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


                       BANKERS TRUST NEW YORK CORPORATION

                           ANNUAL REPORT ON FORM 10-K

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997


Pages 1-9 represent portions of the 1997 Annual Report to Stockholders which
are not required by the Form 10-K report and are not "filed" as part of the
Form 10-K.

The Form 10-K cover page and cross reference index are on pages 92 and 93,
respectively.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------

<PAGE>

Table 1 Five-Year Summary of Selected Financial Data

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
($ in millions, except per share data)                                    1997        1996        1995        1994        1993
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>         <C>         <C>         <C>         <C>     
For the Year
  Net interest revenue                                                $  1,359    $  1,057    $    884    $  1,216    $  1,346
  Noninterest revenue                                                    4,891       4,117       3,129       3,013       3,945
  Income before cumulative effects of accounting changes              $    866    $    766    $    311    $    686    $  1,159
  Cumulative effects of accounting changes                                --          --          --          --           (75)
-------------------------------------------------------------------------------------------------------------------------------
  Net income                                                          $    866    $    766    $    311    $    686    $  1,084
===============================================================================================================================
Per Common Share
  Basic Earnings Per Share(1)
    Income before cumulative effects of accounting changes            $   8.15    $   7.12    $   2.62    $   6.61    $  11.12
    Cumulative effects of accounting changes                              --          --          --          --          (.73)
-------------------------------------------------------------------------------------------------------------------------------
  Net income                                                          $   8.15    $   7.12    $   2.62    $   6.61    $  10.39
===============================================================================================================================
  Diluted Earnings Per Share (1)
    Income before cumulative effects of accounting changes            $   7.66    $   6.76    $   2.54    $   6.34    $  10.67
    Cumulative effects of accounting changes                              --          --          --          --          (.70)
-------------------------------------------------------------------------------------------------------------------------------
  Net income                                                          $   7.66    $   6.76    $   2.54    $   6.34    $   9.97
===============================================================================================================================
  Cash dividends declared                                             $   4.00    $   4.00    $   4.00    $   3.70    $   3.24
    --as a percentage of net income (2)                                     52%         59%        157%         63%         34%
  Book value, end of year                                                49.06       49.21       45.73       47.74       45.54
  Market price
    High                                                               133 5/8      90 7/8          72      84 5/8      83 1/2
    Low                                                                     74          61      49 3/4      54 3/4      65 3/4
    End of year                                                       112 7/16      86 1/4      66 1/2      55 3/8      79 1/8
  Price/earnings ratio, end of year (2)                                  13.8X       12.1X       25.4X        8.4X        7.1X
  Cash dividend yield, end of year                                         3.6%        4.6%        6.0%        7.2%        4.5%
At Year End
  Total assets                                                        $140,102    $122,543    $106,199    $ 98,362    $ 93,365
  Long-term debt not included in risk-based capital                     11,275       8,732       7,127       4,317       3,296
  Long-term debt included in risk-based capital                          3,312       2,576       2,360       2,225       2,378
  Mandatorily redeemable capital securities of subsidiary 
    trusts holding solely junior subordinated deferrable interest
    debentures included in risk-based capital                            1,472         730        --          --          --
  Preferred stock of subsidiary                                           --           250         250         250         250
  Preferred stock (Corporation)                                            658         810         865         395         250
  Common stockholders' equity                                            5,050       5,068       4,608       4,682       4,630
  Total stockholders' equity                                             5,708       5,878       5,473       5,077       4,880
Profitability Ratios
  Return on average common stockholders' equity (2)                       15.6%       14.5%        5.7%       14.0%       26.5%
  Return on average total stockholders' equity (2)                        14.6%       13.3%        5.9%       13.4%       25.3%
  Return on average total assets (2)                                       .63%        .63%        .28%        .65%       1.34%
Capital Ratios
  Common stockholders' equity to total assets, end of year                 3.6%        4.1%        4.3%        4.8%        5.0%
  Total stockholders' equity to total assets, end of year                  4.1%        4.8%        5.2%        5.2%        5.2%
  Average total stockholders' equity to average total assets               4.4%        4.7%        4.7%        4.8%        5.3%
  Bankers Trust New York Corporation:
    Risk-Based Capital Ratios
        Tier 1 Capital                                                     8.3%        9.3%        9.0%        9.5%        8.9%
        Total Capital                                                     14.1%       13.8%       14.0%       14.8%       14.5%
    Leverage Ratio                                                         4.4%        5.9%        5.4%        5.5%        6.6%
  Bankers Trust Company:
    Risk-Based Capital Ratios
        Tier 1 Capital                                                     9.0%        9.3%        9.5%        9.9%        9.4%
        Total Capital                                                     12.3%       12.9%       12.8%       12.9%       13.0%
    Leverage Ratio                                                         5.4%        5.3%        5.1%        5.9%        6.0%
Employees, at December 31
  In domestic offices                                                   10,585      11,055      10,137      10,545      10,454
  In foreign offices                                                     7,701       6,881       6,365       6,314       5,298
-------------------------------------------------------------------------------------------------------------------------------
    Total                                                               18,286      17,936      16,502      16,859      15,752
===============================================================================================================================
</TABLE>

(1)   Earnings Per Share for all periods prior to 1997 have been restated in
      connection with the adoption of SFAS 128. 
(2)   The 1993 figures exclude the cumulative effects of accounting changes.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       10
<PAGE>

--------------------------------------------------------------------------------
FINANCIAL REVIEW
--------------------------------------------------------------------------------

Management's discussion and analysis of Bankers Trust New York Corporation's
results of operations and financial condition appears on pages 11 through 37.
The discussion and analysis should be read in conjunction with the financial
statements and supplemental financial data, which begin on page 40.

The Merger

On September 1, 1997, Alex. Brown Incorporated ("Alex. Brown") was merged into a
wholly-owned subsidiary of Bankers Trust New York Corporation (the "Merger"). In
conjunction with the Merger, approximately 22 million shares of common stock
were issued in exchange for all the outstanding shares of Alex. Brown's common
stock (based on an exchange ratio of 0.83 shares of Bankers Trust New York
Corporation's common stock for each share of Alex. Brown's common stock). The
Merger was treated as a tax free exchange.

      The consolidated financial statements give retroactive effect to the
Merger in a transaction accounted for as a pooling-of-interests. The
pooling-of-interests method of accounting requires the restatement of all
periods presented as if Alex. Brown and Bankers Trust New York Corporation
together with its subsidiaries (the "Corporation" or the "Firm") had always been
combined. The consolidated statement of changes in stockholders' equity reflects
the accounts of the Corporation as if the additional common stock had been
issued during all the periods presented.

Results of Operations

Summary of 1997 Results

For the year 1997, the Corporation earned $866 million, or $7.66 diluted
earnings per share. For the year 1996, the Corporation earned $766 million, or
$6.76 diluted earnings per share.

      For the year, total net revenue (net interest revenue after provision for
credit losses plus noninterest revenue) of $6.220 billion was up $1.051 billion,
or 20 percent, from 1996. Revenue for the year was at the Corporation's highest
level in history.

      Total noninterest expenses for the year increased $943 million, or 23
percent, from 1996. This increase was primarily due to higher incentive
compensation and employee benefits related to the improved financial
performance. Also included in noninterest expenses for 1997 were restructuring
charges of $57 million associated with the Merger, such as severance, lease
terminations and direct costs of completing the Merger, and other integration
costs of $42 million.

      At December 31, 1997, total cash basis loans amounted to $240 million,
down from $452 million at December 31, 1996.

Organizational Highlights

The Corporation delivers a wide range of financial products and services
worldwide principally through eight broad Organizational Units. Five units are
organized around specific products and services: Investment Banking, Risk
Management Services, Trading & Sales, Private Client Services Group, and Global
Institutional Services. Three additional units are organized to deliver these
same types of financial products and services with the unique local expertise
necessary to operate successfully in Australia/New Zealand, Asia and Latin
America.

      Organizational Unit business results are determined based on the
Corporation's internal management accounting process, which allocates revenue
and expenses among the organizational units. Because the Corporation's business
is diverse in nature and its operations are integrated, it is impractical to
segregate respective contributions of the organizational units with precision.
As a result, estimates and judgments have been made to apportion revenue and
expense items. In addition, certain revenue and expenses have been segregated
and reported in Corporate/Other because in the opinion of management, they could
not be reasonably allocated or because their contributions to a particular
organizational unit would be distortive. The internal management accounting
process, unlike financial accounting in accordance with generally accepted
accounting principles, is based on the way management views its business and is
not necessarily comparable with similar information disclosed by other financial
institutions. In order to provide comparability from one period to the next, the
Corporation will generally restate this analysis to conform with material
changes in the allocation process and/or significant changes in organizational
structure. The information presented below reflects the results by
Organizational Units (in millions):


                                            Total Non-      Pretax          Net
Year Ended                       Total Net    interest      Income/      Income/
December 31, 1997                  Revenue    Expenses       (Loss)       (Loss)
--------------------------------------------------------------------------------
Investment Banking                 $ 2,041     $ 1,184     $   857      $   599
Risk Management
  Services                             348         363         (15)         (12)
Trading & Sales                        588         316         272          190
Private Client
  Services Group                       666         551         115           80
Global Institutional
  Services                           1,015         849         166          117
Australia/New Zealand                  559         412         147          103
Asia                                    43         116         (73)         (52)
Latin America                          650         495         155          107
Corporate/Other                        310         695        (385)        (266)
--------------------------------------------------------------------------------
Total                              $ 6,220     $ 4,981     $ 1,239      $   866
================================================================================


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       11
<PAGE>

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

                                            Total Non-      Pretax          Net
Year Ended                       Total Net    interest      Income/      Income/
December 31, 1996*                 Revenue    Expenses       (Loss)       (Loss)
--------------------------------------------------------------------------------
Investment Banking                 $ 1,548     $   885     $   663      $   449
Risk Management
  Services                             285         301         (16)         (11)
Trading & Sales                        420         265         155          105
Private Client
  Services Group                       610         509         101           68
Global Institutional
  Services                             839         740          99           67
Australia/New Zealand                  512         319         193          131
Asia                                   133         104          29           20
Latin America                          527         411         116           78
Corporate/Other                        295         504        (209)        (141)
--------------------------------------------------------------------------------
Total                              $ 5,169     $ 4,038     $ 1,131      $   766
================================================================================

                                            Total Non-      Pretax          Net
Year Ended                       Total Net    interest      Income/      Income/
December 31, 1995*                 Revenue    Expenses       (Loss)       (Loss)
--------------------------------------------------------------------------------
Investment Banking                  $1,199      $  599      $  600       $  409
Risk Management
  Services                             212         308         (96)         (67)
Trading & Sales                        334         224         110           76
Private Client
  Services Group                       505         455          50           30
Global Institutional
  Services                             777         647         130           91
Australia/New Zealand                  445         295         150          106
Asia                                    77         101         (24)         (17)
Latin America                          268         439        (171)        (120)
Corporate/Other                        165         445        (280)        (197)
--------------------------------------------------------------------------------
Total                               $3,982      $3,513      $  469       $  311
================================================================================
*     Prior year information has been restated to conform to the current year
      presentation.

      Investment Banking delivers the Firm's full range of financing, advisory
and research products and services to corporate, financial institution and
investor clients. Services include underwriting, distribution and trading of
public equity and debt (both investment grade and high-yield); private
placements and structured finance; and merger and acquisition advisory services.
The unit is also responsible for the Firm's private equity investments. The
Corporation's asset-based lending activities are included in Investment Banking.
In 1997, Investment Banking net income was $599 million, up $150 million from
1996. The increase from the prior year reflected higher revenue from corporate
finance activities in addition to higher revenue from private equity
investments. Investment Banking 1996 net income of $449 million, which was up
$40 million from 1995, reflected strong results from corporate finance
activities including loan syndication, private placements and underwritings.
Investment Banking net income in 1995 benefited from an after-tax gain of $144
million from the sale of a substantial portion of the Corporation's investment
in Northwest Airlines Corporation.

      Risk Management Services assists clients in the management of their
financial and economic risk. Products and services include interest rate,
currency, equity, commodity and credit derivatives, as well as risk management
advisory services. This unit also manages the Corporation's risk associated with
client derivative transactions. The 1997 net loss of $12 million compared to a
net loss of $11 million in 1996. The 1997 results included less favorable
trading results including losses from equity derivatives and Asian activities as
compared to 1996 offset by improved revenue from new client derivative
transactions. The 1996 results included losses associated with the steep drop in
the price of copper early in the year. The 1996 net loss of $11 million compared
to a net loss of $67 million in 1995. Revenues from new client derivative
transactions increased during 1996 as compared to 1995.

      Trading & Sales provides financial products and services to the
Corporation's clients and enters into securities, currency, commodity, and
derivatives transactions on a proprietary basis. The unit is also responsible
for the Corporation's worldwide funding as well as its capital and liquidity
management. Trading & Sales net income of $190 million increased $85 million, or
81 percent, from 1996 primarily due to higher revenue from foreign exchange and
arbitrage activities. Net income of $105 million for the year ended 1996
increased 38 percent from 1995 net income of $76 million. The increase was
attributable to arbitrage and foreign exchange trading activities.

      Private Client Services Group provides investment management services in
the global securities markets, financial planning services and market research
and investment strategies for high net worth individuals. Private Client
Services Group net income of $80 million increased $12 million from 1996. The
current year included higher fees for brokerage services and improved revenues
from fiduciary and funds management. Net income of $68 million for 1996
increased $38 million from 1995.

      Global Institutional Services provides asset management services,
corporate trust and agency services, cash management services and trade finance
services to financial institutions, corporations and governments and their
agencies around the world. Asset management services include: custody,
investment management, securities lending, brokerage, retirement administration,
performance and risk measurement. The unit also provides trustee, depository and
agency services for issuers of debt securities and depository receipts. Cash and
trade services include global payments and collections, cash concentration and
investments and trade finance products. Global Institutional Services net income
of $117 million increased $50 million from 1996 net income. The 1997 results
benefited from the acquisition of NationsBank's institutional trust business.
The 1997 results also included a $41 million after-tax gain on the sale of the
Corporation's defined contribution recordkeeping and participant services
business. Net income of $67 million for the year ended 1996 decreased from 1995
net income of $91 million.

      Australia/New Zealand provides funds management, corporate finance, and
financial markets services to local and international clients, and trades for
its own account in related markets. Australia/New Zealand net income was $103
million, down from $131 million in 1996. The decline in net income from the
prior year was mainly attributable to an increase in personnel-related costs as
a result of higher staff levels offset partly by improved revenue from trading
activities and fiduciary and funds management. Australia/New Zealand 1996 net
income of $131 million was up from $106 million in 1995. The 1996 results
reflected strong investment management and trading results. As of December 31,
1997 assets under management in Australia/New Zealand's investment management
business were approximately $41 billion, compared to $37 billion and $28 billion
in 1996 and 1995, respectively.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       12
<PAGE>

      Asia provides advisory and corporate finance services to financial
institutions, governments and both state-owned and private businesses. In
addition, it engages in arbitrage trading and equity investments. Asia net loss
in 1997 was $52 million compared to net income of $20 million in 1996. The
current year included mark-to-market losses on fixed income securities and swaps
with Asian counterparties resulting from the market turmoil and widening credit
spreads in Asia. In addition, the Corporation recognized a decline in value for
certain investments and took other credit-related charges in Southeast Asia. Net
income of $20 million in 1996 compared to a $17 million loss in 1995. The 1996
results reflected strong revenue from trading activities as compared to 1995.

      Latin America engages in trading and distribution, origination and
underwriting of corporate finance securities, mergers and acquisitions services
and private equity investments. In addition, this organizational unit, through
the Corporation's fifty percent owned Chilean insurance subsidiary, underwrites
pension-related life and disability insurance and sells pension-related life
annuities. Latin America net income in 1997 was $107 million, up $29 million
from 1996 net income of $78 million which compared to a 1995 net loss of $120
million. The 1997 results included a $37 million after-tax gain on the sale of
fifty percent of the Corporation's stake in Consorcio, a Chilean insurance
company. The 1996 results included a $22 million after-tax gain on the sale of
Compensa, which was the smaller of the Corporation's two Chilean insurance
subsidiaries. The 1995 results included losses from derivative trading
activities.

      Corporate/Other includes the unallocated costs of corporate staff together
with the notional interest income on the Corporation's capital accounts. In
addition, the provision for credit losses and various special charges and
reserves are reflected within Corporate/Other. Corporate/Other net loss for 1997
was $266 million compared with a 1996 net loss of $141 million and a net loss of
$197 million in 1995. The 1997 results included a $30 million provision for
credit losses, increased incentive compensation and employee benefits,
consulting expenses associated with several strategic and infrastructure
improvement projects, $57 million in pre-tax restructuring charges and $42
million in other integration costs. The 1997 results also included a pre-tax
gain of $76 million on the sale of 280 Park Avenue, a midtown Manhattan office
building. The most notable items in 1996 were $20 million of pre-tax reserves
related to the transaction processing business in addition to higher levels of
legal and professional fees. The 1996 results also included a gain on the sale
of Golden American Life Insurance Company, an indirect wholly-owned subsidiary
of the Corporation acquired in satisfaction of debt in 1992.

Financial Reporting Matters

      At December 31, 1997, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") 128, "Earnings Per Share," which establishes
standards for computing and presenting earnings per share ("EPS"). SFAS 128
replaces the presentation of primary EPS with basic EPS and fully diluted EPS
with diluted EPS. Basic EPS excludes dilution and is calculated by dividing
income applicable to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed similarly to
fully diluted EPS. All periods presented have been restated to conform with SFAS
128.

      As used throughout this Annual Report, the term "International" signifies
information based on the domicile of the customer, whereas the term "Foreign
Office" refers to the location in which the transaction is recorded.

Statement of Income Analysis

Net Interest Revenue

Net interest revenue for 1997 was $1.359 billion, up $302 million, or 29 percent
from 1996. Net interest revenue for 1996 was $1.057 billion, up $173 million, or
20 percent, from 1995.

      The Firm's trading and risk management businesses include significant
activities in interest rate instruments and related derivatives. These
activities can periodically shift revenue between trading and net interest,
depending on a variety of factors, including risk management strategies.
Therefore, the Corporation views trading revenue and trading-related net
interest revenue together, which is discussed in the trading revenue section
below.

      The Firm's nontrading-related net interest revenue, generally a more
stable component of overall net interest revenue than trading-related net
interest revenue, was $818 million in 1997, compared to $780 million in 1996.

      For the 1996 versus 1995 comparison, net interest revenue increased by
$173 million due to a $118 million, or 74 percent increase in trading-related
net interest revenue, which totaled $277 million for 1996. Total
nontrading-related net interest revenue was $780 million for 1996 compared to
$725 million in 1995.

      In 1997, the interest rate spread was 1.09 percent compared to .74 percent
in 1996. Net interest margin increased to 1.33 percent from 1.13 percent. The
yield on interest-earning assets rose by 17 basis points. The cost of
interest-bearing liabilities declined by 18 basis points.

      In 1996, the interest rate spread was .74 percent compared to .79 percent
in 1995. Net interest margin increased slightly to 1.13 percent from 1.11
percent. The yield on interest-earning assets declined by 38 basis points and
was mostly offset by a decline in the cost of interest-bearing liabilities of 33
basis points.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       13
<PAGE>

Table 2 Net Interest Revenue Analysis

The table below presents the Corporation's trend of net interest revenue,
average balances and rates. For further details on these statistics, see pages
83 through 85.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
($ in millions) Year Ended December 31,                    1997        1996        1995
---------------------------------------------------------------------------------------
<S>                                                    <C>         <C>         <C>     
Net interest revenue
Book basis                                             $  1,359    $  1,057    $    884
Tax equivalent adjustment*                                   26          16          41
---------------------------------------------------------------------------------------
Fully taxable basis                                    $  1,385    $  1,073    $    925
=======================================================================================
Average balances
Interest-earning assets                                $104,334    $ 95,326    $ 83,534
Interest-bearing liabilities                            100,154      89,336      79,405
---------------------------------------------------------------------------------------
Earning assets financed by noninterest-bearing funds   $  4,180    $  5,990    $  4,129
=======================================================================================
Average rates (fully taxable basis)
Yield on interest-earning assets                           7.01%       6.84%       7.22%
Cost of interest-bearing liabilities                       5.92        6.10        6.43
---------------------------------------------------------------------------------------
Interest rate spread                                       1.09         .74         .79
Contribution of noninterest-bearing funds                   .24         .39         .32
---------------------------------------------------------------------------------------
Net interest margin                                        1.33%       1.13%       1.11%
=======================================================================================
</TABLE>
*     The applicable combined federal, state and local incremental tax rate used
      to determine the amounts of the tax equivalent adjustments (which
      recognize the income tax savings on tax-exempt assets) was 41 percent for
      1997 and 42 percent for 1996 and 1995.

Provision for Credit Losses

The provision for credit losses amounted to $30 million for 1997, compared with
$5 million for 1996 and $31 million in 1995. A discussion of the Corporation's
summary of credit loss experience, including charge-off procedures and the
adequacy of the allowance for credit losses, appears on page 29.

Trading Revenue

Trading revenue is generated by both client-related activities and proprietary
activities. These activities encompass the Firm's dealer business of providing
risk management products for clients, including derivatives such as swaps,
options, forwards and other similar types of contracts. In addition, these
activities include the trading of U.S. government and agency securities, foreign
sovereign securities, foreign exchange and currency options and commodity
futures and options. The Firm also trades restructured loans, bonds, equities
and other instruments of Latin American and other emerging markets issuers.

      Trading-related net interest revenue represents interest earned on cash
instruments held in the trading accounts less the cost to fund both cash and
derivatives positions.

      The table below presents the Firm's trading revenue and trading-related
net interest revenue by major category of market risk. These categories are
based on management's view of the predominant underlying risk exposure of each
of the Firm's trading positions.

                                                          Trading-
                                                           Related
                                                               Net
                                              Trading     Interest
(in millions)                                 Revenue      Revenue         Total
--------------------------------------------------------------------------------
Year Ended December 31, 1997
Interest rate risk                             $  463       $  603        $1,066
Foreign exchange risk                             277           --           277
Equity and commodity risk                         345          (62)          283
--------------------------------------------------------------------------------
Total                                          $1,085       $  541        $1,626
================================================================================
Year Ended December 31, 1996
Interest rate risk                             $  474       $  321        $  795
Foreign exchange risk                             178           --           178
Equity and commodity risk                         362          (44)          318
--------------------------------------------------------------------------------
Total                                          $1,014       $  277        $1,291
================================================================================
Year Ended December 31, 1995
Interest rate risk                             $  120       $  222        $  342
Foreign exchange risk                              36           --            36
Equity and commodity risk                         325          (63)          262
--------------------------------------------------------------------------------
Total                                          $  481       $  159        $  640
================================================================================

Interest Rate Risk

As indicated above, a significant portion of the Firm's trading and risk
management activities involve positions in interest rate instruments and related
derivatives. The revenue from these activities can periodically shift between
trading and trading-related net interest revenue, depending on a variety of
factors, including risk management activities. In 1997 trading and
trading-related net interest revenue was $1.066 billion, up $271 million, or 34
percent, compared to 1996. The increase was principally due to improved
performance in U.S., Asian, Russian and Latin American markets.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       14
<PAGE>

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

      During 1996 total trading revenue and trading-related net interest revenue
associated with interest rate positions rose by 132 percent to $795 million from
$342 million in 1995. This increase in 1996 was primarily due to a rebound in
the Firm's activities in Latin America. This rebound was attributable to a
return to normal volatility levels in the region. Conversely, 1995 was a year
marked, especially in the early months, by heightened volatility in Latin
American interest rates coupled with liquidity problems resulting from the
Mexican peso devaluation. Also affecting this category in 1996 was an increase
in the volume of London, New York, and Tokyo interest rate products, and
increased revenue from U.S. bonds attributable to increased capital inflows to
the market.

Foreign Exchange Risk

The Firm's trading and risk management strategies also involve positions in
foreign exchange and currency related derivatives such as swaps, options,
forwards and other similar types of contracts.

      The trading revenue related to foreign exchange risk increased $99
million, or 56 percent in 1997, compared to 1996. The increase primarily related
to strong results from client trading activities as well as gains in Asian
foreign exchange markets.

      Trading revenue related to foreign exchange risk was $178 million in 1996,
compared with $36 million in 1995. Improved performance in the Australian,
Asian, and Latin American foreign exchange markets was the primary reason for
the $142 million increase.

Equity and Commodity Risk

The Firm's trading and risk management activities also include positions in
equity securities and commodities and related derivatives.

      Total trading and trading-related net interest revenue related to equity
and commodity risk decreased $35 million in 1997 compared to 1996. This decrease
resulted from losses from equity derivatives and activities in Asian markets,
partially offset by improved performance in the commodity derivative books, as
1996 included the effects of a drop in copper prices.

      Total trading and trading-related net interest revenue related to equity
and commodity risk increased $56 million in 1996 compared to 1995. This increase
primarily related to strong results from equity arbitrage trading activities and
increases from OTC trading partially offset by losses incurred in the commodity
derivatives books when copper prices dropped sharply in 1996.

Noninterest Revenue (Excluding Trading)

The following table presents noninterest revenue (in millions):

Year Ended December 31,                             1997        1996        1995
--------------------------------------------------------------------------------
Fiduciary and funds management                    $1,059      $  876      $  764
Corporate finance fees                             1,113         922         691
Other fees and commissions                           606         534         479
Net revenue from equity
 investment transactions                             224         230         153
Securities available for sale gains                  158          75         180
Insurance premiums                                   287         230         234
Other                                                359         236         147
--------------------------------------------------------------------------------
Total                                             $3,806      $3,103      $2,648
================================================================================

      Fiduciary and funds management revenue was up $183 million, or 21 percent,
from 1996, which was up $112 million from 1995. Funds management, client
processing services and global private banking commissions contributed to the
increase in 1997. In 1996 as compared to 1995 all major activities within this
category contributed to the revenue growth, which resulted from higher
transaction volumes, as well as a higher level of assets under management.

      Corporate finance fees were up $191 million, or 21 percent from 1996,
which were up $231 million from 1995. The increase in 1997 was primarily due to
higher fees for arranging bond and equity financings, higher merger and
acquisition fees and higher loan syndication fees. The increase in 1996 as
compared to 1995 was primarily due to a higher volume of securities
underwriting, financial advisory and private placement activities.

      Net revenue from equity investment transactions was down $6 million, or 3
percent, from 1996, which was up $77 million from 1995. The 1995 results
included a $62 million gain on the sale of a portion of the Corporation's
merchant banking investment in Northwest Airlines Corporation.

      Securities available for sale gains were up $83 million, or 111 percent,
from 1996, which were down $105 million from 1995. The increase in 1997 was
primarily due to increased gains on sales of equity securities. The 1995 results
included a $145 million gain on the sale of most of the Corporation's merchant
banking investment in Northwest Airlines Corporation.

      Insurance premiums increased $57 million, or 25 percent, from 1996. The
increase in 1997 was due to increased annuity and traditional life insurance
activity. Insurance premiums in 1996 were $4 million lower than 1995. This
decrease was mainly due to the sale of Compensa, which was the smaller of the
Corporation's two Chilean insurance subsidiaries, in the second quarter of 1996,
partially offset by increased annuity and traditional life insurance activity at
Consorcio.

      Other noninterest revenue increased $123 million, or 52 percent, from
1996. The current year included a pre-tax gain of $76 million on the sale of 280
Park Avenue, a midtown Manhattan office building that was previously the
headquarters of the Corporation, a pre-tax gain of $62 million on the sale of
the Corporation's defined contribution recordkeeping and participant services
business, as well as a gain on the sale of 50 percent of the Corporation's stake
in Consorcio, a Chilean insurance company. The Corporation recognized a decline
in value for certain Southeast Asian investments that partially offset these
gains. Other noninterest revenue in 1996 was 


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       15
<PAGE>

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

$89 million higher than 1995. The increase in 1996 compared to 1995 was
primarily due to a $31 million pre-tax gain on the sale of Compensa, as well as
a gain on the sale of Golden American Life Insurance Company, an indirect
wholly-owned subsidiary of the Corporation acquired in satisfaction of debt in
1992.

Noninterest Expenses

The following table presents noninterest expenses (in millions):

Year Ended December 31,                             1997        1996        1995
--------------------------------------------------------------------------------
Salaries and commissions                          $1,273      $1,154      $1,045
Incentive compensation and
  employee benefits                                1,726       1,216         832
Agency and other professional
  service fees                                       391         321         327
Communication and data services                      231         237         220
Occupancy, net                                       181         174         177
Furniture and equipment                              224         186         177
Travel and entertainment                             142         113         104
Provision for policyholder benefits                  333         280         271
Other                                                423         357         310
Restructuring charges                                 57          --          50
--------------------------------------------------------------------------------
Total                                             $4,981      $4,038      $3,513
================================================================================

      Total noninterest expenses increased $943 million, or 23 percent, from
1996. Salaries and commissions expense increased $119 million, or 10 percent in
1997, due to an increase in the average number of employees and to annual pay
increases. Incentive compensation and employee benefits increased $510 million,
or 42 percent, due to higher profitability and an increase in the average number
of employees. The number of full time staff at December 31, 1997 was 18,286
compared to 17,936 at December 31, 1996.

      All other noninterest expenses totaled $1.982 billion compared with $1.668
billion for 1996. Included in the 1997 amount were $57 million of restructuring
charges associated with the Merger such as severance, lease termination and
direct costs of completing the Merger, and other integration costs of $42
million.

      Total noninterest expenses increased $525 million in 1996 from 1995.
Salaries and commissions expense increased $109 million, or 10 percent.
Incentive compensation and employee benefits expense increased $384 million, or
46 percent, reflecting an increase in incentive compensation awards in response
to increasingly competitive market conditions and improved financial
performance.

      All other noninterest expenses totaled $1.668 billion for 1996, compared
with $1.636 billion for 1995. Included in the 1996 amount were reserves related
to the transaction processing business.

      The Corporation has initiated a firm-wide program (the "Year 2000
Program") to prepare its computer systems, applications and infrastructure for
properly processing dates after December 31, 1999. The Year 2000 will require
modifications to certain of the Corporation's existing software or, in some
cases, conversions to new software.

      The Corporation has initiated formal communications with all of its
significant obligors, counterparties, other credit clients and vendors to
determine the extent to which the Firm may be affected by those third parties'
failure to remediate their own Year 2000 issues. However, there can be no
guarantee that the systems of other companies or counterparties on which the
Corporation relies will be remediated on a timely basis, or that a failure to
remediate by another party, or a remediation or conversion that is incompatible
with the Corporation's systems, would not have a material adverse effect on the
Corporation.

      The Corporation expects to incur internal staff costs as well as
consulting and other outside expenses related to infrastructure and facilities
enhancements necessary to prepare systems for the Year 2000. The Corporation
plans to complete the Year 2000 modifications for its major operating systems by
December 31, 1998 or earlier. Testing and conversion of system applications is
expected to cost approximately $180 million to $230 million over the next three
years. A significant portion of these costs are not likely to be incremental
costs to the Firm, but rather will represent the redeployment of existing
information technology resources. To date, the Corporation has incurred and
expensed approximately $20 million related to the assessment of, and preliminary
efforts in connection with, its Year 2000 Program and the development of a
remediation plan.

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

      The Corporation is also engaged in a global effort to manage potential
operational and other business issues from the introduction of the European
Monetary Unit ("EMU"), a new unified currency for many of the countries in the
European Community scheduled to go into effect on January 1, 1999. An EMU
program has been set up to manage, track and report on the Firm's worldwide
effort with the goal of ensuring a smooth transition across the full range of
products and services offered by the Firm.

Income Taxes

Income tax expense for 1997 amounted to $373 million, compared with $365 million
for 1996 and $158 million in 1995. The effective tax rate for 1997 was 30
percent, while the 1996 and 1995 effective tax rates were 32 percent and 34
percent, respectively.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       16
<PAGE>

International Operations

International operations have made a significant contribution to consolidated
results, consistent with the emphasis the Corporation has placed on foreign
markets. The Corporation's assets and results of operations for 1997, 1996 and
1995 have been allocated between domestic and international operations in Note
22 of Notes to Financial Statements. This analysis, which is based on the
domicile of the customer, incorporates numerous subjective assumptions and, as a
result, is different from the legal entity and organizational basis results
shown elsewhere in this report. Management views the operation of the
Corporation on an organizational unit basis, as disclosed on page 11.

      International net income totaled $228 million for 1997, compared with $297
million for 1996. This represented a contribution of 26 percent and 39 percent
to the Corporation's overall net income in 1997 and 1996, respectively.

      The overall decrease in net income from international operations is
primarily due to Asia and Australia/New Zealand, partially offset by an increase
in net income from the United Kingdom. During 1997, the Asian region suffered a
loss of $44 million as compared to a gain of $71 million during 1996. The loss
was primarily caused by trading losses on Asian securities and write downs and
additional reserves related to the Asian market crisis. Net income for
Australia/New Zealand decreased from $144 million in 1996 to $83 million in
1997. This decrease was primarily due to personnel costs associated with the
expansion of Australian investment banking. These overall decreases were
partially offset by an increase in income for the United Kingdom. During 1997,
the United Kingdom earned $79 million as compared to nil during 1996. This
increase was primarily due to positive trading results on United Kingdom
securities and increases in fee income.

      Domestic income increased from $469 million to $638 million. This increase
is primarily due to an increase in net interest margins and gains on sales of
domestic assets.

      International total assets were $72.7 billion at December 31, 1997
compared to $62.5 billion at December 31, 1996, which represented 52 percent and
51 percent of total consolidated assets, respectively. The $10.2 billion
increase was primarily due to increases of $8.6 billion for Asia and $3.9
billion in the United Kingdom. This increase was partially offset by a $5.5
billion increase in the intersegment elimination which is the balance of
domestic assets due from foreign affiliates. The increase in Asian assets is
comprised of increases in interest bearing balances with banks and trading
assets. The increase in the United Kingdom assets was primarily due to increases
in trading assets. Domestic total assets increased by $7.4 billion to $67.4
billion driven by increases in loans and accounts receivable.

      International net income totaled $297 million for 1996, compared with $106
million for 1995. This represented a contribution of 39 percent and 34 percent
to the Corporation's overall net income in 1996 and 1995, respectively.

      Australia/New Zealand and the United Kingdom had the greatest change in
net income in 1996 as compared to 1995. Australia/New Zealand's net income
(after corporate expense allocations) increased from $101 million to $144
million due to increases in foreign exchange trading, fiduciary and funds
management revenue, and other fees and commissions. The United Kingdom net
income was nil (after corporate expense allocations) compared to the prior
year's net loss of $144 million. This improvement was driven primarily by
positive trading revenue.

      These increases in international results were partially offset by a
reduction in net income for Europe which decreased from $37 million to $18
million.

      During 1996, domestic net income increased by $264 million to $469 million
due to increased trading revenue, and other fees and commission income.

      International total assets were $62.5 billion at December 31, 1996
compared to $51.5 billion at December 31, 1995 which represented 51 percent and
48 percent of total consolidated assets, respectively. The $11 billion increase
in assets was primarily due to increases of $2.8 billion for Australia/New
Zealand operations, $4.4 billion for the Western Hemisphere, and $6.4 billion
for Europe. These increases were offset by a decline of $3.4 billion in the
United Kingdom. Australia/New Zealand operations' assets rose due to increases
in loans, securities available for sale and trading assets. Assets for Europe
and the Western Hemisphere rose as trading assets increased. United Kingdom
operations' assets decreased due to a decline in trading assets at year end.
Domestic total assets increased $5.4 billion to $60.0 billion driven by
increases in trading assets.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       17
<PAGE>

--------------------------------------------------------------------------------
Changes in Financial Condition

Balance Sheet Analysis

Table 3 below highlights the trends in the balance sheet over the past two
years. Because annual averages may tend to conceal trends and year-end balances
can be distorted by one-day fluctuations, fourth quarter averages for each year
are provided to give a better indication of trends in the balance sheet.

Table 3 Condensed Balance Sheets--Fourth Quarter Averages

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
(in millions)                                                                 1997         1996         1995
------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>          <C>      
Assets
  Interest-earning
   Interest-bearing deposits with banks                                  $   6,211    $   3,546    $   3,624
   Federal funds sold                                                        4,950        2,018        2,387
   Securities purchased under resale agreements                             23,074       22,401       15,184
   Securities borrowed                                                      16,588       15,850       14,174
   Trading assets                                                           30,447       31,569       32,042
   Securities available for sale
     Taxable                                                                 6,876        6,777        5,206
     Exempt from federal income taxes                                        1,237        1,077        1,365
------------------------------------------------------------------------------------------------------------
       Total securities available for sale                                   8,113        7,854        6,571
   Loans
     Domestic offices                                                       10,800        8,226        7,247
     Foreign offices                                                         9,580        7,032        5,624
------------------------------------------------------------------------------------------------------------
       Total loans                                                          20,380       15,258       12,871
   Customer receivables                                                      1,612        1,517        1,284
------------------------------------------------------------------------------------------------------------
     Total interest-earning assets                                         111,375      100,013       88,137
  Noninterest-earning
   Cash and due from banks                                                   1,476        1,394        2,008
   Noninterest-earning trading assets                                       25,356       17,743       17,872
   All other assets                                                         10,694        8,671        9,870
   Allowance for credit losses                                                (979)        (988)      (1,028)
------------------------------------------------------------------------------------------------------------
Total                                                                    $ 147,922    $ 126,833    $ 116,859
============================================================================================================
Liabilities
  Interest-bearing
   Interest-bearing deposits
     Domestic offices                                                    $  21,881    $   8,738    $   5,788
     Foreign offices                                                        20,966       18,812       18,404
------------------------------------------------------------------------------------------------------------
       Total interest-bearing deposits                                      42,847       27,550       24,192
   Trading liabilities                                                       5,587        9,716       12,636
   Securities loaned and securities sold under repurchase agreements        24,200       26,173       23,100
   Other short-term borrowings                                              20,078       18,950       16,037
   Long-term debt                                                           13,050       11,372        9,098
   Mandatorily redeemable capital securities of subsidiary trusts
     holding solely junior subordinated deferrable interest debentures       1,472          165           --
------------------------------------------------------------------------------------------------------------
     Total interest-bearing liabilities                                    107,234       93,926       85,063
  Noninterest-bearing
   Noninterest-bearing deposits                                              3,366        3,518        3,606
   Noninterest-bearing trading liabilities                                  20,803       15,755       15,392
   All other liabilities                                                    10,591        7,428        7,045
------------------------------------------------------------------------------------------------------------
     Total Liabilities                                                     141,994      120,627      111,106
Preferred Stock of Subsidiary                                                   --          250          250
------------------------------------------------------------------------------------------------------------
Stockholders' Equity
  Preferred stock                                                              688          815          865
  Common stockholders' equity                                                5,240        5,141        4,638
------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                                   5,928        5,956        5,503
------------------------------------------------------------------------------------------------------------
Total                                                                    $ 147,922    $ 126,833    $ 116,859
============================================================================================================
</TABLE>


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       18
<PAGE>

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

Liquidity and Capital Resources

Management believes that the Corporation has sufficient resources to meet the
needs of its business operations for liquidity and capital resources.

Liquidity

Liquidity is the ability to have funds available at all times to meet the
commitments of the Corporation. The Corporation has a formal process for
managing global liquidity for the Firm as a whole and for each of its
significant subsidiaries. Management's policy is to maintain conservative levels
of liquidity designed to ensure that the Firm has the ability to meet its
obligations under reasonably foreseeable circumstances. The fundamental
objective is to ensure that, even in the event of a complete loss of market
access, the Corporation will be able to fund those assets that cannot be
liquidated on a timely basis. While the Corporation manages its liquidity
position on a day-to-day basis to meet its ongoing funding needs at the lowest
possible cost, the Firm's planning and management process also encompasses
contingency planning to address even the most severe liquidity events.

      The Corporation has a strong global funding presence, managing liquidity
through a hybrid centralized/local approach. This captures the best of both
central coordination and decentralized market responsiveness. The benefits of a
local approach are proximity to the local markets, diversity of customers and
market segments, and the flexibility to respond quickly to market opportunities.
This is counterbalanced by the central coordination and control of pricing and
global information and strategy.

      The Corporation assesses its liquidity profile on a continuous basis.
Factors such as asset and liability maturity characteristics, investor
concentration and available liquid assets are monitored on a daily basis. Daily
liquidity management involves the ability to minimize the cost of meeting daily
funding needs. These same factors are monitored under various stress scenarios
by virtue of a well developed contingency funding plan process. Management
believes that the Corporation has the ability to withstand severe and prolonged
liquidity shocks, both systemic and institution-specific.

      One of the Corporation's principal liquidity strengths is its stock of
highly liquid assets; at year-end 1997, liquid assets accounted for
approximately 77 percent of the Corporation's gross assets. An important
component of these liquid assets is the "liquidity warehouse" and the aggregate
warehouse size relative to maturing liabilities. The "liquidity warehouse" is
defined as liquid assets which are under the direct control of the
Treasury/Funding area and which can be liquidated immediately at current market
value.

      The relationship between the liquidity warehouse and maturing liabilities
is expressed principally through the two-week "liquidity barometer." This
barometer measures the amount of liquidity that is available to the Corporation
after two weeks of meeting maturing liabilities, without resorting to selling
any "core" assets. Core assets are those not under direct control of
Treasury/Funding. Thus, it illustrates how much of the Firm's ongoing liquidity
needs can be met through its pool of liquid assets. The barometer serves a dual
role as both a principal daily measurement tool and as a contingency planning
tool.

      To ensure unimpeded access to market funds, the Firm maintains an array of
funding options diversified by instruments, markets, geography, legal vehicle
issuers and currencies. This diversification helps ensure that its access to
liquidity will remain unimpeded even if specific sources may disappear. In
particular, the Corporation monitors carefully its reliance on unsecured
short-term borrowings, so called "hot" money, to ensure that in the event of a
liquidity disruption, the Firm has alternative means through which to fund its
operations. The Corporation places particular emphasis on a large and diverse
base of stable customer deposits, which are generated incidentally from other
transactions or services provided in its Global Institutional Services business,
as well as through Private Banking relationships. In addition, the Corporation
has a high proportion of unsecured funding provided by capital and long-term
debt.

      One of the Corporation's principal sources of day-to-day liquidity is
secured funding provided by securities loaned, equities loaned and securities
sold under repurchase agreements. Generally these involve a wide variety of
assets including U.S. government and agency securities, OECD sovereign bonds,
U.S. and foreign cash equities and money market instruments. The Corporation's
ability to lend on a secured basis has increased dramatically in the past few
years.

