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

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------
                                    Form 10-Q
                                   ----------

[X]   QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004

                                       OR

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

                        Commission File Number: 001-31369

                                   ----------

                                 CIT Group Inc.
             (Exact name of Registrant as specified in its charter)

            Delaware                                          65-1051192
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                          Identification Number)

                   1 CIT Drive, Livingston, New Jersey, 07039
              (Address of Registrant's principal executive offices)

                                 (973) 740-5000
                         (Registrant's telephone number)

              (Former name, former address and former fiscal year,
                         if changed since last report)

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____

      Indicate by check mark whether the registrant is an  accelerated  filer as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes X No _____

      As of July 30, 2004,  there were  210,814,589  shares of the  Registrant's
common stock outstanding.

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                         CIT GROUP INC. AND SUBSIDIARIES
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                         Part I--Financial Information:

Item 1.    Consolidated Financial Statements .............................    1
           Consolidated Balance Sheets (Unaudited) .......................    1
           Consolidated Statements of Income (Unaudited) .................    2
           Consolidated Statements of Stockholders' Equity (Unaudited) ...    3
           Consolidated Statements of Cash Flows (Unaudited) .............    4
           Notes to Consolidated Financial Statements ....................  5-18
Item 2.    Management's Discussion and Analysis of Financial Condition
and          and Results of Operations and Quantitative and Qualitative
Item 3.      Disclosure about Market Risk ................................ 19-48
Item 4.    Controls and Procedures .......................................   48

                           Part II--Other Information:

Item 1.    Legal Proceedings .............................................   49
Item 2.    Issuer Purchases of Equity Securities .........................   49
Item 4.    Submission of Matters to a Vote of Security Holders ...........   50
Item 6.    Exhibits and Reports on Form 8-K ..............................   51
           Signatures ....................................................   52


                                       i



                          PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                         CIT GROUP INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (Unaudited)
                      ($ in millions -- except share data)




                                                                             June 30,   December 31,
                                                                               2004         2003
                                                                           -----------  -----------
                                                                                  
                                     ASSETS

Financing and leasing assets:
   Finance receivables .................................................   $  31,828.6  $  31,300.2
   Reserve for credit losses ...........................................        (621.0)      (643.7)
                                                                           -----------  -----------
   Net finance receivables .............................................      31,207.6     30,656.5
   Operating lease equipment, net ......................................       7,838.8      7,615.5
   Finance receivables held for sale ...................................       1,595.2        918.3
Cash and cash equivalents ..............................................       1,777.7      1,973.7
Retained interests in securitizations and other investments ............       1,242.2      1,380.8
Goodwill and intangible assets .........................................         516.4        487.7
Other assets ...........................................................       2,504.6      3,310.3
                                                                           -----------  -----------
Total Assets ...........................................................   $  46,682.5  $  46,342.8
                                                                           ===========  ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
   Commercial paper ....................................................   $   4,170.4  $   4,173.9
   Variable-rate senior notes ..........................................      10,931.6      9,408.4
   Fixed-rate senior notes .............................................      19,330.3     19,830.8
   Preferred capital securities ........................................         254.6        255.5
                                                                           -----------  -----------
Total debt .............................................................      34,686.9     33,668.6
Credit balances of factoring clients ...................................       3,292.1      3,894.6
Accrued liabilities and payables .......................................       2,973.6      3,346.4
                                                                           -----------  -----------
   Total Liabilities ...................................................      40,952.6     40,909.6
                                                                           -----------  -----------
Commitments and Contingencies (Note 10)
Minority interest ......................................................          38.1         39.0
Stockholders' Equity:
   Preferred stock: $0.01 par value, 100,000,000 authorized, none issued            --           --
   Common stock: $0.01 par value, 600,000,000 authorized,
     212,092,592 issued, 211,195,862 outstanding .......................           2.1          2.1
   Paid-in capital, net of deferred compensation of $47.8 and $30.6 ....      10,672.2     10,677.0
   Accumulated deficit .................................................      (4,831.8)    (5,141.8)
   Accumulated other comprehensive loss ................................        (118.1)      (141.6)
   Less: Treasury stock, 896,730 and 43,529 shares, at cost ............         (32.6)        (1.5)
                                                                           -----------  -----------
   Total Stockholders' Equity ..........................................       5,691.8      5,394.2
                                                                           -----------  -----------
   Total Liabilities and Stockholders' Equity ..........................   $  46,682.5  $  46,342.8
                                                                           ===========  ===========


                See Notes to Consolidated Financial Statements.


                                       1


                        CIT GROUP INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                    ($ in millions -- except per share data)




                                                            Quarters Ended              Six Months Ended
                                                               June 30,                     June 30,
                                                        -----------------------       ---------------------
                                                          2004           2003           2004          2003
                                                        -------        -------        -------       -------
                                                                                       
Finance income ......................................    $915.2         $943.2       $1,818.1      $1,882.4
Interest expense ....................................     300.0          337.8          598.0         692.5
                                                        -------        -------        -------       -------
Net finance income ..................................     615.2          605.4        1,220.1       1,189.9
Depreciation on operating lease equipment ...........     236.3          272.9          470.8         551.7
                                                        -------        -------        -------       -------
Net finance margin ..................................     378.9          332.5          749.3         638.2
Provision for credit losses .........................      65.7          100.6          151.3         203.6
                                                        -------        -------        -------       -------
Net finance margin after provision for
   credit losses ....................................     313.2          231.9          598.0         434.6
Other revenue .......................................     233.5          229.7          463.9         469.6
Gains (losses) on venture capital investments .......       3.0          (12.1)           3.7         (16.5)
                                                        -------        -------        -------       -------
Operating margin ....................................     549.7          449.5        1,065.6         887.7
Salaries and general operating expenses .............     260.3          220.7          507.6         446.3
Gain on redemption of debt ..........................        --             --           41.8            --
                                                        -------        -------        -------       -------
Income before provision for income taxes ............     289.4          228.8          599.8         441.4
Provision for income taxes ..........................    (112.8)         (89.2)        (233.9)       (172.1)
Dividends on preferred capital securities,
   after tax ........................................        --           (2.7)            --          (5.4)
                                                        -------        -------        -------       -------
Net income ..........................................    $176.6         $136.9        $ 365.9       $ 263.9
                                                        =======        =======        =======       =======
Earnings per share
Basic earnings per share ............................    $ 0.83         $ 0.65         $ 1.73        $ 1.25
                                                        =======        =======        =======       =======
Diluted earnings per share ..........................    $ 0.82         $ 0.65         $ 1.70        $ 1.24
                                                        =======        =======        =======       =======
Number of shares - basic (thousands) ................   211,532        211,588        211,685       211,581
                                                        =======        =======        =======       =======
Number of shares - diluted (thousands) ..............   215,359        212,066        215,584       211,975
                                                        =======        =======        =======       =======
Dividends per common share ..........................    $ 0.13         $ 0.12         $ 0.26        $ 0.24
                                                        =======        =======        =======       =======


                See Notes to Consolidated Financial Statements.


                                       2


                        CIT GROUP INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
                                 ($ in millions)




                                                                                      Accumulated
                                                                                         Other          Total
                                      Common     Paid-in    Treasury    Accumulated  Comprehensive  Stockholders'
                                       Stock     Capital      Stock      (Deficit)      (Loss)         Equity
                                       -----     -------      -----      ---------      ------         ------
                                                                                    
Balance December 31, 2003 ..........   $ 2.1     $10,677.0   $ (1.5)    $(5,141.8)      $(141.6)      $5,394.2
Net income .........................      --            --       --         365.9            --          365.9
Foreign currency translation
  adjustments ......................      --            --       --            --          (7.9)          (7.9)
Change in fair values of
  derivatives qualifying as
  cash flow hedges .................      --            --       --            --          33.2           33.2
Unrealized losses on equity
  and securitization
  investments, net .................      --            --       --            --          (1.8)          (1.8)
                                                                                                      --------
Total comprehensive income .........      --            --       --            --            --          389.4
                                                                                                      --------
Cash dividends .....................      --            --       --         (55.9)           --          (55.9)
Amortization of restricted
  common stock grants ..............      --          11.9       --            --            --           11.9
Treasury stock purchased,
  at cost ..........................      --            --    (73.2)           --            --          (73.2)
Exercise of stock option awards ....      --         (16.7)    42.1            --            --           25.4
                                       -----     ---------   ------     ---------       -------       --------
Balance June 30, 2004 ..............   $ 2.1     $10,672.2   $(32.6)    $(4,831.8)      $(118.1)      $5,691.8
                                       =====     =========   ======     =========       =======       ========


                See Notes to Consolidated Financial Statements.


                                       3


                        CIT GROUP INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                 ($ in millions)




                                                                                    Six Months Ended
                                                                                        June 30,
                                                                                ------------------------
                                                                                    2004         2003
                                                                                -----------  -----------
                                                                                       
Cash Flows From Operations
Net income ..................................................................   $     365.9  $     263.9
Adjustments to reconcile net income (loss) to net cash flows from operations:
   Depreciation and amortization ............................................         490.7        569.7
   Provision for credit losses ..............................................         151.3        203.6
   Provision for deferred federal income taxes ..............................         175.2        150.3
   Gains on equipment, receivable and investment sales ......................        (115.7)      (119.3)
   Gain on debt redemption ..................................................         (41.8)        --
   Decrease (increase) in other assets ......................................         228.3       (201.8)
   (Decrease) increase in accrued liabilities and payables ..................        (223.4)         9.5
   Other ....................................................................         (57.8)        27.1
                                                                                -----------  -----------
Net cash flows provided by operations .......................................         972.7        903.0
                                                                                -----------  -----------
Cash Flows From Investing Activities
Loans extended ..............................................................     (27,428.5)   (25,040.9)
Collections on loans ........................................................      23,238.0     21,180.1
Proceeds from asset and receivable sales ....................................       3,739.4      3,859.9
Purchases of assets to be leased ............................................      (1,373.5)    (1,355.0)
Purchase of finance receivable portfolios ...................................        (361.5)      (534.4)
Net decrease in short-term factoring receivables ............................         (88.9)      (205.9)
Other .......................................................................          51.1        (47.8)
                                                                                -----------  -----------
Net cash flows (used for) investing activities ..............................      (2,223.9)    (2,144.0)
                                                                                -----------  -----------
Cash Flows From Financing Activities
Proceeds from the issuance of variable and fixed-rate notes .................       6,628.1      6,192.8
Repayments of variable and fixed-rate notes .................................      (5,374.3)    (5,045.4)
Net decrease in commercial paper ............................................          (3.5)      (397.9)
Net repayments of non-recourse leveraged lease debt .........................        (103.3)       (71.0)
Cash dividends paid .........................................................         (55.9)       (50.8)
Other .......................................................................         (35.9)        --
                                                                                -----------  -----------
Net cash flows provided by financing activities .............................       1,055.2        627.7
                                                                                -----------  -----------
Net (decrease) in cash and cash equivalents .................................        (196.0)      (613.3)
Cash and cash equivalents, beginning of period ..............................       1,973.7      2,036.6
                                                                                -----------  -----------
Cash and cash equivalents, end of period ....................................   $   1,777.7  $   1,423.3
                                                                                ===========  ===========
Supplementary Cash Flow Disclosure
Interest paid ...............................................................   $     721.9  $     811.5
Federal, foreign, state and local income taxes paid, net ....................   $      45.1  $      40.6


                See Notes to Consolidated Financial Statements.


                                       4


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 -- Summary of Significant Accounting Policies

      CIT Group Inc., a Delaware corporation ("we," "CIT" or the "Company"),  is
a global  commercial and consumer  finance company that was founded in 1908. CIT
provides  financing  and leasing  capital  for  companies  in a wide  variety of
industries,  offering vendor, equipment,  commercial,  factoring,  consumer, and
structured  financing  products.  CIT operates primarily in North America,  with
locations in Europe, Latin America, Australia and the Asia-Pacific region.

      These  financial  statements,  which have been prepared in accordance with
the  instructions  to Form 10-Q, do not include all of the  information and note
disclosures  required by accounting  principles generally accepted in the United
States  ("GAAP") and should be read in  conjunction  with the  Company's  Annual
Report on Form 10-K for the year ended December 31, 2003.  Financial  statements
in this  Form  10-Q  have  not  been  examined  by  independent  accountants  in
accordance with generally  accepted  auditing  standards,  but in the opinion of
management  include  all  adjustments,   consisting  only  of  normal  recurring
adjustments,  necessary  for a fair  statement of CIT's  financial  position and
results of operations.  Certain prior period amounts have been  reclassified  to
conform to the current presentation.

      In accordance  with the  provisions of FASB  Interpretation  No. 46R ("FIN
46"),  "Consolidation of Variable Interest Entities," CIT consolidates  variable
interest  entities for which  management  has concluded  that CIT is the primary
beneficiary.  Entities that do not meet the  definition  of a variable  interest
entity are subject to the  provisions  of  Accounting  Research  Bulletin No. 51
("ARB  51"),  "Consolidated  Financial  Statements"  and are  consolidated  when
management  has  determined  that CIT has the  controlling  financial  interest.
Entities that do not meet the consolidation  criteria in either FIN 46 or ARB 51
but that are significantly  influenced by the Company,  generally those entities
that are twenty to fifty  percent  owned by CIT, are included in other assets at
cost for  securities not readily  marketable and presented at the  corresponding
share of equity plus loans and advances.  Investments  in entities that CIT does
not have  significant  influence over are included in other assets at cost, less
declines in value that are other than temporary. In accordance with Statement of
Financial  Accounting  Standards ("SFAS") No. 140, "Accounting for Transfers and
Servicing of Financial Assets and  Extinguishment  of  Liabilities",  qualifying
special  purpose  entities  utilized in  securitizations  are not  consolidated.
Inter-company transactions have been eliminated.

Stock Based Compensation

      CIT has elected to apply Accounting Principles Board Opinion 25 ("APB 25")
rather than the optional provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation"  ("SFAS  123"),  as  amended  by SFAS  No.  148,  "Accounting  for
Stock-Based  Compensation  -- Transition  and  Disclosure" in accounting for its
stock-based   compensation   plans.   Under  APB  25,  CIT  does  not  recognize
compensation  expense on the  issuance of its stock  options  because the option
terms are fixed and the exercise price equals the market price of the underlying
stock on the grant date. The following table presents the pro forma  information
required by SFAS 123 as if CIT had accounted for stock options granted under the
fair  value  method of SFAS 123,  as amended  ($ in  millions,  except per share
data):




                                                              Quarters Ended June 30,   Six Months Ended June 30,
                                                              -----------------------   -------------------------
                                                                  2004       2003            2004        2003
                                                                 ------     ------          ------      ------
                                                                                            
 Net income (loss) as reported ..............................    $176.6     $136.9          $365.9      $263.9
 Stock-based compensation expense-- fair value method,
   after tax ................................................       5.4        5.1            10.5        11.7
                                                                 ------     ------          ------      ------
 Pro forma net income (loss) ................................    $171.2     $131.8          $355.4      $252.2
                                                                 ======     ======          ======      ======
 Basic earnings per share as reported .......................    $ 0.83     $ 0.65          $ 1.73      $ 1.25
                                                                 ======     ======          ======      ======
 Basic earnings per share pro forma .........................    $ 0.81     $ 0.62          $ 1.68      $ 1.19
                                                                 ======     ======          ======      ======
 Diluted earnings per share as reported .....................    $ 0.82     $ 0.65          $ 1.70      $ 1.24
                                                                 ======     ======          ======      ======
 Diluted earnings per share pro forma .......................    $ 0.79     $ 0.62          $ 1.65      $ 1.19
                                                                 ======     ======          ======      ======



                                       5


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      For the quarters  ended June 30, 2004 and 2003,  net income  includes $3.4
million and $0.7 million of after-tax  compensation  cost related to  restricted
stock  awards.  These  costs for the six  months  ended  June 30,  2004 and 2003
totaled $7.4 million and $1.2 million after tax.

Recent Accounting Pronouncements

      In March 2004, the SEC issued Staff Accounting Bulletin 105,  "Application
of Accounting Principles to Loan Commitments" ("SAB 105"). SAB 105 requires that
certain mortgage loan  commitments  issued after March 31, 2004 be accounted for
as derivatives until the loan is made or they expire  unexercised.  The adoption
of SAB 105 did not have a material financial statement impact on the Company.

      In  January  2004,  the FASB  issued  FASB Staff  Position  No. FAS 106-1,
"Accounting  and Disclosure  Requirements  Related to the Medicare  Prescription
Drug,  Improvement  and  Modernization  Act of 2003"  ("FSP  106-1").  FSP 106-1
permits   employers  that  sponsor   postretirement   benefit  plans   providing
prescription  drug  benefits to  retirees  to make a one-time  election to defer
accounting for any effects of the Medicare  Prescription  Drug  Improvement  and
Modernization  Act of 2003.  The  adoption  is not  expected  to have a material
financial statement impact on the Company.

      In December 2003, the FASB revised SFAS No. 132,  "Employers'  Disclosures
about  Pensions  and Other  Postretirement  Benefits."  This  revision  requires
interim  disclosures  regarding certain components of net periodic pension costs
and the employer's  contribution paid, or expected to be paid during the current
fiscal year, if significantly  different from amounts  previously  disclosed for
interim  periods  beginning  after December 15, 2003.  The  additional  required
disclosures are included in Note 9 -- Post Retirement and Other Benefit Plans.

      In December 2003, the SEC issued Staff Accounting  Bulletin 104,  "Revenue
Recognition"  ("SAB  104"),  which  revises  or  rescinds  portions  of  related
interpretive  guidance  in order to be  consistent  with  current  authoritative
accounting and auditing guidance and SEC rules and regulations.  The adoption of
SAB 104 as of January 1, 2004 did not have a material financial statement impact
on the Company.

      In May  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
pronouncement  establishes  standards  for  classifying  and  measuring  certain
financial  instruments as a liability (or an asset in some circumstances).  This
pronouncement   requires  CIT  to  display  the  Preferred  Capital   Securities
(previously  described as "Company obligated  mandatorily  redeemable  preferred
securities of subsidiary trust holding solely debentures of the Company") within
the debt  section on the face of the  Consolidated  Balance  Sheets and show the
related expense with interest expense on a pre-tax basis. There was no impact to
net  income  upon  adoption.  This  pronouncement  is  effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003. Prior period  restatement is not permitted.  On November 7, 2003,  certain
measurement  and  classification  provisions  of SFAS 150,  relating  to certain
mandatorily redeemable  non-controlling  interests,  were deferred indefinitely.
The adoption of these  delayed  provisions,  which relate  primarily to minority
interests  associated  with  finite-lived  entities,  is not  expected to have a
material financial statement impact on the Company.

Note 2 -- Earnings Per Share

      Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. The diluted
EPS computation includes the potential impact of dilutive securities,  including
stock options and restricted stock grants.  The dilutive effect of stock options
is computed  using the treasury  stock method,  which assumes the  repurchase of
common shares by CIT at the average market price for the period. Options that do
not have a  dilutive  effect  (because  the  exercise  price is above the market
price) are not  included in the  denominator  and  averaged  approximately  16.7
million  shares and 19.0 million shares for the quarters ended June 30, 2004 and
2003,  and 16.4 million  shares and 18.2 million shares for the six months ended
June 30, 2004 and 2003, respectively.


                                       6


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      The reconciliation of the numerator and denominator of basic EPS with that
of diluted EPS is presented ($ in millions,  except per share amounts, which are
in whole dollars; weighted-average share balances in thousands):




                                           Quarter Ended June 30, 2004          Quarter Ended June 30, 2003
                                       -----------------------------------  ------------------------------------
                                         Income       Shares     Per Share    Income        Shares     Per Share
                                       (Numerator) (Denominator)  Amount    (Numerator)  (Denominator)  Amount
                                       ----------- -------------  ------    -----------  -------------  ------
                                                                                       
Basic EPS:
   Income available to common
    stockholders .....................   $176.6      211,532       $0.83       $136.9       211,588      $0.65
Effect of Dilutive Securities:
   Restricted shares .................       --          758                       --           456
   Stock options .....................       --        3,069                       --            22
                                         ------      -------                   ------       -------
Diluted EPS ..........................   $176.6      215,359       $0.82       $136.9       212,066      $0.65
                                         ======      =======                   ======       =======

                                         Six Months Ended June 30, 2004       Six Months Ended June 30, 2003
                                       -----------------------------------  ------------------------------------
Basic EPS:
   Income available to common
     stockholders ....................   $365.9      211,685       $1.73       $263.9       211,581      $1.25
Effect of Dilutive Securities:
   Restricted shares .................       --          649                       --           383
   Stock options .....................       --        3,250                       --            11
                                         ------      -------                   ------       -------
Diluted EPS ..........................   $365.9      215,584       $1.70       $263.9       211,975      $1.24
                                         ======      =======                   ======       =======


Note 3 -- Business Segment Information

      The selected financial  information by business segment presented below is
based upon a fixed  leverage  ratio across  business units and the allocation of
most  corporate  expenses.  Corporate  and Other  includes  operating  losses on
venture capital  investments  along with those assets,  which are now managed by
Capital Finance ($ in millions).




