THE DEPOSITORY TRUST COMPANY ANNUAL REPORT 1987 Table of COil tell ts Highlights 4 A Message from Management 5 History. Ownership, and Policies 6

~~~ 8 Eligible Issues 15 Same-Day Funds Settlement System 16 DTC Growth: A Five-Year Perspective 17 Municipal Bond Program 18 Securities in Book-Entry-Only Form 19 Institutional Use of Securities Depositories 20 Automation of Depository Services 23 Interfaces and the National Clearance and Settlement System 25 The October Market Break 26 Protection for Participants' Securities 27 Officers of The Depository Trust Company 32 The Board of Directors 33 Report of Independent Accountants 34 Participants 42 DTC Stockholders 46

The quadrennial electiol1 of American presidel1ts is the occasioll for reflectioll ill this year's allllual report, aided by Fred Otl1es's collage 011 the cover. The Depository Trust Company, a service company owned by members of the financial industry, is a national clearinghouse for the settlement of trades in corporate and municipal securities. DTC also performs securities custody services for its participating banks and broker-dealers. In 1987, those Participants delivered $9.8 trillion of securities through the depository s book-entry system, and securities in its custody exceeded $2.8 trillion at yearend. Depository Trust's primary mission is to reduce the cost of securities services offered to the public by its Participants. It does so through its automated systems, its telecommunications links with more than 600 Participants and others, and its relation­ ships with the hundreds of firms that serve as transfer agents, paying agents, exchange agents, and redemption agents for securities issuers. •

Total for the Year 1987 1986

Book-entry deliveries (In trillions) Market value $9.8 $8.1 (In millions) Number 78.0 66.7

(In billions) Cash dividend and interest payments $151.2 $120.7

At Yearend

The "master builder of the Constitution," Eligible securities issues 490,620 371,921 James Madison was one of the nation's smallest presidents, standing only (In trillions) 5-foot-4, and never weighing more than 100 pounds. But Madison was a states­ Value of securities on deposit $2.82 $2.54 man whose political stature rivaled that Banks $2.16 $1.89 of his presidential predecessors. He played Broker-dealers $ .62 $ .54 a leading role at the Constitutional Other depositories $ .04 $ .11 Convention, speaking on 68 of 71 days. After asking a friend to tug on his coat­ tails if he became too wrought up, he (In billions) talked himself to the point of exhaustion. Number of shares on deposit 92.6 70.3 'Why didn't you pull me when you heard Banks 42.3 32.3 me go on like that?" he asked his friend. "[ would rather have laid a finger on Broker-dealers 49.3 35.9 lightning," came the reply. Other depositories 1.0 2.1

(In billions) Principal amount of corporate debt on deposit $668.4 $552.0 Banks $548.5 $420.5 Broker-dealers $102.5 $ 88.3 Other depositories $ 17.4 $ 43.2

(In billions) Principal amount of municipal debt on deposit $506.6 $426.3 Banks $393.2 $319.4 Broker-dealers $101.7 $ 89.7 Other depositories $ 11.7 $ 17.2

Participants 604 533 Broker-dealers 421 353 Banks 177 174 Clearing agencies 6 6 This report once again seeks to more than $6 billion in book-entry describe Depository Trust's role in deliveries of municipal notes and securities processing and to record other securities. its results in the year recently Another significant 1987 event was ended. A number of those results the absorption, at the request of highlight developments that are The Pacific Stock Exchange, of the of special significance for DTe. bulk of the processing previously Leading the list is the October performed for it by Pacific Securities market break, when New York Depository Trust Company. As a Stock Exchange daily trading result of that depository's closing, volume twice exceeded 600 million $47 billion of securities there were shares. Throughout the period, moved to DTCs custody at midyear. DTC systems worked well, completing, among other things, Years of sustained effort achieved book-entry deliveries for trade even higher proficiency for a settlements that reached a single­ depository service that requires the day high of $91.7 billion. A daily cooperation of others. DTC has average of 1.7 billion shares were long stressed its receipt of corporate delivered through DTC to settle cash dividends and interest on trades made in various markets payable dates and in same-day during the hectic week of funds. Of the almost $118 billion October 19. in such payments received for Participants last year, 97% was The municipal bond industry'S obtained on the payable date and adaptation to depository services in same-day funds, up from 92% after only a few short years was and 94%, respectively, in 1986. apparent in activity for the period. More than 90% of the principal With all of the above-and more-in amount of all new long-term mind, we wish to thank DTCs staff, municipal bond issues in 1987- its Participants, and all industry $91.1 billion-was distributed by committee members who gave of underwriters through DTe. More their time and talent to help the than two-thirds of the principal depository improve industry amount of all municipal bonds operating capability in 1987. Last outstanding was held by the years volumes could not have been depository at yearend. processed without the high degree of efficiency in the interdependent Stepped-up acceptance was evident post-trade processing network that for the book-entry-only form of serves "the Street" and the broader debt security issuance, in which no investment community. certificates are available to investors. Book-entry-only municipal bonds in principal amount of $26.4 billion were issued last year-an increase of more than 250% over 1986. DTCs Same-Day Funds Settlement William T. Dentzer, Jr. system was introduced in July. Chairman and Chief Executive Officer Before then, the depository could make eligible for its services only securities that regularly settle in next-day funds. Expanding slowly and deliberately in its initial months, Conrad F. Ahrens by yearend this system had settled President and Chief Operating Officer The Depository Trust Company Participants occurred in 1975, after Governance of the Depository originated during the securities state laws that restricted ownership industry's paperwork crisis of the of a securities depository had been DTC's governing procedures are late 1960s, when stock-processing amended. The depository's stock­ carefully framed to reflect the need problems severely disrupted the holder base broadened in 1976, for objectivity in serving diverse financial community. when the NYSE acted to permit users in the financial community. broker-dealers to own DTC stock The right to purchase DTC capital The initiation of Central Certificate directly. These actions established stock is based on a formula that Service (CCS) operations by the the nature of the depository as a considers each Participant's use of New York Stock Exchange (NYSE) service organization owned by its the depository during the preceding in 1968 sought to alleviate these users or their representatives. calendar year. The calculation of problems by providing a securities Participant use for the 1987 stock depository for NYSE member reallocation was based 60% on fees firms. In 1973, pursuant to plans paid to the depository during 1986 developed by the ad hoc Banking and 40% on the market value of and Securities Industry Committee, long securities positions in DTC DTC was created to acquire the during that year. In September 1987, business of CCS and expand the formula's weights were depository benefits to others modified to 80% based on fees and in the financial industry, 20% on long positions, effective particularly banks. with the 1988 stock reallocation. The first sale of DTC stock by The purchase price of DTC stock is the NYSE to depository bank based on its yearend book value. Participants and other self­ regulatory organizations The amount of stock each Participant representing broker-dealer is entitled to purchase is recalculated each year in order to reflect variations in its use of the depository. Participants may purchase any, all, or none of the stock to which they are entitled.

Stock is reallocated before the annual stockholders meeting in late March so that stockholders may Abraham Lincoln had the misfortune vote newly acquired shares in the of being president during his nation's Board of Directors election, which bloodiest and most tragic era. Lincoln's takes place at that meeting. integrity, resolution, and irrepressible Elections are conducted under a spirit, however, helped him meet his system of cumulative voting so that onerous challenge with wisdom and humor. no combination of stockholders Midway through his presidency, collections controlling a simple majority of of jokes and anecdotes attributed to Old Abe stock can elect all Directors. abounded, as did a thriving grapevine of Representation on the Board is Lincoln folklore. According to one tale, thereby made available to users when Stephen Douglas accused Lincoln of from various sectors of the financial being two-faced, he replied that, if he had community in proportion to their another face, why would he wear the one use of the depository. he had on? Though humor seroed as a tonic for the troubled president, on at least one Elections to purchase DTC stock occasion he confided that often the purpose entitlements in 1987 increased the of laughter was to keep him from crying. number of stockholders to 150,

·6· comprising 51 broker-dealers, Directors. The makeup of the DIC is regulated by the Securities 93 banks, and six self-regulatory depository's Board reflects this and Exchange Commission under organizations and clearing agencies. effort to be responsive to user needs. the Securities Exchange Act of 1934, Broker-dealer Participants owned as amended. As a member of the approximately 14.2% of DIC stock DIC policy also limits profits, Federal Reserve System and as a and bank Participants owned and returns to users, whether or New York State limited purpose approximately 44.8%. Ownership not they are stockholders, such trust company, DIC is also regu­ interests of the self-regulatory revenues as the Board of Directors lated by the Board of Governors of organizations, which were required believes exceed the funds required the Federal Reserve System and the to sell stock to accommodate for the depository's operation. New York State Banking Department. Participant purchases, declined to approximately 32.4% for the NYSE, 4.3% for the American Stock Exchange, and 4.3% for the National Association of Securities Dealers.

DIC policy prohibits dividend payments to stockholders on the belief that depository ownership should not be viewed as an invest­ ment vehicle, but as a means for diverse users to encourage DIC's responsiveness to their needs through exercise of their cumulative voting rights to elect the Board of

Though the Founding Fathers had much to debate as they gave birth to the republic, they had little doubt about who should lead it. George Washington was their obvious and unanimous choice as America's first chief executive. Prompted by Washington's prestige-and by a desire to gain international respect for America-Vice President John Adams and others suggested monarchical addresses such as "His Elective Highness," "His Excellency," and "His Mightiness." Finally, they settled for the title in Article II of the Constitution: President of the United States. ~Y/~~------'.