      Short-term unsecured financing for the Corporation is available under
domestic and euro commercial paper programs. In an effort to foster self-funding
in the Corporation's major subsidiaries, a number of subsidiaries maintain their
own short and long-term issuance capabilities. These include commercial paper
programs, medium-term note issuance facilities and private placement
capabilities.

      The Corporation's consolidated long-term debt and mandatorily redeemable
capital securities of subsidiary trusts holding solely junior subordinated
deferrable interest debentures included in risk-based capital ("trust preferred
capital securities"), at December 31, 1997 totaled $16.1 billion, substantially
all of which was unsecured, and consisted of $10.6 billion in senior borrowings,
$4.0 billion of subordinated debt, and $1.472 billion of trust preferred capital
securities issued principally by the Parent Company and Bankers Trust Company
("BTCo"), the Corporation's principal banking subsidiary. These liabilities
mature between 1998 and 2037, as detailed in Notes 9 and 10 of Notes to
Financial Statements.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       19
<PAGE>

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

Capital Resources

The Corporation pursues capital management with the objective of enhancing its
ability to execute its global strategic business plans while retaining financial
flexibility. Management believes that a strong capital base is critical to
achieving these objectives.

      Combined consolidated total stockholders' equity and preferred stock of
subsidiary totaled $5.708 billion on December 31, 1997, down $420 million, or 7
percent, from year end 1996, which was up $405 million, or 7 percent, from year
end 1995. The decrease in 1997 was primarily due to the repurchase of preferred
stock of subsidiary and the repurchase of common stock relating to deferred
compensation plans. The increase in 1996 was primarily due to net income,
exercise of employee stock options, and shares issued in connection with an
acquisition, partially offset by dividends declared and the repurchase of stock.

      During 1997, the Corporation, through newly established subsidiary trusts,
issued $742 million of trust preferred capital securities, a type of security
that is reported within the Corporation's liabilities, but qualifies as
regulatory capital. Dividends on the trust preferred capital securities are
recorded as interest expense (refer to Note 10 of Notes to the Financial
Statements for further discussion of these securities). The Corporation's
issuance of trust preferred capital securities was an important factor in the 13
percent increase in the Corporation's Tier 1 Capital and the 30 percent increase
in Total Capital during 1997.

      The Corporation's primary measure of capital strength is the RAROC
framework (see page 25 for further discussion), which quantifies and assigns
capital to business activities based upon their credit, interest rate, foreign
currency, equity, commodity, liquidity and operating risks. Changes in the
Corporation's global balance sheet are monitored centrally on a regular basis.
In addition, the Corporation actively monitors compliance with bank regulatory
capital requirements, focusing primarily on the risk-based capital guidelines.
The Corporation manages its capital base and on- and off-balance sheet items to
ensure that it remains strongly capitalized.

      The Federal Reserve Board's risk-based capital guidelines addressing the
capital adequacy of bank holding companies and banks (collectively "banking
organizations") include: a definition of capital, a framework for calculating
risk-weighted assets and minimum risk-based capital ratios to be maintained by
banking organizations. A banking organization's risk-based capital ratios are
calculated by dividing its qualifying capital by its risk-weighted assets. The
Federal Reserve Board also has a minimum Leverage ratio which is used as a
supplement to the risk-based capital ratios in evaluating the capital adequacy
of banks and bank holding companies. The Leverage ratio is calculated by
dividing Tier 1 Capital by adjusted quarterly average assets.

      In March 1997, the Corporation became the first banking organization to
adopt the new market risk amendment to the risk-based capital guidelines issued
by the Federal Reserve, which changed the calculation of the risk-weighted
assets for trading accounts from assigning trading assets to broad risk
categories to the use of internal models to measure market risk. This amendment
is consistent with the amendment to the Basle Capital Accord adopted by the
Basle Committee on Banking Supervision at the Bank for International Settlements
("the BIS"). In addition, the amendment required that the capital and
risk-adjusted assets of the Corporation's Section 20 subsidiary, BT Alex. Brown
Incorporated, no longer be excluded when calculating the risk-based capital
ratios at the holding company level. All banking organizations with significant
trading activity must have adopted this amendment by January 1, 1998. During
1997, early adoption was permissible with prior approval from the institution's
primary federal regulator.

      The market risk amendment also provides for the inclusion of Tier 3
Capital, which is defined to be subordinated debt that is unsecured; has an
original maturity of a minimum of two years; is not redeemable before maturity
without prior approval from the Federal Reserve; and includes a lock-in clause
precluding payment of either interest or principal if the payment would cause
the issuing organization's risk-based capital ratio to fall below the minimum
required level.

      Refer to the following Risk Management section for a detailed discussion
of the amendment, including a summary of the quantitative and qualitative
standards required to manage market risk.

      The following discussion of the risk-based capital and leverage ratios
should be read in conjunction with Note 16 of the Notes to Financial Statements,
which details the components of Tier 1 Capital and Tier 2 Capital, as well as
the regulatory guidelines for well-capitalized banks and bank holding companies.

      The Corporation's and BTCo's regulatory capital ratios are presented in
Table 4. The Corporation's risk-weighted assets are presented in Table 5.

      During 1997, the Corporation's Tier 1 Capital ratio and Leverage ratio
decreased by 100 and 150 basis points, respectively, due to an increase in
risk-weighted assets and an increase in adjusted average assets. The
Corporation's Total Capital ratio increased by 30 basis points due to the
inclusion of $400 million of qualifying Tier 3 Capital.

      During 1997, BTCo's Tier 1 Capital ratio and Total Capital ratio decreased
by 30 and 60 basis points, respectively, due primarily to the increase in
risk-weighted assets which was only partially offset by an increase in capital.
However, the increase in capital resulted in a 10 basis point increase to BTCo's
Leverage ratio.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       20
<PAGE>

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

      Table 4 presents the regulatory capital ratios of the Corporation and BTCo
at December 31, 1997 and 1996 and the well capitalized guidelines. The ratios
for December 31, 1996 have not been restated for the adoption of the market risk
amendment.

Table 4 Regulatory Capital Ratios

                                                                           Well
                                     December 31,    December 31,   Capitalized
                                             1997           1996     Guidelines
--------------------------------------------------------------------------------
Corporation                                         
Risk-Based Ratios                                   
  Tier 1 Capital                             8.3%           9.3%           6.0%
  Total Capital                             14.1%          13.8%          10.0%
Leverage Ratio                               4.4%           5.9%       3.0-5.0%
                                                    
BTCo                                                
Risk-Based Ratios                                   
  Tier 1 Capital                             9.0%           9.3%           6.0%
  Total Capital                             12.3%          12.9%          10.0%
Leverage Ratio                               5.4%           5.3%           5.0%
                                                  
      The following were the essential components (in millions) used in
calculating the Corporation's and BTCo's risk-based capital ratios:

December 31,                                               1997             1996
--------------------------------------------------------------------------------
Corporation
Tier 1 Capital                                          $ 6,431          $ 5,690
Tier 2 Capital                                            4,138            2,734
Tier 3 Capital                                              400               --
--------------------------------------------------------------------------------
Total Capital                                           $10,969          $ 8,424
================================================================================
Total risk-weighted assets                              $77,726          $61,213
================================================================================

BTCo
Tier 1 Capital                                          $ 5,999          $ 4,869
Tier 2 Capital                                            2,262            1,900
--------------------------------------------------------------------------------
Total Capital                                           $ 8,261          $ 6,769
================================================================================
Total risk-weighted assets                              $66,975          $52,484
================================================================================

Table 5 Risk-Weighted Assets--Corporation (in billions)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                             1997                             1996
------------------------------------------------------------------------------------------------------------------------------------
                                                                                Balance                         Balance
                                                                                 sheet/          Risk-           sheet/        Risk-
                                                                               notional       weighted         notional     weighted
                                                                                 amount        amounts           amount      amounts
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>           <C>            <C>    
Assets
Cash and due from banks and interest-bearing deposits with banks             $      6.5        $   1.0       $      3.8     $    .8
Federal funds sold and securities purchased under resale agreements                20.5            1.6             19.7         1.3
Securities borrowed                                                                16.8            9.0             17.0        10.3
Trading assets(1)                                                                  56.6           14.6             48.9        18.2
Securities available for sale                                                       8.1            3.3              7.9         4.0
Loans                                                                              19.8           16.2             15.9        12.4
Allowance for credit losses on loans                                                (.7)            --              (.8)         --
All other assets                                                                   12.5           10.2             10.1         8.2
------------------------------------------------------------------------------------------------------------------------------------
Total assets                                                                      140.1           55.9            122.5        55.2
Less: applicable assets of certain subsidiaries(2)                                  1.9             .6             24.8        10.4
------------------------------------------------------------------------------------------------------------------------------------
Assets                                                                       $    138.2        $  55.3       $     97.7     $  44.8
====================================================================================================================================
Off-Balance Sheet Exposures                                                                                                 
Derivatives                                                                  $  2,143.5        $  10.4       $  1,804.1     $   6.1
Credit-related arrangements                                                        23.7           10.4             16.7         8.3
Securities lending indemnifications                                                53.8            1.4             37.8         1.9
When-issued securities and other off balance sheet exposures                        1.1             .2              4.0          .3
------------------------------------------------------------------------------------------------------------------------------------
Total off-balance sheet exposures                                               2,222.1           22.4          1,862.6        16.6
Less: applicable off-balance sheet exposures of certain subsidiaries(2)              --             --              3.9          --
------------------------------------------------------------------------------------------------------------------------------------
Off-Balance Sheet Exposures                                                  $  2,222.1        $  22.4       $  1,858.7     $  16.6
====================================================================================================================================
Less: allowance for credit losses limitation adjustment                                             --                           .2
------------------------------------------------------------------------------------------------------------------------------------
Total Risk-Weighted Assets                                                                     $  77.7                      $  61.2
====================================================================================================================================
</TABLE>
(1)   As of December 31, 1997, these assets, along with trading liabilities and
      covered market positions represented by derivatives have been
      risk-weighted under the market risk-based capital guidelines.
      Risk-weighted assets for December 31, 1996 have not been restated for the
      adoption of the market risk amendment.
(2)   As of December 31, 1996, assets of the Corporation's Section 20 subsidiary
      and certain foreign insurance subsidiaries were excluded from the
      calculation of risk-weighted assets. In March 1997, upon adoption of the
      market risk amendment, the assets of the Corporation's Section 20
      subsidiary were no longer required to be excluded from this calculation.
      Assets of certain foreign insurance subsidiaries are excluded from the
      December 31, 1997 calculation in accordance with current guidelines.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       21
<PAGE>

Risk Management

Risk management is a core competency from which the Corporation derives many of
its competitive advantages. The ability to measure and manage risk is a prime
concern in all of the Corporation's business decisions, and sensitivity to risk
management innovations and issues is an integral part of its culture. Four
overarching principles guide the Corporation's management of risk:

      o     firm-wide commitment to effective risk management starts at the
            senior-management level;

      o     a strong, centralized and independent control function for risk
            management operating in conjunction with decentralized business
            activities enables the Corporation to be agile and efficient in its
            business activities, yet prudent in its overall risk-taking;

      o     diversification is an efficient mechanism for managing risk;

      o     returns earned must be commensurate with the marginal risk
            associated with each business activity.

      The Corporation has made substantial investments in both information
technology and human capital to support its risk management processes.
Proprietary systems allow a team of dedicated risk management professionals to
track the Corporation's global portfolio from its offices worldwide. This team
of risk management professionals is independent of the Corporation's business
lines and reports directly to senior management.

Market Risk

Each day the Corporation's risk management process assembles position and risk
information on financial instruments of the Corporation whose economic (fair)
value is a function of market-determined variables: interest rates, currency
exchange rates, equity prices, and commodity prices. This information is
consolidated into daily risk and limits reports for the Corporation and business
lines. These reports are reviewed by the Corporation's senior risk managers and
provide them with a consistent set of information upon which to base their
business judgments.

      One summary measure of market risk that is produced by this process is
Daily Price Volatility. The Daily Price Volatility of a portfolio is the
potential loss in fair value that would be exceeded 1 percent of the time if
that portfolio were held unchanged for one day. As such, Daily Price Volatility
falls within a general class of risk measures that are referred to as Value at
Risk. The Daily Price Volatility is calculated using proprietary simulation and
risk modeling techniques and incorporates the nonlinear payoffs, or convexity,
and the volatility risk stemming from options in the Corporation's portfolio.
Table 6 provides information on the Daily Price Volatility associated with the
Corporation's positions during 1997. The table shows this information for the
set of financial assets and liabilities whose values are functions of market
traded variables irrespective of accounting classification. This set of figures
is labeled Total Daily Price Volatility in the table. The positions captured by
the Total Daily Price Volatility include both derivative and cash positions that
are reported as trading assets and liabilities, repurchase and resale
agreements, funding assets and liabilities, deposits, assets held for sale and
end-user derivatives. The table also reports information on the Daily Price
Volatility from the subset of cash and derivative positions that are reported as
trading assets and liabilities according to financial accounting standards. This
set of figures is labeled Trading Daily Price Volatility. Finally, the table
reports information on the Daily Price Volatility associated with the
non-trading, market-sensitive positions. This set of positions is labeled
Non-Trading Daily Price Volatility, and the information in this portion of the
table reflects the incremental contribution these positions have on the
Corporation's Total Daily Price Volatility.

      Each section in Table 6 shows the sensitivity of the Corporation's
market-risk profile by risk class in 1997. The Corporation's portfolio, on
average, in 1997 was most sensitive to changes in interest rates and equity
prices. Note that the impact of diversification across all risk classes reduced
total risk by $14.6 million on average in 1997.

      Figure 1 shows the frequency distribution of the Trading Daily Price
Volatility for 1997 business days. The distribution was centered at $26 million
and ranged between $18.8 million and $36.6 million during 1997.

Figure 1
1997 BTNY Trading Daily Price Volatility Frequency Distribution

The Figure displays a histogram. Daily Price Volatility (DPV) amounts ranging
from $18 million to $37 million appear on the horizontal axis and Frequency
amounts ranging from 0 to 30 observations are displayed on the vertical axis.
The DPV frequencies exhibit a shape similar to a chi-squared distribution. It is
skewed to the right. The mode of 27 observations occurs at a DPV value of $26
million; the median is $26.1 million; and the mean is $26.4 million. At the
upper tail, the frequencies are 3, 5, and 2 for DPV's of $35 million, $36
million, and $37 million, respectively. There are no observations above $37
million. At the lower end of the distribution, the frequencies are 1, 7, and 13
for DPV's of $19 million, $20 million, and $21 million, respectively. There are
no observations below $19 million.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       22
<PAGE>

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

Table 6 BTNY Daily Price Volatility Statistics (in millions)*

Total Daily Price Volatility
--------------------------------------------------------------------------------
                              Average      Minimum       Maximum   December 31,
Risk Class                       1997         1997          1997           1997
--------------------------------------------------------------------------------
Interest Rate                 $  32.8      $  17.1       $  40.5        $  29.6
Currency                          8.8          4.7          14.7           10.1
Equity                           21.0         15.6          28.0           28.0
Commodity                         1.6          0.9           3.7            1.9
Diversification                 (14.6)          --            --          (19.2)
--------------------------------------------------------------------------------
Overall Portfolio             $  49.6           **            **        $  50.4
================================================================================

Trading Daily Price Volatility
--------------------------------------------------------------------------------
                              Average      Minimum       Maximum   December 31,
Risk Class                       1997         1997          1997           1997
--------------------------------------------------------------------------------
Interest Rate                 $  17.2      $  12.6       $  22.7        $  19.7
Currency                          8.1          3.7          14.7            9.9
Equity                           12.4          6.0          21.6           21.6
Commodity                         1.6          0.9           3.7            1.9
Diversification                 (12.9)          --            --          (16.5)
--------------------------------------------------------------------------------
Overall Portfolio             $  26.4           **            **        $  36.6
================================================================================

Non-Trading Daily Price Volatility: Incremental impact of non-trading 
positions on Total Daily Price Volatility
--------------------------------------------------------------------------------
                              Average      Minimum       Maximum   December 31,
Risk Class                       1997         1997          1997           1997
--------------------------------------------------------------------------------
Interest Rate                 $  15.6      $    .8       $  22.8        $   9.9
Currency                          0.7           --           2.5            0.2
Equity                            8.6          5.9          12.6            6.4
Commodity                          --           --            --             --
Diversification                  (1.7)          --            --           (2.7)
--------------------------------------------------------------------------------
Overall Portfolio             $  23.2           **            **        $  13.8
================================================================================

*     The positions of Alex. Brown are included commencing September 1, 1997.
      Prior to September 1, 1997, detailed risk information in the format
      required for the computation of the Daily Price Volatility is not
      available. 
**    The minimum (maximum) for each risk category occurred on different days so
      it is not meaningful to sum the amounts presented above. For example,
      during 1997 the minimum Total Daily Price Volatility was $28.2 million and
      the maximum Total Daily Price Volatility was $60.4 million.

      The methodology underlying these Daily Price Volatility calculations
relies on established asset pricing and statistical models. The Daily Price
Volatility is a loss amount that would be exceeded 1 percent of the time. This
implies that one would expect two or three instances each year when the daily
loss amount exceeded the Daily Price Volatility. A comparison between the
Trading Daily Price Volatility amounts and profit/loss flows associated with
trading activities for each business day during 1997 revealed one instance in
which a loss greater than the Trading Daily Price Volatility occurred. It is
important to note that this comparison does not represent a formal statistical
test because Daily Price Volatility measures the risk associated with the change
in value of a static portfolio, but the trading profits and losses occurring in
any given day reflect a changing portfolio and include fee income from trading
activities. The occurrence of a single outlier (a loss greater than the Trading
Daily Price Volatility) during 1997 suggests that the methodology provides a
reasonable statistical measure of the Corporation's exposure to market risk.
According to the rules governing regulatory capital for commercial banks (see
below), an internal risk model that experienced up to four outliers would be
within the regulatory norm. The performance of the Corporation's model is well
within this standard.

      The Daily Price Volatility, as a statistical measure of potential loss,
provides an objective benchmark of portfolio risk which complements, but does
not substitute for, management's judgment of the appropriate level and mix of
risk taken by the Corporation. Furthermore, the methodology employed in the
calculation of Daily Price Volatility will change due to enhancements in
risk-assessment and information-processing technologies and as new risks are
undertaken by the Corporation.

      Daily Price Volatility is supplemented by the statistical measures of risk
and return provided by the RAROC framework (discussed below), by scenario
analyses performed weekly by the risk manage-


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       23
<PAGE>

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

ment group, and by a formal limits process that monitors and limits the risks
from market concentration and inadequate liquidity of financial instruments in
the portfolio. The RAROC framework provides information on the potential effect
of large changes in interest rates, currency, equity and commodity prices, and
volatilities. As such, it produces a stress test of the Corporation's positions
each business day.

      The risk information that is assembled by the risk-management group is
conveyed to senior management through a variety of reports. The two most
important of these reports are a daily risk report that summarizes the market
risks of the Corporation's positions worldwide as of the close of the previous
day and a weekly analysis of market risk and market-risk trends for the
Corporation. Taken together, the various risk measures and reports provide the
Corporation's senior management with timely and relevant risk information.

Regulatory Measures of Market Risk

In 1996 the Federal Reserve Board and the other U.S. federal bank regulatory
agencies jointly issued a final rule that amended the risk-based capital
guidelines to incorporate a measure for market risk ("the market risk
amendment"). The market risk amendment (which is described below) is consistent
with the amendment to the Basle Capital Accord adopted by the BIS. Essentially,
the market risk amendment changed the calculation of risk-weighted assets for
positions in the trading accounts.

      Although compliance was mandatory in January 1998 for banks with extensive
trading activities, the rule allowed banks that met certain threshold tests to
adopt the new rule early if they received prior approval from their primary
federal regulator. The Corporation was the first banking organization to receive
this approval, and since the first quarter of 1997, the Corporation's capital
ratios have incorporated the effects of market risk.

      The most innovative feature of the market risk amendment is its provision
to allow a bank to measure market risk using the bank's internal risk model.
Capital charges for market risk are calculated based upon the level of specific
risk and general market risk in the bank's trading portfolio. Specific risk
refers to the risk of variations in value due to changes in factors associated
with a particular security (for example, the credit rating of a corporate
debenture). General market risk refers to changes in value due to variations in
market conditions (i.e., levels of interest rates, prices, etc.). Banks may use
internal models to measure their exposure to these risks provided the models and
processes used to manage market risk meet a number of quantitative and
qualitative standards. The following is a summary of these standards:

Quantitative Standards

o     the general market risk capital must be based on a Value at Risk approach
      and computed daily;

o     the Value at Risk must be calibrated to a ten-day holding period and a 99
      percent confidence level (i.e., if the Corporation maintained an
      absolutely static portfolio for ten business days, there would be a 1
      percent chance that the portfolio would decline in value by more than the
      Value at Risk);

o     the risk model must capture the non-linear price characteristics of option
      positions;

o     the historical observation period for estimating risk factors must be at
      least one year;

o     for interest rates, there must be a set of risk factors corresponding to
      each currency in which the bank has interest-rate-sensitive on- or
      off-balance sheet positions;

o     for interest rates, the risk measurement system must incorporate separate
      risk factors to capture spread risk between government and other
      fixed-income securities;

o     for exchange rates, the risk measurement system should incorporate risk
      factors corresponding to the individual foreign currencies in which the
      bank's positions are denominated;

o     for equity prices, there should be risk factors corresponding to each of
      the equity markets in which the bank holds significant positions;

o     for commodity prices, there should be risk factors corresponding to each
      of the commodity markets in which the bank holds significant positions.

Qualitative Standards

o     the bank should have an independent risk control unit that reports
      directly to senior management;

o     the unit should conduct regular back-testing;

o     the bank's risk measurement model should be integrated into the day-to-day
      risk management process of the bank;

o     the risk measurement model should be complemented by a routine and
      rigorous program of stress testing.

That the Corporation was the first banking organization to receive recognition
for meeting these standards is evidence of its strong risk-management culture
and the integrity of its processes.

      The Daily Price Volatility described previously is a Value at Risk measure
that is based on a one-day holding period instead of the ten-day holding period
stipulated for regulatory capital. Table 7 reports market risk information
calculated under the regulatory standard. These risk numbers are based on the
same proprietary methodologies as were employed in calculating the Daily Price
Volatility, except a ten-day holding period is used in their calculation. As in
the preceding table, Table 7 provides summary risk information for the total
portfolio as well as for trading and non-trading positions. Here again, the
non-trading risk numbers refer to the incremental impact of these positions.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       24
<PAGE>

Table 7 BTNY Ten-Day Value at Risk (in millions)*

Total Ten-Day Value at Risk
--------------------------------------------------------------------------------
                            Average       Minimum      Maximum    December 31,
Risk Class                     1997          1997         1997            1997
--------------------------------------------------------------------------------
Interest Rate             $   104.0     $    53.9    $   128.1       $    94.3
Currency                       28.1          14.9         48.1            33.1
Equity                         66.1          49.3         87.1            87.1
Commodity                       5.2           2.9         11.9             6.0
Diversification               (46.6)           --           --           (61.1)
--------------------------------------------------------------------------------
Overall Portfolio         $   156.8            **           **       $   159.4
================================================================================

Trading Ten-Day Value at Risk
--------------------------------------------------------------------------------
                            Average       Minimum      Maximum    December 31,
Risk Class                     1997          1997         1997            1997
--------------------------------------------------------------------------------
Interest Rate             $    54.5     $    39.8    $    72.5       $    62.9
Currency                       25.8          11.6         48.0            32.4
Equity                         39.0          19.1         67.3            67.3
Commodity                       5.2           2.9         11.9             6.0
Diversification               (41.1)           --           --           (53.0)
--------------------------------------------------------------------------------
Overall Portfolio         $    83.4            **           **       $   115.6
================================================================================

Non-Trading Ten-Day Value at Risk: Incremental impact of non-trading 
positions on Total Ten-Day Value at Risk
--------------------------------------------------------------------------------
                            Average       Minimum      Maximum    December 31,
Risk Class                     1997          1997         1997            1997
--------------------------------------------------------------------------------
Interest Rate             $    49.5     $     2.2    $    72.1       $    31.4
Currency                        2.3            --          8.0             0.7
Equity                         27.1          18.4         39.8            19.8
Commodity                        --            --           --              --
Diversification                (5.5)           --           --            (8.1)
--------------------------------------------------------------------------------
Overall Portfolio         $    73.4            **           **       $    43.8
================================================================================
*     The positions of Alex. Brown are included commencing September 1, 1997.
      Prior to September 1, 1997, detailed risk information in the format
      required for the computation of the Daily Price Volatility is not
      available.
**    The minimum (maximum) for each risk category occurred on different days so
      it is not meaningful to sum the amounts presented above. For example,
      during 1997 the minimum Total Ten-Day Value at Risk was $89 million and
      the maximum Total Ten-Day Value at Risk was $191.4 million.

RAROC--Performance Measurement and Capital Adequacy

The Corporation pioneered the development of risk-based capital attribution
processes. The Corporation's risk capital model, RAROC, is integral to
management's conceptual framework for strategic decision making. This framework
has as its objective maximizing return on risk capital, where risk capital is
attributed to a business activity according to the level of risk it assumes.
Risk capital calculated by the RAROC framework is used to support decisions on
the allocation of human and financial resources. In addition, the framework
results in a disciplined assessment of risk, which produces a benchmark for
assessing capital adequacy both for the Corporation and for its major
businesses.

      The definition of risk capital produced by the RAROC process is the amount
of funds required 99 percent of the time to cover a potential after-tax loss
over a one year holding period. Specifically, if the Corporation maintained an
absolutely static portfolio (of assets, counterparties and businesses) for one
year, there would be a 1 percent chance that the portfolio would decline in
value by more than the RAROC risk capital amount after adjusting for taxes.

      RAROC is designed to assess the following general classes of risk: market
risk, credit risk and operational risk. Market risk is the potential loss in
economic (fair) value due to changes in interest rates, currency, equity and
commodity prices, and volatilities. Financial instruments of the Corporation
whose fair values are functions of these market variables are included in the
assessment of market risk irrespective of accounting designation. Credit risk is
defined as the potential loss in economic value due to a change in the
likelihood that the obligor will not perform as agreed on a payment obligation.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       25
<PAGE>

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      Operational risk is defined by the Corporation in the context of five risk
classes: Relationship, People, Technology, Physical Assets, and Other External.
Losses that are characterized as operational include but are not limited to the
following examples: losses due to a failure of internal controls, personnel
unavailability or injury, and external events including natural disasters or the
failure of external systems such as an exchange. A process using actuarial and
other proprietary models has been implemented to provide an estimate of the
potential losses from these risks, and attribute capital to the Corporation's
business lines. The attribution process is designed as an incentive for
effective operational risk management.

Credit Risk Management

The Credit Risk Management Department, headed by the Chief Credit Officer, is
responsible for developing credit policies, as well as for monitoring and
managing overall credit risk. The department evaluates the creditworthiness of
each borrower/issuer/counterparty and assigns a rating for each. Credit limits
are established at the portfolio level by borrower/issuer/counterparty and by
other categories. One credit officer is responsible for reviewing the entire
credit risk portfolio of a borrower/issuer/counterparty regardless of the nature
of the exposure (e.g., loans, securities, derivatives). Credit officers also
monitor the usage of credit risk by entity versus the limits at the product and
business activity level. The Credit Risk Management Department monitors country
exposures and assigns country risk ratings. It also monitors country, industry,
borrower/issuer/counterparty, product and regional risk concentrations in order
to evaluate the degree of diversification in the portfolio.

      RAROC credit capital represents the translation into potential losses of
the exposure of the overall portfolio of the Corporation, both on- and
off-balance sheet, to changes in the likelihood that obligors will not perform
as agreed on payment obligations. This translation is accomplished using
proprietary statistical models. These statistical models incorporate information
on the duration of the exposure, the potential magnitude of the exposure, and
the creditworthiness of the borrower/issuer/counterparty. The Corporation's
senior risk managers regularly review and actively manage the credit risks at
the portfolio level to ensure that the risk characteristics and degree of
diversification as reflected in RAROC capital calculations conform with the
Corporation's policies.

Derivatives

Derivatives are swaps, futures, forwards, options and other similar types of
contracts based on interest rates, foreign exchange rates and the prices of
equities and commodities (or related indices). Derivatives are generally either
privately-negotiated over-the-counter ("OTC") contracts or standard contracts
transacted through regulated exchanges. OTC contracts generally consist of
swaps, forwards and options. In the normal course of business, with the
agreement of the original customer, OTC derivatives may be terminated or
assigned to another customer. Exchange-traded derivatives include futures and
options. These capital markets products are described further in Note 23 of
Notes to Financial Statements. Derivatives may be used for either trading or
end-user purposes.

Trading Derivatives

The Corporation holds derivatives in connection with its activities as a dealer
acting as principal for particular transactions with clients, as a market maker
quoting bid and offer prices to provide liquidity and regular availability of
derivatives for clients, as a risk manager of its own trading positions
resulting from these client-driven transactions and, finally, as a position
taker in the expectation of profiting from favorable movements in prices, rates
or indices. As a result, the Corporation may build up sizable positions in
derivatives. The risks of derivative positions are managed in accordance with
the Corporation's risk management policies.

      Substantially all of the Corporation's derivative positions at December
31, 1997 were trading-related, with gains and losses included in trading revenue
as they occur. Contracts with positive fair values are recorded as assets and
contracts with negative fair values are recorded as liabilities, after
application of qualifying master netting agreements. These positions may vary in
size from period to period, similar to the positions in cash instruments also
carried in the Corporation's trading account. Average trading assets and trading
liabilities related to derivatives during 1997 were $13.5 billion and $13.2
billion, respectively. The notional amounts, which are not recorded on the
balance sheet, of trading derivatives totaled $2,026 billion at December 31,
1997 and indicate the volume of activity but do not represent the Corporation's
exposure to market or credit risk.

End-User Derivatives

The Corporation utilizes end-user derivatives to manage exposures to interest
rate, foreign currency and equity market risks associated with certain
liabilities and assets such as interest-bearing deposits, short-term borrowings
and long-term debt, as well as securities available for sale, loans, investments
in non-marketable equity securities and net investments in foreign subsidiaries.
For example, the Corporation's Treasury Department, which manages the majority
of the Corporation's end-user derivatives, utilizes certain instruments
(principally interest rate and currency swaps) to transform fixed-rate-paying
liabilities into variable-rate-paying liabilities. See Note 23 and Note 25 of
Notes to Financial Statements for additional end-user information and for the
fair value of end-user derivatives and related financial instruments. The
notional amounts, which are not recorded on the balance sheet, of end-user
derivatives totaled $118 billion at December 31, 1997 and indicate the volume of
activity but do not represent the Corporation's exposure to market or credit
risk. End-user derivative contracts represent less than 6 percent of the
aggregate notional amounts of all derivatives outstanding at year end.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       26
<PAGE>

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Market Risk

The market risk of derivatives arises principally from the potential for changes
in interest rates, foreign exchange rates, and equity and commodity prices and
is generally similar to the market risk of the cash instruments underlying the
contracts. The market risk to the Corporation is not measured by the price
sensitivity of the individual contracts, but by the net price sensitivity of the
relevant portfolio, including cash instruments. The Corporation generally
manages its exposures by taking risk-offsetting positions. Therefore, the
Corporation believes it is not meaningful to view the market risk of derivatives
in isolation. Market exposures arising from derivatives are monitored in the
Corporation's RAROC framework and are included in the Daily Price Volatility
amounts discussed in the preceding Risk Management section. Commencing in 1997,
the market risk of positions represented by derivatives is also included in the
regulatory risk-based capital ratios.

Liquidity Risk

In times of stress, sharp price movements or volatility shocks may reduce
liquidity in certain derivatives positions, as well as in cash instruments. The
liquidity risk of derivatives is substantially based on the liquidity of the
underlying cash instrument, which affects the ability of the Corporation to
alter the risk profile of its positions rapidly and at a reasonable cost. The
Corporation's mark-to-market practices for derivatives include adjustments in
consideration of liquidity risks, when appropriate. These practices are
consistent with those applied to the Corporation's trading positions in cash
instruments.

Derivatives-Related Credit Risk

Derivative transactions create dynamic credit exposure which changes as markets
move. The credit risk of derivatives arises from the potential for a customer to
default on its contractual obligations. Accordingly, credit risk related to
derivatives depends on the following: the current fair value of the contracts
with the customer; the potential credit exposure over time; the extent to which
legally enforceable netting arrangements allow the fair value of offsetting
contracts with that customer to be netted against each other; the extent to
which collateral held against the contracts reduces credit risk exposure; and
the likelihood of default by the customer.

      The Corporation monitors and manages the credit risk associated with
derivatives by applying a uniform credit process for all credit exposures. The
credit risk of derivatives is included in the Corporation's centralized credit
risk management and RAROC systems. In order to reduce derivatives-related credit
risk, the Corporation enters into master netting agreements that provide for
offsetting of all contracts under each such agreement and obtains collateral
where appropriate. Such master netting agreements contemplate payment netting as
well as the net settlement of all covered contracts through a single payment in
a single currency with the same counterparty in the event that a default
(including insolvency) under the agreement occurs. The Corporation monitors
credit risk exposure on a gross and a net basis and on a collateralized and an
uncollateralized basis, as appropriate.

      Table 8 summarizes the Corporation's derivatives-related credit risk. It
displays, by internal rating, the Corporation's current credit risk to
customers. The majority of the Corporation's derivative transactions are with
foreign and U.S. commercial banks, as well as other financial institutions,
corporations, securities firms and governments and their agencies. Current
credit risk is calculated based on the current replacement cost of outstanding
positions with customers in OTC derivative financial instruments. The gross
replacement cost of a derivative portfolio with a customer is the positive
mark-to-market value of all transactions with that customer without the effects
of netting or collateral arrangements. The replacement costs, after netting and
collateral, of $14.966 billion more accurately portray the credit risk
associated with the Corporation's derivatives activities with external customers
at December 31, 1997 than do the gross replacement costs. The overall increase
compared to 1996 was predominantly related to short-term foreign exchange
forward contracts with foreign and U.S. commercial bank counterparties.
Approximately 80 percent of the derivatives-related credit risk at December 31,
1997 was to investment-grade customers. The amounts presented in Table 8 do not
reflect the allowance for credit losses of $285 million at December 31, 1997.

      Internal ratings are based upon the Corporation's assessment of the
customer's creditworthiness. Ratings of 1 to 4 generally equate to
investment-grade ratings (BBB/Baa and higher) from rating agencies in the U.S.
markets. A rating of 5 usually approximates long-term debt ratings of BB/Ba.
Ratings of 6 to 8 are generally equivalent to B/B and below. Customers in the 6
to 8 category may be internally designated for special monitoring by the Credit
Audit Department. Factors such as guarantors and collateral held, as well as the
impact of country risk on private foreign companies, may differentiate the
Corporation's ratings from those of the rating agencies.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       27
<PAGE>

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

      The Corporation applies netting based upon the criteria prescribed by
Financial Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
"Offsetting of Amounts Related to Certain Contracts," which provides that
offsetting is appropriate where the available evidence indicates that there are
reasonable assurances that the right of setoff contained in a master netting
agreement governing derivatives contracts would be upheld after default,
including in the event of the customer's bankruptcy.

      Collateral also reduces credit risk. The Corporation generally accepts
collateral in the form of cash, U.S. Treasuries, and other approved securities
(generally, only liquid, marketable, publicly-traded securities are acceptable).

Table 8 Derivatives-Related Credit Risk(1)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                      Internal Rating For Customer
                                                                    --------------------------------
(in millions) December 31, 1997                                       1 to 4           5     6 to 8        Total
----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>         <C>         <C>         <C>     
Replacement costs (gross)                                           $ 40,030    $  4,832    $    541    $ 45,403
Impact of netting agreements                                         (26,181)     (1,877)       (211)    (28,269)
----------------------------------------------------------------------------------------------------------------
Replacement costs (after netting agreements)                          13,849       2,955         330      17,134
Collateral held and applied                                           (1,908)       (255)         (5)     (2,168)
================================================================================================================
Replacement costs after netting and collateral                      $ 11,941    $  2,700    $    325    $ 14,966
================================================================================================================
Replacement costs after netting and collateral, December 31, 1996   $  8,688    $    746    $     53    $  9,487
================================================================================================================
</TABLE>
(1)   End-user derivatives and exchange-traded contracts are not included. A
      portion of the increase in amounts related to customers in categories 5
      and 6 to 8 resulted from internal downgradings of certain Asian
      counterparties reflecting concerns about country risk. Additionally, the
      amounts presented do not reflect the allowance for credit losses of $285
      million at December 31, 1997 and $190 million at December 31, 1996.

      The Corporation's allowance for credit losses is available for credit
losses related to derivatives contracts. Derivatives are considered by the
Credit Audit Department when it reviews both general and specific credit risks
in the Corporation's portfolio.

      The international bank regulatory standards for risk-based capital
consider the credit risk arising from derivatives in the assessment of capital
adequacy. These standards were issued under the Basle Capital Accord of July
1988 and adopted in 1989 by the U.S. bank regulators, including the Federal
Reserve Board. These standards use a formula-based assessment of customer credit
risk which, as amended at year-end 1995, reflect the credit-risk-reducing impact
of legally enforceable master netting agreements. These standards include a
calculation for estimating the potential future credit exposure caused by
potential price volatility (the "add-on"). At December 31, 1997, this add-on was
$11.9 billion before application of risk weightings, of which 89 percent, 9
percent, and 2 percent related to customers internally rated 1 to 4, 5, and 6 to
8, respectively. At December 31, 1997, the risk-weighted amounts (reflecting
both current and potential future credit exposure) that were calculated based on
these international standards for derivative financial instruments aggregated to
$10.4 billion after application of risk weightings.

      Presented in Table 9 below is a maturity profile of the Corporation's
trading derivative products. This profile indicates the extent of the
Corporation's involvement in derivative transactions of specific maturities and
also provides the basis for calculating the estimate of potential future credit
exposure (the add-on) under the international bank regulatory standards. The
percentages in Table 9 are based on notional amounts which do not necessarily
represent cash flows and do not represent a quantification of the market risk or
credit risk of these positions.

Table 9 Maturity Profile of Trading Derivatives(1)(2)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                             Interest         Foreign         Equity-       Commodity
                                                                 Rate        Exchange         Related       and Other
Remaining Maturity at December 31, 1997         Total       Contracts       Contracts       Contracts       Contracts
----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>             <C>             <C>
Within 12 months                                   60%             18%             40%              1%              1%
After 1 but within 5 years                         30              27               3              --              --
After 5 years                                      10               9               1              --              --
----------------------------------------------------------------------------------------------------------------------
Total                                             100%             54%             44%              1%              1%
======================================================================================================================
</TABLE>
(1)   Based on notional amounts. Includes both purchase and sale contracts and
      contracts for which the fair values are recorded as trading assets and as
      trading liabilities. The leveraging effects of leveraged derivative
      transactions are reflected above.
(2)   Presented in accordance with the risk-based capital standards, this
      maturity profile does not include futures contracts, spot foreign exchange
      contracts, or options written. These types of contracts are considered in
      the Corporation's market and credit risk management processes.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       28
<PAGE>

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

      Further information applicable to derivatives in general may be found in
the following sections:

Relevant Information               Page            Title
--------------------------------------------------------------------------------
Risk-weighted amounts                20   Capital Resources
Revenue by risk category             14   Trading Revenue
Market risk, Value at Risk, RAROC
  and credit management              22   Risk Management
Credit losses                        29   Summary of Credit Loss Experience
Nonperforming amounts                32   Nonperforming Assets
Certain foreign exposures            34   Cross Border Outstandings
Accounting                           44   Significant Accounting Policies
Balance sheet amounts                47   Trading Assets and Trading Liabilities
Product descriptions, fair
  values and notional amounts        67   Derivatives and Financial Instruments
                                            With Off-Balance Sheet Risk
Significant counterparties           71   Concentrations of Credit Risk
End-user derivatives                 72   Fair Value of Financial Instruments
--------------------------------------------------------------------------------

Summary of Credit Loss Experience

Charge-Off Procedures and Adequacy of the Allowance for Credit Losses

As part of the Corporation's overall management and control process, the Credit
Audit Department is charged with the responsibility for performing an ongoing
independent examination of the portfolio. Counterparty risk exposure is analyzed
across all product lines including loans, credit-related commitments,
derivatives and other financial instruments. All significant items in the
portfolio are reviewed annually; those under special supervision, such as cash
basis loans and renegotiated loans, are reviewed quarterly. In addition, all
levels of management are required to bring to the attention of the Credit Audit
Department any credit risk where an additional review of the counterparty's
financial position is believed to be warranted. The Credit Audit Department
reports at least quarterly on the portfolio to management and to the Audit
Committee of the Board of Directors.

      In addition to the above procedures, federal and State of New York bank
examiners perform examinations of the Corporation's credit risks. The reports on
these examinations are reviewed by the Credit Audit Department with the Audit
Committee.

      The provision for credit losses is dependent upon management's evaluation
as to the amount needed to maintain the allowance for credit losses at a level
considered appropriate in relation to the risk of losses inherent in the
portfolio. Various factors are collectively weighed by management in determining
the adequacy of the allowance. The Credit Audit Department and bank regulatory
authorities assess and issue reports on the quality of the portfolio and on the
adequacy of the allowance. As part of their annual audit, the Corporation's
independent auditors assess the adequacy of the allowance and the provision for
credit losses. Their procedures include discussions with management, a review of
selected credit files and an evaluation of the periodic reports issued by the
Credit Audit Department and regulatory examiners.

      In the opinion of management, the allowance, when taken as a whole, is
adequate to absorb reasonably estimated credit losses inherent in the
Corporation's portfolio.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       29
<PAGE>

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

Table 10 Analysis of the Allowance for Credit Losses

   The following table analyzes the changes in the allowance for credit losses
($ in millions).