                                                                                         Total
                                         Specialty   Commercial   Equipment   Capital   Business    Corporate
                                          Finance      Finance     Finance    Finance   Segments    and Other    Consolidated
                                          -------      -------     -------    -------   --------    ---------    ------------
                                                                                              
Quarter Ended June 30, 2004
Operating margin .....................  $   230.3    $   164.5   $    52.7   $   80.1  $   527.6     $ 22.1      $   549.7
Income taxes .........................       42.9         43.4        11.7       18.2      116.2       (3.4)         112.8
Net income (loss) ....................       81.7         71.2        18.3       31.2      202.4      (25.8)         176.6

Quarter Ended June 30, 2003
Operating margin .....................  $   204.4    $   146.1   $    35.8   $   49.0  $   435.3     $ 14.2      $   449.5
Income taxes .........................       40.2         40.3         5.1       10.2       95.8       (6.6)          89.2
Net income (loss) ....................       63.0         63.0         7.9       16.4      150.3      (13.4)         136.9

At and for the Six Months
   Ended June 30, 2004
Operating margin .....................  $   458.4    $   321.5   $   100.0   $  140.2  $ 1,020.1     $ 45.5      $ 1,065.6
Income taxes .........................       87.6         84.8        21.5       30.9      224.8        9.1          233.9
Net income (loss) ....................      159.9        139.3        33.5       52.8      385.5      (19.6)         365.9
Total financing and leasing assets ...   14,078.7     11,217.7     6,847.5    9,309.6   41,453.5         --       41,453.5
Total managed assets .................   19,574.8     11,217.7     9,752.4    9,309.6   49,854.5         --       49,854.5

At and for the Six Months
   Ended June 30, 2003
Operating margin .....................  $   394.9    $   287.1   $    76.0   $   95.1  $   853.1     $ 34.6      $   887.7
Income taxes .........................       73.6         78.3        11.9       19.5      183.3      (11.2)         172.1
Net income (loss) ....................      115.2        122.5        18.6       30.9      287.2      (23.3)         263.9
Total financing and leasing assets ...   11,600.8     10,220.4     6,711.0    8,976.8   37,509.0         --       37,509.0
Total managed assets .................   18,137.4     10,220.4    10,530.9    8,976.8   47,865.5         --       47,865.5



                                       7


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      During the June 2004 quarter,  the former  Structured  Finance segment was
combined into the Capital  Finance  segment to better align with the marketplace
and to improve  efficiency.  As part of this  re-alignment,  approximately  $1.3
billion of  communications  and media  assets  were  transferred  to  Commercial
Finance.   Prior  period   balances  have  been   conformed  to  present  period
presentation.

Note 4 -- Concentrations

      The following  table  summarizes the geographic and industry  compositions
(by obligor) of financing and leasing portfolio assets ($ in millions):

                                        June 30, 2004       December 31, 2003
                                   ---------------------  --------------------
                                    Amount      Percent   Amount       Percent
                                    ------      -------   ------       -------
North America:
   West ......................     $ 8,083.1      19.5%   $ 7,485.5      18.7%
   Northeast .................       8,042.5      19.4%     8,319.8      20.8%
   Midwest ...................       6,257.0      15.1%     5,996.2      14.9%
   Southeast .................       6,007.9      14.5%     5,558.6      13.9%
   Southwest .................       4,630.2      11.2%     4,423.1      11.0%
   Canada ....................       1,989.6       4.8%     2,055.5       5.1%
                                   ---------     -----    ---------     -----
Total North America ..........      35,010.3      84.5%    33,838.7      84.4%
Other foreign ................       6,443.2      15.5%     6,245.2      15.6%
                                   ---------     -----    ---------     -----
   Total .....................     $41,453.5     100.0%   $40,083.9     100.0%
                                   =========     =====    =========     =====




                                                        June 30, 2004      December 31, 2003
                                                     ------------------   -------------------
                                                       Amount   Percent    Amount     Percent
                                                       ------   -------    ------     -------
                                                                           
Industry
Manufacturing(1) .................................   $ 7,027.5    17.0%   $ 7,340.6    18.3%
Retail(2) ........................................     5,322.5    12.8%     5,630.9    14.0%
Commercial aerospace (including regional airlines)     5,256.8    12.7%     5,039.3    12.6%
Consumer based lending-- home mortgage ...........     3,537.2     8.5%     2,679.6     6.7%
Transportation(3) ................................     2,839.4     6.8%     2,934.9     7.3%
Service industries ...............................     2,762.1     6.7%     2,608.3     6.5%
Consumer based lending-- non-real estate(4) ......     2,173.9     5.2%     1,862.1     4.7%
Wholesaling ......................................     1,618.6     3.9%     1,374.7     3.4%
Construction equipment ...........................     1,475.2     3.6%     1,571.2     3.9%
Communications(5) ................................     1,378.6     3.3%     1,386.5     3.5%
Automotive Services ..............................     1,187.9     2.9%     1,152.3     2.9%
Other (no industry greater than 3.0%)(6) .........     6,873.8    16.6%     6,503.5    16.2%
                                                     ---------   -----    ---------   -----
   Total .........................................   $41,453.5   100.0%   $40,083.9   100.0%
                                                     =========   =====    =========   =====


--------------------------------------------------------------------------------
(1)   Includes  manufacturers  of apparel  (3.2%),  followed by food and kindred
      products,   textiles,   transportation  equipment,   chemical  and  allied
      products,  rubber and plastics,  industrial  machinery and equipment,  and
      other industries.

(2)   Includes retailers of apparel (5.5%) and general merchandise (3.8%).

(3)   Includes  rail,  bus,   over-the-road  trucking  industries  and  business
      aircraft.

(4)   Includes  receivables from consumers for computers and related  equipment,
      as  well as for  products  in  various  industries  such  as  manufactured
      housing, recreational vehicles and marine.

(5)   Includes  $404.0 million and $556.3 million of equipment  financed for the
      telecommunications  industry  at June 30,  2004  and  December  31,  2003,
      respectively, but excludes telecommunications equipment financed for other
      industries.

(6)   Included in "Other" above are financing and leasing  assets in the energy,
      power and utilities  sectors,  which totaled  $993.0  million,  or 2.4% of
      total  financing and leasing assets at June 30, 2004. This amount includes
      approximately  $652.5  million in project  financing and $256.3 million in
      rail cars on lease to customers other than railroads.


                                       8


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 5 -- Retained Interests in Securitizations and Other Investments

      The  following  table  details the  components  of retained  interests  in
securitizations and other investments ($ in millions):

                                                          June 30,  December 31,
                                                            2004       2003
                                                         --------   ------------
Retained interests in commercial loans:

   Retained subordinated securities ..............       $  395.5     $  536.6
   Interest-only strips ..........................          332.9        366.8
   Cash reserve accounts .........................          317.7        226.3
                                                         --------     --------
   Total retained interest in commercial loans ...        1,046.1      1,129.7
                                                         --------     --------
Retained interests in consumer loans:
   Retained subordinated securities ..............           76.0         86.7
   Interest-only strips ..........................           39.3         58.9
   Cash reserve accounts .........................           17.2         34.0
                                                         --------     --------
   Total retained interest in consumer loans .....          132.5        179.6
                                                         --------     --------
   Total retained interest in securitizations ....        1,178.6      1,309.3
Aerospace equipment trust certificates ...........           63.6         71.5
                                                         --------     --------
   Total .........................................       $1,242.2     $1,380.8
                                                         ========     ========

Note 6 -- Accumulated Other Comprehensive Loss

      The  following   table  details  the  components  of   accumulated   other
comprehensive loss, net of tax ($ in millions):

                                                         June 30,   December 31,
                                                           2004         2003
                                                         --------   ------------
Foreign currency translation adjustments ............... $(113.7)     $(105.8)
Changes in fair values of derivatives qualifying
  as cashflow hedges ...................................    (8.1)       (41.3)
Unrealized gain on equity and securitization
  investments ..........................................     4.5          6.3
Minimum pension liability adjustments ..................    (0.8)        (0.8)
                                                         -------      -------
   Total accumulated other comprehensive loss .......... $(118.1)     $(141.6)
                                                         =======      =======

Note 7 -- Derivative Financial Instruments

      As part of managing exposure to interest rate,  foreign currency,  and, in
limited  instances,  credit  risk,  CIT, as an  end-user,  enters  into  various
derivative transactions, all of which are transacted in over-the-counter markets
with  other   financial   institutions   acting  as  principal   counterparties.
Derivatives  are  utilized  for  hedging  purposes  only,  and policy  prohibits
entering  into  derivative  financial  instruments  for  trading or  speculative
purposes.  To  ensure  both  appropriate  use as a hedge  and to  achieve  hedge
accounting treatment,  whenever possible,  substantially all derivatives entered
into are  designated  according  to a hedge  objective  against  a  specific  or
forecasted  liability or, in limited  instances,  assets.  The notional amounts,
rates,  indices,  and  maturities of our  derivatives  closely match the related
terms of the underlying hedged items.

      CIT  utilizes  interest  rate  swaps to  exchange  variable-rate  interest
underlying forecasted issuances of commercial paper, specific variable-rate debt
instruments,  and, in limited  instances,  variable-rate  assets for  fixed-rate
amounts.  These  interest  rate  swaps are  designated  as cash flow  hedges and
changes in fair value of these  swaps,  to the extent  they are  effective  as a
hedge,  are  recorded in other  comprehensive  income.  Ineffective  amounts are
recorded in interest  expense.  Interest rate swaps are also utilized to convert
fixed-rate interest on specific debt instruments to variable-rate amounts. These
interest  rate swaps are  designated  as fair value  hedges and  changes in fair
value of these swaps are recorded as basis  adjustments to the underlying hedged
item.


                                       9


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      The following  table presents the notional  principal  amounts of interest
rate swaps by class and the corresponding hedge designation ($ in millions):




                                            Notional Amount
                                  ----------------------------------
                                  June 30, 2004   December 31, 2003
                                  -------------   -----------------'
                                                            
                                                                     Effectively converts the interest
                                                                     rate on an equivalent amount of
                                                                     commercial paper, variable-rate
Floating to fixed-rate swaps--                                       notes and selected assets to a
  cash flow hedges ...............  $ 4,787.1          $2,615.0      fixed rate.

                                                                     Effectively converts the interest
                                                                     rate on an equivalent amount of
Fixed to floating-rate swaps--                                       fixed-rate notes and selected assets
  fair value hedges ..............    7,126.2           6,758.2      to a variable rate.
                                    ---------          --------
Total interest rate swaps ........  $11,913.3          $9,373.2
                                    =========          ========


      In  addition  to the  swaps  in  the  table  above,  in  conjunction  with
securitizations,  CIT has $2.4 billion in notional amount of interest rate swaps
outstanding  with the related trusts to protect the trusts against interest rate
risk.  CIT is  insulated  from  this  risk  by  entering  into  offsetting  swap
transactions with third parties totaling $2.4 billion in notional amount at June
30, 2004.

      CIT utilizes foreign currency exchange forward contracts to hedge currency
risk underlying  foreign  currency loans to subsidiaries and the net investments
in foreign  operations.  These contracts are designated as foreign currency cash
flow  hedges  or net  investment  hedges  and  changes  in fair  value  of these
contracts are recorded in other comprehensive  income along with the translation
gains  and  losses on the  underlying  hedged  items.  CIT also  utilizes  cross
currency interest rate swaps to hedge currency risk underlying  foreign currency
debt and selected foreign currency assets. These swaps are designated as foreign
currency  cash flow hedges or foreign  currency fair value hedges and changes in
fair value of these  contracts are recorded in other  comprehensive  income (for
cash flow hedges),  or as a basis  adjustment to the hedged item (for fair value
hedges) along with the  translation  gains and losses on the  underlying  hedged
items.

      The components of the adjustment to Accumulated Other  Comprehensive  Loss
for  derivatives  qualifying  as cash flow hedges are presented in the following
table ($ in millions):




                                                                      Fair Value                      Total
                                                                      Adjustments    Income Tax    Unrealized
                                                                    of Derivatives     Effects        Loss
                                                                    --------------     -------        ----
                                                                                              
Balance at December 31, 2003-- unrealized loss ...................        $64.6        $(23.3)         $41.3
Changes in values of derivatives qualifying as cash flow hedges ..        (54.4)         21.2          (33.2)
                                                                          -----        ------          -----
Balance at June 30, 2004-- unrealized loss .......................        $10.2        $ (2.1)         $ 8.1
                                                                          =====        ======          =====


      The unrealized loss as of June 30, 2004, presented in the preceding table,
primarily reflects our use of interest rate swaps to convert  variable-rate debt
to fixed-rate debt, followed by lower market interest rates. For the quarter and
six months ended June 30, 2004, the  ineffective  portion of changes in the fair
value of cash flow hedges amounted to $0.4 million and $0.7 million and has been
recorded  as a decrease  to  interest  expense.  Assuming  no change in interest
rates,   approximately   $3.2  million,   net  of  tax,  of  Accumulated   Other
Comprehensive  Loss is expected  to be  reclassified  to earnings  over the next
twelve months as  contractual  cash  payments are made.  The  Accumulated  Other
Comprehensive  Loss  (along  with  the  corresponding  swap  liability)  will be
adjusted as market interest rates change over the remaining life of the swaps.

      During  2004,  CIT entered  into  credit  default  swaps,  with a combined
notional  value of $98.0  million and terms of 5 years,  to  economically  hedge
certain CIT credit exposures. These swaps do not meet the requirements


                                       10


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

for hedge  accounting  treatment and therefore are recorded at fair value,  with
both realized and  unrealized  gains or losses  recorded in other revenue in the
consolidated  statement of income. The fair value adjustment as of June 30, 2004
amounted to a $2.5 million pretax loss.

Note 8 -- Certain Relationships and Related Transactions

      CIT is a partner with Dell Inc.  ("Dell") in Dell Financial  Services L.P.
("DFS"),  a joint  venture that offers  financing to Dell  customers.  The joint
venture  provides  Dell  with  financing  and  leasing   capabilities  that  are
complementary to its product  offerings and provides CIT with a steady source of
new  financings.  The current  contract with Dell runs through  October 2005. We
expect to announce by the end of the third quarter of 2004 a contract continuing
and modifying the current terms of the relationship.

      CIT  regularly  purchases  finance  receivables  from  DFS  at a  premium,
portions of which are typically securitized within 90 days of purchase from DFS.
CIT has limited recourse to DFS on defaulted  contracts.  In accordance with the
joint venture agreement, net income generated by DFS as determined under GAAP is
allocated 70% to Dell and 30% to CIT,  after CIT has  recovered  any  cumulative
losses.  The DFS board of directors  voting  representation  is equally weighted
between  designees of CIT and Dell,  with one independent  director.  Any losses
generated  by DFS as  determined  under GAAP are  allocated  to CIT.  DFS is not
consolidated in CIT's financial statements and is accounted for under the equity
method.  At June 30, 2004 and December 31, 2003,  financing  and leasing  assets
related to the DFS program (included in the CIT Consolidated Balance Sheet) were
$2.0 billion and $1.4 billion, and securitized assets included in managed assets
were $2.2  billion and $2.5  billion.  In addition to the owned and  securitized
assets  acquired  from DFS,  CIT's  maximum  exposure  to loss with  respect  to
activities of the joint venture is  approximately  $206 million and $205 million
pretax at June 30, 2004 and December 31, 2003.  These  amounts are  comprised of
the investment in and loans to the joint venture.

      CIT  also  has a  joint  venture  arrangement  with  Snap-on  Incorporated
("Snap-on") that has a similar business purpose and model to the DFS arrangement
described  above,  including  credit  recourse  on  defaulted  receivables.  The
agreement  with Snap-on  extends until  January  2007.  CIT and Snap-on have 50%
ownership interests,  50% board of directors representation and share income and
losses  equally.  The Snap-on  joint  venture is accounted  for under the equity
method and is not  consolidated in CIT's financial  statements.  As of both June
30, 2004 and December 31, 2003,  the related  financing  and leasing  assets and
securitized assets were $1.1 billion and $0.1 billion, respectively. In addition
to the owned and  securitized  assets  purchased from the Snap-on joint venture,
CIT's  maximum  exposure to loss with respect to activities of the joint venture
is  approximately  $16  million  and $17  million  pretax  at June 30,  2004 and
December 31, 2003,  which is  comprised  of the  investment  in and loans to the
joint  venture.  Both the Snap-on and the Dell joint venture  arrangements  were
acquired in a 1999 acquisition.

      Since December  2000,  CIT has been a joint venture  partner with Canadian
Imperial Bank of Commerce  ("CIBC") in an entity that is engaged in  asset-based
lending in Canada.  Both CIT and CIBC have a 50% ownership interest in the joint
venture and share income and losses equally.  This entity is not consolidated in
CIT's financial  statements and is accounted for under the equity method.  As of
June 30, 2004 and December 31, 2003, CIT's maximum exposure to loss with respect
to  activities  of the joint  venture is $147 million and $119  million  pretax.
These amounts are comprised of the investment in and loans to the joint venture.

      CIT  invests  in  various  trusts,  partnerships,  and  limited  liability
corporations  established in conjunction with structured financing  transactions
of equipment,  power and infrastructure  projects. CIT's interests in certain of
these  entities  were  acquired  by  CIT  in  November  1999,  and  others  were
subsequently entered into in the normal course of business. At June 30, 2004 and
December  31,  2003,  other  assets  included  $20  million  and $21  million of
investments in non-consolidated  entities relating to such transactions that are
accounted for under the equity or cost methods. This investment is CIT's maximum
exposure to loss with respect to these interests as of each date.

      Certain shareholders of CIT provide investment  management services in the
normal course of business in conjunction with CIT's employee benefit plans.


                                       11


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 9 -- Post retirement and Other Benefit Plans

      The following table discloses various  components of pension expense ($ in
millions):

                                       For the Quarter       For the Six Months
                                       Ended June 30,          Ended June 30,
                                      ----------------       ------------------
Retirement Plans                      2004        2003        2004        2003
                                      -----      -----        -----       -----
 Service cost ......................  $ 4.4      $ 3.9        $ 8.9       $ 7.8
 Interest cost .....................    3.9        3.6          7.8         7.2
 Expected return on plan assets ....   (4.0)      (2.3)        (8.1)       (4.6)
 Amortization of net loss ..........    0.7        0.8          1.4         1.7
                                      -----      -----        -----       -----
 Net periodic benefit cost .........  $ 5.0      $ 6.0        $10.0       $12.1
                                      =====      =====        =====       =====
 Postretirement Plans

 Service cost ......................  $ 0.4      $ 0.4        $ 0.9       $ 0.8
 Interest cost .....................    0.9        0.8          1.7         1.5
 Amortization of net loss ..........    0.2         --          0.5         0.1
                                      -----      -----        -----       -----
 Net periodic benefit cost .........  $ 1.5      $ 1.2        $ 3.1       $ 2.4
                                      =====      =====        =====       =====

Note 10 -- Commitments and Contingencies

      In the normal course of meeting the financing needs of its customers,  CIT
enters into various credit-related commitments, including commitments to provide
financing and leasing capital, standby letters of credit and guarantees. Standby
letters of credit obligate CIT to pay the beneficiary of the letter of credit in
the event that a CIT  client to which the  letter of credit was issued  does not
meet its related  obligation to the  beneficiary.  These  financial  instruments
generate fees and involve, to varying degrees, elements of credit risk in excess
of the  amounts  recognized  in the  consolidated  balance  sheets.  To minimize
potential   credit  risk,   CIT   generally   requires   collateral   and  other
credit-related   terms  and   conditions   from  the   customer.   At  the  time
credit-related  commitments  are  granted,  the  fair  value  of the  underlying
collateral  and guarantees  typically  approximates  or exceeds the  contractual
amount of the  commitment.  In the event a customer  defaults on the  underlying
transaction,  the  maximum  potential  loss will  generally  be  limited  to the
contractual amount  outstanding less the value of all underlying  collateral and
guarantees.

      Guarantees  are issued  primarily  in  conjunction  with  CIT's  factoring
product,  whereby CIT provides the client with credit  protection  for its trade
receivables  without actually  purchasing the  receivables.  The trade terms are
generally  sixty days or less.  In the event that the  customer is unable to pay
according to the contractual terms, then the receivables would be purchased.  As
of June 30,  2004,  there  were no  outstanding  liabilities  relating  to these
credit-related  commitments or guarantees,  as amounts are generally  billed and
collected on a monthly basis.

      The   accompanying   table   summarizes   the   contractual   amounts   of
credit-related commitments ($ in millions):




                                                                         December 31,
                                                  June 30, 2004             2003
                                        -------------------------------  ------------
                                           Due to Expire
                                        ------------------
                                         Within     After      Total        Total
                                        One Year  One Year  Outstanding  Outstanding
                                        --------  --------  -----------  -----------
                                                              
Financing and leasing assets .......   $1,177.6   $5,713.7   $6,891.3     $5,934.3
Letters of credit and acceptances:
  Standby letters of credit ........      424.1      138.3      562.4        508.7
  Other letters of credit ..........      760.0        0.4      760.4        694.0
  Acceptances ......................       18.4         --       18.4          9.3
Guarantees .........................      118.6       12.4      131.0        133.2
Venture capital fund commitments ...        3.4      100.7      104.1        124.2



                                       12


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      Commitments to purchase commercial aircraft from both Airbus Industrie and
The Boeing Company are detailed below ($ in millions):

                                         June 30, 2004       December 31, 2003
                                       ----------------      -----------------
Calendar Year                           Amount    Units       Amount    Units
-------------                           ------    -----       ------    -----
2004 (Remaining) ...................   $  399.0     10       $  634.0     15
2005 ...............................      906.0     18          952.0     20
2006 ...............................      996.0     20        1,088.0     21
2007 ...............................      260.0      5          260.0      5
                                       --------     --       --------     --
Total ..............................   $2,561.0     53       $2,934.0     61
                                       ========     ==       ========     ==

      The order amounts exclude CIT's unexercised options to purchase additional
aircraft.

      Outstanding  commitments  to purchase  equipment,  other than the aircraft
detailed  above,  totaled  $226.4 million at June 30, 2004 and $197.2 million at
December 31, 2003. CIT is party to a railcar  sale-leaseback  transaction  under
which it is obligated to pay a remaining total of $465.8 million,  approximately
$28 million per year through 2010 and declining  thereafter  through 2024, which
is more than offset by CIT's  re-lease of the assets,  contingent on its ability
to maintain railcar usage. In conjunction with this sale-leaseback  transaction,
CIT has guaranteed all obligations of the related consolidated lessee entity.

      CIT has guaranteed  the public and private debt  securities of a number of
its wholly-owned,  consolidated subsidiaries,  including those disclosed in Note
14 -- Summarized Financial Information of Subsidiaries.  In the normal course of
business,  various  consolidated CIT subsidiaries have entered into other credit
agreements and certain derivative  transactions with financial institutions that
are  guaranteed  by  CIT.  These   transactions  are  generally  used  by  CIT's
subsidiaries  outside of the U.S. to allow the local  subsidiary to borrow funds
in local  currencies.  In  addition,  CIT has  guaranteed,  on behalf of certain
non-consolidated  subsidiaries,  $11.9 million of third party debt, which is not
reflected in the consolidated balance sheet at June 30, 2004.