Of the various services Depository Trust performs for its Participants, CHART 1 CHART 2 CHART 3 Shares on De posit Shares on Deposit Equity Securities some are basic to its nature and to From Banks (billions) From Broker-Dealers On Deposit an understanding of what a (billions) (billions of shares) securities depository does. 50 50 100 • It accepts deposits of eligible 40 securities for custody. 40 80

• It executes book-entry deliveries of 30 30 60 securities in its custody through

accounting entries recorded on its 20 20 40 computer files. • It records book-entry pledges of 10 10 20 securities in its custody through 0 0 0 similar accounting entries. 83 84 85 86 87 83 84 85 86 87 83 84 85 86 87 • It provides for withdrawals of securities from its custody on CHART 4 CHARTS CHART 6 Corporate Debt Market Value of Cash Dividends and a routine or an urgent basis. Securities on DepOSit Securities on Deposit Interest Received for ($biliions/prlncipal amount) ($triliions) Participants ($blll,ons) These core services allow a 700------3.0------160------Participant to deposit securities with 600----__ DTC for safekeeping, deliver or 2.5 ---_.--I. 120---__~ pledge them conveniently to another 500---__~ 2.0 --___.-I-...J. party on DTC's books, collect 400--__r.~ payment from the other party for 1.5 -----11__...... 80 -----II"... securities delivered, and obtain 300 - ______~

certificates for customers who wish 200 ______~ 10 __...... __...... 40 __f-IIHHH • to hold them. Also, various other 100 ______.... . 5 ____ HH-...J-..J. services arise from DTC's custody of its users' securities. o o 83 84 85 86 87 83 84 85 86 87 83 84 85 86 87 It is the large number of transactions in DTC services that creates the economies of scale that offer low­ CHART 7 CHART 8 CHART 9 Book-Entry Deliveries Tender and Exchange Withdrawals-by-Transfer cost processing and speed to users Offers Processed without sacrifice of security and 80 10.0 700 70 12 12 accuracy. Increasingly, these 600 60 transactions are in automated form, 10 10 further reducing labor-intensive 60 7.5 500 50 work for Participants and DTC. 8 8 400 40 Deposits 40 5.0 6 300 30 Certificate deposits can be made 4 4 200 20 in eligible securities issues at DTC 20 2.5 or at various banks and clearing 100 10 corporation offices nationwide that 0 0 0 0 o cooperate as DTC depository 83 84 85 86 87 83 84 85 86 87 83 84 85 86 87 • Number (millions) • Number of Offers • Certificates Obtained facilities. DTC processed a daily • Value ($trillrons) • Value of Acceptances (millions) ($blilrons) • WT Instructions average of 24,900 deposits involving (millions) 76,500 registered certificates in 1987.

·8· Bearer municipal bond activity averaged an additional 1,800 daily CHART 10 CHART 11 CHART 12 deposits of 23,900 certificates. Urgent COD Withdrawals Corporate Call Lotteries Value of Outstanding In Registered Issues (thousands) Pledges ($blilions/yearend) (millions) Deliveries 1.25----- 2.0------30------Computerized systems execute 25 ----1.. ___ - book-entry delivery instructions 1.00_---- from Participants regarding 1.5 -----:==-1. 20 --~_..c...,. securities deposited with DTe. 75 ...... 1---- These instructions may be with 1.0-----1H. 15 ----1~...,. or without an accompanying .50"'''''H"''. money payment. DTC processed 10 -I1-1I.... ~~ • . 5 78 million book-entry deliveries .25 ...HlHHH. among Participants in 1987, including those between brokers oil o and clearing corporations. These 83 84 85 86 87 83 84 85 86 87 83 84 85 86 87 deliveries totaled $9.8 trillion. (See Chart 7, page 8.) CHART 13 CHART 14 CHART 15 Municipal Bond Municipal Securities U nderwriti ng Interest Received for On Deposit Distributions Pledges Participants ($billions) ($biliions/pnncipal amount) (thousands) Participants may pledge by book­ 40------600----- 20------entry securities on deposit with

DTC to banks and other entities 30-----. 450----__ 15----1..,. that have agreed to accept them as collateral for various purposes. 20----1...,. 300--__...... 10----1...,. The value of outstanding pledges at yearend 1987 totaled $21.2 billion. 150-__...... (See Chart 12, page 9.) This 10 --~_..c...,. includes $11 billion pledged as collateral for bank loans and letters o .1 O. o I of credit; $6.4 billion pledged by 83 84 85 86 87 83 84 85 86 87 83 84 85 86 87 banks and brokers to The Options Clearing Corporation, primarily to CHART 16 CHART 17 CHART 18 meet collateralization requirements Lotteries for Partial Maturities and Full Book-Entry-Only Muni Redemptions Muni Redemptions on put and call option sales; and Municipal Issues

$3.8 billion pledged by banks to the 20------8 25------25 600 ------40 Federal Reserve Bank of New York for the purposes of securing 20 ------1.._ 20 Treasury Tax and Loan accounts, 15 -----1.._ 6 450 ----_1- 30 deposits of public money, advances 15 ------11.. 15 at the discount window, and 10 ----I~ri_4 300 -----wll- 20 intradayoverdrafts. 10 ----11-1._10

Certificate Withdrawals 150 -----j... 1-- 10 Certificates can be withdrawn from DTC in either of two ways: o 0 o 0 o 0 83 84 85 86 87 83 84 85 86 87 83 84 85 86 87 • Number of Issues Called • Number of Issues • Number of New Issues (1) Withdrawals-by-Transfer (thousands) (thousands) • Principal Amount • Value of Redemptions • Value of Redemptions ($billions) (WTs), in which certificates are ($billions) ($blilions) transferred routinely to the ......

·9· name of a Participant's customer registered issues has continued to DTC Participants, and the or another party. Depending on decline, reflecting the industry'S increased number of eligible the issue, its transfer agent, and increasing use of depository book­ issues. (See Chart 9, page 8.) the agent's location, newly entry delivery over physical Because institutional use of DTC registered certificates are delivery. (See Chart 10, page 9.) has diminished the need for urgent generally available one to two Last year, the number of WT COD withdrawals, DTC began in weeks after DTC has received instructions, and resulting 1987 to gradually eliminate COOs WT instructions. certificates, greatly expanded for corporate securities settling in (2) Urgent Certificate-on-Demand because of extraordinary trading next-day funds. Participants agreed (COD) withdrawals, in which volume during October, new to the elimination of this same-day registered or bearer certificates COD service, so long as some are released directly from the requests were possible on an depository. exception basis and overnight COD service continued. DTC processed a daily average of 30,100 WTs in 1987, leading to Fast Automated Securities Transfer registration of 8.3 million certificates DTC's Fast Automated Securities and an average of 2,500 COOs each Transfer (FAST) program provides day for registered securities, satisfied an alternative method of processing by about 1.7 million certificates. both types of certificate withdrawals. Bearer municipal bond withdrawals, processed as COOs, added on Under FAST, DTC leaves securities average another 1,000 COOs each with transfer agents in the form of day, providing almost 1.9 million balance certificates registered in the certificates. depositorys nominee name, Cede & Co. The balance certificates are Despite the large increase in DTC­ adjusted daily for DTC deposit and eligible issues and trading volume, withdrawal activity. the total number of COOs for all Agents can fulfill normal transfer­ turnaround requirements, as well as handle urgent COD withdrawals, by participating in the full FAST Shortly after his inauguration in 1913, program. Or they can participate only Woodrow Wilson summoned Congress to a in the WT portion of the program. special session, becoming the first president since John Adams to appear before it. The Direct Mail Service progressive tariff legislation he won then, A Participant can speed certificate however, created revenue losses that he/ped mailing to its customers or third lead to personal and corporate income taxes parties by instructing cooperating under the Sixteenth Amendment. Thus, transfer agents and DTC to mail these taxes were a byproduct of the first legislative victory for President Wilson­ newly registered certificates directly, who would approach Congress with reform instead of returning them to the measures throughout his administration. Participant for mailing. In the Direct-Mail-by-the-Agent (DMA) Individuals with incomes of less than program, DTC receives registration $4,000 in 1913 (about $47,000 in 1988 data by automated means, reformats dollars) paid no income tax; those with annual incomes between $4,000 and them, and sends them to transfer $20,000 paid 1%; percentages increased agents in machine-readable form. from there, to a marginal rate of 7% for The agents then issue and mail incomes of a half-million dollars or more. certificates to investors and return

·10· transaction details to DTC for its Transfer Timeliness Distribution of records and for reporting to Among the steps taken in 1987 Underwritings Participants. Participants using the to improve the timely receipt of This growing service provides for Direct Mail service increased to 44 certificates by investors desiring book-entry distribution of and in 1987, from 29 in 1986. them was the refinement of the payment for securities underwritings Nine FAST transfer agents Transfer Timeliness Report. This of corporate and municipal issues. participating in the Direct Mail biweekly report, from the Transfer In 1987, 362 lead managers used service mailed approximately Agent Services Department to over DTC to distribute $339 billion of 388,300 new certificates upon 1,600 transfer agents, monitors 16,590 underwritings representing instruction from Participants in their transfer activity with DTC. 74,287 issues (CUSIP numbers). 1987, speeding their receipt by This marks a 5% increase over Participants' customers by several 1986's 15,745 underwritings. (See days. When a Participant wishes Chart 15, page 9.) An 11% decrease all transferred certificates mailed in total underwriting value, from to recipients, DTC assumes $381.5 billion in 1986, reflects the mailing responsibility where decrease in underwriting volume transfer agents do not provide this nationally. service. DTC mailed approximately Based on Public Securities 621,500 certificates under Direct­ Association data, DTC estimates Mail-by-the-Depository (DMD) that more than 90% of the value in 1987, a 38% increase from 1986. of all new long-term registered In 1987, DTC improved an on-line municipal bond issues in 1987 was function that enables Participants distributed through the depository. to withhold certificates from being Dividends and Interest mail~d in the DMD program, and to have the newly transferred This service spares Participants certificates returned to their offices. from collecting dividend and A similar link has been established interest payments from many with a transfer agent in the sources. Participants also receive DMA program. cash dividend and interest payments faster and at less expense through DTC than they could directly. James Monroe, most famous for his doctrine proclaiming the Western Hemisphere closed In 1987, DTC received $117.8 billion to further colonization by European powers, in corporate cash dividends and also played a role in perhaps the shrewdest interest for Participants, represent­ real estate deal in U.S. history. President ing payments from 1,382 bank and Jefferson dispatched Monroe to Paris in corporate paying agents. Municipal 1803 to help negotiate with Napoleon for the purchase of New Orleans. Desperate to bond interest received totaled regain the vital port, the Americans were $33.4 billion. (See Chart 13, page 9.) prepared to offer $10 million. But Napoleon For the year, DTC received surprised Monroe and the U. S. envoys by approximately 796,000 payments, offering the entire Louisiana territory-an with over 54,000 on peak days. immense wedge of land reaching from the Stock dividends received for Mississippi River to the Rocky Mountains. Participants totaled 7.3 billion shares. Though exceeding their authority, the Americans quickly agreed to pay almost With operational arrangements in $15 million for the 800,000 square miles­ place describing the depositorys about three cents per acre. requirements for new-issue eligibility,