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                                1997        1996        1995        1994        1993
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>         <C>         <C>         <C>         <C>    
Allowance for credit losses, beginning of year                      $   973     $   992     $ 1,252     $ 1,324     $ 1,620
---------------------------------------------------------------------------------------------------------------------------
Charge-offs
  Domestic (nonrefinancing country)
   Commercial and industrial                                             19          46         177          55          64
   Financial institutions                                                --          --          --          11           4
   Real estate
     Construction                                                        11           3          10           1           6
     Mortgage                                                             2          18          22          23          51
   Other                                                                 --          --          --          --           1
  International
   Nonrefinancing country                                                75          22         121          77         302
   Refinancing country                                                   --          --          --           1          32
---------------------------------------------------------------------------------------------------------------------------
Total charge-offs                                                       107          89         330         168         460
---------------------------------------------------------------------------------------------------------------------------
Recoveries
  Domestic (nonrefinancing country)
   Commercial and industrial                                             48          32          11          24          19
   Real estate
     Construction                                                         1          --          --           1          --
     Mortgage                                                            13           7           4          --           1
   Other                                                                 --          --          --          --           2
  International
   Nonrefinancing country                                                21          20          15           8           7
   Refinancing country                                                    1           6           9          38          42
---------------------------------------------------------------------------------------------------------------------------
Total recoveries                                                         84          65          39          71          71
---------------------------------------------------------------------------------------------------------------------------
Total net charge-offs(1)                                                 23          24         291          97         389
Allowance related to acquisition                                         17          --          --          --          --
Provision for credit losses                                              30           5          31          25          93
---------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses, end of year(2)                         $   997     $   973     $   992     $ 1,252     $ 1,324
===========================================================================================================================

Percentage of total net charge-offs to average loans for the year       .13%        .18%       2.47%        .78%       2.54%
===========================================================================================================================
(1) Components:
     Secured by real estate                                         $     5     $    14     $    23     $    24     $   116
     Real estate related                                                 (2)          3           2          23           3
     Highly leveraged                                                    12          11          30          (5)         15
     Other*                                                               9           2         245          92         265
     Refinancing country                                                 (1)         (6)         (9)        (37)        (10)
---------------------------------------------------------------------------------------------------------------------------
       Total                                                        $    23     $    24     $   291     $    97     $   389
===========================================================================================================================
(2) Allocation:**
     Loans                                                          $   699     $   773
     Trading assets                                                     285         190
     Other liabilities                                                   13          10
---------------------------------------------------------------------------------------
     Allowance for credit losses, end of year                       $   997     $   973
=======================================================================================
</TABLE>
*     The 1997 amount included net recoveries of $34 million related to
      leveraged derivative transactions. The 1996, 1995 and 1994 amounts
      included net charge-offs of $15 million, $240 million and $72 million,
      respectively, related to leveraged derivative transactions.
**    Beginning December 31, 1996, the Corporation has allocated its total
      allowance for credit losses as a reduction of loans, a reduction of
      trading assets, and as other liabilities. Amounts for years prior to 1996
      have not been restated. For further detail, see discussion on the
      following page.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       30
<PAGE>

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

Provision and Allowance for Credit Losses

The provision for credit losses amounted to $30 million for 1997, compared with
$5 million for 1996 and $31 million in 1995.

      The total allowance for credit losses increased to $997 million at
December 31, 1997, from $973 million at year end 1996 and $992 million at
December 31, 1995. Beginning December 31, 1996, in accordance with the American
Institute of Certified Public Accountants Banks and Savings Institutions Audit
Guide, the Corporation has allocated its total allowance for credit losses at
December 31, 1997 and 1996 as presented below. Amounts for years prior to 1996
have not been restated. The Corporation continues to believe that the total
allowance for credit losses is available for credit losses in its entire
portfolio, which is comprised of loans, credit-related commitments, derivatives
and other financial instruments. Due to a multitude of complex and changing
factors that are collectively weighed in determining the adequacy of the
allowance for credit losses, management expects that the allocation of the total
allowance for credit losses may be adjusted as risk factors change.

      Pursuant to a regulatory requirement, the table below provides the
components of the allowance for credit losses by category. This breakdown of the
allowance at each year end reflects management's best estimate of possible
credit losses and may not necessarily be indicative of actual future charge-offs
(in millions):

December 31,                            1997     1996     1995     1994     1993
--------------------------------------------------------------------------------
Domestic
  Commercial and industrial           $   44   $   75   $  165   $  133   $  115
  Financial institutions                   9       10       20       20        8
  Real estate
   Construction                            2        8        8        5       15
   Mortgage                               49       67       70       54       65
  Other                                    1        1        3        2        1
--------------------------------------------------------------------------------
   Total domestic                        105      161      266      214      204
International                            221      144      222      266      190
--------------------------------------------------------------------------------
   Total allocated                       326      305      488      480      394
Unallocated portion*
  Domestic                               268      288      306      402      599
  International                          105      180      198      370      331
--------------------------------------------------------------------------------
Allowance for credit losses--loans       699      773
Allowance for credit losses--
  trading assets                         285      190
Allowance for credit losses--
  other liabilities                       13       10
--------------------------------------------------------------------------------
   Total                              $  997   $  973   $  992   $1,252   $1,324
================================================================================

*     This amount and any unabsorbed portion of the allocated allowance are also
      available for credit losses in the entire portfolio.

      For purposes of providing information required by regulatory authorities
and subject to the above limitations, the following table presents an analysis
of the changes in the international component of the allowance for credit losses
(in millions):

<TABLE>
<CAPTION>
Year Ended December 31,                   1997      1996       1995       1994      1993
----------------------------------------------------------------------------------------
<S>                                    <C>       <C>        <C>        <C>       <C>    
Balance, beginning of year             $   348   $   420    $   636    $   521   $ 1,007
----------------------------------------------------------------------------------------
Net charge-offs
  Charge-offs                               75        22        121         78       334
  Recoveries                                22        26         24         46        49
----------------------------------------------------------------------------------------
  Total net charge-offs (recoveries)
    to the allowance                        53        (4)        97         32       285
Allowance related to acquisition            17        --         --         --        --
Provision for credit losses                 30        (1)         9         11        40
Reallocation (to) from
  domestic allowance                       120       (75)      (128)       136      (241)
----------------------------------------------------------------------------------------
Balance, end of year*                  $   462   $   348    $   420    $   636   $   521
========================================================================================
</TABLE>
*     The December 31, 1997 and 1996 amounts were allocated as follows: $326
      million and $324 million, respectively, to loans and $136 million and $24
      million, respectively, to trading assets.

      The reallocations of $120 million, $75 million and $128 million during
1997, 1996 and 1995, respectively, between the international and domestic
components of the allowance for credit losses, were based on the continuing
evaluation of the Corporation's overall credit portfolio.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       31
<PAGE>

Nonperforming Assets

Table 11 shows the Corporation's trend of cash basis loans, renegotiated loans,
other real estate and other nonperforming assets ($ in millions).

Table 11 Nonperforming Assets

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
   December 31,                                                 1997    1996    1995    1994    1993
----------------------------------------------------------------------------------------------------
<S>                                                             <C>     <C>     <C>     <C>     <C> 
Cash basis loans (nonrefinancing country)
  Domestic
   Commercial and industrial                                    $ 49    $117    $263    $316    $285
   Secured by real estate                                         92     233     297     277     306
   Financial institutions                                         --      --      10      25      30
----------------------------------------------------------------------------------------------------
    Total domestic                                               141     350     570     618     621
----------------------------------------------------------------------------------------------------
  International
   Commercial and industrial                                      65      57     106     247      84
   Secured by real estate                                         25      39      65      79     149
   Financial institutions                                         --       4       3      48      --
   Other                                                           9       2      --       2       2
----------------------------------------------------------------------------------------------------
    Total international                                           99     102     174     376     235
----------------------------------------------------------------------------------------------------
    Total cash basis loans (nonrefinancing country)              240     452     744     994     856
Cash basis loans (refinancing country)
  International                                                   --      --      --       2     118
----------------------------------------------------------------------------------------------------
Total cash basis loans                                          $240    $452    $744    $996    $974
====================================================================================================
Ratio of cash basis loans to total gross loans                   1.2%    2.8%    5.9%    7.9%    6.4%
====================================================================================================
Ratio of allowance for credit losses to cash basis loans(1)      291%    171%    133%    126%    136%
====================================================================================================
Renegotiated loans
  Secured by real estate                                        $ 25    $ 37    $ 88    $ 65    $ 14
  Other                                                           --      --      12       1       7
----------------------------------------------------------------------------------------------------
Total renegotiated loans                                        $ 25    $ 37    $100    $ 66    $ 21
====================================================================================================
Other real estate                                               $194    $213    $259    $301    $287
====================================================================================================
Other nonperforming assets
  Derivatives                                                   $ 34    $ --    $  1    $  2    $ 16
  Assets acquired in credit workouts                               4      10      66      61      85
----------------------------------------------------------------------------------------------------
Total other nonperforming assets                                $ 38    $ 10    $ 67    $ 63    $101
====================================================================================================
Loans 90 days or more past due and still accruing interest(2)   $ --    $ --    $ 26    $ --    $ 40
====================================================================================================
</TABLE>
(1)   The 1997 and 1996 ratios were computed using the $699 million and $773
      million allowance for credit losses that has been allocated to loans. 
(2)   Represents loans 90 days or more past due with respect to interest or
      principal. These loans were considered to be well secured and were in the
      process of collection. The December 31, 1993 balance includes $15 million
      of international loans.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       32
<PAGE>

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

      Each quarter an extensive review is performed by the Credit Audit
Department and senior credit management of all cash basis loans and classified
assets. Each borrower/counterparty is evaluated to determine whether it
represents a potential loss. Whenever the probability of loss is believed to be
greater than 50 percent, a charge-off of the amount deemed uncollectible is
recommended. Once a charge-off is taken, the remaining portion, if any, is
immediately placed on a cash basis. If the probability of loss is believed to be
less than 50 percent, but collection or liquidation in full is questionable if
present trends continue, the asset is classified as doubtful. It is the
Corporation's policy to place all assets classified as doubtful on a cash basis,
even if the borrower is still making required payments. In addition, it is
generally the Corporation's policy that loans be immediately placed on a cash
basis when they become 90 days past due with respect to interest or principal.

      The Corporation's total cash basis loans amounted to $240 million at
December 31, 1997, a decrease of $212 million, or 47 percent, from 1996, which
had decreased $292 million, or 39 percent, from 1995.

      Cash basis loans decreased $212 million during 1997, primarily due to a
$155 million decrease in loans secured by real estate.

      Within cash basis loans, loans secured by real estate were $117 million at
December 31, 1997. Commercial and industrial loans to highly leveraged borrowers
decreased $76 million to $41 million.

      Cash basis loans decreased $292 million during 1996, primarily due to
collections and charge-offs of $109 million in connection with the settlement of
old derivative transactions which were primarily classified as commercial and
industrial loans, as well as a $90 million decrease in loans secured by real
estate and an $87 million decrease in various other commercial and industrial
loans.

      In 1997, renegotiated loans decreased $12 million. Renegotiated loans
decreased to $37 million at December 31, 1996 due to $63 million of transfers to
cash basis loans.

      Other real estate decreased $19 million, to $194 million at December 31,
1997. In 1996, other real estate decreased $46 million. The 1996 decrease was
primarily attributable to $73 million of sales of properties offset by an
addition of $24 million of foreclosed properties.

      Derivative contracts are classified as nonperforming when payments are 90
days past due, or earlier based upon management's judgment as to the probability
of collection of all amounts due under the contracts. Nonperforming derivatives
increased $34 million in 1997 as a result of contracts with one Asian
counterparty.

      An analysis of the changes in the Corporation's total cash basis loans
follows:

<TABLE>
<CAPTION>
(in millions)
Year Ended December 31,                1997       1996       1995       1994       1993
---------------------------------------------------------------------------------------
<S>                                 <C>        <C>        <C>        <C>        <C>    
Balance, beginning of year          $   452    $   744    $   996    $   974    $ 1,377
Net transfers to cash basis loans       111         96        314        520        230
Net paydowns                           (146)      (241)      (221)      (130)      (140)
Charge-offs                            (107)       (87)      (330)      (163)      (232)
Net transfers from (to) other
  real estate                           (16)       (14)        13        (72)       (10)
Transfers to other
  nonperforming assets                   --         --         --         (7)       (58)
Loan sales                              (47)       (38)        (1)       (49)      (153)
Other                                    (7)        (8)       (27)       (77)       (40)
---------------------------------------------------------------------------------------
Balance, end of year                $   240    $   452    $   744    $   996    $   974
=======================================================================================
</TABLE>

Highly Leveraged Transactions

For purposes of monitoring the extent of its exposure to highly leveraged
transactions ("HLTs"), the Corporation utilizes the following definition. HLTs
are financing transactions the purpose of which involves a buyout, acquisition
or recapitalization and which (i) doubles the subject company's liabilities and
results in a leverage ratio higher than 50 percent or (ii) results in a leverage
ratio higher than 75 percent or (iii) is designated an HLT by a syndication
agent. Borrowers are delisted from HLT status when (1) cash flow tests, relative
to their industry or peer group, are met, or (2) they are no longer highly
leveraged upon emergence from Chapter 11 bankruptcy or similar proceeding. In
addition, certain loans which are fully collateralized by cash or cash
equivalent securities are excluded from HLT reporting.

      Amounts included in the table and discussion which follow generally
reflect the above definition.

Table 12 Highly Leveraged Transactions

(in millions) December 31,                                 1997             1996
--------------------------------------------------------------------------------
Loans
  Senior debt                                            $2,376           $1,587
  Subordinated debt                                          36               76
--------------------------------------------------------------------------------
Total loans                                              $2,412           $1,663
================================================================================
Unfunded commitments
  Commitments to lend                                    $1,420           $  875
  Letters of credit                                         186              128
--------------------------------------------------------------------------------
Total unfunded commitments                               $1,606           $1,003
================================================================================
Equity investments                                       $  884           $  665
================================================================================
Commitments to invest                                    $  949           $  425
================================================================================

      The Corporation's outstanding loans were to 174 separate borrowers in 47
separate industry groups at December 31, 1997, compared to 127 separate
borrowers in 43 separate industry groups at December 31, 1996. The health
services group at 19 percent was the only industry concentration which exceeded
10 percent of total HLT loans outstanding at December 31, 1997.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       33
<PAGE>

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

      In addition to the amounts shown in Table 12, at December 31, 1997, the
Corporation had issued commitment letters which had been accepted, subject to
documentation and certain other conditions, of $1.168 billion (which were in
various stages of syndication) and had additional HLTs in various stages of
discussion and negotiation.

      During 1997, the Corporation originated $6.6 billion of HLT commitments.
It should be noted that the Corporation's loans and commitments in connection
with HLTs fluctuate as new loans and commitments are made and as loans and
commitments are syndicated, participated or paid.

      All loans and commitments to finance HLTs are reviewed and approved by
senior credit officers of the Corporation. In addition to a strict transactional
and credit approval process, the portfolio of leveraged loans and commitments is
actively monitored and managed to minimize risk through diversification among
borrowers and industries. As part of this strategy, sell and hold targets are
regularly updated in connection with market opportunities and the addition of
new HLTs. Retention by the Corporation after syndication and sales of loan
participations has typically been less than $50 million, and the average
outstanding per borrower for the portfolio at December 31, 1997 was less than
$14 million. However, at December 31, 1997, the Corporation had total exposure
(loans outstanding plus unfunded commitments) in excess of $50 million to 11
separate highly leveraged borrowers.

      At December 31, 1997, $41 million of the HLT loan portfolio was on a cash
basis. In addition, $4 million of the equity investments in HLT companies
represented assets acquired in credit workouts, which are reported as other
nonperforming assets. Net charge-offs of $12 million of HLT loans were recorded
in 1997. In addition, the Corporation recorded a net gain of $146 million in
connection with the sales and/or write-offs of certain equity investments in
highly leveraged companies during 1997.

      Generally, fees (typically 2 to 4 percent of the principal amount
committed) and interest charged (typically LIBOR plus 1.5 to 3 percent) on HLT
loans are higher than on other credits. The Corporation does not account for
revenue or expenses from HLTs separately from its other corporate lending
activities. However, it is estimated that transaction fees recognized for
lending activities relating to HLTs were approximately $145 million during 1997
and that as of December 31, 1997, approximately $17 million of fees were
deferred.

Cross-Border Outstandings

The Corporation's cross-border outstandings reflect certain additional economic
and political risks beyond those associated with its domestic outstandings, such
as risks arising from funds transfer restrictions and balance-of-payments
issues, as well as risks arising from operating in different legal and
regulatory jurisdictions. Recent financial instability and market turmoil in
Asia have raised concerns regarding cross-border exposures in Asia.

      The Corporation's cross-border outstandings at December 31, 1997 to the
Republic of Korea, Indonesia, and Thailand represented 1.13, .89 and .40,
respectively, as a percentage of total assets. Subsequent to year end, the
Republic of Korea reached an agreement with its major international banks, which
serves to restructure maturing short-term foreign currency debts of domestic
banks. Under this framework, up to $24 billion in private short-term bank debt
can be converted into new one to three year term loans carrying a government
guarantee. The Corporation has approximately $270 million of obligations covered
by this agreement. This program helps stabilize international funding and is a
crucial first step in restoring investor confidence.

      Since December 31, 1997, the steep decline in the Indonesian rupiah has
placed a heavy burden on many Indonesian banks and corporations with foreign
currency borrowings whose revenues are denominated in Indonesian rupiah. The
ability of these institutions to honor their obligations is heavily dependent on
the future performance of the Indonesian economy.

      Late in 1997, Thailand's government began to implement measures in
accordance with its IMF program. Early in 1998, the IMF relaxed some of its
austerity directed spending guidelines in order to allow the government greater
flexibility in implementing an economic recovery. Continued implementation of
appropriate measures will be crucial in restructuring Thailand's troubled
financial sector and reviving its economy.

      Given the continuing economic uncertainty in Asia, the Corporation
believes the level of nonperforming assets and losses related to Asian
counterparties may increase during 1998.

      The following table presents the Corporation's cross-border outstandings
at December 31, 1997 for each foreign country where such outstandings exceeded
 .75 percent of the Corporation's total assets. The outstanding balances are
presented in accordance with the reporting guidelines adopted by the Federal
Financial Institutions Examination Council (FFIEC) as of March 1997.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       34
<PAGE>

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

Table 13 Cross-Border Outstandings
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                    Governments       Banks and    
                                                          % of              and           Other     Commercial
                                           Total         Total         Official       Financial            and
($ in millions)                     Outstandings        Assets     Institutions    Institutions      Industrial        Other
----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>           <C>             <C>             <C>             <C> 
At December 31, 1997
  Japan(1)                               $ 7,018          5.01%         $   935         $ 4,996         $ 1,087         $ --
  France                                   3,898          2.78                2           3,558             338           --
  Spain                                    3,520          2.51              302           2,940             278           --
  Australia                                3,003          2.14              507           2,072             424           --
  Germany                                  2,771          1.98              281           2,295             195           --
  United Kingdom                           2,428          1.73                8           2,309             108            3
  Canada                                   2,258          1.61              579           1,251             426            2
  Switzerland                              1,919          1.37               --           1,123             796           --
  Brazil(2)                                1,917          1.37              809             588             520           --
  Republic of Korea(3)                     1,583          1.13              186             929             468           --
  Netherlands                              1,322          0.94               --             879             443           --
  Indonesia(2)                             1,247          0.89               24             440             783           --
  Italy                                    1,110          0.79              427             432             251           --
  All other cross-border outstandings     12,572          8.97            3,208           6,408           2,905           51
----------------------------------------------------------------------------------------------------------------------------
  Total cross-border outstandings        $46,566         33.22%         $ 7,268         $30,220         $ 9,022         $ 56
============================================================================================================================
</TABLE>
(1)   The Corporation's cross-border outstandings with Japan primarily consisted
      of interest-bearing deposits with banks and trading account assets carried
      at fair value.
(2)   The Corporation's cross-border outstandings with Brazil and Indonesia
      primarily consisted of trading account assets carried at fair value.
(3)   The Corporation's cross-border outstandings with the Republic of Korea
      primarily consisted of trading account assets carried at fair value and
      acceptances outstanding.

      At December 31, 1997, total cross-border commitments to borrowers or
counterparties domiciled in the countries presented in Table 13 were: Japan, $15
million; France, $85 million; Australia, $6 million; Germany, $99 million;
United Kingdom, $55 million; Canada, $66 million; Switzerland, $45 million;
Brazil, $22 million; the Republic of Korea, $58 million; the Netherlands, $70
million; Indonesia, $19 million; and Italy, $2 million.

      The cross-border claims outstandings were compiled based upon category and
domicile of ultimate risk and are comprised of balances with banks, trading
account assets (including net revaluation gains on foreign exchange and
derivative products), securities available for sale, securities purchased under
resale agreements, loans, accrued interest receivable and acceptances
outstanding.

      Governments and official institutions comprises foreign governments and
their agencies; state, provincial and local governments and their agencies; and
central banks. Banks and other financial institutions is comprised of commercial
and savings banks and other similar institutions accepting short-term deposits,
including government-owned banks which do not function as central banks, and
nonbank credit and financial companies.

      The amounts outstanding for each country listed above exclude local
country claims. Local country claims, as defined by the FFIEC's March 1997
reporting guidelines, include claims on residents of the same country in which
the booking office is domiciled. Such claims are generally funded with
borrowings that represent liabilities of that office or are hedged with foreign
exchange and derivative products.

      The amendments to the FFIEC's cross-border reporting guidelines as adopted
in March 1997 included the addition of net revaluation gains on foreign exchange
and derivative products to the definition of claims outstanding, and the
elimination of the currency denomination criteria when segregating local from
cross-border country claims.

      Presented below are the 1997 cross-border outstandings excluding the net
revaluation gains on foreign exchange and


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       35
<PAGE>

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

derivative products for comparative purposes with the 1996 and 1995 outstanding
balances, as previously reported in accordance with the FFIEC's cross-border
definition at that time, for each foreign country where such outstandings
exceeded one percent of total assets.

Table 14 Cross-Border Claims Outstanding (excluding net revaluation gains on 
         FX and derivatives)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                  Governments       Banks and
                                                           % of           and           Other      Commercial
                                         Total            Total      Official       Financial             and
($ in millions)                   Outstandings           Assets  Institutions    Institutions      Industrial           Other
-----------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>         <C>             <C>             <C>                   
At December 31, 1997
Japan(1)                                $4,222             3.01%       $  881          $2,364          $  977              --
Spain                                    3,290             2.35           302           2,734             254              --
France                                   2,948             2.10             2           2,696             250              --
Brazil(2)                                1,915             1.37           809             587             519              --
Germany                                  1,890             1.35           281           1,450             159              --
Canada                                   1,509             1.08           264             890             353               2
=============================================================================================================================
At December 31, 1996                  
United Kingdom                          $3,904             3.19%       $   12          $3,461          $  430          $    1
Switzerland                              3,598             2.94            --           3,332             266              --
France                                   3,485             2.84            63           3,005             416               1
Spain                                    2,670             2.18           960           1,667              43              --
Japan(1)                                 2,523             2.06           477             979           1,067              --
Germany                                  1,700             1.39           537             758             405              --
Mexico(3)                                1,332             1.09           676             329             327              --
Italy                                    1,285             1.05           751             384             150              --
Brazil(2)                                1,266             1.03           569             454             243              --
=============================================================================================================================
At December 31, 1995                  
Japan(1)                                $2,844             2.68%       $  456          $1,393          $  987          $    8
France                                   2,150             2.02           291           1,615             244              --
United Kingdom                           1,945             1.83            19           1,448             478              --
Spain                                    1,877             1.77         1,338             494              44               1
Italy                                    1,522             1.43         1,265             209              48              --
Brazil(2)                                1,120             1.05           475             494             151              --
=============================================================================================================================
</TABLE>
(1)   The Corporation's cross-border outstandings with Japan primarily consisted
      of interest-bearing deposits with banks and trading assets carried at fair
      value.
(2)   The Corporation's cross-border outstanding as presented above for Brazil
      primarily consisted of trading assets which are carried at fair value.
(3)   The Corporation's cross-border outstandings for Mexico primarily consisted
      of trading assets carried at fair value and securities purchased under
      resale agreements.

      On this basis, Switzerland is the only country whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1997. The aggregate cross-border outstandings for Switzerland
amounted to $1.3 billion, or .95 percent of total assets.

      Hong Kong and Canada were the only countries whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1996. The aggregate cross-border outstandings for these countries
amounted to $1.1 billion, or .92 percent of total assets for Hong Kong and $914
million, or .75 percent of total assets for Canada.

      Mexico, Germany and Belgium were the only countries whose cross-border
outstandings were between .75 percent and 1.00 percent of total assets at
December 31, 1995. The aggregate cross-border outstandings for these countries
amounted to $1.0 billion, or .96 percent of total assets for Mexico (a majority
of which consisted of trading assets carried at fair value), $939 million, or
 .88 percent of total assets for Germany, and $840 million, or .79 percent of
total assets for Belgium.

      The following table details the cash basis loans of the outstandings for
those countries presented in Tables 13 and 14.

                                                                      Cash Basis
($ in millions)                                                            Loans
--------------------------------------------------------------------------------
At December 31, 1997
  Indonesia                                                                  $10
  Spain                                                                        2
--------------------------------------------------------------------------------
Total                                                                        $12
================================================================================
At December 31, 1996
  Italy                                                                      $ 3
  Spain                                                                        2
--------------------------------------------------------------------------------
Total                                                                        $ 5
================================================================================
At December 31, 1995
  Italy                                                                      $16
--------------------------------------------------------------------------------
Total                                                                        $16
================================================================================

      There were no cross-border renegotiated loans for the years ended December
31, 1997, 1996 and 1995.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       36
<PAGE>

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

Acquisition

On December 2, 1997, the Corporation announced that it had signed a definitive
agreement with National Westminster Bank PLC to acquire NatWest Markets'
Pan-European cash equities business.

      The acquisition is expected to be completed by the second quarter of 1998
and is subject to certain closing conditions, including regulatory approvals.
The transaction will be accounted for as a purchase and is expected to be
accretive to the Corporation's earnings per share beginning in 1998.

Accounting Developments

In December 1996, the FASB issued SFAS 127 which deferred for one year the
effective date of some portions of SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The deferred
provisions relate to collateral, repurchase agreements, dollar-rolls, securities
lending and similar transactions. The adoption as of January 1, 1998 of the
deferred portions of SFAS 125 will not have a material impact on the
Corporation's net income, stockholders' equity or total assets.

      In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS 130 also requires that a
company classify items of other comprehensive income by their nature in a
financial statement, and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
stockholders' equity section of a statement of financial position.

      SFAS 130 is effective for financial statement periods beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.

      In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.

      SFAS 131 is effective for financial statement periods beginning after
December 15, 1997. Comparative information for earlier years is to be restated.
SFAS 131 need not be applied to interim financial statements in the initial year
of its application.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       37
<PAGE>

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








               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       38
<PAGE>

Financial Reports 
Section


Financial Statements

CONSOLIDATED STATEMENT
OF INCOME                            40

CONSOLIDATED BALANCE SHEET           41

CONSOLIDATED STATEMENT
OF CHANGES IN
STOCKHOLDERS' EQUITY                 42

CONSOLIDATED STATEMENT
OF CASH FLOWS                        43

NOTES TO FINANCIAL
STATEMENTS                           44

MANAGEMENT'S REPORT ON
RESPONSIBILITY FOR
FINANCIAL REPORTING                  79

REPORTS OF
INDEPENDENT AUDITORS                 80


Supplemental Financial Data

CONDENSED QUARTERLY
CONSOLIDATED STATEMENT
OF INCOME                            82

STOCKHOLDER DATA                     82

AVERAGE BALANCES, INTEREST
AND AVERAGE RATES                    83

VOLUME/RATE ANALYSIS
OF CHANGES IN NET
INTEREST REVENUE                     85

INTEREST RATE SENSITIVITY            86

DEPOSITS                             87


10-K Report

This Annual Report includes the Corporation's SEC Report on Form 10-K. However,
portions of the Annual Report, such as pages 1-9, are not required by the Form
10-K report and are not part of the Corporation's Form 10-K. Only those sections
of the Annual Report referenced in the cross-reference index on page 93 are
incorporated in the Form 10-K.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       39
<PAGE>

CONSOLIDATED STATEMENT OF INCOME (in millions, except per share data)

Year Ended December 31,                                   1997     1996     1995
--------------------------------------------------------------------------------
Net Interest Revenue
   Interest revenue                                     $7,285   $6,508   $5,989
   Interest expense                                      5,926    5,451    5,105
--------------------------------------------------------------------------------
Net Interest Revenue                                     1,359    1,057      884
Provision for credit losses                                 30        5       31
--------------------------------------------------------------------------------
Net Interest Revenue after Provision for Credit Losses   1,329    1,052      853
--------------------------------------------------------------------------------
Noninterest Revenue
   Trading                                               1,085    1,014      481
   Fiduciary and funds management                        1,059      876      764
   Corporate finance fees                                1,113      922      691
   Other fees and commissions                              606      534      479
   Net revenue from equity investment transactions         224      230      153
   Securities available for sale gains                     158       75      180
   Insurance premiums                                      287      230      234
   Other                                                   359      236      147
--------------------------------------------------------------------------------
Total noninterest revenue                                4,891    4,117    3,129
--------------------------------------------------------------------------------
Noninterest Expenses
   Salaries and commissions                              1,273    1,154    1,045
   Incentive compensation and employee benefits          1,726    1,216      832
   Agency and other professional service fees              391      321      327
   Communication and data services                         231      237      220
   Occupancy, net                                          181      174      177
   Furniture and equipment                                 224      186      177
   Travel and entertainment                                142      113      104
   Provision for policyholder benefits                     333      280      271
   Other                                                   423      357      310
   Restructuring charges                                    57       --       50
--------------------------------------------------------------------------------
Total noninterest expenses                               4,981    4,038    3,513
--------------------------------------------------------------------------------
Income before income taxes                               1,239    1,131      469
Income taxes                                               373      365      158
--------------------------------------------------------------------------------
Net Income                                              $  866   $  766   $  311
================================================================================
Net Income Applicable to Common Stock*                  $  817   $  715   $  260

Earnings per Common Share:
   Basic                                                $ 8.15   $ 7.12   $ 2.62
================================================================================

   Diluted                                              $ 7.66   $ 6.76   $ 2.54
================================================================================

Cash dividends declared per common share                $ 4.00   $ 4.00   $ 4.00
================================================================================
*     Amounts shown are used to calculate basic earnings per common share. 

The accompanying notes are an integral part of the financial statements.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       40
<PAGE>

CONSOLIDATED BALANCE SHEET ($ in millions, except par value)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
December 31,                                                                                1997         1996
-------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>          <C>      
Assets
Cash and due from banks                                                                $   2,188    $   1,568
Interest-bearing deposits with banks                                                       4,272        2,210
Federal funds sold                                                                         1,382        1,684
Securities purchased under resale agreements                                              19,163       18,002
Securities borrowed                                                                       16,751       17,005
Trading assets:
   Government securities                                                                  11,397       16,849
   Corporate debt securities                                                               8,128        8,033
   Equity securities                                                                       7,914        6,089
   Swaps, options and other derivatives, net                                              17,673       11,220
   Other trading assets                                                                   11,460        6,748
-------------------------------------------------------------------------------------------------------------
Total trading assets                                                                      56,572       48,939
Securities available for sale                                                              8,081        7,920
Loans, net                                                                                19,106       15,107
Customer receivables                                                                       1,547        1,529
Due from customers on acceptances                                                            633          597
Accounts receivable and accrued interest                                                   4,785        3,032
Other assets                                                                               5,622        4,950
-------------------------------------------------------------------------------------------------------------
Total                                                                                  $ 140,102    $ 122,543
=============================================================================================================
Liabilities
Noninterest-bearing deposits
   Domestic offices                                                                    $   2,776    $   2,600
   Foreign offices                                                                         1,952        1,013
Interest-bearing deposits
   Domestic offices                                                                       22,353        9,928
   Foreign offices                                                                        15,749       16,774
-------------------------------------------------------------------------------------------------------------
Total deposits                                                                            42,830       30,315
Trading liabilities:
   Securities sold, not yet purchased
     Government securities                                                                 4,389        7,668
     Equity securities                                                                     5,273        4,174
     Other trading liabilities                                                               519          334
   Swaps, options and other derivatives                                                   17,065       11,585
-------------------------------------------------------------------------------------------------------------
Total trading liabilities                                                                 27,246       23,761
Securities loaned and securities sold
   under repurchase agreements                                                            17,896       23,454
Other short-term borrowings                                                               19,577       19,409
Acceptances outstanding                                                                      633          597
Accounts payable and accrued expenses                                                      6,536        4,792
Other liabilities                                                                          3,617        2,049
Long-term debt not included in risk-based capital                                         11,275        8,732
Long-term debt included in risk-based capital                                              3,312        2,576
Mandatorily redeemable capital securities of subsidiary trusts holding solely junior
   subordinated deferrable interest debentures included in risk-based capital              1,472          730
-------------------------------------------------------------------------------------------------------------
Total liabilities                                                                        134,394      116,415
=============================================================================================================
Commitments and contingent liabilities (Notes 7 and 23)
Preferred Stock of Subsidiary                                                                 --          250
-------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock                                                                              658          810
Common stock, $1 par value
   Authorized, 300,000,000 shares
   Issued: 1997, 105,378,741 shares;
           1996, 103,624,555 shares;                                                         105          104
Capital surplus                                                                            1,563        1,437
Retained earnings                                                                          4,202        3,988
Common stock in treasury, at cost: 1997, 8,422,401 shares;
                                   1996, 4,435,226 shares                                   (889)        (372)
Other stockholders' equity                                                                    69          (89)
-------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                 5,708        5,878
-------------------------------------------------------------------------------------------------------------
Total                                                                                  $ 140,102    $ 122,543
=============================================================================================================
</TABLE>

The accompanying notes are an integral part of the financial statements.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       41
<PAGE>

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (in millions)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Year Ended December 31,                                      1997       1996       1995
---------------------------------------------------------------------------------------
<S>                                                       <C>        <C>        <C>    
Preferred Stock
Balance, beginning of year                                $   810    $   865    $   395
Preferred stock issued                                          1          1        470
Preferred stock repurchased                                    (8)       (56)        --
Preferred stock redeemed                                     (145)        --         --
---------------------------------------------------------------------------------------
Balance, end of year                                          658        810        865
---------------------------------------------------------------------------------------
Common Stock
Balance, beginning of year                                    104        103        101
Issuance of common stock                                        1          1          2
---------------------------------------------------------------------------------------
Balance, end of year                                          105        104        103
---------------------------------------------------------------------------------------
Capital Surplus
Balance, beginning of year                                  1,437      1,386      1,371
Issuance of common stock                                       59         19         26
Repurchase and retirement of common stock                      (6)       (16)        --
Preferred stock issuance and conversion costs                  --         --        (17)
Common stock distributed under employee benefit plans          73         41          6
Preferred stock repurchased                                    --          7         --
---------------------------------------------------------------------------------------
Balance, end of year                                        1,563      1,437      1,386
---------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year                                  3,988      3,702      3,796
Net income                                                    866        766        311
Cash dividends declared
   Preferred stock                                            (50)       (58)       (47)
   Common stock                                              (366)      (335)      (326)
Treasury stock distributed under employee benefit plans      (236)       (80)       (32)
Treasury stock associated with acquisition                     --         (7)        --
---------------------------------------------------------------------------------------
Balance, end of year                                        4,202      3,988      3,702
---------------------------------------------------------------------------------------
Common Stock in Treasury, at cost
Balance, beginning of year                                   (372)      (336)      (416)
Purchases of stock                                         (1,038)      (608)       (38)
Restricted stock granted, net                                  (4)        37         54
Treasury stock distributed under employee benefit plans       525        325         64
Treasury stock associated with acquisition                     --        210         --
---------------------------------------------------------------------------------------
Balance, end of year                                         (889)      (372)      (336)
---------------------------------------------------------------------------------------
Common Stock Issuable--Stock Awards
Balance, beginning of year                                    526        233        160
Deferred stock awards granted, net                            401        294         89
Deferred stock distributed                                    (26)        (1)       (16)
---------------------------------------------------------------------------------------
Balance, end of year                                          901        526        233
---------------------------------------------------------------------------------------
Deferred Compensation--Stock Awards
Balance, beginning of year                                   (308)      (151)       (63)
Deferred stock awards granted, net                           (394)      (293)       (88)
Restricted stock granted, net                                 (10)       (38)       (48)
Amortization of deferred compensation, net                    274        174         48
---------------------------------------------------------------------------------------
Balance, end of year                                         (438)      (308)      (151)
---------------------------------------------------------------------------------------
Cumulative Translation Adjustments
Balance, beginning of year                                   (364)      (348)      (336)
Translation adjustments                                        78        (40)        (3)
Income taxes applicable to translation adjustments            (76)        24         (9)
---------------------------------------------------------------------------------------
Balance, end of year                                         (362)      (364)      (348)
---------------------------------------------------------------------------------------
Securities Valuation Allowance
Balance, beginning of year                                     57         19         69
Change in unrealized net gains, after applicable
   income taxes and minority interest                         (89)        38        (50)
---------------------------------------------------------------------------------------
Balance, end of year                                          (32)        57         19
---------------------------------------------------------------------------------------
Total stockholders' equity, end of year                   $ 5,708    $ 5,878    $ 5,473
=======================================================================================
</TABLE>

The accompanying notes are an integral part of the financial statements.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       42
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,                                                                           1997        1996        1995
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>         <C>         <C>     
Cash Flows from Operating Activities
Net income                                                                                    $    866    $    766    $    311
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
   Provision for credit losses                                                                      30           5          31
   Provision for policyholder benefits                                                             333         280         271
   Restructuring charges                                                                            57          --          50
   Deferred income taxes                                                                          (272)         72        (270)
   Depreciation and other amortization and accretion                                               415         280         165
   Other, net                                                                                      (61)       (108)        (69)
------------------------------------------------------------------------------------------------------------------------------
     Earnings adjusted for noncash charges and credits                                           1,368       1,295         489
Net change in:
   Trading assets                                                                               (8,855)     (2,742)     (1,392)
   Trading liabilities                                                                           4,525      (2,361)      5,857
   Receivables and payables from securities transactions                                           477       1,196      (1,035)
   Customer receivables                                                                            (18)        (41)       (293)
   Other operating assets and liabilities, net                                                     (79)     (1,073)         30
Securities available for sale gains                                                               (158)        (75)       (180)
------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities                                             (2,740)     (3,801)      3,476
------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Net change in:
   Interest-bearing deposits with banks                                                         (2,171)       (217)      1,194
   Federal funds sold                                                                              302        (830)      1,690
   Securities purchased under resale agreements                                                 (1,197)     (4,750)     (6,401)
   Securities borrowed                                                                             254      (5,697)     (1,778)
   Loans                                                                                        (4,637)     (2,914)       (279)
Securities available for sale:
   Purchases                                                                                    (6,430)     (5,910)     (4,164)
   Maturities and other redemptions                                                              3,845       3,191       3,875
   Sales                                                                                         1,511       1,571       1,871
Acquisitions of premises and equipment                                                            (237)       (215)       (148)
Other, net                                                                                         911         105         (93)
------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                           (7,849)    (15,666)     (4,233)
------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net change in:
   Deposits                                                                                     12,651       4,708         833
   Securities loaned and securities sold under repurchase agreements                            (5,399)      8,334        (492)
   Other short-term borrowings                                                                   1,125       3,425      (2,198)
Issuances of long-term debt*                                                                     9,645       4,262       4,786
Repayments of long-term debt                                                                    (5,188)     (1,312)     (1,634)
Issuances of common stock                                                                           48          19          15
Repurchase and retirement of common stock                                                           (6)        (17)         (1)
Issuances of preferred stock                                                                        --          --         221
Redemptions of preferred stock of subsidiary                                                      (250)         --          --
Redemptions and repurchases of preferred stock                                                    (152)        (49)         --
Purchases of treasury stock                                                                     (1,038)       (608)        (38)
Cash dividends paid                                                                               (397)       (392)       (372)
Other, net                                                                                         248         258          34
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                       11,287      18,628       1,154
------------------------------------------------------------------------------------------------------------------------------
Net effect of exchange rate changes on cash                                                        (78)          8          (7)
------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Due from Banks                                                 620        (831)        390
Cash and due from banks, beginning of year                                                       1,568       2,399       2,009
------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year                                                          $  2,188    $  1,568    $  2,399
==============================================================================================================================
Interest paid                                                                                 $  5,515    $  5,513    $  5,110
==============================================================================================================================
Income taxes paid, net                                                                        $    260    $    329    $    282
==============================================================================================================================
Noncash investing activities:
   Conversions of loans to other real estate and assets acquired in credit workouts           $     64    $     24    $     24
   Exchanges of Chilean government bonds for annuity contracts                                      57          76          88
   Other**                                                                                          --         203          --
------------------------------------------------------------------------------------------------------------------------------
Total noncash investing activities                                                            $    121    $    303    $    112
==============================================================================================================================
Noncash financing activity: conversion of debt to equity                                      $     63    $      3    $    259
==============================================================================================================================
</TABLE>
*     Includes $739 million and $730 million related to mandatorily redeemable
      capital securities of subsidiary trusts holding solely junior subordinated
      deferrable interest debentures included in risk-based capital for the
      years ended December 31, 1997 and 1996, respectively.
**    1996 amount related to treasury stock associated with acquisition.

The accompanying notes are an integral part of the financial statements.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       43
<PAGE>

--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1--Merger

On September 1, 1997, Alex. Brown Incorporated ("Alex. Brown") was merged into a
wholly-owned subsidiary of Bankers Trust New York Corporation (the "Merger"). In
conjunction with the Merger, approximately 22 million shares of common stock
were issued in exchange for all the outstanding shares of Alex. Brown's common
stock (based on an exchange ratio of 0.83 shares of Bankers Trust New York
Corporation's common stock for each share of Alex. Brown's common stock). The
Merger was treated as a tax free exchange.

      The consolidated financial statements give retroactive effect to the
Merger in a transaction accounted for as a pooling-of-interests. The
pooling-of-interests method of accounting requires the restatement of all
periods presented as if Alex. Brown and Bankers Trust New York Corporation
together with its subsidiaries (the "Corporation" or the "Firm") had always been
combined. The consolidated statement of changes in stockholders' equity reflects
the accounts of the Corporation as if the additional common stock had been
issued during all the periods presented.

      The Corporation recognized $57 million in restructuring charges as a
result of the Merger, such as severance, lease terminations and direct costs of
completing the Merger. At December 31, 1997, $18 million relating to these
charges were classified as accounts payable and accrued expenses.

      The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements follow.