Note 11 -- Legal Proceedings

      On April 10, 2003, a putative class action lawsuit, asserting claims under
the Securities  Act of 1933,  was filed in the United States  District Court for
the  Southern  District of New York  against  CIT,  its former  Chief  Executive
Officer and its Chief Financial Officer. The lawsuit contained  allegations that
the registration  statement and prospectus prepared and filed in connection with
CIT's 2002 initial public offering ("IPO") were materially false and misleading,
principally  with  respect to the  adequacy of CIT's  telecommunications-related
loan loss  reserves at the time.  The lawsuit  purported to have been brought on
behalf of all those who  purchased  CIT common stock in or traceable to the IPO,
and sought,  among other relief,  unspecified  damages or  rescission  for those
alleged class members who still hold CIT stock and unspecified damages for other
alleged class members.  On June 25, 2003, by order of the United States District
Court, the lawsuit was consolidated with five other substantially similar suits,
all of which  had been  filed  after  April 10,  2003 and one of which  named as
defendants some of the  underwriters in the IPO and certain former  directors of
CIT.  Glickenhaus & Co., a privately held  investment  firm, has been named lead
plaintiff in the consolidated action.

      On September  16, 2003, an amended and  consolidated  complaint was filed.
That  complaint  contains  substantially  the same  allegations  as the original
complaints.  In addition to the  foregoing,  two similar  suits were  brought by
certain  shareholders  on behalf of CIT  against CIT and some of its present and
former directors under Delaware corporate law.

      CIT believes  that the  allegations  in each of these  actions are without
merit and that its  disclosures  were  proper,  complete  and  accurate.  CIT is
vigorously defending itself in these actions.

      In addition,  there are various  legal  proceedings  pending  against CIT,
which have arisen in the ordinary course of business.  Management  believes that
the aggregate  liabilities,  if any,  arising from such  actions,  including the
class  action  suit  above,  will  not have a  material  adverse  effect  on the
consolidated financial position, results of operations or liquidity of CIT.


                                       13


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 12 -- Severance and Facility Restructuring Reserves

      The following table summarizes purchase accounting  liabilities  (pre-tax)
related to severance of employees and closing  facilities  that were recorded in
connection  with  the  acquisition  of CIT by  Tyco,  as well  as  restructuring
activities during the current quarter ($ in millions):




                                            Severance            Facilities
                                      --------------------  ---------------------
                                      Number of              Number of                 Total
                                      Employees    Reserve  Facilities    Reserve    Reserves
                                      ---------    -------  ----------    -------    --------
                                                                       
Balance December 31, 2003 ...........     43       $ 2.3        12         $ 7.2      $ 9.5
Additions ...........................     64         4.3        --            --        4.3
Utilization .........................    (52)       (3.2)       (2)         (4.4)      (7.6)
                                         ---       -----       ---         -----      -----
Balance at June 30, 2004 ............     55       $ 3.4        10         $ 2.8      $ 6.2
                                         ===       =====       ===         =====      =====


      The beginning reserves relate largely to the restructuring of the European
operations and include  amounts  payable within the next year to individuals who
chose to receive  payments on a periodic  basis.  The facility  reserves  relate
primarily to shortfalls in sublease  transactions  and will be utilized over the
remaining  lease terms,  generally  within 6 years.  The  additions to severance
reserves in 2004 relate  primarily to the  combination of the former  Structured
Finance with Capital  Finance and the transfer of the  communications  and media
portfolio to Commercial  Finance.  These additional  reserves are expected to be
utilized within a year.

Note 13 -- Goodwill and Intangible Assets

      Goodwill and  intangible  assets totaled $516.4 million and $487.7 million
at June 30, 2004 and December 31, 2003,  respectively.  The Company periodically
reviews and  evaluates  its goodwill and other  intangible  assets for potential
impairment.  Effective  October 1,  2001,  the  Company  adopted  SFAS No.  142,
"Goodwill and Other Intangible  Assets" ("SFAS 142"), under which goodwill is no
longer  amortized but instead is assessed for impairment at least  annually.  As
part of the adoption, the Company allocated its existing goodwill to each of its
reporting units as of October 1, 2001.  Under the transition  provisions of SFAS
142, there was no goodwill impairment as of October 1, 2001.

      The most recent  goodwill  impairment  analysis was  performed  during the
fourth quarter of 2003,  which  indicated that the fair value of goodwill was in
excess of the carrying  value.  There were no changes in the carrying  values of
goodwill during the quarter ended June 30, 2004. The following table  summarizes
the remaining goodwill balance by segment ($ in millions):

                                           Specialty    Commercial
                                            Finance       Finance        Total
                                            -------       -------        -----
Balance as of June 30, 2004 .............    $12.7        $370.4         $383.1

      Other intangible  assets,  net,  comprised  primarily of acquired customer
relationships,  proprietary computer software and related transaction processes,
totaled  $133.3  million and $104.6  million,  at June 30, 2004 and December 31,
2003,  and are included in Goodwill and  Intangible  Assets in the  Consolidated
Balance Sheets. The increase in 2004 was primarily related to the acquisition of
a  technology  business  with  approximately  $520  million  in  assets.   Other
intangible assets are being amortized over their corresponding  respective lives
ranging  from five to twenty years in relation to the related  revenue  streams,
where applicable. Amortization expense totaled $2.3 million and $4.5 million for
the  quarter and six months  ended June 30,  2004  versus $1.1  million and $2.2
million for the respective prior year periods. Accumulated amortization totalled
$14.9  million and $10.4  million at June 30, 2004 and December  31,  2003.  The
projected  amortization  for the years ended December 31, 2004 through  December
31, 2008 are: $11.1 million for 2004;  $13.2 million for 2005; $12.1 million for
2006; and $8.8 million for 2007 and 2008.


                                       14


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 14 -- Summarized Financial Information of Subsidiaries

      The following presents condensed  consolidating  financial information for
CIT Holdings LLC and Capita Corporation (formerly AT&T Capital Corporation). CIT
has guaranteed on a full and  unconditional  basis the existing debt  securities
that  were  registered  under  the  Securities  Act of 1933  and  certain  other
indebtedness  of these  subsidiaries.  CIT has not presented  related  financial
statements or other information for these  subsidiaries on a stand-alone  basis.
($ in millions)




                                                                    CIT
                CONSOLIDATING               CIT       Capita     Holdings      Other
               BALANCE SHEETS           Group Inc.  Corporation     LLC    Subsidiaries  Eliminations      Total
               --------------           ----------  -----------     ---    ------------  ------------      -----
                                                                                      
June 30, 2004
ASSETS
Net finance receivables ............   $  1,158.1    $3,364.3    $1,428.4    $25,256.8     $      --    $31,207.6
Operating lease equipment, net .....           --       498.5       133.5      7,206.8            --      7,838.8
Finance receivables held for sale ..           --        78.6        66.8      1,449.8            --      1,595.2
Cash and cash equivalents ..........      1,031.7       546.3       325.4       (125.7)           --      1,777.7
Other assets .......................      7,652.2       (47.5)      160.9      2,189.4      (5,691.8)     4,263.2
                                       ----------    --------    --------    ---------     ---------    ---------
   Total Assets ....................   $  9,842.0    $4,440.2    $2,115.0    $35,977.1     $(5,691.8)   $46,682.5
                                       ==========    ========    ========    =========     =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt ...............................   $ 32,131.8    $  437.4    $1,414.5    $   703.2     $      --    $34,686.9
Credit balances of
   factoring clients ...............           --          --          --      3,292.1            --      3,292.1
Accrued liabilities and payables ...    (27,981.6)    3,464.3      (537.0)    28,027.9            --      2,973.6
                                       ----------    --------    --------    ---------     ---------    ---------
   Total Liabilities ...............      4,150.2     3,901.7       877.5     32,023.2            --     40,952.6
Minority interest ..................           --          --          --         38.1            --         38.1
Total Stockholders' Equity .........      5,691.8       538.5     1,237.5      3,915.8      (5,691.8)     5,691.8
                                       ----------    --------    --------    ---------     ---------    ---------
   Total Liabilities and
   Stockholders' Equity ............   $  9,842.0    $4,440.2    $2,115.0    $35,977.1     $(5,691.8)   $46,682.5
                                       ==========    ========    ========    =========     =========    =========
December 31, 2003

ASSETS
Net finance receivables ............   $  1,581.3    $3,755.4    $1,208.8    $24,111.0    $      --    $30,656.5
Operating lease equipment, net .....           --       580.3       146.4      6,888.8           --      7,615.5
Finance receivables held for sale ..           --        80.0       163.8        674.5           --        918.3
Cash and cash equivalents ..........      1,479.9       410.6       227.5       (144.3)          --      1,973.7
Other assets .......................      8,308.2       198.1       174.1      1,892.6     (5,394.2)     5,178.8
                                       ----------    --------    --------    ---------    ---------    ---------
   Total Assets ....................   $ 11,369.4    $5,024.4    $1,920.6    $33,422.6    $(5,394.2)   $46,342.8
                                       ==========    ========    ========    =========    =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt ...............................   $ 30,656.7    $1,003.5    $1,407.7    $   600.7    $      --    $33,668.6
Credit balances of
   factoring clients ...............           --          --          --      3,894.6           --      3,894.6
Accrued liabilities and payables ...    (24,681.5)    3,412.0      (701.2)    25,317.1           --      3,346.4
                                       ----------    --------    --------    ---------    ---------    ---------
   Total Liabilities ...............      5,975.2     4,415.5       706.5     29,812.4           --     40,909.6
Minority interest ..................           --          --          --         39.0           --         39.0

Total Stockholders' Equity .........      5,394.2       608.9     1,214.1      3,571.2     (5,394.2)     5,394.2
                                       ----------    --------    --------    ---------    ---------    ---------
   Total Liabilities and
   Stockholders' Equity ............   $ 11,369.4    $5,024.4    $1,920.6    $33,422.6    $(5,394.2)   $46,342.8
                                       ==========    ========    ========    =========    =========    =========



                                       15


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)




                                                                    CIT
                CONSOLIDATING               CIT        Capita     Holdings     Other
            STATEMENTS OF INCOME        Group Inc.   Corporation    LLC     Subsidiaries  Eliminations     Total
            --------------------        ----------   -----------    ---     ------------  ------------     -----
                                                                                       
Six Months Ended June 30, 2004
Finance income ....................       $ 15.5        $359.6     $ 93.7     $1,349.3       $    --     $1,818.1
Interest expense ..................        (43.5)        105.6        7.5        528.4            --        598.0
                                          ------        ------     ------     --------       -------     --------
Net finance income ................         59.0         254.0       86.2        820.9            --      1,220.1
Depreciation on operating
   lease equipment ................           --         161.4       21.4        288.0            --        470.8
                                          ------        ------     ------     --------       -------     --------
Net finance margin ................         59.0          92.6       64.8        532.9            --        749.3
Provision for credit losses .......          7.7          25.5        5.2        112.9            --        151.3
                                          ------        ------     ------     --------       -------     --------
Net finance margin, after provision
   for credit losses ..............         51.3          67.1       59.6        420.0            --        598.0
Equity in net income of
   subsidiaries ...................        341.2            --         --           --        (341.2)          --
Other revenue .....................         (2.2)         77.0       50.6        338.5            --        463.9
Gains on venture capital
   investments ....................           --            --         --          3.7            --          3.7
                                          ------        ------     ------     --------       -------     --------
Operating margin ..................        390.3         144.1      110.2        762.2        (341.2)     1,065.6
Operating expenses ................         56.7          71.7       50.9        328.3            --        507.6
Gain on redemption of debt ........         41.8            --         --           --            --         41.8
                                          ------        ------     ------     --------       -------     --------
Income (loss) before provision
   for income taxes ...............        375.4          72.4       59.3        433.9        (341.2)       599.8
Provision for income taxes ........          9.5          28.2       23.1        173.1            --        233.9
                                          ------        ------     ------     --------       -------     --------
Net income ........................       $365.9        $ 44.2     $ 36.2     $  260.8       $(341.2)    $  365.9
                                          ======        ======     ======     ========       =======     ========
Six Months Ended June 30, 2003
Finance income ....................       $ 53.9        $399.9     $ 95.4     $1,333.2       $    --     $1,882.4
Interest expense ..................         (1.9)        166.6       (7.3)       535.1            --        692.5
                                          ------        ------     ------     --------       -------     --------
Net finance income ................         55.8         233.3      102.7        798.1            --      1,189.9
Depreciation on operating
   lease  equipment ...............           --         194.6       38.8        318.3            --        551.7
                                          ------        ------     ------     --------       -------     --------
Net finance margin ................         55.8          38.7       63.9        479.8            --        638.2
Provision for credit losses .......         19.6          25.7        9.6        148.7            --        203.6
                                          ------        ------     ------     --------       -------     --------
Net finance margin, after provision
   for credit losses ..............         36.2          13.0       54.3        331.1            --        434.6
Equity in net income
   of subsidiaries ................        243.8            --         --           --        (243.8)          --
Other revenue .....................          4.0          55.2       50.4        360.0            --        469.6
Losses on venture capital
   investments ....................           --            --         --        (16.5)           --        (16.5)
                                          ------        ------     ------     --------       -------     --------
Operating margin ..................        284.0          68.2      104.7        674.6        (243.8)       887.7
Operating expenses ................         24.7          68.2       59.2        294.2            --        446.3
                                          ------        ------     ------     --------       -------     --------
Income (loss) before provision for
   income taxes ...................        259.3            --       45.5        380.4        (243.8)       441.4
Provision for income taxes ........         (4.6)           --       17.7        159.0            --        172.1
Dividends on preferred capital
   securities, after tax ..........           --            --         --         (5.4)           --         (5.4)
                                          ------        ------     ------     --------       -------     --------
Net income ........................       $263.9        $   --     $ 27.8     $  216.0       $(243.8)    $  263.9
                                          ======        ======     ======     ========       =======     ========



                                       16


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)




                                                                    CIT
           CONSOLIDATING STATEMENT          CIT        Capita     Holdings     Other
                OF CASH FLOWS           Group Inc.   Corporation    LLC     Subsidiaries  Eliminations    Total
           -----------------------      ----------   -----------    ---     ------------  ------------    -----
                                                                                     
Six Months Ended June 30, 2004
Cash Flows From
   Operating Activities:
Net cash flows provided
   by operations .....................   $   128.8     $ 514.0    $ 166.4     $  163.5     $      --    $   972.7
                                         ---------     -------    -------     --------     ---------    ---------
Cash Flows From
   Investing Activities:
Net (increase) decrease in financing
   and leasing assets ................       457.5       322.3     (122.7)    (2,932.1)           --     (2,275.0)
Decrease in inter-company loans
   and investments ...................    (2,453.7)         --         --           --       2,453.7           --
Other ................................          --          --         --         51.1            --         51.1
                                         ---------     -------    -------     --------     ---------    ---------
Net cash flows (used for)
   investing activities ..............    (1,996.2)      322.3     (122.7)    (2,881.0)      2,453.7     (2,223.9)
                                         ---------     -------    -------     --------     ---------    ---------
Cash Flows From
   Financing Activities:
Net increase (decrease) in debt ......     1,475.1      (566.1)       6.8        231.2            --      1,147.0
Inter-company financing ..............          --      (134.5)      47.4      2,540.8      (2,453.7)          --
Cash dividends paid ..................       (55.9)         --         --           --            --        (55.9)
Other ................................          --          --         --        (35.9)           --        (35.9)
                                         ---------     -------    -------     --------     ---------    ---------
Net cash flows provided by
   (used for) financing activities ...     1,419.2      (700.6)      54.2      2,736.1      (2,453.7)     1,055.2
                                         ---------     -------    -------     --------     ---------    ---------
Net increase (decrease) in cash and
   cash equivalents ..................      (448.2)      135.7       97.9         18.6            --       (196.0)
Cash and cash equivalents,
   beginning of period ...............     1,479.9       410.6      227.5       (144.3)           --      1,973.7
                                         ---------     -------    -------     --------     ---------    ---------
Cash and cash equivalents,
   end of period .....................   $ 1,031.7     $ 546.3    $ 325.4     $ (125.7)    $      --    $ 1,777.7
                                         =========     =======    =======     ========     =========    =========



                                       17


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)




                                                                   CIT
           CONSOLIDATING STATEMENT          CIT       Capita     Holdings      Other
                OF CASH FLOWS           Group Inc.  Corporation     LLC    Subsidiaries   Eliminations   Total
           -----------------------      ----------  -----------  --------  ------------   ------------   -----
                                                                                     
Six Months Ended June 30, 2003
Cash Flows From
   Operating Activities:
Net cash flows provided
   by (used for) operations ...........  $  (983.4)  $  623.1    $(125.7)    $1,389.0       $    --    $   903.0
                                         ---------   --------    -------     --------       -------    ---------
Cash Flows From
   Investing Activities:
Net decrease in financing and
   leasing assets .....................     (914.8)    (164.4)    (203.0)      (814.0)           --     (2,096.2)
Increase in inter-company loans
   and investments ....................      521.6         --         --           --        (521.6)          --
Other .................................         --         --         --        (47.8)           --        (47.8)
                                         ---------   --------    -------     --------       -------    ---------
Net cash flows (used for)
   investing activities ...............     (393.2)    (164.4)    (203.0)      (861.8)       (521.6)    (2,144.0)
                                         ---------   --------    -------     --------       -------    ---------
Cash Flows From
   Financing Activities:
Net increase (decrease) in debt .......      891.5        7.3     (309.3)        89.0            --        678.5
Inter-company financing ...............         --     (362.7)     403.2       (562.1)        521.6           --
Cash dividends paid ...................      (50.8)        --         --           --            --        (50.8)
                                         ---------   --------    -------     --------       -------    ---------
Net cash flows provided by
   (used for) financing activities ....      840.7     (355.4)      93.9       (473.1)        521.6        627.7
                                         ---------   --------    -------     --------       -------    ---------
Net increase (decrease) in cash and
   cash equivalents ...................     (535.9)     103.3     (234.8)        54.1            --       (613.3)
Cash and cash equivalents,
   beginning of period ................    1,310.9      231.1      293.7        200.9            --      2,036.6
                                         ---------   --------    -------     --------       -------    ---------
Cash and cash equivalents,
   end of period ......................  $   775.0   $  334.4    $  58.9     $  255.0       $    --    $ 1,423.3
                                         =========   ========    =======     ========       =======    =========


Note 15 -- Subsequent Events

      On and effective July 21, 2004, the CIT Board of Directors elected Jeffrey
M. Peek as the Company's  President and Chief Executive  Officer.  Mr. Peek, who
had previously served as CIT's President and Chief Operating  Officer,  replaced
Albert R. Gamper Jr.,  who had served as Chairman  and Chief  Executive  Officer
since 1987.  Mr. Gamper will remain as Chairman until his retirement on December
31, 2004.

      On July 28, 2004,  CIT announced  that it has agreed to acquire the vendor
finance leasing  business in Western Europe of  CitiCapital,  a business unit of
Citigroup  (NYSE:  C).  The  transaction  is  subject  to  customary  regulatory
approvals  and is  expected  to close in the fourth  quarter  of this year.  The
business to be acquired,  based in Watford,  England,  will be  integrated  into
CIT's Specialty Finance Group. The approximately $950 million of acquired assets
are principally comprised of leases and loans secured by technology, healthcare,
and  construction  and  industrial  equipment.  A  significant  majority  of the
portfolio  is located in the U.K.  and France,  with the  remainder  in Germany,
Spain and Italy.


                                       18


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations and  Quantitative and Qualitative Disclosure about Market
         Risk

      The  following  discussion  uses  financial  terms  that we  believe to be
relevant to our business. A glossary of other key terms used in our business can
be found following the "Introduction" section.

Introduction

      CIT is a global  commercial and consumer  finance company that was founded
in 1908.  We provide  financing  and  leasing  capital for  companies  in a wide
variety  of  industries,  offering  vendor,  equipment,  commercial,  factoring,
consumer, and structured financing products.

      Our primary  sources of revenue are interest and rental income  related to
collateralized  lending and equipment  leasing.  Finance  receivables (loans and
capital  leases) and operating lease  equipment  (operating  leases) are the two
major asset types that generate this revenue. In the case of finance receivables
(which are financial assets), the substantive risks and rewards of equipment and
other  collateralized  asset  ownership  belong  to the  customer  and we retain
predominantly  the borrower  credit risk.  With operating  lease  equipment,  we
retain the substantive risks and rewards of equipment  ownership,  including the
right to take  depreciation and the risk of damage or obsolescence.  We fund our
leasing and lending  activity via the global capital  markets,  using commercial
paper,  unsecured term debt, and securitizations.  We refer to the excess of our
interest and rental  income over our interest  expense as "net finance  margin."
This revenue is  supplemented by other  "non-spread"  sources of revenue such as
syndication fees, gains from dispositions of equipment,  factoring  commissions,
servicing of loans and other fees.

      We measure our overall level of profitability with the following metrics:

      o     Net income as a percentage of average earning assets (AEA);

      o     Net income per common share (EPS); and

      o     Net income as a percentage of average tangible equity (ROTE).

      We believe that the keys to enhancing profitability in our business are as
follows:

Net Interest  Margin -- Our ability to lend money at rates in excess of our cost
of borrowing. We measure this with the following ratios:

      o     Finance income as a percentage of AEA; and

      o     Net finance income as a percentage of AEA.

Funding and Market Rate Risk Management -- Our ability to access funding sources
at competitive rates,  which depends on maintaining high quality assets,  strong
capital  ratios  and  high  credit  ratings.  This  profitability  key is also a
function of interest rate and currency rate risk  management,  where the goal is
to  substantially  insulate our interest  margins and profits from  movements in
market interest rates and foreign currency  exchange rates. We gauge our funding
and  interest  rate  risk  management   activities  with  various  measurements,
including the following:

      o     Interest expense as a percentage of AEA;

      o     Quality spread trends (our interest rate costs over  comparable term
            U.S. Treasury rates);

      o     Net finance margin as a percentage of AEA; and

      o     Various  interest  sensitivity and liquidity  measurements  that are
            discussed in Risk Management.

Credit Risk  Management -- Our ability to evaluate the  creditworthiness  of our
customers,  both during the credit granting process and  periodically  after the
advancement of funds, and to maintain high quality assets.  We assess our credit
risk management activities with the following measurements:

      o     Delinquent assets as a percentage of finance receivables;

      o     Non-performing assets as a percentage of finance receivables; and

      o     Net charge-offs as a percentage of average finance receivables.


