EXHIBIT 13

NAVISTAR INTERNATIONAL CORPORATION
1997 ANNUAL REPORT TO SHAREOWNERS

FINANCIAL SUMMARY
Millions of dollars, except per share data 1997 1996
- --------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31

Sales and revenues ............... $6,371 $5,754
Income before income taxes ....... $ 242 $ 105
Net income ....................... $ 150 $ 65

Net income per common share ...... $ 1.65 $ .49

Manufacturing gross margin ....... 14.2% 12.5%

Return on equity ................. 14.7% 7.1%

Cash and marketable securities ... $ 965 $ 881

FINANCIAL INFORMATION

Financial Summary ............................................. 1

Management's Discussion and Analysis of Results
of Operations and Financial Condition ....................... 3

Statement of Financial Reporting Responsibility ............... 12

Independent Auditors' Report .................................. 13

Financial Statements

Statement of Income ......................................... 14
Statement of Financial Condition ............................ 15
Statement of Cash Flow ...................................... 16

Notes to Financial Statements

1 Summary of accounting policies ....................... 17
2 Postretirement benefits .............................. 20
3 Income taxes ......................................... 24
4 Marketable securities ................................ 27
5 Receivables .......................................... 28
6 Inventories .......................................... 29
7 Property and equipment ............................... 29
8 Debt ................................................. 30
9 Other liabilities .................................... 32
10 Financial instruments ................................ 33
11 Commitments, contingencies, restricted assets,
concentrations and leases .......................... 35
12 Legal proceedings .................................... 36
13 Environmental matters ................................ 36
14 Industry segment data ................................ 37
15 Preferred and preference stocks ...................... 38
16 Common shareowners' equity ........................... 39
17 Stock compensation plans ............................. 40
18 Selected quarterly financial data (unaudited) ........ 41
19 Supplemental financial information (unaudited) ....... 42

Five -Year Summary of Selected Financial and Statistical Data . 44

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 primarily 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 (NFC), 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 $150 million for 1997, or $1.65
per common share, reflecting higher sales of manufactured products. Net
income was $65 million, or $0.49 per common share, in 1996 and $164
million, or $1.83 per common share, in 1995. Net income in 1996 included
a one-time $35 million pretax charge for costs related to the termination
of the next generation truck (NGT) program. In August 1997, the company
and the United Auto Workers reached agreement on a master contract
extension that enabled the company to reinstate this program. The
remaining accrual for the 1996 charge at the time of the announcement was
not material.

The company's manufacturing operations reported income before income
taxes of $164 million in 1997 compared with pretax income of $22 million
in 1996 and $200 million in 1995. The increase in 1997 reflects higher
sales of trucks and diesel engines as well as the effects of improved
pricing and various cost improvement initiatives. The decrease in 1996
from 1995 reflects a decline in demand for trucks as well as the charge
for termination of the company's next generation truck program.

The company's financial services operations had income before income
taxes of $78 million, $83 million and $62 million in 1997, 1996 and 1995,
respectively.

NFC's pretax income in 1997 was $75 million, a 7% decrease from $81
million in 1996. The change is primarily a result of lower income on
sales of retail receivables and a decline in wholesale financing activity.
The reduced gains on sales resulted from lower margins on retail notes
reflecting higher market interest rates prior to the date of sale. NFC's
pretax income increased $22 million in 1996 from the $59 million reported
in 1995 primarily due to higher income on sales of retail notes and an
increased volume of wholesale financing.

Earnings from the foreign finance and insurance subsidiaries were $3
million, $2 million and $3 million in 1997, 1996 and 1995, respectively.

Sales and Revenues. Industry retail sales of Class 5 through 8 trucks
totaled 347,400 units in 1997, a 2% increase from the 341,200 units sold
in 1996, but 9% lower than the 380,600 units sold in 1995. Class 8 heavy
truck sales totaled 196,800 units, comparable to the 195,400 units sold in
1996 but a decrease of 14% from the 228,800 units sold in 1995. Industry
sales of Class 5, 6 and 7 medium trucks, including school buses, totaled
150,600 units in 1997, a 3% increase from 1996 when 145,800 units were
sold, and comparable to the 151,800 units sold in 1995. Industry sales of
school buses, which accounted for 22% of the medium truck market,
increased slightly from 1996 to 33,200 units.

Sales and revenues of $6,371 million in 1997 were 11% higher than the
$5,754 million reported in 1996 and comparable to the $6,342 million
reported in 1995. Sales of trucks, mid-range diesel engines and service
parts totaled $6,147 million in 1997, 12% above the $5,508 million
reported for 1996 and comparable to the $6,125 million reported in 1995.

The company maintained its position as sales leader in the combined
United States and Canadian Class 5 through 8 truck market in 1997 with a
28.6% market share, an increase from the 27.5% share in 1996 and the 26.7%
share in 1995. (Sources: American Automobile Manufacturer's Association,
the United States Motor Vehicle Manufacturer's Association and R. L. Polk
& Company.) In 1997, the company's share of the Class 8 heavy truck
market increased to 18.6% from 17.1% in 1996 and 18.4% in 1995.

Shipments of mid-range diesel engines by the company to other
original equipment manufacturers during 1997 were a record 184,000 units,
a 13% increase from 1996 and a 19% improvement over 1995. Higher
shipments to Ford Motor Company 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 $806 million in 1997 increased from the $760
million reported in 1996 and were 10% higher than the $730 million
reported in 1995 as a result of dealer and national account volume growth.

Finance and insurance revenue for 1997 was $174 million, 12% lower
than the $197 million reported in 1996 primarily as a result of a decline
in wholesale financing activity. Revenues from financial services
operations increased 18% between 1996 and 1995 primarily as a result of
higher income on sales of retail notes.

Costs and Expenses. Manufacturing gross margin was 14.2% of sales in
1997, compared with 12.5% in 1996 and 13.8% in 1995. The increase in
gross margin is primarily due to lower production costs and improved
pricing offset by a provision for employee profit sharing. Factors which
contributed to the change in gross margin between 1996 and 1995 included
lower sales volumes, more competitive pricing and the costs of terminating
the next generation truck program.

Engineering and research expense was $124 million in 1997, $129
million in 1996 and $113 million in 1995, reflecting continuing investment
in new truck and engine products as well as improvements to existing
products.

Marketing and administrative expense was $365 million in 1997
compared with $319 million in 1996 and $307 million in 1995. The change
between 1997 and 1996 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. The $12 million
increase in the expense between 1996 and 1995 reflects investment in the
implementation of the company's strategy to reduce costs and complexity in
its manufacturing processes.

Interest expense decreased to $74 million in 1997 from $83 million in
1996 and $87 million in 1995. The decreases in 1997 and 1996 were the
result of lower wholesale note funding requirements and declining interest
rates.

Finance service charges on sold receivables were $23 million in 1997,
4% lower than in 1996 and 21% lower than in 1995.

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. NFC'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 $965 million at October 31, 1997, $881 million at October 31,
1996 and $1,040 million at October 31, 1995.