                                        Eight Months                 
                                               Ended                 
                                          August 31,    Year Ended    Year Ended
                                                1997      December      December
($ in millions)                           (Unaudited)     31, 1996      31, 1995
--------------------------------------------------------------------------------
Total Net Revenue*                                                   
  Bankers Trust New York Corporation          $3,406        $4,160        $3,209
  Alex. Brown Incorporated                       661         1,009           773
--------------------------------------------------------------------------------
    Combined                                  $4,067        $5,169        $3,982
================================================================================
Net Income                                                           
  Bankers Trust New York Corporation          $  491        $  612        $  215
  Alex. Brown Incorporated                        79           154            96
--------------------------------------------------------------------------------
    Combined                                  $  570        $  766        $  311
================================================================================
*     Net interest revenue after provision for credit losses plus noninterest
      revenue.

Note 2--Significant Accounting Policies

The Corporation is a global provider of a wide range of financial services. The
accounting policies of the Corporation conform with generally accepted
accounting principles and prevailing industry practices. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the balance sheet date, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
management's estimates. The following is a description of the significant
accounting policies of the Corporation.

Principles of Consolidation

The consolidated financial statements of the Corporation include Bankers Trust
New York Corporation (the "Parent Company"), Bankers Trust Company and its
subsidiaries ("BTCo") and all other significant, majority-owned subsidiaries,
after elimination of material intercompany transactions and accounts.
Investments in other companies over which the Corporation has significant
influence are accounted for using the equity method of accounting. These
investments are reported in other assets and the related equity income or loss,
as well as disposition gains and losses, is included in noninterest revenue.

Foreign Currency Translation

Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at current exchange rates. For operations using the U.S. dollar or
the currency of a highly inflationary economy as their functional currency,
translation gains and losses are generally reported in noninterest revenues.
Translation gains and losses for operations using any other currency as their
functional currency are reported, net of tax effects, in stockholders' equity as
cumulative translation adjustments.

Resale and Repurchase Agreements; Securities Borrowed and Loaned

Resale and repurchase agreements and securities borrowed and loaned are
generally treated as collateralized financings and are carried at the amount of
cash disbursed or received. The Corporation offsets resale and repurchase
agreements which meet the applicable netting criteria.

      Generally, the party disbursing the cash takes possession of the
securities serving as collateral for the financing. Securities borrowed or
purchased under resale agreements consist primarily of U.S. government and
federal agency securities and OECD country sovereign bonds.

      The Corporation monitors the fair value of the securities received or
sent. For securities borrowed or purchased under resale agreements, the
Corporation requests additional securities or the return of a portion of the
cash disbursed when appropriate in response to a decline in the market value of
the securities received. Similarly, the return of excess securities or
additional cash is requested when appropriate in response to an increase in the
market value of securities lent or sold under repurchase agreements.

Trading Securities; Securities Available for Sale

The Corporation designates debt and marketable equity securities as either held
for trading purposes or available for sale at the date of acquisition.

      Debt and marketable equity securities, loans and money market instruments
that are classified as trading assets, as well as short trading positions which
are classified as trading liabilities, are carried at their fair values and
related gains and losses are included in trading revenue.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       44
<PAGE>

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

      Securities available for sale are carried at fair value with the changes
in fair value, net of applicable deferred income taxes, recorded in
stockholders' equity as securities valuation allowance. Realized gains and
losses, as well as the amortization of premiums and accretion of discounts, are
recorded in earnings. The specific identification method is used to determine
the cost of securities sold.

      Fair value is generally based on quoted market prices, price quotes from
brokers or dealers or discounted expected cash flows.

Nonmarketable Equity Investments

Nonmarketable equity investments, which include venture capital activities, are
included in other assets and carried at cost, net of other-than-temporary
impairment losses.

Derivatives

The Corporation enters into swaps, futures contracts, forward commitments,
options and other similar types of contracts and commitments based on interest
and foreign exchange rates, and equity and commodity prices, for trading
purposes. Such positions are carried at their fair values as either trading
assets or trading liabilities. Fair values for derivatives are based on quoted
market prices or pricing models which take into account current market and
contractual prices of the underlying instruments as well as time value and yield
curve or volatility factors underlying the positions. Fair values also take into
account expected market risks, administrative costs and credit considerations.
Unrealized gains and losses are reported as assets and liabilities,
respectively, and those arising from contracts covered by qualifying master
netting agreements are reported on a net basis. Gains and losses resulting from
trading positions are included in trading revenue.

      In addition to its trading activities, the Corporation, as an end user,
enters into various types of derivative transactions (principally interest rate
and currency swaps) to manage the interest rate, currency and other market risks
arising from a number of categories of its assets and liabilities. Hedge
accounting, as described below, is applied to derivatives used to manage such
risks. To qualify for hedge accounting, the derivative contract must be
designated as a hedge at its inception and must remain effective as a hedge
throughout its term.

      The accounting for end-user derivatives follows that of the underlying
item being hedged. Thus, net interest revenue is accrued or amortized for
interest rate contracts, and in addition, hedges of securities available for
sale are carried at fair value with changes in fair value due to market price
changes reported in stockholders' equity as securities valuation allowance.
Foreign exchange rate contracts used to hedge foreign-currency-denominated
assets and liabilities are translated at spot rates with the resulting gains and
losses reported in noninterest revenue or securities valuation allowance, and
the discounts or premiums on these contracts are accrued to net interest
revenue. Translation gains and losses, as well as the accretion of discount and
amortization of premium on foreign exchange rate contracts used to hedge net
investments in foreign entities are reported in stockholders' equity as
cumulative translation adjustments. Hedges of nonmarketable equity securities
are carried at cost. The book values of end-user derivatives are reported in
other assets or other liabilities.

      Realized gains and losses on terminated hedges where the underlying hedged
items are still outstanding are deferred and, except for hedges carried at cost,
are amortized to net interest revenue over the remaining term of the hedge or
hedged item, whichever is shorter. Any time the underlying item is also
terminated, the remaining deferred amounts related to the terminated hedge are
recognized and reported consistently with the realized gain or loss on the
underlying item.

      Derivatives that do not qualify for hedge accounting are considered to be
trading positions and are accounted for as such.

Loans, Other Real Estate and Other Nonperforming Assets

Loans generally are stated at their outstanding unpaid principal balances net of
any deferred fees on originated loans, and net of any unamortized premiums or
discounts on purchased loans. Interest revenue is accrued on the unpaid
principal balance. Net deferred fees and premiums or discounts are recognized as
an adjustment of the yield (interest revenue) over the lives of the related
loans.

      Loans are accounted for on a cash basis once principal or interest
payments are past due 90 days or earlier if considered appropriate by
management. In addition, all loans classified as doubtful and all partially
charged-off loans are accounted for on a cash basis even if the borrower is
still making required payments. Any accrued but unpaid interest previously
recorded on cash basis loans is reversed against current period interest
revenue. Cash receipts of interest on cash basis loans are recorded as either
revenue or a reduction of principal according to management's judgment as to the
collectibility of principal.

      Renegotiated loans are those which have been renegotiated to an effective
interest rate lower than the then-current market rate because of a deterioration
in the financial position of the borrower. Interest on such loans is accrued at
the renegotiated rate.

      Derivative contracts are classified as nonperforming when payments are
past due 90 days or earlier based upon management's judgment. Thereafter, the
contracts are accounted for at the lower of adjusted cost or fair value with any
decline in fair value charged to trading revenue.

      Assets acquired in credit work-outs, including real estate, are recorded
at the lower of fair value less costs to sell or the recorded investment in the
related loan and are classified as other assets. Any excess of the recorded
investment in the loan over the fair value of the asset acquired is charged
against the allowance for credit losses.

Allowance For Credit Losses

The allowance for credit losses is available for credit losses arising from the
Corporation's portfolio of loans, credit-related commitments, derivatives and
other financial instruments. A multitude of complex and changing factors are
collectively weighed by management in determining the adequacy of the allowance.
These factors 


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       45
<PAGE>

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

include management's review of the extent of existing risks in the portfolio and
prevailing economic conditions, evaluations of the quality of the portfolio and
the actual loss experience compared to the level of the allowance. Assessing the
adequacy of the allowance for credit losses is inherently subjective as it
requires making material estimates, including the amount and timing of expected
future cash flows, that may be susceptible to significant change. Amounts deemed
uncollectible are charged off and subsequent recoveries, if any, are credited to
the allowance.

      Included in the allowance for credit losses is a valuation allowance for
impaired loans. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the loan's contractual terms. Impairment loss is measured based on
one of the following: the present value of expected future cash flows discounted
at the loan's effective interest rate, the loan's observable market price or the
fair value of the collateral if the loan is collateral-dependent.

      The Corporation allocates and reports its total allowance for credit
losses as a reduction of loans, a reduction of trading assets for derivatives
and as other liabilities for other credit-related items. Due to the inherent
subjectivity in assessing the adequacy of the allowance for credit losses
discussed above, management expects that the allocation of the total allowance
for credit losses may be adjusted as risk factors change. In the opinion of
management, the total allowance is adequate to absorb reasonably estimated
credit losses inherent in the Corporation's entire portfolio.

Customer Receivables

Customer receivables include amounts due on uncompleted transactions and margin
balances. Securities owned by customers and held as collateral for these
receivables are not reflected in the financial statements.

Premises and Equipment

Premises and equipment owned are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized
on a straight-line basis over the terms of the leases or the estimated useful
lives of the improvements, whichever are shorter. Maintenance and repairs are
charged to expense and improvements are capitalized. Gains and losses on
dispositions are reflected in earnings.

      Leased properties meeting certain criteria are capitalized and amortized
using the straight-line method over the terms of the leases.

Insurance Revenue and Expense

For the Corporation's life insurance subsidiaries, premiums are recognized as
revenue over the premium paying period of the related disability, annuity and
other life insurance policies and are recorded in noninterest revenue as
insurance premiums. Liabilities for future insurance benefits and the related
provision for policyholder benefits reflect the present value of actuarially
determined obligations net of future premiums. The liabilities for future
benefits are included in other liabilities and the expense is recorded in
noninterest expenses as provision for policyholder benefits.

Income Taxes

The Corporation recognizes the current and deferred tax consequences of all
transactions that have been recognized in the financial statements using the
provisions of enacted tax laws. Deferred tax assets and liabilities are
recognized for the estimated future tax effects of temporary differences. The
amount of deferred tax assets is reduced, if necessary, to the amount that,
based on available evidence, will more likely than not be realized.

Stock-Based Compensation

The Corporation accounts for its stock option awards under the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic
value-based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. The Corporation makes pro
forma disclosures of net income and earnings per share as if the fair
value-based method of accounting had been applied under Statement of Financial
Accounting Standards ("SFAS") 123, "Accounting for Stock-Based Compensation."

      The Corporation records its obligations under outstanding deferred stock
awards in stockholders' equity as common stock issuable-stock awards. The
related deferred compensation is also included in stockholders' equity. These
classifications are based upon the Corporation's intent to settle these awards
with its common stock.

Statement of Cash Flows

For purposes of the consolidated statement of cash flows, the Corporation's cash
and cash equivalents are cash and due from banks. Net cash flows from
instruments such as futures, forwards, options and swaps used to hedge assets or
liabilities are classified as cash flows from operating activities.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current
presentation.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       46
<PAGE>

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

Note 3--Trading Assets and Trading Liabilities

The components of these accounts, which are carried at fair value, were as
follows:

(in millions) December 31,                                        1997      1996
--------------------------------------------------------------------------------
Trading assets
U.S. government and agency securities                          $ 4,096   $ 7,633
Obligations of U.S. states and political subdivisions              350       393
Foreign government securities                                    6,951     8,823
Corporate debt securities                                        8,128     8,033
Equity securities                                                7,914     6,089
Swaps, options and other derivative contracts, net (1)(2)       17,673    11,220
Bankers acceptances and certificates of deposit                  2,741     2,548
Other                                                            8,719     4,200
--------------------------------------------------------------------------------
Total trading assets                                           $56,572   $48,939
================================================================================
Trading liabilities
Securities sold, not yet purchased
  U.S. government and agency securities                        $ 1,660   $ 4,921
  Foreign government securities                                  2,729     2,747
  Equity securities                                              5,273     4,174
  Other                                                            519       334
Swaps, options and other derivative contracts(1)                17,065    11,585
--------------------------------------------------------------------------------
Total trading liabilities                                      $27,246   $23,761
================================================================================
(1)   Comprised of fair values of interest rate instruments, foreign exchange
      rate instruments, and equity and commodity instruments, reduced by the
      effects of master netting agreements, in accordance with Financial
      Accounting Standards Board ("FASB") Interpretation No. 39 ("FIN 39"),
      "Offsetting of Amounts Related to Certain Contracts."
(2)   Net of allowance for credit losses of $285 million at December 31, 1997
      and $190 million as of December 31, 1996.

Note 4--Securities Available for Sale

The fair value, amortized cost, and gross unrealized holding gains and losses
for the Corporation's securities available for sale follow:

<TABLE>
<CAPTION>
(in millions) December 31,                       1997                             1996                           1995
------------------------------------------------------------------------------------------------------------------------------------
                                                 Gross                            Gross                          Gross              
                                              Unrealized                       Unrealized                     Unrealized            
                                                Holding                          Holding                        Holding             
                                        Fair ------------- Amortized     Fair ------------- Amortized   Fair ------------- Amortized
                                       Value Gains (Losses)     Cost    Value Gains (Losses)     Cost  Value Gains (Losses)     Cost
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>     <C>    <C>      <C>      <C>     <C>    <C>      <C>    <C>     <C>    <C>      <C>   
Debt securities                                                                                       
  U.S. government and agencies        $  525  $  3   $  --    $  522   $  332  $ --   $ --     $  332 $  431  $  2   $  (5)   $  434
  States of the U.S. and                                                                      
    political subdivisions             1,392    78     (50)    1,364    1,261    51    (37)     1,247  1,387    66     (56)    1,377
  Asset-backed(1)                        156    --      --       156    1,352     1     (1)     1,352  1,198     4      (6)    1,200
  Certificates of deposit                135    --      --       135       --    --     --         --     --    --      --        --
  Foreign governments                  2,122     5     (46)    2,163    1,455    33     (4)     1,426  1,669    14     (11)    1,666
  Corporate debt                       3,135     1     (61)    3,195    2,872    22    (26)     2,876  1,179    13     (17)    1,183
  Mortgage-backed                        113    --      --       113       12    --     --         12      9    --      --         9
Equity securities                        503    41     (18)      480      636   138    (12)       510    410    83      (8)      335
------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale   $8,081  $128   $(175)   $8,128   $7,920  $245   $(80)    $7,755 $6,283  $182   $(103)   $6,204
====================================================================================================================================
</TABLE>
(1)   The decrease in fair value between 1997 and 1996 was due to a transfer of
      approximately $1.1 billion from the securities available for sale
      portfolio to trading account assets. This transfer was a result of a
      change in risk management strategies.

      Except for securities of the Government of Chile, there were no securities
of any individual issuer included in securities available for sale that exceeded
10 percent of the Corporation's total stockholders' equity at December 31, 1997.
The Chilean securities are part of the portfolio of Consorcio having an
amortized cost and a fair value of $627 million and $604 million, respectively.

        The components of securities available for sale gains as reported in the
consolidated statement of income follow:

(in millions) Year Ended December 31,                1997       1996       1995
--------------------------------------------------------------------------------
Debt securities--gross realized gains               $  53      $  39      $  28
Debt securities--gross realized losses                (18)       (11)       (27)
Equity securities--net realized gains                 123         47        179
--------------------------------------------------------------------------------
Total securities available for sale gains           $ 158      $  75      $ 180
================================================================================


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       47
<PAGE>

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

      The following table shows the fair value, remaining maturities,
approximate weighted-average yields (based on amortized cost) and total
amortized cost by maturity distribution of the debt components of the
Corporation's securities available for sale at December 31, 1997.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                            Maturity Distribution
                                   -------------------------------------------------------------------------------------------------
                                                      After One       After Five
                                       Within         But Within       But Within          After       Mortgage-
                                      One Year        Five Years       Ten Years        Ten Years         Backed          Total
------------------------------------------------------------------------------------------------------------------------------------
($ in millions)                    Amount   Yield    Amount Yield    Amount   Yield   Amount   Yield  Amount  Yield   Amount  Yield
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>     <C>     <C>     <C>       <C>    <C>       <C>     <C>    <C>    <C>      <C>  
U.S. government and agencies       $  125    5.80%   $  388  6.33%   $   --      --%  $   12    6.07%   $ --     --%  $  525   6.20%
States of the U.S. and political
  subdivisions                         20    6.34       103  6.45       578    5.44      691    6.00      --     --    1,392   5.81
Asset-backed securities                23    6.24        77  6.18        56    6.13       --      --      --     --      156   6.17
Certificates of deposit                50    7.75        85  6.40        --      --       --      --      --     --      135   6.90
Foreign government securities         925   12.45       552  4.69       383    6.55      262    6.69      --     --    2,122   8.63
Corporate debt securities           1,625    7.81     1,100  6.02       307    4.96      103    6.62      --     --    3,135   6.84
Mortgage-backed securities             --      --        --    --        --      --       --      --     113   7.94      113   7.94
------------------------------------------------------------------------------------------------------------------------------------
Total fair value                   $2,768            $2,305          $1,324           $1,068            $113          $7,578       
=========================================            ======          ======           ======            ====          ======       
Total amortized cost               $2,786            $2,346          $1,343           $1,060            $113          $7,648       
=========================================            ======          ======           ======            ====          ======       
</TABLE>

Note 5--Loans

The following table summarizes the composition of loans at the end of each of
the last five years:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
($ in millions) December 31,        1997               1996                 1995                1994                1993
----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>        <C>     <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>
Domestic
  Commercial and industrial   $ 4,244    21%     $ 3,422     21%     $ 2,520     20%     $ 2,218     18%     $ 2,794     18%
  Financial institutions        2,148    11        1,631     10        1,778     14        2,221     17        3,210     21
  Real estate                                                                                               
     Construction                 108     1          133      1          154      1          234      2          245      2
     Mortgage                   2,088    10        1,562     10        1,276     10        1,126      9        1,550     10
  Other                         1,427     7        1,436      9        1,490     11        1,078      8        1,809     12
----------------------------------------------------------------------------------------------------------------------------
Total domestic                 10,015    50        8,184     51        7,218     56        6,877     54        9,608     63
----------------------------------------------------------------------------------------------------------------------------
International                                                                                               
  Governments and official                                                                                  
     institutions                 252     1          237      1          227      2          184      2          456      3
  Banks and other financial                                                                                 
     institutions               3,175    16        3,482     22        1,543     13        2,994     24        1,935     12
  Commercial and industrial     4,931    25        2,759     17        1,934     15        1,428     11        1,721     11
  Real estate                                                                                               
     Construction                  --    --           --     --            2     --            2     --            2     --
     Mortgage                     195     1          130      1          176      1          138      1          261      2
  Other                         1,402     7        1,290      8        1,701     13        1,014      8        1,346      9
----------------------------------------------------------------------------------------------------------------------------
Total international             9,955    50        7,898     49        5,583     44        5,760     46        5,721     37
----------------------------------------------------------------------------------------------------------------------------
Gross loans                    19,970   100%      16,082    100%      12,801    100%      12,637    100%      15,329    100%
                                        ===                 ===                 ===                 ===                 ===
Less: unearned income             165                202                 120                 102                 100       
-------------------------------------            -------             -------             -------             -------       
Total loans                   $19,805            $15,880             $12,681             $12,535             $15,229       
=====================================            =======             =======             =======             =======       
</TABLE>

      On a global basis, the commercial and industrial category and the "other"
category included no single industry group with aggregate borrowings from the
Corporation in excess of 10 percent of the total loan portfolio at December 31,
1997.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       48
<PAGE>

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

      Certain maturity information for the Corporation's loans at December 31,
1997, excluding 1-4 family mortgages, installment loans and lease financing is
summarized below. Actual maturities may differ from contractual maturities since
borrowers may have the right to prepay obligations with or without prepayment
penalties.

                                                   Remaining Maturity
--------------------------------------------------------------------------------
                                       Within    After One      After
                                          One   But Within       Five
(in millions)                            Year   Five Years      Years      Total
--------------------------------------------------------------------------------
Domestic                                        
  Commercial and industrial           $   510      $ 2,844    $   890    $ 4,244
  Financial institutions                1,909          195         44      2,148
  Real estate                                   
    Construction                           14           94         --        108
    Mortgage                              383        1,228        290      1,901
  Other                                   711          377         55      1,143
--------------------------------------------------------------------------------
Total domestic                          3,527        4,738      1,279      9,544
International                           6,706        2,380        228      9,314
--------------------------------------------------------------------------------
Total                                 $10,233      $ 7,118    $ 1,507    $18,858
================================================================================
Loans due after one year                        
  With predetermined interest rates                 $1,726       $404
=====================================================================
  With floating or adjustable                   
  interest rates                                    $5,392     $1,103
=====================================================================

Cash Basis Loans and Renegotiated Loans       

The Corporation's cash basis loans and renegotiated loans are summarized as
follows:

(in millions) December 31,                                   1997           1996
--------------------------------------------------------------------------------
Cash basis loans
  Domestic                                                   $141           $350
  International                                                99            102
--------------------------------------------------------------------------------
Total cash basis loans                                       $240           $452
================================================================================
Domestic renegotiated loans(1)                               $ 25           $ 37
================================================================================
(1)   The Corporation had no international renegotiated loans at December 31,
      1997 and 1996.

      At December 31, 1997 and December 31, 1996, the Corporation had
commitments to make additional loans to borrowers on a cash basis or
renegotiated status of $11 million and $26 million, respectively.

      The following table sets forth the approximate effect on interest revenue
of cash basis loans and renegotiated loans. This disclosure reflects the
interest on loans which were carried on the balance sheet and classified as
either cash basis or renegotiated at December 31 of each year. The rates used in
determining the gross amount of interest which would have been recorded at the
original rate were not necessarily representative of current market rates.

(in millions) Year Ended December 31,                     1997     1996     1995
--------------------------------------------------------------------------------
Domestic loans
  Gross amount of interest that would
     have been recorded at original rate                   $16      $38      $64
  Less, interest, net of reversals,
     recognized in interest revenue                          3        7       13
--------------------------------------------------------------------------------
Reduction of interest revenue                               13       31       51
--------------------------------------------------------------------------------
International loans
  Gross amount of interest that would
     have been recorded at original rate                     5        9       15
  Less, interest, net of reversals,
     recognized in interest revenue                         --       --       --
--------------------------------------------------------------------------------
Reduction of interest revenue                                5        9       15
--------------------------------------------------------------------------------
Total reduction of interest revenue                        $18      $40      $66
================================================================================

      On January 1, 1995, the Corporation adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan." This statement, as amended by SFAS 118,
"Accounting for Impairment of a Loan--Income Recognition and Disclosures,"
requires the creation of a valuation allowance for impaired loans. A loan is
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the loan's
contractual terms. At December 31, 1997 and December 31, 1996, the recorded
investment in loans that was considered to be impaired under SFAS 114 was $265
million and $489 million, respectively, which consisted of total cash basis
loans and renegotiated loans. Included in these amounts were $78 million and
$227 million of loans which required a valuation allowance of $13 million and
$57 million at those same dates, respectively. The average recorded investment
in impaired loans during the years ended December 31, 1997 and December 31, 1996
was approximately $356 million and $633 million, respectively. For the years
ended December 31, 1997, December 31, 1996 and December 31, 1995, the
Corporation recognized interest income on impaired loans of $3 million, $7
million and $13 million, respectively, using the cash basis method of income
recognition described above and in Note 2.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       49
<PAGE>

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

Note 6--Allowance for Credit Losses

An analysis of the changes in the Corporation's allowance for credit losses
follows:

(in millions) Year Ended December 31,               1997        1996        1995
--------------------------------------------------------------------------------
Balance, beginning of year                        $  973      $  992      $1,252
--------------------------------------------------------------------------------
Net charge-offs
  Charge-offs                                        107          89         330
  Recoveries                                          84          65          39
--------------------------------------------------------------------------------
Total net charge-offs                                 23          24         291
Provision for credit losses                           30           5          31
Allowance related to acquisition                      17          --          --
--------------------------------------------------------------------------------
Balance, end of year (1)                          $  997      $  973      $  992
================================================================================
(1) Allocation*:
      Loans                                       $  699      $  773
      Trading assets                                 285         190
      Other liabilities                               13          10
--------------------------------------------------------------------
Balance, end of year                              $  997      $  973
====================================================================
*     Beginning December 31, 1996, the Corporation has allocated its total
      allowance for credit losses as a reduction of loans, a reduction of
      trading assets, and as other liabilities. 1995 has not been restated.

Note 7--Premises and Equipment; Leases

An analysis of premises and equipment follows:

(in millions) December 31,                                      1997        1996
--------------------------------------------------------------------------------
Land                                                          $   83      $   99
Buildings                                                        318         425
Leasehold improvements                                           373         393
Furniture and equipment                                        1,142       1,138
Construction-in-progress                                          17          29
Other                                                             --           3
--------------------------------------------------------------------------------
Total                                                          1,933       2,087
Less accumulated depreciation and amortization                 1,031       1,063
--------------------------------------------------------------------------------
Net book value                                                $  902      $1,024
================================================================================

      In 1997, 280 Park Avenue, a midtown Manhattan office building that was
previously the headquarters of the Corporation, was sold. The sale of this
property was accompanied by a leaseback of a portion of the building. The
related future minimum lease payments are included in the minimum lease payments
below.

      The Corporation is a lessee under lease agreements covering real property
and equipment. The future minimum lease payments required under the
Corporation's noncancelable operating leases at the end of 1997 were as follows:

(in millions) Year Ended December 31,
--------------------------------------------------------------------------------
1998                                                                       $ 90
1999                                                                         93
2000                                                                         91
2001                                                                         78
2002                                                                         73
2003 and later                                                              439
--------------------------------------------------------------------------------
Total minimum lease payments                                                864
Less minimum noncancelable sublease rentals                                  11
--------------------------------------------------------------------------------
Net minimum lease payments                                                 $853
================================================================================

      The following shows the net rental expense for all operating leases:

(in millions) Year Ended December 31,             1997         1996         1995
--------------------------------------------------------------------------------
Gross rental expense                              $107         $103         $102
Less sublease rental income                          3            3            3
--------------------------------------------------------------------------------
Net rental expense                                $104         $100         $ 99
================================================================================

Note 8--Securities Loaned and Securities Sold Under Repurchase Agreements and
        Other Short-term Borrowings

Short-term borrowings are borrowed funds generally with an original maturity of
one year or less. Debt instruments which contain a provision for early
redemption, exercisable at the option of the security holder, are classified on
the basis of the earliest possible redemption date.

      Securities loaned and securities sold under repurchase agreements and
federal funds purchased generally mature in one day; commercial paper generally
matures within 90 days.

      The details of these borrowings for the years 1997, 1996 and 1995 are
presented below:

($ in millions)                                      1997       1996       1995
--------------------------------------------------------------------------------
Securities loaned and securities sold
  under repurchase agreements
Balance at year end                               $17,896    $23,454    $15,684
Average amount outstanding                         23,897     26,964     21,861
Maximum amount outstanding at
  any month end                                    27,878     30,471     28,465
Average interest rate for the year                   5.91%      5.93%      5.44%
Average interest rate on year-end balance            5.30%      5.81%      6.21%

Federal funds purchased
Balance at year end                               $ 3,260    $ 5,475    $ 4,658
Average amount outstanding                          4,097      3,684      3,623
Maximum amount outstanding at
  any month end                                     8,444      6,982      6,313
Average interest rate for the year                   5.03%      4.97%      5.47%
Average interest rate on year-end balance            5.42%      5.77%      5.07%

Commercial paper
Balance at year end                               $ 8,733    $ 8,080    $ 6,860
Average amount outstanding                          8,881      7,399      7,022
Maximum amount outstanding at
  any month end                                     9,584      9,076      8,239
Average interest rate for the year                   5.79%      5.78%      6.25%
Average interest rate on year-end balance            5.94%      5.61%      5.81%

Other
Balance at year end                               $ 7,584    $ 5,854    $ 4,343
Average amount outstanding                          7,190      5,378      5,802
Maximum amount outstanding at
  any month end                                     8,249      6,534      7,079
Average interest rate for the year                   6.58%      7.25%      7.03%
Average interest rate on year-end balance            5.93%      6.08%      7.41%
================================================================================


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       50
<PAGE>

Note 9--Long-Term Debt

In accordance with the Federal Reserve Board's Capital Adequacy Guidelines,
long-term debt included in risk-based capital must meet specific criteria.
Generally, qualifying debt must be unsecured, subordinated and have an original
weighted-average maturity of at least five years. Additionally, the outstanding
amount of long-term debt included in risk-based capital is reduced as these
issues approach maturity. That is, one-fifth of the original issue is amortized
each year during the last five years before maturity.

      Risk-based capital as of December 31, 1997 also includes Tier 3 capital.
Tier 3 capital is defined as subordinated debt that is unsecured; has an
original maturity of a minimum of two years; is not redeemable before maturity
without prior approval from the Federal Reserve; and includes a lock-in clause
precluding payment of either principal or interest if the payment would cause
the issuing organization's risk-based capital ratios to fall below the minimum
required level.

      Long-term debt included in risk-based capital and other long-term debt are
summarized as follows, based on the contractual terms of each issue:

Long-term debt included in risk-based capital

                                                             Dec. 31,   Dec. 31,
                            Subordinated     Subordinated       1997       1996
(in millions)                 Fixed Rate    Floating Rate      Total      Total
--------------------------------------------------------------------------------
Parent Company
Due in 1997                       $   --           $   --     $   --     $  199
Due in 1998                           --               --         --         --
Due in 1999                          100              150        250        250
Due in 2000                          200               --        200        200
Due in 2001                          210               --        210        210
Due in 2002                          610               96        706        715
Due in 2003-2007                     609              292        901        718
Thereafter                         1,050               25      1,075        710
--------------------------------------------------------------------------------
Total                             $2,779           $  563     $3,342     $3,002
--------------------------------------------------------------------------------
BTCo                                             
Due in 1997                       $   --           $   --     $   --     $   24
Due in 1998                           25               --         25         27
Due in 1999                            9               --          9          8
Due in 2000                            8               --          8          7
Due in 2001                            7               --          7          7
Due in 2002                            7               --          7          6
Due in 2003-2007                      20              100        120         20
Thereafter                            --               --         --         --
--------------------------------------------------------------------------------
Total                             $   76           $  100     $  176     $   99
--------------------------------------------------------------------------------
BT Alex. Brown Incorporated                      
Due in 1997                       $   --           $   --     $   --     $   --
Due in 1998                           --               --         --         --
Due in 1999                           --              200        200         --
Due in 2000                           --              200        200         --
Due in 2001                           --               --         --         --
Due in 2002                           --               --         --         --
Due in 2003-2007                      --               --         --         --
Thereafter                            --               --         --         --
--------------------------------------------------------------------------------
Total                             $   --           $  400     $  400     $   --
--------------------------------------------------------------------------------
Total long-term debt                                          $3,918     $3,101
--------------------------------------------------------------------------------
Less: Amortization for risk-based capital purposes              (606)      (525)
--------------------------------------------------------------------------------
Total long-term debt included in risk-based capital           $3,312     $2,576
================================================================================

Long-term debt not included in risk-based capital

                          Subordinated  
                         ---------------    Senior    Senior  Dec. 31,  Dec. 31,
                         Fixed  Floating     Fixed  Floating      1997      1996
(in millions)             Rate      Rate      Rate      Rate     Total     Total
--------------------------------------------------------------------------------
Parent Company
Due in 1997                $--      $ --    $   --    $   --   $    --    $   66
Due in 1998                 --        --       104       115       219       522
Due in 1999                 --        50       521       264       835       280
Due in 2000                 --        --         1       525       526       461
Due in 2001                  4        --       269       564       837       849
Due in 2002                 --        --         5       596       601        21
Due in 2003-2007            --        --       111       136       247       175
Thereafter                  --        --        --         7         7        --
--------------------------------------------------------------------------------
Total                      $ 4      $ 50    $1,011    $2,207   $ 3,272    $2,374
--------------------------------------------------------------------------------
BTCo                           
Due in 1997                                 $   --    $   --   $    --    $1,611
Due in 1998                                    133        84       217       403
Due in 1999                                     13       954       967       140
Due in 2000                                      1     3,100     3,101       987
Due in 2001                                      2       654       656       652
Due in 2002                                     33       666       699       318
Due in 2003-2007                                23       728       751       464
Thereafter                                       4       255       259       162
--------------------------------------------------------------------------------
Total                                       $  209    $6,441   $ 6,650    $4,737
--------------------------------------------------------------------------------
BT Alex. Brown Incorporated
Senior/Junior Subordinated Notes due Feb. 1997 to
  Nov. 1999 (issuances qualify as risk-based
  capital during 1997)                                         $    --    $  518
Senior Floating Rate Note due Sept. 1998 to Mar. 1999              705       499
Term loans due February 1997 to August 1999                         --        16
BTC Mortgage Investors Trust (fixed rate)                           42        63
--------------------------------------------------------------------------------
Total long-term debt                                           $10,669    $8,207
Add: Amortization for risk-based capital purposes                  606       525
--------------------------------------------------------------------------------
Total long-term debt not included in risk-based capital        $11,275    $8,732
================================================================================

      Based solely on the contractual terms of the debt issues, at December 31,
1997 and 1996 the Corporation's total fixed rate long-term debt had a
weighted-average interest rate of 7.42 percent and 7.28 percent, respectively.

      The Corporation has entered into interest rate and currency swap
agreements for many of its long-term debt issues, in order to manage its
interest rate and currency risks.

      The interest rates for the floating rate debt issues and the fixed rate
debt issues effectively converted to floating are generally based on LIBOR,
although in certain instances they are subject to minimum interest rates as
specified in the agreements governing the respective issues.

      The weighted-average effective interest rates for total long-term debt,
including the effects of the related swap agreements, were 6.38 percent and 5.90
percent at December 31, 1997 and 1996, respectively.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       51
<PAGE>

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

      The Corporation issued $25 million convertible subordinated debentures in
June 1986. The debentures are due June 2001, bear interest at 5 3/4% and are
convertible into the Corporation's common stock at the rate of one share of
common stock for each $20.90 of principal amount of debentures. The debentures
were redeemable at the option of the Corporation at 100.5% through June 11, 1997
and at par thereafter. During 1997 and 1996, $8,320,000 and $75,000 par value,
respectively, of the debentures were converted into 399,450 and 3,586 shares,
respectively, of the Corporation's common stock.

      Mandatory convertible securities (equity commitment and equity contract
notes) include covenants requiring the Parent Company, from time to time or at
maturity, as appropriate, to issue common stock or other securities in an amount
equal to the principal amount of the debt securities, in order to comply with
capital adequacy guidelines. In this regard, at December 31, 1997 and 1996, the
Parent Company had dedicated $250 million and $448 million, respectively of net
proceeds from such issuances.

      At December 31, 1997 and 1996, certain subsidiaries of Bankers Trust
Company had outstanding $3.69 billion and $2.76 billion, respectively of
mandatory redeemable preference securities as included in the table above which
are not included in risk-based capital. Maturities at December 31, 1997 range
from January 1999 to February 2001 and maturities at December 31, 1996 range
from March 1997 to October 2002.

Note 10--Mandatorily Redeemable Capital Securities of Subsidiary Trusts Holding
         Solely Junior Subordinated Deferrable Interest Debentures Included in 
         Risk-Based Capital ("Trust Preferred Capital Securities")

The trust preferred capital securities are issued by trusts all of whose
outstanding common securities are owned by either the Parent Company or BTCo.
The trust preferred capital securities represent preferred undivided beneficial
interests in the assets of the trusts. The trusts exist for the sole purpose of
issuing the trust preferred capital securities and investing the proceeds
thereof in junior subordinated deferrable interest debentures issued by the
Parent Company or BTCo, as applicable (the "debentures"). The debentures are
unsecured and subordinated to all senior indebtedness of the Parent Company or
BTCo, as applicable, and are the sole assets of the trusts. Payments under the
debentures by either the Parent Company or BTCo are the same as those for the
trust preferred capital securities. The debentures are redeemable prior to
stated maturity at the option of the Parent Company or BTCo during the
redemption periods described below. The trust preferred capital securities are
subject to mandatory redemption upon repayment of the related debentures at
their stated maturity dates or their earlier redemption at a redemption price
equal to their liquidation amount plus accrued distributions to the date fixed
for redemption and the premium, if any, paid by the Parent Company or BTCo upon
concurrent repayment of the related debentures.

      The Parent Company and BTCo, as applicable, have issued guarantees for the
payment of distributions and payments on liquidation or redemption of the trust
preferred capital securities, but only to the extent of funds held by the
relevant trust.

      The appropriate obligations of the Parent Company or BTCo under each
series of debentures, the relevant indenture and trust agreement, the relevant
guarantee and certain other related agreements, in the aggregate, constitute a
full and unconditional guarantee by the Parent Company or BTCo, as applicable,
of each trust's obligations under the relevant trust preferred capital
securities.

      The Corporation is required by the Federal Reserve to maintain certain
levels of capital. The Federal Reserve has announced that certain cumulative
preferred securities having the characteristics of trust preferred capital
securities qualify as minority interest, which is included in Tier 1 Capital for
bank holding companies. Such Tier 1 Capital treatment, together with the Parent
Company's ability to deduct, for federal income tax purposes, interest expense
on the corresponding debentures, provides the Parent Company with a
cost-effective means of obtaining capital for regulatory purposes.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       52
<PAGE>

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

The following is a summary of the outstanding trust preferred capital securities
and debentures:

<TABLE>
<CAPTION>
                                      Aggregate      Aggregate
                                    Liquidation    Liquidation    Per Annum
                                      Amount of      Amount of      Interest                     Stated
                                          Trust          Trust       Rate of                Maturity of
                                      Preferred      Preferred    Debentures                 Debentures
                                        Capital        Capital     and Trust                  and Trust
                                  Securities at  Securities at     Preferred     Interest     Preferred    Earlier      Redemption
                                   December 31,   December 31,       Capital      Payment       Capital   Maturity       Period of
($ in millions)                            1997           1996    Securities        Dates    Securities       Date(b)   Debentures
----------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>     <C>         <C>               <C>        <C>         <C>
Parent Company--Obligated
BT Institutional Capital Trust A         $  300           $300         8.09%    6/1, 12/1       12/1/26         --     On or after
                                                                                                                           12/1/06
BT Institutional Capital Trust B            200            200          7.75    6/1, 12/1       12/1/26         --     On or after
                                                                                                                           12/1/06
BT Capital Trust B                          250             --          7.90   1/15, 7/15       1/15/27    1/15/17     On or after
                                                                                                                           1/15/07
BT Preferred Capital Trust I                250             --         8 1/8   3/31, 6/30        2/1/37     2/1/02     On or after
                                                                              9/30, 12/31                                   2/1/02
BT Preferred Capital Trust II               250             --         7.875   2/25, 8/25       2/25/27    2/25/12     On or after
                                                                                                                           2/25/07
BTCo--Obligated
                                                                     3-Month
                                                                       LIBOR   3/30, 6/30                              On or after
BTC Capital Trust I                         250            250    plus 0.75%  9/30, 12/30      12/30/26         --        12/30/06
----------------------------------------------------------------------------------------------------------------------------------
Total                                    $1,500(a)        $750(a)
==================================================================================================================================
</TABLE>

(a)   Excludes $28 million and $20 million of deferred issuance costs and
      unamortized discount at December 31, 1997 and December 31, 1996,
      respectively.
(b)   The maturity dates may be shortened under certain circumstances.

Note 11--Preferred Stock of Subsidiary

On January 22, 1993, BT Overseas Finance N. V. ("BTOF"), an indirect,
wholly-owned subsidiary of the Parent Company authorized to issue 10,000
preferred shares, $.01 par value, issued $250 million, or 2,500 shares, of
Auction Rate Cumulative Preferred Stock in four series of 625 shares
each--Series A-D ("BTOF Preferred"). In the first quarter of 1997, BTOF redeemed
all 2,500 shares of the BTOF Preferred at a price of $100,000 per share plus
accrued and unpaid dividends on such shares to the redemption date. Dividends on
these shares ceased to accumulate on the applicable redemption date.

Note 12--Preferred Stock 

Series Preferred Stock

The Parent Company is authorized to issue 10 million shares of Series Preferred
Stock, without par value. All shares of Series Preferred Stock constitute one
and the same class and have equal rank and priority over common stockholders as
to dividends and in the event of liquidation. Each series of Series Preferred
Stock has a liquidation preference per share (as indicated below), plus accrued
and unpaid dividends, as well as contingent voting rights. The Series Preferred
Stock outstandings were as follows:

($ in millions) December 31,                                   1997         1996
--------------------------------------------------------------------------------
Series J, Redeemed in 1997                                     $ --         $ 45
Series Q, Outstanding: 63,847 shares                            159          162
Series R, Outstanding: 50,408 shares                            126          131
Series I, Redeemed in 1997                                       --          100
Series O, Outstanding: 594,902 shares                           149          148
Series P, Outstanding: 99,127 shares                             99           99
Series S, Outstanding: 50,000 shares                            125          125
--------------------------------------------------------------------------------
Total preferred stock                                          $658         $810
================================================================================


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       53
<PAGE>

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

Series C Junior Participating Preferred Stock

The Parent Company has designated 1 million shares of the Series Preferred Stock
as Series C Junior Participating Preferred Stock ("Series C"), which are
issuable on the exercise of Preferred Share Purchase Rights pursuant to a Rights
Agreement adopted by the Corporation in February 1988 and amended, November 26,
1997. See Note 13 for a more detailed discussion of this agreement. No Series C
shares have ever been issued.

8.55% Cumulative Preferred Stock, Series I

On March 1, 1997, the Parent Company redeemed its remaining outstanding 1
million shares or $100,000,000 liquidation value of the 8.55% Cumulative
Preferred Stock, Series I at $100 per share plus an amount equal to accrued and
unpaid dividends to the date of redemption. Dividends on the Series I were
cumulative and payable quarterly on March 1, June 1, September 1 and December 1
of each year, commencing on June 1, 1995, at a fixed rate of 8.55 percent of the
liquidation preference per annum.

Fixed/Adjustable Rate Cumulative Preferred Stock, Series J

On December 1, 1997, the Parent Company redeemed its remaining outstanding
447,225 shares or $44,722,500 liquidation value of the fixed/adjustable rate
Cumulative Preferred Stock, Series J at $100 per share plus an amount equal to
accrued and unpaid dividends to the date of redemption. Dividends on the Series
J were cumulative and payable quarterly on March 1, June 1, September 1 and
December 1 of each year. The Series J dividend rate was fixed at 7.375 percent
per annum prior to December 1, 1997.