                                       19


Expense Management -- Our ability to maintain efficient  operating platforms and
infrastructure in order to run our business at competitive cost levels. We track
our efficiency with the following measurements:

      o     Efficiency  ratio,  which  is the  ratio  of  salaries  and  general
            operating  expenses to operating  margin excluding the provision for
            credit losses; and

      o     Operating expenses as a percentage of average managed assets (AMA).

Equipment  and Residual Risk  Management  -- Our ability to evaluate  collateral
risk in leasing and lending  transactions  and to  remarket  equipment  at lease
termination. We measure these activities with the following:

      o     Operating lease margin as a percentage of average leased equipment;

      o     Gains and losses on equipment sales; and

      o     Equipment utilization/value of equipment off lease.

Asset  Generation  and Growth -- Our ability to originate new business and build
our earning assets in a focused and prudent  manner.  We measure our performance
in these areas with the following:

      o     Origination volumes;

      o     Levels of financing and leasing assets and managed assets (including
            securitized finance receivables that we continue to manage); and

      o     Levels of non-spread and other revenue.

Capital Management -- Our ability to maintain a strong capital base and adequate
credit loss reserve  levels.  We measure our performance in these areas with the
following:

      o     Debt to tangible equity ratio;

      o     Tangible equity to managed assets ratio; and

      o     Reserve for credit losses as a percentage of finance receivables, of
            delinquent assets, and of non-performing assets.

Glossary of Key Terms

Term                             Description
-----                            ----------
Average Earning
  Assets (AEA) ...............  "AEA" is the average during the reporting period
                                of   finance   receivables,    operating   lease
                                equipment, finance receivables held for sale and
                                certain  investments,  less  credit  balances of
                                factoring  clients.  The  average  is  used  for
                                certain  key  profitability  ratios,   including
                                return on AEA and  margins  as a  percentage  of
                                AEA.

Average Finance
  Receivables (AFR) ..........  "AFR" is the average during the reporting period
                                of  finance  receivables  and includes loans and
                                finance leases.  It  excludes   operating  lease
                                equipment.  The  average is used to measure  the
                                rate of charge-offs for the period.

Average Managed Assets
  (AMA) ......................  "AMA" is the  average  earning  assets  plus the
                                average   of  finance   receivables   previously
                                securitized and still managed by us. The average
                                is used to measure the rate of  charge-offs on a
                                managed basis for the period to monitor  overall
                                credit  performance,   and  to  monitor  expense
                                control.

Derivative Contracts .........  Derivatives  are entered into to reduce interest
                                rate or foreign currency risks and more recently
                                to hedge credit risk.  Derivative contracts used
                                by  CIT  include  interest  rate  swaps,   cross
                                currency   swaps,   foreign   exchange   forward
                                contracts and credit default swaps.


                                       20


Term                            Description
-----                           ----------
Efficiency Ratio .............  The  efficiency  ratio  measures  the  level  of
                                expenses in relation to revenue  earned,  and is
                                calculated  as the  percentage  of salaries  and
                                general operating  expenses to operating margin,
                                excluding the provision for credit losses.

Finance Income ...............  Finance income  includes both interest income on
                                finance   receivables   and  rental   income  on
                                operating leases.

Financing and Leasing Assets .  Financing  and  leasing  assets  include  loans,
                                capital and finance  leases,  leveraged  leases,
                                operating  leases,  assets  held  for  sale  and
                                certain investments.

Leases -- capital and
  finance ....................  Lease    designation     describing    financing
                                structures  whereby  substantially  all  of  the
                                economic  benefits  and risks of  ownership  are
                                passed to the lessee.

Leases -- leveraged ..........  Similar to capital  leases except a third party,
                                long-term creditor is involved and provides debt
                                financing.  CIT is party to these lease types as
                                creditor   or  as  lessor,   depending   on  the
                                transaction.

Leases -- tax-optimized
  leveraged ..................  Leveraged  leases  where we are the  lessor  and
                                have  increased  risk  in  comparison  to  other
                                leveraged lease  structures,  as the creditor in
                                these structures has a priority  recourse to the
                                leased equipment.

Leases -- operating ..........  Lease designation where CIT maintains  ownership
                                of the asset, collects rent payments, recognizes
                                depreciation on the asset, and assumes the risks
                                of ownership,  including  obsolescence.

Managed Assets ...............  Managed   assets   are   comprised   of  finance
                                receivables,  operating lease equipment, finance
                                receivables held for sale,  certain  investments
                                and receivables securitized and still managed by
                                us.  The  change  in  managed  assets  during  a
                                reporting  period is one of our  measurements of
                                asset growth.

Non-GAAP Financial Measures ..  Non-GAAP financial measures are balances that do
                                not  readily  agree  to  balances  disclosed  in
                                financial  statements  presented  in  accordance
                                with accounting principles generally accepted in
                                the U.S. These measures are disclosed to provide
                                additional  information and insight  relative to
                                historical   operating   results  and  financial
                                position of the business.

Non-performing Assets ........  Non-performing  assets  include  loans placed on
                                non-accrual    status,    due   to    doubt   of
                                collectibility  of principal and  interest,  and
                                repossessed assets.

Non-spread Revenue ...........  Non-spread  revenues include  syndication  fees,
                                gains from dispositions of equipment,  factoring
                                commissions,  loan  servicing and other fees and
                                are reported in Other Revenue.

Quality Spreads ..............  The  difference  between  interest  cost  on our
                                borrowings  and the interest costs on comparable
                                term  U.S.  Treasury   securities   measured  in
                                percentage   terms.   These   incremental  costs
                                typically reflect our debt credit ratings.

Retained Interest ............  The portion of the  interest in assets sold in a
                                securitization  transaction  that is retained by
                                CIT.


                                       21


Term                            Description
-----                           ----------
Residual Values ..............  Residual values represent the estimated value of
                                equipment  at the  end of the  lease  term.  For
                                operating  leases,  it is the value to which the
                                asset is  depreciated  at the end of its  useful
                                economic life (i.e. "salvage" or "scrap value").

Risk Adjusted Margin .........  Net finance  margin after  provision  for credit
                                losses.

Special Purpose
  Entity (SPE) ...............  Distinct legal  entities  created for a specific
                                purpose  in  order  to  isolate  the  risks  and
                                rewards of owning its assets and  incurring  its
                                liabilities.   SPEs   are   typically   used  in
                                securitization   transactions,   joint   venture
                                relationships  and  certain  structured  leasing
                                transactions.

Tangible Equity ..............  Tangible  stockholders' equity excludes goodwill
                                and other  intangible assets, and  certain other
                                comprehensive    income   items   and   includes
                                preferred capital securities. Tangible equity is
                                utilized in leverage ratios and return ratios.

Yield-related Fees ...........  In certain transactions, in addition to interest
                                income, yield-related fees are collected for the
                                assumption of underwriting  risk.  Yield-related
                                fees are  reported  in  Finance  Income  and are
                                recognized   over  the   life  of  the   lending
                                transaction.

Profitability and Key Business Trends

      Net income for the six months ended June 30, 2004 included a $25.5 million
after-tax gain recognized in the first quarter on the early  redemption of debt.
Our improved profitability  reflected higher asset levels, lower charge-offs and
lower borrowing costs, which were partially offset by higher operating expenses.

      Our profitability measurements for the respective periods are presented in
the table below:

                                                      Quarters Ended June 30,
                                                      -----------------------
                                                      2004             2003
                                                      -----            -----
Net income per diluted share ......................   $0.82            $0.65
Net income as a percentage of AEA .................    1.86%            1.53%
Return on average tangible equity .................    13.7%            11.6%

                                                     Six Months Ended June 30,
                                                     ------------------------
                                                      2004             2003
                                                      -----            -----
Net income per diluted share(1) ...................   $1.70            $1.24
Net income as a percentage of AEA(1) ..............    1.95%            1.50%
Return on average tangible equity(1) ..............    14.4%            11.3%

--------------------------------------------------------------------------------
(1)   For the six months ended June 30, 2004, net income per diluted share,  net
      income as a  percentage  of AEA and  return  on  average  tangible  equity
      excluding  gain on  redemption  of  debt  were  $1.58,  1.82%  and  13.4%,
      respectively.

      Total financing and leasing portfolio assets grew to $41.5 billion at June
30, 2004 from $40.1  billion and $37.5 billion at December 31, 2003 and June 30,
2003.  Managed assets were $49.9 billion at June 30, 2004,  versus $49.7 billion
and $47.9 billion at December 31, 2003 and June 30, 2003.  New business  volumes
increased 8% and 12% from 2003 for the quarter and the six months, with strength
across all business lines. We also acquired a technology  finance  business with
$520 million in assets during the quarter.


                                       22


      Offsetting the impact on asset levels of the strong volume and acquisition
were unusually high prepayment  activities due to strong liquidity in the credit
markets, capital allocation initiatives and seasonal declines in factoring asset
levels.  Prepayments included a $350 million factoring account and a $50 million
international financing.  Capital allocation initiatives reduced asset levels by
approximately $400 million, including the following:

      o     The  syndication  of a $150  million  project  finance  exposure  in
            Capital Finance executed primarily for risk management purposes;

      o     The sale of a test  equipment  rental  business with $100 million in
            assets;

      o     The sale of $70 million of direct venture capital investments;

      o     Continued  runoff  in  liquidating  portfolios  of $60  million.  In
            addition,   following   management's   decision  to  accelerate  the
            liquidation   of  these  assets,   approximately   $110  million  in
            recreational  vehicle  and marine  portfolios  were  transferred  to
            assets held for sale at June 30, 2004; and

      o     The sale of $20 million in residual Argentine assets.

      This  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations" and "Quantitative and Qualitative Disclosure about Market
Risk" contain  certain  non-GAAP  financial  measures.  See "Non-GAAP  Financial
Measurements" for additional  information.  The sections that follow analyze our
results  by  financial   statement  caption  and  are  referenced  back  to  the
profitability keys that are discussed in "Introduction."

Net Finance Margin

      An analysis of net finance margin is set forth below ($ in millions):




                                                  Quarters Ended June 30,     Six Months Ended June 30,
                                                 -------------------------    -------------------------
                                                    2004           2003          2004          2003
                                                    ----           ----          ----          ----
                                                                                 
Finance income ................................  $   915.2      $   943.2      $ 1,818.1     $ 1,882.4
Interest expense ..............................      300.0          337.8          598.0         692.5
                                                 ---------      ---------      ---------     ---------
  Net finance income ..........................      615.2          605.4        1,220.1       1,189.9
Depreciation on operating lease equipment .....      236.3          272.9          470.8         551.7
                                                 ---------      ---------      ---------     ---------
  Net finance margin ..........................  $   378.9      $   332.5      $   749.3     $   638.2
                                                 =========      =========      =========     =========
Average Earnings Asset ("AEA") ................  $37,992.8      $35,700.0      $37,499.1     $35,194.8
                                                 =========      =========      =========     =========

As a % of AEA:
Finance income ................................       9.64%         10.57%          9.70%        10.70%
Interest expense ..............................       3.16%          3.78%          3.19%         3.93%
                                                      ----           ----           ----          ----
  Net finance income ..........................       6.48%          6.79%          6.51%         6.77%
Depreciation on operating lease equipment .....       2.49%          3.06%          2.51%         3.14%
                                                      ----           ----           ----          ----
  Net finance margin ..........................       3.99%          3.73%          4.00%         3.63%
                                                      ====           ====           ====          ====



      For the quarter ended June 30, 2004, net finance margin  improved by $46.4
million  or 26 basis  points  (as a  percentage  of AEA)  from  2003,  while the
improvement  for the six months ended June 30, 2004 totaled $111.1 million or 37
basis  points  over the prior year  period due  primarily  to reduced  borrowing
costs. Year over year growth in financing and leasing assets was offset by lower
finance income, as the portfolio continued to reprice in the relatively low rate
environment.  Lower  operating  lease rentals  reduced  finance  income by $41.2
million or 43 basis points from the second quarter of 2003 and reduced six month
finance  income by $74.9  million or 40 basis points from the prior year period.
See "Operating  Leases" for additional  information  regarding  operating  lease
margin.

      The trend in net finance  margin as a  percentage  of AEA,  excluding  the
impact of  operating  lease  rentals,  reflects a greater  decline  in  interest
expense  than  in  finance   income  yield,   primarily  due  to  the  narrowing
(improvement) of our credit spreads and the refinancing of higher-cost debt. The
increase in AEA reflects growth in the latter part of 2003 and in 2004.


                                       23


      Additional  information  regarding  our  borrowing  costs  is shown in the
following table ($ in millions):




                                                              Before Swaps                    After Swaps
                                                         ----------------------         -----------------------
                                                                                              
Quarter Ended June 30, 2004
Commercial paper, variable-rate senior
   notes and bank credit facilities ...................  $14,875.7        1.55%         $18,250.0         2.33%
Fixed-rate senior and subordinated notes ..............   19,312.4        5.71%          15,938.1         5.19%
                                                         ---------                      ---------
Composite .............................................  $34,188.1        3.90%         $34,188.1         3.67%
                                                         =========                      =========
Quarter Ended June 30, 2003
Commercial paper, variable-rate senior
   notes and bank credit facilities ...................  $12,030.2        1.90%         $15,646.8         2.72%
Fixed-rate senior and subordinated notes ..............   20,284.9        6.13%          16,668.3         5.93%
                                                         ---------                      ---------
Composite .............................................  $32,315.1        4.56%         $32,315.1         4.37%
                                                         =========                      =========
Six Months Ended June 30, 2004
Commercial paper, variable-rate senior
   notes and bank credit facilities ...................  $14,289.9        1.56%         $18,036.9         2.30%
Fixed-rate senior and subordinated notes ..............   19,130.3        5.70%          15,383.3         5.26%
                                                         ---------                      ---------
Composite .............................................  $33,420.2        3.93%         $33,420.2         3.66%
                                                         =========                      =========
Six Months Ended June 30, 2003
Commercial paper, variable-rate senior
   notes and bank credit facilities ...................  $12,367.3        1.92%         $15,159.1         2.75%
Fixed-rate senior and subordinated notes ..............   19,990.3        6.23%          17,198.5         6.02%
                                                         ---------                      ---------
Composite .............................................  $32,357.6        4.58%         $32,357.6         4.49%
                                                         =========                      =========


Operating Leases

      The table below summarizes operating lease margin, both in amount and as a
percentage of average operating lease equipment ($ in millions):




                                             Quarters Ended June 30,        Six Months Ended June 30,
                                           ------------------------         -------------------------
                                              2004            2003            2004           2003
                                            --------       --------         --------        --------
                                                                                
Rental income ...........................  $   338.1       $  379.3         $  684.5        $  759.4
Depreciation expense ....................      236.3          272.9            470.8           551.7
                                            --------       --------         --------        --------
        Operating lease margin ..........   $  101.8       $  106.4         $  213.7        $  207.7
                                            ========       ========         ========        ========
Average operating lease equipment .......   $7,628.5       $7,304.2         $7,613.6        $7,033.7
                                            ========       ========         ========        ========
As a % of Average Operating
  Lease Equipment:
Rental income ...........................      17.73%         20.77%           17.98%          21.60%
Depreciation expense ....................      12.39%         14.95%           12.37%          15.69%
                                                ----           ----             ----            ----
  Operating lease margin ................       5.34%          5.82%            5.61%           5.91%
                                                ====           ====             ====            ====


      Depreciation  expense  for the  quarter  ended June 30,  2004  included an
additional  $14.8 million  impairment  charge to reduce  certain  older,  out of
production aircraft to estimated fair value. The additional depreciation expense
primarily  relates  to  aircraft  with  a  single  lessee  with  upcoming  lease
terminations  and for which market rental rates have  declined.  Therefore,  the
projected  cash flows no longer  supported  the  corresponding  carrying  value,
resulting in the additional depreciation charge.

      The decline in operating  lease margin and its  components  from 2003 also
reflects  lower rentals on the Capital  Finance  aerospace  portfolio due to the
commercial  airline  industry  downturn  and the  change in  equipment  mix to a
greater proportion of aircraft and rail assets with an average  depreciable life
of 25 and 40 years,  respectively,  compared to smaller-ticket assets with lives
generally of 3 years in the Specialty Finance and Equipment Finance  portfolios.
Aerospace rentals trended downward  following the terrorist attacks on September
11, 2001, but have recently shown some stability.


                                       24


      The following  table  summarizes the total  operating  lease  portfolio by
segment ($ in millions):

                                                             June 30,
                                                   --------------------------
                                                     2004              2003
                                                     -----             -----
Capital Finance -- Aerospace ....................  $4,161.7         $3,801.1
Capital Finance -- Rail and Other ...............   2,212.5          2,083.7
Specialty Finance ...............................   1,084.0          1,171.2
Equipment Finance ...............................     380.6            504.0
                                                   --------         --------
  Total .........................................  $7,838.8         $7,560.0
                                                   ========         ========

      o     The increase in the Capital  Finance  aerospace  portfolio  reflects
            deliveries of new commercial aircraft.

      o     The decline in the Specialty Finance and Equipment Finance operating
            lease  portfolios  are  a  result  of  the  continued  trend  toward
            financing  equipment  through finance leases and loans,  rather than
            operating leases, in these segments.

      Maximizing equipment  utilization levels is a prime component of operating
lease portfolio profitability. Equipment not subject to lease agreements totaled
$176.3  million and $265.9  million,  at June 30, 2004 and  December  31,  2003,
respectively.  The  reduction  was due to fewer  commercial  aerospace  and rail
assets off lease as well as the sale of a test equipment  rental business in the
second  quarter of 2004.  Weakness  in the  commercial  airline  industry  could
adversely impact prospective rental and utilization rates.

Net Finance Margin after Provision for Credit Losses (Risk-adjusted Margin)

      The following table summarizes risk-adjusted margin, both in amount and as
a percentage of AEA ($ in millions):




                                   Quarters Ended June 30,    Six Months Ended June 30,
                                   -----------------------   --------------------------

                                    2004           2003          2004          2003
                                   ------         ------         ------        ------
                                                                   
Net finance margin ..............  $378.9         $332.5         $749.3        $638.2
Provision for credit losses .....    65.7          100.6          151.3         203.6
                                   ------         ------         ------        ------
  Risk-adjusted margin ..........  $313.2         $231.9         $598.0        $434.6
                                   ======         ======         ======        ======
As a Percentage of AEA:
Net finance margin ..............    3.99%          3.73%          4.00%         3.63%
Provision for credit losses .....    0.69%          1.13%          0.81%         1.16%
                                     ----           ----           ----          ----
  Risk-adjusted margin ..........    3.30%          2.60%          3.19%         2.47%
                                     ====           ====           ====          ====


      The  improvement  for both  periods  of 2004  compared  to 2003  primarily
reflects the previously discussed  improvement in net finance margin, as well as
incremental  benefit from a lower provision for charge-offs,  which is discussed
further in "Credit Metrics".

      In conjunction  with the June 2001  acquisition of CIT by Tyco, fair value
adjustments  to mark  the  liquidating  portfolios  (discounts),  other  finance
receivables and debt to market were recorded under new basis  accounting.  These
adjustments are being accreted into income as the portfolios and debt liquidate.
For the  quarter  and six months  ended June 30,  2003,  risk  adjusted  margin,
including  charge-offs  relating to the liquidating  portfolios,  was positively
impacted by 15 and 19 basis points for the  accretion  of these  items.  For the
2004  periods,   the  combined  impact  of  these  fair  value  adjustments  was
negligible.  See  "Financing  and  Leasing  Assets" for  additional  information
regarding the liquidating portfolios.


                                       25


Other Revenue

      The components of other revenue are set forth in the following table ($ in
millions):




                                               Quarters Ended June 30,    Six Months Ended June 30,
                                               -----------------------    -------------------------
                                                2004           2003          2004          2003
                                               ------         ------         ------        ------
                                                                               
Fees and other income .......................  $141.0         $134.6         $267.7        $279.3
Factoring commissions .......................    53.5           44.8          108.5          91.7
Gains on sales of leasing equipment .........    27.1           16.5           54.4          34.1
Gains on securitizations ....................    11.9           33.8           33.3          64.5
                                               ------         ------         ------        ------
  Total other revenue .......................  $233.5         $229.7         $463.9        $469.6
                                               ======         ======         ======        ======
Other revenue as a percentage of AEA ........    2.46%          2.57%          2.47%          2.67%
                                               ======         ======         ======        ======


      The   following   table   presents   information    regarding   gains   on
securitizations ($ in millions):




                                                     Quarters Ended June 30,    Six Months Ended June 30,
                                                     -----------------------    -------------------------
                                                      2004          2003           2004         2003
                                                      ----          ----           ----         ----
                                                                                   
Total volume securitized ..........................  $847.2       $1,652.5       $2,083.6      $2,889.9
Gains .............................................  $ 11.9        $  33.8        $  33.3       $  64.5
Gains as a percentage of volume securitized .......    1.40%          2.05%          1.60%         2.23%
Gains as a percentage of pre-tax income ...........    4.11%          14.8%          5.55%         14.6%


      We continue to emphasize growth and  diversification  of other revenues to
improve our overall profitability.

      o     Fees and other income  include  servicing  fees,  syndication  fees,
            gains from asset sales and miscellaneous fees. Fees and other income
            for the  quarter  included  increased  fees  related to  syndication
            activity  in  Capital   Finance   principally  for  risk  management
            purposes.  This  was  offset  in part by a  pretax  charge  of $11.9
            million to reduce $120  million of  recreational  vehicle and marine
            assets in Specialty Finance to estimated fair market value following
            the  decision  this  quarter to pursue a more rapid  liquidation  of
            these portfolios. The sale of a $100 million test equipment business
            resulted in a $13.1  million  pre-tax  gain.  Reduced fees and other
            income  also  reflect  lower   servicing  fee  revenue   related  to
            securitizations  consistent  with the lower level of  securitization
            activity.

      o     Higher factoring  commissions  benefited from two large acquisitions
            completed during the second half of 2003.

      o     Second  quarter  securitization  volume was down  considerably  from
            2003,  due  primarily to a decline in  commercial  (vendor  finance)
            securitization  volume  in  Specialty  Finance.   Additionally,   we
            continue to fund home equity loan growth entirely  on-balance sheet.
            2003 volume  included  $0.5 billion of home equity loans for the six
            months.

      o     Gains on sales  of  leasing  equipment  increased  from  2003 due to
            higher commercial  aircraft  equipment gains in the first quarter as
            well as stronger end of lease equipment  sales in Equipment  Finance
            and the International unit of Specialty Finance.