Cash provided by operations during 1997 totaled $380 million,
primarily from net income of $150 million, $82 million of noncash deferred
income taxes, and $59 million of other noncash items, principally
depreciation and a net change in operating assets and liabilities of $89
million. Income tax expense for 1997 was $92 million, of which $10
million was cash payments to federal and certain state and local
governments, while the remaining $82 million of federal and other taxes
reduced the deferred tax asset.

The net change in operating assets and liabilities of $89 million
includes a $195 million increase in receivables, reflecting continued
strong demand for the company's products, offset by a $288 million
increase in accounts payable as a result of increased production in the
fourth quarter.

Investment programs included a net decrease in marketable securities,
as sales of securities exceeded purchases by $45 million. During 1997,
the purchase of $970 million of retail notes and lease receivables was
funded with $958 million in proceeds from the sale of receivables and
principal collections of $94 million. Other investment activities used
$42 million for an increase in property and equipment leased to others and
$172 million to fund capital expenditures. Capital expenditures included
$82 million for construction of a truck assembly facility in Mexico, $42
million to increase mid-range diesel engine capacity and additional funds
for truck product improvements.

Financing activities used cash to pay $29 million in dividends on the
Series G Preferred shares, $46 million for principal payments on long-term
debt, and $285 million to reduce notes and debt outstanding under the bank
revolving credit facility and asset-backed and other commercial paper
programs offset by an increase of $209 million in long-term debt.

During 1997 and 1996, NFC supplied 94% of the wholesale financing of
new trucks sold to Transportation's dealers compared with 93% in 1995.
NFC's share of the retail financing of new trucks sold in the United
States decreased to 13% in 1997 from 16% in 1996 and 14% in 1995 due to
the highly competitive commercial financing market.

The sale of finance receivables is a significant source of funding
for the financial services operations. During 1997, 1996 and 1995, NFC
sold $987 million, $985 million and $740 million, respectively, of retail
notes through Navistar Financial Retail Receivables Corporation (NFRRC), a
wholly owned subsidiary. The net proceeds from these sales were used for
general working capital purposes. In November 1997, NFC sold an
additional $500 million of retail notes through NFRRC.

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, 1997, the remaining shelf
registration available to NFRRC for issuance of asset-backed securities
was $1,473 million. See Note 8 to the Financial Statements.

NFC has a $925 million contractually committed bank revolving credit
facility and a $400 million asset-backed commercial paper program
supported by a bank liquidity facility which mature in March 2001. NFC
also utilizes a $600 million revolving wholesale note trust that provides
for the continuous sale of eligible wholesale notes on a daily basis. The
trust is comprised of two $100 million tranches of investor certificates
maturing serially from 1998 to 1999, and two $200 million tranches
maturing in 2003 and 2004. At October 31, 1997 the remaining shelf
registration available for issuance of investor certificates was $200
million.

At October 31, 1997, available funding under NFC's amended and
restated credit facility and the asset-backed commercial paper facility
was $532 million and $14 million, respectively, of which $141 million was
used to back short-term debt at October 31, 1997.

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 $137 million at October 31, 1997
primarily for increased manufacturing capacity at the Indianapolis engine
plant and construction of a truck assembly facility in Mexico.

The company has announced plans for approximately $350 million in
capital spending over the next six years for the NGT program. Capital
expenditures for 1998 are expected to be approximately double the current
year's level. Approximately $25 million is to be spent in 1998 for the
NGT program. Additional capital expenditures are planned for the
completion of the truck assembly facility in Mexico, increased
manufacturing capacity at the Indianapolis engine plant, commencement of
truck operations in Brazil and improvements to existing facilities and
products. The company's investment in the NGT program will also include
$300 million in development expense over the next six years, of which
approximately $50 million is planned for 1998.

In November 1997, the company contributed $200 million to the Retiree
Health Care Base Plan Trust and contributed $100 million to the hourly
pension plan.

NFC's maximum exposure under all receivable sale recourse provisions
at October 31, 1997 was $246 million; however, management believes that
the allowance for credit losses on sold receivables is adequate.

At October 31, 1997, 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 $261 million
on retail contracts and $13 million on retail leases. In addition, as of
October 31, 1997, the company is contingently liable for approximately $49
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, NFC and certain other subsidiaries
included in financial services operations are parties to agreements which
result in the restriction of amounts which can be distributed to
Transportation in the form of dividends, loans or advances. At October
31, 1997, the maximum amount of dividends which were available for
distribution under the most restrictive covenants was $62 million.

The company and Transportation are obligated under certain agreements
with public and private lenders of NFC 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 three years ended October 31, 1997.

During November 1997, the company arranged financing for $125 million
of funds denominated in U.S. dollars and Mexican pesos to be used for
development of the company's Mexican operations.

Management continues to evaluate current and forecasted cash flow as
a basis for financing operating requirements, capital expenditures and
anticipated payments of preferred dividends. Management 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

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.
Included in the charge was an anticipated $11 million payment to the
Economic Development Administration, a division of the U.S. Department of
Commerce, in settlement of commercial and environmental disputes related
to the Wisconsin Steel property. In 1997, the U.S. Department of Justice
and Transportation approved the final consent decree related to the
Wisconsin Steel property and the company paid $11 million to the Economic
Development Administration.

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 reviews its accruals on a regular basis
and believes that, based on these calculations, its share of the potential
additional costs for the cleanup of each site will not have a material
effect on the company's financial results.

DERIVATIVE FINANCIAL INSTRUMENTS

As disclosed in Notes 1 and 10 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, 1997.

NFC 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. NFC also uses forward interest
rate contracts to manage its exposure to fluctuations in funding costs
from the anticipated securitization and sale of retail notes. During 1997,
NFC entered into $500 million of interest rate hedge agreements in
anticipation of the November 1997 sale of retail receivables. These hedge
agreements were closed in conjunction with the pricing of the sale, and
the loss at October 31, 1997, which was not material, was deferred and
reduced the gain recognized on the sale of receivables in November 1997.

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

YEAR 2000

The company has made and will make certain investments in its
software systems and applications to ensure that the company is Year 2000
compliant. The financial impact to the company has not been and is not
anticipated to be material to its financial position or results of
operations.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
This statement specifies the computation, presentation and disclosure
requirements for earnings per share and is effective for financial
statements issued for periods ending after December 15, 1997. The
standard is not expected to have a material effect on the company's net
income per common share computation.

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

INCOME TAXES

The Statement of Financial Condition at October 31, 1997 and 1996
includes a deferred tax asset of $934 million and $1,030 million,
respectively, net of valuation allowances of $309 million 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 $1,808 million and temporary differences, which
represent the cumulative expense of $1,413 million recorded in the
Statement of Income that has not been deducted on the company's tax
returns. The valuation allowance at October 31, 1997 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
$2,500 million of future taxable income, of which an average of
approximately $75 million would need to be generated annually for the 14-
year period 1998 through 2011. The remaining taxable income, which
represents the realization of tax benefits associated with temporary
differences, does not need to be generated until subsequent to 2011.
Until the company has utilized its significant NOL carryforwards, the cash
payment of federal income taxes will be minimal. 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
based upon the company's current operating structure. Other factors
considered are the company's 17-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. The valuation
allowance may be adjusted in the future as a result of changes in business
and industry conditions, operating structure, company strategies or other
significant transactions. 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 $934 million.

