· Annual Report 1988 National Securities Clearing Corporation Contents 1 Operating Charts 3 To Our Participants· . 5 About NSCC' . 6 NSCC Board of Directors 8 ISCC Board of Directors 10 . GSCC Board of Directors 12 'Audited Financial Statements 18 Pirticipating Organizations Average Daily Volume 750 o of Tra nsactions Processed (In thol/sands)

• Municipal Bonds, Mutual Funds & Others • OTC Stocks & Bonds • NYSE&Amex • Peak NYSE Ptoce ssi ng Volume o Peak NYSE processing volume in Q4 87 was over 890,000 sides.

Average Daily Volume of Shares Processed (/n mil/ions)

. OTC • Amex • NYSE

Average Daily Volume of NYSE Locked-In Transactions Processed (/n thol/sands)

• Trade Submiss ions • Locked -I n Transactions

lQ 86 2Q 86 3Q 86 4Q 86 lQ 87 2Q 87 3Q 87 4Q 87 lQ 88 2Q 88 3Q 88 4Q 88

n spite of a decline in transaction and share volume in 1988, NSCC continued to recognize that the cost of maintaining and improving its systems is modest in comparison to the risks of not being prepared to handle peak volume periods. Over the years, processing efficiency has increased as marketplaces report trades to NSCC as compared trades through automated trading systems. In 1988,66% ofNYSE transactions reported to NSCC as locked-in, up from 52 % in 1986. ~=:::;..." pen and effictive dialogue between NSCC and the secttrities industry in 1988 enabled NSCC to implement several system enhancements developed to increase participants' processing efficiency. Continued cooperation with the industry will allow NSCC to foresee and respond to participants' needs over the next decade as they meet the challenges presented by the growth in derivative markets and the globalization of markets.

CkLJ~~ David M. Kelly Bernard L. Madoff

President and Chief Executive Officer Chairman of the Board

2 To Our Participants

As one reflects on 1988, it is clearly evident that many changes occurred in the marketplaces. The events of October 1987 resulted in a predicted decline in volume and hastened the pace of change within the securities industry. NSCC revenues were down over 11 % and transaction and share volume declined 31% and 18%, respectively. At the same time, the average size of a trade increased by 19% supporting the much-heralded decline in retail participation.

The industry devoted more attention to increasing cost efficiencies and reducing risks as many appeared to be headed for a different future in the ever-changing financial services business.

While NSCC has long focused on increasing capacity levels and expanding our product base, it was apparent in 1988 that better use of technology is critical for this industry to operate profitably at lower volumes.

NSCC has benefitted greatly from working closely with the markets and participants we serve. Cooperation will continue to be important in a market where change and competition are on the rise. In fact, as markets become more global, it is essential that capital markets, regulatory and clearance and settlement functions work together to understand what globalization means to our business. The industry is already working together on a global basis with a view toward establishing clearance and settlement standards within markets and for cross-border transactions.

These efforts are supported by The Group of Thirty and the Federation Internationale des

Bourses de Valeurs which provide forums for discussion and direction. !he markets are pre­ pared to meet the challenges ahead and NSCC will work tirelessly to support their efforts.

The Year in Review

The year proved to be one of great challenge for NSCC. One of the positive results of the October

1987 events was a renewed effort within the industry to take greater advantage of systems :j automation and to reduce risk. NSCC worked closely with the NYSE, Amex and NASD to move \ \ toward comparison on Trade Date with total trade resolution by the end of Trade Date Plus One, \ "' a process with significant interdependencies. NSCC has redesigned its listed and OTC comparison systems to suppOrt the NYSE's, Amex's and NASD's efforts to implement on-line correction systems.

Participation in Fund/SERV, NSCC's automated order entry, confirmation and settle­ ment system for mutual funds, increased with 48 broker/dealers and 38 fund groups, represent- ing approximately 600 funds, using the system. The mutual funds process was enhanced with the development of a Networking system which provides for the electronic transfer of information between broker/dealers and fund groups. Networking was implemented on a pilot basis in

September and continues to meet developmental milestones. To Our Participants (continued)

The Automated Customer Account Transfer (ACAT) service continued to enjoy broad

support and has become the standard for asset transfers between brokers. The system was

enhanced to facilitate the processing of options positions, and NSCC began work on changes that

will enable the transfer of limited partnerships. Development of a link between ACATs and

Fund/SERV to allow the transfer of mutual fund assets between broker/dealers in a controlled and

automated environment is also under way.

NSCCs Municipal Bond System expanded with a netting program for when-issued

municipals. By year end, participants could process all when-issued trades of DTC-eligible issues

in CNS. The 127 participants in the pilot represent over 65% of the total when-issued volume

processed by NSCC and we hope to expand that base. In 1989, we plan to offer regular-way

netting based on the results of an extensive study of regular-way municipal bond trading.

International Securities Clearing Corporation OSCC) continued to establish bilateral

clearing and custody links with other international clearing and depository organizations. The

process of developing these links involves a significant amount of learning as we become familiar

with the local practices, systems and technology that exist in foreign markets. In 1988, ISCCs link

with The International Stock Exchange in London became bilateral. In addition, ISCC established

a clearing link with Cedel in Luxembourg and custody links in Japan and Singapore and began

work on a link with France.

Participants in Government Securities Clearing Corporation (GSCC), established in

1986 through cooperative efforts by the government securities industry, elected the first Participant

Shareholder Board of Directors following the sale of stock in May 1988. The Board will work

closely with GSCC in determining the future advancements in the technology for processing and

settling government securities transactions. GSCC implemented its automated comparison system in August and plans to make netting services available to participants in 1989. In closing, we would like to thank our Board of Directors and staff, our participants

and the staff at SIAC and DTC for their continued support and efforts in a year that saw much

restructuring and cost cutting within the industry, but also presented increased opportunities to

work together for positive change.

Bernard 1. Madoff David M. Kelly

Chairman of the Board President and Chief Executive Officer

1 . \ About NSCC

NSCC is the nation's leading provider of post-trade clearance and settlement services for corporate

securities, municipal bond, UIT and mutual fund transactions to the broker/dealer, bank and mutual

funds communities. Over 1,800 brokers, dealers, banks and other financial institutions use NSCC's

services as direct participants, as regional participants through the Regional Interface Operations or as

indirect participants through Correspondent Clearing and Special Representative relationships.

NSCC provides these services through a nationwide network of branch offices, electronic

interfaces with other clearing corporations and a variety of data transmission capabilities including

tape input, cpu-to-cpu links and PC access for some applications.

Branch Offices

National Securities Detroit Sea life Oearing Corporation 3153 Penobscot Building 1525 Fourth Avenue Clirpomte Office Detroit, Michigan 48226 Seattle, Washington 98101 55 Water Street New York, New York 10041 Jersey City Toronto (2 I 2) 510-0400 One Exchange Place Two First Canadian Place Jersey City, New Jersey 07302 Toronto, Ontario, Canada BliJtlill M5X 1A9 One Boston Place Los AllgeleJ Boston, Massachusetts 02108 727 West 7th Street International Securities Los Angeles, California 90017 Oearing Corporation Chica!ili CorpoYCIte Office 135 South LaSalle Street MilJneapolis 55 Water Street Chicago, Illinois 60603 IDS Center New York, New York 10041 80 South 8th Street (212) 510-0400 D"I/m Minneapolis, Minnesota 55402 Plaza of the Americas Government Securities TCBTower St. LOllis Oearing Corporation One Mercantile Tower Dallas, Texas 75201 CorpoYCI/e Office St. Louis, Missouri 63101 55 Water Street Demler New York, New York 10041 SalJ FYClllcisco Dominion Plaza (212) 510-0400 600 17th Street 250 Montgomery Street , Colorado 80202 San Francisco, California 94104

5 NSCC Board of Directors

In a year marked by lower volumes and industry cutbacks, NSCC relied heavily on the expertise and

experience of the members of its Board of Directors to provide guidance and direction in the Board's decision-making processes. The Board worked closely with senior management at NSCC over the year

in establishing corporate objectives and guiding product development and operational planning.

