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EXHIBIT 13

NAVISTAR INTERNATIONAL CORPORATION
1996 ANNUAL REPORT

BUSINESS OVERVIEW

TRUCK GROUP Navistar is the market share leader in the United States and
Canada in combined school bus, medium- and heavy-duty truck sales, with
27.5% share through fiscal year end. The company has unmatched
capabilities to deliver more value to customers"with more than 1,000
International dealers, eight parts distribution centers, 13 used truck
centers and a financial services organization.

- Heavy Truck (Class 8)"Navistar produces premium conventional
tractors for long-haul over-the-highway usage, regular conventional
cabover tractors for local and regional delivery, and severe service
trucks for special applications in construction, mining and oil
field applications.

- Medium Truck (Class 5-7)"Navistar is the market share leader in the
United States and Canada. Applications include regional delivery,
beverage, recycling, refrigerated, utility, construction, towing,
municipal and emergency rescue.

- School Bus"Navistar is the market share leader in the United States
and Canada and offers a range of small capacity and full-size
conventional models. In addition, through AmTran, a wholly owned
subsidiary, the company produces the Genesis and AmTran nameplates.

- Service Parts"To support customers of the truck and bus business,
Navistar has the largest truck service parts distribution network in
the United States, Canada and Mexico with more than 1,000 dealer
locations and eight parts distribution centers, offering more than
350,000 truck, engine and trailer aftermarket parts. Navistar
also offers 24-hour availability of service parts and guaranteed
national pricing on parts and service under its Fleet Charge system.

ENGINE GROUP Navistar is a leader in the production of mid-range diesel
engines, ranging from 175 to 300 horsepower. International engines are
featured in all of the company's medium trucks, school buses and some
heavy trucks. International engines are sold to other original equipment
manufacturers (OEMs) in North America and export markets for use in light
trucks and vans, and for marine, construction, agricultural and industrial
use.

FINANCIAL SERVICES Navistar Financial Corporation provides wholesale,
retail and lease financing for Navistar's dealers and retail customers,
and provides commercial physical damage and liability insurance coverage
through its wholly owned subsidiary, Harco National Insurance Company.

FINANCIAL SUMMARY
(Millions of dollars, except per share data)
1996 1995
- -----------------------------------------------------------------------

FOR THE YEARS ENDED OCTOBER 31

Sales and revenues ................ $5,754 $6,342

Income before income taxes ........ $ 105 $ 262
Net income ........................ $ 65 $ 164

Net income per common share ....... $ .49 $ 1.83

Manufacturing gross margin ........ 12.5% 13.8%

Return on equity .................. 7.1% 18.9%

Cash and marketable securities .... $ 881 $1,040

Achievements

- Unveiled a new five-point truck strategy designed to increase
returns to shareowners by meeting 15% return on assets (ROA)
targets.

- Launched comprehensive capabilities in Mexico, including an
assembly operation, a 24-dealer network and a centralized parts
distribution operation.

- Spun off Columbus Plastics Operation to focus capital on core
truck and engine divisions.

- Became the first diesel engine manufacturer to meet federal
emission standards proposed for the year 2004.

- Created a joint venture for production of highly complex severe
service Paystar trucks at a focused operation in Garland, Texas.

- Partnered with the Canadian Auto Workers in a labor agreement that
achieves work rule changes allowing for manufacturing flexibility
and cost savings.

- Concentrated stripped chassis production at AmTran.

- Introduced the Diamond SPEC truck ordering process to improve
quality and delivery, while enhancing support services with
Diamond PLUS"a new guarantee for truck uptime.

- Delivered improvements in productivity and quality throughout the
Engine Division.

- Ranked number one for the second year in a row by American Truck
Dealers survey, where dealers rate major manufacturers on truck
product lines, service and support.

- Broke ground for a 700,000 square-foot manufacturing facility in
Escobedo, Mexico, to be completed in 1998 with annual production
capacity of 14,000 vehicles to serve that market and Latin America.

- Initiated roll out of a performance-driven culture process to
drive financial results.

LETTER TO SHAREOWNERS

At Navistar, we've set our sights on a singular vision: to be the
best truck and engine company in North America. This is a bold dream. To
achieve it, we know we must change. Business as usual won't get us there.

Being the best means creating real value for our shareowners. It
means leading our industry in customer satisfaction. And, it means
creating a climate for performance which challenges and motivates our
employees.

In 1996, we took significant steps to drive fundamental change
throughout Navistar.

- We strengthened the blend of executive management with the addition
of Don DeFosset as executive vice president and president, Truck
Group, and Bud Thompson, senior vice president, Employee Relations
& Administration.

- We also continued to change the make-up of our Board of Directors.
In 1996, we added three new directors who lead preeminent companies:
Borg-Warner Automotive, Inc., The Coleman Company, Inc. and The
Geon Company.

- We underwent an exhaustive review of our truck business, forged a
five-point strategy to drive improved performance, and began
rapidly implementing these strategies.

- In our engine division, we reinforced our technological leadership
by becoming the first in our industry to demonstrate our capability
to meet proposed 2004 emissions standards.

- And, we launched a companywide initiative to create a high
performance company culture. This has been an effort led from the
top down and created from the bottom up.

While these actions position us to achieve our vision, our financial
performance, which is reflected in our stock price, remains disappointing.
This, too, must change.

Two events in 1996 are particularly noteworthy in demonstrating our
resolve to change and our departure from business as usual.

First, for the last several years we have been working hard to
develop a next generation of world-class medium trucks. In June, we were
at the stage of the program where investment would escalate dramatically.
Unfortunately, we were unable to reach agreement with the United Auto
Workers on several issues critical to building the trucks profitably. So
we terminated the program. This required a $35 million pretax charge to
earnings and greatly disappointed our employees. Some called it a bold
decision; it had to be made. We could not invest millions of dollars in an
effort that would not deliver the kinds of operating returns that result
in increased shareowner value.

Second, we successfully negotiated a new contract in partnership with
the Canadian Auto Workers. Under this agreement, our Chatham, Ontario
assembly plant and the company overall is on the right track to becoming
more competitive. The flexible work rules, reduced job classifications,
and team assembly approach pave the way for large increases in
productivity and quality.

During the year, we also made progress on other initiatives. For
example, our new Diamond SPEC modular truck offering, which greatly
reduces product complexity, has been well received in the marketplace.

We began to focus our truck manufacturing to reduce complexity in our
plants. We are simplifying our assembly operations"from the models
produced to the systems and processes involved. During the year, stripped
chassis production was moved from our Springfield, Ohio assembly plant to
our American Transportation Corporation (AmTran) subsidiary in Conway,
Arkansas. Plans are underway to move our severe service trucks from our
Chatham facility to a new joint venture in Texas early in 1997. Our
objective is to focus these plants to achieve that 15% ROA target for our
truck business.

We aggressively expanded our presence in Mexico to take advantage of
anticipated growth in that and other Latin American markets. Navistar now
has 24 dealer locations in Mexico. During the year, we ramped up
production at a contract manufacturing assembly operation to fill the
near-term needs of these dealers, and we launched plans to build our own
facility in Mexico with a capital appropriation of $167 million. This
operation will meet our 15% ROA objective.

We moved forward with new product programs in our premium
conventional truck line which include upgrades that appeal to customers
and that allow for platform and process improvements to improve
profitability.

In our engine division, we continued to develop new technologies and
adopt electronics to improve our diesel engines' air and fuel management,
to reduce emissions, to improve fuel economy and to deliver more power,
torque and product performance features.

And our finance subsidiary, Navistar Financial Corporation, exceeded
their 15% ROA goal for the third year in a row. They also increased their
retail market share to almost 26% in the heavy truck category, and 14% in
medium truck. Yet, while Navistar Financial continues to see strong
performance, in reality, the continued growth of Navistar Financial
depends on our core truck business"in particular Class 8 trucks. These
businesses will continue to work closely together to grow and build long-
term viability.

We also are encouraged by our efforts to create alliances with our
supply base and by the long-term agreements we have forged with proven
manufacturers of component parts.

But at the end of the day, while we have many achievements to report,
our financial performance must improve. The challenges we face are
significant as pricing continues to create pressure, as we face a downturn
in demand, and as competition intensifies. We have, however, a gameplan to
address these challenges with the strategies we have in place. Combined
with management's resolve and the talent and energy of our employees, we
will achieve our dream. We will be the best truck and engine company in
North America.

John R. Horne
Chairman, President and Chief Executive Officer

REVIEW OF OPERATIONS

We established two criteria as the foundation of our strategies to
deliver acceptable returns to shareowners. Operating management must drive
a 15% return on the assets (ROA) they manage, which will lead to corporate
performance of 17.5% return on equity (ROE).

These are tough targets. They demand change and require us to
stretch. But we can no longer afford to conduct business as usual. In
1996, we reported net income of $65 million, reflecting lower truck sales
and a one-time $35 million pretax charge when we terminated development of
our next generation truck (NGT). At the same time, our manufacturing gross
margin declined to 12.5% of sales in 1996, compared to 13.8% in 1995 and
12.8% in 1994. At the end of the year, we did not achieve our ROA and ROE
objectives.

To address our shareowners' requirements, we spent a great deal of
time in 1996 developing strategies that will enable the company to achieve
these objectives, and now it's time to deliver progress against those
metrics. Only those initiatives and programs that demonstrate a potential
for adequate returns will be funded in the future. Those that do not will
be reworked, or they will not be funded.

This year, our plan to build our next generation truck was
contingent on reaching an agreement with the United Auto Workers on issues
critical to producing the trucks and meeting the 15% ROA target for the
truck business. When an agreement could not be reached, we terminated the
program instead of investing in a program that would not deliver the
targeted returns. While the initiative to produce NGT in Springfield was
the preferred option, we're continuing to pursue new product development
including working with the UAW to find ways to become more cost
competitive.

Our plan to establish operations in Mexico, on the other hand, can
generate a 15% ROA and will provide opportunities for significant revenue
growth. That's why we invested $17 million in developing our capabilities
in Mexico during 1996 and received board approval for an additional $167
million to construct a 700,000 square-foot facility in Escobedo, Mexico.
We expect to be in production by 1998"well positioned and with enough
capacity to meet demand as the Mexican economy recovers, and for export to
other Latin American markets. When we negotiated a new contract with the
Canadian Auto Workers at our Chatham, Ontario assembly plant, the
agreement also was based on achieving the 15% ROA target for the truck
business. With work-rule changes that improve productivity and
manufacturing flexibility, Chatham's ROA will improve by seven percentage
points, bringing the truck business closer to its 15% goal.

Recognizing the need to focus our capital investments on our core
truck and engine businesses, we elected to sell our Columbus Plastics
Operation, which manufactures plastic components for Navistar and other
original equipment manufacturers.

In line with our ROA and ROE metrics, we conducted an intensive
education program in shareowner value for all of our managers throughout
the Navistar organization. Our managers now are equipped with practical
formulas for use in evaluating proposed programs and projects to ensure
they meet our financial targets.

Navistar now is better positioned"with metrics and strategies firmly
established"to achieve strong financial performance. Now, it's time to
deliver.

Navistar unveiled a five-point truck strategy in 1996 that addresses
an increasingly tough competitive environment in North America and our
need to alter our cost structure to deliver strong financial performance
across the business cycle. The strategy comprises a series of initiatives
to improve quality, productivity and product development, and to drive
profitable growth. These initiatives are supported by our financial
services operations and a superior distribution system"a 1,000-location
strong dealer franchise organization in the United States, Canada and
Mexico; a comprehensive service parts network; and an expanding used truck
organization.

While the performance of the truck group was not acceptable, there
were a number of achievements that will drive improved financial
performance.

One initiative within the truck strategy"reducing product
complexity"resulted in a combination of manufacturing efficiencies and
customer benefits. In 1996, we introduced upgrades of our International
and Eagle 9200 and 9400 model premium conventional trucks featuring common
chassis and standardized componentry. These enhancements reduce complexity
in manufacturing to create efficiencies and improve quality. For
customers, significant improvements in design, styling and features were
implemented to enhance driver comfort and performance. We also introduced
our Diamond SPEC truck ordering process and our Diamond PLUS support
package at the American Trucking Association annual meeting.

We took steps to reduce complexity in our manufacturing operations,
within the framework of our union contracts, to focus our assembly plants
on efficiently producing trucks and meeting marketplace demand. We began
the transfer of stripped chassis from our Springfield, Ohio plant to our
AmTran facility in Conway, Arkansas. Production of the International 8200
heavy truck will cease in 1997, furthering Springfield's transition to a
medium-duty only facility. We also created a joint venture to focus
production of the highly complex Paystar severe service trucks. This helps
our Chatham, Ontario plant focus on building the International and Eagle
9000 models.