7 5/8% Cumulative Preferred Stock, Series O

On June 2, 1993, the Parent Company issued $150 million of 7 5/8% Convertible
Capital Securities due June 2033. These debt securities were subordinated and
could only be redeemed in whole but not in part, on or after June 1, 1998 at
par, plus accrued and unpaid interest to the redemption date. On March 1, 1995,
the Parent Company reset the interest rate on the 7 5/8% Convertible Capital
Securities to a rate of 6 1/8 percent per annum giving holders of this issue the
right, at any time prior to redemption or maturity, to convert the debt
securities into depositary shares, at $25 per share, each representing a
one-tenth interest in a share of the Parent Company's 7 5/8% Cumulative
Preferred Stock, Series O (Liquidation Preference--$250 per share) ("Series O").

      Dividends on the Series O are cumulative and payable quarterly on each
March 1, June 1, September 1 and December 1, commencing with the date succeeding
original issuance. Shares of Series O are redeemable at the Parent Company's
option, in whole or in part, at $300 per share (or $30 per depositary share) on
or before June 1, 1998 and thereafter at $250 per share (or $25 per depositary
share), plus, in each case, accrued and unpaid dividends to the redemption date.
Any optional redemption shall be with the approval of the Federal Reserve Board
unless at that time that body should determine that its approval is not
required.

7.50% Cumulative Preferred Stock, Series P

On August 19, 1993, the Parent Company issued $100 million of 7.50% Convertible
Capital Securities due August 2033. These debt securities were subordinated and
could only be redeemed, in whole but not in part, on or after August 15, 1998 at
par, plus accrued and unpaid interest to the redemption date. On May 15, 1995,
the Parent Company reset the interest rate on the 7.50% Convertible Capital
Securities to a rate of 6.00 percent per annum giving holders of this issue the
right, at any time prior to redemption or maturity, to convert the debt
securities into depositary shares, at $25 per share, each representing a
one-fortieth interest in a share of the Parent Company's 7.50% Cumulative
Preferred Stock, Series P (Liquidation Preference--$1,000 per share) ("Series
P").

      Dividends on the Series P are cumulative and payable quarterly on February
15, May 15, August 15 and November 15, commencing with the date succeeding
original issuance. Shares of Series P are redeemable at the Parent Company's
option, in whole or in part, at $1,200 per share (or $30 per depositary share)
on or before August 15, 1998 and thereafter at $1,000 per share (or $25 per
depositary share), plus, in each case, accrued and unpaid dividends to the
redemption date. Any optional redemption shall be with the approval of the
Federal Reserve Board unless at that time that body should determine that its
approval is not required.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       54
<PAGE>

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

Adjustable Rate Cumulative Preferred Stock, Series Q

On March 28, 1994, the Parent Company issued $200 million, or 8 million
depositary shares at $25 per share, each representing a one-hundredth interest
in a share of Adjustable Rate Cumulative Preferred Stock, Series Q (Liquidation
Preference--$2,500 per share) ("Series Q"). During 1996, the Parent Company
repurchased approximately 1.5 million shares of Series Q. At the option of the
Parent Company, the Series Q may be redeemed, in whole or in part, on or after
March 1, 1999, at $2,500 per share (or $25 per depositary share), plus, in each
case, accrued and unpaid dividends to the redemption date. Any optional
redemption shall be with the approval of the Federal Reserve Board unless at
that time that body should determine that its approval is not required.

      Dividends on the Series Q are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year. The initial dividend rate was
5.90 percent per annum for the dividend period ending on May 31, 1994.
Thereafter, the dividend rate is determined by a formula that considers the
interest rates of selected short- and long-term U.S. Treasury securities at the
time the rate is set. In no event will the dividend rate be less than 4 1/2
percent or more than 10 1/2 percent per annum.

Adjustable Rate Cumulative Preferred Stock, Series R

On August 22, 1994, the Parent Company issued $150 million, or 6 million
depositary shares at $25 per share, each representing a one-hundredth interest
in a share of Adjustable Rate Cumulative Preferred Stock, Series R (Liquidation
Preference--$2,500 per share) ("Series R"). The Parent Company repurchased
approximately 750 thousand shares and 200 thousand shares of Series R in 1996
and 1997, respectively. At the option of the Parent Company, the Series R may be
redeemed, in whole or in part, on or after September 1, 1999, at $2,500 per
share (or $25 per depositary share), plus, in each case, accrued and unpaid
dividends to the redemption date. Any optional redemption shall be with the
approval of the Federal Reserve Board unless at that time that body should
determine that its approval is not required.

      Dividends on the Series R are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year. The initial dividend rate was
6.42 percent per annum for the dividend period ending on November 30, 1994.
Thereafter, the dividend rate is determined by a formula that considers the
interest rates of selected short- and long-term U.S. Treasury securities at the
time the rate is set. In no event will the dividend rate be less than 4 1/2
percent or more than 10 1/2 percent per annum.

7.75% Cumulative Preferred Stock, Series S

On June 30, 1995, the Corporation issued $125 million, or 5 million depositary
shares at $25 per share, each representing a one-hundredth interest in a share
of the Corporation's 7 3/4% Cumulative Preferred Stock, Series S (Liquidation
Preference--$2,500 per share) ("Series S").

      Dividends on the Series S are cumulative and payable quarterly on March 1,
June 1, September 1 and December 1 of each year, commencing with the date
succeeding original issuance. At the option of the Corporation, the Series S may
be redeemed, in whole or in part, on or after June 1, 2000, at $2,500 per share
(or $25 per depositary share), plus, in each case, accrued and unpaid dividends
to the redemption date. Any optional redemption shall be with the approval of
the Federal Reserve Board unless at that time that body should determine that
its approval is not required.

Serial Preferred Stock

In 1990, stockholders voted in favor of an amendment to the Restated Certificate
of Incorporation of Bankers Trust New York Corporation to increase the number of
shares of authorized preferred stock from 10 million to 20 million and created a
new class of preferred stock called Serial Preferred Stock which would have
equal rank as the Series Preferred Stock as well as priority over common
stockholders as to dividends and in the event of liquidation. The Parent Company
has decided to defer action on implementing this approved amendment at this
time.

Note 13--Preferred Share Purchase Rights

On February 16, 1988, the Board of Directors of the Parent Company declared a
dividend distribution of one Preferred Share Purchase Right ("Right") for each
share of common stock held, payable February 26, 1988 to stockholders of record
on that date. Rights also automatically attach to each share of common stock
issued after February 26, 1988.

      Each Right entitles the registered holder to purchase from the Parent
Company a one-hundredth interest in a share of the Parent Company's Series C
Junior Participating Preferred Stock at an exercise price of $480, as amended,
subject to certain adjustments. The Rights will not be exercisable or
transferable apart from the common stock until the 10th day after either a
public announcement that a person or group (an "Acquiring Person") has acquired
beneficial ownership of 20 percent or more of the common stock, or the
announcement or commencement of a tender or exchange offer for 20 percent or
more of the common stock. If the Corporation is acquired or 50 percent or more
of its consolidated assets or earning power are sold, each holder of a Right
will have the right to receive, upon the exercise at the then current exercise
price of the Right, that number of shares of common stock of the acquiring
company which have a market value of two times the exercise price of the Right.
If any person becomes an Acquiring Person, each holder of a Right other than
Rights beneficially owned by the Acquiring Person (which will be void), will
have the right to receive upon exercise that number of common shares having a
market value of two times the exercise price of the Right. The Rights will
expire on February 26, 2008, as amended, but may be redeemed at any time prior
to a person or group acquiring the beneficial ownership of 20 percent or more of
the common stock. Until a Right is exercised, the holder will have no rights as
a stockholder of the Parent Company.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       55
<PAGE>

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

      After the acquisition by a person or group of beneficial ownership of 20
percent or more of the outstanding common shares and prior to the acquisition by
such person or group of 50 percent or more of the outstanding common shares, the
Board of Directors of the Parent Company may exchange the Rights (other than
Rights owned by such person or group), in whole or in part, at an exchange ratio
of one common share, or a one-hundredth interest in a share of Series C Junior
Participating Preferred Stock (or a share of a class or series of the Parent
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).

      If issued, each share of Series C Junior Participating Preferred Stock
will be entitled, subject to adjustment, to (i) a quarterly dividend of the
greater of $1 per share or 100 times the quarterly dividend declared on each
share of common stock, (ii) in the event of liquidation, dissolution or winding
up, a preferential liquidation payment of the greater of $100 per share or 100
times the liquidation payment made per share of common stock, and (iii) 100
votes per share voting together with the holders of the Parent Company's common
stock on all matters.

      These statements are qualified in their entirety by reference to the
Rights Agreement, as amended as of November 26, 1997, a copy of which was filed
with the Securities and Exchange Commission with the Corporation's Current
Report on Form 8-K filed on November 26, 1997.

Note 14--Common Stock and Stock-Based Compensation Plans

The purposes and number of shares of common stock issued, distributed from
treasury and purchased for treasury during 1997, 1996 and 1995 were as
follows(1):

<TABLE>
<CAPTION>
Year Ended December 31,                                             1997           1996           1995
------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>       
Common shares outstanding,
  beginning of year                                           99,189,329     98,414,325     95,860,331
------------------------------------------------------------------------------------------------------
Shares issued or distributed under Employee Benefit Plans:
    Bankers Trust New York
      Corporation
      1985 Stock Option and
        Stock Award Plan
        Stock options                                             96,264        674,441        260,993
        Deferred stock awards                                         --         31,701             --
      1991 Stock Option and
        Stock Award Plan
        Stock options                                            806,409      1,654,567        367,728
        Restricted stock awards, net                                  --        (31,293)       (84,539)
        Deferred stock awards                                     95,578             --        242,264
      1994 Stock Option and
        Stock Award Plan
        Stock options                                          2,538,395      1,907,957          7,000
        Restricted stock awards, net                            (108,810)       541,910        813,901
        Deferred stock awards                                    156,281            265             --
    Alex. Brown Predecessor Plans
      Stock Option Plan                                        1,149,154        491,978        545,308
      Employee Debenture
        Conversions                                            2,117,489        141,275         64,267
      Equity Compensation Plan                                   237,304        271,185        163,894
      Employee Stock Purchase Plan                                68,062        126,701        113,850
      Other, net                                                  11,095         21,165         78,415
  Conversion of 5 3/4% Convertible
    Subordinated Debentures                                      399,450          3,586        623,685
------------------------------------------------------------------------------------------------------
Total shares issued or distributed                             7,566,671      5,835,438      3,196,766
Shares issued for acquisitions                                    14,678      2,881,476             --
Shares purchased for treasury                                 (9,735,358)    (7,493,395)      (600,495)
Shares purchased and retired                                     (78,980)      (448,515)       (42,277)
------------------------------------------------------------------------------------------------------
Common shares outstanding,
  end of year                                                 96,956,340     99,189,329     98,414,325
======================================================================================================
</TABLE>
(1)   The information presented reflects the additional shares issued to Alex.
      Brown shareholders in conjunction with the Merger.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       56
<PAGE>

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

        The following is a summary of stock option transactions which occurred
during 1995, 1996 and 1997 (number of shares in thousands):

                                                              Weighted-Average
                                           Exercise Price       Exercise Price
                             Options           Per Option           Per Option
--------------------------------------------------------------------------------
December 31, 1994             10,038       $ 6.83-80.75                 $52.38
====================================
  Granted                      3,163        29.43-69.0625                57.09
  Exercised                   (1,181)        6.83-68.625                 32.99
  Cancelled                     (879)                                    63.63
------------------------------------
December 31, 1995             11,141         6.83-80.75                  54.89
====================================
  Granted                      3,947        38.84-83.3125                71.15
  Exercised                   (4,729)        6.83-70.4375                55.15
  Cancelled                     (500)                                    58.86
------------------------------------
December 31, 1996              9,859        14.01-83.3125                60.77
====================================
  Granted                      7,417        68.44-111.75                 93.56
  Exercised                   (4,590)       14.01-79.125                 59.37
  Cancelled                     (208)                                    60.18
------------------------------------
December 31, 1997             12,478        16.81-111.75                 80.76
====================================                                    ======
Exercisable at:
December 31, 1996              5,429                                     56.75
====================================                                    ======
December 31, 1997              5,622                                    $62.65
====================================                                    ======

      The following table sets forth information about stock options outstanding
at December 31, 1997 (number of shares in thousands):

<TABLE>
<CAPTION>
                                           Options Outstanding                         Options Exercisable
                          ---------------------------------------------------      ------------------------------
                                        Weighted Average     Weighted Average                    Weighted Average
Range of                  Number of            Remaining             Exercise      Number of             Exercise
Exercise Prices              Shares     Contractual Life                Price         Shares                Price
-----------------------------------------------------------------------------------------------------------------
<S>                          <C>               <C>                  <C>               <C>               <C>      
$  16.81-30.90                  680            6.2 years            $   25.82            680            $   25.82
$  38.84-72.59                3,130            6.7                      62.58          3,130                62.58
$76.4375-111.75               8,668            9.3                      91.63          1,812                76.61
-----------------------------------------------------------------------------------------------------------------
                             12,478            8.5                  $   80.76          5,622            $   62.65
=================================================================================================================
</TABLE>

      At December 31, 1997, common stock was reserved for issuance or
distribution as follows:

Dividend Reinvestment and Common Stock Purchase Plan                   2,512,549
Employee Benefit Plans
  Partner Share (including ESOP shares)                                2,274,330
  1997 Stock Option and Stock Award Plan                              20,000,000
  1994 Stock Option and Stock Award Plan                               8,481,701
  1991 Stock Option and Stock Award Plan                               3,920,576
  1985 Stock Option and Stock Award Plan                               1,441,171
--------------------------------------------------------------------------------
   Total                                                              38,630,327
================================================================================

      The Corporation's stock-based compensation plans currently consist of the
continuation of Alex. Brown's and the Corporation's respective plans that were
in effect prior to the Merger. Accordingly, the following information summarizes
Alex. Brown's and the Firm's predecessor plans.

Bankers Trust New York Corporation's Plans

At the Annual Meeting of Stockholders on April 19, 1994, the stockholders
approved the 1994 Stock Option and Stock Award Plan (the "1994 Plan") which made
available for grant, until April 21, 1998, 15 million common shares. The 1994
Plan permits the granting of nonqualified and incentive stock options,
restricted stock, deferred stock and other stock-based awards (collectively, the
"Awards"). Awards are still outstanding under the 1991 Stock Option and Stock
Award Plan (the "1991 Plan") and the 1985 Stock Option and Stock Award Plan (the
"1985 Plan"). No further Awards will be granted under either the 1991 Plan or
the 1985 Plan. These plans are administered by the Human Resources Committee of
the Board of Directors (the "Committee"), none of whom is eligible to
participate therein. The Committee determines whether, to what extent and under
what circumstances the Awards may be settled in cash. Awards granted under these
plans may be satisfied through the use of the Parent Company's authorized but
unissued shares or shares held in the Parent Company's treasury.

      At the Annual Meeting of Stockholders on April 15, 1997, stockholders
approved the 1997 Stock Option and Stock Award Plan (the "1997 Plan"). The
provisions of this plan are generally similar to the 1994 Plan and made 20
million shares available for grant under its terms. The Board of Directors has
authorized a stock purchase program to satisfy the awards to be granted under
the 1997 Plan and under prior Stock Option and Stock Award Plans. The
authorization includes the 20 million shares that are subject to the 1997 Plan.
The Corporation intends to satisfy awards granted under 


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       57
<PAGE>

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

the 1997 Plan through the issuance of treasury shares acquired in open market
purchases.

      Stock options are granted to purchase stock at a price not less than the
fair market value on the date of grant and may be outstanding for any period up
to 10 years and one day from the date of grant. Generally, no stock option may
be exercised until the employee has remained in the continuous employ of the
Corporation for one year after the option is granted.

      Recipients of restricted stock have all the rights of a stockholder of the
Corporation, except for limitations on sale or use of shares during the
restriction period, generally two to three years. The Committee determines all
conditions of the awards, including whether to permit or require cash dividends
to be deferred or reinvested.

      Deferred stock awards are the right to receive common stock of the
Corporation at a specified future date. The awards vest from one to three years
from the date of the award. For deferred stock awards, shares of stock are not
distributed until after a specified deferral period extending up to five years
from the vesting date. Prior to distribution, awards may earn amounts equivalent
to quarterly dividends declared by the Corporation and may also earn the
equivalent of the excess of quarterly earnings per common share over the cash
dividends. At December 31, 1997 and 1996, there were deferred stock awards
outstanding of 9,871,227 shares and 6,721,996 shares, respectively.

      After providing for stock options granted, restricted stock awards and
deferred stock awards, there were 479,171, and 189,548 shares available for
future grant under the 1994 Plan at December 31, 1997 and 1996, respectively and
9,610,957 shares available for future grant under the 1997 Plan at December 31,
1997. Compensation expense recognized for the restricted stock awards and
deferred stock awards was $274 million and $174 million in 1997 and 1996,
respectively. The weighted-average grant-date fair value of restricted stock
awards and deferred stock awards granted during 1997 was $109.09.

Alex. Brown Predecessor Plans

Equity Incentive Plans

Pursuant to the 1991 Equity Incentive Plan (the "Plan"), Alex. Brown made stock
based awards, prior to the Merger, including stock options, convertible
debentures and restricted stock awards to key employees in any calendar year in
respect of a maximum of 7.5 percent of the total shares of common stock
outstanding on the first day of such year. The Corporation has also sold
convertible subordinated debentures to certain employees pursuant to the Plan.
The debentures were generally convertible into the Corporation's common stock
three years after the date issued or in stages beginning four years after the
date issued. The debentures may be redeemed at par if the employee terminates
employment with the Corporation. The Corporation made loans to the employees to
finance the entire purchase price of the stock and debentures. Loan forgiveness
resulted in compensation expense of $27 million, $9 million and $4 million in
1997, 1996 and 1995, respectively. Information related to debentures outstanding
at December 31, 1997 is as follows:

                                                             Weighted average
Principal amount        Weighted average                           conversion
of debentures              interest rate         Due Date         price/share
--------------------------------------------------------------------------------
$   69,000                        6.750%             1998           $   20.48
   192,000                        6.375%             1999               18.47
   475,000                        5.375%             2000               23.16
 3,418,000                        6.095%             2001               21.38
 6,874,000                        6.210%             2002               42.63
 6,191,000                        6.351%             2003               51.87
================================================================================

The Corporation has granted nonqualified stock options to certain employees and
directors. Payment for the shares may be made in cash, shares of the
Corporation's common stock or a combination thereof. Options granted since
January 1993 expire after ten years. The exercise price for these options is 25%
greater than the lesser of the average market value of the Corporation's common
stock 30 days prior to the date of grant or the market value on the date of
grant.

      Pursuant to the Equity Compensation Plan, certain key employees had a
portion of cash compensation withheld and replaced by restricted common stock of
the Corporation at a 15% discount from market and interests in investment
accounts through which the employees can direct investments in selected
Corporation-sponsored investment vehicles. Compensation expense is recorded
currently based on the value of the stock and interests in the investment
accounts on the award date. There will be no new contributions to this plan
after June 1997. During 1997, 1996, and 1995, $1 million, $18 million and $11
million of cash compensation was withheld and replaced by 6,861 shares, 199,982
shares, and 203,128 shares of the Corporation's common stock and interests in
investment accounts for 1997, 1996 and 1995, respectively.

SFAS 123 Pro Forma Information

The Corporation applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25, because the exercise
price of the Corporation's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

      Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Corporation had
accounted for its employee stock options under the fair value method of SFAS
123.

      The weighted-average fair value of options granted during 1997 was $22.70
per option. The fair value for these options was estimated at the date of grant
using a Black-Scholes option-pricing model with the following weighted-average
assumptions for 1997; risk-free interest rate of 6.66 percent; dividend yield of
3.80 percent; volatility factor of the expected market price of the
Corporation's common stock of 28 percent; and a weighted-average expected life
of the option of 5 years.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       58
<PAGE>

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

      For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The following
pro forma information reflects the compensation expense that would have been
recognized under SFAS 123 for both Alex. Brown and the Corporation on an
historical basis. The fair values of options for 1996 and 1995 have not been
restated to reflect the Merger.

(in millions except for earnings
per share information)                                1997       1996       1995
--------------------------------------------------------------------------------
Net income:
  As reported                                      $   866    $   766    $   311
  Pro forma                                        $   807    $   739    $   301
Basic earnings per share:
  As reported                                      $  8.15    $  7.12    $  2.62
  Pro forma                                        $  7.56    $  6.86    $  2.51
Diluted earnings per share:
  As reported                                      $  7.66    $  6.76    $  2.54
  Pro forma                                        $  7.11    $  6.51    $  2.43
================================================================================

      Because compensation expense associated with certain stock-based awards is
recognized over the vesting period, the initial impact on pro forma net income
may not be representative of compensation expense in future years, when the
effect of the amortization of multiple awards would be reflected in the income
statement.

Note 15--Asset and Dividend Restrictions

The Federal Reserve Act, as amended by the Monetary Control Act of 1980,
requires that reserve balances on certain deposits of depository institutions be
maintained at the Federal Reserve Bank. The required reserve balances of the
Corporation's subsidiary banks were $294 million and $280 million at December
31, 1997 and 1996, respectively. For the years 1997 and 1996, the average
reserve balances of these banks amounted to $200 million and $196 million,
respectively.

      Assets, principally trading assets and securities available for sale, of
approximately $4.470 billion at December 31, 1997 were pledged as collateral to
secure public and trust deposits, for borrowings, and for other purposes.

      Federal law also requires that "covered transactions," as defined, engaged
in by insured banks and their subsidiaries with certain affiliates, including
the Parent Company, be at arm's length and limited to 20 percent of capital
surplus. The Federal Reserve Board defines capital surplus as Tier 1 Capital and
Tier 2 Capital plus the balance of the institution's allowance for loan and
lease losses not included in Tier 2 Capital. Additionally, "covered
transactions" with any one such affiliate is limited to 10 percent of capital
and surplus. Covered transactions are defined to include, among other things,
loans and other extensions of credit to such an affiliate and guarantees,
acceptances and letters of credit issued on behalf of such an affiliate. Such
loans, other extensions of credit, guarantees, acceptances and letters of credit
must be secured. Other restrictions also apply to inter-affiliate transactions.

      Limitations exist on the availability of BTCo's undistributed earnings for
the payment of dividends to the Parent Company without prior approval of the
bank regulatory authorities. In this regard, BTCo can declare dividends in 1998
without approval of the regulatory authorities of $705 million of its retained
earnings at December 31, 1997, plus an additional amount equal to net profits,
as defined, for 1998 up to the date of any such dividend declaration. The
Federal Reserve Board may prohibit the payment of dividends if it determines
that circumstances relating to the financial condition of a bank are such that
the payment of dividends would be an unsafe and unsound practice.

      Certain other subsidiaries are subject to various regulatory and other
restrictions which may limit cash dividends and advances to the Parent Company.

Note 16--Regulatory Capital

The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. The Federal
Reserve Board's risk-based capital guidelines addressing the capital adequacy of
bank holding companies and banks (collectively, "banking organizations")
include: a definition of capital, a framework for calculating risk-weighted
assets, and minimum risk-based capital ratios to be maintained by banking
organizations. A banking organization's risk-based capital ratios are calculated
by dividing its qualifying capital by its risk-weighted assets. The Federal
Reserve Board also has a minimum Leverage ratio which is used as a supplement to
the risk-based capital ratios in evaluating the capital adequacy of banks and
bank holding companies. The Leverage ratio is calculated by dividing Tier 1
Capital by adjusted quarterly average assets.

      Failure to meet minimum capital requirements can initiate certain
mandates, and possibly additional discretionary actions by the regulators that,
if undertaken, could have a direct material effect on the consolidated financial
statements of the Corporation and BTCo.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       59
<PAGE>

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

      Under the risk-based capital guidelines, there are two categories of
capital: core capital ("Tier 1 Capital") and supplemental capital ("Tier 2
Capital"), collectively referred to as Total Capital. Tier 1 Capital includes
common stockholders' equity, qualifying perpetual preferred stock, qualifying
trust preferred capital securities and minority interest in equity accounts of
consolidated subsidiaries. Tier 2 Capital includes perpetual preferred stock and
trust preferred capital securities (to the extent ineligible for Tier 1
Capital), hybrid capital instruments (i.e., perpetual debt and mandatory
convertible securities), limited amounts of subordinated debt, intermediate-term
preferred stock, and a portion of the allowance for credit losses.

      Risk-weighted assets are calculated by assigning nontrading account assets
and off-balance sheet items to broad risk categories.

      In March 1997, the Corporation became the first banking organization to
adopt the new market risk amendment to the risk-based capital guidelines issued
by the Federal Reserve Board and the Bank for International Settlements (BIS).
The amendment changed the calculation of the risk-weighted assets for trading
accounts from assigning trading assets to broad risk categories to the use of
internal models to measure market risk. In addition, the amendment required that
the capital and risk-adjusted assets of the Corporation's Section 20 subsidiary,
BT Alex. Brown Incorporated, no longer be excluded when calculating the
risk-based capital ratios at the holding company level. All banking institutions
with significant trading activity must have adopted this amendment by January 1,
1998. During 1997, early adoption was permissible with prior approval from the
institution's primary federal regulator.

      The market risk amendment also provides for the inclusion of Tier 3
Capital, which is defined to be subordinated debt that is unsecured; has an
original maturity of a minimum of two years; is not redeemable before maturity
without prior approval from the Federal Reserve; and includes a lock-in clause
precluding payment of either interest or principal if the payment would cause
the issuing organization's risk-based capital ratio to fall below the minimum
required level.

      In accordance with current Federal Reserve Board (FRB) guidelines, the
stockholder's equity and risk-weighted assets of certain foreign insurance
subsidiaries are excluded from the calculation of the regulatory capital ratios.
In computing these ratios, 50 percent of the stockholder's equity of the foreign
insurance subsidiaries is deducted from the Corporation's Tier 1 Capital, and 50
percent is deducted from Tier 2 Capital.

      In addition, under the prompt corrective action provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), five capital
categories were established for banks. Pursuant to that statute, the federal
bank regulatory agencies have specifically defined these categories by
determining that a bank is well capitalized if it maintains a Tier 1 Capital
ratio of at least 6 percent, a Total Capital ratio of at least 10 percent and a
Leverage ratio of at least 5 percent.

      The Federal Reserve Board has also adopted these same thresholds for the
Tier 1 Capital ratio and Total Capital ratio in defining a well-capitalized bank
holding company. The well-capitalized threshold for the Leverage ratio may be
set at 3.0 percent to 5.0 percent, depending on other regulatory criteria.

      Based on their respective regulatory capital ratios at December 31, 1997
and December 31, 1996, both the Corporation and BTCo are well capitalized. There
are no conditions or events that management believes have changed the
Corporation's and BTCo's well-capitalized status.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       60
<PAGE>

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

      The Corporation's actual capital amounts and ratios are presented in the
table below. The ratios for December 31, 1996 have not been restated for the
adoption of the market risk amendment.

<TABLE>
<CAPTION>
                                                                         FRB
                                                                     Minimum    To Be Well
                                                                         For   Capitalized
                                                                     Capital         Under
                                   Actual as of      Actual as of   Adequacy    Regulatory
                                     12/31/97          12/31/96    Purposes:   Guidelines:
------------------------------------------------------------------------------------------
($ in millions)                  Amount   Ratio    Amount   Ratio      Ratio         Ratio
------------------------------------------------------------------------------------------
<S>                             <C>       <C>     <C>       <C>      <C>           <C> 
Tier 1 Capital (1)
  Corporation (2)               $ 6,431    8.3%   $ 5,690    9.3%        4.0%          6.0%
  BTCo                            5,999    9.0%     4,869    9.3%        4.0%          6.0%
Total Capital (1)                                                                    
  Corporation (2)               $10,969   14.1%   $ 8,424   13.8%        8.0%         10.0%
  BTCo                            8,261   12.3%     6,769   12.9%        8.0%         10.0%
Leverage (3)                                                                      
  Corporation (2)               $ 6,431    4.4%   $ 5,690    5.9%    3.0-5.0%      3.0-5.0%
  BTCo                            5,999    5.4%     4,869    5.3%        3.0%          5.0%
</TABLE>

(1)   Ratios are calculated on Tier 1 Capital and Total Capital as a percentage
      of risk-weighted assets. The 1997 ratios reflect the adoption of the
      market risk amendment.

(2)   Capital and risk-weighted assets of certain subsidiaries of the
      Corporation have been excluded in accordance with Federal Reserve Board
      guidelines.

(3)   Ratio is calculated on Tier 1 Capital as a percentage of adjusted
      quarterly average assets.

Note 17--Interest Revenue and Interest Expense

The following are the components of interest revenue and interest expense:

(in millions) Year Ended December 31,                 1997       1996       1995
--------------------------------------------------------------------------------
Interest Revenue
Interest-bearing deposits with banks                $  395     $  214     $  207
Federal funds sold                                     266        119        104
Securities purchased under
  resale agreements                                  1,352      1,313        829
Securities borrowed                                    746        825        745
Trading assets                                       2,488      2,411      2,682
Securities available for sale
  Taxable                                              436        424        332
  Exempt from federal income taxes                      32         35         60
Loans                                                1,437      1,046        944
Customer receivables                                   133        121         86
--------------------------------------------------------------------------------
Total interest revenue                               7,285      6,508      5,989
--------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits
  Domestic offices                                     895        384        376
  Foreign offices                                    1,181        971        984
Trading liabilities                                    476        862      1,053
Securities loaned and securities sold
  under repurchase agreements                        1,413      1,598      1,189
Other short-term borrowings                          1,193      1,000      1,045
Long-term debt                                         655        633        458
Mandatorily redeemable capital
  securities of subsidiary trusts holding
  solely junior subordinated deferrable
  interest debentures included in
  risk-based capital                                   113          3         --
--------------------------------------------------------------------------------
Total interest expense                               5,926      5,451      5,105
--------------------------------------------------------------------------------
Net interest revenue                                $1,359     $1,057     $  884
================================================================================


Note 18--Trading Revenue

The following are the components of trading revenue:

(in millions) Year Ended December 31,                 1997       1996       1995
--------------------------------------------------------------------------------
Interest rate risk                                  $  463     $  474     $  120
Foreign exchange risk                                  277        178         36
Equity and commodity risk                              345        362        325
--------------------------------------------------------------------------------
Total trading revenue                               $1,085     $1,014     $  481
================================================================================


Note 19--Pension and Other Employee Benefit Plans

The Corporation's employee benefit plans currently consist of the continuation
of Alex. Brown's and the Corporation's respective plans that were in effect
prior to the Merger. The Corporation is currently in the process of reviewing
the benefit plans of both institutions.

Bankers Trust New York Corporation's Plans

Pension Plans

The Corporation has a trusteed, noncontributory, defined benefit pension plan
covering substantially all domestic employees. The pension plan benefit formula
is based upon years of service and average compensation over the final years of
service. For this principal domestic pension plan, the Corporation's policy is
to fund amounts which are actuarially determined in accordance with the
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). Pension plan assets for this plan primarily consist of equity and
debt securities managed by BTCo.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       61
<PAGE>

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

      The Corporation also has a domestic, unfunded defined contribution plan,
as well as both defined benefit and defined contribution retirement and similar
plans covering the majority of its foreign employees. Contributions to defined
contribution plans are based upon a percentage of salary.

      Effective September 30, 1997, a foreign defined benefit plan was changed
to a defined contribution plan. As a result of this change, the Corporation
recognized a $2 million curtailment/settlement gain in other noninterest
revenue.

      Pension expense for 1997, 1996 and 1995 included the following components:

(in millions) Year Ended December 31,                1997       1996       1995
-------------------------------------------------------------------------------
Principal defined benefit plans
  (domestic and foreign)
    Service cost--benefits earned                  $   21     $   23     $   17
    Interest cost on projected
      benefit obligations                              45         42         38
    Actual return on plan assets                     (133)       (78)      (151)
    Net amortization and deferral                      51          5         83
-------------------------------------------------------------------------------
Total                                                 (16)        (8)       (13)
Defined contribution plans                             18         24         20
Other plans                                             6          4          5
-------------------------------------------------------------------------------
Pension expense                                    $    8     $   20     $   12
===============================================================================

      The actuarial assumptions used for the principal domestic defined benefit
plan were as follows:

                                                     1997       1996       1995
-------------------------------------------------------------------------------
Discount rate in determining expense                 7.50%      7.00%      8.75%
Discount rate in determining benefit
  obligations at year end                            7.00%      7.50%      7.00%
Rate of increase in future compensation
  levels for determining expense                     5.00%      5.00%      5.00%
Rate of increase in future compensation
  levels for determining benefit obligations
  at year end                                        5.00%      5.00%      5.00%
Expected long-term rate of return on assets          9.00%      9.00%      9.00%

      At year end 1997, the effect of changing the discount rate from 7.50
percent to 7.00 percent was to increase the projected benefit obligation,
accumulated benefit obligation and vested benefit obligation by $45 million, $35
million and $32 million, respectively.

      At year end 1996, the effect of changing the discount rate from 7.00
percent to 7.50 percent was to decrease the projected benefit obligation,
accumulated benefit obligation and vested benefit obligation by $43 million, $34
million and $34 million, respectively.

      The assumptions used for the other domestic and the principal foreign
defined benefit plans were substantially similar to those used for the principal
domestic plan, given local economic conditions in the cases of the principal
foreign plans.

      The following table sets forth the funded status and amounts recognized in
the Corporation's balance sheet for its principal domestic and foreign defined
benefit pension plans:

<TABLE>
<CAPTION>
                                             December 31, 1997              December 31, 1996
--------------------------------------------------------------------------------------------------
                                     Assets Exceed     Accumulated   Assets Exceed     Accumulated
                                       Accumulated        Benefits     Accumulated        Benefits
(in millions)                             Benefits   Exceed Assets        Benefits   Exceed Assets
--------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>             <C>             <C>   
Actuarial present value
  of benefit obligations:
    Vested benefit obligations              $(543)          $ (20)          $(465)          $ (20)
==================================================================================================
    Accumulated benefit                                                                   
      obligations                           $(563)          $ (21)          $(482)          $ (20)
==================================================================================================
Projected benefit obligations               $(663)          $ (22)          $(565)          $ (21)
Plan assets at fair value                     970               3             863               1
--------------------------------------------------------------------------------------------------
Funded status                                 307             (19)            298             (20)
Unrecognized net (assets)                                                                 
  obligations                                 (18)              1             (23)              1
Unrecognized prior service cost                13              --              15              --
Unrecognized net (gain) loss                 (118)              2            (129)              3
Additional minimum liability                   --              (4)             --              (4)
--------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost              $ 184           $ (20)          $ 161           $ (20)
==================================================================================================
</TABLE>

Postretirement Benefits

The Corporation provides health care benefits to employees (retirees) who met
specific age and/or service requirements on January 1, 1990 provided that they
retire (retired) under the principal domestic pension plan with at least ten
years of service. This plan is contributory for participating retirees and also
requires them to absorb deductibles and coinsurance. The Corporation funds the
cost of postretirement health care as benefits are paid. The Corporation also
provides noncontributory life insurance benefits for substantially all domestic
retirees with at least ten years of service. The Corporation's policy with
respect to this plan is to make contributions up to the limits specified by
Section 419 of the U.S. Internal Revenue Code.

      The Corporation's postretirement benefits expense for the year ended
December 31, 1997 was $9 million. This consisted of $8 million of interest cost
on accumulated postretirement benefit obligations and $1 million of service cost
attributable to service during the year. For the year ended December 31, 1996
postretirement benefits expense was $10 million. This consisted of $9 million of
interest cost on accumulated postretirement benefit obligations and $1 million
of service cost attributable to service during the year. For the year ended
December 31, 1995 postretirement benefits expense was $9 million. This consisted
of $8 million of interest cost on accumulated postretirement benefit obligations
and $1 million of service cost attributable to service during the year.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       62
<PAGE>

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

      The actuarial assumptions used for the Corporation's postretirement
benefit plans were as follows:

                                         December 31, 1997   December 31, 1996
--------------------------------------------------------------------------------
                                         Retiree    Retiree  Retiree    Retiree
                                          Health       Life   Health       Life
($ in millions)                             Care  Insurance     Care  Insurance
--------------------------------------------------------------------------------
Health care cost trend rate:
  First year                                 9.00%      N/A    10.00%       N/A
================================================================================
Ultimate rate after 4 years (1997)
  and 5 years (1996) (based on
  roughly equal annual decreases)            5.50%      N/A     5.50%       N/A
Discount rate in determining
  expense                                    7.50%     7.50%    7.00%      7.00%
--------------------------------------------------------------------------------
Discount rate in determining
  benefit obligations at year-end            7.00%     7.00%    7.50%      7.50%
================================================================================
Rate of increase in future
  compensation levels for
  determining benefit obligation
  at both beginning and
  end of the year                             N/A      5.00%     N/A       5.00%
================================================================================
Expected long-term rate of
  return on plan assets                       N/A      9.00%     N/A       9.00%
Effect of a one-percentage-point
  increase in the health care cost
  trend rates on the accumulated
  postretirement benefit obligation        $    9       N/A   $    9        N/A
Effect of a one-percentage-point
  increase in the assumed health
  care cost trend rates on the
  aggregate of the service and
  interest cost components of net
  periodic postretirement expense
  for the year ended                       $    1       N/A   $    1        N/A
================================================================================
N/A Not applicable.

      At year end 1997, the effect of changing the discount rate from 7.50
percent to 7.00 percent was to increase the accumulated postretirement benefit
obligation for the retiree health care plan and the retiree life insurance plan
by $4 million and $1 million, respectively.

      At year end 1996, the effect of changing the discount rate from 7.00
percent to 7.50 percent was to decrease the accumulated postretirement benefit
obligation for the retiree health care plan and the retiree life insurance plan
by $2 million and $1 million, respectively.

      The following table sets forth the funded status and amounts recognized in
the Corporation's balance sheet:

                                         December 31, 1997   December 31, 1996
--------------------------------------------------------------------------------
                                         Retiree    Retiree  Retiree    Retiree
                                          Health       Life   Health       Life
($ in millions)                             Care  Insurance     Care  Insurance
--------------------------------------------------------------------------------
Accumulated postretirement
  benefit obligation:
    Retirees                               $ (71)     $  (7)  $ (80)      $  (6)
    Fully eligible plan participants         (20)        --     (17)         --
    Other active plan participants           (21)        (7)    (21)         (6)
--------------------------------------------------------------------------------
                                            (112)       (14)   (118)        (12)
Plan assets at fair value                     --          4      --           4
--------------------------------------------------------------------------------
Funded status                               (112)       (10)   (118)         (8)
Unrecognized prior service cost                7         --       7          --
Unrecognized net (gain) loss                 (12)         4      (4)          3
--------------------------------------------------------------------------------
Accrued postretirement                                                  
  benefit cost                             $(117)     $  (6)  $(115)      $  (5)
================================================================================

Profit Sharing Plans

The Corporation maintains a noncontributory profit sharing plan, called Partner
Share, covering substantially all domestic employees. The Corporation's
contribution consists of a fixed contribution equal to six percent of eligible
domestic employees' annual salary (the "Fixed Contribution") as well as an
additional contribution of from zero to nine percent of eligible employees'
annual salary, which percentage is calculated using a formula based on the
Corporation's consolidated income before income taxes (the "Profit-Driven
Contribution"). The 1997 Profit-Driven Contribution was based on the Firm's 1997
consolidated income before income taxes, adjusted to exclude the financial
impact of the Merger. The Profit-Driven Contribution was 7.08 percent, 4.75
percent and 1.69 percent for 1997, 1996 and 1995, respectively. The sum of the
Fixed Contribution and the Profit-Driven Contribution amounted to $53 million,
$41 million and $29 million for the years 1997, 1996 and 1995, respectively.

      The Corporation also has a profit sharing plan (called the "UK Profit
Scheme") covering its employees in the United Kingdom. The Corporation's
contributions to this plan range from zero to 14 percent of eligible employees'
annual salary, which percentage is calculated using a formula based on the
Corporation's consolidated income before income taxes. The contribution for
1997, 1996 and 1995 was 11.05 percent, 8.72 percent and 3.11 percent,
respectively. The amount of expense recognized for the UK Profit Scheme was $6
million, $7 million and $2 million for 1997, 1996 and 1995, respectively.

Alex. Brown's Predecessor Plans

Retirement Plans

The Corporation maintains a 401(k) deferred compensation and profit sharing plan
(the "Plan"). Employees are permitted within limitations imposed by tax law to
make pretax contributions to the Plan pursuant to salary reduction agreements.
The Corporation may make discretionary matching and profit sharing contributions
to the Plan and may make additional contributions to preserve the Plan's tax
exempt status. The Corporation also has retirement plans for certain employees
in foreign offices not covered by the Plan. Compensation expense for the
Corporation's contributions to retirement plans was $11 million, $13 million and
$10 million for 1997, 1996 and 1995, respectively.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       63
<PAGE>

================================================================================

Deferred Compensation Plan

The Corporation maintains a deferred compensation plan for certain investment
representatives. Eligible participants can direct the investment of their
deferred compensation amounts by selecting among various Corporation-sponsored
investment vehicles and the common stock of the Corporation at a 15% discount
from market. The employees vest in the deferred compensation accounts after four
years. The deferred compensation is forfeited if the employee terminates
employment with the Corporation during the vesting period except for termination
due to death, disability or retirement. The Corporation may allow participants
to extend the deferral period after vesting. The amount of deferred
compensation, including any stock discounts, is being amortized over the periods
in which the employees are providing the related services (compensation expense
of $1 million for 2001, $3 million for 2000, $4 million for 1999, $4 million for
1998, $5 million for 1997, $3 million for 1996 and $2 million for 1995).

Note 20--Income Taxes

The Corporation files consolidated income tax returns which include all
significant domestic subsidiaries.

      The domestic and foreign components of consolidated income before income
taxes follow:

(in millions) Year Ended December 31,                 1997       1996       1995
--------------------------------------------------------------------------------
Domestic                                            $  640     $  347     $   69
Foreign                                                599        784        400
--------------------------------------------------------------------------------
Total                                               $1,239     $1,131     $  469
================================================================================

      For purposes of determining the above amounts, foreign income is defined
as income recorded by operations located outside of the U.S.