Thirteen members of the 17-member Board, including Bernard L. Madoff who will

complete his term as Chairman in May 1989, are elected from participant firms. The other members of the Board are David M. Kelly, President and CEO ofNSCC, and three Shareholder Directors

designated by the New York Stock Exchange, American Stock Exchange and National Association of

Securities Dealers: Richard A. Grasso, Paul G. Stevens and C. Richard Justice, respectively.

In late 1988, the Nominating Committee began the annual electoral process by inviting

PAGEl J33 participants to propose names of prospective directors to succeed Herbert 1. Levitt, who is resigning in DATE 06/0z...aa May 1989, and). Kevin Kenny, Bernard L. Madoff, Richard). Stream and Wilbert A. Thiel whose <.ROt terms expire in May. After reviewing suggestions from participants, the Nominating Committee

nominated James M. Avena, Cantor Fitzgerald & Co., Inc.; Bruce E. Geismar, Bear, Stearns & Co. Inc.;

David W Niemiec, Dillon, Read & Co. Inc.; and Darryl L. Pope, Edward D. Jones & Co. to serve three-year terms as Participant Directors. Mr. Thiel was nominated to serve an additional one-

year term to complete Mr. Levitt's term. The nominees will be elected at the Board's Annual

Meeting in May 1989.

Bernard L. Madoffl2 David M. Kelly6 Paul G. Stevens Chairman of the Board President & CEO Executive Vice President Sole Proprietor National Securities Clearing American Stock Exchange, Inc. Bernard L. MadofJ Corporation Richard). Stream 10 William P. Behrens9 ). Kevin Kenny5 Managing Director General Partner President & CEO Piper, JafJray & Hopwood Ernst & Company JJ. Kenny Co., Inc. Incorporated

Richard A. Grasso14 Herbert 1. Levitt4 Fenton R. Talbottl3 President & COO Limited Partner Managing Director Neu' York Stock Exchange, Inc. Spear, Leeds & Kellogg The First Boston Corporation

Gates H. Hawn8 Ronald W. Readmond2 Wilbert A. Thiell Chief ExeClltive Officer Managing Director Executive Vice President, Pershing Division of Donaldson, Alex. Brown & Sons Incorporated Treasurer Lufkin & Jenrette Securities The Chicago Corporation Corporation David L. Roscoe III Senior Vice President Ronald D. Upton? Leonard V. Haynesll Morgan Guaranty Trust Executive Vice President Senior Executive Vice President Company of New York Irving Trust Company Shearson Lehman Hutton Inc. Howard A. Shallcross Not Pictured: C. Richard Justice3 Senior Vice President & David L. Roscoe III ExeClltive Vice President Director of Operations Howard A. Shallcross National Association of Lynch, Pierce, Paul G. Stevens Securities Dealers, Inc. Fenner & Smith Inc. =,---.:::=>he Board of Directors of NSCC offers guidance and sttpport to NSCC in its mission to develop innovative systems and services which address the financial industry's needs for cost-effective, low-risk, high-volume trade processing.

7 ith the continuing globalization 0/ the securities markets. [sec's Board 0/ Directors supports [SeC's strategy to develop links with clearing and depository organizations in other countries and to provide locally accessible clearance and settlement capabilities for U.S. firms dealing in foreign securities and foreign firms dealing in U.S. semrities.

8 ISCC Board of Directors

The Board of Directors of ISCC offers support and guidance to ISCC in its two-fold mission to

provide locally accessible clearing services for non-U.S. securities to U.S. participants by establishing

links with clearing and depository entities in other countries and to provide links into NSCC

and The Depository Trust Company (DTC) for more efficient and standardized handling of U.S. issues

listed overseas or involved in cross-border trading.

Comprised of senior executives from participant firms, ISCC's Board members bring a

wealth of knowledge of global securities markets to ISCC. This knowledge and experience have proven

invaluable in the establishment of clearing and custody links with The International Stock Exchange

in London and Cedel in Luxembourg as well as the establishment of custody links with the Central

Depository(Pte.) Ltd. in Singapore and Japan Securities Clearing Corporation in Tokyo.

Four directors resigned from the Board in 1988 as a result of changes in their corporate affiliations. The NYSE appointed Donald J. Solodar and the Amex appointed Ivers W. Riley to fill the vacancies left by resigning directors Christopher Keith and Mark T. Smith, respectively. Sal Ricca,

SPC Securities Services Corp., was elected to replace C. Robert P. Meyjes who resigned in May 1988.

Nicola L. Caporale resigned from the Board in December; his seat on the Board has not been filled.

Gerard P. Lynch, Chairman of the Board since November 1987, oversees the

14-member Board.

Gerard P. Lynch4 C. Richard Justicetl Ivers W. Riley 9 Chairman of the Board Executive Vice President Senior ExeCiltive Vice President Mmzaging Director National Association of American Stock Exchange, Inc. Morgan Stanley & Co. SeCilrities Dealers, Inc. Incorporated David L. Roscoe IIIs David M. Kelly 10 Senior Vice President Joseph Anastasio l2 President & CEO Morgan Guaranty Trust Senior Operating International SeCilrities Company of New York Officer Clearing Corporation Salomon Brothers Inc Donald J. Solodar Bernard L. Madoff7 Senior Vice President Nicola L. Caporale Sole Proprietor Capital Markets Group General Partner Bernard L. MadoJ! New York Stock Exchange, Inc. Goldman, Sachs & Co. (Resigned in December 1988) Stephen EJ. Raven I Fenton R. Talbott6 Chairman Managing Director Joseph L. Gitterman I1I2 Charles Fulton (IDB) Limited The First Boston Corporation Managing Partner LaBranche & Co. Michael T. Reddy5 Not Pictured: Senior Vice President Nicola L. Caporale Merrill Lynch, Pierce, Donald J. Solodar Fenner & Smith /nc.

Sal Ricca3 Managing Director & COO SPC Secttrities Services Corp. =----= he first Participant Shareholder Board of Directors of GSCC is responsible for overseeing the operation of GSCCs automated comparison and netting systems and for determining the future system enhancements and technological advancements in the processing and settlement of government securities.

10 GSCC Board of Directors

In early 1988, GSCC offered shares in the company through a private placement offering. The stock sale provided the government securities community with the opportunity to be eligible to sit on the

Board of Directors and thereby help shape GSCC's direction at the same time that it provided working capital for GSCC as it develops its operations. NSCC retains a 20% ownership interest in GSCc.

In August, GSCC participants elected the first Participant Shareholder Board of Directors. Nominations for the Board were made by participants in accordance with the Share-

holder Agreement.

The 15-member Board consists of six dealers, three brokers, three clearing agent banks

(Participant Shareholder Directors), two representatives from NSCC and one officer of GSCc. The 12

Participant Shareholder Directors each serve three-year terms. In 1991, Participant Shareholder

Directors will be elected to serve one-, two- or three-year terms so that one-third of the Board will be

replaced every year. The Board has established three standing committees: Executive, Audit and

Finance and Membership and Standards.

In January 1989, GSCC elected Bruce R. Lakefield to serve as Chairman for a one-year

term. Mr. Lakefield brings many years of experience in the government securities community to the

GSCCBoard.

Bruce R. Lakefield 13 Peter E. Gall l2 William D. Riley 9 Chairman ofthe Board Senior Vice President & Managing Director Executive Vice President Treasurer The First Boston Shearson Lehman Government Discount Corporation of New York Corporation Semrities, Inc. (Resigned in December 1988) Howard A. Shallcross6 Jorge A. Brathwaite5 Edward J. Geng II Senior Vice President & Senior Vice President President Director of Operations The Bank of New York Fundamental Brokers, Inc. Merrill Lynch, Pierce. Fenner & Smith Inc. Allen B. Clark? David M. Kelly4 Vice President President and CEO M. Andrew Threadgold2 Manufacturers Hanover National Securities Clearing Managing Director Trust Company Corporation J.P. Morgan Securities Inc.