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

Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------
Income before income taxes ...... $ 242 $ 105 $ 262
Exclusion of (income) loss
of foreign subsidiaries ...... (3) 3 (11)
State income taxes .............. (2) (2) (2)
Temporary differences ........... 151 (284) 69
Other ........................... 6 - (4)
------ ------ ------
Taxable income (loss) ......... $ 394 $ (178) $ 314
------ ------ ------

The company contributed approximately $215 million to its hourly and
salaried pension plans in fiscal 1997. The timing of these contributions
allowed for their deduction on the company's 1996 tax return, which
resulted in a tax loss of $178 million as compared to the $37 million of
taxable income previously reported.

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. Reflecting the stability of the general
economy, demand for new trucks remained strong during 1997. An
improvement in the number of new truck orders has increased the company's
order backlog to 45,300 units at October 31, 1997 from 20,900 units at
October 31, 1996. Retail deliveries in 1998 continue to 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 1998 United States and Canadian Class
8 heavy truck demand to be 195,000 units, a slight decrease from 1997.
Class 5, 6 and 7 medium truck demand, excluding school buses, is forecast
at 116,000 units, slightly lower than in 1997. Demand for school buses is
expected to decrease 8% in 1998 to 30,500 units. Mid-range diesel engine
shipments by the company to original equipment manufacturers in 1998 are
expected to be 215,700 units, 17% higher than in 1997. The company's
service parts sales are projected to grow 9% to approximately $875
million.

An independent trust, created in 1993 for the benefit of the
company's current and future retirees and administered by a five person
trust committee, owned all of the outstanding Class B Common Stock at
October 31, 1997 which is approximately one-third of the company's
outstanding common stock. The Class B Common Stock has restricted voting
rights and transfer provisions but, on June 30, 1998, will convert into
Common Stock with full voting rights and no transfer restrictions.

During August 1997, the company's current master contract with the
United Auto Workers (UAW) was extended through October 1, 2002. This
contract allows the company to focus its assembly plants, simplify current
product lines, invest in new product development, and achieve more
competitive wage, benefit and productivity levels.

During 1997, the company entered into a ten-year agreement, effective
with model year 2003, to supply newly designed, advanced technology
engines through the year 2012 to Ford Motor Company for use in its diesel-
powered light trucks and vans. The company's current engine agreement
with Ford was extended through model year 2002.

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 13>

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,
1997 and 1996, and the related Statements of Income and of Cash Flow for
each of the three years in the period ended October 31, 1997. 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, 1997 and 1996, and the results of their operations and their
cash flow for each of the three years in the period ended October 31,
1997, in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
December 15, 1997
Chicago, Illinois

STATEMENT OF INCOME

Navistar International Corporation
and Consolidated Subsidiaries
----------------------------------
For the Years Ended October 31
(Millions of dollars, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------------

Sales and revenues
Sales of manufactured products ............... $ 6,147 $ 5,508 $ 6,125
Finance and insurance revenue ................ 174 197 167
Other income ................................. 50 49 50
-------- -------- --------
Total sales and revenues ................... 6,371 5,754 6,342
-------- -------- --------
Costs and expenses
Cost of products and services sold ........... 5,292 4,827 5,288
Postretirement benefits ...................... 215 220 206
Engineering and research expense ............. 124 129 113
Marketing and administrative expense ......... 365 319 307
Interest expense ............................. 74 83 87
Financing charges on sold receivables ........ 23 24 29
Insurance claims and underwriting expense .... 36 47 50
-------- -------- --------
Total costs and expenses ................... 6,129 5,649 6,080
-------- -------- --------

Income before income taxes ............... 242 105 262

Income tax expense ....................... 92 40 98
-------- -------- --------

Net income ................................... 150 65 164

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

Net income applicable to common stock ........ $ 121 $ 36 $ 135
======== ======== ========
- --------------------------------------------------------------------------------------

Net income per common share .................. $ 1.65 $ .49 $ 1.83
======== ======== ========

Average number of common and dilutive common
equivalent shares outstanding (millions) ... 73.6 73.8 74.3

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

STATEMENT OF FINANCIAL CONDITION

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

As of October 31 (Millions of dollars) 1997 1996
- -----------------------------------------------------------------------------------

ASSETS

Cash and cash equivalents .......................... $ 609 $ 487
Marketable securities .............................. 356 394
-------- -------
965 881
Receivables, net ................................... 1,755 1,655
Inventories ........................................ 483 463
Property and equipment, net ........................ 835 770
Investments and other assets ....................... 332 213
Intangible pension assets .......................... 212 314
Deferred tax asset, net ............................ 934 1,030
-------- --------
Total assets ....................................... $ 5,516 $ 5,326
======== ========

LIABILITIES AND SHAREOWNERS' EQUITY

Liabilities
Accounts payable, principally trade ................ $ 1,100 $ 820
Debt:
Manufacturing operations ......................... 92 115
Financial services operations .................... 1,224 1,305
Postretirement benefits liability .................. 1,186 1,351
Other liabilities .................................. 894 819
-------- --------
Total liabilities .............................. 4,496 4,410
-------- --------
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 (52.2 million and 51.0 million shares
issued)........................................... 1,659 1,642
Class B Common stock
(23.1 million and 24.3 million shares issued) ...... 471 491
Retained earnings (deficit) - balance accumulated
after the deficit reclassification as of
October 31, 1987 ................................. (1,301) (1,431)
Common stock held in treasury, at cost
(2.9 million and 1.6 million shares held) ......... (53) (30)
-------- --------
Total shareowners' equity ...................... 1,020 916
-------- --------
Total liabilities and shareowners' equity .......... $ 5,516 $ 5,326
======== ========
- -----------------------------------------------------------------------------------
<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) 1997 1996 1995
- --------------------------------------------------------------------------------------

Cash flow from operations
Net income ...................................... $ 150 $ 65 $ 164
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization ............... 120 105 86
Deferred income taxes ....................... 82 37 89
Other, net .................................. (61) (13) (9)
Change in operating assets and liabilities:
Receivables ................................. (195) 186 (91)
Inventories ................................. (25) (47) 35
Prepaid and other current assets ............ 4 1 10
Accounts payable ............................ 288 (110) 63
Other liabilities ........................... 17 (106) 70
-------- -------- --------
Cash provided by operations ................... 380 118 417
-------- -------- --------
Cash flow from investment programs
Purchase of retail notes and lease receivables .. (970) (1,108) (1,099)
Collections/sales of retail notes
and lease receivables ......................... 1,052 1,107 850
Purchase of marketable securities ............... (512) (585) (722)
Sales or maturities of marketable securities .... 557 752 480
Capital expenditures ............................ (172) (117) (139)
Property and equipment leased to others ......... (42) (73) (19)
Other investment programs, net .................. 3 (8) 8
-------- -------- --------
Cash used in investment programs .............. (84) (32) (641)
-------- -------- --------
Cash flow from financing activities
Issuance of debt ................................ 209 - -
Principal payments on debt ...................... (46) (136) (121)
Net increase (decrease)in notes and debt
outstanding under bank revolving credit
facility and asset-backed and other
commercial paper programs ..................... (285) 81 312
Dividends paid .................................. (29) (29) (29)
Repurchase of common stock ...................... (23) - (10)
-------- -------- --------
Cash (used in) provided by financing activities (174) (84) 152
-------- -------- --------
Cash and cash equivalents
Increase (decrease) during the year ........... 122 2 (72)
At beginning of the year ...................... 487 485 557
-------- -------- --------
Cash and cash equivalents at end of the year .... $ 609 $ 487 $ 485
======== ======== ========
- --------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements.

NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1997

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 the company'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. 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
1996 and 1995 amounts have been reclassified to conform with the
presentation used in the 1997 financial statements.

The company 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 the company's business activities. The
financial services operations consist of Navistar Financial Corporation
(NFC), its domestic insurance subsidiary and the company's foreign
finance and insurance subsidiaries. NFC'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.

Use of 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
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 such factors
as overall portfolio quality, historical loss experience and current
economic conditions.

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. The difference between amortized cost and
fair value is recorded as an adjustment to shareowners' equity, net of
applicable deferred taxes.

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 eight 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 includes research and development
expenses and routine ongoing costs associated with improving existing
products and manufacturing processes. Research and development expenses,
which include activities for the introduction of new truck and diesel
engine products and major improvements to existing products and processes,
totaled $92 million, $101 million and $91 million in 1997, 1996 and 1995,
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. NFC, a wholly owned subsidiary of
Transportation, uses derivatives such as forward contracts and interest
rate swaps to reduce its exposure to interest rate volatility. NFC's
primary use of such financial instruments is to hedge the fair value of
its fixed rate receivables against changes in market interest rates in
anticipation of securitization and sale of such receivables. The
anticipated transactions are probable of occurrence and their significant
terms and characteristics have been identified.

All derivative financial instruments are held for purposes other than
trading, and company policy prohibits the use of derivatives for
speculative purposes. Gains or losses related to hedges of anticipated
sales of receivables are deferred and are recognized in income when the
receivables are sold. At all times, the principal balance of receivables
owned and expected to be sold by NFC exceeds the notional amount of open
derivative contracts.

Stock-Based Compensation

Effective November 1, 1996, the company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). Accordingly, the
company elected to continue to account for stock-based compensation plans
consistent with prior years.

NOTES TO FINANCIAL STATEMENTS
(Continued)

1. SUMMARY OF ACCOUNTING POLICIES (continued)

New Accounting Pronouncements

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

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 1997 1996 1995
- --------------------------------------------------------------------
Pension expense ................... $ 129 $ 160 $ 110
Health/life insurance ............. 66 60 70
Profit sharing provision to Trust 20 - 26
------ ------ ------

Total postretirement
benefits expense ................ $ 215 $ 220 $ 206
====== ====== ======

In the Statement of Financial Condition, the postretirement benefits
liability of $1,186 million in 1997 and $1,351 million in 1996 includes
$445 million and $607 million, respectively, for pension and $741 million
and $744 million, respectively, for postretirement health care and life
insurance benefits. Included in investments and other assets in the
Statement of Financial Condition is a prepaid pension asset of $120
million in 1997 and $38 million in 1996.

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

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 1997 1996 1995
- --------------------------------------------------------------------
Service cost for benefits
earned during the period ........ $ 34 $ 34 $ 24
Interest on projected
benefit obligation .............. 238 231 232
Net amortization costs and other .. 99 104 57
Less expected return on assets .... (242) (209) (203)
------ ------ ------

Net pension expense ............... $ 129 $ 160 $ 110
====== ====== ======

Actual return on assets ........... $ 505 $ 188 $ 398
====== ====== ======

"Amortization costs" include amortization of cumulative gains and
losses over the expected remaining service life of employees,
amortization of the initial transition liability over 15 years, the
expense related to yearly lump-sum payments to retirees required by
negotiated labor contracts 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.

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

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 $504 million and $623
million are offset by intangible pension assets of $212 million and $314
million and accumulated reductions in shareowners' equity of $195 million
and $206 million at October 31, 1997 and October 31, 1996, respectively.
The changes in shareowners' equity are net of deferred income taxes of
$97 million at October 31, 1997 and $103 million at October 31, 1996. 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, 1997 and
1996 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 1997 1996 1997 1996
- ------------------------------------------------------------------------
Actuarial present value of:
Vested benefits ........ $(1,122) $ (59) $(1,857) $(2,672)
Nonvested benefits ..... (80) (7) (207) (270)
------- ------- ------- -------
Accumulated benefit
obligation ......... (1,202) (66) (2,064) (2,942)
Effect of projected
future compensation
levels ................. (30) (3) (3) (23)
------- ------- ------- -------
Projected benefit
obligation ............. (1,232) (69) (2,067) (2,965)
Plan assets at fair value. 1,279 91 1,621 2,336
------- ------- ------- -------
Funded status
at October 31 .......... 47 22 (446) (629)
Unamortized pension costs:
Net losses ........... 29 11 293 332
Prior service costs .. 12 6 77 113
(Asset) liability
at date of transition 32 (1) 135 200
Adjustment for
the minimum liability - - (504) (623)
------- ------- ------- -------

Net asset (liability) .... $ 120 $ 38 $ (445) $ (607)
======= ======= ======= =======

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

1997 1996 1995
- --------------------------------------------------------------------
Discount rate used to determine
present value of projected
benefit obligation at end of year 7.3% 8.1% 7.8%

Expected long-term rate of return
on plan assets for the year ..... 9.8% 9.0% 9.9%

Expected rate of increase in future
compensation levels ............. 3.5% 3.5% 3.5%

NOTES TO FINANCIAL STATEMENTS
(Continued)

2. POSTRETIREMENT BENEFITS (continued)

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 was required to make a prefunding contribution of $200 million to
the trust on or prior to June 30, 1998. This contribution was made during
November 1997.

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

Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------
Service cost for benefits
earned during the year .......... $ 13 $ 14 $ 10
Interest cost on the
accumulated benefit obligation
and other ....................... 96 84 90
Less expected return on assets .... (43) (38) (30)
------ ------ ------

Net other postretirement
benefits expense ................ $ 66 $ 60 $ 70
====== ====== ======

Actual return on assets ........... $ 102 $ 46 $ 65
====== ====== ======

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

Millions of dollars 1997 1996
- --------------------------------------------------------------------
Accumulated other postretirement
benefit obligation (APBO):
Retirees and their dependents . $ (952) $ (773)
Active employees eligible
to retire ................... (221) (244)
Other active participants ......... (201) (208)
------ ------
Total APBO ........................ (1,374) (1,225)
Plan assets at fair value ......... 486 401
------ ------
APBO in excess of plan assets ..... (888) (824)
Unamortized prior service cost .... (5) (6)
Unrecognized net loss ............ 152 86
------ ------
Net liability ..................... $ (741) $ (744)
====== ======

The weighted average expected return on plan assets was 11.1% for
1997, 10.5% for 1996 and 10% for 1995. The weighted average of discount
rates used to determine the accumulated other postretirement benefit
obligation was 7.4% and 8.2% at October 31, 1997 and 1996, respectively.
For 1998, 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 $167 million and the
associated expense recognized for the year ended October 31, 1997 would
increase by an estimated $16 million.
<PAGE 24>

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. INCOME TAXES

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

Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------
Domestic .......................... $ 239 $ 108 $ 251
Foreign ........................... 3 (3) 11
------ ------ ------
Total income before income taxes .. $ 242 $ 105 $ 262
====== ====== ======

The components of income tax expense consist of the following:

Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------
Current:
Federal ........................ $ 8 $ 1 $ 7
State and local ................ 2 2 2
------ ------ ------
Total current expense .......... 10 3 9
------ ------ ------

Deferred:
Federal ........................ 71 32 77
State and local ................ 11 5 12
------ ------ ------
Total deferred expense ......... 82 37 89
------ ------ ------

Total income tax expense ......... $ 92 $ 40 $ 98
====== ====== ======

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 1997, 1996 and 1995 were $10 million, $3 million and $9 million,
respectively.