In new product development, we introduced the International 9100
conventional truck"built on the same platform as other 9000 series
models"to deliver a combination of benefits to local and regional
transportation companies. These include an improved driver environment,
the effective Diamond Spec and Diamond Plus systems, and a higher residual
value than comparable vehicles. Longer term, our new family of premium
conventional trucks, targeted for production in 1998, will enable us to
provide improved performance and enhancements.

We also were active in bringing new bus models to market, including
the International 3400 shuttle and the rear engine transit bus.

Over the past year, we moved aggressively to expand our presence in
Mexico, which represents an opportunity for growth as we meet customers'
needs there and in other Latin American markets. Our investment there will
allow us to meet future demand as the Mexican economy recovers, and,
within a few years, to reach out to new customers in Latin America.

Finally, we continue to address issues to improve productivity. Most
significant in 1996 was the agreement reached with the Canadian Auto
Workers. Under the terms of the current three-year contract, significant
productivity gains are possible through changes in job classifications,
work rules and training.

In all of our initiatives, we continue to focus on offering more to
our customers through our superior distribution system. The performance of
our school buses, and medium- and heavy-duty trucks drove us to the top of
the industry in dealer satisfaction, as Navistar was rated tops in the
American Truck Dealers "Dealer Attitude Survey" for two years running.
Through our new Customer Satisfaction Process, introduced in 1996, our
entire dealer network is focused on delivering measurable, continuous
improvements.

In our parts operation, we continue to be the truck industry
benchmark for total parts support. We target those customers who can
benefit from one-stop shopping for all their needs, bumper-to-bumper. We
also introduced Fleet Charge Gold to offer customers opportunities to
improve the ways they manage costs. In another effort, we've invested in
business systems to improve the processing of customer orders, speed
delivery of parts and link electronically with both customers and
suppliers.

Through innovative financing offered by Navistar Financial
Corporation, we're arming our dealers with attractive and flexible
financing choices for our customers. As we drive performance through our
initiatives, we will not lose sight of the needs of our customers and
dealers.

As a worldwide leader in mid-range diesel engines, we have a formula
for performance, combining innovative technologies with our desire to be
the low-cost producer. Evidence of our leadership was illustrated by our
achievements in shipping mid-range diesel engines to other original
equipment manufacturers. In 1996, we shipped a record 163,200 units, which
is a 6% increase from the previous year and a 25% improvement over 1994.
In addition, we exceeded the 15% ROA target in 1996, but our challenge is
to deliver these returns throughout the business cycle.

To strengthen our leadership position and deliver a 15% ROA, we must
stay in high gear, making continued gains in productivity, reducing costs,
managing our inventories and assets, and delivering quality improvements
across our entire product line. We've made significant strides in all of
these areas, including a reduction in total man-hours per engine of more
than 30% over the last two years.

Over the past five years, the market response to our 7.3DI eight-
cylinder engine has been extremely favorable. Since 1991, Ford, our
largest OEM customer, has doubled orders for these engines for use in its
full-size commercial pickup trucks. Our success with Ford, combined with
sales to other OEM customers and off-highway applications, has resulted in
solid growth.

Our focus on growth in 1997 is on serving our major OEMs, continuing
development of our I-6 business and meeting accelerating demand for our V-
8 engines.

To ensure that we can continue to provide customers the best
technology in the industry, we opened our Competitive Intelligence Center
to benchmark our engines against the competition. By conducting in-depth
analysis, we can continue to reduce costs and increase the value of our
engines. For example, we identified and implemented 15 cost-reduction
opportunities for our six-cylinder DT 466E engines to be implemented in
the 1997 model year.

On the product development front, we continue to enhance existing
technologies to add tangible, bottom-line value. This year, we applied our
HEUI (hydraulically-actuated electronically-controlled unit injector)
technology to lead the industry in meeting future emission standards.
Using our HEUI system, we became the first diesel engine manufacturer to
meet stringent government-proposed emission standards for the year 2004.
We reduced smog-producing nitrogen oxide (NOx) levels without increasing
particulate emissions or sacrificing fuel economy.

In developing winning technologies, we will continue to meet our
customers' ongoing, changing needs. This long-term outlook, combined with
an ability to deliver a 15% ROA in any business environment, will fuel
profitable growth.

We know that strategies alone won't do the job. To create an
environment in which aggressive operating strategies can flourish,
employees need to work effectively both individually and in teams. And
that expectation of strong performance must be supported by a work climate
that encourages and rewards behavior that benefits employees, customers
and shareowners.

After gathering ideas and opinions from employees at all levels
throughout the company, we have a clear picture of what is needed to build
the cultural foundation Navistar requires. They've told us, we've
listened, and we've set a course for change.

Change begins with the senior managers of the company. The old
command and control management style won't work any more. Our people want
to be involved in finding solutions for the challenges they face daily,
and they want to work in an environment characterized by trust and mutual
respect. To prepare themselves to lead the workforce toward this new
environment, senior managers themselves are learning to be more effective
team members"learning to build stronger, more effective work
relationships.

This training for managers is a small part of the development that's
needed to help everyone at Navistar achieve top performance. We've made
continuing education a requirement, not just an option. Our focus now
extends beyond personal development to helping employees see the direct
link between individual and company performance, and ultimately shareowner
value.

Management employees must now take at least 40 hours of core business
and skills education per year including the technical training that's
required to perform many jobs. We also partnered with the United Auto
Workers to introduce a program, called "Joint Focus," to educate Navistar
employees at all levels and locations about business realities. An
important part of this course is helping employees see what drives our
stock price, and how they as individuals play a role in the company's
viability. As approximately one-third of the company's common stock is
held by our employees through the Supplemental Trust, this learning can
help them understand how tightly their personal financial well-being is
intertwined with company performance.

Helping to pilot the change to a performance-driven culture are our
top 450 leaders. We established a Leadership Council with regular meetings
and communications as a means to involve all management in improving
company performance. After our first leadership conference, 98% of the
participants said they had gained a deeper understanding of the company's
strategies, vision and direction, and an appreciation for their role in
helping Navistar achieve them. These individuals are charged with forging
a common understanding of Navistar's vision and strategies throughout the
organization and for delivering on performance commitments. Moreover,
management's progress on corporate strategies will be rewarded through
their annual incentive compensation.

Navistar people have immense pride in our company and our products.
Our challenge is to create a work environment that focuses this pride on
delivering results.

International expansion adds to the growth opportunities for both our
truck and engine operations. During the past year, we moved aggressively
to strengthen our presence in Mexico, a market that affords significant
opportunities for growth and meets our 15% ROA requirement for investment.

In 1996, we quickly launched manufacturing capabilities, a dealer
network and a service parts business in Mexico with an investment of $17
million. A contract manufacturing agreement satisfies our need for short-
term production capability for the International 4700 and 4900 medium
trucks and International 9200 tractors. We produced 300 trucks in 1996,
and achieved a 6% market share in Mexico. We expect to produce 1,000
trucks for Mexico in 1997.

To serve long-range market demand, Navistar's Board of Directors
approved a $167 million appropriation for construction of our own
manufacturing facility in Escobedo, Nuevo Leon. The 700,000 square-foot
plant will start production in 1998, and will have the capacity to produce
65 units per day on one shift. Volume will be increased as demand rises
with the growing strength of the Mexican economy. Increased distribution
needs will be served by an additional 30 dealer outlets scheduled to open
by 1999.

Our Mexico operations also will serve as a launch point for other
Latin American countries, as Mexico enjoys favorable and cost effective
trade agreements with many of these countries.

Beyond this strategic initiative, we continue to grow our businesses
in South Africa and the Middle East. As the heavy-duty truck market leader
in South Africa, we forecast steady volume and sales growth, coupled with
expansion opportunities into other nations in the South Africa Customs
Union. In the Middle East, we project strong sales growth as rising oil
prices stimulate economic growth and increased regional trade and
transportation.

As we expand into new markets, our continuing challenge will be to
focus on profitable growth and invest in opportunities that will achieve a
15% ROA.

FINANCIAL INFORMATION

Financial Summary ........................................... 2

Management's Discussion and Analysis of Results
of Operations and Financial Condition ..................... 11

Statement of Financial Reporting Responsibility ............. 18

Independent Auditors' Report ................................ 19

Financial Statements

Statement of Income ....................................... 20
Statement of Financial Condition .......................... 21
Statement of Cash Flow .................................... 22

Notes to Financial Statements

1 Summary of accounting policies ......................... 23
2 Postretirement benefits ................................ 26
3 Income taxes ........................................... 29
4 Discontinued operations ................................ 31
5 Marketable securities .................................. 32
6 Receivables ............................................ 33
7 Inventories ............................................ 34
8 Property and equipment ................................. 34
9 Debt ................................................... 35
10 Other liabilities ...................................... 37
11 Financial instruments .................................. 38
12 Commitments, contingencies, restricted assets,
concentrations and leases ............................ 40
13 Legal proceedings ...................................... 41
14 Environmental matters .................................. 41
15 Industry segment data .................................. 42
16 Preferred and preference stocks ........................ 43
17 Common shareowners' equity ............................. 44
18 Stock compensation plans ............................... 45
19 Selected quarterly financial data (unaudited) .......... 46
20 Supplemental financial information (unaudited) ......... 46

Five-Year Summary of Selected Financial and Statistical Data 48

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Certain statements under this caption constitute forward-looking
statements" under the Reform Act, which involve risks and uncertainties.
Navistar International Corporation's actual results may differ
significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include, but are
not limited to, those discussed under the caption "Business Environment."

Navistar International Corporation is a holding company and its
principal operating subsidiary is Navistar International Transportation
Corp. (Transportation). In this discussion and analysis, "company" refers
to Navistar International Corporation and its consolidated subsidiaries.
The company's manufacturing operations are engaged in the manufacture and
marketing of Class 5 through 8 trucks, including school buses, mid-range
diesel engines and service parts in the United States and Canada. These
products are also sold to distributors in selected export markets. The
financial services operations of the company provide wholesale, retail and
lease financing, and commercial physical damage and liability insurance
coverage to the company's dealers and retail customers and to the general
public through an independent insurance agency system.

The discussion and analysis reviews the operating and financial
results, and liquidity and capital resources of manufacturing operations
and financial services operations. Manufacturing operations include the
financial results of the financial services operations included on a one-
line basis under the equity method of accounting. Financial services
operations include Navistar Financial Corporation (Navistar Financial),
its domestic insurance subsidiary as well as the company's foreign finance
and insurance companies. See Note 1 to the Financial Statements.

RESULTS OF OPERATIONS

The company reported net income of $65 million for 1996, or $0.49 per
common share, reflecting lower sales and revenues and a one-time $35
million pretax charge for termination of its next generation truck program
in the fourth quarter of 1996. Net income was $164 million, or $1.83 per
common share, in 1995 and $82 million, or $0.72 per common share, in 1994.
Net income in 1994 included a $20 million after-tax charge to discontinued
operations related to environmental liabilities.

The company's manufacturing operations reported income before income
taxes of $22 million in 1996 compared with pretax income of $200 million
in 1995 and $98 million in 1994. The 1996 operating results reflect a
decline in demand for trucks as well as the charge for termination of the
company's next generation truck program. The increase between 1995 and
1994 reflects higher sales of trucks and diesel engines as well as the
effects of improved pricing and various cost improvement initiatives.

The company's financial services operations, which include Navistar
Financial, its domestic insurance subsidiary and the company's foreign
finance and insurance subsidiaries, had income before income taxes of $83
million, $62 million and $60 million in 1996, 1995 and 1994, respectively.

Navistar Financial's pretax income in 1996 was $81 million, a 37%
increase from $59 million in 1995. The change is a result of higher
income on sales of retail notes and increased volume of wholesale
financing during the first nine months of 1996. The improved gains on
sales resulted from higher margins on retail notes reflecting declining
market interest rates prior to the date of sale. Navistar Financial's
pretax income increased $4 million in 1995 from the $55 million reported
in 1994. The change reflects higher income from an increased volume of
wholesale financing to support the demand for trucks and improvement in
Navistar Financial's interest cost over market interest rates offset by a
reduction in margins on retail financing.

Earnings from the foreign finance and insurance subsidiaries were $2
million, $3 million and $5 million in 1996, 1995 and 1994, respectively.

Sales and Revenues. Industry retail sales of Class 5 through 8 trucks
totaled 341,200 units in 1996, a 10% decline from the 380,600 units sold
in 1995 but comparable to the 339,600 units sold in 1994. Class 8 heavy
truck sales totaled 195,400 units, a decline of 15% from the 228,800 units
sold in 1995 and 5% from the 205,400 units sold in 1994. Industry sales
of Class 5, 6 and 7 medium trucks, including school buses, totaled 145,800
units in 1996, a 4% decrease from 1995 when 151,800 units were sold, but
9% higher than the 134,200 units sold in 1994. Industry sales of school
buses, which accounted for 22% of the medium truck market, increased 7%
over 1995 to 32,500 units.