      Undistributed earnings of certain foreign subsidiaries amounted to
approximately $1.2 billion at December 31, 1997. Federal taxes which would have
approximated $330 million, assuming utilization of foreign tax credits, have not
been provided on these earnings, as they are permanently reinvested outside the
U.S.

      Deferred income taxes result from differences in the timing of revenue and
expense recognition for income tax and financial reporting purposes.

      An analysis of consolidated income taxes follows:

(in millions) Year Ended December 31,                1997       1996       1995
-------------------------------------------------------------------------------
Income taxes applicable to:
  Income before income taxes*                      $  373     $  365     $  158
  Capital surplus                                     (73)       (26)         3
  Cumulative translation adjustments                   76        (24)         9
  Securities valuation allowance                      (57)        32        (26)
-------------------------------------------------------------------------------
Total                                              $  319     $  347     $  144
===============================================================================

*     Includes income tax expense related to securities available for sale
      transactions of $68 million, $30 million and $74 million in 1997, 1996 and
      1995, respectively.

      The components of consolidated income taxes follow:

(in millions) Year Ended December 31,                1997       1996       1995
-------------------------------------------------------------------------------
Current
  Federal                                          $  198     $  107     $   65
  Foreign                                             232        124        317
  State and local                                     161         44         32
-------------------------------------------------------------------------------
Total current                                         591        275        414
-------------------------------------------------------------------------------
Deferred
  Federal                                            (203)       (52)      (132)
  Foreign                                             (31)       125       (141)
  State and local                                     (38)        (1)         3
-------------------------------------------------------------------------------
Total deferred                                       (272)        72       (270)
-------------------------------------------------------------------------------
Total                                              $  319     $  347     $  144
===============================================================================

      The following is an analysis of the difference between the U.S. federal
statutory income tax rate and the effective tax rate on consolidated income
before income taxes:

Year Ended December 31,                              1997       1996       1995
-------------------------------------------------------------------------------
U.S. federal statutory income tax rate                 35%        35%        35%
  State and local income taxes                          4          4          8
  Tax-exempt income                                    (4)        (3)        (8)
  Foreign subsidiary earnings                          (4)        (2)         3
  Valuation allowance                                  (2)        --         --
  Other items, net                                      1         (2)        (4)
-------------------------------------------------------------------------------
Effective income tax rate                              30%        32%        34%
===============================================================================

      The following is an analysis of the Corporation's net deferred tax assets:

(in millions) December 31,                                      1997        1996
--------------------------------------------------------------------------------
Deferred tax assets                                           $1,291      $1,172
Valuation allowance                                              207         227
--------------------------------------------------------------------------------
Deferred tax assets net of valuation allowance                 1,084         945
Deferred tax liabilities                                         388         520
--------------------------------------------------------------------------------
Net deferred tax assets                                       $  696      $  425
================================================================================

      At December 31, 1997, the Corporation's deferred tax assets were primarily
related to credit losses ($385 million) and employee benefits ($267 million).
Deferred tax liabilities were primarily related to certain trading activities
($193 million) and lease financing activities ($112 million).

      At December 31, 1996, the Corporation's deferred tax assets were primarily
related to credit losses ($440 million), foreign tax credit carryforwards ($135
million) that will expire in 1999, 2000 and 2001, and a net operating loss
carryforward ($30 million) which expires in 2011. Deferred tax liabilities were
primarily related to certain trading activities ($119 million) and lease
financing activities ($176 million).


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       64
<PAGE>

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

Note 21--Earnings per Common Share

At December 31, 1997, the Corporation adopted SFAS 128, "Earnings Per Share,"
which establishes standards for computing and presenting earnings per share
("EPS"). SFAS 128 replaces the presentation of primary EPS with basic EPS and
fully diluted EPS with diluted EPS. Basic EPS excludes dilution and is
calculated by dividing income applicable to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to fully diluted EPS. All periods presented have been
restated to conform with SFAS 128.

      Basic earnings per common share amounts were computed by subtracting from
net income the dividend requirements on preferred stock to arrive at net income
applicable to common stockholders and dividing this amount by the average number
of common shares outstanding during the year. The average number of common
shares outstanding was the sum of the average number of shares of common stock
outstanding and vested but undistributed shares awarded under deferred stock
plans.

      Diluted earnings per share amounts were calculated by adding back to net
income applicable to common stockholders the interest expense on the convertible
subordinated debentures and dividing this amount by the average number of common
shares and dilutive potential common shares outstanding during the year.

      Diluted earnings per share assumes the conversion into common stock of
outstanding stock options, deferred stock awards (including restricted stock
awards) and convertible subordinated debentures, as computed under the treasury
stock method, if dilutive. Under the treasury stock method, the number of
incremental shares is determined by assuming the issuance of the outstanding
stock options, deferred stock awards, and shares from convertible subordinated
debentures, reduced by the number of shares assumed to be repurchased from the
issuance proceeds, using the average market price for the year of the Parent
Company's common stock.

      The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):

Year Ended December 31,                            1997        1996        1995
-------------------------------------------------------------------------------
Numerator
  Net income                                   $    866    $    766    $    311
  Preferred stock dividends                         (49)        (51)        (51)
-------------------------------------------------------------------------------
  Numerator for basic earnings per
    share--net income applicable to
    common stockholders                             817         715         260
  Effect of dilutive securities
    Convertible subordinated debentures               3           3           2
-------------------------------------------------------------------------------
    Numerator for diluted earnings per
      share--net income applicable to
      common stockholders after
      assumed conversions                      $    820    $    718    $    262
===============================================================================
Denominator
  Denominator for basic earnings per
    share--weighted average shares
    outstanding                                 100.286     100.417      99.162
  Effect of dilutive securities
    Options                                       1.839       1.111       0.843
    Convertible subordinated
      debentures                                  2.457       3.019       3.083
    Deferred stock                                2.408       1.618       0.206
-------------------------------------------------------------------------------
  Dilutive potential common shares                6.704       5.748       4.132
    Denominator for diluted earnings
      per share--adjusted weighted-
      average shares after assumed
      conversions                               106.990     106.165     103.294
===============================================================================
Basic earnings per share                       $   8.15    $   7.12    $   2.62
===============================================================================
Diluted earnings per share                     $   7.66    $   6.76    $   2.54
===============================================================================


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       65
<PAGE>

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

Note 22--International Operations

Management views the operations of the Corporation on an organizational unit
basis, as disclosed in the unaudited Management Discussion and Analysis on page
17. However, in order to comply with the financial reporting regulations of the
Securities and Exchange Commission, the Corporation is required to report
international operations on the basis of the domicile of the customer. Pursuant
to these regulations, any business transacted with a customer who is domiciled
outside the U.S. is reported as international operations. Due to the complex
nature of the Corporation's businesses and because its revenue from customers
domiciled outside the U.S. is recorded in both domestic and foreign offices, it
is impossible to segregate with precision the respective contributions to income
from the domestic and international operations. As these operations are highly
integrated, estimates and subjective assumptions have been made to apportion
revenue and expenses between domestic and international operations. These
estimates and assumptions include the following: interest revenue and interest
expense are apportioned to geographic areas based on the geographic distribution
of average interest earning assets. The geographic location of the assets is
determined by the domicile of the customer, or for interest earning securities,
by the domicile of the issuer. For the years ended December 31, 1997 and 1996,
trading gains and losses are primarily allocated based on the geographic
distribution of average trading assets as determined by the domicile of the
issuer. For the year ended December 31, 1995, trading gains and losses are
allocated based on the location of the office recording the gains/losses. All
other noninterest revenue is allocated based on the geographic location of the
office recording the income. Noninterest expense is basically apportioned
geographically based on the geographical distribution of operating income (net
interest revenue plus noninterest revenue). Corporate overhead expenses are
allocated based upon average assets by geographic region. International offices
are assessed a cost of funds charge based on a short-term funding rate.
Allocation of the provision for credit losses is based on the geographical
distribution of net charges to the allowance for credit losses and management's
assessment of the risks associated with the domestic and international
portfolios. International taxes are calculated based on the foreign tax rate for
each foreign office.

      Earning assets are allocated by the domicile of the customer. All other
assets are allocated based on the location of the office recording the assets.

      Subject to the above limitations, estimates and assumptions, the following
tables present information attributable to international operations (in
millions):

<TABLE>
<CAPTION>
                                                                           Income         Net
                                    Total       Total         Total        before      income
                                   assets     revenue(1)   expenses(1)      taxes       (loss)
---------------------------------------------------------------------------------------------
1997
---------------------------------------------------------------------------------------------
<S>                             <C>           <C>           <C>           <C>         <C>     
International operations
  Asia                          $  18,203     $     946     $   1,005     $   (59)    $   (44)
  Australia/New Zealand            10,598           939           827         112          83
  Western Hemisphere               16,420         1,618         1,509         109          81
  Europe                           15,787         1,050         1,014          36          26
  United Kingdom                   29,396         1,374         1,268         106          79
  Middle East/Africa                  471            66            62           4           3
Intersegment eliminations         (18,210)         (851)         (851)         --          --
---------------------------------------------------------------------------------------------
Total international                72,665         5,142         4,834         308         228
Domestic operations                67,437         7,034         6,103         931         638
---------------------------------------------------------------------------------------------
Total                           $ 140,102     $  12,176     $  10,937     $ 1,239     $   866
=============================================================================================
International as a percentage
  of total                             52%           42%           44%         25%         26%
=============================================================================================


<CAPTION>
                                                                           Income        
                                    Total       Total         Total        before         Net
                                   assets     revenue(1)   expenses(1)      taxes      income
---------------------------------------------------------------------------------------------
1996
---------------------------------------------------------------------------------------------
<S>                             <C>           <C>           <C>           <C>         <C>     
International operations
  Asia                          $   9,622     $     613     $     516     $    97     $    71
  Australia/New Zealand            10,488         1,031           834         197         144
  Western Hemisphere               14,631         1,275         1,193          82          60
  Europe                           14,354           965           941          24          18
  United Kingdom                   25,447         1,027         1,027          --          --
  Middle East/Africa                  691            40            35           5           4
Intersegment eliminations         (12,759)         (591)         (591)         --          --
---------------------------------------------------------------------------------------------
Total international                62,474         4,360         3,955         405         297
Domestic operations                60,069         6,265         5,539         726         469
---------------------------------------------------------------------------------------------
Total                           $ 122,543     $  10,625     $   9,494     $ 1,131     $   766
=============================================================================================
International as a percentage
  of total                             51%           41%           42%         36%         39%
=============================================================================================


<CAPTION>
                                                                           Income         Net
                                    Total       Total         Total        before      income
                                   assets     revenue(1)   expenses(1)(2)   taxes(2)    (loss)(2)
---------------------------------------------------------------------------------------------
1995
---------------------------------------------------------------------------------------------
<S>                             <C>           <C>           <C>           <C>         <C>     
International operations
  Asia                          $   7,565     $     710     $     609     $   101     $    70
  Australia/New Zealand             7,658           803           657         146         101
  Western Hemisphere               10,245         1,201         1,138          63          43
  Europe                            8,001           818           764          54          37
  United Kingdom                   28,850           599           807        (208)       (144)
  Middle East/Africa                  302            15            17          (2)         (1)
Intersegment eliminations         (11,119)         (751)         (751)         --          --
---------------------------------------------------------------------------------------------
Total international                51,502         3,395         3,241         154         106
Domestic operations                54,697         5,723         5,408         315         205
---------------------------------------------------------------------------------------------
Total                           $ 106,199     $   9,118     $   8,649     $   469     $   311
=============================================================================================
International as a percentage
  of total                             48%           37%           37%         33%         34%
=============================================================================================
</TABLE>

(1)   Total revenue includes interest revenue and noninterest revenue. Total
      expenses includes interest expense, noninterest expenses and provision for
      credit losses.
(2)   1995 balances have been restated to reflect the change in methodology for
      allocating operating and corporate overhead expenses.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       66
<PAGE>

================================================================================

Note 23--Derivative Financial Instruments and Financial Instruments with
Off-Balance Sheet Risk

In the normal course of business, the Corporation is a party to a variety of
derivative and off-balance sheet financial instruments to meet the needs of its
customers, to manage its exposure to interest rate and other risks, and to take
trading positions. These financial instruments consist of derivatives (such as
swaps, forwards and options), when-issued securities, securities lending
indemnifications, and credit-related arrangements and involve varying degrees of
credit risk and market risk.

      Credit risk, as defined by SFAS 105, represents the maximum potential
accounting loss due to possible non-performance by obligors and counterparties
under the terms of their contracts. Market risk represents the potential loss
due to the decrease in the value of a financial instrument caused primarily by
changes in interest rates or foreign exchange rates, or the prices of equities
or commodities (or related indices).

      The Corporation manages the credit risk of its derivative and off-balance
sheet portfolios by limiting the total amount of arrangements outstanding with
individual customers; by monitoring the size and maturity structure of the
portfolios; by obtaining collateral based on management's credit assessment of
the customer; and by applying a uniform credit process for all credit exposures.
Collateral held generally includes cash and U.S. government and federal agency
securities. In order to reduce derivatives-related credit risk, the Corporation
enters into master netting agreements which incorporate the right of setoff to
provide for the net settlement of covered contracts with the same customer in
the event of default or other cancellation of the agreement. In addition,
management evaluates these portfolios periodically to determine whether the
allowance for credit losses is adequate to absorb potential losses in such
portfolios.

      For a further discussion of derivative financial instruments, the related
market and credit risks, and controls used to monitor such risks, which is
unaudited and not included as part of these financial statements, see "Risk
Management" on page 22, "Derivatives" on page 26, "Summary of Credit Loss
Experience" on page 29 and "Nonperforming Assets" on page 32. For the
risk-weighted amounts under the risk-based capital guidelines of the
Corporation's derivative and off-balance sheet exposures, which also are
unaudited and not included as part of these financial statements, see "Capital
Resources" on page 20.

Trading Derivative Financial Instruments

The Corporation actively manages trading positions in a variety of derivative
contracts. Many of the Corporation's trading positions are established as a
result of providing derivative products to meet customers' demands. To
anticipate customer demand for such transactions, the Corporation also carries
an inventory of capital markets instruments and maintains its access to market
liquidity by quoting bid and offer prices to, and trading with, other market
makers. These two activities are essential to provide customers with capital
market products at competitive prices. All positions are reported at fair value
and changes in fair values are reflected in trading revenue as they occur.

      As required by SFAS 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," the amounts disclosed
below represent the end-of-period fair values of trading derivatives and their
average aggregate fair values during the year. These amounts are presented gross
before the impact of master netting agreements. The gross fair values of trading
derivatives do not represent the amount of market or credit risk of derivatives
in the trading portfolio. Rather, they indicate the extent of involvement in the
over-the-counter (OTC) markets for interest rate, foreign exchange rate, equity
and commodity price derivatives, and exchange traded options during the year.
Any measurement of risk is meaningful only when all related factors are
identified, such as risk-offsetting transactions, master netting agreements, and
the value of any related collateral. The Corporation considers such factors in
its RAROC framework and in other internal risk analyses. The accounting impact
of netting agreements, which is applied on a cross-product basis in accordance
with the terms of each master agreement and which is calculated based on the
criteria prescribed by FIN 39, is provided below in order to display how these
amounts are reflected in trading assets and trading liabilities in the
consolidated balance sheet.

      Contracts with positive fair values are recorded as assets and contracts
with negative fair values are recorded as liabilities after application of
master netting agreements. The following table reflects the gross fair values
and balance sheet amounts of trading derivative financial instruments:


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       67
<PAGE>

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

<TABLE>
<CAPTION>
                                                  At December 31, 1997        Average during 1997
                                                  --------------------        -------------------
(in millions)                                    Assets   (Liabilities)      Assets  (Liabilities)
-------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>         <C>      
OTC Financial Instruments
Interest Rate and Currency
  Swap Contracts                               $ 20,793       $(19,103)      $ 17,067    $(15,611)
Interest Rate Contracts
  Forwards                                           48            (40)            52         (56)
  Options purchased                               1,147                         1,114
  Options written                                               (1,355)                    (1,238)
Foreign Exchange Rate Contracts
  Spot and Forwards                              17,846        (18,031)        13,881     (14,386)
  Options purchased                               1,299                         1,090
  Options written                                               (1,192)                    (1,058)
Equity-related contracts                          4,082         (4,607)         3,372      (3,827)
Commodity-related and
  other contracts                                   597           (680)           643        (677)
Exchange-Traded Options
Interest Rate                                         4             (3)            12          (7)
Foreign Exchange                                                    (5)                        (1)
Equity                                              411           (318)           313        (199)
-------------------------------------------------------------------------------------------------
Total Gross Fair Values                          46,227        (45,334)        37,544     (37,060)
-------------------------------------------------------------------------------------------------
Impact of Netting Agreements                    (28,269)        28,269        (23,816)     23,816
-------------------------------------------------------------------------------------------------
Less Allowance for Credit Losses                   (285)            --           (194)         --
-------------------------------------------------------------------------------------------------
                                               $ 17,673(1)    $(17,065)(1)   $ 13,534    $(13,244)
                                               ========       ========       ========    ======== 


<CAPTION>
                                                  At December 31, 1996        Average during 1996
                                                  --------------------        -------------------
(in millions)                                    Assets   (Liabilities)      Assets  (Liabilities)
-------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>         <C>      
OTC Financial Instruments
Interest Rate and Currency
  Swap Contracts                               $ 16,582       $(15,394)      $ 14,880    $(14,345)
Interest Rate Contracts
  Forwards                                           84            (86)            63         (61)
  Options purchased                               1,149                         1,118
  Options written                                               (1,252)                    (1,323)
Foreign Exchange Rate Contracts
  Spot and Forwards                               9,855        (10,935)         7,754      (9,118)
  Options purchased                                 917                           986
  Options written                                                 (953)                      (983)
Equity-related contracts                          2,696         (2,941)         2,128      (2,374)
Commodity-related and
  other contracts                                   679           (690)           585        (594)
Exchange-Traded Options
Interest Rate                                        10            (12)            19         (10)
Foreign Exchange                                     --             --             --          (2)
Equity                                              251           (135)           181         (82)
-------------------------------------------------------------------------------------------------
Total Gross Fair Values                          32,223        (32,398)        27,714     (28,892)
-------------------------------------------------------------------------------------------------
Impact of Netting Agreements                    (20,813)        20,813        (17,314)     17,314
-------------------------------------------------------------------------------------------------
Less Allowance for Credit Losses                   (190)            --             --          --
-------------------------------------------------------------------------------------------------
                                               $ 11,220(1)    $(11,585)(1)   $ 10,400    $(11,578)
                                               ========       ========       ========    ======== 
</TABLE>

(1)   As reflected on the balance sheet in "Trading Assets" and "Trading
      Liabilities."

      Derivative contracts are generally either privately-negotiated OTC
contracts or standard contracts transacted through regulated exchanges. For
information as to the credit risk of OTC trading derivatives, which is unaudited
and not included as part of these financial statements, see "Derivatives" on
page 26. Fair values of futures contracts are not included above due to cash
margining requirements of regulated exchanges. Monthly averages are used in the
table above.

End-User Derivative Financial Instruments

The Corporation, as an end user, utilizes various types of derivative products
(principally interest rate and currency swaps) to manage the interest rate,
currency and other market risks associated with certain liabilities and assets
such as interest-bearing deposits, short-term borrowings and long-term debt, as
well as securities available for sale, loans, investments in non-marketable
equity instruments and net investments in foreign entities. Revenue or expense
pertaining to management of interest rate exposure is predominantly recognized
over the life of the contract as an adjustment to interest revenue or expense.

      When the Corporation purchases assets and issues liabilities at fixed
interest rates it subjects itself to fair value fluctuations as market interest
rates change. These fluctuations in fair value are managed by entering into
interest rate contracts which change the fixed rate cash flows into variable
rate cash flows.

      When the Corporation purchases foreign currency denominated assets, issues
foreign currency denominated debt or has foreign net investments, it subjects
itself to changes in value as exchange rates move. These fluctuations are
managed by entering into currency swaps and forwards.

      The fair values and other information related to end-user derivatives are
disclosed in Note 25.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       68
<PAGE>

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

Notional Amounts of Trading and End-User Derivative Financial Instruments

Notional amounts indicate the extent of the Corporation's involvement in the
various types and uses of derivative financial instruments and do not measure
the Corporation's exposure to credit or market risks and do not necessarily
represent the amounts exchanged by the parties to the instruments. The amounts
exchanged are based on the contractual notional amounts and the other terms of
the instruments. Notional amounts are not included in the consolidated balance
sheet and generally exceed the future cash requirements relating to the
instruments. The leveraging effects of leveraged derivative transactions are
reflected in the table below.

Notional Amounts
(in millions)                       December 31, 1997       December 31, 1996
-----------------------------------------------------------------------------
                                                   End                    End
                                    Trading       User(1)   Trading      User(1)
-----------------------------------------------------------------------------
Interest rate contracts
Swaps                            $  693,322   $108,053   $  589,739   $59,095
Futures                             130,884         --      102,389        --
Forwards                             71,243      2,950       67,183     3,325
Options purchased
  Exchange traded                    27,157         --       41,106        --
  OTC                               103,765        427       93,734     1,014
Options written
  Exchange traded                    17,665         --       42,300        --
  OTC                               100,357         --       96,843        --
-----------------------------------------------------------------------------
Total                            $1,144,393   $111,430   $1,033,294   $63,434
=============================================================================
Foreign exchange rate contracts
Spot, forwards, futures          $  684,039   $  3,023   $  539,805   $ 2,358
Swaps                                69,941      3,468       60,200     2,480
OTC options purchased                28,525         --       23,118        --
OTC options written                  30,405         --       24,994        --
-----------------------------------------------------------------------------
Total                            $  812,910   $  6,491   $  648,117   $ 4,838
=============================================================================
Equity derivative contracts
Swaps                            $    7,401   $     12   $    6,165   $   224
Futures and forwards                  6,734         --        2,932        --
Options purchased
  Exchange traded                     3,680         --        3,097        --
  OTC                                15,923         --       13,556         1
Options written
  Exchange traded                     6,264         --        2,648        --
  OTC                                17,399         --       14,420        --
-----------------------------------------------------------------------------
Total                            $   57,401   $     12   $   42,818   $   225
=============================================================================
Commodity and other contracts (2)
Swaps                            $    3,882   $     --   $    3,168   $    --
Futures                               1,023         --          792        --
Forwards                              2,179         --        2,304        --
Options purchased
  Exchange traded                       152         --          663        --
  OTC                                 1,386         --        1,879        --
Options written
  Exchange traded                       366         --          604        --
  OTC                                 1,915         --        1,956        --
-----------------------------------------------------------------------------
Total                            $   10,903   $     --   $   11,366   $    --
=============================================================================

(1)   These are hedges of securities available for sale, loans, other assets,
      interest-bearing deposits, other short-term borrowings, long-term debt and
      net investments in foreign subsidiaries. These are transacted with
      derivatives traders within the Corporation who are intermediaries to
      external markets.
(2)   Excluded from the notional amounts above were benefit-responsive contracts
      reflecting actuarial-related risk, minimal market risk and no credit risk,
      for which the notional values totaled $11.5 billion at December 31, 1997
      and 1996.

Swaps

Interest rate swap contracts generally represent the contractual exchange of
fixed and floating rate payments of a single currency, based on a notional
amount and an interest reference rate. Cross-currency interest rate swap
contracts generally involve the exchange of payments which are based on the
interest reference rates available at the inception of the contract on two
different currency principal balances that are exchanged. The principal balances
are re-exchanged at an agreed upon rate at a specified future date. Equity swap
contracts typically involve the payment of an amount equal to the total return
of a U.S. or international equity index, basket of equities, or an individual
equity over a fixed time period in exchange for receiving a floating interest
rate, both based upon the same notional amount.

Futures and Forwards

Futures and forward contracts represent commitments to purchase or sell
securities, money market instruments, foreign currencies or commodities at a
future date and at a specified price. Futures contracts are traded on regulated
U.S. and international exchanges. The Corporation intends to close out most open
positions in futures contracts prior to maturity; therefore future cash receipts
or payments are generally limited to the change in fair value of the underlying
instruments. Since futures contracts generally entail daily net cash margining
with regulated exchanges, the credit risk is generally minimized to a one-day
receivable. Included in this category of contracts are spot foreign currency
contracts, cash-settled index contracts, and forward rate agreements (agreements
to exchange amounts at a specified future date for interest rate differentials
between an agreed interest rate and a reference rate, computed on a notional
amount).

Options

Option contracts are either deliverable or cash-settled. Deliverable contracts
convey to the purchaser (holder) the right to buy (call) or sell (put)
securities, money market instruments, foreign currencies or commodities at or
before a specified date for a contracted price from the seller (writer) of the
contract. Cash-settled contracts convey to the purchaser the right to the
monetary equivalent of the increase (call) or decrease (put), or a percentage
thereof, in a specified reference rate or index, computed on a notional amount,
from the writer. The initial price of an option contract is equal to the premium
paid by the purchaser and is significantly less than the contract or notional
amount. Included in these contracts are: (i) interest rate caps, floors and
collars, which are agreements to make periodic payments for interest rate
differentials between an agreed upon interest rate and a reference rate and (ii)
purchased options to enter into future (or cancel existing) interest rate swap
contracts ("swap options").


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       69
<PAGE>

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

      The Corporation is subject to credit risk as a purchaser of an option
contract, and is subject to market risk to the extent of the purchase price of
the option. The Corporation is subject to market risk on its written option
contracts, but not to credit risk, except as noted below, since the customer has
already performed according to the terms of the contract by paying a cash
premium up front. However, for SFAS 105 purposes, credit risk arises to the
extent that the option contract requires or permits settlement in the underlying
instrument, and that instrument is subject to credit risk. Such amounts related
to certain written put option contracts on debt securities and certain forward
contracts to purchase debt securities were $2.850 billion and $2.677 billion at
December 31, 1997 and 1996, respectively. The underlying debt securities were
primarily obligations of the U.S. and foreign central and local governments and
U.S. federal agencies.

Financial Instruments with Off-Balance Sheet Credit Risk

As required by SFAS 105, off-balance sheet credit risk amounts are determined
without consideration of the value of any related collateral and reflect the
total potential loss on commitments to purchase when-issued securities for all
obligors (including governments); securities lending indemnifications; and
undrawn commitments, standby letters of credit and similar arrangements.

Securities and Money Market Activities

(in millions)                        December 31, 1997       December 31, 1996
--------------------------------------------------------------------------------
                                   Contract  Credit Risk   Contract  Credit Risk
                                     Amount       Amount     Amount     Amount
--------------------------------------------------------------------------------
When-issued securities                                    
  and other Commitments                                   
  to sell                             $    71    $    --      $ 1,440    $     2
Commitments to purchase (1)             1,047      1,047        2,511      2,524
Securities lending                                        
  indemnifications                     53,842     53,842       37,799     37,799
--------------------------------------------------------------------------------
                                                        
(1)   Includes $.9 billion and $1.1 billion of forward-dated money market assets
      at December 31, 1997 and 1996, respectively.

      When-issued securities normally begin trading when the U.S. Treasury or
some other issuer of securities announces a forth-coming issue. (In some cases,
trading may begin in anticipation of such an announcement.) Such transactions
are contingent upon the actual issuance of the security. Since the exact price
and terms of the security are unknown before the issue date, trading prior to
that date is on a "yield" basis. On the issue date the exact terms and price of
the security become known and when-issued trading continues until settlement
date, when the securities are delivered and the issuer is paid. On settlement
date, the securities purchased by the Corporation are reported on the balance
sheet.

      Securities lending indemnifications represent the market value of
customers' securities lent to third parties. The Corporation indemnifies
customers to the extent of the replacement cost and/or the market value of the
securities in the event of a failure by a third party to return the securities
lent. The market value of collateral, primarily cash, received for customers'
securities lent was in excess of the contract amounts and was approximately $56
billion at December 31, 1997 and $39 billion at December 31, 1996.

Credit-Related Arrangements
(in millions)                           December 31, 1997     December 31, 1996
--------------------------------------------------------------------------------
                                                    Credit                Credit
                                       Contract       Risk   Contract       Risk
                                         Amount     Amount     Amount     Amount
--------------------------------------------------------------------------------
Commitments to
  extend credit (1)                     $19,079    $19,079    $12,809    $12,809
Standby letters of credit and
  similar arrangements (2)                4,605      4,605      3,974      3,974
--------------------------------------------------------------------------------

(1)   Includes participations to other entities of approximately $2 billion at
      December 31, 1997 and 1996. Of the non-participated amount, approximately
      $4 billion and $2 billion expire in one year or less at December 31, 1997
      and 1996, respectively. Additionally, both the contract amount and the
      credit risk amount include commitments to enter into securities resale
      agreements of $1.7 billion and $2.0 billion at December 31, 1997 and 1996,
      respectively.
(2)   Includes participations to other entities of approximately $1 billion at
      December 31, 1997 and 1996.

      Commitments to extend credit represent contractual commitments to make
loans and revolving credits. Commitments generally have fixed expiration dates
or other termination clauses and require the payment of a fee. Since commitments
may expire without being drawn upon, the total contract amounts do not
necessarily represent future cash requirements. Included in the amounts above
are unused commitments to extend credit that are related to loans held for
trading purposes.

      Standby letters of credit and similar arrangements ("standbys"), issued
primarily to support corporate obligations, commit the Corporation to make
payments on behalf of customers contingent upon the failure of the customer to
perform under the terms of the contract. Standbys outstanding related to
customer obligations, such as commercial paper, medium- and long-term notes and
debentures (including industrial revenue obligations), as well as other
financial and performance-related obligations. At December 31, 1997, $1.739
billion will expire within one year, $2.483 billion from one to four years and
$383 million after four years.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       70
<PAGE>

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

      For standbys, commitments to extend credit and securities lending
indemnifications, the credit risk amount represents the contractual amount.
Standbys and commitments to extend credit would have market risk if issued or
extended at a fixed rate of interest. However, these contracts are primarily
made at a floating rate. Fees received are generally recognized as revenue over
the life of the commitment.

Note 24--Concentrations of Credit Risk

The Corporation, as required by SFAS 105, has identified two significant
concentrations of credit risk: OECD country banks and OECD country central
governments, their agencies and central banks. Together they represented 24
percent and 34 percent of total credit risk at December 31, 1997 and 1996,
respectively. The Organization for Economic Cooperation and Development (OECD)
is an international organization of countries which are committed to
market-oriented economic policies, including the promotion of private enterprise
and free market prices, liberal trade policies, and the absence of exchange
controls. The OECD consists of 29 industrialized countries that are located
primarily in Western Europe and North America, as well as Australia, Japan, New
Zealand and South Korea. For risk-based capital purposes, domestic and foreign
bank regulators generally assign OECD country central governments, their
agencies and their central banks a credit risk weighting of zero percent, which
means that no credit risk capital is required to support their financial
instruments. OECD country banks are assigned the next lowest credit risk
weighting (20 percent) by these regulators. The largest counterparty
concentration was the U.S. government and its related entities, which comprised
approximately 53 percent of the OECD country governments category. Within all
other counterparties, the amount collateralized by cash and U.S. government
securities represented approximately 32 percent of total credit risk.

      The following table reflects the aggregate credit risk by groups of
counterparties, as defined by SFAS 105, relating to on- and off-balance sheet
financial instruments, including derivatives, at December 31, 1997 and 1996.

Credit Risk

                                            On-Balance  Off-Balance
(in millions)                                    Sheet        Sheet        Total
--------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------------
Significant concentrations (1)
  OECD country banks (2)                      $ 32,765     $  4,213     $ 36,978
  OECD country governments                      10,717        2,363       13,080
--------------------------------------------------------------------------------
Total significant concentrations                43,482        6,576       50,058
All other (3)                                   82,540       74,847      157,387
--------------------------------------------------------------------------------
Total                                         $126,022     $ 81,423     $207,445
================================================================================
1996
Significant concentrations (1)
  OECD country banks (2)                      $ 34,799     $  4,040     $ 38,839
  OECD country governments                      16,083        3,194       19,277
--------------------------------------------------------------------------------
Total significant concentrations                50,882        7,234       58,116
All other (3)                                   60,531       52,463      112,994
--------------------------------------------------------------------------------
Total                                         $111,413     $ 59,697     $171,110
================================================================================

(1)   For these purposes, Poland has been excluded from the OECD categories.
(2)   Included in the on-balance sheet component of this category was
      approximately $2 billion and $4 billion at December 31, 1997 and 1996,
      respectively, that was collateralized by U.S. government securities.
(3)   The "all other" category of credit risk is diversified with respect to
      type of obligor and counterparty. Included in the on-balance sheet
      component of this category was approximately $12 billion and $8 billion at
      December 31, 1997 and 1996, respectively, that was collateralized by cash
      and U.S. government securities. Included in the off-balance sheet
      component of this category at December 31, 1997 was approximately $53
      billion that was collateralized by cash and U.S. government securities and
      approximately $19 billion of unused commitments to extend credit,
      approximately $7 billion of which expire in one year or less. The
      corresponding amounts for December 31, 1996 were $37 billion, $11 billion
      and $5 billion, respectively.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       71
<PAGE>

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

Note 25--Fair Value of Financial Instruments

SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires the
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Quoted market prices, when available, are used as the measure of fair
value. In cases where quoted market prices are not available, fair values are
based on present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, principally the
timing of future cash flows and the discount rate. Because assumptions are
inherently subjective in nature, the estimated fair values cannot be
substantiated by comparison to independent market quotes and, in many cases, the
estimated fair values would not necessarily be realized in an immediate sale or
settlement of the instrument. The disclosure requirements of SFAS 107 exclude
certain financial instruments and all nonfinancial instruments (e.g., franchise
value of businesses). Accordingly, the aggregate fair value amounts presented do
not represent management's estimation of the underlying value of the
Corporation.

      SFAS 119 amended SFAS 107 disclosure requirements as of December 31, 1994.
The amendments, among others, require that the disclosures distinguish between
financial instruments held for trading purposes, measured at fair value with
gains and losses recognized in earnings, and financial instruments held or
issued for purposes other than trading. The fair value of derivative financial
instruments must be disclosed separately from nonderivative financial
instruments. Additionally, the fair value of derivative financial instruments
may not be netted with the fair value of other derivative financial instruments,
except as allowed by FIN 39.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       72
<PAGE>

      The following are the estimated fair values of the Corporation's financial
instruments followed by a general description of the methods and assumptions
used to estimate such fair values.

Fair Value of Financial Instruments

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                               Underlying            Effect of        Total     Fair Value Over
(in millions) December 31, 1997                    Book Value  Fair Value  End-User Derivative   Fair Value  (Under) Book Value
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>                  <C>         <C>                  <C>     
Financial Assets, Including Hedges
Cash and due from banks                              $  2,188    $  2,188             $     --    $  2,188             $     --
Interest-bearing deposits with banks                    4,272       4,273                   --       4,273                    1
Federal funds sold                                      1,382       1,382                   --       1,382                   --
Securities purchased under resale agreements           19,163      19,179                   --      19,179                   16
Securities borrowed                                    16,751      16,751                   --      16,751                   --
Trading assets, net (see Notes 3 and 23)               56,572      56,857                   --      56,857                  285(1)
Securities available for sale (see Note 4)              8,081       8,117                  (36)      8,081                   --
Loans (excluding leases), commitments to                                                                               
  extend credit and standby letters of credit, net     18,842      19,559                 (171)     19,388                  546(1)
Customer receivables                                    1,547       1,547                   --       1,547                   --
Due from customers on acceptances                         633         633                   --         633                   --
Accounts receivable and accrued interest                4,785       4,785                   --       4,785                   --
Other financial assets                                  2,696       2,737                    1       2,738                   42
Financial Liabilities, Including Hedges                                                                                
Noninterest-bearing deposits                            4,728       4,728                   --       4,728                   --
Interest-bearing deposits                              38,102      38,264                  (62)     38,202                  100
Trading liabilities (see Notes 3 and 23)               27,246      27,246                   --      27,246                   --
Securities loaned and securities sold                                                                                  
  under repurchase agreements                          17,896      17,904                   --      17,904                    8
Other short-term borrowings                            19,577      19,591                    8      19,599                   22
Acceptances outstanding                                   633         633                   --         633                   --
Other financial liabilities                             8,634       8,621                   --       8,621                  (13)(1)
Long-term debt*                                        16,059      16,433                 (381)     16,052                   (7)
Net investments in foreign subsidiaries                    --          --                   (6)         (6)                  (6)
                                                                                                                       
-------------------------------------------------------------------------------------------------------------------------------
(in millions) December 31, 1996                                                                                        
-------------------------------------------------------------------------------------------------------------------------------
Financial Assets, Including Hedges                                                                                     
Cash and due from banks                              $  1,568    $  1,568             $     --    $  1,568             $     --
Interest-bearing deposits with banks                    2,210       2,212                   --       2,212                    2
Federal funds sold                                      1,684       1,684                   --       1,684                   --
Securities purchased under resale agreements           18,002      18,004                   --      18,004                    2
Securities borrowed                                    17,005      17,005                   --      17,005                   --
Trading assets, net (see Notes 3 and 23)               48,939      49,129                   --      49,129                  190(1)
Securities available for sale (see Note 4)              7,920       7,985                  (65)      7,920                   --
Loans (excluding leases), commitments to                                                                               
  extend credit and standby letters of credit, net     14,842      15,638                 (305)     15,333                  491(1)
Customer receivables                                    1,529       1,529                   --       1,529                   --
Due from customers on acceptances                         597         597                   --         597                   --
Accounts receivable and accrued interest                3,032       3,032                   --       3,032                   --
Other financial assets                                  2,161       2,239                   (3)      2,236                   75
Financial Liabilities, Including Hedges                                                                                
Noninterest-bearing deposits                            3,613       3,613                   --       3,613                   --
Interest-bearing deposits                              26,702      26,729                  (31)     26,698                   (4)
Trading liabilities (see Notes 3 and 23)               23,761      23,761                   --      23,761                   --
Securities loaned and securities sold                                                                                  
  under repurchase agreements                          23,454      23,456                   --      23,456                    2
Other short-term borrowings                            19,409      19,416                   --      19,416                    7
Acceptances outstanding                                   597         597                   --         597                   --
Other financial liabilities                             6,367       6,357                   --       6,357                  (10)(1)
Long-term debt*                                        12,038      12,259                 (177)     12,082                   44
Net investments in foreign subsidiaries                    --          --                    1           1                    1
===============================================================================================================================
</TABLE>

(1)   Relates substantially to the allowance for credit losses.

*     Includes trust preferred capital securities.

      A discussion of the nature, objectives and strategies for using end-user
derivatives can be found in Note 23.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       73
<PAGE>

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

      The following table provides the gross unrealized gains and losses for
end-user derivatives. Gross unrealized gains and losses for hedges of securities
available for sale are recognized in the financial statements with the offset as
an adjustment to securities valuation allowance in stockholders' equity. Gross
unrealized gains and losses for hedges of loans, other assets, interest-bearing
deposits, other short-term borrowings, long-term debt and net investments in
foreign subsidiaries are not yet recognized in the financial statements.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Net
                                  Securities                     Interest-        Other                    investments
                                   available             Other     bearing   short-term        Long-        in foreign
(in millions) December 31, 1997     for sale    Loans   assets    deposits   borrowings    term debt(1)   subsidiaries     Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>      <C>      <C>         <C>          <C>          <C>               <C>       <C>  
Interest Rate Swaps
  Pay Variable
    Unrealized Gain                    $   3    $   8    $  --       $  61        $  20        $ 524             $  --     $ 616
    Unrealized (Loss)                     --       (3)      --         (13)         (27)         (94)               --      (137)
--------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net                           3        5       --          48           (7)         430                --       479
--------------------------------------------------------------------------------------------------------------------------------
Pay Fixed                                                                                                                  
    Unrealized Gain                        2        1       --          32           11            3                --        49
    Unrealized (Loss)                    (51)    (184)      --         (42)         (30)         (25)               --      (332)
--------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net                            (49)    (183)      --         (10)         (19)         (22)               --      (283)
--------------------------------------------------------------------------------------------------------------------------------
  Total Unrealized Gain                    5        9       --          93           31          527                --       665
--------------------------------------------------------------------------------------------------------------------------------
  Total Unrealized (Loss)                (51)    (187)      --         (55)         (57)        (119)               --      (469)
--------------------------------------------------------------------------------------------------------------------------------
Total Net                              $ (46)   $(178)   $  --       $  38        $ (26)       $ 408             $  --     $ 196
================================================================================================================================
Forward Rate Agreements                                                                                                    
  Unrealized Gain                      $  --    $  --    $  --       $  --        $  --        $  --             $  --     $  --
  Unrealized (Loss)                       --       --       --          (1)          --           --                --        (1)
--------------------------------------------------------------------------------------------------------------------------------
  Net                                  $  --    $  --    $  --       $  (1)       $  --        $  --             $  --     $  (1)
================================================================================================================================
Currency Swaps and Forwards                                                                                                
  Unrealized Gain                      $  14    $   6    $   2       $  25        $  34        $  36             $  40     $ 157
  Unrealized (Loss)                       --       --       --          --          (16)         (63)              (46)     (125)
--------------------------------------------------------------------------------------------------------------------------------
  Net                                  $  14    $   6    $   2       $  25        $  18        $ (27)            $  (6)    $  32
================================================================================================================================
Other Contracts (2)                                                                                                        
  Unrealized Gain                      $  --    $   1    $  --       $  --        $  --        $  --             $  --     $   1
  Unrealized (Loss)                       (4)      --       (1)         --           --           --                --        (5)
--------------------------------------------------------------------------------------------------------------------------------
  Net                                  $  (4)   $   1    $  (1)      $  --        $  --        $  --             $  --     $  (4)
================================================================================================================================
Total Unrealized Gain                  $  19    $  16    $   2       $ 118        $  65        $ 563             $  40     $ 823
Total Unrealized (Loss)                  (55)    (187)      (1)        (56)         (73)        (182)              (46)     (600)
--------------------------------------------------------------------------------------------------------------------------------
Total Net                              $ (36)   $(171)   $   1       $  62        $  (8)       $ 381             $  (6)    $ 223
================================================================================================================================
                                                                                                                           
(in millions) December 31, 1996                                                                                            
--------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps                                                                                                        
  Pay Variable                                                                                                             
    Unrealized Gain                    $   1    $  --    $  --       $  62        $   7        $ 262             $  --     $ 332
    Unrealized (Loss)                     --      (14)      --         (23)          (6)         (93)               --      (136)
--------------------------------------------------------------------------------------------------------------------------------
Pay Variable Net                           1      (14)      --          39            1          169                --       196
--------------------------------------------------------------------------------------------------------------------------------
Pay Fixed                                                                                                                  
    Unrealized Gain                        3       --       --          13           --            1                --        17
    Unrealized (Loss)                    (50)    (291)      --         (45)          (1)         (28)               --      (415)
--------------------------------------------------------------------------------------------------------------------------------
Pay Fixed Net                            (47)    (291)      --         (32)          (1)         (27)               --      (398)
--------------------------------------------------------------------------------------------------------------------------------
Total Unrealized Gain                      4       --       --          75            7          263                --       349
--------------------------------------------------------------------------------------------------------------------------------
Total Unrealized (Loss)                  (50)    (305)      --         (68)          (7)        (121)               --      (551)
--------------------------------------------------------------------------------------------------------------------------------
Total Net                              $ (46)   $(305)   $  --       $   7        $  --        $ 142             $  --     $(202)
================================================================================================================================
Forward Rate Agreements                                                                                                    
  Unrealized Gain                      $  --    $  --    $  --       $   1        $  --        $  --             $  --     $   1
  Unrealized (Loss)                       --       --       --          (1)          --           --                --        (1)
--------------------------------------------------------------------------------------------------------------------------------
  Net                                  $  --    $  --    $  --       $  --        $  --        $  --             $  --     $  --
================================================================================================================================
Currency Swaps and Forwards                                                                                                
  Unrealized Gain                      $  --    $  --    $   1       $  27        $  --        $  53             $  42     $ 123
  Unrealized (Loss)                       --       --       --          (3)          --          (18)              (41)      (62)
--------------------------------------------------------------------------------------------------------------------------------
  Net                                  $  --    $  --    $   1       $  24        $  --        $  35             $   1     $  61
================================================================================================================================
Other Contracts (2)                                                                                                        
  Unrealized Gain                      $  --    $  --    $  --       $  --        $  --        $  --             $  --     $  --
  Unrealized (Loss)                      (19)      --       (4)         --           --           --                --       (23)
--------------------------------------------------------------------------------------------------------------------------------
  Net                                  $ (19)   $  --    $  (4)      $  --        $  --        $  --             $  --     $ (23)
================================================================================================================================
Total Unrealized Gain                  $   4    $  --    $   1       $ 103        $   7        $ 316             $  42     $ 473
Total Unrealized (Loss)                  (69)    (305)      (4)        (72)          (7)        (139)              (41)     (637)
--------------------------------------------------------------------------------------------------------------------------------
Total Net                              $ (65)   $(305)   $  (3)      $  31        $  --        $ 177             $   1     $(164)
================================================================================================================================
</TABLE>

(1)   Includes trust preferred capital securities.
(2)   Other contracts are principally equity swaps and collars.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       74
<PAGE>

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

      The unrealized gains and losses on these hedges were determined on the
basis of valuation pricing models which take into account current market and
contractual prices of the underlying instruments, as well as time value and
yield curve or volatility factors underlying the positions.