·11· the timeliness of corporate cash While these reasons require it Several reports serve issuers: dividends and interest payments to to be the owner of record, DTC's The Security Position Listing Report DTC continued to improve during objective is to avoid being a barrier itemizes, by Participant, the num­ 1987. For the year, the depository to communications between issuers ber of shares of each issue on received 97% of these funds on and beneficial owners. Indeed, in deposit. DTC sends this report to payable dates, and 97% of their some cases, the existence of DTC each issuer annually without value in same-day funds. Recent may assist a corporate issuer in charge, indicating Participant procedures for allocating incoming keeping up with changes in positions as of the record date for payments to Participant settlement ownership of its voting stock. the issuer's annual meeting. Issu­ accounts further improve this service. ers may also obtain daily, weekly, monthly, or dividend-record-date With municipal bonds, DTC listings for a modest fee. receives virtually all payments on payable dates and credits DTC's Participant Proxy Contact List Participant settlement accounts specifies each Participant'S name on those dates. and address, and the name and phone number of the person Voting Rights responsible for handling proxies there. The depository updates this Registration of deposited securities list four times yearly, and sends in DTC's Cede & Co. nominee it to issuers without charge. name enables the depository to: • Promptly determine whether The Omnibus Proxy enables issuers certificates are transferable or to communicate directly with whether replacement securities Participants, and enables should be required from the Participants to exercise voting rights depositing Participant. of securities they hold. The Omnibus Proxy is, in effect, an • Permit retransfer of certificates assignment: Cede & Co., the quickly and simply, when necessary. shareholder of record, assigns each • Allocate dividends, distributions, Participant the voting rights of and voting rights to Participants shares in that Participant's DTC properly and without delay. account as of record date. The depository forwards the Omnibus Proxy, with a list of Participant Andrew Jackson's inaugu ral celebration assignees, to the issuer, while gave new meaning to the term "political simultaneously notifying each party." After delivering his address before shareholder Participant that it has thousands of well-wishers, the "people's sent the Omnibus Proxy and president" threw open the White House specifying the number of shares the doors and invited the joyous throng to Participant is entitled to vote. share in his victory bash. After DTC completes these Jacksonian politics, however, was serious. steps-soon after record date­ Upon taking office, the president began communication between issuers trimming bureaucratic "fat" from govern­ and beneficial owners occurs as if ment offices. In all, "Old Hickory" replaced roughly 20% of government employees; the depository did not exist. A and, despite congressional objections, he brochure on this subject, rotated officeholders to prevent them from Shareholder Communications and acquiring "a habit of looking with The Depository Trust Company, is indifference upon the public interests ...." available on request.

·12. Voluntary Offerings In 1987, DTC processed 591 tender Conversions and exchange offers by book-entry, DTC offers several services DTC conversion procedures involving 104 agents. (See Chart 8, related to voluntary offerings, allow Participants to use book- page 8.) These offers generated each designed to keep securities entry to surrender convertible $52.5 billion in acceptances through immobilized in the depository debt and equity securities in DTC and constituted 83% of the during periods when Participants their depository accounts for total number of offers that could or their customers have the right same-day credit in the underlying have been accepted at least in part to surrender them for cash securities, usually common stock. by book-entry procedures. and/or other securities. These This reduces Participant processing services include: expense, while eliminating financing costs. More than 280 convertible Tender and Exchange Offers issues are eligible for this service; DTC's service for processing approximately $12 billion of book­ acceptances of tender and entry securities conversions were exchange offers reduces many completed in 1987. costs and risks for Participants­ Redemptions including those of shipping securities to agents on time and Partial Redemptions arranging for the return of rejected When an issuer calls a portion securities. This program ensures of an issue held by DTC, the the earliest possible receipt of depository conducts an impartial funds. Moreover, Participants are lottery to allocate the called portion not required to deal with dozens among Participants with positions of tender/exchange agents, includ­ in the issue. (Participants must ing many in remote locations. know the outcome of DTC's lotteries before they can run lotteries for their customers.) DTC redeems the called securities and allocates payment to Participants. The only American to have held both the highest executive and highest judicial Because of the increase in muni office, William Haward Taft spent four issues eligible at DTC and higher uncomfortable years in the White House, interest rates some years ago, the calling it "the lonesomest place in the number of partial calls in 1987 world." Cautious and tranquil, he was increased substantially over those caught in the intense battles between processed in 1986. As a result, DTC progressives and conservatives, and got ran 18,825 municipal call lotteries in scant credit for the modest but respectable 1987, a 48% increase over the 12,656 accomplishments made during his adminis­ tration. The happiest years of Taft's life run in 1986, and 1,866 corporate call were spent on the Supreme Court as Chief lotteries, a 28% increase over 1986. Justice of the United States, a position he (See Charts 16 and 11, page 9.) held until just before his death. "Presidents Redemptions and Maturities of come and go," he said, "but the Court goes Certificates of Deposit on forever." Participants have on deposit with The largest man ever to occupy the White House, "Big Bill" Taft stood over 6-foot-2 DTC approximately $33.5 billion in and weighed more than 300 pounds. Known principal amount of certificates of to be the politest man in Washington, on deposit (CDs), all in book-entry­ streetcars he would rise and give his place only form. They may exercise early to three women. redemption options for the CDs by

·13· instructing the depository, which to reinvest all or part of their receipt method, in which a bank credits proceeds to their settlement dividends in a security (when holds securities in an escrow accounts. DTC also credits to their permitted under an issuer's account and issues a receipt that accounts proceeds for CDs held reinvestment plan) without satisfies OCC requirements for to maturity. During 1987, DTC withdrawing the underlying the writer's call option. Under the credited payments of $11.7 billion shares from their DTC accounts. Third-Party Pledge system, banks to Participants' accounts for 2,736 In 1987, DRS included 175 partici­ may pledge to OCC securities on CDs held to maturity, up from pating plans and accommodated deposit at DTC Importantly, $8.7 billion for 1,591 CDs in 1986. almost $1 billion of new capital for changes in the quantity of shares Redemption of Floating Rate participating issuers. pledged do not require release Notes and Rollovers of Without DRS, a Participant and reissuance of escrow receipts, Government Securities would either have to refrain nor do changes in the option Participants may redeem floating from depositing certain shares series to be collateralized. In the rate notes and other securities with DTC, or withdraw from former, the amount of shares with similar repayment options the depository, prior to record pledged is simply increased or by instructing the depository, date, those securities in which reduced, as required, while in the which then credits the cash to dividends might be reinvested. latter, the pledgor merely submits their settlement accounts. In either case, the Participant a rollover form supplied by oec Participants with maturing U. S. would have to handle certificates, This service simplifies processing Treasury bills on deposit can thereby losing the benefits of by eliminating repeated paper also use DTC to reinvest certificate immobilization in movements. Bank Participants (roll over) the proceeds into DTC In addition, the Participant may use the pledge method to new bills issued on maturity date. would have to arrange to reinvest the full extent that they have Although transaction volume is dividends through plan adminis­ securities to pledge. limited, these services reduce trators and then handle the The Third-Party Pledge system exception-processing expenses certificates for stock purchased also allows a put option writer to for Participants. and cash in lieu of fractional shares. instruct its bank to move T-bills to Uriits DRS replaces these cumbersome DTe and then pledge them to and duplicative tasks with a more oee for the account of the oee In 1987, Participants submitted flexible and less costly set of book­ clearing member carrying the 11,300 unit "swingover" book- entry transactions. writer's short position. OCC then entry instructions to combine reduces the clearing member's more than 1.6 billion component Options margin requirements accordingly. shares on deposit in their accounts In 1987, more than 180 banks into approximately 580 million and broker-dealers used DTC's Warrant Subscriptions units, and 21,600 instructions to interface with The Options separate 366 million units into more Clearing Corporation (OCC) The depository's warrant than 1.7 billion component shares. to pledge securities to satisfy subscription program, which The resulting units and components, OCC put and call margin or enables Participants to exercise such as a stock and warrant or a clearing fund requirements. warrant subscriptions by book­ bond and put option, immediately By yearend, the value of entry, expanded significantly in became eligible for DTC book-entry securities pledged totaled 1987. By yearend, Participants services. The number of unit issues $6.4 billion, representing had processed 1,284 subscriptions included in the program at yearend approximately 95% of the in 38-of 98 eligible-warrant increased to 791, including 186 value of securities collateral issues for 33 million underlying municipal units. with OCC from all sources. shares. This compares with 174 subscriptions in eight warrant Dividend Reinvestment Third-Party Pledge System issues for 640,000 underlying The Dividend Reinvestment DTC's Third-Party Pledge system shares in a pilot program Service (DRS) allows Participants offers an alternative to the escrow during 1986.