Sales and revenues of $5,754 million in 1996 were 9% lower than the
$6,342 million reported in 1995 but 8% higher than the $5,337 million
reported in 1994. Sales of trucks, mid-range diesel engines and service
parts, for 1996 totaled $5,508 million, 10% below the $6,125 million
reported for 1995 and 7% over the $5,153 million reported in 1994.

The company maintained its position as sales leader in the combined
United States and Canadian Class 5 through 8 truck market in 1996 with a
27.5% market share, an increase from both the 26.7% share in 1995 and the
27.0% share in 1994. (Sources: American Automobile Manufacturer's
Association, the United States Motor Vehicle Manufacturer's Association
and R. L. Polk & Company.) In 1996, the company's share of the Class 8
heavy truck market declined to 17.1% from 18.4% in 1995 and 19.6% in
1994, reflecting intense competition in this market.

Shipments of mid-range diesel engines by the company to other
original equipment manufacturers during 1996 were a record 163,200 units,
a 6% increase from 1995 and a 25% improvement over 1994. Higher shipments
to a domestic automotive manufacturer to meet consumer demand for the
light trucks and vans which use this engine was the primary reason for the
increase.

Service parts sales of $760 million in 1996 increased from the $730
million reported in 1995 and were 6% higher than the $714 million reported
in 1994 as a result of dealer and national account volume growth.

Finance and insurance revenue for 1996 was $197 million, 18% higher
than the $167 million reported in 1995 primarily as a result of higher
income on sales of retail notes. Revenues from financial services
operations increased 10% between 1995 and 1994 primarily as a result of
higher wholesale and retail financing volume.

Other income was $49 million in 1996 unchanged from 1995. Other
income increased 56% between 1995 and 1994 as a result of increased
interest income from higher cash, cash equivalents and marketable
securities balances.

Costs and Expenses. Manufacturing gross margin was 12.5% of sales in
1996, compared with 13.8% in 1995 and 12.8% in 1994. The decrease in
gross margin is the result of lower sales volumes, more competitive
pricing and the costs of terminating the next generation truck program.
Factors which contributed to the change in gross margin between 1995 and
1994 included higher sales volumes and improved pricing offset by overtime
costs and a provision for employee profit sharing.

Engineering and research expense increased to $129 million in 1996
from $113 million in 1995 and $97 million in 1994 reflecting investment in
new truck and engine products as well as improvements to existing
products.

Marketing and administrative expense was $319 million in 1996
compared with $307 million in 1995 and $265 million in 1994. The $12
million increase in the expense between 1995 and 1996 reflects investment
in the implementation of the company's strategy to reduce costs and
complexity in its manufacturing processes. The change between 1994 and
1995 is the result of higher sales and distribution costs, and an increase
in the provision for payment to employees as provided by the company's
performance incentive programs.

Interest expense decreased slightly to $83 million in 1996 from $87
million in 1995 but was $8 million higher than the $75 million reported in
1994. The increase in this expense in 1996 and 1995 over 1994 was the
result of higher debt balances required by the financial services
operations to finance the increased wholesale note and account balances as
well as higher interest rates in 1995.

Finance service charges on sold receivables were $24 million in 1996,
17% lower than in 1995 but 50% higher than 1994 reflecting the pattern of
truck unit sales over this period.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow is generated from the manufacture and sale of trucks, mid-
range diesel engines and service parts as well as product financing and
insurance coverage provided to Transportation's dealers and retail
customers by the financial services operations.

Historically, funds to finance Transportation's products are obtained
from a combination of commercial paper, short- and long-term bank
borrowings, medium- and long-term debt issues, sales of finance
receivables and equity capital. Navistar Financial's current debt ratings
have made bank borrowings and sales of finance receivables the most
economic sources of cash. Insurance operations are funded through
internal operations.

Total cash, cash equivalents and marketable securities of the company
amounted to $881 million at October 31, 1996, $1,040 million at October
31, 1995 and $861 million at October 31, 1994.

Cash provided by operations during 1996 totaled $118 million,
primarily from net income of $65 million, $37 million of noncash deferred
income taxes and $92 million of other noncash items, principally
depreciation. These amounts were partially offset by a net change in
operating assets and liabilities of $76 million. Income tax expense for
1996 was $40 million, of which $3 million were cash payments to federal
and certain state and local governments, while the remaining $37 million
of federal and other taxes reduced the deferred tax asset.

The net change in operating assets and liabilities of $76 million
includes a $186 million decrease in receivables offset by a reduction in
accounts payable of $110 million, higher inventories and a $106 million
decrease in other liabilities. The change in receivables and inventories
reflects lower demand for the company's products while the decline in
accounts payable is a result of lower production. The change in other
liabilities is the result of the payment to employees as required by the
company's profit sharing agreements.

Investment programs included a net decrease in marketable securities,
as sales of securities exceeded purchases by $167 million. During 1996,
the purchase of $1,108 million of retail notes and lease receivables was
funded with $982 million in proceeds from the sale of receivables and
principal collections of $125 million. Other investment activities used
$73 million for an increase in property and equipment leased to others and
$117 million to fund capital expenditures for truck product improvements,
to increase mid-range diesel engine capacity and for programs to improve
cost performance.
<PAGE 14>

Financing activities used cash to pay $29 million in dividends on the
Series G Preferred shares and $136 million for principal payments on long-
term debt offset by an $81 million increase in notes and debt outstanding
under the bank revolving credit facility and asset-backed and other
commercial paper programs.

During 1996, Navistar Financial supplied 94% of the wholesale
financing of new trucks sold to Transportation's dealers compared with 93%
in 1995 and 1994. Navistar Financial's share of the retail financing of
new trucks sold in the United States increased to 16% in 1996 compared
with 14% in 1995 and 15% in 1994.

The sale of finance receivables is a significant source of funding
for the financial services operations. During 1996 and 1995, Navistar
Financial sold $985 million and $740 million respectively, of retail notes
through Navistar Finance Retail Receivables Corporation (NFRRC), a wholly
owned subsidiary. In both years, the net proceeds were used for general
working capital purposes.

NFRRC has filed registration statements with the Securities and
Exchange Commission which provide for the issuance of up to $5,000 million
of asset-backed securities. At October 31, 1996, the remaining shelf
registration available to NFRRC for issuance of asset-backed securities
was $2,445 million. See Note 9 to the Financial Statements.

Navistar Financial has a $925 million bank revolving credit facility,
and a $400 million asset-backed commercial paper program supported by a
bank liquidity facility which mature in March 2001. Navistar Financial
also utilizes a $500 million revolving wholesale note sales trust that
provides for the continuous sale of eligible wholesale notes on a daily
basis. The sales trusts are comprised of three $100 million tranches of
investor certificates maturing serially from 1997 to 1999 and a $200
million tranche maturing in 2004.

The company finances capital expenditures principally through
internally generated cash. Capital leasing is used to fund selected
projects based on economic and operating factors. The company had
outstanding capital commitments of $38 million at October 31, 1996 which
consist of truck and engine development and ongoing facility maintenance
programs. In November 1996, the company announced plans to spend $167
million, over the next 2 years, to construct a new truck assembly
facility in Mexico.

At October 31, 1996, the Canadian operating subsidiary was subject to
maximum recourse of $164 million on retail contracts and $9 million on
retail leases financed by a third party. In addition, the company is
contingently liable for $45 million for various guarantees and buyback
programs. Based on historic trends; however, the company's exposure is
not considered material.

The Canadian operating subsidiary and certain financial services
subsidiaries had $260 million of assets which were restricted as to
distribution to Transportation in the form of dividends, or loans and
advances at October 31, 1996. The company and Transportation are
obligated under certain agreements to maintain Navistar Financial's income
before interest expense and income taxes at not less than 125% of its
total interest expense. No income maintenance payments were required for
the three years ended October 31, 1996.

It is the opinion of management that, in the absence of significant
unanticipated cash demands, current and forecasted cash flow will provide
a basis of financing operating requirements, capital expenditures and
anticipated payments of preferred dividends. Management also believes
that collections on the outstanding receivables portfolios as well as
funds available from various funding sources will permit the financial
services operations to meet the financing requirements of the company's
dealers and customers.

ENVIRONMENTAL MATTERS

As disclosed in Notes 4 and 14 to the Financial Statements,
Transportation recorded a $20 million charge in 1994, net of $13 million
of income taxes, as a loss of discontinued operations for environmental
liabilities at production facilities of two formerly owned businesses,
Wisconsin Steel and Solar Turbine, Inc. (Solar). The $33 million pretax
charge consisted of an $11 million payment to be made to the Economic
Development Administration and a $22 million charge for potential cleanup
costs for these sites.

In addition, the company has been named a potentially responsible
party (PRP), in conjunction with other parties, in a number of cases
arising under an environmental protection law commonly known as the
Superfund law. These cases involve sites which allegedly have received
wastes from current or former company locations. Based on information
available to the company, which in most cases consists of data related to
quantities and characteristics of material generated at or shipped to each
site as well as cost estimates from PRPs and/or federal or state
regulatory agencies for the cleanup of these sites, a reasonable estimate
is calculated of the company's share, if any, of the probable costs and is
provided for in the financial statements. These obligations generally are
recognized no later than completion of the remedial feasibility study and
are not discounted to their present value. The company believes that,
based on these calculations, its share of the potential costs for the
cleanup of each site, other than the Wisconsin Steel and Solar sites, will
not have a material effect on the company's financial results. The
company reviews its accruals on a regular basis.

DERIVATIVE FINANCIAL INSTRUMENTS

As disclosed in Notes 1 and 11 to the Financial Statements, the
company uses derivative financial instruments to transfer or reduce the
risks of foreign exchange and interest rate volatility, and potentially
increase the return on invested funds. Company policy does not allow the
use of derivatives for speculative purposes.

The company's manufacturing operations, as conditions warrant, hedge
foreign exchange exposure on the purchase of parts and materials from
foreign countries and its exposure from sales of manufactured products in
other countries. Contracted purchases of commodities for manufacturing
may be hedged up to one year. The manufacturing operations had no foreign
exchange exposure at October 31, 1996.

Navistar Financial uses interest rate caps, interest rate swaps and
forward interest rate contracts when needed to convert floating rate funds
to fixed and vice versa to match its asset portfolio. Navistar Financial
also uses forward interest rate contracts to manage its exposure to
fluctuations in funding costs from the anticipated securitization and sale
of retail notes. Between August and October 1996, Navistar Financial
entered into $400 million of forward interest rate lock agreements which
were closed in conjunction with the pricing of the sale of $487 million of
retail receivables in November 1996. The unrecognized loss on the
agreements at October 31, 1996, which was not material, was included in
the gain recognized on the sale of receivables.

Both manufacturing operations and Navistar Financial purchase
collateralized mortgage obligations that have relatively stable cash flow
patterns in relation to interest rate changes.

PENDING ACCOUNTING STANDARDS

The company has elected to adopt Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," in fiscal
1997. This statement allows for, and the company intends to, retain the
current method of accounting for employee stock-based compensation
arrangements with certain additional disclosures. Accordingly, adoption
of this standard will have no effect on the company's net income or
financial position.

In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which the company must adopt for all applicable transactions
occurring after December 31, 1996. The standard is not expected to have a
material effect on the company's net income or financial position.

INCOME TAXES

The Statement of Financial Condition at October 31, 1996 and 1995
includes a deferred tax asset of $1,030 million and $1,087 million,
respectively, net of a valuation allowance of $309 million and $307
million, respectively, related to future tax benefits. The deferred tax
assets are net of valuation allowances since it is more likely than not
that some portion of the deferred tax asset may not be realized in the
future.

The deferred tax asset includes the tax benefits associated with
cumulative tax losses of $1,987 million and temporary differences, which
represent the cumulative expense of $1,507 million recorded in the
Statement of Income that has not been deducted on the company's tax
returns. The valuation allowance at October 31, 1996, assumes that it is
more likely than not that approximately $815 million of cumulative tax
losses will not be realized before their expiration date. Realization of
the net deferred tax asset is dependent on the generation of approximately
$2,700 million of future taxable income, of which an average of
approximately $90 million would need to be generated annually for the 13-
year period 1997 through 2009. The remaining taxable income, which
represents the realization of tax benefits associated with temporary
differences, does not need to be generated until subsequent to 2009. See
Note 3 to the Financial Statements.

Extensive analysis is performed to determine the amount of the
deferred tax asset. Such analysis is based on the premise that the
company is and will continue to be a going concern and that it is more
likely than not that deferred tax benefits will be realized through the
generation of future taxable income. Management reviews all available
evidence, both positive and negative, to assess the long-term earnings
potential of the company using a number of alternatives to evaluate
financial results in economic cycles at various industry volume
conditions. Other factors considered are the company's 16-consecutive-
year leadership in the combined market share of Class 5 through 8 trucks
and recognition as a worldwide leading producer of mid-range diesel
engines. The projected availability of taxable income to realize the tax
benefit from net operating loss carryforwards and the reversal of
temporary differences before expiration of these benefits are also
considered. Management believes that, with the combination of available
tax planning strategies and the maintenance of significant market share,
earnings are achievable in order to realize the net deferred tax asset of
$1,030 million.