Venture Capital Investments

      On January 15,  2004,  we  announced  the  signing of a purchase  and sale
agreement for the  disposition of the direct  investment  portfolio at an amount
approximating  the  carrying  value at  December  31,  2003.  During  the second
quarter, we closed the sale of approximately $70 million of this portfolio under
the existing sales  contract.  We are working toward  satisfying the outstanding
closing conditions for the remaining $35 million.


                                       26


      Our remaining  portfolio of direct and private fund venture capital equity
investments is summarized in the following table ($ in millions):

                                             June 30,   December 31,  June 30,
                                               2004        2003        2003
                                             --------   ------------  --------
Total investment balance .............        $190.9      $249.9      $325.4
Direct investments ...................        $ 35.8      $101.1      $169.1
Number of companies ..................            13          47          49
Private equity funds .................        $155.1      $148.8      $156.3
Number of funds ......................            52          52          52
Remaining commitments ................        $104.1      $124.2      $144.3

      The remaining  commitments  at June 30, 2004 relate to the private  equity
funds.

Provision for Credit Losses

      Our provision for credit losses and reserve for credit losses is presented
in the following table ($ in millions):




                                                             Quarters Ended June 30,   Six Months Ended June 30,
                                                             -----------------------   -------------------------
                                                               2004         2003           2004         2003
                                                             --------     ---------     ----------    ---------
                                                                                            
Balance beginning of period ...............................   $636.7        $757.0        $643.7        $760.8
                                                              ------        ------        ------        ------
Provision for credit losses - Finance receivables .........     78.2         100.6         163.8         203.6
                            - Argentine reserve ...........    (12.5)           --         (12.5)           --
                                                              ------        ------        ------        ------
Total provision for credit losses .........................     65.7         100.6         151.3         203.6
Reserves relating to acquisitions, other ..................      2.2           5.7           8.9          13.2
                                                              ------        ------        ------        ------
  Additions to reserve for credit losses, net .............     67.9         106.3         160.2         216.8
                                                              ------        ------        ------        ------
Net credit losses:
  Specialty Finance .......................................     33.4          39.9          72.1          83.9
  Commercial Finance ......................................     28.2          29.9          54.6          55.0
  Equipment Finance .......................................     15.5          38.6          41.8          76.7
  Capital Finance .........................................      6.5            --          14.4           7.1
                                                              ------        ------        ------        ------
  Total net credit losses .................................     83.6         108.4         182.9         222.7
                                                              ------        ------        ------        ------
Balance end of period .....................................   $621.0        $754.9        $621.0        $754.9
                                                              ======        ======        ======        ======
Reserve for credit losses as a percentage of
  finance receivables .....................................                                 1.95%         2.66%
                                                                                           =====          ====
Reserve for credit losses as a percentage of past due
  receivables (60 days or more)(1) ........................                                108.9%         81.5%
                                                                                           =====          ====
Reserve for credit losses as a percentage of
  non-performing assets(2) ................................                                110.5%         80.2%
                                                                                           =====          ====

--------------------------------------------------------------------------------
(1)   The reserve for credit losses as a percentage of past due  receivables (60
      days or more),  excluding  telecommunication  and  Argentine  reserves and
      corresponding delinquencies,  was 96.3% at June 30, 2004 and 55.6% at June
      30, 2003.

(2)   The reserve for credit  losses as a percentage of  non-performing  assets,
      excluding  telecommunication  and  Argentine  reserves  and  corresponding
      non-performing  assets,  was 105.9% at June 30, 2004 and 58.1% at June 30,
      2003.

      The  decreased  provision  for 2004 in  relation  to 2003  reflects  lower
charge-offs  and  improving  credit  metrics.  During the  quarter,  we sold our
remaining assets in Argentina and transferred the remaining  specific  Argentine
reserve to other portfolio reserves. See "Credit Metrics" for further discussion
on net charge-offs and other related statistics.


                                       27


      Reserve for Credit Losses

      The  following  table  presents the  components  of the reserve for credit
losses, both in amount and as a percentage of corresponding  finance receivables
($ in millions):




                                   June 30, 2004      December 31, 2003      June 30, 2003
                                 -----------------    -----------------    -----------------
                                 Amount       %       Amount       %       Amount        %
                                 ------       -       ------       -       ------        -
                                                                     
Finance receivables ..........   $544.1    1.73%       $524.6   1.71%       $491.8     1.78%
Telecommunications(1) ........     76.9   18.20%        106.6  19.16%        128.1    19.77%
Argentina(2) .................       --      --          12.5  55.07%        135.0    80.36%
                                 ------                ------               ------
Total ........................   $621.0    1.95%       $643.7   2.06%       $754.9     2.66%
                                 ======                ======               ======

--------------------------------------------------------------------------------
(1)   Percentage of finance receivables in telecommunications portfolio.
(2)   Percentage of finance receivables in Argentina.

      The  decline in the  reserve  for credit  losses at June 30, 2004 from the
2003  periods,  in both  amount  and  percentage,  was due to  telecommunication
charge-offs  taken against the previously  established  specific reserve and the
improving credit metrics. The decline in the specific Argentine reserve resulted
largely from the fourth quarter 2003 charge-off of $101.0 million,  and the sale
of that business during the second quarter of 2004.

Reserve for Credit Losses -- Finance Receivables

      The reserve for credit losses is determined based on three key components:
(1) specific  reserves for collateral  dependent  loans which are impaired under
SFAS 114, (2) reserves for estimated losses inherent in the portfolio based upon
historical  and projected  credit  trends and (3) reserves for general  economic
environment and other factors.

      The  reserve  includes   specific  reserves  relating  to  impaired  loans
(excluding  telecommunication  and Argentine) of $35.9 million at June 30, 2004,
compared  to $66.4  million at December  31, 2003 and $51.7  million at June 30,
2003.  The portion of the reserve  related to the  inherent  estimated  loss and
estimation  risk reflect our  evaluation of trends in our key credit  metrics as
well as our assessment of risk in certain industry sectors, including commercial
aerospace.

      The  consolidated  reserve  for credit  losses is  intended to provide for
losses  inherent in the portfolio,  which requires the  application of estimates
and significant  judgment as to the ultimate  outcome of collection  efforts and
realization  of collateral  values,  among other things.  Therefore,  changes in
economic  conditions or credit  metrics,  including past due and  non-performing
accounts,  or  other  events  affecting  specific  obligors  or  industries  may
necessitate  additions  or  reductions  to the  consolidated  reserve for credit
losses.  Management continues to believe that the credit risk characteristics of
the  portfolio  are  well  diversified  by  geography,  industry,  borrower  and
equipment  type.  Refer  to  "Concentrations"  for  more  information.  Based on
currently available information,  management believes that our total reserve for
credit losses is adequate.

Reserve for Credit Losses -- Telecommunications

      The  telecommunications  reserve was $76.9 million at June 30, 2004, as we
have recorded net  charge-offs of $123.1 million  against this specific  reserve
since its  establishment.  We added  $200.0  million to the  reserve  for credit
losses  during  the  quarter  ended  June 30,  2002 in  light  of the  continued
deterioration in the telecommunications  sector at that time,  particularly with
respect to our competitive local exchange carrier ("CLEC") portfolio.

      Our  telecommunications  portfolio is included in  "Communications" in the
industry  composition  table  included in Note 4 to the  Consolidated  Financial
Statements.  This portfolio  includes  lending and leasing  transactions  to the
telecommunications sector. Lending and leasing of telecommunication equipment to
non-telecom  companies  is conducted in our  Specialty  Finance  business and is
categorized according to the customer's  ("obligor's")  industry in the industry
composition table.  Certain statistical data is presented in the following table
($ in millions):


                                       28





                                                                 June 30,      December 31,      June 30,
                                                                   2004            2003            2003
                                                                  ------          ------          ------
                                                                                         
CLEC accounts ................................................    $159.0          $197.8          $224.3
Other telecommunication accounts .............................     263.6           381.2           423.6
                                                                  ------          ------          ------
Total telecommunication portfolio ............................    $422.6          $579.0          $647.9
                                                                  ======          ======          ======
Portfolio as a % of total financing and leasing assets .......       1.0%            1.5%            1.7%
Number of accounts ...........................................        36              44              53
Top 10 accounts ..............................................    $230.8          $253.4          $262.7
Largest account exposure .....................................    $ 30.7          $ 31.0          $ 33.4
Non-performing accounts ......................................    $ 48.5          $ 57.2          $ 94.2
Number of non-performing accounts ............................         7               6              10
Non-performing accounts as a percentage of portfolio .........      11.5%            9.9%           14.5%


Reserve for Credit Losses -- Argentina

      During the  quarter we  completed  the  previously  announced  sale of our
Argentine  portfolio to an Argentine bank at a modest gain.  With the completion
of this  transaction,  we transferred  the remaining  specific  reserve of $12.5
million to the Reserve for Credit Losses -- Finance Receivables.

      In the  first  half of 2002,  we  established  a $135.0  million  specific
reserve for Argentine exposure to reflect the geopolitical risks associated with
collecting our peso-based  assets and  repatriating  them into U.S. dollars that
resulted from the Argentine  government  instituting  certain economic  reforms.
When established,  the reserve was about two-thirds of our combined currency and
credit  exposure.  During the fourth quarter of 2003,  based on the  substantial
progress  with  collection  and work out efforts,  we recorded a $101.0  million
charge-off  against this specific  reserve and transferred  $21.5 million to the
Reserve for Credit Losses -- Finance Receivables.

Credit Metrics

Net Charge-offs

      Net  charge-offs,  both in amount and as a percentage  of average  finance
receivables, are shown in the following tables ($ in millions):




                                                                    Quarter Ended June 30, 2004
                                                   ------------------------------------------------------------
                                                                              Before
                                                                          Liquidating and      Liquidating and
                                                          Total         Telecommunications   Telecommunications
                                                    ---------------     ------------------   ------------------
                                                                                       
Specialty Finance -- commercial ..................   $13.2    0.73%        $13.6   0.75%       $(0.4)       --
Commercial Finance ...............................    28.2    0.97%         11.3   0.40%         16.9    14.96%
Equipment Finance ................................    15.5    0.99%         13.9   0.90%          1.6     4.67%
Capital Finance ..................................     6.5    0.96%          6.5   0.96%           --       --
                                                     -----                 -----                -----
   Total Commercial Segments .....................    63.4    0.91%         45.3   0.66%         18.1    12.16%
Specialty Finance -- consumer ....................    20.2    1.94%         10.1   1.15%         10.1     5.59%
                                                     -----                 -----                -----
   Total .........................................   $83.6    1.04%        $55.4   0.72%        $28.2     8.53%
                                                     =====                 =====                =====

                                                                       Quarter Ended June 30, 2003
                                                   ------------------------------------------------------------
Specialty Finance -- commercial ..................  $ 23.9    1.33%        $23.9   1.33%          $--       --
Commercial Finance ...............................    29.9    1.18%         18.6   0.78%         11.3     7.13%
Equipment Finance ................................    38.6    2.51%         26.1   1.82%         12.5    12.00%
Capital Finance ..................................      --      --            --     --            --       --
                                                    ------                 -----                -----
   Total Commercial Segments .....................    92.4    1.40%         68.6   1.09%         23.8     8.87%
Specialty Finance -- consumer ....................    16.0    2.62%          9.9   2.43%          6.1     3.01%
                                                    ------                 -----                -----
   Total .........................................  $108.4    1.51%        $78.5   1.17%        $29.9     6.33%
                                                    ======                 =====                =====



                                       29





                                                                   Six Months Ended June 30, 2004
                                                    -----------------------------------------------------------
                                                                              Before
                                                                          Liquidating and      Liquidating and
                                                          Total         Telecommunications   Telecommunications
                                                    -----------------   ------------------   ------------------
                                                                                      
Specialty Finance -- commercial .................   $ 35.2    0.98%       $ 35.1   0.98%        $ 0.1   9.00%
Commercial Finance ..............................     54.6    0.94%         24.0   0.43%         30.6  12.49%
Equipment Finance ...............................     41.8    1.33%         34.9   1.14%          6.9   8.87%
Capital Finance .................................     14.4    1.06%         14.4   1.06%           --     --
                                                    ------                ------                -----
   Total Commercial Segments ....................    146.0    1.05%        108.4   0.80%         37.6  11.60%
Specialty Finance -- consumer ...................     36.9    1.88%         20.3   1.28%         16.6   4.45%
                                                    ------                ------                -----
   Total ........................................   $182.9    1.15%       $128.7   0.85%        $54.2   7.78%
                                                    ======                ======                =====

                                                                  Six Months Ended June 30, 2003
                                                   ------------------------------------------------------------
Specialty Finance -- commercial .................   $ 54.9    1.53%       $ 54.5   1.52%        $ 0.4   7.84%
Commercial Finance ..............................     55.0    1.12%         35.2   0.76%         19.8   6.15%
Equipment Finance ...............................     76.7    2.45%         55.8   1.92%         20.9   8.94%
Capital Finance .................................      7.1    0.49%          1.8   0.10%          5.3     --
                                                    ------                ------                -----
   Total Commercial Segments ....................    193.7    1.48%        147.3   1.18%         46.4   8.08%
Specialty Finance -- consumer ...................     29.0    2.53%         16.5   2.23%         12.5   3.05%
                                                    ------                ------                -----
   Total ........................................   $222.7    1.56%       $163.8   1.23%        $58.9   5.99%
                                                    ======                ======                =====


      Total   charge-offs   continued  to  decline   during   2004,   reflecting
improvements across virtually all segments:

      o     Specialty  Finance -- commercial  improvements were primarily in the
            vendor programs,  small-ticket  and  international  portfolios.  Net
            charge-offs for the current quarter also reflected a higher level of
            recoveries.

      o     Commercial  Finance  charge-offs  fell well  below the prior year in
            both the asset-based lending and factoring business.  In conjunction
            with  combination  of the former  Structured  Finance  into  Capital
            Finance,  the  communications and media portfolio was transferred to
            this  segment.  As  a  result,   charge-offs  against  the  specific
            telecommunications  reserve  are  reflected  in  this  segment.  See
            "Results by Business Segment" for further discussion.

      o     Equipment Finance  improvement was considerable in relation to prior
            year due to broad-based  reductions across all product lines in both
            the U.S. and Canada.

      o     Specialty  Finance-consumer   charge-offs,   while  up  in  absolute
            amounts,  were down as a percentage of finance  receivables from the
            prior year  reflecting the return to on balance sheet funding of the
            home equity portion of this portfolio.


                                       30


      Past Due and Non-performing Assets

      The following table sets forth certain information concerning our past due
(sixty days or more) and  non-performing  assets and the related  percentages of
finance receivables ($ in millions):




                                             June 30, 2004      December 31, 2003      June 30, 2003
                                           ----------------     -----------------    ----------------
                                                                             
Past Dues:
Specialty Finance -- commercial ........   $185.7    2.50%       $226.4   3.17%       $249.6    3.58%
Commercial Finance .....................    107.4    0.96%        131.9   1.14%        187.5    1.83%
Equipment Finance ......................     95.9    1.53%        137.9   2.18%        253.0    4.21%
Capital Finance ........................     18.2    0.69%         30.5   1.11%        107.9    3.90%
                                           ------                ------               ------
   Total Commercial Segments ...........    407.2    1.48%        526.7   1.90%        798.0    3.07%
Specialty Finance -- consumer ..........    163.3    3.86%        149.6   4.26%        128.1    5.26%
                                           ------                ------               ------
   Total ...............................   $570.5    1.79%       $676.3   2.16%       $926.1    3.26%
                                           ======                ======               ======
Non-performing assets:
Specialty Finance -- commercial ........   $ 93.4    1.26%       $119.8   1.68%       $140.0    2.01%
Commercial Finance .....................    116.1    1.03%        132.5   1.15%        208.4    2.04%
Equipment Finance ......................    173.6    2.76%        218.3   3.46%        337.8    5.62%
Capital Finance ........................     13.2    0.50%         49.7   1.81%        116.0    4.19%
                                           ------                ------               ------
   Total Commercial Segments ...........    396.3    1.44%        520.3   1.87%        802.2    3.09%
Specialty Finance -- consumer ..........    165.9    3.92%        156.2   4.45%        139.0    5.70%
                                           ------                ------               ------
   Total ...............................   $562.2    1.77%       $676.5   2.16%       $941.2    3.31%
                                           ======                ======               ======
Non accrual loans ......................   $468.9                $566.5               $804.6
Repossessed assets .....................     93.3                 110.0                136.6
                                           ------                ------               ------
   Total non-performing assets .........   $562.2                $676.5               $941.2
                                           ======                ======               ======


      The June 30, 2004 delinquency rate of 1.79% marked the seventh consecutive
quarter of improvement,  with the most notable declines in Specialty  Finance --
commercial and Equipment Finance.

      o     Specialty  Finance -- commercial  delinquency  improvement from both
            prior year  periods  was driven by  declines  in the Small  Business
            Lending portfolio, the international portfolios, most notably in our
            European  operations,  where servicing was centralized  during 2003,
            and in the small / mid-ticket business.

      o     Commercial  Finance past due levels were down considerably from 2003
            due to  improvements  in the  Commercial  Services  (factoring)  and
            Business  Credit  (asset-based  lending)  units  as  well  as in the
            telecommunications portfolio.

      o     Equipment Finance delinquency  improved across virtually all product
            lines in relation to both 2003  periods and was down 62% in absolute
            amounts from June 2003.

      o     Capital Finance  improvement from 2003 included lower delinquency in
            the project finance portfolio.

      o     Specialty  Finance -- consumer  delinquency  was up in dollar amount
            but  down  as  a  percentage  of  finance   receivables  from  2003,
            reflecting a return to on balance  sheet  funding of the home equity
            portfolio. However, consumer delinquency on a managed basis has been
            relatively stable in percentage terms over the periods presented.

      Likewise,  non-performing assets also declined for the seventh consecutive
quarter,   reflecting   the  same   trends   discussed   above.   Non-performing
telecommunications accounts (in Commercial Finance) totaled $48.5 million, $57.2
million and $94.2  million at June 30, 2004,  December  31,  2003,  and June 30,
2003, respectively.


                                       31


      Managed  past due loans in dollar  amount and as a  percentage  of managed
financial assets are shown in the table below ($ in millions):




                                           June 30, 2004     December 31, 2003      June 30, 2003
                                         ----------------    -----------------   ------------------
                                                                           
Past Dues:
Specialty Finance -- commercial .......  $266.1    2.22%     $  321.2   2.77%     $  318.5   2.88%
Commercial Finance ....................   107.4    0.96%        131.9   1.14%        187.5   1.83%
Equipment Finance .....................   168.1    1.79%        243.6   2.49%        395.5   3.94%
Capital Finance .......................    18.2    0.66%         30.5   1.11%        107.9   3.90%
                                         ------              --------             --------
   Total Commercial Segments ..........   559.8    1.59%        727.2   2.04%      1,009.4   2.96%
Specialty Finance -- consumer .........   309.0    4.74%        294.8   4.78%        268.4   4.55%
                                         ------              --------             --------
   Total ..............................  $868.8    2.08%     $1,022.0   2.44%     $1,277.8   3.20%
                                         ======              ========             ========


      Managed past due loans decreased both in dollar amount and as a percentage
of managed financial  assets,  reflecting the same factors that are discussed in
the owned delinquency analysis.

Salaries and General Operating Expenses

      The  efficiency  ratio and the ratio of  salaries  and  general  operating
expenses to average managed assets ("AMA") are summarized in the following table
($ in millions):




                                                            Quarters Ended June 30,   Six Month Ended June 30,
                                                           ------------------------   ------------------------
                                                              2004          2003          2004         2003
                                                           ----------    ----------    ----------   ----------
                                                                                         
Efficiency ratio (1) .................................         42.3%          40.1%         41.7%         40.9%
Salaries and general operating expenses as a
  percentage of AMA(2) ...............................         2.23%          1.93%         2.19%         1.97%
Salaries and general operating expenses ..............    $   260.3      $   220.7     $   507.6     $   446.3
Average Managed Assets ...............................    $46,608.4      $45,764.8     $46,406.5     $45,385.8


--------------------------------------------------------------------------------
(1)   Efficiency  ratio is the ratio of salaries and general  operating  margin,
      excluding the provision for credit losses.
(2)   "AMA" means average managed  assets,  which is average earning assets plus
      the  average  of  finance  receivables  previously  securitized  and still
      managed by us.

      Salaries  and general  operating  expenses  for the quarter and six months
ended June 30,  2004  increased  from the prior year  periods  primarily  due to
higher incentive-based compensation, including restricted stock awards, employee
separation  costs  of  approximately   $4.3  million  related  to  the  business
realignments in Capital Finance and Commercial Finance,  acquisition  activities
and higher corporate expenses reflecting increased  advertising,  governance and
compliance-related costs. Personnel decreased to approximately 5,705 at June 30,
2004, from 5,845 at June 30, 2003.

      Beginning with the March 2004 quarter,  we reclassified  debt  commissions
from general  operating  expense to interest  expense to reflect  all-in funding
costs in margin.  This change was also made in the historical  comparative  data
and does not impact net income. As a result of this change,  prior year salaries
and general operating  expenses were decreased by approximately $6.7 million for
the quarter  and $14.7  million for the six months  ended June 30,  2003,  which
reduced (improved) the historically reported ratios.

      Expenses are monitored closely by business unit and corporate  management,
and are reviewed monthly. An approval and review procedure is in place for major
capital  expenditures,  such  as  computer  equipment  and  software,  including
post-implementation  evaluations.  We continue to target an improved  efficiency
ratio in the mid 30% area and an AMA ratio of under 2.00%,  as we have  existing
capacity  to  grow  assets  without   commensurate  expense  increases  and  the
restructuring and portfolio  dispositions will reduce corresponding  expenses in
the second half of the year.