·14· {j

The more issues made eligible for issues traded over-the-counter; Ensuring Eligibility DTC services, the more useful the 13,324 issues of listed and unlisted DTC's Operational Arrangements depository is to its Participants. corporate debt securities; 606 unit paper, distributed in 1987, outlines issues; 989 warrants; 766 issues Including almost 800 issues in criteria that must be met to ensure a represented by American DTC's new Same-Day Funds new issue's eligibility for depository Depositary Receipts; 15,579 unit Settlement system, there were services. The arrangements, which investment trusts; 9,876 certificates 490,620 DTC-eligible issues by include call notification standards of deposit; and 659 U.s. Treasury yearend 1987, up 32% from yearend for municipal bonds endorsed by and Federal Agency issues. 1986. Of this number, 428,243 were the Securities and Exchange municipal securities, comprising Commission in 1986, aim to 194,552 bearer or interchangeable maximize the number of eligible issues, and 233,691 registered issues while maintaining orderly issues, including 546 custodial processing and ensuring timely receipts or units with associated dividend, interest, principal, put options. This expansion was and redemption payments. DTC part of DTC's plan to apply the internal planning consultants will benefits of book-entry delivery help investment bankers and their and certificate immobilization to operations staffs apply the arrange­ more Participant securities. ments to new issues during structuring, whether in fully The 62,377 corporate, money certificated or in book-entry-only market, and U.s. government (BEO) form, with no certificates issues eligible at the end of 1987 available to investors. comprised 2,952 common and preferred stocks listed on the New York, American, and other Newly Eligible Securities stock exchanges; 17,626 equity New securities made eligible in recent years include auction-rate and tender-rate preferred stock and notes, asset-backed corporate notes, variable coupon renewable notes, President John F. Kennedy once welcomed foreign currency denominated a group of Nobel Prize winners to the bonds, municipal bonds insured in White House, saying they were the most the secondary market, put bonds, exceptional collection of talent and knowl­ mUnicipal bonds with put options edge that had gathered there since added in the secondary market, Thomas Jefferson had dined there alone. and stripped municipal bonds.

That witty tribute was more than Many issues of several of these hyperbole. Aside from two terms as products have been marketed in president, Jefferson served as governor of BEO form, including all 257 issues Virginia, minister to France, and secretary of auction-rate and tender-rate of state. He also founded the University of preferred stock and notes, with Virginia and was a prolific writer-drafter a principal amount of almost of the Declaration of Independence and $17.4 billion. author of a number of books. He was an accomplished musician, engineer, architect, Other securities types were made scientist, and gourmet. He studied DTC-eligible during 1987 when philosophy, religion, and Indian languages, the depOSitory extended services and was inventor of the swivel chair and to instruments that settle in same­ dumbwaiter. day funds.

·15· DTC inaugurated its Same-Day System Expansion will generally require use of the Funds Settlement (SDFS) system DTC expanded SDFS in October system by most buyers of SDFS­ in mid 1987, thereby offering by making a second type of security eligible securities who have the depository services to certain types eligible: zero coupon bonds backed privilege of not paying for the of securities that settle in same-day by U.s. government securities. A securities until after receiving them. (Federal) funds, and relieving late-1987 upsurge in book-entry A third security type was added Participants of the need to process deliveries, following the termination early in 1988, when the first 18 all transactions in such issues with of SDFS "pilot" status for almost issues of municipal variable-rate physical certificates. The SDFS 200 municipal note issues then demand obligations (VRDOs) system pilot began to accept eligible, reflected the industry's became SDFS-eligible. Issues of deposits in June and expanded to adaptation to the system. Termina­ medium-term notes and collater­ full service for 24 municipal note tion of the pilot phase represented alized mortgage obligations were issues in July. another step toward preparing scheduled for SDFS-eligibility thereafter, with auction-rate and System Benefits the industry for self-regulatory organization rules scheduled to tender-rate preferred stock and SDFS Participants follow operating become effective July 1, 1988, that notes to follow. procedures virtually identical with those for DTC-eligible issues Highlights settling in next-day funds. The At yearend 1987, the SDFS system system benefits users by: included 54 direct Participants, more than 100 indirect participants, • Replacing the costly, error-prone process of physical certificate and 24 Settling Banks. delivery with book-entry efficiency. Other significant 1987 results: • Reducing securities custody costs. • SDFS-eligible securities on deposit • Permitting automatic trade at DTC had a total principal value settlement through DTC's of approximately $11 billion. Institutional Delivery system. • Seven hundred eighty-five • Providing significant control CUSIPs were eligible for features for trade settlement. book-entry settlement through the system. • Extending the book-entry-only option to issuers of securities that • Trades valued at over $6 billion settle in same-day funds. had settled through the system. • Participants had distributed eight SDFS underwritings through The darkest of "dark horses," Franklin DTC, valued at nearly $1.4 billion Pierce was not even considered for in total principal amount. nomination until the 35th ballot at the 1852 Democratic Convention. Fourteen Industry Advice ballots later, exhausted delegates gave the The depository worked closely with party's nod to the retired New Hampshire an ad hoc joint industry committee legislator. With a winning smile and a to monitor SDFS system progress military record in the recent Mexican and provide a forum for industry War, Pierce handily won the presidency. comment. The committee comprised Upon election, he appointed his college classmate, novelist Nathaniel Hawthorne, representatives from the Securities to a U. S. consulship in England. Hawthorne Committee of the New York Clearing later lavishly praised Pierce in the dedi­ House Association and from the cation to a book of English sketches. Securities Operations Division of Historians are less kind. the Securities Industry Association.

·16· Eligible Issues 1987 1986 1985 1984 1983 Equities 20,578 17,274 15,560 13,176 11,432 Corporate debt 13,324 10,631 8,492 8,018 6,450 Municipal debt 428,243 321,281 220,054 106,163 48,516 Other 28,475 22,735 17,975 11,941 4,999 Total 490,620 371,921 262,081 139,298 71,397

Selected Services Market value of book-entry deliveries (In trillions) $9.8 $8.1 $5.5 $3.8 $3.6 Number of book-entry deliveries (In millions) 78.0 66.7 55.8 48.0 50.0 Value of securities on deposit (In trillions) $2.8 $2.5 $2.0 $1.4 $1.2 Shares on deposit (In billions) 92.6 70.3 54.5 46.6 40.0 Principal amount of corporate debt on deposit (In billions) $668.4 $552.0 $430.9 $340.1 $241.7 Principal amount of municipal debt on deposit (In billions) $506.6 $426.3 $306.4 $167.3 $ 61.5 Cash dividend and interest payments (In billions) $151.2 $120.7 $ 95.2 $ 74.3 $ 54.8 ID system confirmations (In millions) 20.1 17.1 14.0 11.7 11.3 Underwriting distributions through DTC 16,590 15,745 9,817 5,762 3,209

Participation . DTC Participants 604* 533 517 502 471 Broker-dealers 421 353 338 331 319 Banks 177 174 173 165 146 Clearing agencies 6 6 6 6 6

*Excludes indirect participation in DTC by at least 1,200 banks and 2,000 broker-dealers that are correspondents of Participants.

·17· Only a few years after DTC In addition, issues in book-entry­ totaled nearly $507 billion at extended the range of its services only form, with no certificates yearend. (See Chart 14, page 9.) beyond corporate securities to available to investors, further reduce • Underwriters distributed more municipal bonds, issuers, brokers, underwriting and ongoing costs. than 4,700 new long-term dealers, and custodian banks have Significant Results registered municipal bond issues become heavy users. At yearend through DTC, comprising over 1987, six years after the depository Results in 1987 bear out continuing 62,200 separate serial and term began its major program in issuer and Participant satisfaction bonds. These underwritings municipals, more than two-thirds with the program: totaled $91 billion in principal of the principal amount of all • The face amount of municipal amount-more than 90% of the municipal bonds outstanding was debt on deposit at DTC increased value of all new municipal bond immobilized in DTC's custody. by $80 billion-or 19%-and issues in the U.s. in 1987 (as Municipal issuers' increasing estimated by the Public Securities awareness of depository Association). advantages for the distribution • The number of municipal of new issues accounts largely securities (by CUSIP number) for the program's sharp growth. eligible for DTC services Immobilization of municipal totaled 428,243 at yearend, securities and book-entry delivery a 33% increase over 1986. benefit Participants and their • At yearend, municipal transac­ customers by: tions through the depository • Reducing costs. included a daily average of • Reducing "fails:' 12,800 book-entry deliveries. • Sharply diminishing risk of loss • DTC ran lotteries for partial during the handling and shipping redemptions in more than of bonds. 18,825 issues, with approximately $4.8 billion in call proceeds paid to • Providing for payment of Participants. This represents a municipal bond interest to DTC 48% increase in the number of Participants on payable date. lotteries (see Chart 16, page 9) • Standardizing redemption and a 60% increase in call pro­ processing-including partial call ceeds over 1986. (See Chart 17, processing-resulting in more page 9, for maturities and full efficient transmission of call redemptions. ) notifications to owners and more prompt payment of redemption DTC continued to work closely proceeds. with trustees and paying agents to make call processing more efficient by supporting SEC­ endorsed standards for call notification and payment procedures. The large and growing number of securities issues eligible for DTC services-more than • By yearend, DTC had cut for 490,000 at yearend 1987-prompted the presentation to paying agents depository to double the size of its largest more than 40 million bond vault, in Garden City, Long Island. This coupons to obtain interest major expansion also will enable the payments due its Participants, depository to close two smaller, less compared with 35 million efficient vaults elsewhere. in 1986.