Reconciliation of the company's United States income before income
taxes for financial statement purposes to taxable income for the years
ended October 31 is as follows:

Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Income of continuing operations
before income taxes ............. $ 105 $ 262 $ 158
Exclusion of (income) loss
of foreign subsidiaries ......... 3 (11) (13)
Loss of discontinued operations
before income taxes ............. - - (33)
State income taxes .......... (2) (2) (2)
Temporary differences ....... (69) 69 24
Other ............................. - (4) 2
------- ------- -------
Taxable income .................... $ 37 $ 314 $ 136
------- ------- -------

BUSINESS ENVIRONMENT

Sales of Class 5 through 8 trucks are cyclical, with demand affected
by such economic factors as industrial production, construction, demand
for consumer durable goods, interest rates and the earnings and cash flow
of dealers and customers. Although the general economy remained stable in
1996, demand for new trucks declined. This change reflected over capacity
in the trucking industry as well as uncertainty over the future growth of
the economy, causing freight carriers to scale back plans for modernizing
and expanding their truck fleets. As a result, the Class 5 through 8
truck market experienced a significant decline in the rate of new truck
orders. The decline in the number of new orders has reduced the company's
order backlog to 20,900 units at October 31, 1996 from 47,100 units at
October 31, 1995. Accordingly, retail deliveries in 1997 will be highly
dependent on the rate at which new truck orders are received. The company
will evaluate order receipts and backlog throughout the year and will
balance production with demand as appropriate.

The company currently projects 1997 United States and Canadian Class
8 heavy truck demand to be 170,000 units, a 13% decrease from 1996. Class
5, 6 and 7 medium truck demand, excluding school buses, is forecast at
112,000 units, unchanged from 1996. Demand for school buses is expected
to decline slightly in 1997 to 31,500 units. Mid-range diesel engine
shipments by the company to original equipment manufacturers in 1997 are
expected to be 176,500 units, 8% higher than in 1996. The company's
service parts sales are projected to grow 6% to $809 million.

STATEMENT OF FINANCIAL REPORTING RESPONSIBILITY

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

The accompanying financial statements have been audited by Deloitte &
Touche LLP, independent auditors, whose appointment is ratified by
shareowner vote at the Annual Meeting. Management has made available to
Deloitte & Touche LLP all the company's financial records and related data,
as well as the minutes of the Board of Directors' meetings. Management
believes that all representations made to Deloitte & Touche LLP during its
audit were valid and appropriate.

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

The Audit Committee of the Board of Directors, composed of six non-
employee Directors, meets periodically with the independent auditors,
management, general counsel and internal auditors to satisfy itself that
such persons are properly discharging their responsibilities regarding
financial reporting and auditing. In carrying out these responsibilities,
the Committee has full access to the independent auditors, internal
auditors, general counsel and financial management in scheduled joint
sessions or private meetings as in the Committee's judgment seem
appropriate. Similarly, the company's independent auditors, internal
auditors, general counsel and financial management have full access to the
Committee and to the Board of Directors and each is responsible for
bringing before the Committee or its Chair, in a timely manner, any matter
deemed appropriate to the discharge of the Committee's responsibility.

John R. Horne
Chairman, President and
Chief Executive Officer

Robert C. Lannert
Executive Vice President
and Chief Financial Officer

<PAGE 19>
INDEPENDENT AUDITORS' REPORT

Navistar International Corporation,
Its Directors and Shareowners:

We have audited the Statement of Financial Condition of Navistar
International Corporation and Consolidated Subsidiaries as of October 31,
1996 and 1995, and the related Statements of Income and Cash Flow for
each of the three years in the period ended October 31, 1996. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the accompanying consolidated financial statements
present fairly, in all material respects, the financial position of
Navistar International Corporation and Consolidated Subsidiaries at
October 31, 1996 and 1995, and the results of their operations and their
cash flow for each of the three years in the period ended October 31,
1996, in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
December 16, 1996
Chicago, Illinois
<PAGE 20>

STATEMENT OF INCOME

Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------------

Sales and revenues
Sales of manufactured products ............... $ 5,508 $ 6,125 $ 5,153
Finance and insurance revenue ................ 197 167 152
Other income ................................. 49 50 32
-------- -------- --------
Total sales and revenues ................... 5,754 6,342 5,337
-------- -------- --------
Costs and expenses
Cost of products and services sold ........... 4,827 5,288 4,496
Postretirement benefits ...................... 220 206 176
Engineering and research expense ............. 129 113 97
Marketing and administrative expense ......... 319 307 265
Interest expense ............................. 83 87 75
Financing charges on sold receivables ........ 24 29 16
Insurance claims and underwriting expense .... 47 50 54
-------- -------- --------
Total costs and expenses ................... 5,649 6,080 5,179
-------- -------- --------

Income before income taxes ............... 105 262 158

Income tax expense ....................... 40 98 56
-------- -------- --------

Income of continuing operations .............. 65 164 102
Loss of discontinued operations .............. - - 20
-------- -------- --------

Net income ................................... 65 164 82

Less dividends on Series G preferred stock ... 29 29 29
-------- -------- --------

Net income applicable to common stock ........ $ 36 $ 135 $ 53
======== ======== ========
- --------------------------------------------------------------------------------------
Income (loss) per common share
Continuing operations ...................... $ .49 $ 1.83 $ .99
Discontinued operations .................... - - (.27)
-------- -------- --------

Net income per common share .................. $ .49 $ 1.83 $ .72
======== ======== ========

Average number of common and dilutive common
equivalent shares outstanding (millions) ... 73.8 74.3 74.6

- --------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.

STATEMENT OF FINANCIAL CONDITION

Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------

As of October 31 (Millions of dollars) 1996 1995
- -----------------------------------------------------------------------------------

ASSETS

Cash and cash equivalents .......................... $ 487 $ 485
Marketable securities .............................. 394 555
-------- -------
881 1,040
Receivables, net ................................... 1,655 1,854
Inventories ........................................ 463 416
Property and equipment, net ........................ 770 683
Investments and other assets ....................... 213 202
Intangible pension assets .......................... 314 284
Deferred tax asset, net ............................ 1,030 1,087
-------- --------
Total assets ....................................... $ 5,326 $ 5,566
======== ========

LIABILITIES AND SHAREOWNERS' EQUITY

Liabilities
Accounts payable, principally trade ................ $ 820 $ 933
Debt:
Manufacturing operations ......................... 115 127
Financial services operations .................... 1,305 1,330
Postretirement benefits liability .................. 1,351 1,341
Other liabilities .................................. 819 965
-------- --------
Total liabilities .............................. 4,410 4,696
-------- --------
Commitments and contingencies

Shareowners' equity
Series G convertible preferred stock
(liquidation preference $240 million) ............ 240 240
Series D convertible junior preference stock
(liquidation preference $4 million) .............. 4 4
Common stock (51.0 million and 50.9 million shares
issued)........................................... 1,642 1,641
Class B Common stock (24.3 million shares issued) .. 491 491
Retained earnings (deficit) - balance accumulated
after the deficit reclassification as of
October 31, 1987 ................................. (1,431) (1,478)
Common stock held in treasury, at cost
(1.6 million and 1.4 million shares held) ......... (30) (28)
-------- --------
Total shareowners' equity ...................... 916 870
-------- --------
Total liabilities and shareowners' equity .......... $ 5,326 $ 5,566
======== ========

- -----------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.

STATEMENT OF CASH FLOW

Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------

Cash flow from operations
Net income ...................................... $ 65 $ 164 $ 82
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization ............... 101 81 72
Deferred income taxes ....................... 37 89 51
Additional pension funding .................. - (72) -
Provision for loss of discontinued operations - - 20
Other, net .................................. (9) (4) (26)
Change in operating assets and liabilities:
Receivables ................................. 186 (91) (173)
Inventories ................................. (47) 35 (19)
Prepaid and other current assets ............ 1 10 (4)
Accounts payable ............................ (110) 63 99
Other liabilities ........................... (106) 142 52
-------- -------- --------
Cash provided by operations ................... 118 417 154
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (1,108) (1,099) (916)
Collections/sales of retail notes
and lease receivables ......................... 1,107 850 1,176
Purchase of marketable securities ............... (585) (722) (710)
Sales or maturities of marketable securities .... 752 480 621
Proceeds from property sold under sale/leaseback. 7 - 87
Capital expenditures ............................ (117) (139) (87)
Property and equipment leased to others ......... (73) (19) (5)
Other investment programs, net .................. (15) 8 36
-------- -------- --------
Cash provided by (used in) investment programs. (32) (641) 202
-------- -------- --------
Cash flow from financing activities
Principal payments on debt ...................... (136) (121) (222)
Issuance of debt ................................ - - 100
Net increase (decrease)in notes and debt
outstanding under bank revolving credit
facility and asset-backed and other
commercial paper programs ..................... 81 312 (28)
Dividends paid .................................. (29) (29) (58)
Repurchase of Class B Common stock .............. - (10) (12)
-------- -------- --------
Cash provided by (used in) financing activities (84) 152 (220)
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... 2 (72) 136
At beginning of the year ...................... 485 557 421
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 487 $ 485 $ 557
======== ======== ========

- --------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.

NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1996

1. SUMMARY OF ACCOUNTING POLICIES

Basis of Consolidation

Navistar International Corporation is a holding company, whose principal
operating subsidiary is Navistar International Transportation Corp.
(Transportation). As used hereafter, "company" refers to Navistar
International Corporation and its consolidated subsidiaries. The
consolidated financial statements include the results of Transportation's
manufacturing operations and its wholly owned financial services
subsidiaries. The effects of transactions between the manufacturing and
financial services operations have been eliminated to arrive at the
consolidated totals.

Transportation operates in two principal industry segments:
manufacturing and financial services. Manufacturing operations are
responsible for the manufacture and marketing of medium and heavy trucks,
including school buses, mid-range diesel engines and service parts
primarily in the United States and Canada as well as in selected export
markets. Based on assets and revenues, manufacturing operations represent
the majority of Transportation's business activities. The financial
services operations consist of Navistar Financial Corporation (Navistar
Financial), its domestic insurance subsidiary and the company's foreign
finance and insurance subsidiaries. Navistar Financial's primary business
is the retail and wholesale financing of products sold by the
manufacturing operations and its dealers within the United States and the
providing of commercial physical damage and liability insurance to the
manufacturing operations' dealers and retail customers and to the general
public through an independent insurance agency system.

The distinction between current and long-term assets and liabilities
in the Statement of Financial Condition is not meaningful when finance,
insurance and manufacturing operations are combined; therefore, the
company has adopted an unclassified presentation. Certain 1995 and 1994
amounts have been reclassified to conform with the presentation used in
the 1996 financial statements.

Estimates

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

Revenue Recognition

Manufacturing operations recognize shipments of new trucks and
service parts to independent dealers and retail customers as sales. Price
allowances, expected in the normal course of business, and the cost of
special incentive programs are recorded at the time of sale. Engine sales
are recognized at the time of shipment to original equipment
manufacturers. An allowance for losses on receivables is maintained at an
amount that management considers appropriate in relation to the
outstanding receivables portfolio and it is charged when receivables are
determined to be uncollectible.

NOTES TO FINANCIAL STATEMENTS
(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

Financial services operations recognize finance charges on retail
notes and finance leases as income over the term of the receivables on the
accrual basis utilizing the interest method. Interest due from interest
bearing notes and accounts is recognized on the accrual basis. Operating
lease revenues are recognized on a straight-line basis over the life of
the lease. Selected receivables are sold and securitized to public and
private investors with limited recourse. Gains or losses on sales of
receivables are credited or charged to revenue in the period in which the
sale occurs. Financial services operations continue to service the sold
receivables and receive a fee for such services from the investor. An
allowance for losses is maintained at a level deemed appropriate based on
loss experience and other factors and it is charged when receivables are
determined to be uncollectible.

Insurance premiums are earned on a prorata basis over the terms of
the policies. Underwriting losses and outstanding loss reserve balances
are based on individual case estimates of the ultimate cost of settlement,
including actual losses, and determinations of amounts required for losses
incurred but not reported.

Cash and Cash Equivalents

All highly liquid financial instruments with maturities of three
months or less from date of purchase, consisting primarily of bankers'
acceptances, commercial paper, United States government securities and
floating rate notes, are classified as cash equivalents in the Statement
of Financial Condition and Statement of Cash Flow.

Marketable Securities

Marketable securities are classified as available-for-sale securities
and are reported at fair value.

Inventories

Inventories are valued at the lower of average cost or market.