Gain on Redemption of Debt

      In January 2004 and December  2003, we called at par $1.25 billion of term
debt  securities.  These notes were listed on the New York Stock  Exchange under
the ticker symbols CIC and CIP and are commonly  known as PINEs


                                       32


("Public  Income  Notes").  The  securities  carried  coupon  rates of 8.25% and
8.125%,  but were marked down to a market  interest rate yield of  approximately
7.5% in our financial  statements through purchase  accounting.  In light of the
high coupon rates, we called the securities for redemption pursuant to the terms
outlined  in the  prospectuses.  The call of $512  million on January  15,  2004
resulted  in a pretax gain of $41.8  million  ($25.5  million  after tax) in the
first quarter of 2004.  The December  call of $735 million  resulted in a pretax
gain of $50.4 million  ($30.8  million  after tax) during the fourth  quarter of
2003.

Income Taxes

      The following table sets forth certain  information  concerning our income
taxes ($ in millions):

                              Quarters Ended June 30,  Six Months Ended June 30,
                              -----------------------  -------------------------
                                 2004         2003        2004         2003
                                --------    ---------   ---------    ---------
Provision for income taxes      $112.8        $89.2       $233.9       $172.1
Effective tax rate                39.0%        39.0%        39.0%        39.0%

      The effective tax rate exceeds the U.S.  Federal tax rate of 35% primarily
due to state and local, and foreign income taxes.

      At  June  30,  2004,  CIT  had  U.S.   federal  net  operating  losses  of
approximately  $2,328 million,  which expire in various years beginning in 2011.
In  addition,  CIT has various  state net  operating  losses that will expire in
various  years  beginning  in 2004.  Federal and state  operating  losses may be
subject to annual use limitations under section 382 of the Internal Revenue Code
of 1986, as amended, and other limitations under certain state laws.  Management
believes that CIT will have  sufficient  taxable  income in future years and can
avail itself of tax planning  strategies in order to fully utilize these losses.
Accordingly, we do not believe a valuation allowance is required with respect to
these net operating losses.

      CIT has open tax years in the U.S.,  Canada and other  jurisdictions  that
are currently under  examination by the applicable tax authorities,  and certain
later  tax  years  that  may  in the  future  be  subject  to  examination.  CIT
periodically  evaluates  the adequacy of our related tax  reserves,  taking into
account  our  open  tax  return  positions,  tax law  changes  and  third  party
indemnifications.  We believe that our tax reserves are  appropriate.  The final
determination  of tax audits and any  related  litigation  could  affect our tax
reserves.

Results by Business Segment

      The  tables  that  follow  summarize  selected  financial  information  by
business  segment,  based upon a fixed leverage ratio across business units, and
the allocation of most corporate expenses ($ in millions):




                                            Quarters Ended June 30,   Six Months Ended June 30,
                                            -----------------------   -------------------------
                                              2004          2003         2004         2003
                                              ----          ----         ----         ----
                                                                          
Net Income (Loss)
Specialty Finance ........................   $ 81.7        $ 63.0        $159.9       $115.2
Commercial Finance .......................     71.2          63.0         139.3        122.5
Equipment Finance ........................     18.3           7.9          33.5         18.6
Capital Finance ..........................     31.2          16.4          52.8         30.9
                                             ------        ------        ------       ------
  Total Segments .........................    202.4         150.3         385.5        287.2
Corporate, including certain charges .....    (25.8)        (13.4)        (19.6)       (23.3)
                                             ------        ------        ------       ------
  Total ..................................   $176.6        $136.9        $365.9       $263.9
                                             ======        ======        ======       ======
Return on AEA
Specialty Finance ........................     2.43%         2.07%         2.44%        1.91%
Commercial Finance .......................     3.47%         3.25%         3.43%        3.24%
Equipment Finance ........................     1.06%         0.46%         0.97%        0.53%
Capital Finance ..........................     1.36%         0.77%         1.16%        0.75%
  Total Segments .........................     2.14%         1.70%         2.07%        1.65%
Corporate, including certain charges .....    (0.28)%       (0.17)%       (0.12)%      (0.15)%
  Total ..................................     1.86%         1.53%         1.95%        1.50%



                                       33


      During the June 2004 quarter,  the former  Structured  Finance segment was
combined into the Capital  Finance  segment to better align with the marketplace
and to improve  efficiency.  As part of this  re-alignment,  approximately  $1.3
billion of  communications  and media  assets  were  transferred  to  Commercial
Finance.   Prior  period   balances  have  been   conformed  to  present  period
presentation.

      For all periods  shown,  Corporate  includes the operating  results of the
venture  capital  business   including  gains  and  losses  on  venture  capital
investments (losses of $1.5 million and $13.2 million after tax for the quarters
ended June 30, 2004 and 2003 and losses of $5.3 million and $22.1  million after
tax for the six months ended June 30, 2004 and 2003) and  unallocated  corporate
operating  expenses.  For the six months  ended June 30,  2004,  Corporate  also
includes the gain on the early redemption of debt ($25.5 million after tax).

      Results by segment were as follows:

      o     Specialty  Finance   profitability   improvement   reflected  strong
            earnings in the small-ticket commercial lines and in the home equity
            loans  unit.  The sale of a $100  million  test  equipment  business
            resulted in a $13.1  million  pre-tax  gain.  Results also include a
            charge of $11.9  million to reduce $120 million  principal  value of
            recreational  vehicle and marine assets (which were  transferred  to
            assets held for sale) to estimated  fair market value  following the
            decision  this  quarter  to pursue a more rapid  liquidation.  These
            portfolios were sold on July 30, 2004 at a price  approximating  the
            June 30, 2004 carrying value.

      o     Commercial   Finance  earnings  remained  strong,   benefiting  from
            continued high returns in both the factoring and asset-based lending
            businesses. The current year results also benefited from last year's
            factoring  acquisitions.  Profitability  on the  communications  and
            media  portfolio   (transferred   from  Capital  Finance)   included
            syndication activity.

      o     Equipment   Finance   returns,   while  still   below   management's
            expectations,  increased  from  the  prior  year,  reflecting  lower
            charge-offs,   improved   margins   and  higher   equipment   gains.
            Profitability  improvement was broad-based  across business lines in
            both the U.S. and Canada.

      o     Capital  Finance  earnings   reflected  improved  rail  rentals  and
            syndication  gains in the project finance portfolio done largely for
            risk management purposes.  Aerospace lease margins and profitability
            was dampened by a $14.8 million  additional  depreciation  charge to
            reduce   certain  older  leased   aircraft,   which  are  no  longer
            manufactured, to estimated fair value.


                                       34


      Financing and Leasing Assets

      The  managed  assets  of  our  business  segments  and  the  corresponding
strategic business units are presented in the following table ($ in millions):




                                                                                            Percentage Change
                                                                                        ------------------------
                                               June 30,    December 31,     June 30,    June 04 vs.  June 04 vs.
                                                 2004          2003           2003        Dec. 03      June 03
                                              ---------    ------------    ---------    -----------  -----------
                                                                                        
Specialty Finance
Commercial
   Finance receivables .....................  $ 7,441.6     $ 7,150.0      $ 6,975.4        4.1 %        6.7 %
   Operating lease equipment, net ..........    1,084.0         959.5        1,171.2       13.0 %       (7.4)%
   Finance receivables held for sale .......    1,053.0         548.1          622.6       92.1 %       69.1 %
                                              ---------     ---------      ---------
     Owned assets ..........................    9,578.6       8,657.6        8,769.2       10.6 %        9.2 %
   Finance receivables securitized and
     managed by CIT ........................    3,480.2       3,915.4        3,473.9      (11.1)%        0.2 %
                                              ---------     ---------      ---------
   Managed assets ..........................   13,058.8      12,573.0       12,243.1        3.9 %        6.7 %
                                              ---------     ---------      ---------
Consumer
   Finance receivables -- home equity ......    3,377.2       2,513.1        1,502.1       34.4 %      124.8 %
   Finance receivables -- other ............      857.8         997.7          934.5      (14.0)%       (8.2)%
   Finance receivables held for sale .......      265.1         150.0          395.0       76.7 %      (32.9)%
                                              ---------     ---------      ---------
     Owned assets ..........................    4,500.1       3,660.8        2,831.6       22.9 %       58.9%
   Home equity finance receivables
     securitized and managed by CIT ........    1,487.9       1,867.6        2,276.7      (20.3)%      (34.6)%
   Other finance receivables securitized
     and managed by CIT ....................      528.0         642.5          786.0      (17.8)%      (32.8)%
                                              ---------     ---------      ---------
   Managed assets ..........................    6,516.0       6,170.9        5,894.3        5.6 %       10.5 %
                                              ---------     ---------      ---------
Commercial Finance Segment
Commercial Services
   Finance receivables .....................    5,808.6       6,325.8        4,766.3       (8.2)%       21.9 %
Business Credit
   Finance receivables .....................    5,409.1       5,247.1        5,454.1        3.1 %       (0.8)%
                                              ---------     ---------      ---------
     Owned assets ..........................   11,217.7      11,572.9       10,220.4       (3.1)%        9.8 %
                                              ---------     ---------      ---------
Equipment Finance Segment

   Finance receivables .....................    6,285.3       6,317.9        6,014.6       (0.5)%        4.5 %
   Operating lease equipment, net ..........      380.6         419.6          504.0       (9.3)%      (24.5)%
   Finance receivables held for sale .......      181.6         220.2          192.4      (17.5)%       (5.6)%
                                              ---------     ---------      ---------
     Owned assets ..........................    6,847.5       6,957.7        6,711.0       (1.6)%        2.0 %
   Finance receivables securitized and
     managed by CIT ........................    2,904.9       3,226.2        3,819.9      (10.0)%      (24.0)%
                                              ---------     ---------      ---------
   Managed assets ..........................    9,752.4      10,183.9       10,530.9       (4.2)%       (7.4)%
                                              ---------     ---------      ---------
Capital Finance Segment
   Finance receivables .....................    2,649.0       2,748.6        2,766.6       (3.6)%       (4.3)%
   Operating lease equipment, net ..........    6,374.2       6,236.4        5,884.8        2.2 %        8.3 %
   Finance receivables held for sale .......       95.5            --             --      100.0 %      100.0 %
                                              ---------     ---------      ---------
     Owned assets ..........................    9,118.7       8,985.0        8,651.4        1.5%         5.4 %
                                              ---------     ---------      ---------
Other -- Equity Investments ................      190.9         249.9          325.4      (23.6)%      (41.3)%
                                              ---------     ---------      ---------
   Finance receivables .....................  $31,828.6     $31,300.2      $28,413.6        1.7 %       12.0 %
   Operating lease equipment, net ..........    7,838.8       7,615.5        7,560.0        2.9 %        3.7 %
   Finance receivables held for sale .......    1,595.2         918.3        1,210.0       73.7 %       31.8 %
                                              ---------     ---------      ---------
   Financing and leasing assets
     excluding equity investments ..........   41,262.6      39,834.0       37,183.6        3.6 %       11.0 %
   Equity investments (included in
     other assets) .........................      190.9         249.9          325.4      (23.6)%      (41.3)%
                                              ---------     ---------      ---------
     Owned assets ..........................   41,453.5      40,083.9       37,509.0        3.4 %       10.5 %
   Finance receivables securitized and
     managed by CIT ........................    8,401.0       9,651.7       10,356.5      (13.0)%      (18.9)%
                                              ---------     ---------      ---------
     Total Managed assets ..................  $49,854.5     $49,735.6      $47,865.5        0.2 %        4.2 %
                                              =========     =========      =========



                                       35


      The increase in owned assets from June 2003 was driven by: the combination
of a strong mortgage  refinancing  market and bulk  receivable  purchases in the
Specialty  Finance home equity  portfolio;  strategic  acquisitions in Specialty
Finance  commercial  including a  technology  leasing  business;  two  factoring
acquisitions  in Commercial  Services in late 2003;  and deliveries of aerospace
assets in Capital Finance.  The decline in receivables  securitized reflects our
return to  funding  home  equity  growth on balance  sheet and a lower  level of
commercial equipment securitizations.  The current period activity also reflects
the capital allocation  initiatives  discussed  previously in "Profitability and
Key Business Trends."

      The table below  summarizes  the targeted  non-strategic  business  lines.
During the second quarter, we announced plans to sell the remaining recreational
marine and recreational  vehicle  receivables.  During the quarter we recorded a
pretax  charge  of $11.9  million  to reduce  $120  million  principal  value of
recreational  vehicle and marine assets in Specialty  Finance to estimated  fair
market  value  following  the  decision  this  quarter  to  pursue a more  rapid
liquidation of these portfolios.  In addition,  during 2001 we ceased making new
venture capital  investments beyond existing  commitments,  and during the first
quarter  of 2004 we entered  into an  agreement  to sell our  direct  investment
portfolio. See "Losses on Venture Capital Investments" for more information.  ($
in millions)

                                           June 30,     December 31,    June 30,
                                             2004           2003          2003
                                           --------     ------------    --------
Portfolio
Manufactured housing ....................    $586           $584         $  605
Recreational marine .....................      63             86            104
Recreational vehicle ....................      43             58             46
Franchise finance .......................      70            102            173
Owner-operator trucking .................      52             91            155
Wholesale inventory finance .............      --              2              2
                                             ----           ----         ------
   Total on-balance sheet financing
      and leasing assets ................    $814           $923         $1,085
                                             ====           ====         ======

      The following table presents new business volume (excluding  factoring) by
segment ($ in millions):




                                  Quarters Ended June 30,   Six Months Ended June 30,
                                  -----------------------   -------------------------
                                   2004         2003           2004         2003
                                   ----         ----           ----         ----
                                                              
Specialty Finance .............  $3,278.3     $2,937.3      $ 6,854.2     $6,010.3
Commercial Finance ............     778.4        968.6        1,445.6      1,385.8
Equipment Finance .............   1,049.2        857.5        1,971.3      1,686.4
Capital Finance ...............     487.5        474.3          650.1        766.0
                                 --------     --------      ---------     --------
  Total new business volume ...  $5,593.4     $5,237.7      $10,921.2     $9,848.5
                                 ========     ========      =========     ========


      New origination  volume for the quarter and six months ended June 30, 2004
included   stronger   volume  from  our  Specialty   Finance   vendor   finance,
international and home equity units, as well as improved demand for financing in
Equipment Finance and working capital  financings in the Business Credit unit of
Commercial Finance.

Concentrations

Ten Largest Accounts

      Our ten largest  financing  and leasing  asset  accounts in the  aggregate
represented 5.3% of our total financing and leasing assets at June 30, 2004 (the
largest  account being less than 1.0%),  5.2% at December 31, 2003,  and 5.1% at
June 30, 2003.


                                       36


Leveraged Leases

      As of June 30, 2004,  net  investments  in leveraged  leases  totaled $1.2
billion,  or 3.9% of finance  receivables,  with the major components being: (i)
$552.8 million in commercial aerospace transactions, including $219.9 million of
tax-optimization  leveraged  leases (which  generally  have  increased  risk for
lessors in relation to conventional lease structures due to additional  leverage
in the  transactions);  (ii)  $331.6  million of project  finance  transactions,
primarily  in the power and utility  sector;  and (iii)  $230.1  million in rail
transactions.

Joint Venture Relationships

      Our strategic relationships with industry-leading  equipment vendors are a
significant origination channel for our financing and leasing activities.  These
vendor alliances include traditional vendor finance programs, joint ventures and
profit sharing structures. Our vendor programs with Dell, Snap-on and Avaya Inc.
are among our largest  alliances.  The joint  venture  agreements  with Dell and
Snap-on  run  until  October  2005 and  January  2007,  respectively.  The Avaya
agreement,  which relates to profit sharing on a CIT direct origination program,
extends  through  September  2006. We expect to announce by the end of the third
quarter of 2004 a contract  continuing  and  modifying  the current terms of the
relationship.

      At June 30, 2004,  our  financing  and leasing  assets  included  $1,987.4
million,  $1,111.2  million and $780.6 million related to the Dell,  Snap-on and
Avaya  programs,  respectively.  These amounts  include  receivables  originated
directly by CIT as well as receivables  purchased  from joint venture  entities.
Securitized  assets included $2,234.1 million,  $68.7 million and $578.9 million
from the Dell, Snap-on and Avaya origination sources, respectively.

      A significant reduction in origination volumes from any of these alliances
could have a material impact on our asset and net income levels.  For additional
information  regarding  certain of our joint venture  activities,  see Note 8 --
Certain Relationships and Related Transactions.

Geographic Composition

      The following table summarizes  significant state  concentrations  greater
than 5.0% and foreign  concentrations  in excess of 1.0% of our owned  financing
and leasing  portfolio  assets.  For each period  presented,  our managed  asset
geographic  composition  did not  differ  significantly  from  our  owned  asset
geographic composition.

                                           June 30,   December 31,   June 30,
                                             2004         2003         2003
                                           --------   ------------   --------
State
   California .........................     10.6%        10.2%        10.3%
   Texas ..............................      8.1%         7.7%         7.6%
   New York ...........................      6.8%         7.4%         7.3%
   Other states .......................     54.2%        54.0%        53.6%
                                            ----         ----         ----
Total U.S. ............................     79.7%        79.3%        78.8%
                                            ====         ====         ====
Country
   Canada .............................      4.8%         5.1%         5.1%
   England ............................      2.7%         2.8%         3.3%
   Australia ..........................      1.3%         1.3%         1.2%
   Mexico .............................      1.3%         1.0%         0.9%
   Germany ............................      1.2%         1.0%         1.1%
   France .............................      1.0%         1.1%         0.9%
   China ..............................      1.0%         0.9%         1.2%
   Other countries ....................      7.0%         7.5%         7.5%
                                            ----         ----         ----
Total Outside U.S. ....................     20.3%        20.7%        21.2%
                                            ====         ====         ====


                                       37


Industry Composition

      The following  discussions  provide  information  with respect to selected
industry compositions.

Commercial Aerospace

      Our commercial aerospace  portfolio,  which includes financing and leasing
transactions with commercial  airlines and regional carriers,  is managed in our
Capital Finance segment.

      At June 30, 2004, our commercial  airlines portfolio consists of financing
and  leasing  assets with an average age of  approximately  7 years  (based on a
dollar value weighted average). The portfolio was comprised of 85 accounts, with
the  majority  placed with major  airlines  around the world.  The  portfolio at
December  31, 2003  consisted  of 84  customers,  and  aircraft  with a weighted
average age of  approximately 6 years.  The commercial  aircraft all comply with
stage III noise regulations.

      The following table  summarizes the composition of the commercial  airline
portfolio ($ in millions):




                                                June 30, 2004         December 31, 2003        June 30, 2003
                                            ---------------------  ----------------------  ---------------------
                                                Net      Number        Net       Number        Net      Number
                                            Investment  of Planes  Investment   of Planes  Investment  of Planes
                                            ----------  ---------  ----------   ---------  ----------  ---------
                                                                                         
By Geography:
   Europe                                    $2,241.7       72       $1,991.0      65       $1,930.9       62
   North America(1)                             930.4       68        1,029.7      72        1,060.9       76
   Asia Pacific                               1,080.9       41        1,013.6      40          879.5       36
   Latin America                                624.3       25          612.7      28          536.2       25
   Africa/Middle East                            56.0        3           69.1       4           71.7        4
                                             --------      ---       --------     ---       --------      ---
Total                                        $4,933.3      209       $4,716.1     209       $4,479.2      203
                                             ========      ===       ========     ===       ========      ===
By Manufacturer:
   Boeing                                    $2,653.9      138       $2,581.7     140       $2,607.9      140
   Airbus                                     2,250.0       61        2,114.6      57        1,847.5       48
   Other                                         29.4       10           19.8      12           23.8       15
                                             --------      ---       --------     ---       --------      ---
Total                                        $4,933.3      209       $4,716.1     209       $4,479.2      203
                                             ========      ===       ========     ===       ========      ===
By Body Type(2):
   Narrow                                    $3,673.3      163       $3,415.7     159       $3,218.7      152
   Intermediate                                 853.7       18          877.0      18          865.4       18
   Wide                                         376.9       18          403.6      20          371.3       18
   Other                                         29.4       10           19.8      12           23.8       15
                                             --------      ---       --------     ---       --------      ---
Total                                        $4,933.3      209       $4,716.1     209       $4,479.2      203
                                             ========      ===       ========     ===       ========      ===

--------------------------------------------------------------------------------
(1)   Comprised of net  investments in the U.S. and Canada of $745.7 million (62
      aircraft) and $184.7 million (6 aircraft) at June 30, 2004, $822.7 million
      (66  aircraft) and $207.0  million (6 aircraft) at December 31, 2003,  and
      $871.6  million (70 aircraft) and $189.3  million (6 aircraft) at June 30,
      2003, respectively.

(2)   Narrow body are single  aisle  design and consist  primarily of Boeing 737
      and 757 series and Airbus  A320  series  aircraft,  Intermediate  body are
      smaller twin aisle  design and consist  primarily of Boeing 767 series and
      Airbus A330  series  aircraft.  Wide body are large twin aisle  design and
      consist primarily of Boeing 747 and 777 series and Mc Donnell Douglas DC10
      series aircraft.

      The top five commercial  aerospace  exposures  totaled $1,098.4 million at
June 30,  2004,  the  largest of which was $316.9  million.  All top five are to
carriers  outside of the U.S., and three are to European  carriers.  The largest
exposure  to a U.S.  carrier  at June 30,  2004 was $134.2  million.  Of the 209
aircraft,  three are off-lease and covered by signed  letters of intent.  Future
revenues and aircraft  values could be impacted by the actions of the  carriers,
management's actions with respect to re-marketing the aircraft, airline industry
performance and aircraft utilization.

      The regional  aircraft  portfolio at June 30, 2004  consists of 124 planes
with a net investment of $309.2 million,  relatively unchanged from December 31,
2003. The carriers are primarily located in North America and Europe.  Operating
leases account for about 40% of the  portfolio,  with the rest capital leases or
loans.


                                       38


      The following is a list of our exposure to bankrupt aerospace carriers and
the current status of the related aircraft at June 30, 2004:

      o     UAL Corp. -- United Airlines leases 4 CIT-owned narrow body aircraft
            (2  Boeing  757  aircraft  and 2  Boeing  737  aircraft)  with a net
            investment of $84.5 million.

      o     Avianca Airlines -- Lessee of one MD 80 aircraft and one Boeing 757,
            with a combined net investment of $31.5 million.

      o     Air Canada -- Our net investment in aircraft is approximately  $48.5
            million, relating to one CIT-owned Boeing 767 aircraft.