·18· DTCs book-entry-only (BEO) Major 1987 Results demonstrates the growing program for new issues of debt Municipal Securities popularity of BEO issuance. securities continues to gain These instruments include momentum as issuers find no • The $26.4 billion principal amount remarketed reset notes, price penalties in selling them and of book-entry-only municipal convertible money market investors grow more comfortable bonds distributed through DTC­ preferreds, mortgage-backed owning securities without more than triple 1986's figure­ securities, auction-rate and certificates. In 1987, only five years raised the total amount issued to tender-rate preferred stock after the program began, issuers over $36 billion since the program's and notes, securities backed by distributed through the depository inception. (See Chart 18, page 9.) automobile loan receivables, BEO securities totaling more than • Book-entry-only issues accounted and warrants linked to currency $54 billion in principal amount, for approximately 28% of the total exchange rates. including five $l-billion-plus dollar value of new municipal • The depository developed, for municipal bond issues. bond issues in 1987, according to inauguration in 1988, book-entry­ With book-entry-only, no certifi­ The Bond Buyer. only issuance procedures for cates are available to investors. • Issuers in 46 states (including 20 medium-term notes in its Same­ Issuers authorize the deposit at states themselves), the District of Day Funds Settlement system. DTC of a single" global" certificate Columbia, and the common­ Outlook for 1988 for each issue (each maturity of wealths of the Northern Mariana debt issues). The global is issued in Islands and Puerto Rico had The BEO program is expected to DTCs nominee name and held by issued municipal BEO securities continue growing in longer-term the depository for as long as the by yearend. debt securities and expand to short­ issue remains outstanding. Changes term securities. With Same-Day in ownership are recorded by • Seven of the nine largest Funds Settlement system imple­ municipal issuers, as ranked book-entry on the depository's mentation in 1987, depository by The Bond Buyer, were BEO records and, in turn, are reflected settlement services for several issuers. All seven used BEO on the records of its Participants types of short-term instruments predominantly or exclusively. and their correspondents. These are now available. Sixty-eight securities firms and records are used to allocate income banks lead-managed BEO issues, Information Available distributions (dividends or interest) including 22 of the top 25 and principal redemptions. Growing interest in book-entry­ underwriters. Transaction confirmations and only issuance led DTC to prepare periodic statements describe for Corporate Securities and distribute several publications investors the securities activity and and a video presentation on the balances in their accounts. • Ford Motor Credit Corporation subject. Copies of these materials and IBM Credit Corporation are available upon request. BED Benefits responded to the Securities and Exchange Commission's Since so much of an issue in which encouragement of conventional investors can obtain certificates is corporate debt obligations in BEO now held by DTC after coming to form. By yearend, Ford Credit had market-often 80% or more of the issued 16 BEO notes, with a total outstanding amount-BEO makes principal amount of $3.7 billion. great sense to issuers, who realize In September, IBM Credit reduced costs. Others benefit from distributed through DTC the first reduced costs as well, including BEO security to be listed on the underwriters distributing the issue New York Stock Exchange. and those who trade it. Investors in BEO securities eliminate or minimize • The BEO distribution of several the risk, expense, and inconvenience new securities types through of safekeeping their certificates. DTC in the past few years also

·19· Custody of Institutional assets into their DTC accounts in depository system was developed. Assets 1987, most had been placed in the DTC understands that 49 states depository in prior years. currently have no regulatory or Banks and their institutional statutory bars to the use of the Growth continued in the deposit customers recognize the benefits depository system by state pension at DTC of state and municipal of depository services. Bank funds. Indeed, 47 states and the retirement system assets. Pre­ deposits of their own and other District of Columbia have all or part viously, depository use by state institutional assets in DTC of their pension fund assets on and municipal pension funds increased by $100 billion in 1987, deposit at DTC through custodian often was restricted by state laws even as securities prices declined. banks. With Arkansas and Texas or regulations enacted before the Institutional assets in the national permitting depository use in 1987 depository system amount to over for the first time, DTC understands $2.2 trillion-almost $2.1 trillion of that only Wyoming requires that which is held by DTe. In total, public pension fund assets be these assets (representing over physically domiciled within state 98% of all managed trust assets boundaries or kept as certificates reported in the most recent Federal wherever they may be domiciled. Reserve study) are in the accounts DTC continues to work to eliminate of over 1,400 U.s. banks that such restrictions. participate in depositories directly or indirectly through correspondents. Deposit of Insurance Moreover, while the remaining Company Assets 1,600 banks with managed trust As with public pension funds, assets cannot be readily identified statutes and regulations in various as users of depositories, a number states often were the obstacle to of them also participate in the depository custody of securities depository through direct or owned by insurance companies. indirect Participants. Though many states permitted Deposit of Pension Fund depository use at the state Assets insurance commissioner's discretion, in other states the While bank Participants continued problem was statutory-typically to deposit private pension fund a requirement that assets be physically domiciled within the state or that they be kept as Home of every president since John Adams, certificates wherever domiciled. the White House was the first public building constructed in Washington, D.C. In 1987, DTC continued to work It wasn't described as the "White House," with the National Association of however, until after white paint was used Insurance Commissioners, the to cover fire damage caused by invading Securities and Exchange British troops in 1814. Commission (SEq, and others Though Thomas Jefferson described the to eliminate these restrictions. White House as "big enough for two Currently, DTC understands that emperors, one Pope, and the grand lama," 49 states and the District of the growing functions of the executive Columbia permit their domestic branch eventually required expansions and insurance companies to deposit renovations. These changes, including the assets out of state. After actions addition of the West Wing in 1902 and the East Wing in 1942, completed its majestic by California and New Mexico in 20th century appearance. 1987, only Wyoming has laws or

.20· restrictions that require domestic to the broker's or bank dealer's (3) When the affirmation is received, insurers to maintain assets within institutional customer, the DIC forwards settlement the state. customer's agent, and other instructions to the agent and the interested parties. submitting broker or bank dealer. Deposit of Investment Company Assets (2) If the ID confirmation accurately (4) If the deliverer has sufficient reflects the institution's order, securities in its DIC account and Virtually 100% of investment the institution sends an acknow­ authorizes trade settlement, the company DIC-eligible assets are ledgment (ID affirmation) to depository automatically on deposit. In addition, as more DIe. If the confirmation con­ completes delivery by book-entry securities become DIC-eligible, tradicts the institution's order on the morning of settlement particularly municipal bonds, records, the institution can date and processes the related custodian banks can deposit money settlement as directed. eligible portions of mutual fund debt portfolios. CHART 19 (5) If the security is not DIC­ Institutional Delivery eligible, the deliverer and Movement Toward System Activity receiver settle the transaction Book-Entry-Only Issues (millions of transactions) 25------outside the depository system. Although state restrictions have In such cases, although delivery now waned, DIC still provides must be physical rather than issuers with another option: by book-entry, DIC provides book-entry-only new issues with 20------~ instructions to encourage certificates available only to successful completion of institutional investors that certify delivery on settlement date. a regulatory need for them. This 15 ------~FC_------option may help issuers who desire ID in '87 the cost-savings benefits of book­ • The Institutional Delivery system entry-only issues, but fear that a 10 ------:;;;01,,'---- expanded by yearend to include potential institutional buyer may 6,927 institutions, broker-dealers, be barred from purchasing them. banks, and agents. Average monthly Institutional Delivery (ID) volume of 10 confirmations processed through the system System exceeded 1.8 million for the fourth The 10 system, a method for 0------quarter, up approximately 29% reporting and settling institutional 83 84 85 86 87 from the comparable 1986 period. trades, reduces costs and increases For the year, over 41 million • Confirmations' assurance of timely settlement. It • Affirmations' confirmations, affirmations, and introduces a single entity-DIC­ • Automatic Deliveries" prescheduled deliveries were to coordinate all settlement activity • DTC-Eligible and -Ineligible Issues processed through 10, an 18% through automated methods •• DTC-Eligible Issues Only, Excludes Later Deliveries increase over 198M; total. (See among broker-dealers, institutions, Chart 19, left.) and agents. act early enough in the settle­ • The industry affirmation rate Briefly stated, the system works ment cycle so the broker or bank for corporate debt and equities as follows: dealer can enter corrections into reached a record 90% at the (1) A broker or bank dealer the 10 system. If the broker's or beginning of 1988, a significant executing an institutional trade bank dealer's trade details are rise from 87% at yearend 1986, furnishes DIC with trade insufficient to generate a since each percentage-point details-such as price, quantity, confirmation, DIC notifies the increase represents roughly and date-which the depository firm so the problem may be 12,000 additional confirms passes on as a legal confirmation resolved for timely settlement. affirmed monthly.

·21· Part of the affirm-rate success is of the National Association of unless both parties at least clear due to a 10-month ID educational Securities Dealers's Uniform their trades in depository-eligible campaign aimed at 50 investment Practice Code, and similar rules securities through depository managers. The campaign involved in other markets that permitted users so settlement can occur by visits from DTC representatives U.S. settlement of trades in book-entry delivery. to update them on new system corporate securities by delivery • DTC began planning to expand procedures. The 50 users' overall of definitive certificates when the the ID system to permit confirma­ affirmation rate, for an average of broker-dealer or its DVP/RVP tion and affirmation of certain nearly 90,000 monthly trade con­ customer was not a direct or trades in foreign securities firms, rose to 93% and accounted indirect depository user. Effective executed outside of the u.s. for nearly 25% of the industry's February 11, 1988, the DVP/RVP and Canada. improvement during the period. privilege cannot be extended to the institution by the broker-dealer The "International ID" initiative • DTC continued to emphasize stems from foreign trade clearance improved ID use for munis, in and settlement problems that result connection with Municipal in high costs for brokers, dealers, Securities Rulemaking Board custodians, and institutional Rule G-15, which generally investors. Since the foreign issues requires that institutional considered for International ID municipal transactions be generally are not DTC-eligible, settled through ID-like facilities. services for such issues would Educational programs helped stop short of DTC book-entry raise the industry's affirm rate delivery and settlement; such for institutional trades in trades would settle in foreign municipals to a record 64% in markets between the parties, September. The rate stabilized their custodians, their sub­ just below 64% at yearend, up custodians, or their depositories. from 50% at yearend 1986. Industry representatives from • The SEC approved rule changes u.s. banking, brokerage, and that require use of automated investment manager sectors facilities, such as ID, for settle- have formed ad hoc committees ment of all delivery-versus-paymentl to work with DTC to develop receipt-versus-payment (DVP/RVP) International ID. institutional trades of depository­ • DTC completed its ID system eligible corporate securities. redesign, offering users greater These actions eliminate an processing efficiencies, higher exemption in New York Stock affirmation percentages, and Exchange Rule 387, Section 64 smoother ID settlement. The redesign includes strengthened trade data input controls; new and expanded data fields; an on-line cumulative eligible trade report; and a new In addition to printed materials, DTC payment method indicator that, produces videotapes explaining depository on all ID reports, separates trades services. A recent presentation, featuring that settle in same-day funds from testimony by corporate and municipal those settling in next-day funds. issuers, describes the essentials of DTCs An educational program helped book-en try-only bond program, as well as its benefits to issuers and investors. users adapt to these changes.