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. INCOME TAXES (continued)

The relationship of the tax expense to income before taxes for 1997,
1996 and 1995 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 for the years 1997, 1996 and 1995 were 38.0%, 38.1% and 37.4%,
respectively.

Undistributed earnings of foreign subsidiaries were $35 million and
$30 million at October 31, 1997 and 1996, 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 1997 1996
- --------------------------------------------------------------------
United States
- -------------
Deferred tax assets:
Net operating loss carryforwards . $ 680 $ 753
Alternative minimum tax .......... 19 11
Product liability and warranty ... 97 100
Other liabilities ................ 168 143
Postretirement benefits .......... 353 363
------ ------
Total deferred tax assets ........ 1,317 1,370
------ ------

Deferred tax liabilities:
Prepaid pension assets ............ (58) (12)
Depreciation ...................... (37) (40)
------ ------
Total deferred tax liabilities .... (95) (52)
------ ------

Total deferred tax asset .......... 1,222 1,318
Less valuation allowance .......... (288) (288)
------ ------
Net deferred tax asset ............ $ 934 $1,030
====== ======

Foreign
- -------
Deferred tax assets:
Net operating loss carryforwards . $ 2 $ 2
Postretirement benefits .......... 19 19
------ ------
Total deferred tax assets ........ 21 21
Less valuation allowance ......... (21) (21)
------ ------
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, an allowance has been provided against the total deferred tax
assets.

At October 31, 1997, the company had $1,802 million of domestic and
$6 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:

2000 ................... $ 174
2001 ................... 143
2002 ................... 47
2004 ................... 238
2005 ................... 7
2006 through 2011 ...... 1,199
------
Total .................. $1,808
======

Additionally, the reversal of net temporary differences of $1,413
million as of October 31, 1997 will create net tax deductions which, if
not utilized previously, will expire subsequent to 2011.

NOTES TO FINANCIAL STATEMENTS
(Continued)

4. 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:
1997 1996
------------------ -------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- --------------------------------------------------------------------
Corporate securities . $ 150 $ 150 $ 127 $ 126
U.S. government
securities ......... 88 89 152 152
Mortgage and
asset-backed
securities ......... 86 86 94 94
Foreign government
securities ......... 10 10 5 5
------ ------ ------ ------
Total debt securities 334 335 378 377
Equity securities .... 16 21 14 17
------ ------ ------ ------

Total marketable
securities ......... $ 350 $ 356 $ 392 $ 394
====== ====== ====== ======

Contractual maturities of marketable debt securities at October 31
are as follows:
1997 1996
------------------ -------------------
Amortized Fair Amortized Fair
Millions of dollars Cost Value Cost Value
- --------------------------------------------------------------------
Due in one year
or less ............ $ 113 $ 114 $ 66 $ 66
Due after one year
through five years . 100 100 189 188
Due after five years
through ten years .. 25 25 23 23
Due after ten years .. 10 10 6 6
------ ------ ------ ------
248 249 284 283
Mortgage and
asset-backed
securities ......... 86 86 94 94
------ ------ ------ ------

Total debt securities. $ 334 $ 335 $ 378 $ 377
====== ====== ====== ======

Gross gains and losses realized on sales or maturities of marketable
securities were not material for each of the two years. At October 31,
1997 and 1996, a domestic insurance subsidiary had $15 million and $17
million, respectively, of marketable securities which were on deposit with
various state departments of insurance or otherwise not available. These
securities are included in total marketable securities balances at October
31, 1997 and 1996.

NOTES TO FINANCIAL STATEMENTS
(Continued)

5. RECEIVABLES

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

Millions of dollars 1997 1996
- --------------------------------------------------------------------
Accounts receivable .............. $ 671 $ 560
Retail notes and lease financing . 706 733
Wholesale notes .................. 46 101
Amounts due from sales
of receivables ................. 233 264
Notes receivable ................. 101 -
Other ............................ 29 28
Allowance for losses ............. (31) (31)
------ ------
Total receivables, net ........ $1,755 $1,655
====== ======

NFC 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 NFC's funding for retail and wholesale notes comes from
sales of receivables by NFC to third parties with limited recourse.
Proceeds from sales of retail notes receivable, net of underwriting costs,
were $958 million in 1997, $982 million in 1996 and $727 million in 1995.
Uncollected sold retail and wholesale receivable balances totaled $1,968
million and $1,866 million as of October 31, 1997 and 1996, respectively.

Contractual maturities of accounts receivable, retail notes and lease
financing and wholesale notes, including unearned finance income, at
October 31, 1997 were: 1998 - $950 million, 1999 - $195 million, 2000 -
$161 million, 2001 - $131 million, 2002 - $91 million, and 2003 and
thereafter - $18 million. Unearned finance income totaled $123 million at
October 31, 1997. Notes receivable are due upon demand from a limited
partnership that invests in S&P 500 stock index arbitrage.

NOTES TO FINANCIAL STATEMENTS
(Continued)

6. INVENTORIES

Inventories at October 31 are as follows:

Millions of dollars 1997 1996
- --------------------------------------------------------------------
Finished products ................ $ 212 $ 242
Work in process .................. 106 97
Raw materials and supplies ....... 165 124
------ ------
Total inventories ................ $ 483 $ 463
====== ======

7. PROPERTY AND EQUIPMENT

At October 31, property and equipment includes the following:

Millions of dollars 1997 1996
- --------------------------------------------------------------------
Land ............................ $ 18 $ 12
------ ------
Buildings, machinery
and equipment at cost:
Plants ...................... 1,200 1,241
Distribution ................ 86 79
Construction in progress .... 117 58
Other ....................... 261 222
------ ------
Subtotal .................. 1,664 1,600
------ ------

Total property ................ 1,682 1,612

Less accumulated depreciation
and amortization ............ (847) (842)
------ ------

Total property
and equipment, net ........ $ 835 $ 770
====== ======

Total property includes property under capitalized lease obligations
of $25 million at October 31, 1997 and 1996. In addition, other property
includes vehicles under operating leases to third parties of $150 million
at October 31, 1997 and $116 million at October 31, 1996.