Frank D. Cuoco, Jr. 14 Leonard C. Monteleone Ronald D. Upton8 Executive Vice President Vice President Executive Vice President Garban Ltd. RMJ Securities Corp. lfving Tmst Company

Herbert Friedman 1 Charles A. Moran 10 (Resigned in February 1989) ..1;':~1~~~~~~i Managing Director President and COO Not Pictured: ~ Salomon Brothers Inc Government Securities Clearing Leonard C. Monteleone Corporation Sal Ricca Managing Director & COO Alexander Neamtu3 SPC Securities Services Corp. Principal (Appointed in February Morgan Stanley & Co. 1989) Incorporated Consolidated Balance Sheet NatIOnal Securities Clearing Corporation December 31, (In thousands) 1988 1987 Assets Current Assets: Cash and cash equivalents $ 53,539 $ 28,628 Temporary investments at cost (approximates market) 90,402 108,996 Accounts receivable, net 5,558 5,767 Settlement accounts reveivable 3,183 4,746 Other current assets 970 1,318 Total current assets 153,652 149,455 Clearing fund 224,207 244,669 Fixed assets, less accumulated depreciation of $1,964 and $1,553 at December 31,1988 and 1987, respectively 1,125 1,286 Deposits and other noncurrent assets 7,275 7,490 Total assets $386,259 $402,900 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 7,247 $ 7,440 Settlement accounts payable 68,206 44,574 Other 5,787 6,967 Total current liabilities 81,240 58,981 Clearing fund: Participants' cash deposits 65,908 85,312 Other participant deposits 224,207 244,669 290,115 329,981 Notes payable 3,250 3,250 Commitments and contingent liabilities (See Note 5) Shareholders' Equity: Common srock authorized, issued and outstanding; 30,000 shares of $.50 par value 15 15 Capital in excess of par 885 885 Retained earnings 10,754 9,788 11,654 10,688 Total liabilities and shareholders' equity $386,259 $402,900

The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.

12 Consolidated Statement of Income and Retained Earnings National Securities Clearing Corporation For the year ended December 31, (In thousands) 1988 1987 Revenue from clearing services $70,852 $72,335 Interest income 3,868 3,990 Total revenues 74,720 76,325 Expenses: Securities Industry Automation Corporation processing expenses 40,004 39,761 The Depository Trust Company fees 15,370 15,464 General and administrative 16,105 16,241 Regional facility fees 1,668 1,674 Total expenses 73,147 73,140 Income before income taxes 1,573 3,185 Provision for income taxes 607 1,297 Net income 966 1,888 Retained earnings, beginning of year 9,788 7,900 Retained earnings, end of year $lO,754 $ 9,788

The accompanying Notes to Consolidated Financial Statements are an integral parr of this statement.

13 Consolidated Statement of Cash Flows

National Securities Clearing Corporation For the year ended December 31, (In thousands) 1988 1987 Increase (Decrease) in Cash and Cash Equivalents Cash Flows from Operating Activities: Cash settlement received from participants $218,691,768 $296,837,283 Cash settlement paid to participants (218,672,729) (296,852,535) Clearing fund cash received from participants 24,199 49,165 Clearing fund cash refunded to participants (43,603) (24,653) Cash received from billings to participants 69,932 71,633 Cash paid to processing agents (55,735) (54,689) Cash paid to suppliers and employees (11,193) (14,735) Interest received 8,838 10,542 Interest remitted to participants (4,862) (4,792) Income taxes paid (269) (4,103) Cash rental concession received 1,203 Net cash provided by operating activities 6,346 14,319 Cash Flows from Investing Activities: Purchases of temporary investments (158,160) ( 186,624) Sales and redemptions of temporary investments 176,976 193,903 Purchases of software and fixed assets (251) (2,056) Net cash provided by investing activities 18,565 5,223 Net increase in cash and cash equivalents 24,911 19,542 Cash and cash equivalents at beginning of year 28,628 9,086 Cash and cash equivalents at end of year $ 53,539 $ 28,628 Reconciliation of Net Income to Net Cash Provided by Operating Activities Net income $ 966 $ 1,888 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization 412 374 Increase in accrued interest receivable (1,635) (262) Amortization of premiums 1,628 2,022 Decrease (increase) in accounts receivable 209 (701) Decrease in settlement accounts receivable 1,563 830 Decrease (increase) in other current assets 390 (555) Increase in deferred tax asset (42) (908) (Decrease) increase in accounts payable (93) 228 Increase (decrease) in settlement accounts payable 23,632 (16,100) (Decrease) increase in other liabilities (1,180) 2,991 (Decrease) increase in clearing fund participants' cash deposits ( 19,404) 24,512 Net cash provided by operating activities $ 6,346 $ 14,319 The accompanying Nores ro Consolidared Financial Sraremenrs are an inregral parr of rhis sraremenr.

14 Notes to Consolidated Financial Statements National Securities Clearing Corporation

Note 1 Organization and Operations: money transfers on a daily basis, certain of which are executed via National Securities Clearing Corporation (NSCC-the Company), a Federal Funds and given effect in the financial statements on the clearing agency registered with the Securities and Exchange Com­ basis of one-day earlier Clearing House Funds. mission (SEC), provides various services to the financial community, Notes payable: Notes payable consist of$3,250,000 of ten-year consisting principally of trade comparison, clearance and settlement. Notes issued by ISCC due June 15, 1996. The Notes bear interest at The Company's common stock is owned equally by the New York a rate of9% per annum, and interest payments are made annually Stock Exchange, Inc. (NYSE), American Stock Exchange, Inc. onJune 15. (Amex) and the National Association of Securities Dealers, Inc. Income taxes: Provision is made for deferred income taxes applica­ (NASD). The Company is controlled by an independent user Board ble to revenues and expenses reported in the financial statements of Directors which is responsible for its policies, operations in periods which differ from those in which they are subject to and financing. taxation. The Company is the sole shareholder of International Securities In December 1987, the Financial Accounting Standards Board Clearing Corporation (lSCC), which was established in 1985 to issued Statement of Financial Accounting Standards No. 96, support U.S. brokers, dealers and banks through bilateral linkages Accollntingfor Income Taxes. SFAS 96 mandates the liability method with central clearing and depository organizations in other for computing deferred income taxes. The Company intends to countries. adopt SFAS 96 during the year when adoption becomes mandatory. The Board of Directors of the Company determines any additions Adoption of the new Statement is not expected to have a significant to retained earnings it wishes to establish in a given year, having due effect on the Company's financial position or results of operations. regard to current and anticipated needs. The Company does not plan The Company and its wholly owned subsidiary file consolidated to declare dividends to shareholders, but has provided rebates on its Federal, New York State and City income tax returns. The difference billings to participants of $2,416,000 and $10,398,000 in 1988 and between the 38.6% effective tax for the year ended December 31, 1987, respectively. Revenue from clearing services is shown net of 1988 (40.7% for the year ended December 31, 1987) and the 34% such rebates. federal statutory tax rate (40% for the year ended December 31, 1987), is primarily attributable to state and local taxes. Note 2 Summary of Significant Accounting Policies: Principles of consolidation: The consolidated financial statements Note 3 Participant Deposits: include the accounts of the Company and its wholly owned sub­ The rules of the Company require certain participants to maintain sidiary, ISCC. In 1987, the Company's consolidated financial state­ minimum clearing fund deposits based on calculated requirements. ments also included the accounts of Government Securities Clearing The consolidated clearing fund balance includes the NSCC and Corporation (GSCC), a wholly owned subsidiary formed to provide ISCC clearing funds, which are available to secure respective partic­ automated comparison and netting services to brokers, dealers and ipant obligations and certain liabilities of NSCC and ISCC, should banks trading in U.S. Government securities. On May 20, 1988, they occur. Clearing fund requirements and cash in excess of calcu­ GSCC issued common stock to certain participants, which reduced lated requirements amounted to $290,115,000 and $329,981,000 at NSCCs ownership interest to approximately 20%. The Company December 31, 1988 and 1987, respectively. Total clearing fund is accounting for its investment in GSCC subsequent to May 20, deposits held at December 31, 1988 consisted of$65,908,000 in 1988 using the equity method of accounting. All significant inter­ cash, $44,702,000 in market value of securities issued or guaran­ company accounts and transactions are eliminated in consolidation. teed by the U.S. Government, its states and their political subdivi­ Cash and cash equivalents: The Company's investment policy sions, and $264,122,000 in letters of credit issued by authorized allows for the investment of funds in overnight reverse repurchase banks; comparative amounts as of December 31,1987 were agreements. Such agreements provide for the delivery versus pay­ $85,312,000, $59,881,000 and $318,902,000, respectively. ment of the underlying collateral of 102% to an independent custo­ Note 4 Transactions with Related Parties: dian designated by the Company. Investments under reverse repur­ GSCC: Effective May 20, 1988, the Company entered into an agree­ chase agreements amounted to $40,000,000 and $25,000,000 at ment with GSCC to provide various support services and office December 31,1988 and 1987, respectively. facilities. Charges under this agreement are based on the Company's Telliporary investments: Temporary investments consist of U.S. cost of providing these services. The agreement formally expires in Treasury securities maturing primarily in less than one year, and are 1993; however, it will continue in effect unless notice of cancellation carried at cost adjusted for amortization of premiums and accretion is given by either party. Costs under this agreement amounted to of discounts. Investments of $44,400,000 and $29,972,000 at $2,700,000 in 1988. At December 31, 1988, receivables from GSCC December 31,1988 and 1987, respectively, were held in an account amounted to $362,000. for the exclusive benefit of participants to facilitate participants' NYSE, Amex and NASD: NSCC collects regulatory fees on compliance with customer segregation rules of the SEC. behalf ofNYSE, Amex and NASD. At December 31, 1988, Settlelllent accounts: Settlement accounts receivable and payable amounts collected and not yet remitted were $1,664,000 due to arise from one-day time lags in the cash settlement process between NYSE and $138,000 due to NASD. At December 31, 1987, amounts the Company and its participants and other registered clearing due to NYSE were $1,707,000 and amounts due to NASD were agencies. The nature of the Company's business involves significant $173,000.