·22· -

DTC places a high priority on the files currently available through network of computer terminal automation of internal depository CCF are also available through stations-located in Participants' operations and of communication CCF II, which is now active for 80 offices nationwide and in Canada­ links with Participants, other users, user sites. CCF II includes the tied directly to DTC's computers. and transfer agents. With sophisti­ Multiple Virtual StoragelBulk Data Participants use their PTS stations cated computer systems, the Transfer facility, which allows to send instructions, inquiries, depository reduces its operating transmission of highly compressed and other messages to DTC, and costs and, more importantly, data and can reduce transmission to receive messages and reports Participant processing costs. time (over comparable CCF line from the depository. speeds) by as much as 65%. DTC has five principal means During 1987, the number of PTS of automated communication Participant Terminal System terminals in Participant offices with Participants: increased to 1,122, from 966 a year The depository's Participant earlier. The average daily number Computer-to-Computer Terminal System (PTS) is a of transactions-including inquiries, Facility The Computer-to-Computer Facility (CCF) is used for direct computer-to-computer communi­ cations between DTC and system users. It allows the transmission of instructions from user computer systems to DTC's computer system, and transmission of data back from DTC. During 1987, the number of . CCF users grew to 530, from 381 at yearend 1986. CCF II, developed in 1986, permits communications with DTC's computer system from IBM and non-IBM mainframes. All output

A man of limitless vitality and devotion to the strenuous life, Theodore Roosevelt was a conservationist, rancher, and historian. A decorated war hero, Teddy admired soldierly virtues and wanted to restore "the fighting edge" to the American spirit. As assistant secretary of the Navy, he called for a strong fleet: "Build a battleship in every creek!" One worried citizen begged Roosevelt, as he assumed the presidency, not to let his patriotic passion plunge the country into war. 'What!" he cried, "a war, and I cooped up here in the White House? Never!" The country never did go to war under T.R., and, perhaps ironically, after arbitrating a peace treaty between Russia and Japan, he won the Nobel Peace Prize.

.23· messages, and instructions for At yearend 1987, 14 Participants Developments in 1987 specific transactions-grew to were using Dual Host PTS and The depository's primary emphases 644,600 in 1987, up nearly 25% four were participating in a pilot and accomplishments in automation from 517,200 in 1986. program for Mainframe Dual Host. during the past year are summarized PTS !r. Automated Participant below: • More communication between PTS Jr., an alternative to PTS, is Interface DTC and Participants was available only to low-volume users. Many DTC Participants have large placed on CCF, PTS, and PTS Jr. It performs all PTS functions at volumes of depository activity they to diminish the use of paper lower cost, though at reduced line cannot yet transmit by CCF but forms and hand-delivered speed. PTS Jr. requires only a user's whose input by PTS would not be magnetic tape. compatible personal computer, economical. The Automated DTC-supplied software, a modem, Participant Interface (API) allows • DTC introduced services and a telephone connection. them or their data processing that allow PTS users to enter service bureaus to enter those reorganization inquiries and By yearend 1987, 131 Participants dividend inquiries. The system and 23 Pledgee banks were using instructions directly into DTC's computer system by hand-deliv­ confirms to users the receipt PTSJr. ered or electronically transmitted of an inquiry and assigns it a Mainframe Dual Host magnetic tape. API capabilities la-digit control number, which include magnetic tape instructions they may later use to check the In 1987, DTC began phasing in inquirys status. Mainframe Dual Host (MDH), for routine Withdrawals-by-Transfer, a mainframe-to-mainframe 10 trades, and 10 affirmations. • Acting on the requests of communications system. Participants and industry MDH will eventually eliminate organizations, the depository Dual Host PTS, which DTC enhanced CCF and CCF II to introduced in 1983 as an option allow Participants to submit for PTS users to speed processing segregation instructions and of book-entry deliveries. segregation release instructions for their fully-paid-for customer MDH allows users to send and securities. This eliminates the receive machine-readable data need to manually enter between their mainframes and instructions through PTS. DTC's mainframe in a "real-time" • In the second quarter, the environment. This eliminates the depository made call lottery intermediate minicomputer that information available to Dual Host PTS requires and reduces Participants via PTS, helping costs, as well as potential hardware them streamline their call lottery problems. Participants can use processing and research out-of­ MDH to send and receive data over balance conditions resulting from the same communications line. missing lottery outcomes. • DTC added several reorganization functions to PTS. Unit swingover Computerized scanners (right) enable instructions enable Participants to an express courier service to update separate a unit into its components its delivery data base immediately after transfer packages from DTC are delivered or to combine component shares to transfer agents in various cities. With into a unit. Another function this information, DTC's Aging Transfer allows Participants to exercise Department can track the packages and a conversion option for convertible better monitor transfer-turnaround time. securities.

·24· DTC's interfaces with clearing become DTC Participants. The of more than one depository to agencies elsewhere in the country remaining PSDTC users chose move securities positions, as are a major part of the national either indirect participation in needed, between their accounts securities clearance and settlement DTC as correspondents of DTC at these depositories. The Pacific system. They are based on the close Participants or membership in depository participated in these working relationship between DTC another depository. interfaces until it ceased operation and the National Securities Clearing during 1987. Additionally, DTC uses • Action by the U.S. Treasury Corporation (NSCC) that permits its Institutional Delivery system to Department permitted DTC several hundred broker-dealers that process the institutional trade data to reopen its book-entry pledge participate in both NSCC and DTC reported to other depositories for mechanism with the Federal to conveniently use. the trade clearance and settlement through Reserve Bank of New York comparison and clearing facilities of their systems. (FRBNY) for banks securing NSCC and the trade settlement and Treasury Tax and Loan (IT&L) To assist settlement of trades securities custody services of DTe. accounts and deposits of public on the Boston Stock Exchange, Through interfaces among the money. At yearend, bank an interface exists between the securities depositories and clearing Participants had pledged Boston Stock Exchange Clearing corporations, users of any of them $3.8 billion in municipal bonds Corp., NSCC, and DTe. A similar can settle with any other user else­ and other qualifying securities arrangement now exists between where, without requiring physical in their DTC accounts to FRBNY The Pacific Stock Exchange, certificates to be shipped from one for these purposes, as well as to NSCC, and DTC to settle trades geographic region to another. secure advances at the discount on the Pacific Exchange. DTC also maintains interfaces with window and intraday overdrafts. DTC has a linkage with The other institutions and agencies DTC is extending its pledge Options Clearing Corporation in order to serve its Participants. mechanism to other Federal (OCC), whereby banks and Developments in 1987 Reserve Banks, since the agree­ brokers may pledge to OCC ment with the FRBNY securities on deposit at DTe. • In April, The Pacific Stock for pledges to secure IT&L This simplifies processing Exchange Board of Governors accounts and deposits of public since there are no repeated decided to close Pacific Securities money applies to all 12 Federal movements of paper among Depository Trust Company Reserve Districts. parties to pledge transactions. (PSDTC). Thereafter, PSDTC worked closely with DTC and • Plans were made in 1987 to The Canadian Depository for other clearing agencies to ensure extend the NSCC-DTC link Securities Limited and D1C that affected broker-dealers and to international transactions maintain an interface to assist banks would not suffer service processed by the International some of the Canadian broker­ disruptions. At the Pacific's Securities Clearing Corporation­ dealers that participate in DTC. request, virtually all eligible an NSCC subsidiary-and The securities in PSDTC's custody­ International Stock Exchange valued at $47 billion-were moved in London. by DTC from San Francisco to New York in May and June. Interfaces Thirteen banks and nine The interfaces between DTC broker-dealers that had been and the Midwest Securities participating in both DTC and Trust Company and Philadelphia PSDTC moved their securities Depository Trust Company permit positions at PSDTC to DTe. any member of one depository Thirty-two other PSDTC to settle transactions with any members, not counting Pacific member of any other depository. Exchange specialists, elected to These interfaces also permit users

·25· Since the great bulk of trades on For settlement days of trades made time high-813,000-versus 765,000, the nation's stock exchanges, in the during the week of October 19, the monthly average for the year. over-the-counter market, and in DTC processed instructions DTC's Institutional Delivery system municipal bonds settle through resulting in a daily average of processed a high of nearly 187,000 DTC, transaction volumes in many approximately 1.1 million updates, trade confirmations on October 21. depository services reflect this or changes, to Participants' These confirms averaged more than trading activity. And since eight securities accounts. Daily average 100,000 daily during October and of the NYSE's top 10 trading days updates in October reached an all- 79,400 for the year. occurred in October, many DTC services established new highs by Withdrawals-by-Transfer (WTs) ample margins. occur when investors want certificates registered in their DTC book-entry deliveries spiked names. Participants sent DTC a at $91.7 billion on October 26, daily record of more than 71,000 the settlement day for trades of WTs on October 30 and a daily October 19, the first day more than average of 44,700 during November, 600 million shares traded on the compared with a daily average of NYSE. This compares with a daily 30,100 for the year. average DTC delivery value of $38.7 billion for the year. On both Fortunately, with strong Participant the 26th and 27th, the depository's support in recent years for adequate systems handled approximately DTC operating capacity, the 480,000 book-entry deliveries, depositorys systems were a match compared with a daily average of for the task. Also contributing 308,500 for the year. greatly was the National Securities Clearing Corporation's Continuous Shares delivered by book-entry Net Settlement system, operated by averaged 1.7 billion daily during the Securities Industry Automation the week of October 26, about 55% Corporation, which nets broker­ more than 1987's 1.1 billion share dealer trades before sending "street­ daily average. side" delivery instructions to DTC. Were it not for almost two decades of experience at immobilizing securities and delivering them by book-entry, the securities industry would have been inundated with paperwork. This did not occur During the October market break, the because of the systems capability post-trade processing network that serves developed by and among "the Street" and the broader investment Participants, DTC, NSCC, other community proved its mettle. Playing a clearing agencies, and many key role within this network, DTC's transfer agents. Settlement Division smoothly handled Though the value of securities transaction volumes resulting from unprec­ edented trading activity. On October 26, on deposit at DTC posted a gain settlement day for trades of October 19, for 1987-up $300 billion, to DTC book-entry deliveries surged to $2.8 trillion-it actually fell from a $91.7 billion. The daily value of trade high of $3.2 trillion in September. settlements for the full week of October 19 This decrease reflects securities averaged almost $74 billion, about twice the valuation adjustments related to average daily settlement value in 1987. the October market break.