NOTES TO FINANCIAL STATEMENTS
(Continued)

8. DEBT

Millions of dollars 1997 1996
- --------------------------------------------------------------------
Manufacturing operations
Notes payable and current
maturities of long-term debt . $ 13 $ 14
------ ------
9% Sinking Fund Debentures,
due 2004 ..................... 45 53
8% Secured Note, due 2002,
secured by plant assets ...... 21 26
Capitalized leases and other ... 13 22
------ ------
Total long-term debt ....... 79 101
------ ------
Manufacturing operations debt .... 92 115
------ ------
Financial services operations
Commercial paper ............... 141 99
Capitalized leases ............. 13 -
------ ------
Total short-term debt ...... 154 99
------ ------

Asset-backed commercial paper
program, variable rate,
due 2001 ..................... 400 402
Bank revolver, variable rate,
due 2001 ..................... 393 704
------ ------
Total senior debt .......... 793 1,106
------ ------

8 7/8% Subordinated Senior Notes
due 1998 ..................... 94 100
9% Subordinated Senior Notes
due 2002 ..................... 100 -
------ ------
Total subordinated term debt 194 100
------ ------

Capitalized leases, 5.2% to 5.6%,
due 2002 ..................... 83 -
------ ------

Total long-term debt ....... 1,070 1,206
------ ------

Financial services operations debt 1,224 1,305
------ ------

Total debt ....................... $1,316 $1,420
====== ======

The effective annual interest rate on Manufacturing notes payable was
8.3% in 1997 and 8.9% in 1996. Consolidated interest payments were $66
million, $83 million and $82 million in 1997, 1996 and 1995, respectively.

NFC 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)

8. 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
- --------------------------------------------------------------------
1998 ................ $ 13 $ 154 $ 167
1999 ................ 15 111 126
2000 ................ 15 25 40
2001 ................ 15 820 835
2002 ................ 14 114 128
Thereafter .......... 20 - 20

Weighted average
interest rate on
total debt,
including short-term,
and the effect of
discounts and related
amortization
for the years ended:

October 31, 1997. 10.3% 6.4% 6.8%
October 31, 1996. 9.7% 6.5% 6.8%

At October 31, 1997, NFC has a $925 million contractually committed
bank revolving credit facility and a $400 million asset-backed commercial
paper (ABCP) program supported by a bank liquidity facility. Available
funding under the ABCP program is comprised of a $400 million liquidity
facility plus $14 million of trust certificates issued in connection with
the formation of the ABCP trust.

Available funding under the amended and restated credit facility and
the ABCP program was $546 million, of which $141 million provided funding
backup for the outstanding short-term debt at October 31, 1997. The
remaining $405 million when combined with unrestricted cash and cash
equivalents made $416 million available to fund the general business
purposes of NFC at October 31, 1997.

NFC'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 NFC or
affiliated companies.

NOTES TO FINANCIAL STATEMENTS
(Continued)

8. DEBT (continued)

NFSC has in place a $600 million revolving wholesale note trust that
provides for the continuous sale of eligible wholesale notes on a daily
basis. The trust is comprised of two $100 million tranches of investor
certificates maturing in 1998 and 1999 and two $200 million tranches
maturing in 2003. At October 31, 1997, the remaining shelf registration
available to NFSC for issuance of investor certificates was $200 million.

During 1997, NFC sold $987 million of retail notes, net of unearned
finance income, through NFRRC to two individual owner trusts. The owner
trusts in turn sold notes and certificates to investors. The net proceeds,
after underwriting costs and credit enhancements, were used by NFC for
general working capital purposes. At October 31, 1997, the remaining shelf
registration available to NFRRC for issuance of asset-backed securities
was $1,473 million.

In November 1997, NFC sold $500 million of retail notes, net of
unearned finance income, through NFRRC. The net proceeds were used for
general working capital purposes.

During 1997, NFC entered into sale/leaseback agreements involving
vehicles that were already subject to retail finance and operating leases
with end users. The remaining balance as of October 31, 1997 is classified
under Financial Services operations as capitalized leases. These
agreements grant a security interest in the underlying vehicles and lease
receivables to the purchasers.

During November 1997, the company arranged financing for $125 million
of funds denominated in U.S. dollars and Mexican pesos to be used for
development of the company's Mexican operations.

9. OTHER LIABILITIES

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

Millions of dollars 1997 1996
- --------------------------------------------------------------------
Product liability and warranty ... $ 285 $ 293
Loss reserves
and unearned premiums .......... 99 113
Employee incentive programs ...... 93 10
Payroll, commissions
and employee related benefits .. 83 73
Long-term disability
and workers' compensation ...... 54 55
Taxes ............................ 59 44
Environmental .................... 27 23
Interest ......................... 13 9
Other ............................ 181 199
------ ------

Total other liabilities ........ $ 894 $ 819
====== ======

During the fourth quarter of 1996, the company recorded a one-time
$35 million pretax charge for costs related to the termination of its next
generation truck program. In August 1997, the company and the United Auto
Workers reached agreement on a master contract extension that enabled the
company to reinstate its next generation truck program. The remaining
accrual at the time of the announcement was not material.

NOTES TO FINANCIAL STATEMENTS
(Continued)

10. 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:

1997 1996
------------------ -------------------
Carrying Fair Carrying Fair
Millions of dollars Amount Value Amount Value
- --------------------------------------------------------------------
Receivables, net ..... $1,755 $1,764 $1,655 $1,658
Investments
and other assets ... 332 343 213 221
Debt ................. 1,316 1,321 1,420 1,414

Cash and cash equivalents approximate fair value. The cost and fair
value of marketable securities are disclosed in Note 4.

Customer receivables, wholesale notes, retail and wholesale accounts,
notes receivable, 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 NFC'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)

10. 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.

NFC 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 derivative financial instruments. These
instruments may include interest rate swaps, interest rate caps and
forward interest rate contracts. NFC manages exposure to counter-party
credit risk by entering into derivative financial instruments with major
financial institutions that can be expected to fully perform under the
terms of such agreements. Notional amounts are used to measure the volume
of derivative financial instruments and do not represent exposure to
credit loss.

NFC enters into forward interest rate contracts to manage its
exposure to fluctuations in the fair value and resulting funding costs
from the anticipated securitization and sale of retail notes. NFC manages
interest rate risk by entering into either forward contracts to sell fixed
debt securities or interest rate swaps whose fair values are highly
correlated with the fair value of NFC's receivables. Gains or losses
incurred with the closing of these agreements are included as a component
of the gain or loss on sale of receivables.

During 1997, NFC entered into $500 million of interest rate hedge
agreements in anticipation of the November 1997 sale of retail
receivables. These hedge agreements were closed in conjunction with the
pricing of the sale, and the loss at October 31, 1997, which was not
material, was deferred and reduced the gain recognized on the sale of
receivables in November 1997.

NOTES TO FINANCIAL STATEMENTS
(Continued)

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

Commitments, contingencies and restricted assets

At October 31, 1997, commitments for capital expenditures in progress
were approximately $137 million.

The Canadian operating subsidiary, NFC and certain other subsidiaries
included in financial services operations are parties to agreements that
may result in the restriction of amounts which can be distributed to
Transportation in the form of dividends or loans and advances. At October
31, 1997, the maximum amount of dividends which were available for
distribution under the most restrictive covenants was $62 million.