15 Notes to Consolidated Financial Statenlents (continued) National Securities Clearing Corporation

SIAC and DYC: Under the terms of an agreement, the Securities tionate share of proposed long-term lease obligations. The Com­ Industry Automation Corporation (SIAC), an entity owned by pany's contingent liability under this agreement is approximately NYSE and Amex, provides facilities, personnel and services in sup­ $2,000,000 per annum through 1998. port of the Company's operations. SIAC charges NSCC for these At December 31,1988, future minimum annual rental payments services based on its direct, computer and overhead costs arising under all noncancellable operating leases were as follows: from providing such services. The agreement has no expiration date and continues in effect unless notice of cancellation is given by 1989 $ 3,525,000 either party. 1990 3,497,000 Prior to May 1, 1987, the Company rented certain office space 1991 2,940,000 from SIAC. Rental payments to SIAC amounted to $203,000 in 1992 2,804,000 1987. Effective May 1, 1987, the Company entered into a lease agree­ 1993 2,990,000 ment directly with the landlord and subsequently sublet a portion of 1994 and thereafter 11,616,000 the space to SIAC. Rental payments received from SIAC amounted Total minimum annual rental payments $27,372,000 to $1,547,000 in 1988 and $1,016,000 in 1987. Total sublease rentals of $3,555,000 are to be received over NYSE, Amex and NASD own minority interests in The Deposi­ the three -year period 1989 through 1991 under noncancellable tory Trust Company (DTC), whose facilities are used by the Com­ subleases at December 31, 1988. Rental expense amounted to pany. DTC fees included $12,070,000 and $11,547,000, net of rebates, $1,973,000 and $1,628,000, which is net of rental reimbursements in 1988 and 1987, respectively, relating to charges for NSCC partici­ of $1 ,547,000 and $1,016,000 in 1988 and 1987, respectively. pants which the Company sponsors at DTC. NSCC passes through these charges directly to the sponsored participants. In addition, the Note 6 Pension PIan: Company rents certain office space from DTC. Rental payments The Company has a trusteed noncontributory defined benefit pen­ amounted to $795,000 and $651,000 in 1988 and 1987, respectively. sion plan covering substantially all employees. Benefits under this Amounts payable at December 31, 1988 to SIAC and DTC were plan are generally based on employees' years of service and compen­ $4,332,000 and $351,000, respectively ($3,768,000 and $778,000, sation during the years immediately preceding retirement. The respectively, at December 31,1987). Amounts receivable from SIAC Company's funding policy is to make contributions under the plan at December 31, 1988 amounted to $ 5 77,000. that meet or exceed the minimum funding standards under the Employee Retirement Income Security Act of 1974 and the Internal Note 5 Commitments and Contingent Liabilities: Revenue Code of 1986, as amended. Pension cost for 1988 is The Continuous Net Settlement (CNS) system interposes the Com­ summarized as follows: pany between participants in securities clearance and settlement. The failure of participants to deliver securities to the Company, and Service COSt $ 298,750 the corresponding failure of the Company to redeliver the securities, I nterest cost 215,047 results in open positions. Open positions are marked-to-market Actual return on plan assets (84,716) daily. Such marks are debited or credited to the involved partici­ Net amortization and deferral (45,487) pants through the settlement process. At the close of business on Total pension cost $ 383,594 December 31, 1988, open positions due the Company approximated Pension cost for the year ended December 31, 1987 amounted to $ 568,000,000 ($727,000,000 at December 31, 1987), and open $374,842. The funded status of the plan at December 31,1988 was positions due by the Company to participants approximated as follows: $406,000,000 ($539,000,000 at December 31,1987) for unsettled positions and $162,000,000 ($188,000,000 at December 31,1987) Acruarial present value of benefit obligations: for securities borrowed through the Company's Stock Borrow Vested benefit obligation $ (953,564) Program. Nonvested benefit obligation (180,459) In connection with an agreement ISCC has with The International Accumulated benefit obligations (1,134,023) Stock Exchange (lSE) in London, ISCC guarantees the settlement Effect of salary projections (1,755,584) obligations of its members at ISE. ISCCs members collateralize such Projected benefit obligation (2,889,607) obligations by depositing clearing fund amounts with ISCC as Fair value of plan assets 2,141,763 required pursuant to the ISCC Member's Agreement. Plan assets less than projected benefit obligation (747,844) Under the terms of the agreement with SIAC noted above, the Unrecognized net gain (201,766) Company is contingently liable in the event of cancellation for com­ Unrecognized transitional liability 453,443 puter equipment leases in the amount of $5,551,000 at December Accrued pension cost $ (496,167) 31, 1988. This contingent liability under the current agreement decreases to zero in 1991. The expected rate of return on plan assets was 8% in 1988. The Additionally, in connection with SIACs contemplated establish­ discount rate and rate of increase in future compensation levels used ment of a dual processing site, the Company has entered into an in determining the actuarial present value of accumulated benefit agreement indemnifying NYSE, the guarantor, for NSCCs propor- obligations were 9% and 8%, respectively, in 1988.