      Additionally,   we  hold  Senior  A  tranche   Enhanced   Equipment  Trust
Certificates  ("EETCs")  issued by United  Airlines,  which are debt instruments
collateralized by aircraft  operated by the airline,  with a fair value of $42.5
million.  In connection with the United Airlines' filing under Chapter 11, as of
June  30,  2004,  we  have an  outstanding  balance  of  $27.6  million  (with a
commitment of $44 million) relating to a debtor-in-possession  facility. In July
2004, as co-arranger with three other lenders,  CIT committed to $250 million of
an aggregate $1.0 billion facility,  which is secured by unencumbered  aircraft,
among other collateral. This new transaction,  which is pending final bankruptcy
court approval, is expected to close in the third quarter of 2004. Upon closing,
in conjunction  with the other lenders,  we anticipate  further  syndicating our
exposure to $100 million or less.

      Our aerospace  assets  include both operating  leases and capital  leases.
Management  monitors economic conditions  affecting equipment values,  trends in
equipment values, and periodically  obtains third party appraisals of commercial
aerospace  equipment,  which  include  projected  rental  rates.  We adjust  the
depreciation  schedules of commercial aerospace equipment on operating leases or
residual values underlying capital leases,  when required.  Aerospace assets are
reviewed for  impairment  annually,  or more often when events or  circumstances
warrant.   An  aerospace   asset  is  defined  as  impaired  when  the  expected
undiscounted  cash flow over its expected  remaining  life is less than its book
value. Both historical information and current economic trends are factored into
the  assumptions and analyses used when  determining  the expected  undiscounted
cash flow. Included among these assumptions are the following:

      o     Lease terms

      o     Remaining life of the asset

      o     Lease rates supplied by independent appraisers

      o     Remarketing prospects

      o     Maintenance costs

      An  impairment  loss is  recognized  if  circumstances  indicate  that the
carrying  amount of the asset may not be recoverable.  Depreciation  expense for
the quarter ended June 30, 2004 included an additional $14.8 million  impairment
charge to reduce  certain  older,  out of production  aircraft to estimated fair
value. The additional  depreciation expense primarily relates to aircraft with a
single lessee with upcoming lease terminations and for which market rental rates
have recently declined.  Therefore, the projected cash flows no longer supported
the  corresponding  carrying  value,  resulting in the  additional  depreciation
impairment charge.

      Commercial airline equipment utilization is high, with only three aircraft
off-lease  (with a book  value  of  $32.1  million)  at  June  30,  2004,  which
demonstrates our ability to place aircraft.  However,  current placements are at
compressed rental rates,  which reflects current market  conditions.  Generally,
leases are being  written for terms  between  three and five  years.  Within the
regional aircraft  portfolio at June 30, 2004, there were 16 aircraft  off-lease
with a total  book  value of  approximately  $61.9  million.  See table in "Risk
Management" section for additional information regarding commitments to purchase
additional aircraft.

Other Assets

      Other  assets  totaled  $2.5  billion at June 30, 2004 and $3.3 billion at
December  31,  2003.  The  decline  in other  assets is  primarily  due to lower
receivables from derivative counterparties in 2004.

      Other  assets  primarily  consisted  of the  following  at June 30,  2004:
investments  in and  receivables  from  non-consolidated  subsidiaries  of  $0.6
billion, accrued interest and receivables from derivative counterparties of $0.3


                                       39


billion,  deposits on  commercial  aerospace  flight  equipment of $0.3 billion,
direct and private fund equity investments of $0.2 billion,  prepaid expenses of
$0.1 billion and repossessed assets and off-lease equipment of $0.1 billion. The
remaining balance includes furniture and fixtures, miscellaneous receivables and
other assets.

Risk Management

      Our risk management process is described in more detail in our 2003 Annual
Report on Form 10-K.

      Interest Rate Risk Management -- We monitor our interest rate  sensitivity
on a regular  basis by  analyzing  the impact of interest  rate changes upon the
financial  performance  of the business.  We also  consider  factors such as the
strength  of  the  economy,   customer   prepayment   behavior  and   re-pricing
characteristics of our assets and liabilities.

      We evaluate and monitor various risk metrics:

      o     Value at Risk (VAR), which measures the net economic value of assets
            by assessing the duration of assets and liabilities.

      Our asset portfolio is generally comprised of loans and leases of short to
intermediate  term.  As such,  the duration of our asset  portfolio is generally
less than three years.  We target to closely match the duration of our liability
portfolio with that of our asset  portfolio.  As of June 30, 2004, our liability
portfolio duration was slightly longer than our asset portfolio duration.

      o     Margin at Risk (MAR), which measures the impact of changing interest
            rates upon interest income over the subsequent twelve months.

      At the date that interest rate sensitivity is modeled, net interest income
is  derived  considering  the  current  level of  interest-sensitive  assets and
related run-off (including both contractual  repayment and historical prepayment
experience),  the current level of  interest-sensitive  liabilities  and related
maturities, and the current level of derivatives. Market interest rates are then
raised 100 basis points  instantaneously  and  parallel  across the entire yield
curve, and a "rate shocked" simulation is run.

      An immediate  hypothetical 100 basis point parallel  increase in the yield
curve on July 1,  2004  modeled  against  interest  rate  sensitive  assets  and
liabilities  as shown in the table below would reduce net income by an estimated
$15 million  after-tax over the next twelve months. A corresponding  decrease in
the yield curve would cause an increase in net income of a like amount. Although
management  believes that this measure provides an estimate of our interest rate
sensitivity,   there  are  certain  limitations  inherent  in  this  sensitivity
analysis,  as it is  unlikely  that rate  movements  would be  instantaneous  or
parallel,  nor would our assets and debt reprice immediately.  Additionally,  it
does not consider any potential remedial actions that management could take such
as the  pre-funding of liabilities  and other business  developments  consistent
with an  increasing  rate  environment  that may affect net income,  for example
asset  growth  and  changes to our  liability  durations.  Further,  it does not
account for  potential  changes in the credit  quality,  size,  composition  and
prepayment  characteristics of the balance sheet. Accordingly,  no assurance can
be given that actual  results  would not differ  materially  from the  estimated
outcomes of our  simulations.  Such  simulations  do not represent  management's
current view of future market interest rate movements.

      The following table  summarizes the composition of our interest  sensitive
assets (including  operating leases) and liabilities  (excluding  equity) before
and after derivatives:

                                 Before Swaps                After Swaps
                           --------------------------  -------------------------
                           Fixed rate   Floating rate  Fixed rate  Floating rate
                           ----------   -------------  ----------  -------------
         June 30, 2004

Assets ...................     57%           43%           57%          43%
Liabilities ..............     59%           41%           49%          51%

      December 31, 2003

Assets ...................     57%           43%           57%          43%
Liabilities ..............     63%           37%           49%          51%


                                       40


      Total  interest  sensitive  assets were $38.4 billion and $36.7 billion at
June 30, 2004 and December 31, 2003, while total interest sensitive  liabilities
were $33.0  billion and $31.5  billion at June 30, 2004 and  December  31, 2003.
Certain  December 31, 2003 amounts have been  adjusted to conform to the current
period presentation.

      Liquidity  Risk  Management -- Liquidity  risk refers to the risk of being
unable to meet potential cash outflows  promptly and  cost-effectively.  Factors
that could  cause such a risk to arise  might be a  disruption  of a  securities
market or other source of funds. We actively manage and mitigate  liquidity risk
by maintaining diversified sources of funding and committed alternate sources of
funding,  and we maintain and periodically  review a contingency funding plan to
be  implemented  in the  event of any form of  market  disruption.  The  primary
funding sources are commercial  paper (U.S.,  Canada and  Australia),  long-term
debt (U.S. and International) and asset-backed securities (U.S. and Canada).

      Outstanding  commercial  paper  totaled  $4.2 billion at June 30, 2004 and
December 31, 2003.  Our targeted U.S.  program size remains at $5.0 billion with
modest foreign programs  aggregating $500 million to be maintained in Canada and
Australia.  Our goal is to maintain  committed bank lines in excess of aggregate
outstanding commercial paper.  Consistent with our liquidity management strategy
to extend our maturity profile, on April 14, 2004 we retired a $2.0 billion bank
facility due in March 2005,  and a $2.1 billion line due in October 2004, and we
negotiated two new $2.1 billion facilities due April 2009 and April 2005. We now
have  aggregate  U.S.  bank  facilities  of $6.3  billion  with $4.2  billion in
multi-year facilities.

      We maintain  registration  statements  with the  Securities  and  Exchange
Commission  ("SEC") covering debt securities that we may sell in the future.  At
June 30, 2004, we had $3.9 billion of registered,  but unissued, debt securities
available under a shelf  registration  statement.  Term-debt  issued during 2004
totaled $6.2 billion:  $4.2 billion in variable-rate  medium-term notes and $2.0
billion in fixed-rate notes.

      To further  strengthen  our funding  capabilities,  we maintain  committed
asset backed facilities and shelf registration  statements,  which cover a range
of assets from equipment to consumer home equity  receivables and trade accounts
receivable.  While  these  are  predominantly  in the  U.S.,  we  also  maintain
facilities  for  Canadian  domiciled  assets.  As  of  June  30,  2004,  we  had
approximately  $3.8  billion  of  availability  in  our  committed  asset-backed
facilities,  including $1.0 billion relating to our trade  receivable  facility,
and $2.4 billion of registered, but unissued,  securities available under public
shelf  registration  statements  relating  to  our  asset-backed  securitization
program.

      Our  committed  asset-backed  commercial  paper  programs in the U.S.  and
Canada  provide a substantial  source of alternate  liquidity.  We also maintain
committed bank lines of credit to provide  backstop  support of commercial paper
borrowings  and  local  bank  lines to  support  our  international  operations.
Additional  sources of liquidity  are loan and lease  payments  from  customers,
whole-loan asset sales and loan syndications.

      We also  target and  monitor  certain  liquidity  metrics to ensure both a
balanced  liability  profile and adequate  alternate  liquidity  availability as
outlined in the following table:




                                                                                    June 30,   December 31,
Liquidity Measurement                                            Current Target       2004         2003
---------------------                                            ----------------    --------   ------------
                                                                                            
Commercial paper to total debt ...............................   Maximum of 15%         12%          13%
Short-term debt to total debt ................................   Maximum of 45%         34%          36%
Bank lines to commercial paper ...............................   Minimum of 100%       152%         149%
Aggregate alternate liquidity * to short-term debt ...........   Minimum of 75%        101%          93%

--------------------------------------------------------------------------------
*     Aggregate   alternative  liquidity  includes  available  bank  facilities,
      asset-backed conduit facilities and cash.

      Our credit  ratings are an important  factor in meeting our margin targets
as better  ratings  generally  correlate to lower cost of funds (see Net Finance
Margin, interest expense discussion).  The following credit ratings have been in
place since September 30, 2002:

                                       Short-Term     Long-Term       Outlook
                                       ----------     ---------       -------
Moody's ............................       P-1           A2           Stable
Standard & Poor's ..................       A-1            A           Stable
Fitch ..............................       F1             A           Stable


                                       41


      The credit ratings previously stated are not a recommendation to buy, sell
or hold securities and may be subject to revision or withdrawal by the assigning
rating organization.  Each rating should be evaluated independently of any other
rating.

      We have certain covenants contained in our legal documents that govern our
funding sources.  The most  significant  covenant in CIT's indentures and credit
agreements is a negative pledge  provision,  which limits granting or permitting
liens on our assets,  but provides for  exceptions for certain  ordinary  course
liens needed to operate our business.  In addition,  our credit  agreements also
contain a minimum net worth test of $4.0 billion.

      The following tables summarize various contractual  obligations,  selected
contractual cash receipts and contractual  commitments as of June 30, 2004 ($ in
millions):




                                                              Payments and Collections by Period
                                           -----------------------------------------------------------------------
                                                        Remaining
                                             Total        2004        2005        2006         2007        2008+
                                           ---------    ---------   ---------    -------     --------    ---------
                                                                                       
Commercial Paper ........................  $ 4,170.4    $ 4,170.4   $      --    $     --    $      --   $      --
Variable-rate term debt .................   10,931.6      2,178.7     3,332.8     2,794.0      1,802.3       823.8
Fixed-rate term debt ....................   19,330.3      1,492.3     4,348.8     2,684.1      3,447.8     7,357.3
Preferred capital securities ............      254.6           --          --          --           --       254.6
Lease rental expense ....................      158.5         24.9        43.8        33.4         26.2        30.2
                                           ---------    ---------   ---------     -------    ---------   ---------
   Total contractual obligations ........   34,845.4      7,866.3     7,725.4     5,511.5      5,276.3     8,465.9
                                           ---------    ---------   ---------     -------    ---------   ---------
Finance receivables(1) ..................   31,828.6      8,554.8     4,874.1     4,143.0      2,836.0    11,420.7
Operating lease rental income ...........    2,843.9        519.8       853.0       562.1        323.5       585.5
Finance receivables held for sale(2) ....    1,595.2      1,595.2          --          --           --          --
Cash-- current balance ..................    1,777.7      1,777.7          --          --           --          --
Retained interest in securitizations ....    1,242.2        387.4       377.6       229.2        127.9       120.1
                                           ---------    ---------   ---------     -------    ---------   ---------
   Total projected cash availability ....   39,287.6     12,834.9     6,104.7     4,934.3      3,287.4    12,126.3
                                           ---------    ---------   ---------    -------     ---------   ---------
Net projected cash inflow (outflow) .....  $ 4,442.2    $ 4,968.6   $(1,620.7)   $ (577.2)   $(1,988.9)  $ 3,660.4
                                           =========    =========   =========    ========    =========   =========

--------------------------------------------------------------------------------
(1)   Based upon contractual cash flows; amount could differ due to prepayments,
      extensions of credit, charge-offs and other factors.
(2)   Based upon management's intent to sell rather than contractual  maturities
      of underlying  assets.
(3)   Projected  proceeds from the sale of operating lease  equipment,  interest
      revenue from finance  receivables,  debt interest  expense and other items
      are excluded.  Obligations  relating to  postretirement  programs are also
      excluded.




                                                              Commitment Expiration by Period
                                           --------------------------------------------------------------------
                                                       Remaining
                                              Total       2004        2005       2006       2007        2008+
                                           ---------     --------    --------   --------   --------    --------
                                                                                     
Credit extensions .......................  $ 6,891.3     $1,177.6     $ 622.6   $1,172.9    $ 819.1    $3,099.1
Aircraft purchases ......................    2,561.0        399.0       906.0      996.0      260.0          --
Letters of credit .......................    1,322.8      1,184.1       135.1        3.2        0.2         0.2
Sale-leaseback payments .................      465.8          7.9        28.5       28.5       28.5       372.4
Manufacturer purchase commitments .......      226.4        226.4          --         --         --          --
Venture capital commitments .............      104.1          3.4         0.5         --        3.2        97.0
Guarantees ..............................      131.0        118.6          --         --       10.5         1.9
Acceptances .............................       18.4         18.4          --         --         --          --
                                           ---------     --------    --------   --------   --------    --------
Total contractual commitments ...........  $11,720.8     $3,135.4    $1,692.7   $2,200.6   $1,121.5    $3,570.6
                                           =========     ========    ========   ========   ========    ========


Internal Controls

      The  Internal  Controls   Committee  is  responsible  for  monitoring  and
improving  internal  controls and overseeing the internal  controls  attestation
mandated by Section 404 of the Sarbanes-Oxley Act of 2002 ("SARBOX"),  for which
the  implementation  year is  2004.  The  committee,  which  is  chaired  by the
Controller,  includes the CFO,  the Director of Internal  Audit and other senior
executives in finance, legal, risk management and information technology. We are
currently  finalizing  the  documentation  phase of the SARBOX  project and have
entered the testing  phase.  Our  management  self-assessment  is targeted to be
completed during the second half of 2004.


                                       42


Off-Balance Sheet Arrangements

Securitization Program

      We fund asset  originations  on our  balance  sheet by  accessing  various
sectors of the capital  markets,  including the term debt and  commercial  paper
markets.  In an effort to broaden  funding  sources  and  provide an  additional
source of liquidity, we use an array of securitization programs,  including both
asset-backed commercial paper and term structures, to access both the public and
private asset-backed  securitization markets. Current products in these programs
include  receivables  and leases  secured by equipment as well as consumer loans
secured by residential real estate. The following table summarizes data relating
to our securitization balance and activity ($ in millions):

                                                              June 30,
                                                      ---------------------
                                                        2004         2003
                                                      --------    ---------
Securitized Assets:

Specialty Finance-- commercial ....................   $3,480.2    $ 3,473.9
Specialty Finance-- consumer ......................    2,015.9      3,062.7
Equipment Finance .................................    2,904.9      3,819.9
                                                      --------    ---------
Total securitized assets ..........................   $8,401.0    $10,356.5
                                                      ========    =========
Securitized assets as a % of managed assets .......       16.9%        21.6%
                                                      ========    =========




                                         Quarters Ended June 30,       Six Months Ended June 30,
                                         -----------------------       -------------------------
                                          2004           2003            2004            2003
                                         ------        --------        --------        --------
                                                                           
Volume Securitized:
Specialty Finance-- commercial ........  $475.5        $1,201.0        $1,438.8        $1,610.3
Specialty Finance-- consumer ..........      --           122.1              --           489.2
Equipment Finance .....................   371.7           329.4           644.8           790.4
                                         ------        --------        --------        --------
Total volume securitized ..............  $847.2        $1,652.5        $2,083.6        $2,889.9
                                         ======        ========        ========        ========


      Under our typical asset-backed securitization, we sell a "pool" of secured
loans  or  leases  to  a   special-purpose   entity,   typically  a  trust.  The
special-purpose  entity,  in turn,  issues  certificates  and/or  notes that are
collateralized  by the pool and entitle the holders  thereof to  participate  in
certain pool cash flows. We retain the servicing of the  securitized  contracts,
for which we earn a servicing  fee. We also  participate  in certain  "residual"
cash flows (cash flows after  payment of principal  and interest to  certificate
and/or note holders, servicing fees and other credit-related disbursements).  At
the date of securitization, we estimate the "residual" cash flows to be received
over the life of the  securitization,  record  the  present  value of these cash
flows as a retained  interest  in the  securitization  (retained  interests  can
include bonds issued by the  special-purpose  entity,  cash reserve  accounts on
deposit  in  the  special-purpose  entity  or  interest  only  receivables)  and
typically recognize a gain.

      In estimating residual cash flows and the value of the retained interests,
we make a variety  of  financial  assumptions,  including  pool  credit  losses,
prepayment  speeds and discount rates.  These  assumptions are supported by both
our historical  experience  and  anticipated  trends  relative to the particular
products securitized.  Subsequent to recording the retained interests, we review
them quarterly for impairment  based on estimated fair value.  These reviews are
performed  on a  disaggregated  basis.  Fair  values of retained  interests  are
estimated   utilizing  current  pool   demographics,   actual   note/certificate
outstandings,  current and  anticipated  credit  losses,  prepayment  speeds and
discount rates.

      The key assumptions  used in measuring the retained  interests at the date
of securitization for transactions completed during 2004 were as follows:

                                                          Commercial Equipment
                                                        -----------------------
                                                        Specialty     Equipment
                                                         Finance       Finance
                                                         -------       -------
Weighted average prepayment speed ....................   48.0%           12.1%
Weighted average expected credit losses ..............   0.44%           0.85%
Weighted average discount rate .......................   6.49%           9.00%
Weighted average life (in years) .....................   1.24            1.83


                                       43


      Key  assumptions  used in  calculating  the  fair  value  of the  retained
interests  in  securitized  assets  by  product  type at June 30,  2004  were as
follows:




                                                 Commercial Equipment                 Consumer
                                                -----------------------     -----------------------------
                                                                            Home Equity and  Recreational
                                                Specialty     Equipment      Manufactured    Vehicles and
                                                 Finance       Finance          Housing         Marine
                                                 -------       -------          -------         ------
                                                                                      
Weighted average prepayment speed .............   28.2%         12.3%             26.2%           19.2%
Weighted average expected credit losses .......   1.12%         1.42%             1.35%           2.17%
Weighted average discount rate ................   7.71%         9.67%            13.08%          14.31%
Weighted average life (in years) ..............   1.10          1.36              3.11            2.90


      The Specialty Finance -- commercial securitized assets include receivables
originated to consumers through DFS.

Securitization and Joint Venture Activities

      We utilize  special  purpose  entities  ("SPEs") and joint ventures in the
normal  course of business to execute  securitization  transactions  and conduct
business in key vendor relationships.

      Securitization  Transactions  -- SPEs  are  used to  achieve  "true  sale"
requirements for these transactions in accordance with SFAS No. 140, "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishment   of
Liabilities." Pools of assets are originated or acquired and sold to SPEs, which
in turn  issue  debt  securities  to  investors  solely  backed by asset  pools.
Accordingly,  CIT has no legal  obligations to repay the securities in the event
of a default by the SPE. CIT retains the servicing  rights and  participates  in
certain  cash flows of the pools.  The present  value of expected net cash flows
that  exceeds the  estimated  cost of servicing is recorded in other assets as a
"retained  interest." Assets securitized are shown in our managed assets and our
capitalization  ratios  on a managed  basis.  Under the  recently  issued  rules
relating to consolidation and SPEs, non-qualifying  securitization entities have
to be  consolidated.  We  believe  that  all of our  existing  asset-backed  SPE
structures  meet the definition of a qualifying  special purpose entity ("QSPE")
as defined by SFAS No. 140 and therefore will continue to qualify as off-balance
sheet transactions.  As part of these related activities,  CIT entered into $2.4
billion in notional  amount of hedge  transactions to protect the related trusts
against  interest  rate risk.  CIT is insulated  from this risk by entering into
offsetting  swap  transactions  with  third  parties  totaling  $2.4  billion in
notional amount at June 30, 2004.

      Joint Ventures -- We utilize joint  ventures  organized  through  distinct
legal entities to conduct  financing  activities with certain  strategic  vendor
partners.  Receivables are originated by the joint venture and purchased by CIT.
The vendor partner and CIT jointly own these distinct legal entities,  and there
is no third-party debt involved.  These arrangements are accounted for using the
equity  method,  with  profits  and losses  distributed  according  to the joint
venture  agreement.  See disclosure in Item 1. Financial  Statements,  Note 8 --
Certain Relationships and Related Transactions.

