Exhibit 10. (xiv) of the Company's Quarterly
                   Report on Form 10-Q for the fiscal quarterly period ended
                   March 29, 1997.

     10. (xv)      Employment Agreement dated March 6, 1998 between Montgomery
                   Ward & Co., Incorporated and Worthington Linen.

     11.  Not applicable.

     12.  Not applicable.

     13.  Not applicable.

     16.  Not applicable.

     18.  Not applicable.

     19.  Not applicable.

     21.  Subsidiaries of the Registrant, incorporated by reference to Exhibit
          21 of the Company's Registration Statement on Form S-1 (Registration
          No. 33-33252).

     22.  Not applicable.

     23.  Consent of independent public accountants.

     24.  Not applicable.

     27.  Financial data schedule.

     28.  Not applicable.

     (b)  Reports on Form 8-K.

          None during the fiscal quarter ended January 3, 1998.

                                      94
<PAGE>
 
                                   SIGNATURES
                                        
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant, Montgomery Ward Holding Corp., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

REGISTRANT         MONTGOMERY WARD HOLDING CORP.


BY                 /s/ Thomas J. Paup
                   -------------------------------------------------------------
NAME AND TITLE     Thomas J. Paup, Executive Vice President, Chief Financial
                    Officer
DATE               April 2, 1998


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


BY                 /s/ Roger V. Goddu
                   -------------------------------------------------------------
NAME AND TITLE     Roger V. Goddu, Director and Chief Executive Officer
DATE               April 2, 1998


BY                 /s/ Thomas J. Paup
                   -------------------------------------------------------------
NAME AND TITLE     Thomas J. Paup, Executive Vice President, Chief Financial
                    Officer
DATE               April 2, 1998

BY
                   -------------------------------------------------------------
NAME AND TITLE     Bernard F. Brennan, Director
DATE               _____, 1998


BY                 /s/ Thomas J. Paup
                   -------------------------------------------------------------
NAME AND TITLE     Silas S. Cathcart*, Director
DATE               April 2, 1998

BY
                   -------------------------------------------------------------
NAME AND TITLE     Tommy T. Cato, Director
DATE               _____, 1998


BY                 /s/ Thomas J. Paup
                   -------------------------------------------------------------
NAME AND TITLE     Denis J. Nayden*, Director
DATE               April 2, 1998

* By power of attorney.

                                       95
<PAGE>

                            SIGNATURES (continued)
 

BY                 /s/ Thomas J. Paup
                   -------------------------------------------------------------
NAME AND TITLE     James A. Parke*, Director
DATE               April 2, 1998


BY                 /s/ Thomas J. Paup
                   -------------------------------------------------------------
NAME AND TITLE     Edward D. Stewart*, Director
DATE               April 2, 1998


BY                 /s/ Thomas J. Paup
                   -------------------------------------------------------------
NAME AND TITLE     Gary C. Wendt*, Director
DATE               April 2, 1998

* By power of attorney.

                                       96
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

10. (i)   (G) (4)   Waiver to Post-Petition Loan and Guaranty Agreement among
                    Montgomery Ward & Co., as borrower; Montgomery Ward Holding
                    Corp. and other debtor subsidiaries of Montgomery Ward
                    Holding Corp., as guarantors; General Electric Capital
                    Corporation, as agent and lender; and various lenders dated
                    as of November 7, 1997.

10. (i)   (L) (5)   Waiver, Amendment and Extension Agreement dated as of August
                    29, 1997, among Signature Financial Marketing, Inc., various
                    lenders, The Bank of New York, as Documentation Agent and
                    The Bank of Nova Scotia, as Administrative Agent.

10. (i)   (P)       Agency Agreement dated as of October 31, 1997 between the
                    joint venture composed of Gordon Brothers Partners, Inc.,
                    Hilco Trading, Inc./Garcel, Inc. D/B/A Great American Asset
                    Management and Alco Capital Group, Inc., as agent and
                    Montgomery Ward & Co., Incorporated.

10. (iv)  (D) (5)   Fifth Amendment to the Montgomery Ward & Co., Incorporated
                    Retirement Security Plan effective September 17, 1997.

10. (iv)  (G) (1)   Montgomery Ward & Co., Incorporated Executive Committee
                    Severance Plan.

10. (vi)  (B)       Letter Agreement dated December 20, 1996 between General
                    Electric Capital Corporation and Roger V. Goddu.

10. (vi)  (C)       Letter Agreement dated November 3, 1997 between Montgomery
                    Ward & Co., Incorporated and Roger V. Goddu, regarding Court
                    Approval of Executive Compensation Plan for Executive
                    Committee Members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

10. (vii) (B)       General Release and Agreement Not to Sue dated January 23,
                    1998 between Montgomery Ward & Co., Incorporated and Burnett
                    Donoho.

10. (ix)  (A)       Employment Agreement effective November 3, 1997, between
                    Montgomery Ward & Co., Incorporated and Alan E. DiGangi.
<PAGE>
 
10. (ix)  (B)       Letter Agreement dated November 3, 1997 between Montgomery
                    Ward & Co., Incorporated and Alan E. DiGangi, regarding
                    Court Approval of Executive Compensation Plan for Executive
                    Committee Members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

10. (x)   (B)       Letter Agreement dated February 18, 1997 between General
                    Electric Corporation and Thomas Grimes.

10. (x)   (C)       Letter Agreement dated November 3, 1997 between Montgomery
                    Ward & Co., Incorporated and Thomas Grimes, regarding Court
                    Approval of Executive Compensation Plan for Executive
                    Committee Members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

10. (xi)  (A)       Employment Agreement effective April 15, 1997 between
                    Montgomery Ward & Co., Incorporated and Thomas J. Austin.

10. (xi)  (B)       Letter Agreement dated April 30, 1997 between General
                    Electric Corporation and Thomas J. Austin.

10. (xi)  (C)       Letter Agreement dated November 3, 1997 between Montgomery
                    Ward & Co., Incorporated and Thomas J. Austin, regarding
                    Court Approval of Executive Compensation Plan for Executive
                    Committee Members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

10. (xii) (A)       Employment Agreement effective April 15, 1997 between
                    Montgomery Ward & Co., Incorporated and Louis J. Caporale.

10. (xii) (B)       Letter Agreement dated April 30, 1997 between General
                    Electric Corporation and Louis J. Caporale.

10. (xii) (C)       Letter Agreement dated November 3, 1997 between Montgomery
                    Ward & Co., Incorporated and Louis J. Caporale, regarding
                    Court Approval of Executive Compensation Plan for Executive
                    Committee Members and Montgomery Ward & Co., Incorporated
                    Special Emergence Bonus Plan.

10. (xv)            Employment Agreement effective March 6, 1998 between
                    Montgomery Ward & Co., Incorporated and Worthington W.
                    Linen.
<PAGE>
 
23.            Consent of Independent Public Accountants.

27.            Financial Data Schedule.