16 Report of Independent Accountants National Securities Clearing Corporation

153 East 53rd Street Price Jfitterhouse New York, NY 10022

To the Board of Directors and Shareholders of National Securities Clearing Corporation February 21,• 1989

In our opinion, the accompanying consolidated balance sheet and accordance with generally accepted auditing standards which require the related consolidated statements of income and retained earnings that we plan and perform the audit to obtain reasonable assurance and of cash flows present fairly, in all material respects, the financial about whether the financial statements are free of material misstate­ position of National Securities Clearing Corporation and its sub­ ment. An audit includes examining, on a test basis, evidence sup­ sidiary at December 31, 1988 and 1987, and the results of their porting the amounts and disclosures in the financial statements, operations and their cash flows for the years then ended in conform­ assessing the accounting principles used and significant estimates ity with generally accepted accounting principles. These financial made by management, and evaluating the overall financial state­ statements are the responsibility of the company's management; our ment presentation. We believe that our audits provide a reasonable responsibility is to express an opinion on these financial statements basis for the opinion expressed above. based on our audits. We conducted our audits of these statements in

Corporate Officers

NSCC Officers Steve M. Labriola Richard P Kent Marvin B. Koehler Senior Vice President Vice President Chief Financial Officer Bernard L. Madoff (lIld Treasllrer Chairman of the Board Sandy Manata Kevin F. Maloney Senior Vice President Vice President Robert J. Woldow David M. Kelly Serretary and General COllnsel President and CEO Thomas K. McCarthy Michael M. Molloy Vice President / Vice President Robert A. Schultz GSCC Officers Director of Operations Exemtive Vice President Neil Outcault Bruce R. Lakefield Karen L. Saperstein Vice President Robert J. Woldow Chairm(1Il of the Board Vice President / Exemtive Vice President. William H. Thomas Director of Legal and David M. Kelly General COllnsel and Serretary Vice President Associate Genera! COllllse! Via Chairman ?lIId CEO Walter H. Cushman Henry J. Belusa ISCC Officers Charles A. Moran Senior Vice PreJident Vice President President and COO Gerard P Lynch John F. Elberfeld Catherine Craig Chaudhuri Chairmall o/the Board F. Senior Vice President Thomas Costa Vice President Senior Vice President David M. Kelly Armand Keirn John D. Fitzgerald President and CEO Senior Vice President Frederick B. Roemer Vice President First Vice President Richard W. Myers Marvin B. Koehler David F. Hoyt Exemtiw Vice President Senior Via President Janet R. Ferrante Vice President and AssiJtclllt and COO Via President and TreaSllrer Secretary Mary Ann Callahan John F. Elberfeld Jeffrey F. Ingber Via President Chief Financial Officer Vice President and Treasllrer Michael J. Kelleher Vice President

17 Participating Organizations (as of December 31, 1988)

ABD Securities Corporation Bosron Srock Exchange Specialist Midland Doheny Limited Cowen & Co. Adams, Harkness & Hill, Inc. Accoum Nesbin Thomson Deacon Inc. Craig-Hallum, Inc. Adler, Coleman & Co., Inc. ABD Securities Corp. Odium Brown Limited Craigie Incorporated Advest, Inc. BHF Securities Corp. Pember ron Securities Inc. Cresvale Imernational, Inc. Agora Securities, Inc. Blodgen & Co. Piccet (Canada) and Company, Crowell, Weedon & Co. ). Alexander Securities, Inc. Camella&Co. Limited Cusrodial Trust Company Fred Alger & Company Incorporated The Chicago Corporation RBC Dominion Securicies Inc. DLJ Capital Markets Allen & Company Incorporated Dean Winer Reynolds Inc. Richardson Greenshields of Canada Dain Boswonh Incorporated Allen Securities Corp. Diecrich & Company Limited Daiwa Securities America Inc. Alpine Associares William Ferris & Co., Inc. ScotiaMcLeod Inc. Daugheny, Cole Inc. Amalgamated Bank of New York Ganoudis Securities, Inc. Thomson Kernaghan & Co. Ltd. Davenpon & Co. of , Inc. American Securities Corporation Garden State Securities, Inc. Walwyn Srodgell Cochran Murray D. A. Davidson & Co. Inc. American Srock Exchange Clearing Gowell Securicies Corp. Limited Shelby Cullom Davis & Company Corporation Hawthorne Securities Corp. Wood Gundy Inc. Dean Winer Reynolds Inc. Amster & Co. K. and S., Inc. Yorkron Securities Inc. deCordova, Cooper & Co. Arnhold and S. Bleichroeder, Inc. King, Keller & Co. Canadian Imperial Bank of Deltec Securities Corporation Asiel&Co. Meadowbrook Securities, Inc. Commerce Deursche Bank Capital Corporation BHF Securities Corporation Merrill Lynch Specialists Inc. Camor Fitzgerald & Co., Inc. Dillon, Read & Co. Inc. BT Brokerage Corporation National Financial Services Corp. Canror Fitzgerald Corporate Brokers, Dillon Securities Julius Baer Securicies Inc. Ocean Hill Equities, Inc. Inc. Doft & Co., Inc. Baird, Pacrick & Co., Inc. PaineWebber Specialists, Inc. S. B. Camor & Co., Inc. Dominick & Dominick, Incorporated Roben W. Baird & Co., Incorporated Pershing Division of Donaldson, Capital Shares, Inc. Drexel Burnham Larnben Bank of Momreal, New York Branch Lufkin & Jenrene Securities Carr Securities Corp. Incorporated The Bank of New York Corporation Carr & Thompson, Inc. E. I. Loan Services The Bank of New York- Prescon, Ball & Turbin, Inc. Carroll McEncee McGinley Securities, Easron & Co. Brokers Clearance ). C. Bradford & Co. Inc. A. G. Edwards & Sons, Inc. Bankers Trust Broker Clearing Unit Branch, Cabell & Co. Cenpac Securities Corporation Einhorn & Co. Bankers Trust-Clearance Broadcon Capital Corporation Challenge Securities, Inc. Eppler, Guerin & Turner, Inc. Bankers Trust Company Brounoff, Claire & Co., Inc. ). W. Charles Securities, Inc. Equity Securities Trading Co., Inc. Bankers Trust/lnvestmem Services Alex. Brown & Sons Incorporated Chase Dealer & Investment Ernst & Company Barclays Bank Imernational Limited Brown Brothers Harriman & Co. The Chase Manhanan Bank, N.A. Exchange Services, Inc. George K. Baum & Co. Brown & Company Securities Chase/Syndicate Execution Services Incorporated Bear, Stearns & Co. Inc. Corporation Fagenson & Company, Inc. Bear, Stearns Specialist Brown, Lisle/Cummings, Inc. Chemical Bank/CSI Fagenson & Company, Inc.-Retail Beauchamp & Co. P. R. Burke & Co. The Chicago Corporation Fahnestock & Co., Inc. Beckman & Co., Inc. Burns Fry Hoare Govene Inc. S. W. Childs Managemem Corp. Fechror, Detwiler & Co., Inc. Bemon & Company Burns, Pauli & Co., Inc. The Cincinnati Srock Exchange Fernandez, Bansch & Mirra Sanford C. Bernstein & Co., Inc. Cable, Howse & Ragen Citibank Dealer-Municipal Financial Clearing & Services Bidwell & Company D. A. Campbell Company, Inc. Operations Corporation Blackmore & Co., Inc. Campbell, Waterman, Inc. Citibank/IFI Cusrody Financial Network Investmem Charles M. Blair & Co., Inc. Canadian Deposirory for Securities Citibank, N.A. Corporation William Blair & Company Limited Citibank-Private Banking Division First Alabama Investmenrs, Inc. Blinder, Robinson & Co., Inc. Andras Research Capital Inc. Citicorp Scrimgeour Vickers First Albany Corporation Bocklcn & Co. Brawley Cathers Limited Imernational, Inc. First Birmingham Securities Bosron Srock Exchange Clearing Corp. Alfred Bunting & Company Ltd. Citizens and Souchern Securities Corporation Barren & Company Burns Fry Limited Corporation The First Boston Corpora cion Bodell Overcash Anderson & Co., Inc. Canarim Investmem Corporation Ltd. Coast Opcions Inc. First Manhattan Co. Buell Securities Corp. Connor, Clark & Company Ltd. Commerzbank Capital Markets First of Michigan Corporacion Camella & Co. (Rerail) Darier Canada Inc. Corporation First Options of Chicago, Inc. Datek Securities Corp. Deacon Morgan McEwen Easson Common Back Office Inc. First Southwest Company Diamam Invesrmem Corp. Lim ired Conklin, Cahill & Co. First Brokerage Service F. W. Doyle & Co. Dean Winer Reynolds (Canada) Inc. The Conneccicuc Bank and Trust Corporation Gage-Wiley & Co., Inc. Deragon Langlois Ltd. Company, N.A./Municipal Bond Roben Fleming Inc. Gowell Securities Corporation Disnat Investmem Inc. Dealer Depanmem Fossen Corporation (Retail) First Canada Securities Corporation The Connecticut Bank and Trust, N.A. Walter N. Frank & Co. Instam Funds Incorporated First Marathon Securities Limited Coughlin & Co., Inc. Wm. V Frankel & Co., Inc. Invesrors Discount Corporation Geoffrion, Leclerc Inc. County NatWest Securities Freeman Securities Company, Inc. Kimball & Cross Gordon Capital Corporation Corporation USA Freeman Welwood & Co., Inc. Linsco Corp. Greenline Invesror Services Inc. French American Banking Corp. Merrimack Valley Investmem Inc. Guardian Trust Company Albert Fried & Company H. M. Payson & Co. Laffeny, Harwood & Panners Ltd. Fundamemal Corporate Bond Shelrer Rock Securities Corp. Levesque, Beaubien Inc. Brokers, Inc. Winslow Investmem Company Loewen, Ondaadtje, McCutcheon & ).W Gant & Associates, Inc. Archur W. Wood Company Co. Ltd. Geldermann Securicies, Inc. MacDougall, MacDougall & Geldermann Securities, Inc. (Retail) MacTier Ltd. Gimeico, Inc. McCanhy Securities Limited Goldman, Sachs & Co. McNeil, Mamha, Inc. Merit Investmem Corporation