Property and Other Long-Lived Assets

Significant expenditures for replacement of equipment, tooling and
pattern equipment, and major rebuilding of machine tools are capitalized.
Depreciation and amortization are generally provided on the straight-line
basis over the estimated useful lives of the assets, which average 35
years for buildings and improvements and 8 years for machinery and
equipment. Gains and losses on property disposals are included in other
income and expense. The carrying amount of all long-lived assets is
evaluated periodically to determine if adjustment to the depreciation and
amortization period or to the unamortized balance is warranted. Such
evaluation is based principally on the expected utilization of the long-
lived assets and the projected, undiscounted cash flows of the operations
in which the long-lived assets are deployed.

NOTES TO FINANCIAL STATEMENTS
(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

Engineering and Research Expense

Engineering and research expense, which includes research and
development expenses and routine ongoing costs associated with improving
existing products and manufacturing processes totaled $129 million, $113
million and $97 million in 1996, 1995 and 1994, respectively. Research and
development expenses, which included activities for the introduction of
new truck and diesel engine products and major improvements to existing
products and processes, totaled $101 million, $91 million and $88 million
in 1996, 1995 and 1994, respectively.

Product Related Costs

The company accrues warranty expense at the time of end product sale.
Product liability expense is accrued based on the estimate of total future
payments to settle product liability claims.

Derivative Financial Instruments

The company uses derivatives to transfer or reduce risks of foreign
exchange and interest rate volatility and to potentially increase the
return on invested funds. Navistar Financial, a wholly owned subsidiary
of Transportation, uses a variety of contracts to manage its exposure to
fluctuations in funding costs from the anticipated securitization and sale
of retail notes. All derivatives are held for purposes other than
trading, and company policy does not allow the use of derivatives for
speculative purposes. Gains and losses on hedges of existing assets or
liabilities, firm commitments or anticipated transactions are included in
the carrying amounts of the related asset or liability and recognized in
income when the hedged event occurs. Gains or losses related to
qualifying hedges of anticipated sales of receivables are deferred and are
recognized in income when the receivables are sold.

Pending Accounting Standards

In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which the company must adopt for all applicable transactions
occurring after December 31, 1996. The standard is not expected to have a
material effect on the company's net income or financial position.

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS

The company provides postretirement benefits to substantially all of
its employees. Costs associated with postretirement benefits include
pension expense for employees, retirees and surviving spouses, and
postretirement health care and life insurance expense for employees,
retirees, surviving spouses and dependents. In addition, as part of the
1993 restructured retiree health care and life insurance plans, profit
sharing payments to an independent retiree trust are required. The cost
of postretirement benefits is segregated as a separate component in the
Statement of Income and is as follows:

Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Pension expense ................... $ 160 $ 110 $ 108
Health/life insurance ............. 60 70 64
Profit sharing provision to Trust . - 26 4
------- ------- -------
Total postretirement
benefits expense ................ $ 220 $ 206 $ 176
======= ======= =======

In the Statement of Financial Condition, the postretirement benefits
liability of $1,351 million in 1996 and $1,341 million in 1995 includes
$607 million and $587 million, respectively, for pension and $744 million
and $754 million, respectively, for postretirement health care and life
insurance benefits.

Pension Benefits

Generally, the pension plans are noncontributory with benefits
related to an employee's length of service and compensation rate. The
company's policy is to fund its pension plans in accordance with
applicable United States and Canadian government regulations and to make
additional payments as funds are available to achieve full funding of the
vested accumulated benefit obligation. The pension plans vary in the
extent to which they are funded, but for plan years which ended during the
current year, all legal funding requirements have been met. Plan assets
are invested primarily in dedicated portfolios of long-term fixed income
securities with more recent contributions invested in equity securities.

Pension Expense

Net pension expense included in the Statement of Income is composed
of the following:

Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Service cost for benefits
earned during the period ........ $ 34 $ 24 $ 34
Interest on projected
benefit obligation .............. 231 232 211
Net amortization costs and other .. 104 57 50
Less expected return on assets .... (209) (203) (187)
------- ------- -------
Net pension expense ............... $ 160 $ 110 $ 108
======= ======= =======

Actual return on assets .......... $ 188 $ 398 $ (127)
======= ======= =======

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

Pension Expense (continued)

"Amortization costs" shown in the above table include amortization of
cumulative gains and losses over the expected remaining service life of
employees, amortization of the initial transition liability over 15 years
and amortization of plan amendments, recognized over the remaining service
life of employees, except for those plan amendments arising from
negotiated labor contracts, which are amortized over the length of the
contract.

Pension Assets and Liabilities

Included in the Statement of Financial Condition is the minimum
pension liability for certain unfunded pension plans. The adjustment for
the minimum pension liability in the amounts of $623 million and $628
million are offset by intangible pension assets of $314 million and $284
million and accumulated reductions in shareowners' equity of $206 million
and $220 million at October 31, 1996 and October 31, 1995, respectively.
The changes in shareowners' equity are net of deferred income taxes of
$103 million at October 31, 1996 and $124 million at October 31, 1995.
The minimum pension liability will change from year to year as a result of
revisions to actuarial assumptions, experience gains or losses and
settlement rate changes.

The funded status of the company's plans as of October 31, 1996 and
1995 and a reconciliation with amounts recognized in the Statement of
Financial Condition are provided below.

Plans in Which Plans in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
--------------------- --------------------
Millions of dollars 1996 1995 1996 1995
- -----------------------------------------------------------------------
Actuarial present value of:
Vested benefits ......... $ (59) $ (51) $(2,672) $ (2,612)
Nonvested benefits ...... (7) (5) (270) (270)
-------- -------- -------- --------
Accumulated benefit
obligation .......... (66) (56) (2,942) (2,882)
Effect of projected future
compensation levels ..... (3) (4) (23) (27)
-------- -------- -------- --------
Projected benefit
obligation .............. (69) (60) (2,965) (2,909)
Plan assets at fair value . 91 87 2,336 2,295
-------- -------- -------- --------
Funded status at October 31 22 27 (629) (614)
Unamortized pension costs:
Net losses .............. 11 9 332 372
Prior service costs ..... 6 1 113 50
(Asset) liability
at date of transition . (1) (1) 200 233
Adjustment for the minimum
liability ............... - - (623) (628)
-------- -------- -------- --------
Net asset (liability) ..... $ 38 $ 36 $ (607) $ (587)
======== ======== ======== ========

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

Pension Assets and Liabilities (continued)

The weighted average rate assumptions used in determining pension
costs and the projected benefit obligation were:

1996 1995 1994
- ----------------------------------------------------------------------
Discount rate used to
determine present value
of projected benefit obligation
at end of year ................ 8.1% 7.8% 9.3%
Expected long-term rate of
return on plan assets
for the year ................... 9.0% 9.9% 8.1%
Expected rate of increase
in future compensation levels .. 3.5% 3.5% 3.5%

Other Postretirement Benefits

In addition to providing pension benefits, the company provides
health care and life insurance for a majority of its retired employees,
spouses and certain dependents in the United States and Canada.

In 1993, a trust was established to provide a vehicle for funding the
health care liability through company contributions and retiree premiums.
The funds in this trust are invested primarily in equity securities. The
company is required to make a prefunding contribution of $200 million to
the trust on or prior to June 30, 1998.

The components of expense for other postretirement benefits included
in the Statement of Income are as follows:

Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Service cost for benefits
earned during the year ......... $ 14 $ 10 $ 10
Interest cost on the
accumulated benefit obligation
and other ....................... 84 90 81
Less expected return on assets .... (38) (30) (27)
------- ------- -------
Net other postretirement
benefits expense ............... $ 60 $ 70 $ 64
======= ======= =======

Actual return on assets .......... $ 46 $ 65 $ 12
======= ======= =======

The funded status of other postretirement benefits as of October 31
is as follows:

Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Accumulated other postretirement
benefit obligation (APBO):
Retirees and their dependents . $ (773) $ (729)
Active employees eligible
to retire ....................... (244) (201)
Other active participants ......... (208) (227)
------- -------
Total APBO ........................ (1,225) (1,157)
Plan assets at fair value ......... 401 364
------- -------
APBO in excess of plan assets ..... (824) (793)
Unamortized prior service cost .... (6) -
Unrecognized net loss ............. 86 39
------- -------
Net liability ..................... $ (744) $ (754)
======= =======

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

Other Postretirement Benefits (continued)

The weighted average expected return on plan assets was 10.5% for
1996, 10% for 1995 and 9% for 1994. The weighted average of discount
rates used to determine the accumulated other postretirement benefit
obligation was 8.2% and 7.8% at October 31, 1996 and 1995, respectively.
For 1997, the weighted average rate of increase in the per capita cost of
covered health care benefits is projected to be 8.2%. The rate is
projected to decrease to 5.0% by the year 2004 and remain at that level
each year thereafter. If the cost trend rate assumptions were increased
by one percentage point for each year, the accumulated postretirement
benefit obligation would increase by approximately $117 million and the
associated expense recognized for the year ended October 31, 1996 would
increase by an estimated $8 million.

3. INCOME TAXES

The domestic and foreign components of income (loss) from continuing
operations before income taxes consist of the following:

Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Domestic ......................... $ 108 $ 251 $ 145
Foreign .......................... (3) 11 13
------- ------- -------
Total income before income taxes . $ 105 $ 262 $ 158
======= ======= =======

Taxes on income of continuing operations are analyzed by categories
as follows:

Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Current:
Federal ........................ $ 1 $ 7 $ 3
State and local .............. 2 2 2
------- ------- -------

Total current expense ........ 3 9 5
------- ------- -------

Deferred:
Federal ........................ 32 77 44
State and local .............. 5 12 7
Total deferred expense ....... 37 89 51
------- ------- -------

Total income tax expense
of continuing operations ....... $ 40 $ 98 $ 56
======= ======= =======

The deferred tax expense does not represent cash payment of income
taxes and was primarily generated by the utilization of net operating
loss (NOL) carryforwards and the increase of temporary differences, and
will not require future cash payments. Consolidated tax payments made
during 1996, 1995 and 1994 were $3 million, $9 million and $5 million,
respectively.

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. INCOME TAXES (continued)

The relationship of the tax expense to the income of continuing
operations for 1996, 1995 and 1994 differs from the U.S. statutory rate
(35%) because of state income taxes and the benefit of NOLs in foreign
countries. The effective tax rates on the income of continuing operations
for the years 1996, 1995 and 1994 were 38.1%, 37.4% and 35.4%,
respectively.

Undistributed earnings of foreign subsidiaries were $30 million and
$28 million at October 31, 1996 and 1995, respectively. Taxes have not
been provided on these earnings because no withholding taxes are
applicable upon repatriation and U.S. tax would be substantially offset by
utilization of NOL carryforwards.

Taxpaying entities of the company offset all deferred tax assets and
liabilities within each tax jurisdiction and present them in a single
amount in the Statement of Financial Condition. The components of the
deferred tax asset (liability) at October 31 are as follows:

Millions of dollars 1996 1995
- ---------------------------------------------------------------------
United States
- -------------
Deferred tax assets:
Net operating loss carryforwards . $ 753 $ 768
Alternative minimum tax .......... 11 10
Product liability ................ 57 60
Warranty ......................... 43 42
Other liabilities ................ 143 170
Postretirement benefits .......... 363 390
------- -------
Total deferred tax assets ........ 1,370 1,440
------- -------

Deferred tax liabilities:
Prepaid pension assets ........... (12) (23)
Depreciation ..................... (40) (42)
------- -------
Total deferred tax liabilities .... (52) (65)
------- -------
Total deferred tax asset ......... 1,318 1,375
Less valuation allowance ......... (288) (288)
------- -------
Net deferred tax asset ........... $ 1,030 $ 1,087
======= =======

Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards . $ 2 $ -
Postretirement benefits .......... 19 19
------- -------
Total deferred tax assets ........ 21 19
Less valuation allowance ......... (21) (19)
------- -------
Net deferred tax assets .......... - -
Deferred tax liabilities
--prepaid pension assets ....... (16) (16)
------- -------
Net deferred tax liabilities ..... $ (16) $ (16)
======= =======

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. INCOME TAXES (continued)

A valuation allowance has been provided for those NOL carryforwards
and temporary differences which are estimated to expire before they are
utilized. Because the foreign tax carryforward period is relatively
short, a full allowance has been provided against the total deferred tax
assets. The valuation allowance increased $2 million during 1996
resulting from tax benefits associated with foreign NOLs.

At October 31, 1996, the company had $1,982 million of domestic and
$5 million of foreign NOL carryforwards available to offset future taxable
income. Such carryforwards reflect income tax losses incurred which will
expire as follows, in millions of dollars:

1998 .................. $ 202
1999 .................. 29
2000 .................. 300
2001 .................. 143
2002 .................. 47
2004 .................. 238
2005 .................. 7
2006 through 2009 ..... 1,021
----------
Total ................. $ 1,987
==========

Additionally, the reversal of net temporary differences of $1,507
million as of October 31, 1996 will create net tax deductions which, if
not utilized previously, will expire subsequent to 2009.