Capitalization

      The following table presents  information  regarding our capital structure
($ in millions):




                                                               June 30,    December 31,     June 30,
                                                                 2004          2003           2003
                                                              ---------      ---------      ---------
                                                                                   
Commercial paper ..........................................   $ 4,170.4      $ 4,173.9      $ 4,576.7
Term debt .................................................    30,261.9       29,239.2       27,854.1
Preferred Capital Securities ..............................       254.6          255.5          256.4
Stockholders' equity(1) ...................................     5,693.1        5,427.8        5,171.8
                                                              ---------      ---------      ---------
Total capitalization ......................................    40,380.0       39,096.4       37,859.0
Goodwill and other intangible assets ......................      (516.4)        (487.7)        (404.1)
                                                              ---------      ---------      ---------
Total tangible capitalization .............................   $39,863.6      $38,608.7      $37,454.9
                                                              =========      =========      =========
Tangible stockholders' equity(1) and Preferred Capital
  Securities to managed assets ............................       10.89%         10.45%         10.50%
Tangible stockholders' equity(1) and Preferred
  Capital Securities ......................................        6.09x          6.14x          6.30x

--------------------------------------------------------------------------------
(1)   Stockholders'  equity  excludes  the impact of the  accounting  change for
      derivative financial  instruments  described in Note 7 to the Consolidated
      Financial  Statements and certain  unrealized  gains or losses on retained
      interests and investments, as these amounts are not necessarily indicative
      of amounts that will be realized. See "Non-GAAP Financial Measurements."


                                       44


      The preferred capital  securities are 7.70% Preferred  Capital  Securities
issued in 1997 by CIT Capital Trust I, a  wholly-owned  subsidiary.  CIT Capital
Trust I invested the proceeds of that issue in Junior Subordinated Debentures of
CIT having  identical  rates and payment  dates.  Consistent  with rating agency
measurements,  preferred  capital  securities are included in tangible equity in
our leverage  ratios.  See  "Non-GAAP  Financial  Measurements"  for  additional
information.

      See "Liquidity  Risk  Management"  for  discussion of risks  impacting our
liquidity and capitalization.

Critical Accounting Estimates

      The  preparation of financial  statements in conformity with GAAP requires
management  to use  judgment in making  estimates  and  assumptions  that affect
reported amounts of assets and  liabilities,  the reported amounts of income and
expense during the reporting period and the disclosure of contingent  assets and
liabilities  at the date of the  financial  statements.  We consider  accounting
estimates  relating to the  following to be critical in applying our  accounting
policies:

      o  Investments

      o  Charge-off of Finance Receivables

      o  Impaired Loans

      o  Reserve for Credit Losses

      o  Retained Interests in Securitizations

      o  Lease Residual Values

      o  Goodwill and Intangibles

      o  Deferred Income Taxes

      There have been no significant  changes to the methodologies and processes
used in developing  estimates  relating to these items from what is described in
our 2003 Annual Report on Form 10-K.

Statistical Data

      The following table presents components of net income as a percent of AEA,
along with other selected financial data ($ in millions):

                                                      Six Months Ended June 30,
                                                      -------------------------
                                                         2004          2003
                                                       ---------     ---------
Finance income .....................................        9.70%        10.70%
Interest expense ...................................        3.19%         3.93%
                                                       ---------     ---------
  Net finance income ...............................        6.51%         6.77%
Depreciation on operating lease equipment ..........        2.51%         3.14%
                                                       ---------     ---------
  Net finance margin ...............................        4.00%         3.63%
Provision for credit losses ........................        0.81%         1.16%
                                                       ---------     ---------
Net finance margin after provision for
  credit losses ....................................        3.19%         2.47%
Other revenue ......................................        2.47%         2.67%
Gain (loss) on venture capital investments .........        0.02%        (0.09)%
                                                       ---------     ---------
Operating margin ...................................        5.68%         5.05%
Salaries and general operating expenses ............        2.71%         2.54%
Gain on redemption of debt .........................        0.23%           --
                                                       ---------     ---------
Income (loss) before provision for income taxes ....        3.20%         2.51%
Provision for income taxes .........................       (1.25)%       (0.98)%
Dividends on preferred capital securities,
  after tax ........................................          --         (0.03)%
                                                       ---------     ---------
  Net income (loss) ................................        1.95%         1.50%
                                                       =========     =========
Average Earning Assets .............................   $37,499.1     $35,194.8
                                                       =========     =========


                                       45


Non-GAAP Financial Measurements

      The SEC adopted  Regulation G, which  applies to any public  disclosure or
release of material  information that includes a non-GAAP financial measure. The
accompanying  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations and Quantitative  and Qualitative  Disclosure about Market
Risk contain certain  non-GAAP  financial  measures.  The SEC defines a non-GAAP
financial  measure as a numerical  measure of a company's  historical  or future
financial performance,  financial position, or cash flows that excludes amounts,
or is subject to adjustments that have the effect of excluding amounts, that are
included in the most directly  comparable  measure  calculated  and presented in
accordance  with GAAP in the  financial  statements or includes  amounts,  or is
subject to  adjustments  that have the  effect of  including  amounts,  that are
excluded from the most directly comparable measure so calculated and presented.

      Non-GAAP  financial measures disclosed in this report are meant to provide
additional  information and insight relative to historical operating results and
financial position of the business,  are used by management in its analysis and,
in certain cases, to provide  financial  information that is presented to rating
agencies and other users of  financial  information.  These  measures are not in
accordance  with,  or a  substitute  for,  GAAP  and  may be  different  from or
inconsistent with non-GAAP financial measures used by other companies.

      Selected  non-GAAP  disclosures  are presented and reconciled in the table
below ($ in millions):




                                                           June 30,   December 31,    June 30,
                                                             2004         2003          2003
                                                           --------   ------------    --------
                                                                             
Managed assets(1)
Finance receivables ....................................  $31,828.6     $31,300.2     $28,413.6
Operating lease equipment, net .........................    7,838.8       7,615.5       7,560.0
Finance receivables held for sale ......................    1,595.2         918.3       1,210.0
Equity and venture capital investments (included
  in other assets) .....................................      190.9         249.9         325.4
                                                          ---------     ---------     ---------
Total financing and leasing portfolio assets ...........   41,453.5      40,083.9      37,509.0
Securitized assets .....................................    8,401.0       9,651.7      10,356.5
                                                          ---------     ---------     ---------
Managed assets .........................................  $49,854.5     $49,735.6     $47,865.5
                                                          =========     =========     =========
Earning assets(2)
Total financing and leasing portfolio assets ...........  $41,453.5     $40,083.9     $37,509.0
Credit balances of factoring clients ...................   (3,292.1)     (3,894.6)     (2,471.6)
                                                          ---------     ---------     ---------
Earning assets .........................................  $38,161.4     $36,189.3     $35,037.4
                                                          =========     =========     =========
Tangible equity(3)
Total equity ...........................................  $ 5,691.8     $ 5,394.2     $ 5,057.6
Other comprehensive loss relating to derivative
  financial instruments ................................        8.1          41.3         122.1
Unrealized gain on securitization investments ..........       (6.8)         (7.7)         (7.9)
Goodwill and intangible assets .........................     (516.4)       (487.7)       (404.1)
                                                          ---------     ---------     ---------
Tangible common equity .................................    5,176.7       4,940.1       4,767.7
Preferred capital securities ...........................      254.6         255.5         256.4
                                                          ---------     ---------     ---------
Tangible equity ........................................  $ 5,431.3     $ 5,195.6     $ 5,024.1
                                                          ---------     ---------     ---------
Debt, net of overnight deposits(4)
Total debt .............................................  $34,686.9     $33,668.6     $32,430.8
Overnight deposits .....................................   (1,347.4)     (1,529.4)       (781.3)
Preferred capital securities ...........................     (254.6)       (255.5)           --
                                                          ---------     ---------     ---------
Debt, net of overnight deposits ........................  $33,084.9     $31,883.7     $31,649.5
                                                          =========     =========     =========
Earnings per share, excluding certain items(5)
GAAP Earnings per share ................................  $    0.82     $    0.72     $    0.65
Gain on debt redemption ................................         --         (0.14)           --
                                                          ---------     ---------     ---------
Adjust earnings per share ..............................  $    0.82     $    0.58     $    0.65
                                                          =========     =========     =========

--------------------------------------------------------------------------------
(1)   Managed  assets  are  utilized  in  certain  credit  and  expense  ratios.
      Securitized  assets are  included  in managed  assets  because CIT retains
      certain  credit risk and the  servicing  related to assets that are funded
      through securitizations.
(2)   Earning  assets are  utilized  in certain  revenue  and  earnings  ratios.
      Earning assets are net of credit balances of factoring  clients.  This net
      amount,  which  corresponds  to amounts  funded,  is a basis for  revenues
      earned, such as finance income and factoring commissions.
(3)   Tangible equity is utilized in leverage ratios, and is consistent with our
      presentation to rating agencies. Other comprehensive losses and unrealized
      gains  on  securitization  investments  (both  included  in  the  separate
      component of equity) are excluded from the  calculation,  as these amounts
      are not necessarily indicative of amounts which will be realized.
(4)   Debt, net of overnight  deposits,  is utilized in certain leverage ratios.
      Overnight deposits are excluded from these calculations,  as these amounts
      are  retained  by the  Company  to  repay  debt.  Overnight  deposits  are
      reflected in both debt and cash and cash equivalents.
(5)   The EPS related to the items listed are shown separately, as the items are
      not indicative of our on-going operations.


                                       46


Subsequent Events

      On and effective July 21, 2004, the CIT Board of Directors elected Jeffrey
M. Peek as the Company's  President and Chief Executive  Officer.  Mr. Peek, who
had previously served as CIT's President and Chief Operating  Officer,  replaced
Albert R. Gamper Jr.,  who had served as Chairman  and Chief  Executive  Officer
since 1987.  Mr. Gamper will remain as Chairman until his retirement on December
31, 2004.

      On July 28, 2004,  CIT announced  that it has agreed to acquire the vendor
finance leasing  business in Western Europe of  CitiCapital,  a business unit of
Citigroup  (NYSE:  C).  The  transaction  is  subject  to  customary  regulatory
approvals  and is  expected  to close in the fourth  quarter  of this year.  The
business to be acquired,  based in Watford,  England,  will be  integrated  into
CIT's Specialty Finance Group. The approximately $950 million of acquired assets
are principally comprised of leases and loans secured by technology, healthcare,
and  construction  and  industrial  equipment.  A  significant  majority  of the
portfolio  is located in the U.K.  and France,  with the  remainder  in Germany,
Spain and Italy.

Forward-Looking Statements

      Certain  statements   contained  in  this  document  are  "forward-looking
statements" within the meaning of the U.S. Private Securities  Litigation Reform
Act of 1995. All statements  contained herein that are not clearly historical in
nature are  forward-looking  and the words  "anticipate,"  "believe,"  "expect,"
"estimate"  and  similar   expressions   are  generally   intended  to  identify
forward-looking  statements. Any forward-looking statements contained herein, in
press releases,  written statements or other documents filed with the Securities
and Exchange  Commission or in communications and discussions with investors and
analysts in the normal  course of business  through  meetings,  webcasts,  phone
calls and conference calls, concerning our operations,  economic performance and
financial  condition are subject to known and unknown risks,  uncertainties  and
contingencies.  Forward-looking  statements  are included,  for example,  in the
discussions about:

      o  our liquidity risk management,

      o  our credit risk management,

      o  our asset/liability risk management,

      o  our funding, borrowing costs and net finance margin

      o  our capital, leverage and credit ratings,

      o  our operational and legal risks,

      o  our commitments to extend credit or purchase equipment, and

      o  how we may be affected by legal proceedings.

      All  forward-looking  statements involve risks and uncertainties,  many of
which are beyond our control,  which may cause actual  results,  performance  or
achievements  to differ  materially  from  anticipated  results,  performance or
achievements.  Also,  forward-looking  statements  are based  upon  management's
estimates  of  fair  values  and of  future  costs,  using  currently  available
information.   Therefore,  actual  results  may  differ  materially  from  those
expressed  or  implied  in those  statements.  Factors  that  could  cause  such
differences include, but are not limited to:

      o  risks of economic slowdown, downturn or recession,

      o  industry cycles and trends,

      o  risks inherent in changes in market interest rates and quality spreads,

      o  funding opportunities and borrowing costs,

      o  changes in funding markets,  including  commercial paper, term debt and
         the asset-backed securitization markets,

      o  uncertainties  associated  with  risk  management,   including  credit,
         prepayment, asset/liability, interest rate and currency risks,

      o  adequacy of reserves for credit losses,


                                       47


      o  risks associated with the value and  recoverability of leased equipment
         and lease residual values,

      o  changes in laws or regulations governing our business and operations,

      o  changes in competitive factors, and

      o  future acquisitions and dispositions of businesses or asset portfolios.

Item 4.  Controls and Procedures

      As of the end of the period covered by this report,  the Company evaluated
the  effectiveness  of the design and operation of its  disclosure  controls and
procedures.  The Company's  disclosure  controls and  procedures are designed to
ensure that the information  that the Company must disclose in its reports filed
under the  Securities  Exchange Act is  communicated  and  processed in a timely
manner.  Jeffrey M. Peek,  President and Chief Executive Officer,  and Joseph M.
Leone,  Vice  Chairman  and  Chief  Financial  Officer,   participated  in  this
evaluation.

      Based on this evaluation,  Messrs.  Peek and Leone concluded that,  during
the last  fiscal  quarter  covered  by this  report,  the  Company's  disclosure
controls and procedures were  effective,  except as noted in the next paragraph.
Since  the  date of the  evaluation  described  above,  there  have not been any
significant  changes in the Company's internal controls or in other factors that
could significantly affect those controls.

      In  connection  with the June 2001  acquisition  by Tyco,  our  income tax
compliance,  reporting and planning function was transferred to Tyco.  Following
our 2002 IPO, we classified  our tax reporting as a "reportable  condition",  as
defined by standards  established by the American  Institute of Certified Public
Accountants.  We have made  substantial  progress  regarding  this condition and
anticipate  completing our  remediation  initiative  during the third quarter of
2004.

      We have rebuilt our tax  reporting  and  compliance  functions,  hired and
trained  personnel,  rebuilt  our tax  reporting  systems,  prepared  and  filed
amendments  to prior period U.S.  Federal  income tax returns,  implemented  tax
reporting and  compliance  processes and controls,  prepared a tax basis balance
sheet to complete  the  analysis of deferred  tax assets and  liabilities  as of
December 31, 2003, and conducted proof and reconciliation  procedures of the tax
basis  balance  sheet.  The  documentation  of our tax  processes  and  internal
controls in accordance with  Sarbanes-Oxley  Section 404 is nearing  completion,
with  testing of  controls  scheduled  to follow.  We plan to file our 2003 U.S.
Federal income tax returns during the third quarter of 2004 and accordingly,  to
finalize our December 31, 2003 tax timing  differences and related  deferred tax
assets and liabilities as steps in completing our remediation initiative.


                                       48


                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

      On April 10, 2003, a putative class action lawsuit, asserting claims under
the Securities  Act of 1933,  was filed in the United States  District Court for
the  Southern  District of New York  against  CIT,  its former  Chief  Executive
Officer and its Chief Financial Officer. The lawsuit contained  allegations that
the registration  statement and prospectus prepared and filed in connection with
CIT's 2002 IPO were materially false and misleading, principally with respect to
the adequacy of CIT's telecommunications-related loan loss reserves at the time.
The lawsuit  purported to have been brought on behalf of all those who purchased
CIT common stock in or traceable  to the IPO,  and sought,  among other  relief,
unspecified damages or rescission for those alleged class members who still hold
CIT stock and unspecified  damages for other alleged class members.  On June 25,
2003, by order of the United States District Court, the lawsuit was consolidated
with five other  substantially  similar suits, all of which had been filed after
April 10, 2003 and one of which named as defendants some of the  underwriters in
the IPO and certain former directors of CIT. Glickenhaus & Co., a privately held
investment firm, has been named lead plaintiff in the consolidated action.

      On September  16, 2003, an amended and  consolidated  complaint was filed.
That  complaint  contains  substantially  the same  allegations  as the original
complaints.  In addition to the  foregoing,  two similar  suits were  brought by
certain  shareholders  on behalf of CIT  against CIT and some of its present and
former directors under Delaware corporate law.

      CIT believes  that the  allegations  in each of these  actions are without
merit and that its  disclosures  were  proper,  complete  and  accurate.  CIT is
vigorously defending itself in these actions.

      In addition,  there are various  legal  proceedings  pending  against CIT,
which have arisen in the ordinary course of business.  Management  believes that
the aggregate  liabilities,  if any,  arising from such  actions,  including the
class  action  suit  above,  will  not have a  material  adverse  effect  on the
consolidated financial position, results of operations or liquidity of CIT.

Item 2.  Issuer Purchases of Equity Securities

      The following  table details the  repurchase  activity of CIT common stock
during 2004:




                                                                Total Number of   Maximum Number
                                                               Shares Purchased of Shares that May
                                         Number of    Average  Under Publically  Yet be Purchased
                                          Shares       Price    Announced Plans   Under the Plans
                                          ------       -----    ---------------   ---------------
                                                                         
Balance at March 31, 2004                  17,522     $39.08
                                         ---------
   April 1 - April 30, 2004               120,000     $34.63        120,000          2,880,000
   May 1 - May 31, 2004                   400,000     $35.29        400,000          2,480,000
   June 1 - June 30, 2004(1)              475,392     $37.62        420,000          2,060,000
                                         ---------
   Total Purchases                        995,392     $36.32
                                         ---------
Reissuances(2)                           (116,184)    $36.13
                                         ---------
Balance at June 30, 2004                  896,730     $36.40
                                         ========

--------------------------------------------------------------------------------
(1)   We  repurchased  an  aggregate  of 55,392  shares of our  common  stock in
      open-market   transactions  outside  of  our  publically  announced  plan,
      including shares purchased to satisfy the requirements of our stock option
      plan and other equity compensation plans.
(2)   Includes the issuance of shares of our common stock upon exercise of stock
      options and the vesting of restricted stock.

      On  April  21,  2004,  our  Board of  Directors  approved  a common  stock
repurchase  program  to acquire up to three  million  shares of our  outstanding
common stock. The program  authorizes the company to purchase shares on the open
market from time to time over a two-year  period  beginning  April 23, 2004. The
repurchased  common  stock are held as  treasury  shares and may be used for the
issuance of shares  under CIT's  employee  stock plans.  Acquisitions  under the
share repurchase  program will be made from time to time at prevailing prices as
permitted  by  applicable  laws,  and  subject  to market  conditions  and other
factors. The program may be discontinued at any time and is not expected to have
a significant impact on our capitalization.



                                       49


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

      The annual meeting of stockholders was held on May 12, 2004. The following
table  includes  individuals,  comprising  all of the directors of CIT, who were
elected to the Board of Directors, each with the number of votes shown, to serve
until the next annual  meeting of  stockholders,  or until  succeeded by another
qualified director who has been elected, along with all other proposals and vote
tallies:

Proposal                                                  Votes          Votes
   No.            Description             Votes For     Withheld        Abstain
--------   -------------------------      ---------     --------        -------
    1      Election of Directors:
           GARY C. BUTLER                189,707,094        21,839      314,700
           WILLIAM A. FARLINGER          187,717,693     2,011,240      314,700
           WILLIAM M. FREEMAN            180,405,318     9,323,615      314,700
           ALBERT R. GAMPER, JR.         187,801,702     1,927,231      314,700
           HON. THOMAS H. KEAN           178,926,637    10,802,296      314,700
           EDWARD J. KELLY, III          183,368,413     6,370,520      314,700
           MARIANNE MILLER PARRS         187,724,900     2,004,033      314,700
           JEFFERY M. PEEK               189,669,868        59,065      314,700
           JOHN R. RYAN                  189,716,529        12,404      314,700
           PETER J. TOBIN                187,648,056     2,080,877      314,700
           LOIS M. VAN DEUSEN            180,419,978     9,308,955      314,700

    2      Ratification of
             Independent Accountants     187,479,053        30,205    2,534,375

    3      Other business                 77,225,493    14,095,383   98,722,757


                                       50


Item 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits

      3.1   Second  Restated   Certificate  of   Incorporation  of  the  Company
            (incorporated  by  reference to Form 10-Q filed by CIT on August 12,
            2003).

      3.2   Amended  and  Restated  By-laws  of  the  Company  (incorporated  by
            reference to Form 10-Q filed by CIT on August 12, 2003).

      4.1   Indenture  dated as of August 26,  2002 by and among CIT Group Inc.,
            Bank One Trust  Company,  N.A.,  as Trustee and Bank One NA,  London
            Branch, as London Paying Agent and London Calculation Agent, for the
            issuance   of   unsecured   and   unsubordinated   debt   securities
            (incorporated by reference to Exhibit 4.18 to Form 10-K filed by CIT
            on February 26, 2003).

      12.1  CIT Group Inc.  and  Subsidiaries  Computation  of Earnings to Fixed
            Charges.

      31.1  Certification  of Jeffrey  M. Peek  pursuant  to Section  302 of the
            Sarbanes-Oxley Act of 2002.

      31.2  Certification  of Joseph M. Leone  pursuant  to  Section  302 of the
            Sarbanes-Oxley Act of 2002.

      32.1  Certification of Jeffrey M. Peek pursuant to 18 U.S.C. Section 1350,
            as adopted  pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
            2002.

      32.2  Certification of Joseph M. Leone pursuant to 18 U.S.C. Section 1350,
            as adopted  pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
            2002.

      (b)   Reports on Form 8-K

            Current Report on Form 8-K filed April 22, 2004,  reporting (i) that
            CIT declared a dividend of $0.13 per share,  payable May 28, 2004 to
            shareholders  of  record  on May 14,  2004,  and (ii) the  financial
            results of CIT as of and for the quarter ended March 31, 2004.


                                       51


                                   SIGNATURES

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                  CIT GROUP INC.

                                  By:            /s/ Joseph M. Leone
                                      ..........................................
                                                   Joseph M. Leone
                                      Vice Chairman and Chief Financial Officer

                                  By:           /s/ William J. Taylor
                                      ..........................................
                                                  William J. Taylor
                                        Executive Vice President, Controller
                                          and Principal Accounting Officer

August 6, 2004


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