18 Gordon & Co. MKI Securiries Corp. The Nikko Securities Co. Pflueger & Baerwald Inc. Gradison & Company Incorporared MN Services Intemarional, Inc. Carl H. Pforzheimer & Co. Greenfield Parmers MS Securiries Services Inc. Nippon Kangyo Kakumaru Piper,Jaffray & Hopwood Oscar Gruss & Son Incorporared Mabon, Nugent & Co. International, Inc. Incorporared Halcyon Invesrmenrs MacAllaster Pit field Mackay Inc. Nomura Securities International, Inc. Porrer, Whire & Yardley, Inc. Hanifen, Imhoff Inc. Bernard 1. Madoff The Norrhern Trust Company-Trust Preferred Technology, Inc. ). F. Harrfield & Co., Inc. Manufacrurers and Traders Trust Income Collecrions Prescon, Ball & Turben, Inc. The Heimer Corporarion Company John Nuveen & Co. Incorporated Prudential-Bache Securiries Inc. Henderson Brorhers, Inc. Manufacrurers Correspondent O'Connor & Associates Purcell, Graham & Co. Herzog, Heine, Geduld, Inc. Clearing Services O'Connor Securities Q & R Clearing Corporation Hill, Thompson, Magid & Co., Inc. Manufacturers Hanover Securities Offerman & Co., Inc. E.). Quinn & Co., Inc. ).). B. Hilliard, W 1. Lyons Inc. Corporation Olde Discount Corporation F. P. Quinn & Co. Hopper Soliday & Co., Inc. Manufacturers Hanover Trust Oppenheimer & Co., Inc. RAF Financial Corporarion Howard, Weil, Labouisse, Friedrichs Company Outwater & Wells, Inc. RBC Dominion Securiries Incorporared Manufacturers Hanover Trust Pacific Brokerage Services, Inc. Corporarion Wayne Hummer & Co. Company-Municipal Dealer Pacific Srock Exchange Specialist R.F.G.Co. Hundeigh Securiries Corporarion Operations Account RJ. Srock Lending IBJ Schroder Bank & Trusr Co. Marcus Schloss & Co., Inc. ABD Securities Corporation RSF Parmers INC Trading Corporarion Marine Midland Bank-New York AGF Securities Inc. T.). Raney & Sons, Inc. kahn & Co., Inc. Marker Investment Services Corp. Adams-Fasmow Company, Inc. Rauscher Pierce Refsnes, Inc. Illinois Company Invesrments, Inc. Marketing One Securities, Inc. Bateman Eichler, Hill Richards Raymond, James & Associares, Inc. Ingalls & Synder Mayer & Schweitzer, Inc. Incorporated W H. Reaves & Co., Inc. Intersrare/Johnson Lane Corporarion McCourmey-Breckenridge & The Chicago Corporation Refco Securiries, Inc. InvesrNer Corporarion Company Crowell, Weedon & Co. Refco Securiries, Inc/Srock Loan Irving Trusr Company McDaniel Lewis & Co. D. A. Davidson & Co., Inc. Regional Clearing Corp. Irving Trusr/Invesrment/Dealer McDonald & Company Securities, Inc. Donaldson, Lufkin & Jenrette Reich & Co. Inc. J MS Execurion Services e. 1. McKinney & Co., Inc. Securities Corporation Richardson Greenshields Securiries Benjamin Jacobson & Sons M.). Meehan & Co. Easron & Co. Inc. Janney Montgomery Scon Inc. Mellon Securities Trust Co. Garat& Co. M. Rimson & Co., Inc. Jefferies & Co., Inc. Mercaror Parmers Goldberg Securities, Inc. Robb, Peck, McCooey Clearing Jesup & Lamont Clearing Corp. Mericka & Co., Inc. Shiels Hoelscher & Co. Corporarion Johnsron, Lemon & Co. Incorporated Merrill Lynch, Pierce, Fenner & Smith Hopkins, Harbach & Co. Roberrson, Colman & Stephens Edward D.Jones & Co. Inc. Jefferies & Company, Inc. Rodman & Renshaw, Inc. Josephrhal & Co. Incorporared Merrill Lynch, Pierce, Fenner & Smith K.). Keeley & Co. Inc. Roney & Co. S. A.Judah & Co., Inc. Inc.-Securities Lend ing Ronald E. Melville, Inc. Roosevelr & Cross, Incorporared K K & Company Midland Doherty Inc. Merrill Lynch Specialists Inc. Rose & Company Invesrment Kalb, Voorhis & Co. Midwest Clearing Corporarion Mitchum Jones & Templeron Inc. Brokers, Inc. Kaufmann, Alsberg & Co., Inc. Barden & Co. LAQ-PSE LA SCOREX 1. F. Rothschild and Co. H. Kawano & Co., Inc. Equitable Securities Corporation PQ-PSE SF SCOREX Incorporared Kellner, DiLeo & Co. Howe, Barnes & Johnson, Inc. PaineWebber Specialists Inc. Roulsron Research Corp. Kellogg Equiries Execurion Kessler Asher Clearing Inc. POSt 63 Parrners Ryan, Beck & Co. Kemper Clearing Corp. Lomas Securities USA, Inc. Seidler Amdec Securities Inc. SBCI Swiss Bank Corporarion ).). Kenny Trading, Inc. The Ohio Company Shearson Lehman Brothers, Inc. Invesrment banking Inc. Kidder, Peabody & Co. Incorporared TCW Inc. Sage Clearing Corporarion e. 1. King & Associares, Inc. Morgan Guaranty Trust Company of Wed bush Securities, Inc. Sage, Runy & Co., Inc. Koonce Securiries Inc. New York Weeden & Co. 1.P. Salomon Brorhers Inc Henry Krieger & Co. ). P. Morgan Securities Inc. Don e. Whitaker Inc. M. A. Schapiro & Co., Inc. LIT America, Inc. ). P. Morgan Securities I nc.­ 1. W. Wilson & Co., Inc. Charles Schwab & Co., Inc. LIT America, Inc./DOT Fixed Income Division Yamaichi International (America), ScoriaMcLeod (USA) Inc. LaBranche & Co. Morgan, Keegan & Company, Inc. Inc. Scorr & Srringfellow, Inc. Emmert A. Larkin Co., Inc. Morgan, Olmsread, Kennedy & PaineWebber Incorporated Seasongood & Mayer Lashco, Inc. Gardner Incorporared S. e. Parker & Co., Inc. Securiries Setclement Corporarion Lasker, Srone & Srem Morgan Sranley & Co. Incorporared Pembroke Clearing Corporation Securiry Paci fic Clearing & Services Larerman & Company MuniciCorp of California Pershing Division of Donaldson, Corp. e.). Lawrence, Morgan Grenfell, Inc. Murphey Favre, Inc. Lufkin & Jenrerte Securities Security Pacific Loan Group Lawrence, ODonnell, Marcus & Co. Murphey, Marseilles, Smith & Corporarion Morron Seidel & Co., Inc. Lazard Freres & Co. Nammack, Inc. Seligman Securiries, Inc. Lewco Securities Corp. Murphy & Durieu Sharkin Investment Corp. S. B. Lewis & Company NB Clearing Corporation Shatkin-Lee Clearance Liberry Sueer Trusr Company NASD Market Services Inc. Sharkin-Lee Securiries Co. National Financial Services Shearson Lehman Hunon Inc. Corporation Smith Barney, Harris Upham & Co. National Westminster Bank NJ. Incorporared National Westminster Bank USA Smith, Moore & Co. Neuberger & Berman Smirh New Courr, Carl Marks Inc. New Japan Securities International, Inc. Sourhwest Securiries Incorporared New Windsor Associates, 1.P. Spear, Leeds & Kellogg Newbridge Securities Inc. Spear Securities & Co., Inc. Newhard, Cook & Co. Incorporated