4. DISCONTINUED OPERATIONS

In the fourth quarter of 1994, Transportation recorded a $20 million
charge, net of $13 million of income taxes, as a loss of discontinued
operations for environmental liabilities at production facilities of two
formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc. The $33
million pretax charge, which included an $11 million settlement for
various environmental related commercial issues and a $22 million charge
for cleanup costs for these sites, was included in Other Liabilities. See
also Note 14.

NOTES TO FINANCIAL STATEMENTS
(Continued)

5. MARKETABLE SECURITIES

The fair value of marketable securities is estimated based on quoted
market prices, when available. If a quoted price is not available, fair
value is estimated using quoted market prices for similar financial
instruments.

Information related to the company's marketable securities at October
31 is as follows:
1996 1995
------------------- --------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ---------------------------------------------------------------------
Corporate securities . $ 127 $ 126 $ 56 $ 56
U.S. government
securities ......... 152 152 411 413
Mortgage and asset
backed securities 94 94 65 66
Foreign government
securities ......... 5 5 9 9
------ ------ ------ ------
Total debt securities 378 377 541 544
Equity securities .... 14 17 10 11
------ ------ ------ ------
Total marketable
securities ......... $ 392 $ 394 $ 551 $ 555
====== ====== ====== ======

Gross unrealized gains and losses on marketable securities at October
31, 1996 and 1995 are not material.

Contractual maturities of marketable debt securities at October 31
are as follows:
1996 1995
------------------- --------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- ---------------------------------------------------------------------
Due in one year or less $ 46 $ 46 $ 120 $ 120
Due after one year
through five years . 208 208 318 320
Due after five years
through ten years .. 24 23 27 27
Due after ten years .. 6 6 11 11
------ ------ ------ ------
284 283 476 478
Mortgage and asset-
backed securities 94 94 65 66
------ ------ ------ ------

Total debt
securities ......... $ 378 $ 377 $ 541 $ 544
====== ====== ====== ======

Proceeds from sales or maturities of investments in securities were
$752 million during 1996 and $480 million during 1995. Gross gains and
losses realized on such sales or maturities were not material for each of
the two years. Shareowners' equity includes an unrealized holding gain of
$1 million, net of income taxes, at October 31, 1996 and $3 million, net
of income taxes, at October 31, 1995. At October 31, 1996 and 1995, a
domestic insurance subsidiary had $17 million and $23 million,
respectively, of marketable securities on deposit with various state
departments of insurance or otherwise not available. These securities are
included in total marketable securities balances at October 31, 1996 and
1995.

NOTES TO FINANCIAL STATEMENTS
(Continued)

6. RECEIVABLES

Receivables at October 31 are summarized by major classification as
follows:

Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Accounts receivable .............. $ 560 $ 588
Retail notes and lease financing . 733 747
Wholesale notes .................. 101 268
Amounts due from sales
of receivables ................. 264 248
Reinsurance balance receivables .. 28 31
Allowance for losses ............. (31) (28)
------- -------

Total receivables, net ....... $ 1,655 $ 1,854
======= =======

Navistar Financial purchases the majority of the wholesale notes
receivable and some retail notes and accounts receivable arising from
Transportation's operations in the United States.

A portion of Navistar Financial's funding for retail and wholesale
notes comes from sales of receivables by Navistar Financial to third
parties with limited recourse. Proceeds from sales of retail notes
receivable, net of underwriting costs, were $982 million in 1996, $727
million in 1995 and $995 million in 1994. Uncollected sold retail and
wholesale receivable balances totaled $1,866 million and $1,673 million as
of October 31, 1996 and 1995, respectively.

Contractual maturities of accounts receivable, retail notes and lease
financing and wholesale notes, including unearned finance income, at
October 31, 1996 were: 1997 - $860 million, 1998 - $243 million, 1999 -
$186 million, 2000 - $142 million, 2001 - $76 million, and 2002 and
thereafter - $14 million. Unearned finance income totaled $127 million at
October 31, 1996.

NOTES TO FINANCIAL STATEMENTS
(Continued)

7. INVENTORIES

Inventories at October 31 are as follows:

Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Finished products ................ $ 242 $ 167
Work in process .................. 97 91
Raw materials and supplies ....... 124 158
------- -------

Total inventories ................ $ 463 $ 416
======= =======

8. PROPERTY AND EQUIPMENT

At October 31, property and equipment includes the following:

Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Land ............................. $ 12 $ 11
------- -------

Buildings, machinery
and equipment at cost:
Plants ........................ 1,299 1,223
Distribution .................. 79 75
Other ......................... 222 138
------- -------

Subtotal ................. 1,600 1,436
------- -------

Total property ................ 1,612 1,447
Less accumulated depreciation
and amortization ............ (842) (764)
------- -------

Total property
and equipment, net ...... $ 770 $ 683
======= =======

Total property includes property under capitalized lease obligations
of $25 million at October 31, 1996 and $24 million at October 31, 1995.
In addition, total property includes vehicles under operating leases to
third parties of $116 million at October 31, 1996 and $49 million at
October 31, 1995.

NOTES TO FINANCIAL STATEMENTS
(Continued)

9. DEBT

Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Manufacturing operations
Notes payable
and current maturities
of long-term debt ............ $ 14 $ 10
------- -------
6 1/4% Sinking Fund Debentures,
due 1998 ..................... 3 6
9% Sinking Fund Debentures,
due 2004 ..................... 53 60
8% Secured Note,
due 2002 secured by plant assets 26 31
Capitalized leases and other ... 19 20
------- -------
Total long-term debt ....... 101 117
------- -------
Manufacturing operations debt .... 115 127
------- -------

Financial services operations
Commercial paper ............... 99 50
Current maturities
of long-term debt ........... - 118
------- -------
Total short-term debt ...... 99 168
------- -------

Asset-backed commercial
paper program, variable rate,
due March 2001 ............... 402 302
Bank revolver, variable rate,
due March 2001 .............. 704 760
------- -------
Total senior debt .......... 1,106 1,062
------- -------

Subordinated Term Debt
- Senior notes, 8 7/8%,
due November 1998 .......... 100 100
------- -------
Total long-term debt ....... 1,206 1,162
------- -------

Financial services
operations debt ................ 1,305 1,330
------- -------

Total debt ....................... $ 1,420 $ 1,457
======= =======

Consolidated interest payments were $83 million, $82 million and $76
million in 1996, 1995 and 1994, respectively.

Navistar Financial issues commercial paper with varying terms and has
short-term borrowings with various banks on a noncommitted basis.
Compensating cash balances and commitment fees are not required under
these borrowings.

NOTES TO FINANCIAL STATEMENTS
(Continued)

9. DEBT (continued)

The aggregate annual maturities and sinking fund requirements for debt
for the years ended October 31 are as follows:
Financial
Manufacturing Services
Millions of dollars Operations Operations Total
- -------------------------------------------------------------------------
1997 ............................. $ 14 $ 99 $ 113
1998 ............................. 22 - 22
1999 ............................. 16 100 116
2000 ............................. 15 - 15
2001 ............................. 15 1,106 1,121
Thereafter ....................... 33 - 33

Weighted average interest rate
on total debt, including short-term,
and the effect of discounts
and related amortization
for the years ended:
October 31, 1996 .............. 8.1% 6.5% 6.7%
October 31, 1995 .............. 9.0% 7.4% 7.6%

Effective March 29, 1996, Navistar Financial amended and restated its
bank revolving credit facility and its asset-backed commercial paper (ABCP)
program, extending the maturity date of each facility to March 2001. In
addition, the commitment of the bank revolving credit facility was expanded
to $925 million, the ABCP facility was increased to $400 million, and a new
pricing and fee schedule was established. The available funding under the
ABCP program is $414 million, comprised of the $400 million liquidity
facility and $14 million of trust certificates issued in connection with the
ABCP trust.

Under the terms of the ABCP program, a special purpose wholly owned
subsidiary of Navistar Financial will purchase retail notes and lease
receivables. All assets of the subsidiary will be pledged or sold to a trust
that will fund the receivables with investment grade commercial paper. The
assets may also be sold to the trust.

Available funding under the amended and restated credit agreement and
ABCP program was $233 million, of which $99 million was used to back short-
term debt at October 31, 1996. The remaining $134 million, when combined
with unrestricted cash and cash equivalents, made $141 million available to
fund the general business purposes of Navistar Financial at October 31, 1996.

NOTES TO FINANCIAL STATEMENTS
(Continued)

9. DEBT (continued)

Navistar Financial's wholly owned subsidiaries, Navistar Financial
Retail Receivables Corporation (NFRRC) and Navistar Financial Securities
Corporation (NFSC), have a limited purpose of purchasing retail and wholesale
receivables, respectively, and transferring an undivided ownership interest
in such notes to investors in exchange for pass-through notes and
certificates. The subsidiaries have limited recourse on the sold receivables
and their assets are available to satisfy the claims of their creditors prior
to such assets becoming available to Navistar Financial or affiliated
companies.

NFSC has in place $500 million of revolving wholesale note sales trusts
that provide for the continuous sale of eligible wholesale notes on a daily
basis. The sales trusts are comprised of three $100 million tranches of
investor certificates maturing serially from 1997 to 1999 and a $200 million
tranche maturing in 2004.

During 1996, Navistar Financial sold $985 million of retail notes, net
of unearned finance income, through NFRRC in two separate sales to two
individual owner trusts which in turn sold $946 million of notes and $39
million of certificates to investors. The net proceeds, after underwriting
costs and credit enhancements, of $934 million were used by Navistar
Financial for general working capital purposes. At October 31, 1996, the
remaining shelf registration available to NFRRC for issuance of asset-backed
securities was $2,445 million.

In November 1996, Navistar Financial sold $487 million of retail notes
through NFRRC. The net proceeds of $473 million were used for general
working capital purposes.

10. OTHER LIABILITIES

Major classifications of other liabilities at October 31 are as follows:

Millions of dollars 1996 1995
- ---------------------------------------------------------------------
Product liability and warranty ... $ 293 $ 294
Loss reserves
and unearned premiums .......... 113 118
Employee incentive programs ...... 10 104
Payroll, commissions
and employee related benefits .. 73 80
Long-term disability
and workers' compensation ...... 55 66
Taxes ............................ 44 45
Environmental .................... 23 25
Interest ......................... 9 12
Other ............................ 199 221
------- -------
Total other liabilities ........ $ 819 $ 965
======= =======

During the fourth quarter of 1996, the company recorded a one-time
$35 million pretax charge for termination of its next generation truck
program.

NOTES TO FINANCIAL STATEMENTS
(Continued)

11. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The carrying amounts of financial instruments, as reported in the
Statement of Financial Condition and described in various Notes to the
Financial Statements, and their fair values at October 31 are as follows:

1996 1995
------------------ -------------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- -------------------------------------------------------------------
Receivables, net ..... $1,655 $1,658 $1,854 $1,867
Investments
and other assets ... 213 221 202 202
Debt ................. 1,420 1,414 1,457 1,460

Cash and cash equivalents approximate fair value. The cost and fair
value of marketable securities are disclosed in Note 5.

Customer receivables, wholesale notes and retail and wholesale
accounts and other variable-rate retail notes approximate fair value as a
result of the short-term maturities of the financial instruments. The
fair value of truck retail notes is estimated based on quoted market
prices of similar sold receivables. The fair value of amounts due from
sales of receivables is estimated by discounting expected cash flows at
estimated current market rates.

The fair value of investments and other assets is estimated based on
quoted market prices or by discounting future cash flows.

The short-term debt and variable-rate borrowings under Navistar
Financial's bank revolving credit agreement, which is repriced frequently,
approximate fair value. The fair value of long-term debt is estimated
based on quoted market prices, when available. If a quoted market price
is not available, fair value is estimated using quoted market prices for
similar financial instruments or discounting future cash flows.

NOTES TO FINANCIAL STATEMENTS
(Continued)

11. FINANCIAL INSTRUMENTS (continued)

Derivatives Held or Issued for Purposes Other Than Trading

The company uses derivatives to transfer or reduce risks of foreign
exchange and interest rate volatility and to potentially increase the
return on invested funds.

The company purchases collateralized mortgage obligations (CMOs) that
have predetermined fixed-principal payment patterns which are relatively
certain. These instruments totaled $94 million at October 31, 1996. At
October 31, 1996, the unrecognized gain on the CMOs was not material.

Navistar Financial manages its exposure to fluctuations in interest
rates by limiting the amount of fixed rate assets funded with variable
rate debt, by selling fixed rate retail receivables on a fixed rate basis
and, to a lesser extent, by utilizing financial derivative instruments.
These instruments may include interest rate swaps, interest rate caps and
forward interest rate contracts. Navistar Financial enters into forward
interest rate contracts to manage its exposure to fluctuations in funding
costs from the anticipated securitization and sale of retail notes.