·26· ....

DTC is the world's largest custodian allows for prompt validation of • Restrictive endorsements on the of corporate stocks and corporate certificates and enhances control back of certain jumbo certificates and municipal bonds. Its elaborate over prompt and timely dividend further inhibit unauthorized system of safeguards is widely and interest collection. negotiation. regarded as the most comprehensive • "Jumbo" certificates consolidate • Registered certificates remain ever developed to monitor the securities into large denomina­ in non-negotiable fonn while movement and custody of securities. tions, making unauthorized in DTC custody. Internal Controls negotiation extremely difficult, • Microfilm procedures record as well as conserving vault space. registered certificates and related DTC records the movement and data that enter and leave DTC. location of each certificate in its custody, helping to resolve • Duplicate computer files of processing errors and facilitate transactions, stored in various reconciliation and audits. locations, permit prompt file reconstruction if processing is • An automated certificate-number interrupted. These and the control system cross-indexes microfilm records supplement certificates by issue, number, comprehensive files of original denomination, date of receipt, documents and production and-for bearer certificates-the reports. depositor's identity. This permits the depository to control and • Backup computer and communi­ cations arrangements help ensure rapidly reconstruct paper flow, DTC's data processing functions regardless of volume. throughout any emergency. • Upon receipt of registered certi­ ficates, quick transfer into DTC's Physical Security nominee name, Cede & Co., DTC's physical security system combines sophisticated electronic and physical devices with an extensive security force. • A computerized access-control system restricts entry into Riding the crest of his popularity as a Civil sensitive areas to appropriate War hero, Ulysses S. Grant took the oath personnel. of office at age 46, becoming the youngest • A closed-circuit television system president. Grant's administrative naivete, monitors entry points, vaults, and hmvever, was evident during his tenure other securities processing areas. as chief executive. Although a bold and skillful army leader, as president, Grant's • Alarm systems, which use such administration was fraught with scandal. sensors as motion, vibration, But his election in 1868 prompted the light, and heat detectors, are drafting of the Fifteenth Amendment- monitored locally and at a central a milestone of his presidency. Ratified station. Line encryption protects in 1870, it forbids denial of the right to individual control panels from vote based on "race, color, or previous compromise. condition of servitude" -restrictions that, had they been observed in 1868 by • DTC's security force monitors the every state, would have shifted Grant's many systems, and screens margin of victory to presidential rival persons and packages entering Horatio Seymour. and leaving restricted areas.

·27· • Securities deposited with DTC depository's system and encourages • Price Waterhouse examines DTC's are held in various locations, with maximum operational cooperation. financial statements, and annually special access requirements and Each morning, Participants and performs a study and evaluation extensive controls. Pledgees receive a DTC report that of the internal accounting control • Registered securities are in itemizes and summarizes their system. Price Waterhouse's report non-negotiable form when previous days account activity. In on the system is available to delivered to or from transfer addition, DTC sends daily reports Participants, Pledgees, and their agents and other parties. of cash transactions and a monthly accountants, upon request. statement showing each Participant's • The Audit Committee of DTC's • Special wastepaper treatment and Pledgee's securities positions. and disposal methods help Board of Directors oversees the prevent unauthorized release of DTC rules require Participants to General Auditor and the Auditing certificates or sensitive documents. report differences between their Department. It reviews the scope records and DTC statements; of the Price Waterhouse audits Recordkeeping Systems Participants and Pledgees must and meets with them periodically Double-entry recordkeeping also confirm the accuracy of their to discuss their findings. In systems help ensure that all monthly position statements. addition, the Board of Directors Participant input is recorded, that DTC's research staff helps reconcile receives results of the New York the location of underlying differences. State Banking Department's and certificates is identified, and that the Federal Reserve Bank of moneys are properly transferred to Internal and External Audits New York's annual regulatory examinations of DTC. and among Participants. DTC uses DTC's internal auditors and its the recordkeeping systems to report independent accountants, Price Participants Fund to Participants and to research Waterhouse, review internal controls. differences detected by Participants The Participants Fund's largest or DTC control mechanisms. • The internal audit program component is a fund exceeding reviews and tests controls in key $200 million deposited by User Verifications operating areas and in automated Participants and maintained to User verification of DTC records systems (including those being satisfy any uninsured loss or (users compare their activity developed). Certificates in selected liability of DTC related to the records with depository reports) issues are counted daily, using function of its Next-Day Funds helps ensure the integrity of the random sampling techniques. Settlement (NDFS) system. DTC

Cartridge-tape computer technology enables DTC to store and recover critical data efficiently. These capabilities are vital to backup computer and communications arrangements designed to ensure that DTC could continue to provide its post­ trade processing services despite disablement of its data center. Recently, the depository conducted successful contingency tests with SunGard Recovery Services. The network simulation-recognized as the largest network restoration to date in the disaster recovery industry-linked DTC Participants nationwide to SunGard's alternate site facility in Philadelphia.

.28· rules provide that any such loss Insurance Coverage may be charged against undivided DTe's insurance coverage program for securities-one of the profits or retained earnings, or most extensive programs of private institutions in the financial to the Participants Fund, at the industry-provides coverage in the following amounts: election of the Board of Directors. Losses occurring on premises: Should DTC suffer a loss because of a Participant's failure to satisfy Amount Coverage obligations to the depository, DTC $100 million Primary and Excess Blanket Bonds would first charge such loss to that $100 million All Risk Securities Excess Participant's deposit to the Fund. $ 5 million Lost Instrument Bond Premium Policy Should the loss exceed that (for premiums for purchases of lost Participant's deposit (or should it be instrument bonds for securities losses in sustained for reasons other than excess of $200 million) Participant failure), DTC might then Losses occurring in tmnsit by messenger or armored car carrier: charge (pro rata) the excess to other Participants' deposits to the Fund. Amount Primary Coverage Should DTC make a charge against $500 million In-Transit (by carrier's insurer) a Participant's deposit to the Fund $100 million Primary and Excess Blanket Bonds (pro rata or otherwise), the Partici­ (for securities lost by messenger) pant must make an additional Amount Excess Coverage deposit to the Fund in an amount $100 million Primary and Excess Blanket Bonds equal to the charge. (for securities lost by carrier) There has never been a pro rata $ 20 million Excess In-Transit Bond (for losses charge to the Fund. exceeding $100 million when securities are in messenger's custody, and in The other component of the excess of $600 million when in armored Participants Fund is the Same-Day car carrier's custody) Funds Settlement (SDFS) system $ 5 million Armored Car and Messenger Policy Fund. This Fund would be used to (for losses exceeding $120 million when satisfy any uninsured loss or liability securities are in messenger's custody, and in excess of $620 million when in of DTC related to the function of armored car carrier's custody) the SDFS system. The required minimum deposits to the Fund of $ 5 million Lost Instrument Bond Premium Policy (for premiums for purchase of lost all SDFS Participants are available instrument bonds for securities losses for this purpose and, as with the exceeding $125 million when in NDFS Fund, are subject to increases, messenger's custody, and in excess of if necessary, to meet losses. $625 million when in armored car carrier's custody) Other Protective Procedures Losses occurring in the mail: Additional procedures protect Amount Coverage Participants by minimizing the $ 15 million Mail Policy (covers non-negotiable possibility of loss arising from a securities sent via registered or Participant's unexpected insolvency. express mail) If DTC becomes aware of a possible $ 1 million Mail Policy (covers non-negotiable operational or financial inadequacy, securities sent via first-class mail, or it carefully monitors that Participant's negotiable securities sent via registered activity and takes protective steps as or express mail) events warrant.

·29· 1. Before the Same-Day Funds Settlement (SDFS) system began-and throughout its early days-Vice President Donald F. Donahue and other DTC representatives held educational sessions to familiarize Participants and others with the system's operating procedures. In early 1988, more seminars helped users prepare for securities industry rule changes that, beginning on July 1, 1988, will generally require Par­ ticipants to settle transactions in DTC­ eligible securities that settle in same-day funds through the depository's SDFS system. Through April 1988, almost 800 representatives from approximately 150 Participants had attended these seminars. 2. DTC emphasizes communication with Participants and others in the financial industry. Information about the depository and its services can be found in various publications, available upon request. 3. Officers of the Bank Depository User Group 1988 Steering Committee. 4. Because of its growth, DTC is always looking for talented people. Representatives from the Employment Section, such as Patricia Epifrmio, Senior Recruiter, and Michael Longo, Employment Supervisor, visit college campuses and job fairs to meet with potential candidates and describe the opportunities offered at DTC. 5. Considering the development of DTC's International ID system: (from left) DTC's Charles J. Horstmann, Vice President; Vincent A. Walsh, Senior Vice President, Instinet; Timothy B. Harbert, Vice President, State Street Bank and Trust Company; DTC's Russell J. Ferro, Project Leader, and Neil F. Brander, Vice President; and Patrick J. Murphy, Vice President, The Chase Manhattan Bank, N.A. 6. To speed up the process by which certificates are registered in the names of Participants' customers, DTC began using express courier services during 1987 to send certificates and instructions to hundreds of transfer agents. These agents have no facilities in New York City and do not accept automated transmissions from DTC. This new procedure shortens transfer-turnaround time for Participants and their clients by three to five days.

·30· Chairman William F. Lackner Vice President Mellon Bank, N.A.

Vice Chairman Joseph Stout Assistant Vice President Merchants National Bank & Trust Company of Indianapolis

Secretary Vmcenza Rardin Vice President State Street Bank and Trust Company

Treasurer Kathleen C. Scanlon Vice President Norwest Technical Services Inc.