19 Participating Organizations (continued) (as of December 31,1988)

State Street Bank and Trust Company, For Municipal Comparison Bamett Bank ofJacksonville, N.A. First American National Bank- N.A. Only Barr Brothers & Co., Inc. Nashville R.J. Steichen & Co. Acker, Wolman Securities Corp. BayBank Boscon, N.A. First Bank (N.A.) Milwaukee Stern & Kennedy Allied Bank of Texas Branch Banking & Trust Co. First Charlone Corporation M. L. Stem & Co., Inc. M. E. Allison & Co., Inc. K. R. Burler, Inc. First Citizens Bank & Trust Company Sterne, Agee & Leach, Inc. American Municipal Securities Inc. C & S National Bank/Dealer First City National Bank of Houston- Stifel, Nicolaus & Company American National Bank-St. Paul Cain Brothers, Shatruck & Company Safekeeping Incorporated American National Bank & Trust Cal State Securities Corp. First Commercial Bank Scock Clearing Corporation of Company of Chicago Cantor, Fitzgerald Municipal Brokers, First Fidelity Bank, N.A. Philadelphia American Security Bank, N.A. Inc. New Jersey/Municipal Dealer BHC Securities, Inc. (Washingcon, D.C.) Cape Cod Bank & Trust Co. First Interregional Equity Corp. Susquehanna Investment Group AmSouth Bank, N.A. Capital Markets Corporation First Interstate Bank of Arizona, N.A. ScockCross, Inc. BancTexas Dallas N.A. Carolan & Co., Inc. First Interstate Bank of California- Scokes, Hoyt & Co. Bank IV Wichita, N.A. Centerre Bank, N.A. St. Louis Dealer Bond Department Scone & Youngberg , BISD Central Bank of Denver First Interstate Bank of Denver, N.A. Street Securities Co. Dealer-Portfolio Central Bank of the South First Interstate Bank of Oklahoma J. Streicher & Co. Bank of Boscon Connecticut The Central Trust Co. N.A. Cincinnati City-Investment Division The Sruart-James Company, Inc. Bank of California Chapdelaine & Co. First Interstate Bank of Oregon, N.A. Surro & Co. Incorporated Bank of Hawaii Chase Lincoln First Bank, N.A. First Interstate Bank of Washing con­ Henry F. Swift & Co. , N.A. Dealer Chemical Bank-Municipal Dealer Bank Investment Department Swiss American Securities, Inc. Bank Citicorp Securities Markers, Inc. First Missouri Bank & Trust Company Thomson McKinnon Securities Inc. Bank of Oklahoma, N.A. Citizens Fidelity Bank & Trust First National Bank in Palm Beach­ Timber Hill, Inc. Bank One, Indianapolis, N.A. Company (Louisville, KY) Bond Department The Toronto-Dominion Bank Bank Sourh, N.A. (Arlanta) City National Bank, Beverly Hills, First National Bank of Boscon­ Transarlantic Securities Company Bankers' Bank of Wisconsin California Dealer Tucker, Anthony & R. L. Day, Inc. Bankers Trust Company Colorado National Bank of Denver First National Bank of Chicago UBS Securities Inc. Adams, McEntee & Company Comerica Bank-Detroit First National Bank of Commerce Underwood, Neuhaus & Co., BGK Securities Co. Commerce Bank of Kansas City, N.A. (New Orleans) Incorporated Cantor, Fitzgerald & Co., Inc.­ Commerce Bank of St. Louis, N.A. First National Bank of Unified Management Corporation Retail Dealer of Peoria First National Bank of Minneapolis­ United Missouri Bank of Kansas City, Carty & Company, Inc. Connecticur National Bank- Bond Dealer N.A. Citizens First National Bank of Investment Dealer First National Bank of Springfield United Srates Trust Company of New Jersey Conners & Company The First National Bank & Trust Co. New York Citizens Trust Company R. W. Corby & Company, Inc. of Tulsa-Investment Division Universal Securities Corporation Crestar Bank Country Club Bank, Kansas City First of America Bank-Detroit, N.A. Vail Securities Investment, Inc. Duncan-Williams, Inc. Crews & Associates, Inc. First Security Bank of Utah, N.A. Van Kampen Merrier Inc. Faherty, Aliaga & Co., Incorporated Dahlke & Company, Inc. First Southern Securities, Inc. W & D Securities, Inc. First Commercial Bank of Litrle Denver National Bank- First Bank, N.A. WSCC-Murual Funds Rock Investment Dept. National Bank of Florida WSI Stock Loan First Interstate Bank of Nevada, N.A. Deposit Guaranty National Bank, Florida National Bank (Jacksonville) Wachtel & Co., Inc. First Wisconsin National Bank of Jackson, MS Fox Reusch & Co., Inc. Wagner, Score & Co. Milwaukee The Deposicory Trust Company The Frazer Lanier Company Wagner SCOtt Clearing Corp. Fleet National Bank First National Bank of Louisville Frost National Bank-Bond Dept. Wagner Score Clearing Corp./Cohen Grigsby, Brandford & Co., Inc. Manufacrurers National Bank of GIMB Feit& Co. The Leedy Corporation Detroit-Municipal Bond Dept. Glickenhaus & Co. Wall Street Clearing Company Midlantic National Bank Star Bank, N.A. Glickenhaus-New Jersey Wall Street Equities, Incorporated E. A. Moos & Co. Incorporated Wachovia Bank & Trust Company, A. F. Green & Co., Inc. Wall Street Trust, A Bank of New York National City Bank, Cleveland N.A. Halliburcon & Associates, Inc. Division Pacificorp Capital Securities, Inc. Ladd Dinkins & Company Halpert and Company, Inc. S. G. Warburg & Co., Inc. D. A. Pincus & Co., Inc. Discount Corporation of New York J. B. Hanauer & Co. Waterhouse Securities Inc. R. Seelaus & Co., Inc. Municipals Harper, Mclean & Company Weber, Hall, Sale & Associates, Inc. Southeastern Municipal Bonds, Inc. Doley Securities Inc. Chester Harris & Co., Inc. Wechsler & Krumholz, Inc. Sterling, Grace Municipal Securities Dominion Bank, N.A. (Roanoke, VA) Hattier, Sanford & Reynoir Wedbush Securities, Inc. Corporation Douglas & Co. Municipals, Inc. William R. Hough & Co. Weiss, Peck & Greer Strahsmeier Securities Co. Harry Downs & Co., Inc. The Huntingcon National Bank H. G. Wellingcon & Co., Inc. The Summit Trust Company Clifford Drake & Company, Inc. Hutchinson, Shockey, Erley & Co. Bank, N.A. Tollner & Bean, Inc. Duke McElroy & Company, Inc. Independent State Bank of Minnesota Wheat, First Securities, Inc. Wheeler Municipals Corp. Egan, Marrin & Rubano, Inc. Indiana National Bank Thomas F. White & Co., Inc. Bankers Trust Company-Investment Ehrlich-Bober & Co., Inc. Irving Trust Company Williams Securities Group, Inc. Dealer Equibank, N.A. The First National Bank in Wilshire Associates Essex Company Albuquerque Wolfe & Hurst Bond Brokers, Inc. W N. Estes & Company, Inc. The Provident Bank Wood Gundy Corp. European American Bank United Bank of Arizona Yamaichi International (America), Inc. The Exchange National Bank of Ziegler Thrift Trading, Inc. Chicago Fidelity Bank, N.A. The Fifth Third Bank First American Bank of Georgia, N.A.