Concentrations

At October 31, 1997, the company employed 10,593 hourly workers and
5,434 salaried workers in the United States and Canada. Approximately 93%
of the hourly employees and 23% of the salaried employees are represented
by unions. Of these represented employees, 91% of the hourly workers and
94% 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). During August 1997, the company's current master contract
with the UAW was extended from October 1, 1998 to October 1, 2002. The
collective bargaining agreement with the CAW expires on October 24, 1999.

Reflecting higher consumer demand for light trucks and vans, sales of
mid-range diesel engines to Ford Motor Company were 14% of consolidated
sales and revenues in 1997 and 1996 and 12% in 1995. During 1997, the
company entered into a ten-year agreement, effective with model year 2003,
to continue supplying Ford Motor Company with diesel engines for use in
its diesel-powered light trucks and vans.

NOTES TO FINANCIAL STATEMENTS
(Continued)

11. COMMITMENTS, CONTINGENCIES, RESTRICTED ASSETS,
CONCENTRATIONS, AND LEASES (continued)

Leases

The company has long-term noncancellable leases for use of various
equipment and facilities. Lease terms are generally for five 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, 1997, future minimum lease payments under
operating leases having lease terms in excess of one year are: 1998 - $36
million, 1999 - $34 million, 2000 - $33 million, 2001 - $20 million, 2002
- - $15 million and thereafter - $42 million. Total operating lease expense
was $40 million in 1997, $35 million in 1996 and $42 million in 1995.
Income received from sublease rentals was $6 million in 1997, 1996 and
1995, respectively.

12. 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.

13. 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.
Included in the charge was an anticipated $11 million payment to the
Economic Development Administration, a division of the U.S. Department of
Commerce, in settlement of commercial and environmental disputes related
to the Wisconsin Steel property. In 1997, the U.S. Department of Justice
and Transportation approved the final consent decree related to the
Wisconsin Steel property and the company paid the $11 million to the
Economic Development Administration.

NOTES TO FINANCIAL STATEMENTS
(Continued)

14. INDUSTRY SEGMENT DATA

Information concerning operations by industry segment is as follows:

Financial
Manufacturing Services
Millions of dollars Operations Operations Consolidated
- -------------------------------------------------------------------------
October 31, 1997
- ----------------
Total sales
and revenues ....... $6,191 $ 239 $6,371
Operating profit ..... 873 101 924
Depreciation
and amortization ... 97 23 120
Capital expenditures . 172 - 172
Identifiable assets .. 4,111 1,857 5,516

October 31, 1996
- ----------------
Total sales
and revenues ....... $5,550 $ 258 $5,754
Operating profit ..... 690 109 755
Depreciation
and amortization ... 90 15 105
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 11 86
Capital expenditures . 139 - 139
Identifiable assets .. 4,018 1,922 5,566

Intersegment sales and revenues were not material in 1997, 1996 or
1995. Transactions between manufacturing operations and financial
services operations have been eliminated from the consolidated column.

NOTES TO FINANCIAL STATEMENTS
(Continued)

15. 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, 1997, 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 ....... 4,800,000 175,000

Optional redemption price
and liquidation
preference ............. $50 per share $25 per share
plus accrued plus accrued
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
and upon liquidation .. Senior to all other Senior to Common;
equity securities junior to Series G

Dividend rate ............ Annual rate of $6.00 120% of the cash
per share, dividends
payable quarterly on 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, 1997, the company had such defined surplus of $1,007
million.
- -------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
(Continued)

16. COMMON SHAREOWNERS' EQUITY

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

Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------
Common Stock
Beginning of year ................ $ 1,642 $ 1,641 $ 1,628
Conversion of Class B
Common Stock and other ......... 17 1 13
------- ------- -------
End of year ...................... $ 1,659 $ 1,642 $ 1,641
------- ------- -------

Class B Common Stock
Beginning of year ................ $ 491 $ 491 $ 501
Repurchase of stock .............. (20) - (10)
------- ------- -------
End of year ...................... $ 471 $ 491 $ 491
------- ------- -------

Retained Earnings (Deficit)
Beginning of year ................ $(1,431) $(1,478) $(1,538)
Net income ....................... 150 65 164
Preferred dividends .............. (29) (29) (22)
Minimum pension liability
adjustments and other .......... 9 11 (82)
------- ------- -------
End of year ...................... $(1,301) $(1,431) $(1,478)
------- ------- -------

Common Stock Held in Treasury
Beginning of year ................ $ (30) $ (28) $ (18)
Repurchase of Common Stock
and other ...................... (23) (2) (10)
------- ------- -------
End of year ...................... $ (53) $ (30) $ (28)
------- ------- -------

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, 1997 and 1996, there were 49.3
million and 49.4 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, 1997 and 1996 was 23.1 million and
24.3 million, respectively. The remaining Class B Common Stock will
convert into Common Stock on June 30, 1998.

NOTES TO FINANCIAL STATEMENTS
(Continued)

17. STOCK COMPENSATION PLANS

The company has stock-based compensation plans, approved by the
Committee on Organization of the Board of Directors, which provide for
granting of stock options to employees for purchase of Common Stock at the
fair market value of the stock on the date of grant. The grants are
generally exercisable after one year and generally have a ten-year life.

The company has elected to continue to account for stock option
grants in accordance with Accounting Principles Board Opinion No. 25 and
related Interpretations. Accordingly, no compensation cost has been
recognized for fixed stock options because the exercise prices of the
stock options equal the market value of the company's Common Stock at the
date of grant. Had compensation cost for the plans been determined based
upon the fair value at the grant date consistent with SFAS 123, pro forma
net income would have been $147 million in 1997 and $63 million in 1996
and pro forma earnings per share would have been $1.61 in 1997 and $0.46
in 1996. The pro forma effect on net income for 1997 and 1996 may not be
representative of the pro forma effect on net income of future years
because it does not take into consideration pro forma compensation expense
relating to grants made prior to November 1, 1995.

The weighted-average fair values at date of grant for options granted
during 1997 and 1996 were $5.71 and $5.34, respectively, and were
estimated using the Black-Scholes option-pricing model with the following
assumptions:

1997 1996
---- ----

Risk-free interest rate 6.6% 6.1%
Dividend yield 0% 0%
Expected volatility 29.8% 30.9%
Expected life in years 10 10

The following summarizes stock option activity for the years ended
October 31:

1997 1996 1995
-------------------- -------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares in Thousands Shares Price Shares Price Shares Price
- ------------------- ------ -------- ------ -------- ------ --------

Options outstanding
at beginning
of period ....... 2,346 $20.34 1,762 $24.25 1,163 $30.08
Granted ........... 876 10.13 718 10.45 642 13.58
Exercised ......... (715) 12.45 - - - -
Canceled .......... (77) 28.52 (134) 18.75 (43) 22.46
----- ------ ------ ------ ------ ------

Options outstanding
at year end ..... 2,430 $18.73 2,346 $20.34 1,762 $24.25
====== ====== ====== ====== ====== ======

Options exercisable
at year end ..... 1,579 $23.35 1,682 $24.25 1,140 $30.07
====== ====== ====== ====== ====== ======

Options available
for grant at
year end ........ - - -
====== ====== ======

NOTES TO FINANCIAL STATEMENTS
(Continued)

17. STOCK COMPENSATION PLANS (continued)

The following table summarizes information about stock options
outstanding and exercisable at October 31, 1997.