      The remaining maturities of the notional amounts of end-user derivatives
at December 31, 1997 and December 31, 1996 were as follows:

December 31, 1997             Interest       Foreign                       Total
(in millions)                     Rate      Currency        Equity      Notional
Notional Amount Maturing In:      Risk         Risk*          Risk        Amount
--------------------------------------------------------------------------------
1998                          $ 84,500      $  3,843      $     12      $ 88,355
1999-2000                       14,367         1,849            --        16,216
2001-2002                        4,727           453            --         5,180
2003 and thereafter              7,836           346            --         8,182
--------------------------------------------------------------------------------
Total                         $111,430      $  6,491      $     12      $117,933
================================================================================
                                                                        

December 31, 1996             Interest       Foreign                       Total
(in millions)                     Rate      Currency        Equity      Notional
Notional Amount Maturing In:      Risk         Risk*          Risk        Amount
--------------------------------------------------------------------------------
1997                          $ 41,168      $  3,271      $     20      $ 44,459
1998-1999                       10,540           750           101        11,391
2000-2001                        5,210           689           104         6,003
2002 and thereafter              6,516           128            --         6,644
--------------------------------------------------------------------------------
Total                         $ 63,434      $  4,838      $    225      $ 68,497
================================================================================

*     Currency swaps and currency forwards are primarily based upon Australian
      dollar/U.S. dollar and Japanese yen/U.S. dollar contracts.

      For pay variable and pay fixed interest rate swaps entered into as an end
user, the weighted average receive rate and pay rate (interest rates were based
on the weighted averages of both U.S. and non-U.S. currencies) by maturity and
corresponding notional amounts at December 31, 1997 and December 31, 1996 were
as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
December 31, 1997                  Paying Variable                   Paying Fixed
                              -------------------------        -------------------------
($ in millions)               Notional   Receive    Pay        Notional   Receive    Pay       Total
Notional Amount Maturing In:    Amount      Rate   Rate          Amount      Rate   Rate    Notional
----------------------------------------------------------------------------------------------------
<S>                            <C>          <C>    <C>          <C>          <C>    <C>     <C>     
1998                           $74,471      5.79%  5.84%        $ 6,799      5.83%  6.00%   $ 81,270
1999-2000                       11,222      5.97   5.72           3,006      5.04   5.62      14,228
2001-2002                        3,282      6.56   5.75           1,437      5.32   9.66       4,719
2003 and thereafter              6,730      6.89   5.43           1,106      5.75   7.26       7,836
----------------------------------------------------------------------------------------------------
Total                          $95,705                          $12,348                     $108,053
====================================================================================================
</TABLE>
                                                               
All rates were those in effect at December 31, 1997. Variable rates are
primarily based on LIBOR and may change significantly, affecting future cash
flows.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
December 31, 1996                  Paying Variable                   Paying Fixed
                              -------------------------        -------------------------
($ in millions)               Notional   Receive    Pay        Notional   Receive    Pay       Total
Notional Amount Maturing In:    Amount      Rate   Rate          Amount      Rate   Rate    Notional
----------------------------------------------------------------------------------------------------
<S>                            <C>          <C>    <C>          <C>          <C>    <C>      <C>     
1997                           $33,275      5.59%  5.52%        $ 4,056      5.23%  5.71%    $37,331
1998-1999                        7,957      5.96   5.52           2,095      4.82   5.82      10,052
2000-2001                        3,633      6.87   5.63           1,568      4.98   9.35       5,201
2002 and thereafter              5,579      6.79   5.65             932      5.61   7.14       6,511
----------------------------------------------------------------------------------------------------
Total                          $50,444                          $ 8,651                      $59,095
====================================================================================================
</TABLE>

All rates were those in effect at December 31, 1996. Variable rates are
primarily based on LIBOR and may change significantly, affecting future cash
flows.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       75
<PAGE>

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

      The effect of these end-user derivatives was a net decrease in revenue of
$11 million for the year ended December 31, 1997 and a net decrease in revenue
of $68 million for the year ended December 31, 1996.

      The Corporation has reviewed its other categories of off-balance sheet
instruments (forward-dated assets and liabilities, securities lending
indemnifications and securities borrowed) accounted for at cost and has
determined that, in the case of each such category, the unrealized gain or loss
on such instruments at both December 31, 1997 and 1996 was not material.

Methods and Assumptions

For short-term financial instruments, defined as those with remaining maturities
of 90 days or less, the carrying amount was considered to be a reasonable
estimate of fair value. The following instruments were predominantly short-term:

Assets                         Liabilities
--------------------------------------------------------------------------------
Cash and due from banks        Interest-bearing deposits
Interest-bearing deposits      Securities loaned and securities
  with banks                     sold under repurchase agreements
Federal funds sold             Other short-term borrowings
Securities purchased under     Acceptances outstanding
  resale agreements            Other financial liabilities
Securities borrowed
Customer receivables
Due from customers
  on acceptances
Accounts receivable and
  accrued interest


      For those components of the above-listed financial instruments with
remaining maturities greater than 90 days, fair value was determined by
discounting contractual cash flows using rates which could be earned for assets
with similar remaining maturities and, in the case of liabilities, rates at
which the liabilities with similar remaining maturities could be issued as of
the balance sheet date.

      As indicated in Note 2, trading assets (including derivatives), trading
liabilities and securities available for sale are carried at their fair values.

      For short-term loans and variable rate loans which reprice within 90 days,
the carrying value was considered to be a reasonable estimate of fair value. For
those loans for which quoted market prices were available, fair value was based
on such prices. For other types of loans, fair value was estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. In addition, for loans secured by real estate, appraisal
values for the collateral were considered in the fair value determination. The
fair value estimate of commitments to extend credit and standby letters of
credit represented the unrealized gains and losses on those off-balance sheet
positions and was generally determined in the same manner as loans.

      Other financial assets consisted primarily of investments in equity
instruments (excluding, in accordance with SFAS 107, investments accounted for
under the equity method) and cash and cash margins with brokers. The fair value
of non-marketable equity instruments was determined by matrix pricing utilizing
market prices for comparable publicly traded instruments, adjusted for liquidity
and contractual arrangements.

      Noninterest-bearing deposits do not have defined maturities. In accordance
with SFAS 107, fair value represented the amount payable on demand as of the
balance sheet date.

      Other financial liabilities consisted primarily of accounts payable and
accrued expenses at both December 31, 1997 and 1996.

      The fair value of long-term debt was estimated by using market quotes as
well as discounting the remaining contractual cash flows using a rate at which
the Corporation could issue debt with a similar remaining maturity as of the
balance sheet date.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       76
<PAGE>

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

Note 26--Condensed Parent Company Financial Statements

Condensed Statement of Income
(in millions) Year Ended December 31,                1997       1996       1995
-------------------------------------------------------------------------------
Revenue
Dividends
  Banks                                           $    93    $    48    $    75
  Nonbanks                                            404        196         86
Interest from subsidiaries                            615        503        551
Other interest                                        275        157        150
Trading                                              (103)        --         44
Securities available for sale gains (losses)           45         (7)       114
Other                                                  80         18         85
-------------------------------------------------------------------------------
Total revenue                                       1,409        915      1,105
-------------------------------------------------------------------------------
Expenses
Interest to subsidiaries                              217        109         71
Other interest                                        834        643        714
Other                                                 216         33         --
-------------------------------------------------------------------------------
Total expenses                                      1,267        785        785
-------------------------------------------------------------------------------
Income before income taxes and
  equity in undistributed income
  of subsidiaries and affiliates                      142        130        320
Income taxes (benefit)                               (222)       (99)        25
Income before equity in undistributed
  income of subsidiaries and affiliates               364        229        295
Equity in undistributed income
  of subsidiaries and affiliates                      502        537         16
-------------------------------------------------------------------------------
Net Income                                        $   866    $   766    $   311
===============================================================================

Condensed Balance Sheet
(in millions) December 31,                                     1997        1996
-------------------------------------------------------------------------------
Assets
Cash and due from banks                                     $    97     $    24
Interest-bearing deposits with bank subsidiaries              2,204       3,297
Securities purchased under resale agreements
  with nonbank subsidiary                                       492         701
Trading assets                                                5,773       2,809
Securities available for sale                                 1,766       1,577
Loans                                                           172         245
Investments in subsidiaries and affiliates
  Banks                                                       5,804       4,716
  Nonbanks                                                    2,032       2,279
Receivables from subsidiaries and affiliates
  Banks                                                       1,811       1,584
  Nonbanks                                                    8,535       5,182
Accounts receivable and accrued interest                        461         370
Other assets                                                    440         255
-------------------------------------------------------------------------------
Total assets                                                $29,587     $23,039
===============================================================================
Liabilities and Stockholders' Equity
Trading liabilities                                         $   312     $   478
Commercial paper                                              6,641       5,723
Other short-term borrowings                                   3,436       1,905
Payables to subsidiaries and affiliates
  Banks                                                         727         652
  Nonbanks                                                    5,722       2,702
Other liabilities                                               443         330
Long-term debt                                                6,598       5,371
-------------------------------------------------------------------------------
Total liabilities                                            23,879      17,161
-------------------------------------------------------------------------------
Total stockholders' equity                                    5,708       5,878
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity                  $29,587     $23,039
===============================================================================

Condensed Statement of Cash Flows
(in millions) Year Ended December 31,                1997       1996       1995
-------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income                                        $   866    $   766    $   311
Adjustments to reconcile net income
  to net cash provided by (used in)
  operating activities:
    Equity in undistributed loss
      (income) of subsidiaries and affiliates        (502)      (537)       (16)
    Deferred income taxes                             (82)       (29)         3
    Net change in trading assets                   (2,964)    (1,334)       104
    Net change in trading liabilities                (166)       130        220
    Securities available for sale
      (gains) losses                                  (45)         7       (114)
    Other, net                                       (632)      (323)       282
-------------------------------------------------------------------------------
Net cash provided by (used in)
  operating activities                             (3,525)    (1,320)       790
-------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net change in:
  Interest-bearing deposits with
    bank subsidiaries                               1,093       (757)    (1,031)
  Securities purchased under resale agreements
    with nonbank subsidiary                          (209)    (1,512)    (1,109)
  Securities purchased under resale agreements
    with third party                                   --         48        (48)
  Short-term notes receivable from
    subsidiaries and affiliates                    (1,255)     2,557      1,591
Securities available for sale:
  Purchases                                          (650)      (746)      (388)
  Maturities and other redemptions                    345        229        360
  Sales                                               158        260        876
Increases in long-term notes receivable
  from subsidiaries                                (2,301)    (2,015)      (484)
Decreases in long-term notes receivable
  from subsidiaries                                 1,037        871      1,379
Capital contributed to subsidiaries and affiliates   (688)      (867)      (290)
Return of capital from subsidiaries and affiliates    300        700         --
Other, net                                             75       (223)        22
-------------------------------------------------------------------------------
Net cash provided by (used in)
  investing activities                             (2,095)    (1,455)       878
-------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net change in:
  Commercial paper and other
    short-term borrowings                           2,449      1,363     (3,304)
  Short-term notes payable to subsidiaries          2,326        878      1,012
Issuance of long-term notes payable
  to subsidiaries                                     770        512         --
Issuance of long-term debt                          2,387      1,680      1,496
Repayments of long-term debt                         (913)      (864)      (791)
Issuance of preferred stock                            --         --        221
Redemption/repurchase of preferred stock             (152)       (49)        --
Purchases of treasury stock                        (1,038)      (608)       (38)
Cash dividends paid                                  (384)      (378)      (361)
Other, net                                            248        257         33
-------------------------------------------------------------------------------
Net cash (used in) provided by
  financing activities                              5,693      2,791     (1,732)
-------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and
  Due From Banks                                       73         16        (64)
Cash and due from banks, beginning of year             24          8         72
-------------------------------------------------------------------------------
Cash and due from banks, end of year              $    97    $    24    $     8
===============================================================================
Interest paid                                     $ 1,007    $   737    $   772
===============================================================================
Income taxes paid                                 $   131    $    19    $     9
===============================================================================
Noncash financing activity:
  Conversion of debt to equity                    $    63    $     3    $   259
===============================================================================
Noncash investing activity:
Treasury stock associated with acquisition        $    --    $   203    $    --
===============================================================================


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       77
<PAGE>

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

Note 27--Bankers Trust Company Consolidated Summarized Financial Information

Consolidated Statement of Income
(in millions) Year Ended December 31,                1997       1996       1995
-------------------------------------------------------------------------------
Net Interest Revenue
Interest revenue                                  $ 5,287    $ 4,124    $ 3,656
Interest expense                                    4,070      3,346      3,069
-------------------------------------------------------------------------------
Net Interest Revenue                                1,217        778        587
Provision for credit losses                            27         (9)       (31)
-------------------------------------------------------------------------------
Net Interest Revenue After Provision
  For Credit Losses                                 1,190        787        618
-------------------------------------------------------------------------------
Noninterest Revenue
Trading                                               611        670        279
Fiduciary and funds management                        886        720        654
Corporate finance fees                                354        285        230
Other fees and commissions                            299        277        242
Securities available for sale gains (losses)           28         23         (4)
Other                                                 415        295        163
-------------------------------------------------------------------------------
Total noninterest revenue                           2,593      2,270      1,564
-------------------------------------------------------------------------------
Noninterest Expenses
Salaries and commissions                              812        729        683
Incentive compensation and
  employee benefits                                 1,004        716        524
Occupancy, net                                        149        142        141
Furniture and equipment                               185        155        146
Other                                               1,000        856        736
Restructuring charges                                   4         --         43
-------------------------------------------------------------------------------
Total noninterest expenses                          3,154      2,598      2,273
-------------------------------------------------------------------------------
Income (Loss) before income taxes                     629        459        (91)
Income taxes (benefit)                                182        115        (53)
-------------------------------------------------------------------------------
Net Income (Loss)                                 $   447    $   344    $   (38)
===============================================================================

      In the normal course of business, BTCo enters into various transactions
with the Parent Company and the Parent Company's other subsidiaries. Included in
the above financial statements were the following transactions and balances with
such affiliates.


(in millions) Year Ended December 31,                1997       1996       1995
-------------------------------------------------------------------------------
Interest revenue                                  $   349    $   174    $   129
Interest expense                                      239        249        276
Noninterest revenue                                   326        112         65
Noninterest expenses                                  253        228        203


(in millions) December 31,                                     1997        1996
-------------------------------------------------------------------------------
Interest-earning assets                                     $11,331     $ 1,395
Noninterest-earning assets                                      841         618
Interest-bearing liabilities                                  5,652       5,040
Noninterest-bearing liabilities                                 973         729


Consolidated Balance Sheet
($ in millions, except par values) December 31,                1997        1996
-------------------------------------------------------------------------------
Assets
Cash and due from banks                                     $ 2,121     $ 1,544
Interest-bearing deposits with banks                          4,416       2,494
Federal funds sold                                            1,897       1,789
Securities purchased under resale agreements                 17,836      12,389
Securities borrowed                                           9,193       8,275
Trading assets, net of allowance for credit losses of $285
  at December 31, 1997 and $190 at December 31, 1996         45,488      38,082
Securities available for sale                                 4,154       4,239
Loans, net of allowance for credit losses of $659
   at December 31, 1997 and $723 at December 31, 1996        17,033      13,018
Premises and equipment, net                                     767         914
Due from customers on acceptances                               633         597
Accounts receivable and accrued interest                      3,709       2,200
Other assets                                                  2,792       2,412
-------------------------------------------------------------------------------
Total assets                                                $110,039    $87,953
===============================================================================
Liabilities
Noninterest-bearing deposits
  Domestic offices                                          $ 2,856     $ 2,791
  Foreign offices                                             2,122       1,029
Interest-bearing deposits
  Domestic offices                                           21,752       9,196
  Foreign offices                                            18,407      20,556
-------------------------------------------------------------------------------
      Total deposits                                         45,137      33,572
Trading liabilities                                          24,967      19,172
Securities loaned and securities sold under
  repurchase agreements                                      10,755      10,095
Other short-term borrowings                                   8,610      10,391
Acceptances outstanding                                         633         597
Accounts payable and accrued expenses                         3,411       1,993
Other liabilities, including allowance for credit
  losses of $3 at December 31, 1997 and $10
  at December 31, 1996                                        2,308       1,022
Long-term debt not included in risk-based capital             6,753       4,828
Long-term debt included in risk-based capital                 1,228       1,162
Mandatorily redeemable capital securities of subsidiary
  trust holding solely junior subordinated deferrable
  interest debentures included in risk-based capital            243         243
-------------------------------------------------------------------------------
Total liabilities                                           104,045      83,075
-------------------------------------------------------------------------------
Stockholders' Equity
Floating rate non-cumulative preferred stock--
  Series A, $1 million par value
  Authorized, issued and outstanding:
    1997, 1,000 shares; 1996, 600 shares                      1,000         600
Common stock, $10 par value
  Authorized, issued and outstanding:
    1997, 135,166,667 shares; 1996, 100,166,667 shares        1,351       1,001
Capital surplus                                                 540         540
Retained earnings                                             3,528       3,133
Cumulative translation adjustments                             (379)       (382)
Securities valuation allowance                                  (46)        (14)
-------------------------------------------------------------------------------
Total stockholders' equity                                    5,994       4,878
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity                  $110,039    $87,953
===============================================================================

      See Note 9 for details of BTCo's long-term debt issued to nonaffiliates.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       78
<PAGE>

================================================================================
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
================================================================================

The management of Bankers Trust New York Corporation and its subsidiaries (the
"Corporation") is responsible for preparing the accompanying financial
statements. The financial statements were prepared in accordance with generally
accepted accounting principles and prevailing industry practices, as applicable
to the Corporation. The financial statements include amounts that are based on
management's best estimates and judgments. Management also prepared the other
information in the Annual Report and is responsible for its accuracy and
consistency with the financial statements.

      The management of the Corporation has established and maintains an
internal control structure and monitors that structure for compliance with
established policies and procedures. The objectives of an internal control
structure are to provide reasonable, but not absolute, assurance as to the
integrity and reliability of the financial statements, the protection of assets
from unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization. The Corporation maintains an
Internal Audit Department that independently monitors and assesses the
effectiveness of the internal controls and recommends possible improvements
thereto. The Corporation also maintains a Credit Risk Management Department
which develops and administers procedures to measure, monitor and control credit
risks across all businesses and recommends to management specific measures for
portfolio restructuring designed to reduce the risk of loss. In addition,
management recognizes its responsibility to foster a strong ethical environment
within the Corporation to ensure that its business affairs are conducted with
integrity and in accordance with high standards of personal and corporate
conduct. This responsibility is characterized and reflected in the Corporation's
Rules for Business Conduct, which are distributed to all employees of the
Corporation. As part of the monitoring system, the Corporation maintains a
Corporate Compliance Department having oversight responsibilities for
administering and coordinating the application of these standards of conduct.

      The Corporation's Board of Directors appoints an Audit Committee composed
solely of outside directors. The function of the Audit Committee is to oversee
the accounting, reporting, audit and internal control policies and procedures
established by the Corporation's management. The Committee meets regularly with
management and the internal, credit and independent auditors. The auditors have
free access to the Audit Committee without the presence of management. The
Committee reports regularly to the Board of Directors on its activities, and
such other matters as it deems necessary.

      The Corporation's annual financial statements for 1997 have been audited
by KPMG Peat Marwick LLP, independent auditors, whose appointment by the Board
of Directors was approved by the stockholders. Management has made available to
KPMG Peat Marwick LLP all the Corporation's financial records and related data,
as well as the minutes of stockholders' and directors' meetings. Furthermore,
management believes that all its representations to KPMG Peat Marwick LLP are
valid and appropriate. In addition, KPMG Peat Marwick LLP, in determining the
nature and extent of their auditing procedures, evaluated the Corporation's
accounting procedures and policies and the effectiveness of the related internal
control structure.

      Management believes that, as of December 31, 1997, the Corporation's
internal control structure was adequate to accomplish the objectives discussed
herein.


/s/ Frank N. Newman
Frank N. Newman
Chairman of the Board,
Chief Executive Officer and President


/s/ Richard H. Daniel
Richard H. Daniel
Vice Chairman,
Chief Financial Officer and
Controller


March 5, 1998


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       79
<PAGE>

================================================================================
REPORT OF INDEPENDENT AUDITORS
================================================================================

To the Board of Directors and Stockholders of
Bankers Trust New York Corporation


We have audited the consolidated balance sheet of Bankers Trust New York
Corporation and Subsidiaries (the "Corporation") at December 31, 1997 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

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

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bankers Trust
New York Corporation and Subsidiaries at December 31, 1997, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.

      We previously audited and reported on the consolidated balance sheet of
Alex. Brown Incorporated as of December 31, 1996 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the two-year period ended December 31, 1996, prior to their restatement
for the 1997 pooling-of-interests with the Corporation and have issued our
report thereon dated January 20, 1997. The contribution of Alex. Brown
Incorporated to combined restated assets represented 2 percent as of December
31, 1996; to combined restated revenues represented 20 percent and 19 percent;
and, to combined restated net income represented 20 percent and 31 percent for
the years ended December 31, 1996 and 1995, respectively. Separate consolidated
financial statements of the Corporation included in the restated financial
statements were audited and reported on separately by other auditors who have
issued their report thereon dated January 23, 1997 except for Note 28, as to
which the date is March 6, 1997. We also audited the combination of the
consolidated balance sheet of the Corporation as of December 31, 1996 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the two-year period then ended, after
restatement for the 1997 pooling-of-interests; in our opinion, such consolidated
financial statements have been properly combined on the basis described in Note
1 of the notes to the consolidated financial statements.

/s/ KPMG PEAT MARWICK LLP

New York, New York
January 22, 1998


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       80
<PAGE>

================================================================================
REPORT OF INDEPENDENT AUDITORS
================================================================================


To the Board of Directors and Stockholders of
Bankers Trust New York Corporation


We have audited the consolidated balance sheet of Bankers Trust New York
Corporation and Subsidiaries (the "Corporation") at December 31, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1996 (not
presented herein), prior to their restatement for the 1997 pooling-of-interests
with Alex. Brown Incorporated. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bankers Trust
New York Corporation and Subsidiaries at December 31, 1996 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

/s/ ERNST & YOUNG LLP

New York, New York
January 23, 1997
except for Note 28, as to
which the date is March 6, 1997


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       81
<PAGE>

================================================================================
SUPPLEMENTAL FINANCIAL DATA
================================================================================


The statistical data on pages 82 through 87 should be read in conjunction with
the Financial Review and the financial statements included elsewhere in this
Annual Report.

      In the opinion of management, all material adjustments necessary for a
fair presentation of the results of operations for the interim periods have been
made. All such adjustments were of a normal recurring nature.

Condensed Quarterly Consolidated Statement of Income

<TABLE>
<CAPTION>
(in millions, except per share data)
---------------------------------------------------------------------------------------------------------------------------
                                                      1997                                          1996
                                      -------------------------------------     -------------------------------------------
                                       Fourth    Third   Second      First       Fourth       Third      Second       First
                                      Quarter  Quarter  Quarter(1)  Quarter(1)  Quarter(1)  Quarter(1)  Quarter(1)  Quarter(1)
---------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>      <C>      <C>         <C>         <C>         <C>         <C>         <C>   
Interest revenue                       $2,085   $1,789   $1,731      $1,680      $1,686      $1,704      $1,495      $1,623
Interest expense                        1,712    1,474    1,391       1,349       1,399       1,434       1,229       1,389
---------------------------------------------------------------------------------------------------------------------------
Net interest revenue                      373      315      340         331         287         270         266         234
Provision for credit losses                20       10       --          --          --          --          --           5
---------------------------------------------------------------------------------------------------------------------------
Net interest revenue after provision                                                                                
   for credit losses                      353      305      340         331         287         270         266         229
---------------------------------------------------------------------------------------------------------------------------
Total noninterest revenue               1,166    1,465    1,194       1,066       1,068         989       1,072         988
Total noninterest expenses              1,233    1,419    1,225       1,104       1,083         964       1,038         953
---------------------------------------------------------------------------------------------------------------------------
Income before income taxes                286      351      309         293         272         295         300         264
Income taxes                               79      105       96          93          88          93          99          85
---------------------------------------------------------------------------------------------------------------------------
Net Income                             $  207   $  246   $  213      $  200      $  184      $  202      $  201      $  179
===========================================================================================================================
Net income applicable to                                                                                            
   common stock                        $  195   $  235   $  201      $  186      $  170      $  194      $  187      $  164
===========================================================================================================================
Earnings Per                                                                                                        
  Common Share:(2)                                                                                                  
   Basic                               $ 1.95   $ 2.33   $ 2.00      $ 1.86      $ 1.69      $ 1.91      $ 1.87      $ 1.65
   Diluted                             $ 1.82   $ 2.19   $ 1.89      $ 1.76      $ 1.59      $ 1.81      $ 1.77      $ 1.58
===========================================================================================================================
Cash dividends declared per                                                                                         
   common share                        $ 1.00   $ 1.00   $ 1.00      $ 1.00      $ 1.00      $ 1.00      $ 1.00      $ 1.00
===========================================================================================================================
</TABLE>

(1)   Amounts have been restated to reflect the merger with Alex. Brown
      Incorporated.
(2)   Due to changes in the number of average shares outstanding, quarterly
      earnings per share do not necessarily add to the totals for the years. In
      addition, earnings per share have been restated in connection with the
      adoption of SFAS 128.

<TABLE>
<CAPTION>
Stockholder Data
----------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>         <C>         <C>       <C>         <C>         <C>        <C>        <C>   
Market price (1)
  High                              $131 1/2    $133 5/8    $ 91 1/2  $ 96 3/8    $ 90 7/8    $ 83 1/2   $ 77 7/8   $ 72 3/8
  Low                                106          86          74        81 1/4      78          68 1/4     65 1/2     61
  End of quarter                     112 7/16    122 3/8      87 1/8    82          86 1/4      78 5/8     73 7/8     70 7/8
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Based on the Composite Tape. Market Prices at February 27, 1998 for common
      stock were follows: High, $118 9/16; Low, $117; Close, $118 1/4.

Dividends

Cash dividends on common stock were paid quarterly in 1997 on the 25th of
January, April, July and October.

Number of Security Holders

At February 27, 1998, the approximate number of holders of record of common
stock was 21,776.

Stock Listings

The principal markets on which the common stock is traded are the New York Stock
Exchange (Symbol: BT) and the London Stock Exchange.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       82
<PAGE>

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

Average Balances, Interest and Average Rates

The following table shows the major consolidated assets and liabilities,
together with their respective interest amounts and rates earned or paid by the
Corporation. Cash basis and renegotiated loans are included in the averages to
determine an effective yield on all loans. The average balances are principally
daily averages.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                      1997                         1996                         1995
                                           -------------------------    -------------------------    -------------------------
                                           Average           Average    Average           Average    Average           Average
($ in millions)                            Balance  Interest    Rate    Balance  Interest    Rate    Balance  Interest    Rate
------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>       <C>     <C>        <C>       <C>     <C>        <C>       <C>  
Assets
Interest-bearing deposits with banks
 (primarily in foreign offices)           $  4,662    $  395    8.47%  $  2,786    $  214    7.68%  $  2,777    $  207    7.45%
Federal funds sold                                                                                             
 (in domestic offices)                       4,758       266    5.59%     2,179       119    5.46%     1,726       104    6.03%
Securities purchased under resale                                                                              
 agreements                                                                                                    
  In domestic offices                       14,076       847    6.02%    14,368       799    5.56%    10,400       598    5.75%
  In foreign offices                         9,158       505    5.51%     7,444       514    6.90%     5,732       231    4.03%
------------------------------------------------------------           ------------------           ------------------         
Total securities purchased                                                                                     
 under resale agreements                    23,234     1,352    5.82%    21,812     1,313    6.02%    16,132       829    5.14%
Securities borrowed                                                                                            
  In domestic offices                       13,128       653    4.97%    13,563       678    5.00%    10,647       604    5.67%
  In foreign offices                         1,763        93    5.28%     2,241       147    6.56%     2,245       141    6.28%
------------------------------------------------------------           ------------------           ------------------         
Total securities borrowed                   14,891       746    5.01%    15,804       825    5.22%    12,892       745    5.78%
Trading Assets                                                                                                 
  In domestic offices (1)                    9,578       850    8.87%    14,458     1,165    8.06%    14,656     1,376    9.39%
  In foreign offices                        19,449     1,646    8.46%    16,140     1,251    7.75%    16,058     1,320    8.22%
------------------------------------------------------------           ------------------           ------------------         
Total trading assets (1)                    29,027     2,496    8.60%    30,598     2,416    7.90%    30,714     2,696    8.78%
Securities available for sale                                                                                  
  In domestic offices                                                                                          
    Taxable                                  2,635       206    7.82%     2,674       195    7.29%     1,891       165    8.73%
    Exempt from federal                                                                                        
      income taxes (1)                       1,076        40    3.72%     1,029        29    2.82%     1,340        51    3.81%
  In foreign offices                                                                                           
    Taxable                                  4,011       230    5.73%     3,151       229    7.27%     2,899       167    5.76%
    Exempt from federal                                                                                        
      income taxes (1)                          92        10   10.87%       142        16   11.27%       320        35   10.94%
------------------------------------------------------------           ------------------           ------------------         
Total securities available for sale (1)      7,814       486    6.22%     6,996       469    6.70%     6,450       418    6.48%
Loans                                                                                                          
  In domestic offices                                                                                          
    Commercial and industrial                4,029       312    7.74%     2,894       221    7.64%     2,178       160    7.35%
    Financial institutions                   1,269        92    7.25%       942        64    6.79%       620        51    8.23%
    Secured by real estate                   1,561       131    8.39%     1,409        97    6.88%     1,398        95    6.80%
    Other (1)                                2,577       175    6.79%     2,177       124    5.70%     2,335       134    5.74%
------------------------------------------------------------           ------------------           ------------------         
    Total in domestic offices (1)            9,436       710    7.52%     7,422       506    6.82%     6,531       440    6.74%
  In foreign offices                         8,923       695    7.79%     6,253       517    8.27%     5,263       487    9.25%
------------------------------------------------------------           ------------------           ------------------         
Total loans, excluding fees (1)             18,359     1,405    7.65%    13,675     1,023    7.48%    11,794       927    7.86%
  Loan fees                                     --        32                 --        24                 --        18
------------------------------------------------------------           ------------------           ------------------         
Total loans, including fees (1)             18,359     1,437    7.83%    13,675     1,047    7.66%    11,794       945    8.01%
------------------------------------------------------------           ------------------           ------------------         
Customer Receivables                                                                                           
  In domestic offices                        1,589       133    8.37%     1,476       121    8.20%     1,049        86    8.20%
  In foreign offices                            --        --                 --        --                 --        --
------------------------------------------------------------           ------------------           ------------------         
Total customer receivables                   1,589       133    8.37%     1,476       121    8.20%     1,049        86    8.20%
------------------------------------------------------------           ------------------           ------------------         
Total Interest-Earning                                                                                         
  Assets(1)                                104,334    $7,311    7.01%    95,326    $6,524    6.84%    83,534    $6,030    7.22%
                                                      ======                       ======                       ======     
Cash and due from banks                      1,496                        1,347                        1,798
Noninterest-earning trading assets          21,906                       17,104                       19,013
Due from customers on acceptances              682                          554                          434
All other assets                             9,058                        8,416                        7,740
Allowance for credit losses                   (970)                        (986)                      (1,196)
--------------------------------------------------                     --------                     --------          
Total Assets                              $136,506                     $121,761                     $111,323
==================================================                     ========                     ========          
% of assets attributable to foreign offices     50%                          48%                          41%
</TABLE>

(1)   Interest and average rates are presented on a fully taxable basis. The
      applicable combined federal, state and local incremental tax rate used to
      determine the amounts of the tax equivalent adjustments to interest
      revenue (which recognize the income tax savings on tax-exempt assets) was
      41 percent for 1997 and 42 percent for 1996 and 1995.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       83
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                      1997                         1996                         1995
                                           -------------------------    -------------------------    -------------------------
                                           Average           Average    Average           Average    Average           Average
($ in millions)                            Balance  Interest    Rate    Balance  Interest    Rate    Balance  Interest    Rate
------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>       <C>     <C>        <C>       <C>     <C>        <C>       <C>  
Liabilities and
  Stockholders' Equity
Interest-bearing deposits
  In domestic offices
    Time deposits                         $ 12,133    $  679    5.60%  $  3,088    $  180    5.83%  $  1,384    $   99    7.15%
    Other                                    4,707       216    4.59%     3,824       204    5.33%     4,338       277    6.39%
------------------------------------------------------------           ------------------           ------------------         
    Total in domestic offices               16,840       895    5.31%     6,912       384    5.56%     5,722       376    6.57%
  In foreign offices                                                                                           
    Deposits from banks in                                                                                     
     foreign countries                       7,628       480    6.29%     7,045       401    5.69%     7,432       496    6.67%
    Other time and savings deposits         11,022       611    5.54%     7,802       466    5.97%     7,370       408    5.54%
    Other                                    1,952        90    4.61%     2,039       104    5.10%     1,513        80    5.29%
------------------------------------------------------------           ------------------           ------------------         
    Total in foreign offices                20,602     1,181    5.73%    16,886       971    5.75%    16,315       984    6.03%
------------------------------------------------------------           ------------------           ------------------         
Total interest-bearing deposits             37,442     2,076    5.54%    23,798     1,355    5.69%    22,037     1,360    6.17%
Trading liabilities                                                                                            
  In domestic offices                        1,699       181   10.65%     7,840       595    7.59%     6,293       622    9.88%
  In foreign offices                         3,966       295    7.44%     3,576       267    7.47%     4,922       431    8.76%
------------------------------------------------------------           ------------------           ------------------         
Total trading liabilities                    5,665       476    8.40%    11,416       862    7.55%    11,215     1,053    9.39%
Securities loaned and securities sold                                                                          
  under repurchase agreements                                                                                  
  In domestic offices                       13,679       837    6.12%    19,109     1,049    5.49%    17,269     1,003    5.81%
  In foreign offices                        10,218       576    5.64%     7,855       549    6.99%     4,592       186    4.05%
------------------------------------------------------------           ------------------           ------------------         
Total securities loaned and securities                                                                         
 sold under repurchase agreements           23,897     1,413    5.91%    26,964     1,598    5.93%    21,861     1,189    5.44%
Other short-term borrowings                                                                                    
  In domestic offices                       14,429       881    6.11%    11,266       633    5.62%    12,051       719    5.97%
  In foreign offices                         5,739       312    5.44%     5,195       367    7.06%     4,396       326    7.42%
------------------------------------------------------------           ------------------           ------------------         
Total other short-term borrowings           20,168     1,193    5.92%    16,461     1,000    6.07%    16,447     1,045    6.35%
Long-term debt                                                                                                 
  In domestic offices                        7,725       455    5.89%     6,748       411    6.09%     5,249       341    6.50%
  In foreign offices                         3,856       200    5.19%     3,907       222    5.68%     2,596       117    4.51%
------------------------------------------------------------           ------------------           ------------------         
Total long-term debt                        11,581       655    5.66%    10,655       633    5.94%     7,845       458    5.84%
------------------------------------------------------------           ------------------           ------------------         
Trust preferred capital securities           1,401       113    8.07%        42         3    7.14%        --        --      --
------------------------------------------------------------           ------------------           ------------------         
Total Interest-Bearing                                                                                         
  Liabilities                              100,154    $5,926    5.92%    89,336    $5,451    6.10%    79,405    $5,105    6.43%
                                                      ======                       ======                       ======     
Noninterest-bearing deposits                                                                                  
  In domestic offices                        2,331                        2,661                        2,921
  In foreign offices                           842                          600                          509
--------------------------------------------------                     --------                     --------          
Total noninterest-bearing deposits           3,173                        3,261                        3,430
Noninterest-bearing trading liabilities     18,199                       15,470                       16,232
Acceptances outstanding                        682                          555                          441
All other liabilities                        8,311                        7,108                        6,286
Preferred stock of subsidiary                   45                          250                          250
Stockholders' Equity
  Preferred stock                              717                          853                          726
  Common stockholders' equity                5,225                        4,928                        4,553
--------------------------------------------------                     --------                     --------          
Total Liabilities and
  Stockholders' Equity                    $136,506                     $121,761                     $111,323
==================================================                     ========                     ========          
% of liabilities attributable
  to foreign offices                            49%                          50%                          40%
Rate spread                                                     1.09%                         .74%                         .79%
Net interest margin (net interest
  revenue to total interest-
  earning assets)
 In domestic offices                      $ 56,367    $  427     .76%  $ 57,234    $  597    1.04%  $ 48,332    $  438     .91%
 In foreign offices                         47,967       958    2.00%    38,092       476    1.25%    35,202       487    1.38%
------------------------------------------------------------           ------------------           ------------------         
Total                                     $104,334    $1,385    1.33%  $ 95,326    $1,073    1.13%  $ 83,534    $  925    1.11%
============================================================           ==================           ==================         
</TABLE>


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       84
<PAGE>

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

Volume/Rate Analysis of Changes in Net Interest Revenue

The following table attributes changes in fully taxable net interest revenue to
changes in either average daily balances or average rates for both
interest-earning assets and interest-bearing sources of funds. Because of the
numerous simultaneous balance and rate changes during any period, it is not
possible to precisely allocate such changes between balances and rates. For
purposes of this table, changes which are not due solely to balance or rate
changes are allocated to such categories based on the respective percentage
changes in average daily balances and average rates.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                              1997/96                                    1996/95
                                              -------------------------------------     -------------------------------------
                                              Increase (decrease) due to change in:     Increase (decrease) due to change in:
                                              -------------------------------------     -------------------------------------
                                                Average       Average                      Average       Average      
(in millions)                                   Balance          Rate        Total         Balance          Rate        Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>          <C>             <C>           <C>          <C>  
Consolidated                                                                                                          
Interest Revenue                                                                                                      
Interest-bearing deposits with banks              $ 157         $  24        $ 181           $   1         $   6        $   7
Federal funds sold                                  144             3          147              25           (10)          15
Securities purchased under resale agreements         84           (45)          39             326           158          484
Securities borrowed                                 (47)          (32)         (79)            157           (77)          80
Trading assets                                     (128)          208           80             (10)         (270)        (280)
Securities available for sale                        52           (35)          17              36            15           51
Loans                                               366            24          390             145           (43)         102
Customer receivables                                  9             3           12              35            --           35
-----------------------------------------------------------------------------------------------------------------------------
Total interest revenue                              637           150          787             715          (221)         494
-----------------------------------------------------------------------------------------------------------------------------
Interest Expense                                                                                                      
Interest-bearing deposits                           757           (36)         721             104          (109)          (5)
Trading liabilities                                (474)           88         (386)             19          (210)        (191)
Securities loaned and securities sold 
  under repurchase agreements                      (181)           (4)        (185)            296           113          409
Other short-term borrowings                         220           (27)         193               1           (46)         (45)
Long-term debt                                       53           (31)          22             167             8          175
Trust preferred capital securities                  110            --          110               3            --            3
-----------------------------------------------------------------------------------------------------------------------------
Total interest expense                              485           (10)         475             590          (244)         346
-----------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue                $ 152         $ 160        $ 312           $ 125         $  23        $ 148
=============================================================================================================================
Domestic Offices                                                                                                      
Interest Revenue                                                                                                      
Interest-bearing deposits with banks              $  15         $   1        $  16           $ (15)        $  (6)       $ (21)
Federal funds sold                                  144             3          147              25           (10)          15
Securities purchased under resale agreements        (17)           65           48             221           (20)         201
Securities borrowed                                 (22)           (3)         (25)            152           (78)          74
Trading assets                                     (424)          109         (315)            (18)         (193)        (211)
Securities available for sale                        --            22           22              30           (22)           8
Loans                                               153            55          208              63             6           69
Customer receivables                                  9             3           12              35            --           35
-----------------------------------------------------------------------------------------------------------------------------
Total interest revenue                             (142)          255          113             493          (323)         170
-----------------------------------------------------------------------------------------------------------------------------
Interest Expense                                                                                                      
Interest-bearing deposits                           528           (17)         511              71           (63)           8
Trading liabilities                                (590)          176         (414)            135          (162)         (27)
Securities loaned and securities sold
  under repurchase agreements                      (322)          110         (212)            103           (57)          46
Other short-term borrowings                         189            59          248             (45)          (41)         (86)
Long-term debt                                       58           (14)          44              92           (22)          70
Trust preferred capital securities                  110            --          110               3            --            3
Funds provided to foreign offices                  (139)         (352)        (491)           (352)          287          (65)
Funds provided by foreign offices                    57           322          379             601          (386)         215
-----------------------------------------------------------------------------------------------------------------------------
Total interest expense                             (109)          284          175             608          (444)         164
-----------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue                $ (33)        $ (29)       $ (62)          $(115)        $ 121        $   6
=============================================================================================================================
Foreign Offices                                                                                                       
Interest Revenue                                                                                                      
Interest-bearing deposits with banks              $ 136         $  29        $ 165           $   2         $  26        $  28
Securities purchased under resale agreements        106          (115)          (9)             84           199          283
Securities borrowed                                 (28)          (26)         (54)             --             6            6
Trading assets                                      273           122          395               7           (76)         (69)
Securities available for sale                        53           (58)          (5)              5            38           43
Loans                                               211           (29)         182              86           (53)          33
-----------------------------------------------------------------------------------------------------------------------------
Total interest revenue                              751           (77)         674             184           140          324
-----------------------------------------------------------------------------------------------------------------------------
Interest Expense                                                                                                      
Interest-bearing deposits                           213            (3)         210              34           (47)         (13)
Trading liabilities                                  29            (1)          28            (107)          (57)        (164)
Securities loaned and securities sold 
  under repurchase agreements                       146          (119)          27             180           183          363
Other short-term borrowings                          36           (91)         (55)             57           (16)          41
Long-term debt                                       (3)          (19)         (22)             69            36          105
Funds provided by domestic offices                  139           352          491             352          (287)          65
Funds provided to domestic offices                  (57)         (322)        (379)           (601)          386         (215)
-----------------------------------------------------------------------------------------------------------------------------
Total interest expense                              503          (203)         300             (16)          198          182
-----------------------------------------------------------------------------------------------------------------------------
Net change in net interest revenue                $ 248         $ 126        $ 374           $ 200         $ (58)       $ 142
=============================================================================================================================
</TABLE>


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       85
<PAGE>

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

Interest Rate Sensitivity

Interest rate sensitivity data for the Corporation at December 31, 1997 is
presented in the table below. For purposes of this presentation, the
interest-earning/bearing components of trading assets and trading liabilities
are assumed to reprice within three months.