20 J MC Securities, Inc. Meuse, Rinker, Chapman, Endres & Hammond & Bo"tzum, Incorporared Wells Fargo Bank, N.A.-Funding Johnston, Brown, Burnett & Knight; Brooks. ' Henry/Kearns Municipals, Inc. Group Inc. N, D. Meyer & Co., Inc. A. D.Jack & Company Wesrpac Banking Corporation Lex Joll~ & Co., Inc. of Detroit. McGowan; O'Meara & Company, R. D. White & Co., Inc. Joe Jolly & Co., Inc. Miller & Schroeder Financial Inc. , Inc. Whitney National Bank of New Kirchner, Moore & Company Municipal Investors Service, Inc. Mid-State Securities Corp. Orleat1S . W. L. Knox & Company NCNB National Bank of Florida National Bank of Commerce Wolfe & Hurst Bond Brokers, Inc:­ LaSalle National Bank/Dealer NCNBTexas (Birmingham, AL) Muni Division Operarions National Bank of COI:nmerce Trust & National Bank of Commerce Worthen Bank & Trust Co., N.A., Lebenthal & Co., Inc. Savings Association - DeaJer (Memphis, TN) '. (Litrle Rock, AR) 'David Lerner Associates, Inc. National Bank of Detroit One National Bank-Investments . Liberty National Bank and Trust Newman and Associates, Inc. Leo Oppenheim & Co., Inc .. Fund Members Company (Louisville, KY) Norstar Bank, N.A/Bufhlo Pacific Securities Inc. . Alliance Fund Distributors, Inc. Liberty National Bank & Trust Norstar Bank of Ups rate New York' Plansmith'Securities, Inc. American Capiral Marketing Inc. Company Investment Dept. (Albany) " . R'H Investment Corporation American Funds Distributors, Inc. (Oklahoma City; OK) Norwest Investment Services RMG Capiral L.P. Amev Distributors MBank Austin N.A. '. O'Brien & Shepard, Inc. Arch'W.Robetts & Co. Carnegie Fund Distributors, Inc. M&I Marshall & IIsley Bank Oregon Bank Russetl, Rea & Zappala, Inc. Colonial Investors Service Center, Inc. Manufacturers HanoVer Trust A. Overton & Co. Scharff & Jones, Inc. J. Criterion Disrribu!Qrs, Inc. Company Park Investment Corporation Spelman & Co., Inc. Delaware Service Company, Inc. Alamo National Bank Philadelphia National Bank- Townes.& Co., Inc. Dreyfus Service Corporatioh The Arizona Bank Coresrates Capital Markers Group Vining-Sparks Securities, Inc. Earon Vance Distriburors, Inc. Ba,ncoPopular de Puerto Rico Rainier National Bank Michae~ A. Weisser, Inc. Federated Securities Corp. BilnkOhio National Bank , Rhode Island Hospital Trust National Westcap Securities, Inc. Flag Investors Funds Bank of Virginia Bank . A. H. Williams & Co., Inc. Flagship Funds Inc. Bankers Trust of South Carolina Rickel & Associates B. C. Ziegler & Company Franklin Distributors, Inc. . .Boatmen's National Bank ~fSt. Rogers & Lamb Ziegler Securities, Inc. GT Global Financial Services Louis SSB-Bank Portfolio Security Pacific National Bwk ,Home Group Funds , Central Fidelity Bank Scheetz, Smith & Company, Inc. Shawmut Bank-Inves~ent Division , Investment Trust of Boston' ' Central Fidelity Bank-Investmenrs Schmidt Securities, Inc. Shawmut Worcester Courity Bank, DistribUtors,lnc. Centta1 Fidelity Bank (~chburg, VA) Seattle First National Bank N.A. Kemper Financial Services, Inc. Corpus Christi National Bank Seattle Northwest Securities Signet BankjVirginia Keystone Massachusetts Distributors The First National Bank of Corporation, Simmons First National Bank of Pine Inc. . Shreveport . SecuriCorp', Inc. Bluff Lord, Abbett & Co. First National Bank of South Security Bank of Kansas City Herberr J. Sims & Co., Inc. . MFS Financial ~ervices Company Carolina Security Pacific Oearing & Services Sisung Secur"ities, Inc. ' MerLife State Street Investment First Union National Bank Corp. . R. W. Smith & Associares, Inc. Services, Inc. Hibe~ia National Bank in New AdamS, Block & Coe,Securities Society National Bank Midvale Securities Corp., Orleans Allison, Rosenblum & Hannahs, Inc. Sovran Bank/Central South Nuveen Securities & Co. Incorporated Imperial Bank (Los Angeles) . : James Baker & Company ).W. Sparks Municipals, Inc. Oppenheimer Fund Management, Landmark First National Bank , Berghoff, Marsh & Company' Stoever, Glass & Co. Inc. Inc. Old Stone Corporation A. F. Best Securities, Inc. Texas American Bank, N.A/Forc Phoenix Equity Planning Corporation Pitrsburgh National Bank , Bryan, Worley & Co., Inc. . Worth Pilgrim Distributors Corp. South Carolina National Bank Capitol Municipal Securities, Inc. TexaS Commerce Bank, N.A. The Pioneer Group, Inc. ' Southeast Bank, N.A. Chiltoft & O'Connor,lnc. Texas Independent Bank Plymouth Investments Division of . Southtrust Bank of Alabama, N.A. Langdon P. Cook & Co. Third National ,Bank in Nashville Fidelity Distriburors Corporation Sovran Bank, N.A. , I!1corporared. Thorn, Alvis, Welch, Inc., Investment Putnam Financial Services, Inc. Sovran Bimk, N.A.-Trading Account Dayton, Kahn, Heppe, Hancock Securities Quest for Value Distributors UnibancTrust . & Co. Thornton, Farish & Gauntt Seligman Marketing, Inc. United Bank and Trust Company Dolphin & Bradbury Incorporated Titus & Donnelly Inc. Telnpleton Funds DistribUtor, Inc. Manufacturers and Traders Trust Co.­ A. Webster DOl,Igherty & Co. ' Trust Company Bank-Investment Van Eck Securiti~s Corporation Muni Trading & Safekeeping , Incorporated Banking Division . Van Kampen Merritt Inc. Marine Bank, N.A. (Milwaukee) . Drizos Investments, Inc. TrustmarkNatiohal Bank B. c:. Ziegler'& Company Marine Midland Bank-New York R. W. Ellwood & Co., Inc. U.S. Baqk cifWashington National First National Bank ofToms River, NJ ' Emmet & Co., Inc. Association Second National Bank of Saginaw FinSer Investment Company UnibankTrust Company United Jersey Bank First Easrem Bank, N.A. Union Bank-Treasury Department Mark Twain National Bank First Miami Securities Union Planters Investment Bankers (St. Louis, MO) , Gibraltar Securities Co. Gioup .£>- Hugo Marx & Co., Inc. Griffin, Kubik, Stephens &' United Bank of Denver, N.A. iii Masterson & Company . ' Thompson,lnc. . Bank of OregoniDealer :~ Mdaughlin, Piven, Vogel Inc. Valley National Bank of Arizona :as McLiney and Company St. Denis J. Villere & Co. ~ 'c Mellon Bank (East), N.A. Wall Street.Trust,-A Bank of New &. Mellon Bank, N.A. York Division , .c>. Mercantile Bank, N.A. Jefferson Guaranty Bank , C­ ,as Merchants National Bank & Trust MatylandNational Bank , ,~ Company of Indianapolis NCNB Natiohal Bank of Nor'th , .c 0 0.. Merit Financial COrporation Carolina-ajc Cape Secuii~ies