Between August and October 1996, Navistar Financial entered into $400
million of forward interest rate lock agreements on a Treasury note
maturing in 1998 related to the anticipated November 1996 sale of retail
receivables. These hedge agreements were closed in conjunction with the
pricing of the sale, and the loss at October 31, 1996, which was not
material, was deferred and included in the gain recognized on the sale of
receivables in November 1996.

NOTES TO FINANCIAL STATEMENTS
(Continued)

12. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS,
AND LEASES

Commitments, contingencies and restricted assets

At October 31, 1996, commitments for capital expenditures in progress
were approximately $38 million.

Navistar Financial's maximum exposure under all receivable sale
recourse provisions at October 31, 1996 was $215 million; however,
Navistar Financial's exposure is not considered material.

At October 31, 1996, the Canadian operating subsidiary was
contingently liable for retail customers' contracts and leases financed by
a third party. The company is subject to maximum recourse of $164 million
on retail contracts and $9 million on retail leases. In addition, as of
October 31, 1996, the company is contingently liable for approximately $45
million for various guarantees and buyback programs; however, based on
historical loss trends, the company's exposure is not considered material.

The Canadian operating subsidiary and certain subsidiaries included
in financial services operations are parties to agreements which restrict
the amounts which can be distributed to Transportation in the form of
dividends or loans and advances which can be made. As of October 31,
1996, these subsidiaries had $385 million of net assets of which $260
million was restricted as to distribution.

The company and Transportation are obligated under certain agreements
with public and private lenders of Navistar Financial to maintain the
subsidiary's income before interest expense and income taxes at not less
than 125% of its total interest expense. No income maintenance payments
were required for the 3 years ended October 31, 1996.

Concentrations

At October 31, 1996, the company employed 9,043 hourly workers and
5,143 salaried workers in the United States and Canada. Approximately 91%
of the hourly employees and 23% of the salaried employees are represented
by unions. Of these represented employees, 89% of the hourly workers and
93% of the salaried workers are represented by the United Automobile,
Aerospace, and Agricultural Implement Workers of America (UAW) or the
National Automobile, Aerospace, and Agricultural Implement Workers of
Canada (CAW). The collective bargaining agreements with the UAW and the
CAW expire on October 1, 1998 and October 24, 1999, respectively.

Reflecting higher consumer demand for light trucks and vans, sales of
mid-range diesel engines to a domestic automobile manufacturer have
increased from 10% of consolidated sales and revenues in 1994 to 12% in
1995 and 14% in 1996.

NOTES TO FINANCIAL STATEMENTS
(Continued)

12. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS, CONCENTRATIONS,
AND LEASES

Leases

The company has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for 5 to 25 years
and, in many cases, provide for renewal options. The company is generally
obligated for the cost of property taxes, insurance and maintenance. The
company leases office buildings, distribution centers, furniture and
equipment, machinery and equipment, and computer equipment.

The majority of the company's lease payments are for operating
leases. At October 31, 1996, future minimum lease payments under
operating leases having lease terms in excess of one year are: 1997 - $33
million, 1998 - $30 million, 1999 - $29 million, 2000 - $29 million, 2001
- - $21 million and thereafter - $55 million. Total operating lease expense
was $35 million in 1996, $42 million in 1995 and $38 million in 1994.
Income received from sublease rentals was $6 million in 1996, 1995 and
1994, respectively.

13. LEGAL PROCEEDINGS

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

14. ENVIRONMENTAL MATTERS

In the fourth quarter of 1994, Transportation recorded a $20 million
charge, net of $13 million of income taxes, as a loss of discontinued
operations related to environmental liabilities at production facilities
of two formerly owned businesses, Wisconsin Steel and Solar Turbine, Inc.
(Solar). Transportation reached an agreement with the Economic
Development Administration, a division of the U.S. Department of Commerce,
in 1994 in settlement of commercial and environmental disputes related to
the Wisconsin Steel property. At October 31, 1996, the final consent
decree remained subject to approval by the U.S. Department of Justice and
by Transportation.

The company has been named a potentially responsible party (PRP), in
conjunction with other parties, in a number of cases arising under an
environmental protection law known as the Superfund law. These cases
involve sites which allegedly have received wastes from current or former
company locations. Based on information available to the company, which
in most cases consists of data related to quantities and characteristics
of material generated at or shipped to each site as well as cost estimates
from PRPs and/or federal or state regulatory agencies for the cleanup of
these sites, a reasonable estimate is calculated of the company's share,
if any, of the probable costs and is provided for in the financial
statements. These obligations generally are recognized no later than
completion of the remedial feasibility study and are not discounted to
their present value. The company believes that, based on these
calculations, its share of the potential additional costs for the cleanup
of each site, other than the Wisconsin Steel and Solar sites, will not
have a material effect on the company's financial results. The company
reviews its accruals on a regular basis.

NOTES TO FINANCIAL STATEMENTS
(Continued)

15. INDUSTRY SEGMENT DATA

Information concerning operations by industry segment is as follows:

Financial
Manufacturing Services
Millions of dollars Operations Operations Consolidated
- -------------------------------------------------------------------------
October 31, 1996
- ----------------
Total sales and revenues ..... $5,550 $ 258 $5,754
Operating profit ............. 690 109 750
Depreciation and amortization. 90 11 101
Capital expenditures ......... 117 - 117
Identifiable assets .......... 3,815 1,843 5,326

October 31, 1995
- ----------------
Total sales and revenues ..... $6,168 $ 235 $6,342
Operating profit ............. 845 80 870
Depreciation and amortization. 75 6 81
Capital expenditures ......... 139 - 139
Identifiable assets .......... 4,018 1,922 5,566

October 31, 1994
- ----------------
Total sales and revenues ..... $5,178 $ 214 $5,337
Operating profit ............. 659 76 685
Depreciation and amortization. 68 4 72
Capital expenditures ......... 87 - 87
Identifiable assets .......... 3,724 1,582 5,047

Intersegment sales and revenues were not material in 1996, 1995 or
1994. Transactions between manufacturing operations and financial
services operations have been eliminated from the consolidated column.

NOTES TO FINANCIAL STATEMENTS
(Continued)

16. PREFERRED AND PREFERENCE STOCKS

The company's Nonconvertible Junior Preference Stock Series A is held
for the Retiree Supplemental Benefit Program by the Supplemental Trust
which is currently entitled to elect two members to the company's Board of
Directors. The UAW holds the Nonconvertible Junior Preference Stock
Series B and is currently entitled to elect one member of the company's
Board of Directors. At October 31, 1996, there was one share each of
Series A and Series B Preference stock authorized and outstanding. The
value of the preference shares is minimal.

Other information pertaining to preferred and preference stocks
outstanding is summarized as follows:

Series G Convertible Series D Convertible
Cumulative Preferred Junior Preference
- -------------------------------------------------------------------------
Number authorized
and issued ........... 4,800,000 3,000,000
Number outstanding ..... 4,800,000 176,994

Optional redemption price $50 per share $25 per share
and liquidation plus accrued plus accrued
preference ........... dividends dividends

Conversion rate per share
into Common Stock
(subject to adjustment
in certain circumstances) 0.133 shares 0.3125 shares

Ranking as to dividends Senior to all other Senior to Common;
and upon liquidation . equity securities junior to Series G

Dividend rate .......... Annual rate of $6.00 120% of the cash
per share, dividends on
payable quarterly Common Stock as
declared
on a common
equivalent basis

Dividends may be paid out of surplus as defined under Delaware corporation
law. At October 31, 1996, the company had such defined surplus of $903
million.
- -------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
(Continued)

17. COMMON SHAREOWNERS' EQUITY

Changes in the common shareowners' equity accounts are as follows:

Millions of dollars 1996 1995 1994
- -----------------------------------------------------------------------
Common Stock
Beginning of year ................. $ 1,641 $ 1,628 $ 1,615
Conversion of Class B
Common Stock and other .......... 1 13 13
------- ------- -------
End of year ....................... $ 1,642 $ 1,641 $ 1,628
------- ------- -------

Class B Common Stock
Beginning of year ................. $ 491 $ 501 $ 513
Repurchase of stock ............... - (10) (12)
------- ------- -------
End of year ....................... $ 491 $ 491 $ 501
------- ------- -------

Retained Earnings (Deficit)
Beginning of year ................. $(1,478) $(1,538) $(1,592)
Net income ........................ 65 164 82
Preferred dividends ............... (29) (22) (36)
Minimum pension liability
adjustments and other ........... 11 (82) 8
------- ------- -------
End of year ....................... $(1,431) $(1,478) $(1,538)
------- ------- -------

Common Stock Held in Treasury
Beginning of year ................ $ (28) $ (18) $ (5)
Repurchase of Common Stock
and other ...................... (2) (10) (13)
------- ------- -------
End of year ...................... $ (30) $ (28) $ (18)
------- ------- -------

Common Stock

The company has authorized 110 million shares of Common Stock with a
par value of $.10 per share and 26 million shares of Class B Common Stock
with a par value of $.10 per share and restricted voting rights and
transfer provisions. At October 31, 1996 and 1995, there were 49.4
million and 49.5 million shares of Common Stock outstanding, net of Common
Stock held in Treasury, respectively. The number of shares of Class B
Common stock outstanding at October 31, 1996 and 1995 was 24.3 million.

NOTES TO FINANCIAL STATEMENTS
(Continued)

18. STOCK COMPENSATION PLANS

The Navistar 1994 Performance Incentive Plan (Incentive Plan), which
replaced the Navistar 1988 Performance Incentive Plan, provides for the
granting of stock options and restricted stock to key employees as
determined by the Committee on Organization of the Board of Directors
(Committee).

The Incentive Plan includes the granting of two types of stock option
awards, nonqualified options and incentive options. Nonqualified and
incentive options, which may be granted by the Committee in amounts and at
times as it may determine, have a term of not more than ten years and one
day and ten years, respectively, and are exercisable at a price equal to
the fair market value of the stock on the day of the grant. Generally,
these options are not exercisable during the first year. Payment for the
exercise of any of the options may be made by cash or by delivering, at
fair market value, shares of Common Stock already owned by the option-
owner or by a combination of cash and shares.

The following table summarizes changes in Common Stock under option
plans for the years ended October 31:

Number of shares 1996 1995 1994

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

Outstanding at beginning
of the year...................... 1,738,304 1,146,154 639,234
Granted ........................... 692,000 635,900 614,560
Exercised ......................... - - (8,850)
Terminated ........................ (131,780) (43,750) (98,790)
--------- --------- ---------
Outstanding at end of the year .... 2,298,524 1,738,304 1,146,154
========= ========= =========

Exercisable at October 31 ......... 1,654,624 1,122,804 554,374
========= ========= =========

Available for grant ............... - - 146,406
========= ========= =========

Average price per share
- -------------------------------------------------------------------------

Outstanding at October 31 ........ $ 50 $ 51 $ 52
Granted .......................... $ 10 $ 12 $ 19
Exercised ........................ $ - $ - $ 22

NOTES TO FINANCIAL STATEMENTS
(Continued)

19. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------------- ---------------- --------------- ----------------

(Millions of dollars) 1996 1995 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------

Sales and revenues .. $1,432 $1,416 $1,480 $1,640 $1,391 $1,514 $1,451 $1,772
====== ====== ====== ====== ====== ====== ====== ======

Manufacturing gross
margin ............ 12.2% 12.4% 13.7% 14.0% 12.6% 14.0% 11.6% 14.4%
====== ====== ====== ====== ====== ====== ====== ======

Net income .......... $ 22 $ 23 $ 26 $ 46 $ 17 $ 39 $ - $ 56
Net income (loss)
per common share . $ .20 $ .21 $ .26 $ .52 $ .13 $ .43 $ (.10) $ .66

Market price range
- Common stock
High .......... $12 1/8 $17 1/2 $12 $16 3/8 $12 $16 5/8 $10 3/8 $15 1/8
Low ........... $ 9 1/2 $12 3/4 $ 9 1/2 $12 1/4 $9 1/8 $13 7/8 $ 8 1/2 $9 1/4

Net income per common share is computed independently based on
the weighted average number of Common and Class B Common shares at
the end of each quarter.

20. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31
AND FOR THE YEARS THEN ENDED(Unaudited)

Navistar International Corporation (with financial services
operations on an equity basis)
in millions of dollars:

Condensed Statement of Income 1996 1995 1994
- -------------------------------------------- ------ ------ ------

Sales of manufactured products ............. $5,508 $6,125 $5,153
Other income ............................... 42 43 25
------ ------ ------
Total sales and revenues .............. 5,550 6,168 5,178
------ ------ ------

Cost of products sold ...................... 4,818 5,280 4,494
Postretirement benefits .................... 219 205 175
Engineering and research expense ........... 129 113 97
Marketing and administrative expense ....... 282 277 238
Other expenses ............................. 80 93 76
------ ------ ------
Total costs and expenses ................... 5,528 5,968 5,080
------ ------ ------

Income before income taxes
Manufacturing operations ................. 22 200 98
Financial services operations ............ 83 62 60
------ ------ ------
Income before income taxes ............. 105 262 158
Income tax expense ......................... 40 98 56
------ ------ ------
Income of continuing operations ............ 65 164 102
Loss of discontinued operations ............ - - 20
------ ------ ------
Net income ................................. $ 65 $ 164 $ 82
====== ====== ======

NOTES TO FINANCIAL STATEMENTS
(Continued)

20. SUPPLEMENTAL FINANCIAL INFORMATION AS OF OCTOBER 31
AND FOR THE YEARS THEN ENDED(Unaudited)
(Continued)

Condensed Statement of Financial Condition 1996 1995
- --------------------------------------------- ------ ------

Cash, cash equivalents
and marketable securities ................. $ 707 $ 876
Inventories ................................. 463 416
Property and equipment, net ................. 666 642
Equity in Financial Services subsidiaries ... 306 282
Other assets ................................ 643 715
Deferred tax asset, net ..................... 1,030 1,087
------ ------
Total assets ........................... $3,815 $4,018
====== ======

Accounts payable ............................ $ 771 $ 876
Postretirement benefits liabilities ......... 1,344 1,334
Other liabilities ........................... 784 938
Shareowners' equity ......................... 916 870
------ ------
Total liabilities
and shareowners' equity .............. $3,815 $4,018
====== ======

Condensed Statement of Cash Flow 1996 1995 1994
- --------------------------------------------- ------ ------ ------
Cash flow from operations
Net income .................................. $ 65 $ 164 $ 82
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization .......... 90 75 68
Equity in earnings of nonconsolidated
companies, net of dividends received . (24) (28) (10)
Deferred income taxes .................. 37 89 51
Other, net ............................. 4 (66) 8
Change in operating assets and liabilities .. (172) 166 81
------ ------ ------
Cash provided by operations ................. - 400 280
------ ------ ------

Cash flow from investment programs
Purchase of marketable securities ........... (501) (646) (651)
Sales or maturities of marketable securities. 665 399 569
Capital expenditures ........................ (117) (139) (87)
Other investment programs, net .............. (8) 8 123
------ ------ ------
Cash provided by (used in) investment programs 39 (378) (46)
------ ------ ------

Cash flow from financing activities ......... (48) (60) (112)
------ ------ ------
Cash and cash equivalents
Increase (decrease) during the year ....... (9) (38) 122
At beginning of the year .................. 461 499 377
------ ------ ------

Cash and cash equivalents at end of the year . $ 452 $ 461 $ 499
====== ====== ======

NOTES TO FINANCIAL STATEMENTS
(Continued)

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL AND STATISTICAL DATA
- -----------------------------------------------------------------------------------------------------------
For the Years Ended October 31
Millions of dollars,
except per share data
market share, and units shipped) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------

RESULTS OF OPERATIONS

Total sales and revenues ................ $5,754 $6,342 $5,337 $4,721 $3,897

Net income (loss)
of continuing operations .............. 65 164 102 (273) (147)

Net income (loss)(a) .................... 65 164 82 (501) (212)

Income (loss) per common share
of continuing operations .............. .49 1.83 .99 (8.63) (6.97)

Net income (loss) per common share ...... .49 1.83 .72 (15.19) (9.55)

Average number of Common, Class B Common
and dilutive common equivalent shares
outstanding (millions) ................ 73.8 74.3 74.6 34.9 25.3
-------------------------------------------------------------------------------------------------------
FINANCIAL DATA

Total assets ............................ 5,326 5,566 5,047 5,060 3,627

Debt
Manufacturing operations ............. 115 127 127 175 187
Financial services operations ........ 1,305 1,330 1,091 1,199 1,218
------- ------- ------- ------- -------
Total debt .............................. 1,420 1,457 1,218 1,374 1,405

Shareowners' equity ...................... 916 870 817 775 338

Total manufacturing operations debt as
a percent of total manufacturing
capitalization ......................... 11.2% 12.7% 13.4% 18.4% 35.6%
Return on equity (b) .................... 7.1% 18.9% 12.5% (35.2)% (43.5)%
--------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA

Capital expenditures .................... 117 139 87 110 55
Engineering and research expense ........ 129 113 97 94 92
-------------------------------------------------------------------------------------------------------
OPERATING DATA

United States and Canadian market share (c) 27.5% 26.7% 27.0% 27.6% 28.4%
Unit shipments
Trucks ................................ 95,200 112,200 95,000 87,200 73,200
OEM engines ........................... 163,200 154,200 130,600 118,200 97,400
Service parts sales ..................... 760 730 714 632 571

<FN>
(a) In the third quarter of 1993, the company adopted SFAS 106 and SFAS 109 retroactive to
November 1, 1992.

(b) Return on equity is calculated based on income of continuing operations.

(c) Based on retail deliveries of medium trucks (Classes 5, 6 and 7),
including school buses, and heavy trucks (Class 8).

INFORMATION FOR OUR INVESTORS

About Your Stock

Navistar International Corporation Common Stock is listed on the New
York, Chicago and Pacific Stock Exchanges and is quoted as "Navistar" in
stock table listings in daily newspapers. The abbreviated stock symbol is
"NAV."

The stock transfer agent who can answer inquiries about your Navistar
International Corporation Common Stock such as name changes, changes of
address or missing certificates is: Harris Trust and Savings Bank, 311
West Monroe Street, 11th Floor, Chicago, Illinois 60606; Telephone: (312)
461-3309.

For information about other shareowner matters, contact: Investor
Relations, Navistar International Corporation, 455 North Cityfront Plaza
Drive, Chicago, Illinois 60611; Telephone: (312) 836-2143.

There were approximately 62,307 owners of Common Stock at October
31, 1996.

Annual Meeting

The 1997 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 19, 1997, at the Art Institute of Chicago in the
Arthur Rubloff Auditorium.

Shareowners are invited to attend this meeting, take part in
discussions of company affairs and meet personally with the directors and
officers responsible for the operations of Navistar.

A Proxy Statement and Form of Proxy will be mailed to each shareowner
on or about February 7, 1997.

Commitment to Equal Employment Opportunity

Navistar International Corporation has a long-standing commitment to
equal employment opportunity dating back to 1919 when the company issued
its first written statement against discrimination in the workplace.

Today, Navistar continues to be a leader in the industry in complying
with all state and federal laws, local municipal laws and regulations
governing employment. Navistar has continuously and aggressively
implemented measures to ensure that all individuals regardless of age,
race, sex, religion, national origin, disability, or veteran status are
not discriminated against in regard to career opportunities within the
company.

Navistar has adopted policy standards and assurances for all
employees and qualified applicants, pledging terms and conditions of
employment to be equal for all individuals.

Corporate Headquarters

The corporate offices of Navistar International Corporation and its
principal subsidiary, Navistar International Transportation Corp., are
located at 455 North Cityfront Plaza Drive, Chicago, Illinois 60611;
Telephone: (312) 836-2000.

Reports and Publications

A copy of the company's 1996 Annual Report on Form 10-K to the
Securities and Exchange Commission will be provided, without charge, to
shareowners upon written request to the Corporate Secretary, Corporate
Headquarters, after January 31, 1997.

In order to provide shareowners with immediate access to financial
information and news about the company, Navistar distributes its corporate
news releases through PR Newswire, an electronic news service, and files
its financial statements with the Securities and Exchange Commission
electronically through the EDGAR system. PR Newswire and EDGAR can be
accessed by computer via the Internet, and through such services as
America On-Line and CompuServe. In addition, this information can be
accessed through such databases and information services as Lexis/Nexus,
Dow Jones and Bloomberg which frequently are available at libraries and
brokerage firms.

Navistar also offers a toll-free, "Company News on Call" service,
which allows shareowners to receive copies of recent Navistar corporate
news releases via telefax. To access this service, call (800) 758-5804,
and enter Navistar's six digit code when prompted: 103895. Using a touch-
tone phone, shareowners can select from a menu of news releases and
request specific news releases to be faxed directly to them.

Navistar encourages shareowners to take advantage of these electronic
databases and the "Company News on Call" service to access the company's
quarterly financial results on the same day that the results are
announced. Navistar's fiscal 1997 quarterly financial results will be
announced on the following dates:

First quarter February 13, 1997
Second quarter May 15, 1997
Third quarter August 14, 1997
Fourth quarter December 4, 1997

News releases, Form 10-Qs, Navistar's Annual Environmental Health &
Safety Report, and other publications are available by writing:

Corporate Communications
Navistar International Corporation
455 North Cityfront Plaza Drive
Chicago, Illinois 60611

Navistar also encourages shareowners to visit its home page on the
World Wide Web at http://www.navistar.com.

Trademarks

Navistar logotype and Navistar are registered trademarks of Navistar
International Corporation. The Diamond Road symbol and International are
registered trademarks of Navistar International Transportation Corp.
Additional registered trademarks include Eagle, Fleet Charge, Fleetrite,
Skyrise, Paystar and Pro Sleeper. Diamond SPEC, Diamond PLUS and Diamond
Services are trademarks of Navistar International Transportation Corp.

Directors and Officers

Navistar International Corporation (As of December 31, 1996)
- -----------------------------------------------------------------------------------------------------------------------------

Board of Directors Principal Officers
John R. Horne John D. Correnti Mary Garst John R. Horne
Chairman, President Chief Executive Officer, Manager, Cattle Division Chairman, President
and Chief Executive Officer President and Vice Chairman Garst Company and Chief Executive Officer
Navistar International Nucor Corporation Agri-Business Company
Corporation Steel Manufacturer Committees: 1, 4, 5 [Chair] Donald DeFosset, Jr.
Committees: 1[Chair] Committees: 2, 4, 6 Executive Vice President
Michael N. Hammes and President Truck Group
William F. Andrews James C. Cotting Chairman and Robert C. Lannert
Chairman Former Chairman of the Board Chief Executive Officer Executive Vice President
Schrader-Bridgeport and Chief Executive Officer The Coleman Company, Inc. and Chief Financial Officer
International Inc. Navistar International Manufacturer and Distributor Robert A. Boardman
Manufacturer of Tire Valves Corporation of Camping and Outdoor Senior Vice President
and Valve Accessories Committees: 3, 5 Recreational Products and General Counsel
Chairman and Hardware/Home Products Thomas M. Hough
Scovill Fasteners, Inc. William C. Craig Committees: 3, 5 Vice President and Treasurer
Manufacturers of Apparel Former Executive Vice President J. Steven Keate
and Industrial Fasteners Mack Trucks Robert C. Lannert Vice President and Controller
Committees: 1, 2, 3 [Chair], 6 Manufacturer of Trucks Executive Vice President Steven K. Covey
Committees: 1, 2, 3 and Chief Financial Corporate Secretary
Dr. Andrew F. Brimmer Officer
President Jerry E. Dempsey Navistar International
Brimmer & Company, Inc. Chairman and Corporation
Economic and Financial Chief Executive Officer
Consulting PPG Industries, Inc. Walter J. Laskowski Committees:
Committees: 1, 3, 4 [Chair], Diversified Global Manufacturer International 1 Executive
5, 6 of Glass, Protective Coatings Vice President 2 Organization
and Chemicals of the UAW 3 Finance
Richard F. Celeste Committees: 1, 2 [Chair], Committees: 1, 3, 4 4 Audit
Managing General Partner 3, 6 [Chair] 5 Public Policy
Celeste & Sabety, Ltd. William F. Patient 6 Strategic Initiatives
Public Policy Consulting Firm John F. Fiedler Chairman of the Board,
Committees: 4,5 Chairman, President and President and
Chief Executive Officer Chief Executive Officer
Borg-Warner Automotive, Inc. The Geon Company
Supplier of Engineered Manufacturer of Polyvinyl
Components and Systems Chloride (PVC) Resins and
Committees: 2, 5, 6 Compounds
Committees: 2, 4

Navistar International Transportation Corp.
- ----------------------------------------------------------------------------------------------------------------------------
Principal Officers Group Vice Presidents Senior Vice Presidents

John R. Horne John J. Bongiorno Robert A. Boardman Thomas E. Rigsby
Chairman, President General Manager General Counsel Truck Manufacturing
and Chief Executive Officer Financial Services Joseph V. Thompson James L. Simonton
Donald DeFosset, Jr. David J. Johanneson Employee Relations Purchasing and
Executive Vice President Truck Businesses and Administration Supplier Development
and President Truck Group James T. O'Dare, Jr. Brian B. Whalen
Robert C. Lannert Sales and Distribution Vice Presidents Public Affairs
Executive Vice President Daniel C. Ustian Thomas M. Hough
and Chief Financial Officer General Manager Treasurer Secretary
Engine and Foundry J. Steven Keate
Dennis W. Webb Controller Gregory Lennes
International Operations