Outstanding Options Options Exercisable
---------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices (in thousands) Life Price (in thousands) Price
---------------- -------------- - ----------- -------- -------------- --------

$ 9.31 - $13.75 1,448 8.5 $10.70 649 $12.11
17.40 - 25.63 686 6.5 $23.52 642 23.93
27.96 - 37.50 113 5.5 $36.78 105 37.43
43.75 - 61.88 156 3.5 $49.49 156 49.49
68.12 - 91.25 27 1.1 $73.09 27 73.09

18. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(Millions
of dollars
except per
share data) 1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------

Sales and
revenues $1,296 $1,432 $1,551 $1,480 $1,586 $1,391 $1,938 $1,451
====== ====== ====== ====== ====== ====== ====== ======
Manufactur-
ing gross
margin 13.6% 12.2% 13.8% 13.7% 13.8% 12.6% 15.2% 11.6%
====== ====== ====== ====== ====== ====== ====== ======

Net income $ 15 $ 22 $ 30 $ 26 $ 35 $ 17 $ 70 $ -
Net income
(loss) per
common
share $ .10 $ .20 $ .31 $ .26 $ .38 $ .13 $ .85 $ (.10)

Market
price
range
- Common
Stock
High $10 3/8 $12 1/8 $11 3/8 $12 $21 5/16 $12 $29 1/2 $10 3/8
Low $ 9 $ 9 1/2 $ 9 1/8 $ 9 1/2 $11 1/4 $9 1/8 $17 1/4 $ 8 1/2

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.

NOTES TO FINANCIAL STATEMENTS
(Continued)

19. 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 1997 1996 1995
- ----------------------------- --------- -------- --------

Sales of manufactured products ... $ 6,147 $ 5,508 $ 6,125
Other income ..................... 44 42 43
-------- -------- --------
Total sales and revenues .... 6,191 5,550 6,168
-------- -------- --------

Cost of products sold ............ 5,274 4,818 5,280
Postretirement benefits .......... 214 219 205
Engineering and research expense . 124 129 113
Marketing and administrative expense 332 282 277
Other expenses .................... 83 80 93
-------- -------- --------
Total costs and expenses .......... 6,027 5,528 5,968
-------- -------- --------
Income before income taxes
Manufacturing operations ........ 164 22 200
Financial services operations ... 78 83 62
-------- -------- --------
Income before income taxes .... 242 105 262
Income tax expense ................ 92 40 98
-------- -------- --------
Net income ........................ $ 150 $ 65 $ 164
======== ======== ========

Condensed Statement
of Financial Condition 1997 1996
- ------------------------ -------- -------

Cash, cash equivalents
and marketable securities ....... $ 802 $ 707
Inventories ....................... 483 463
Property and equipment, net ....... 706 666
Equity in nonconsolidated
subsidiaries .................... 322 306
Other assets ...................... 864 643
Deferred tax asset, net ........... 934 1,030
-------- --------
Total assets ................. $ 4,111 $ 3,815
-------- --------

Accounts payable .................. $ 1,060 $ 771
Postretirement benefits liabilities 1,178 1,344
Other liabilities ................. 853 784
Shareowners' equity ............... 1,020 916
-------- --------
Total liabilities
and shareowners' equity .... $ 4,111 $ 3,815
======== ========

NOTES TO FINANCIAL STATEMENTS
(Continued)

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

Condensed Statement of Cash Flow 1997 1996 1995
- -------------------------------- --------- -------- --------

Cash flow from operations
Net income ....................... $ 150 $ 65 $ 164
Adjustments to reconcile net
income to cash provided
by operations:
Depreciation and amortization 97 90 75
Equity in earnings of
nonconsolidated companies,
net of dividends received . (8) (24) (28)
Deferred income taxes ....... 82 37 89
Other, net .................. (26) 4 (66)
Change in operating assets
and liabilities ................ 143 (172) 166
-------- -------- --------
Cash provided by operations ...... 438 - 400
-------- -------- --------

Cash flow from investment programs
Purchase of marketable securities. (428) (501) (646)
Sales or maturities
of marketable securities ....... 454 665 399
Capital expenditures ............. (172) (117) (139)
Loan to NFC ...................... (99) - -
Other investment programs, net ... 4 (8) 8
-------- -------- --------
Cash (used in) provided by
investment programs ........... (241) 39 (378)
-------- -------- --------

Cash flow from financing activities (76) (48) (60)
-------- -------- --------

Cash and cash equivalents
Increase (decrease)
during the year ............. 121 (9) (38)
At beginning of the year ...... 452 461 499
-------- -------- --------

Cash and cash equivalents
at end of the year ............ $ 573 $ 452 $ 461
======== ======== ========

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) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------

RESULTS OF OPERATIONS

Total sales and revenues ....................... $6,371 $5,754 $6,342 $5,337 $4,721

Income (loss) of continuing operations ......... 150 65 164 102 (273)

Net income (loss)(a) ........................... 150 65 164 82 (501)

Income (loss) per common share
of continuing operations ..................... 1.65 .49 1.83 .99 (8.63)

Net income (loss) per common share ............. 1.65 .49 1.83 .72 (15.19)

Average number of Common, Class B Common
and dilutive common equivalent shares
outstanding (millions) ...................... 73.6 73.8 74.3 74.6 34.9
- -----------------------------------------------------------------------------------------------------------
FINANCIAL DATA

Total assets ................................... 5,516 5,326 5,566 5,047 5,060

Debt
Manufacturing operations .................... 92 115 127 127 175
Financial services operations ............... 1,224 1,305 1,330 1,091 1,199
------ ------ ------ ------ ------
Total debt ..................................... 1,316 1,420 1,457 1,218 1,374

Shareowners' equity ............................ 1,020 916 870 817 775

Total manufacturing operations debt as a
percent of total manufacturing capitalization. 8.3% 11.2% 12.7% 13.4% 18.4%
Return on equity (b) ........................... 14.7% 7.1% 18.9% 12.5% (35.2)%
- -----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA

Capital expenditures ........................... 172 117 139 87 110
Engineering and research expense ............... 124 129 113 97 94
- -----------------------------------------------------------------------------------------------------------
OPERATING DATA

United States and Canadian market share (c) .... 28.6% 27.5% 26.7% 27.0% 27.6%
Unit shipments
Trucks ....................................... 104,400 95,200 112,200 95,000 87,200
OEM engines .................................. 184,000 163,200 154,200 130,600 118,200
Service parts sales ............................ 806 760 730 714 632

<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)
360-5101.

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 57,949 owners of Common Stock at October 31,
1997.

Annual Meeting

The 1998 Annual Meeting of Shareowners is scheduled to take place at
10:15 a.m., CST on March 24, 1998, 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 2, 1998.

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 1997 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, 1998.

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 1998 quarterly financial results will be announced
on the following dates:

First quarter February 12, 1998
Second quarter May 14, 1998
Third quarter August 13, 1998
Fourth quarter December 3, 1998

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 19, 1997)
- ------------------------------------------------------------------------------------------------------------------------------------

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

Navistar International Transportation Corp.
__________________________________________________________________________________________________________________________________

Principal Officers Group Vice Presidents Senior Vice Presidents Vice Presidents

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