      The interest rate gaps reported in the table arise when assets are funded
with liabilities having different repricing intervals, after considering the
effect of off-balance sheet hedging instruments. Since these gaps are actively
managed and change daily as adjustments are made in interest rate views and
market outlook, positions at the end of any period may not be reflective of the
Corporation's interest rate view in subsequent periods. Active management
dictates that longer-term economic views are balanced against prospects of
short-term interest rate changes in all repricing intervals.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                           By Repricing Interval
                                                          -----------------------------------------------------
                                                                   After three   After six       After                Non-
                                                            Within      months      months    one year    After  interest-
                                                             three  but within  but within  but within     five    bearing
(in millions) December 31, 1997                             months  six months    one year  five years    years      funds     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>         <C>         <C>           <C>      <C>      <C>       <C>     
Assets
Interest-bearing deposits with banks                      $  4,162    $     65    $     45      $   --   $   --   $     --  $  4,272
Federal funds sold                                           1,382          --          --          --       --         --     1,382
Securities purchased under resale agreements                18,196         199         768          --       --         --    19,163
Securities borrowed                                         16,751          --          --          --       --         --    16,751
Trading assets                                              29,978          --          --          --       --     26,879    56,857
Securities available for sale                                1,243         980       1,166       1,953    2,739         --     8,081
Customer receivables                                         1,547          --          --          --       --         --     1,547
Gross loans                                                 14,818       1,658         696       1,961      672         --    19,805
Noninterest-earning assets and allowance
  for credit losses                                             --          --          --          --       --     12,244    12,244
------------------------------------------------------------------------------------------------------------------------------------
Total                                                       88,077       2,902       2,675       3,914    3,411     39,123   140,102
------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity                                                           
Interest-bearing deposits                                   24,890       3,500       7,304         748    1,660         --    38,102
Trading liabilities                                          4,906          --          --          --       --     22,340    27,246
Securities loaned and securities sold under                                                    
  repurchase agreements                                     17,040         648         208          --       --         --    17,896
Other short-term borrowings                                 14,765       3,387         978         344      103         --    19,577
Long-term debt                                               3,731         229         275       8,284    2,068         --    14,587
Mandatorily redeemable capital securities of                                                   
  subsidiary trusts holding solely junior subordinated                                         
  deferrable interest debentures                                --          --          --          --    1,472         --     1,472
Preferred stock                                                 --          --         247         411       --         --       658
Noninterest-bearing liabilities, including allowance
  for credit losses, and common stockholders' equity            --          --          --          --       --     20,564    20,564
------------------------------------------------------------------------------------------------------------------------------------
Total                                                       65,332       7,764       9,012       9,787    5,303     42,904   140,102
------------------------------------------------------------------------------------------------------------------------------------
Effect of off-balance sheet hedging instruments            (32,585)     10,019      10,661       6,629    5,276         --        --
------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity Gap                             $ (9,840)   $  5,157    $  4,324      $  756   $3,384   $ (3,781) $     --
====================================================================================================================================
Cumulative Interest Rate Sensitivity Gap                  $ (9,840)   $ (4,683)   $   (359)     $  397   $3,781   $     --  $     --
====================================================================================================================================
</TABLE>


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       86
<PAGE>

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

Deposits

The Corporation's certificates of deposit and other time deposits issued by
domestic and foreign offices in amounts of $100,000 or more, together with their
remaining maturities, and other interest-bearing deposits at December 31, 1997
were as follows:

--------------------------------------------------------------------------------
(in millions)                                 Domestic      Foreign        Total
--------------------------------------------------------------------------------
Certificates of deposit of $100,000 or more
  3 months or less                             $ 2,052      $ 4,801      $ 6,853
  Over 3 through 6 months                        3,224        1,033        4,257
  Over 6 through 12 months                       7,678        1,078        8,756
  Over 12 months                                   381            6          387
--------------------------------------------------------------------------------
Total                                           13,335        6,918       20,253
--------------------------------------------------------------------------------
Other time deposits of $100,000 or more                                 
  3 months or less                                 231        5,693        5,924
  Over 3 through 6 months                            6          421          427
  Over 6 through 12 months                           2          730          732
  Over 12 months                                    --           28           28
--------------------------------------------------------------------------------
Total                                              239        6,872        7,111
--------------------------------------------------------------------------------
Other                                            8,779        1,959       10,738
--------------------------------------------------------------------------------
Total interest-bearing deposits                $22,353      $15,749      $38,102
================================================================================

Deposits by foreign depositors in domestic offices amounted to $1.0 billion,
$1.2 billion and $1.0 billion at December 31, 1997, 1996 and 1995, respectively.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       87
<PAGE>

================================================================================
DESCRIPTION OF BUSINESS
================================================================================


Bankers Trust New York Corporation

Bankers Trust New York Corporation is a registered bank holding company which
was incorporated in 1965. The Parent Company, which accounted for 6 percent of
consolidated assets at December 31, 1997, supplies Bankers Trust Company
("BTCo"), BT Alex. Brown Incorporated ("BT Alex. Brown"), and its other
subsidiaries with various advisory services and coordinates their general
policies and activities.

      The Parent Company is a legal entity separate and distinct from its
subsidiaries, including BTCo. There are various legal limitations governing the
extent to which certain of the Parent Company's subsidiaries may extend credit,
pay dividends or otherwise supply funds to, or engage in transactions with, the
Parent Company or certain of its other subsidiaries. The rights of the Parent
Company to participate in any distribution of assets of any subsidiary upon its
dissolution, winding-up, liquidation or reorganization or otherwise are subject
to the prior claims of creditors of that subsidiary, except to the extent that
the Parent Company may itself be a creditor of that subsidiary and its claims
are recognized. Claims on the Parent Company's subsidiaries by creditors other
than the Parent Company include long-term debt and substantial obligations with
respect to deposit liabilities, trading liabilities, federal funds purchased,
securities sold under repurchase agreements and commercial paper, as well as
short-term borrowings and accounts payable.

Organizational Units

The Corporation delivers a wide range of financial products and services
worldwide principally through eight broad Organizational Units. Five units are
organized around specific products and services: Investment Banking, Risk
Management Services, Trading & Sales, Private Client Services Group, and Global
Institutional Services. Three additional units are organized to deliver these
same types of financial products and services with the unique local expertise
necessary to operate successfully in Australia/New Zealand, Asia and Latin
America. See page 11 for a description of these Organizational Units.

Insurance Activities

The Corporation has a 50 percent interest in a Chilean company known as
Consorcio. Consorcio underwrites pension-related life and disability insurance,
and sells pension-related life annuities.

Bankers Trust Company

The Parent Company's principal banking subsidiary is Bankers Trust Company,
which, along with its subsidiaries accounted for 69 percent of the Corporation's
consolidated assets at December 31, 1997. BTCo, founded in 1903, is among the
largest commercial banks in New York City and the United States, based on total
assets. BTCo originates loans and other forms of credit, accepts deposits,
arranges financings and provides numerous other commercial banking and financial
services. BTCo provides a broad range of financial advisory services to its
clients. It also engages in the trading of currencies, securities, derivatives
and commodities.

BT Alex. Brown Incorporated

On September 1, 1997, the Corporation acquired Alex. Brown Incorporated ("ABI"),
the parent of Alex. Brown & Sons Incorporated ("Alex. Brown"). The acquisition
was effected by the merger of ABI with and into a wholly-owned subsidiary of the
Corporation, which subsidiary was then renamed BT Alex. Brown Holdings
Incorporated ("BT Alex. Brown Holdings"). The Corporation contributed all of the
stock of BT Securities Corporation ("BT Securities"), the Corporation's existing
broker-dealer subsidiary, to BT Alex. Brown Holdings, which as a result became
the immediate parent of BT Securities. At the same time, Alex. Brown was merged
into BT Securities, which was then renamed "BT Alex. Brown Incorporated." As a
result of these transactions, BT Alex. Brown Incorporated is a direct
wholly-owned subsidiary of BT Alex. Brown Holdings and an indirect wholly-owned
subsidiary of the Corporation, and combines the operations of BT Securities with
those of Alex. Brown. See also "Financial Review--The Merger" on page 11.

      BT Alex. Brown Incorporated, a securities broker-dealer registered with
the Securities and Exchange Commission and a member of the New York Stock
Exchange, is an indirect wholly-owned subsidiary of the Parent Company. It
accounted for 18 percent of the Corporation's consolidated assets at December
31, 1997. BT Alex. Brown provides origination, advisory and execution services
for a broad range of domestic and international clients. It is a leading
underwriter of debt and equity securities for corporations and other issuers and
furnishes industry-focused research. It also provides securities brokerage and
investment advisory services to private clients and institutions and
correspondent clearing services to broker-dealers. BT Alex. Brown is a primary
dealer in U.S. Government securities, a municipal securities broker-dealer and
an underwriter or placement agent for commercial paper, money market
instruments, asset-backed and convertible securities. BT Alex. Brown also
provides global merger, acquisition, corporate and other financial advisory
expertise, structures a broad range of derivative transactions and syndicates
loans for its affiliates and other lenders.

Bankers Trust (Delaware)

Bankers Trust (Delaware) is a state bank chartered under the laws of Delaware,
which, along with its subsidiaries, accounted for 1 percent of the Corporation's
consolidated assets at December 31, 1997. Bankers Trust (Delaware) engages in
commercial banking activities, with an emphasis on lending, funding and
corporate finance. BT Commercial Corporation, its wholly-owned subsidiary, is a
commercial finance company.

Supervision and Regulation

The Parent Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, and as such is required to register with the
Federal Reserve Board. As a registered bank holding company, the Parent Company
is required to file with the Federal Reserve Board certain reports and
information and is restricted in its acquisitions, certain of which are subject
to approval by the Federal Reserve Board. In addition, the Parent Company may be
required to obtain the approval of the New York State Banking Department in
order for it to acquire certain bank and non-bank subsidiaries.

      The Parent Company and its nonbank subsidiaries are affiliates of BTCo and
Bankers Trust (Delaware) within the meaning of applicable federal statutes, and
such banks are therefore subject to 


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       88
<PAGE>

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

restrictions on loans and other extensions of credit to the Parent Company and
certain other affiliates and on certain other types of transactions with them or
involving their securities.

      BTCo is subject to the supervision of, and to examination by, the New York
State Banking Department, the Federal Reserve Board and the Federal Deposit
Insurance Corporation. Bankers Trust (Delaware) is subject to regulation by the
Office of the State Bank Commissioner of the State of Delaware and by the
Federal Deposit Insurance Corporation. See Note 15 in Notes to Financial
Statements for the required reserve balances maintained by the Corporation's
subsidiary banks at a Federal Reserve Bank and limitations on the availability
of BTCo's undistributed earnings for the payment of dividends.

      BT Alex. Brown is registered as a broker-dealer in all 50 states, the
District of Columbia and Puerto Rico and with the Securities and Exchange
Commission, and is a member of the New York Stock Exchange and the National
Association of Securities Dealers, Inc. and is therefore subject to supervision
by those regulators. As a securities affiliate of a bank, BT Alex. Brown is
subject to the supervision of the Federal Reserve Board, which has imposed
limitations on the gross revenue from certain activities of such affiliates and
certain other conditions governing their operations.

      The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides for cross-guarantees of the liabilities of insured
depository institutions pursuant to which any bank or savings association
subsidiary of a holding company may be required to reimburse the FDIC for any
loss or anticipated loss to the FDIC that arises from a default of any other
subsidiary bank or savings association of the parent holding company or
assistance provided to such an institution in danger of default.

      In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. FDICIA substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and
revised several other federal banking statutes.

      FDICIA establishes five capital categories, ranging from "well
capitalized," to "critically undercapitalized." A depository institution is well
capitalized if it significantly exceeds the minimum level required by regulation
for each relevant capital measure. Under FDICIA, an institution that is not well
capitalized is generally prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rate in its
market; in addition, "pass through" insurance coverage may not be available for
certain employee benefit accounts. FDICIA also requires an undercapitalized
depository institution to submit an acceptable capital restoration plan to the
appropriate federal bank regulatory agency. One requisite element of such a plan
is that the institution's parent holding company must guarantee compliance by
the institution with the plan, subject to certain limitations. In the event of
the parent holding company's bankruptcy, the guarantee, and any other
commitments that the parent holding company has made to federal bank regulators
to maintain the capital of its depository institution subsidiaries, would be
assumed by the bankruptcy trustee and entitled to priority in payment.

      Based on their respective regulatory capital ratios at December 31, 1997,
both BTCo and Bankers Trust (Delaware) are well capitalized, based on the
definitions in the regulations issued by the Federal Reserve Board and the other
federal bank regulatory agencies setting forth the general capital requirements
mandated by FDICIA. See Note 16 in Notes to Financial Statements for information
regarding the Corporation's and BTCo's regulatory capital ratios.

      FDICIA contains numerous other provisions, including new reporting
requirements, termination of the "too big to fail" doctrine except for special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy.

      A federal depositor preference statute was enacted in 1993 providing that
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general claims against such an institution, including
federal funds and letters of credit, in the "liquidation or other resolution" of
such an institution by any receiver.

      In addition to banking and securities laws, regulations and regulatory
agencies governing the Corporation worldwide, the Corporation also is subject to
various other laws, regulations and regulatory agencies throughout the United
States and in other countries. Furthermore, various proposals, bills and
regulations have been and are being considered in the United States Congress,
the New York State Legislature and various other governmental regulatory and
legislative bodies, which could result in changes in the profitability and
governance of the Corporation. It cannot be predicted whether new legislation or
regulations will be adopted and, if so, how they would affect the Corporation.

      References under the caption "Supervision and Regulation" to applicable
statutes, regulations and orders are brief summaries of portions thereof which
do not purport to be complete and which are qualified in their entirety by
reference thereto.

Important Factors Relating to Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information about their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in such statements. In
connection with certain statements made in this report and those that may be
made in the future by or on behalf of the Corporation which are identified as
forward-looking statements, the Corporation notes that the following important
factors, among others, could cause actual results to differ materially from
those set forth in any such forward-looking statements. Further, such
forward-looking statements speak only as of the date on which such statement or
statements are made, and the Corporation undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       89
<PAGE>

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

      The business and profitability of a large financial services organization
such as the Corporation is influenced by prevailing economic conditions and
governmental policies, both foreign and domestic. The actions and policy
directives of the Federal Reserve Board determine to a significant degree the
cost and the availability of funds obtained from money market sources for
lending and investing. Federal Reserve Board policies and regulations also
influence, directly and indirectly, the rates of interest paid by commercial
banks on their interest-bearing deposits and may also impact the value of
financial instruments held by the Corporation. The nature and impact on the
Corporation of future changes in economic and market conditions and monetary and
fiscal policies, both foreign and domestic, are not predictable and are beyond
the Corporation's control. In addition, these conditions and policies can impact
the Corporation's customers and counterparties which may increase the risk of
default on their obligations to the Corporation and its affiliates. They can
also affect the competitive conditions in the markets and products within which
the Corporation operates, which can have an adverse impact on the Corporation's
ability to maintain its revenue streams.

      As part of its ongoing business, the Corporation assumes financial
exposures to interest rates, currencies, equities and other financial products.
In doing so, the Corporation is subject to unforeseen events which may not have
been anticipated or which may have effects which exceed those assumed within its
risk management processes. This risk can be accentuated by volatility and
reduction in liquidity in those markets which in turn can impact the
Corporation's ability to hedge and trade the positions concerned. In addition,
the Corporation is dependent on its ability to access the financial markets for
its funding needs.

      The Corporation's international operations, which are widely diversified
geographically and vary from country to country, involve certain economic,
political and legal risks which differ from those associated with its domestic
operations. These risks include, among others, the possibility of expropriation
of assets, exchange rate fluctuations, severe reductions in business levels,
restrictions on the withdrawal of funds, balance-of-payments problems and
changes in laws and regulations. In addition, in certain jurisdictions the
Corporation's operations may involve legal uncertainties. See "Cross-Border
Outstandings" on page 34. Further, certain domestic, as well as foreign,
financial institutions with which the Corporation competes may not be subject to
the same regulatory restrictions as the Corporation which may make it more
difficult for the Corporation to compete with those institutions for business.

      As noted in "Supervision and Regulation" on page 88, the Corporation is
regulated by and subject to various domestic and international regulators. The
actions of these regulators can have an impact on the profitability and
governance of the Corporation. Increases by regulatory authorities of minimum
capital, reserve, deposit insurance and other financial viability requirements
can also affect the Corporation's profitability.

      The Corporation is subject to operational and control risk which is the
potential for loss caused by a breakdown in communication, information,
processing and settlement systems or processes or a lack of compliance with the
procedures on which they rely either within the Corporation or within the
broader financial systems infrastructure. See "Noninterest Expenses" discussion
of the Year 2000 Program on page 16.

      As with any large financial institution, the Corporation is also subject
to the risk of litigation and to an unexpected or adverse outcome in such
litigation. Competitive pressures in the marketplace and unfavorable or adverse
publicity and news coverage can have the effect of lessening customer demand for
the Corporation's services. Ultimately, the Corporation's businesses and their
success are dependent on the Corporation's ability to attract and retain high
quality employees.

Properties

BTCo owns a 39-story building known as One Bankers Trust Plaza and a 10-story
office building at 4 Albany Street, both in Manhattan, and a 998-year leasehold
interest in an eight-story office building in the Broadgate complex in London,
England. The other principal office premises leased are a portion of a 42-story
office building located at 280 Park Avenue, (formerly an owned property), seven
stories of a 37-story building at 14-16 Wall Street, both in Manhattan, 13
stories of an office building in Baltimore, Maryland, an eight-story building in
Jersey City, New Jersey, a three-story building in Nashville, Tennessee and a
significant portion of a 42-story office building in Sydney, Australia. Portions
of certain of these properties are leased to tenants or subtenants. In addition
to the offices referred to above, branch offices and locations for other
activities are occupied in cities throughout the world under various types of
ownership and leaseholds. See Note 7 of Notes to Financial Statements for
additional information concerning lease commitments.

Legal Proceedings

Various legal actions and proceedings involving the Parent Company and various
of its subsidiaries are currently pending. Management, after discussions with
counsel, does not anticipate that losses, if any, resulting from such actions
and proceedings would be material.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       90
<PAGE>

================================================================================
EXECUTIVE OFFICERS OF THE REGISTRANT
================================================================================


Set forth below are the names and ages of the executive officers of the Parent
Company, positions held and the year from which held. These officers are elected
annually by the Board of Directors. There are no family relationships among such
persons.*

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

Frank N. Newman, 55
Chairman of the Board and Chief Executive Officer and President
Chairman of the Board and Chief Executive Officer of the Parent Company and BTCo
since 1996. President of the Parent Company and BTCo since 1995. Mr. Newman,
former Deputy Secretary of the United States Treasury, joined the Treasury in
1993 after six years with BankAmerica Corporation where he was the chief
financial officer and vice chairman of the board.

George J. Vojta, 62
Vice Chairman of the Board
Vice Chairman of the Board of the Parent Company and BTCo since January 1992;
Executive Vice President 1984-1992. He is in charge of BTCo's Private Client
Services business and oversees BT Ventures and Facilities/Network Management and
Portfolio.

Mark Bieler, 52
Executive Vice President
Executive Vice President of the Parent Company since 1987 and Managing Director
of BTCo since 1992; Executive Vice President of BTCo 1987-1992; Senior Vice
President and head of the Human Resources Department since 1985.

Mary Cirillo, 50
Executive Vice President
Executive Vice President of the Parent Company and Managing Director of BTCo
since June 1997. Ms. Cirillo formerly held many positions in her 20-year career
at Citicorp, including division executive from 1989 to 1992; senior corporate
officer for the business evaluation and corporate re-engineering unit from 1993
to 1994; and Senior Vice President of Global Finance Operations and Technology
from 1994 to 1997. She is head of BTCo's Global Institutional Services business.

Richard H. Daniel, 51
Vice Chairman, Chief Financial Officer and Controller
Vice Chairman of the Parent Company since April 1997. Executive Vice President
of the Parent Company from 1996 to April 1997. Chief Financial Officer
(Principal Financial Officer) and Controller of the Parent Company since 1996.
Vice Chairman of BTCo since September 1997, Managing Director from 1996 to
September 1997. Chief Financial Officer (Principal Financial Officer) and
Controller of BTCo since 1996. Mr. Daniel formerly held the positions of chief
financial officer of Federal Home Loan Mortgage Corporation from 1994 to 1996,
and executive vice president and director of financial analysis and planning at
BankAmerica Corporation from 1987 to 1994.

Yves C. de Balmann, 51
Vice Chairman
Vice Chairman of the Parent Company since April 1997. Senior Vice President of
the Parent Company 1995-1997. Managing Director of BTCo from 1988 to September
1997. He is co-chairman and co-chief executive officer of BT Alex. Brown
Incorporated.

R. Kelly Doherty, 39
Vice Chairman
Vice Chairman of the Parent Company since April 1997. Senior Vice President of
the Parent Company 1995-1997; Vice Chairman of BTCo since September 1997.
Managing Director of BTCo from 1988 to September 1997. Mr. Doherty is currently
on a one-year leave of absence effective February 1998. Prior to his leave, he
was head of BTCo's Trading and Sales and Emerging Markets businesses.

Robert A. Ferguson, 52
Executive Vice President
Executive Vice President of the Parent Company since April 1997. Senior Vice
President of the Parent Company 1995-1997. Managing Director of BTCo since 1985.
He is head of Bankers Trust Australia Ltd.

Duncan P. Hennes, 41
Senior Vice President
Senior Vice President of the Parent Company since 1990. Managing Director of
BTCo since 1990. Mr. Hennes is head of BTCo's Trading and Sales business and
responsible for Treasury/Funding and Arbitrage.

Joseph A. Manganello, Jr., 62
Executive Vice President and Chief Credit Officer
Executive Vice President and Chief Credit Officer of the Parent Company since
1988; Managing Director of BTCo since 1992; and Chief Credit Officer since 1984;
Executive Vice President of BTCo 1982-1992; Department Head of the United States
Department of BTCo prior to 1984. He is in charge of the Credit Risk Management
Department.

I. David Marshall, 51
Executive Vice President and Chief Information Officer
Executive Vice President and Chief Information Officer of the Parent Company and
Managing Director and Chief Information Officer of BTCo since October 1996. Mr.
Marshall formerly held the positions of executive vice president and chief
information officer of Canadian Imperial Bank of Commerce from June 1995 to
October 1996; group executive for Information Systems & Operations and a member
of the Executive Committee at Unitel Communications, Inc., the operating arm of
AT&T in Canada from 1993 to 1995; and from 1977 to 1993 he served with the
Canadian Government consecutively as assistant auditor general; assistant deputy
minister, Information Technology for Revenue Canada and assistant deputy
minister, Information Technology for Employment and Immigration Canada.

Rodney A. McLauchlan, 44
Executive Vice President
Executive Vice President of the Parent Company since April 1997. Senior Vice
President of the Parent Company from 1992 to April 1997. Managing Director of BT
Alex. Brown since September 1997. Managing Director of BT Securities Corporation
1995-1997; Managing Director of BTCo 1987-1995. As of 1998, he is Chairman of
the Global Banking Group and chairs the European and Asian Advisory Boards and
the Client Committee.

Mayo A. Shattuck III, 43
Vice Chairman
Vice Chairman of the Parent Company since September 1997. He formerly held the
positions of President and Chief Operating Officer of Alex. Brown Incorporated
from 1991 to September 1997. He is co-chairman and co-chief executive officer of
BT Alex. Brown Incorporated.

Melvin A. Yellin, 55
Executive Vice President and General Counsel
Executive Vice President and General Counsel of the Parent Company and Managing
Director and General Counsel of BTCo since 1996; Senior Vice President (Chief
Legal Officer) of the Parent Company and Managing Director (Chief Legal Officer)
of BTCo since 1995; Managing Director and Deputy General Counsel of BTCo
1992-1995. Vice President and Counsel 1981-1992. He is in charge of the Legal
Department.


*     Certain of the executive officers held the Senior Managing Director title
      for a portion of 1996 and 1997. BTCo has since eliminated the title
      effective January 1, 1998 and reverted to the use of the Managing Director
      title as the most senior title below that of Vice Chairman.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       91
<PAGE>

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

United States Securities and Exchange Commission Washington, D.C. 20549

                                    FORM 10-K

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

                  For the fiscal year ended December 31, 1997

                                       or

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

                  Commission file number 1-5920

                       Bankers Trust New York Corporation
             (Exact Name of Registrant as Specified in Its Charter)

           New York                                              13-6180473

(State or other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

      130 Liberty Street
         New York, NY                                               10006
     (Address of Principal                                       (Zip Code)
      Executive Offices)

                                 (212) 250-2500
              (Registrant's Telephone Number, Including Area Code)
           Securities registered pursuant to Section 12(b) of the Act:

                                                               Name Of Each
                                                                Exchange On
               Title of Each Class                           Which Registered
---------------------------------------------------      -----------------------
Common Stock, $1 par value                               New York Stock Exchange

Preferred Share Purchase Rights                          New York Stock Exchange

6 1/8% Convertible Capital Securities                    American Stock Exchange

7 5/8% Cumulative Preferred Stock, Series O              American Stock Exchange

Depositary Shares representing a one-tenth interest
  in a share of 7 5/8% Cumulative Preferred Stock,
  Series O ($250 Liquidation Preference)                 American Stock Exchange

7.50% Cumulative Preferred Stock, Series P               American Stock Exchange

Depositary Shares representing a one-fortieth
  interest in a share of 7.50% Cumulative Preferred
  Stock, Series P ($1,000 Liquidation Preference)        American Stock Exchange

Adjustable Rate Cumulative Preferred Stock, Series Q     New York Stock Exchange

Depositary Shares representing a one-hundredth
  interest in a share of Adjustable Rate Cumulative
  Preferred Stock, Series Q ($2,500 Liquidation
  Preference)                                            New York Stock Exchange

Adjustable Rate Cumulative Preferred Stock, Series R     New York Stock Exchange

Depositary Shares representing a one-hundredth
  interest in a share of Adjustable Rate Cumulative
  Preferred Stock, Series R ($2,500 Liquidation
  Preference)                                            New York Stock Exchange

7 3/4% Cumulative Preferred Stock, Series S ($2,500
  Liquidation Preference)                                New York Stock Exchange

Depositary Shares representing a one-hundredth
  interest in a share of 7 3/4% Cumulative Preferred
  Stock, Series S ($2,500 Liquidation Preference)        New York Stock Exchange

        Securities Registered Pursuant to Section 12(g) of the Act: None

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

                               Yes  X   No    
                                   ---     ---

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

      State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 27, 1998: Common Stock, $1 par
value, $11,182,841,128.

      Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 27, 1998: Common Stock, $1 par value,
97,873,138 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE
   Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
                  are incorporated by reference into Part III.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       92
<PAGE>

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

Form 10-K Cross-Reference Index

Part I
Item No.                                                                   Pages
      1. Business
      Description of Business                                                 88
      Supplemental Financial Data                            
        International Operations                                          17, 66
        Distribution of Assets, Liabilities and              
          Stockholders' Equity; Interest Rates and           
          Interest Differential                                               83
        Investment Portfolio                                                  47
        Loan Portfolio                                       32-36, 45-46, 48-49
        Summary of Credit Loss Experience                              29-31, 50
        Deposits                                                              87
        Return on Equity and Assets                                           10
        Short-Term Borrowings                                                 50
    2. Properties                                                             90
    3. Legal Proceedings                                                      90
    4. Submission of Matters to a Vote of Security Holders                     *
    -- Executive Officers of the Registrant                                   91
  
Part II
    5. Market for Registrant's Common Equity and
        Related Stockholder Matters                                       59, 82
    6. Selected Financial Data                                                10
    7. Management's Discussion and Analysis of Financial                
        Condition and Results of Operations                                   11
    7a. Quantitative and Qualitative Disclosures                        
        About Market Risk                                                  22-26
    8. Financial Statements and Supplementary Data                      
          Bankers Trust New York Corporation and                        
            Subsidiaries (Consolidated)                                    40-43
          Notes to Financial Statements                                    44-78
          Reports of Independent Auditors                                  80-81
          Selected Quarterly Financial Data                                   82
    9. Changes in and Disagreements with Accountants                    
        on Accounting and Financial Disclosure                                 *
   
Part III

The information required by Items 10 through 13 in this part is omitted pursuant
to Instruction G of Form 10-K since the Corporation intends to file with the
Commission a definitive Proxy Statement, pursuant to Regulation 14A, not later
than 120 days after December 31, 1997.

Part IV
Item No.
   14. Exhibits, Financial Statement Schedules and
        Reports on Form 8-K
          (a)(1) Financial Statements-See Item 8.
             (2) Financial Statement Schedules
                 All schedules normally required by Form 10-K
                 are omitted since they are either not applicable
                 or the required information is shown in the
                 financial statements or the notes thereto.
             (3) Exhibits
                 3. Articles of Incorporation and By-laws,
                    as amended                                                **
                 4. Instruments Defining the Rights of
                    Security Holders, Including Indentures
                    (ii) Long-Term Debt Indentures                           ***
   10. Material Contracts
       (ii)(C)  Acquisition or Sale of any Property,
                Plant or Equipment                                            **
       (ii)(D)  Leases for Principal Premises
                described on page 90                                          **
       (iii)(A) Management Contracts and
                Compensation Plans                                            **
   12. Statements Re Computation of Ratios                                    **
   21. Subsidiaries of the Registrant                                         **
   23. Consents of Experts                                                    **
   24. Power of Attorney                                                      **
   27. Financial Data Schedule
   99. Additional Exhibits
       (i) Preferred Share Purchase Rights                                    **

(b) Reports on Form 8-K-The Corporation filed four reports on Form 8-K during
    the quarter ended December 31, 1997.

    -- The report dated October 1, 1997, and filed on October 3, 1997, announced
       that the Corporation had entered into a distribution agreement pursuant
       to which the Corporation may offer from time to time its Senior
       Medium-Term Notes, Series A, and Subordinated Medium-Term Notes, Series
       A.

    -- The report dated October 23, 1997 and filed on October 24, 1997, filed
       the Corporation's Press Release which announced earnings for the quarter
       ended September 30, 1997.

    -- The report dated and filed on November 26, 1997 announced that the
       Corporation entered into an Amendment to Rights Agreement with Harris
       Trust and Savings Bank, as Rights Agent, amending the Rights Agreement
       dated as of February 22, 1988, between the Corporation and the Rights
       Agent.

    -- The report dated December 2, 1997 and filed on December 3, 1997, filed
       the Corporation's Press Release which announced that a definitive
       agreement was signed with National Westminster Bank PLC to acquire
       NatWest Markets' Pan-European cash equities business. In addition, the
       report filed the By-Laws of Bankers Trust New York Corporation, as
       amended.

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

  * Not applicable.
 ** A copy of any exhibit not contained herein may be obtained by writing to
    James T. Byrne, Jr., Office of the Secretary, Bankers Trust New York
    Corporation, One Bankers Trust Plaza, 130 Liberty Street, Mail Stop 2310,
    New York, NY 10006.
*** The Corporation hereby agrees to furnish to the Commission, upon request, a
    copy of any instruments defining the rights of holders of long-term debt
    issued by the Parent Company or its subsidiaries.

This report on Form 10-K has not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this report. Portions of the 1997 Annual Report to the Corporation's
stockholders are not required by the Form 10-K report and are not "filed" as
part of the Form 10-K. Only those sections of the Annual Report referenced in
the above index are incorporated in the Form 10-K.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       93
<PAGE>

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

Form 10-K Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 5, 1998.


                                       Bankers Trust New York Corporation


                                       By  /s/ JAMES T. BYRNE, JR.
                                          ---------------------------------
                                          (James T. Byrne, Jr., Senior Vice 
                                           President and Secretary)

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

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 indicated on March 5, 1998.


FRANK N. NEWMAN*                          Chairman of the Board,
---------------------------------         Chief Executive Officer,
(Frank N. Newman)                         President and Director
                                          (Principal Executive Officer)


RICHARD H. DANIEL*                        Vice Chairman,
---------------------------------         Chief Financial Officer 
(Richard H. Daniel)                       and Controller (Principal 
                                          Financial Officer)


RONALD HASSEN*                            Senior Vice President
---------------------------------         (Acting Principal 
(Ronald Hassen)                           Accounting Officer)


LEE A. AULT III*                          Director
---------------------------------
(Lee A. Ault III)


NEIL R. AUSTRIAN*                         Director
---------------------------------
(Neil R. Austrian)


GEORGE B. BEITZEL*                        Director
---------------------------------
(George B. Beitzel)


PHILLIP A. GRIFFITHS*                     Director
---------------------------------
(Phillip A. Griffiths)


WILLIAM R. HOWELL*                        Director
---------------------------------
(William R. Howell)


VERNON E. JORDAN, JR.*                    Director
---------------------------------
(Vernon E. Jordan, Jr.)


HAMISH MAXWELL*                           Director
---------------------------------
(Hamish Maxwell)


N. J. NICHOLAS JR.*                       Director
---------------------------------
(N. J. Nicholas Jr.)


RUSSELL E. PALMER*                        Director
---------------------------------
(Russell E. Palmer)


DONALD L. STAHELI*                        Director
---------------------------------
(Donald L. Staheli)


PATRICIA CARRY STEWART*                   Director
---------------------------------
(Patricia Carry Stewart)         


G. RICHARD THOMAN*                        Director
---------------------------------
(G. Richard Thoman)


GEORGE J. VOJTA*                          Vice Chairman
---------------------------------         of the Board
(George J. Vojta)                         and Director


PAUL A. VOLCKER*                          Director
---------------------------------
(Paul A. Volcker)




* By /s/ JAMES T. BYRNE, JR.
     ---------------------------------------
     (James T. Byrne, Jr., Attorney-in-Fact)


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                       94
<PAGE>

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

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

                                    EXHIBITS

                                       TO

                                    FORM 10-K

                                   Filed Under

                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                       BANKERS TRUST NEW YORK CORPORATION


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                      103
<PAGE>

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

                       BANKERS TRUST NEW YORK CORPORATION

                           EXHIBIT INDEX TO FORM 10-K

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

3. Articles of Incorporation and By-laws, as amended

      Restated Certificate of Incorporation of the Registrant filed with
            the State of New York on June 9, 1988                            (1)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on August 30, 1989                                          (1)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on June 14, 1990                                            (1)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on March 20, 1992                                           (1)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on October 27, 1992                                         (1)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on January 21, 1993                                         (1)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on June 1, 1993                                             (1)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on August 18, 1993                                          (2)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on March 25, 1994                                           (3)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on August 22, 1994                                          (4)

      Certificate of Amendment of the Restated Certificate of
            Incorporation of the Registrant filed with the State of New
            York on June 29, 1995                                            (5)

      By-laws as in effect November 18, 1997                                (24)

4. Instruments Defining the Rights of Security Holders, Including
   Indentures

      (ii)  Long-Term Debt Indentures                                         93

10. Material Contracts

      (ii)  (C)   Contract of sale for the office building located at 280
                  Park Avenue, New York                                      116

            (D)   Leases for Principal Premises Described on Page 90

                  Lease Agreement relating to the seven stories of a
                  37-story building located at 14-16 Wall Street             (7)

                  Lease Agreement relating to the eight-story building
                  located in Jersey City, New Jersey                         (8)

                  Lease Agreement relating to the eight-story building
                  located in London, England                                 (9)

                  Lease Agreement relating to the three-story building in
                  Nashville, Tennessee                                      (10)

                  Synopsis of the Agreement for Sub-Lease and the
                        Sub-Lease relating to the 42-story building
                        located in Sydney, Australia                        (11)

      (iii) (A) Management Contracts and Compensation Plans

                  (1) Employment Contract for Richard H. Daniel             (12)

                  (2) Partnership for One-hundred Plan--Plan Document, as
                      amended                                               (20)

                  (3) Employment Agreement for David Marshall               (13)

                  (4) Consulting Agreement with Paul Volcker                (13)

                  (5) BT Investments (Australia) Limited Group
                      Notional Equity Participation Plan, as amended        (13)

                  (6) Employment Contract for Frank N. Newman               (19)

                  (7) Severance agreement with B.J. Kingdon                 (21)


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
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<PAGE>

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                  (8) Employment agreement with Mary Cirillo                (22)

                  (9) Employment agreement with Alvin B. Krongard           (23)

                 (10) Employment agreement with Mayo A. Shattuck III        (23)

                   1994 Stock Option and Stock Award Plan                   (14)

                   1991 Stock Option and Stock Award Plan                   (15)

                   1985 Stock Option and Stock Award Plan                   (16)
                       January, 1989 amendments thereto                     (11)

                   Additional Capital Accumulation Plan                     (17)

                   The Supplemental Executive Retirement Plan                (9)

                   Deferred Compensation Plan for Directors                  (6)
                       January, 1989 amendments to the Deferred             (14)
                       Compensation Plan for Directors and The 
                       Supplemental Executive Retirement Plan

                   Partnership for One-Hundred Plan II                      (22)

                   Split Dollar Insurance Agreement                         (23)

                   Alex. Brown Incorporated 1996 Equity Incentive Plan      (23)

12. Statements Re Computation of Ratios

        Computation of Consolidated Ratios of Earnings to Fixed Charges     107

        Computation of Consolidated Ratios of Earnings to 
         Combined Fixed Charges and Preferred Stock Dividends 
         Requirements                                                       108

21. Subsidiaries of the Registrant                                          109

23. Consents of Experts                                                 110-111

24. Power of Attorney                                                       112

27. Financial Data Schedule                                                 114

99. Additional Exhibits

        (i)  Rights Agreement, as amended, dated November 26, 1997
             describing the terms of the Preferred Share 
             Purchase Rights                                                (18)

(NOTE: FOOTNOTE REFERENCES FOR THIS INDEX APPEAR ON THE NEXT PAGE.)


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                                      105
<PAGE>

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                       BANKERS TRUST NEW YORK CORPORATION
     EXHIBIT INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                               FOOTNOTE REFERENCES

 (1)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated September 24, 1993, file number 1-5920.
 
 (2)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated August 6, 1993, file number 1-5920.
 
 (3)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated March 21, 1994, file number 1-5920.
 
 (4)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated August 12, 1994, file number 1-5920.
 
 (5)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated June 29, 1995, file number 1-5920.
 
 (6)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated November 10, 1995, file number 1-5920.
 
 (7)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1986, file number
      1-5920.
 
 (8)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1983, file number
      1-5920.
 
 (9)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1987, file number
      1-5920.

(10)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1992, file number
      1-5920.

(11)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1993, file number
      1-5920.

(12)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-Q dated May 15, 1996, file number 1-5920.

(13)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-Q dated November 14, 1996, file number 1-5920.

(14)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Registration Statement on Form S-8 (No. 33-54971) as filed
      on August 9, 1994.

(15)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Registration Statement on Form S-8 (No. 33-41014) as filed
      on June 10, 1991.

(16)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Proxy Statement dated as of March 21, 1988, file number
      1-5920.

(17)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1989, file number
      1-5920.

(18)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated November 26, 1997, file number 1-5920.

(19)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1995, file number
      1-5920.

(20)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-K for the year ended December 31, 1996, file number
      1-5920.

(21)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-Q dated May 15, 1997, file number 1-5920.

(22)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-Q dated August 14, 1997, file number 1-5920.

(23)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 10-Q dated November 14, 1997, file number 1-5920.

(24)  This document is incorporated by reference from Bankers Trust New York
      Corporation's Form 8-K dated December 2, 1997, file number 1-5920.


               BANKERS TRUST NEW YORK CORPORATION AND SUBSIDIARIES
               ---------------------------------------------------
                                      106