·31· Officers of Vice Presidents The Depository Michael A. Agnes Trust Company Nicholas J. Arrigan Joseph J. Bellantoni Neil F. Brander John J. Colangelo Raymond R. DeCesare Donald F. Donahue Stuart A. Fishbein Ronald A. Garguilo Charles J. Horstmann William T. Dentzer, Jr. Conrad F. Ahrens James Koster Chainnan and Chief Executive Officer President and Chief Operating Officer Vincent A. Mauro Michael T. Mullen Richard J. O'Brien Frank Petrillo James V. Reilly Martin J. Rizzi John L. Scheuermann Kenneth M. Scholl Clifford A. Vangor Comptroller Gary J. LaCara Treasurer William F. Jaenike Thomas J. Lee John P. Crowley Executive Vice President Executive Vice President Sen ior Vice Presiden t Philip E. Plasencia Assistant Secretary Jane C. Klueger Assistant Treasurer Leonard A. Miele Committees of the Board of Directors Nominating Committee Thomas C. Schneider, Chainnan John F. Lee Richard S. Pechter Arnold Fleisig Dennis J. Dirks Michael Fedorochko H.J. Runnion, Jr. Senior Vice President Senior Vice President Senior Vice President Audit Committee John J. Evans, Chainnan James T. Flynn Sandra S. Jaffee Peter E. Madden* Richard F. Morrison Mario J. Nigro 'Succeeded Edward A. O'Neal, Jr. during 1987 Compensation Committee Richard S. Pechter, Chainnan** John J. Evans Glenn E. Mangold Richard B. Nesson Edward J. McGuire, Jr. Robert A. Friedman Senior Vice President General Counsel Secretary Thomas C. Schneider ··Succeeded Joseph R. Hardiman as Chainnan during 1987

·32. The Board of Directors William T. Dentzer, Jr. Chairman and Chief Executive Officer The Depository Trust Company

Conrad F. Ahrens President and Chief Operating Officer The Depository Trust Company

William F. Aldinger Executive Vice President William T. Dentzer, Jr. Conrad F. Ahrens William F. Aldinger Wells Fargo Bank, National Association

John J. Evans Vice Chairman Manufacturers Hanover Trust Company

James T. Flynn Executive Vice President Morgan Guaranty Trust Company of New York

Robert A. Friedman Partner John J. Evans James T. Flynn Robert A. Friedman Goldman, Sachs & Co.

Sandra S. Jaffee Executive Vice President New York Stock Exchange, Inc. e. Richard Justice Executive Vice President National Association of Securities Dealers, Inc.

John F. Lee Executive Vice President Sandra S. Jaffee e. Richard Justice John F. Lee New York Clearing House Association

Peter E. Madden President and Chief Operating Officer State Street Bank and Trust Company

Richard F. Morrison Senior Executive Vice President Shearson Lehman Hutton Inc.

Mario J. Nigro Senior Vice President Peter E. Madden Richard F. Morrison Mario J. Nigro Merrill Lynch & Co., Inc.

Richard S. Pechter Chairman DLJ Financial Services Group

H.J. Runnion, Jr. Senior Executive Vice President Wachovia Bank & Trust Company, N.A.

Thomas e. Schneider Executive Vice President and Chief Financial Officer Richard S. Pechter H.J. Runnion, Jr. Thomas e. Schneider Dean Witter Financial Services Group Inc. Retiring from the Board during 1987 at the end of his term was Edward A. O'Neal, Jr., Group Executive, Chemical Bank: Also retiring from the Board during the year were Richard S. White, Jr., Chairman and President, RepublicBank Trust Company, and Joseph R. Hardiman, Managing Director, Alex. Brown & Sons, Inc., upon his election as President of the National Association of Securities Dealers.

·33· To the Board of Directors with generally accepted accounting And Stockholders of The principles consistently applied. Depository Trust Company Our examinations of these state­ ments were made in accordance In our opinion, the accompanying with generally accepted auditing statement of condition and the standards and accordingly included related statements of revenues and such tests of the accounting records expenses and undivided profits and and such other auditing procedures of changes in financial position as we considered necessary in the present fairly the financial position circumstances. of The Depository Trust Company at December 31, 1987 and 1986, and the results of its operations and the changes in its financial position for 153 East 53rd Street, New York, NY the years then ended, in conformity February 1, 1988

·34. THE DEPOSITORY TRUST COMPANY

December 31, Statement of Condition 1987 1986

(Dollars in thousands) Assets Cash and money market accounts (Note 2) $ 144,980 $ 622,255 Repurchase agreements (Note 2) 1,053,871 1,612,157 U.S. Government securities (Note 2) 10,278 Receivables:- Participants: For settlements 4,089 44,950 For services 21,105 20,012 Dividends, interest and other (Note 4) 275,180 376,244 Deferred income taxes (Note 6) 7,796 4,315 Prepaid expenses 2,421 2,177 Equipment and leasehold improvements, less accumulated ~epreciation of $32,994,000 in 1987 and $24,428,000 in 1986 (Notes 2 and 7) 47,274 36,487 Leased property under capital leases, less accumulated amortization of $7,494,000 in 1987 and $6,906,000 in 1986 (Notes 2 and 8) 825 1,414 Contributions to Participants Funds, callable on demand (Note 3) 205,396 197,990

$1,762,937 $2,928,279

Liabilities and stockholders' equity Liabilities: - Drafts payable (Note 2) $ 986,147 $2,042,802 Accounts payable and accrued expenses (Note 5) 54,084 31,194 Payable to Participants: For refunds 22,447 19,156 On settlements 725 16,513 On receipt of securities 101,881 104,569 Dividends and interest received (Note 4) 350,826 482,021 Notes payable, including $3,774,000 in 1987 and $4,507,000 in 1986 due-within one year (Note 7) 6,105 10,599 Obligations under capital leases, including $1,089,000 in 1987 and $969,000 in 1986 due within one year (Note 8) 1,515 2,484

1,523,730 2,709,338 Participants Funds (Note 3): Deposits received 18,778 6,010 Contributions callable on demand 205,396 197,990

224,174 204,000 Stockholders' equity: Capital stock..:....authorized, issued and outstanding, 18,500 shares of $100 par value 1,850 1,850 Surplus , 950 950 Undivided profits 12,233 12,141

15,033 14,941

$1,762,937 $2,928,279

The accompanying notes are an integml part of the financial statements. _

·35· THE 0 E P 0 SIT 0 'R Y' T R U S Teo M PAN Y

For the years ended December'31, Statement of Revenues 1986 And Expenses and 1987 Undivided Profits (Dollars in thousands) Revenues: Services to Participants $231,013 $200,163 . Interest income 69,358 66,604

300,371 266,767

Less-Refunds to Participants (Note 1) 66,534 74,335

233,837. 192,432

Expenses: Employee costs (Note 5) 131,873 108,685 Rent, maintenance and utilities 27,093 22,358 Data processing rentals and supplies 15,175 14,746 Professional and other services 14,530 12,455 Depreciation and amortization 9,154 6,845 I~terest (Notes 7 and 8) 1,061 1,617 Other expenses (Note 6) 34,859 23,468

233,745 190,174

E;

Undivided profits, end of year $ 12,233 $ 12,141

The accompa~ying notes are an integral part of the financial statements.

·36· THE DEPOSITORY T R U S T COMPANY

For the years ended December 31, , Statement of Changes 1987 1986 In Financial Position (Dol/ars in thousands) Financial resources were provided by:­ Operations: Excess of revenues over 'expenses and refunds $ 92 $ 2,258 Charges (credits) not affecting resources­ Depreciation and amortization 9,154 6,845 Provision for uncollectible dividend receivables 5,247 4,367 Pension and deferred compensation 1,237 557 Deferred taxes (3,651) (1,315) , Provision for abandonment costs 2,583 Resources provided from operations 14,662 12,712

Decrease in dividends, interest and other receivables 96,347 Increase in drafts payable 1,143,539 Increase in payable to Participants 154,674 Decrease in receivable from Participants 39,768 92,405 Increase in accounts payable and accrued expenses 18,540 5,286 Capital lease obligations incurred 679 Increase in Participants Funds 20,174 4,000

189,491 1,413,295 Financial resources were used for: Increase in dividends, interest and other receivables 319,115 Purchase of equipment and leasehold improvements 19,352 10,451 Note and capital lease payments 5,463 5,170 Decrease in drafts payable 1,056,655 - Increase in contributions to Participants Funds and other, net 7,480 4,831 Decrease in payable to Participants 146,380

1,235,330 339,567 Net (decrease) increase in cash and money market accounts, repurchase' agreements and US. Government securities during the year (1,045,839) 1,073,728 Cash and money market accounts, repurchase agreements and US. Government securities, beginning of year 2,244,690 1,170,962 Cash and money market accounts, repurchase agreements and US. Government securities, end of year $1,198,851 $2,244,690

The accompanying notes are an integral part of the financial statem.ents.

·37· THE DEPOSITORY T R U S T COMPANY

Notes to FinancialBtatements Note I-Business and Ownership: agreements are recorded at cost and interest is accrued as earned. U.S. Government December 31, 1987 and 1986 The Company is a limited purpose trust securities· are recorded at amortized cost, company provi~g central securities . depository and related services to the which approximates market value. securities, banking and related industries. At The Company invests available federal funds December 31, 1987, New York Stock Exchange, in repurchase agreements and money market Inc. owned approximately 32% of the capital accounts and at the same time makes dis­ stock of the Company, with the'remainder bursements to Participants·in clearinghouse owned by the American Stock Exchange, funds. The resulting book overdrafts are National Association of Securities Dealers and included in drafts payable and are eliminated certain Participants or their representatives. the next business day when the repurchase A Sto~kholders Agreement provides for an agreements and money market accounts are annual reallocation of the entitlement to converted back to cash. purchase outstanding capital stock by eligible Participants or their representatives based on. C. Equipment and leasehold improvements: relative depository activity of Participants Equipment and leasehold improvements are during the prior year. recordeci at cost. EqUipment is depreciated over estimated useful lives (generally five Pursuant to a policy adopted by the Board . to eight years), using principally accelerated of Directors, the Company does not pay methods. Leasehold improvements are amor­ dividends to stockholders, but refunds to all tized on the straight-line method over the lives of its Participants each year revenues in excess of the related leases or the useful lives of the of current and anticipated needs. In 1987, . improvements, whichever is less. this refund amounted to $27,500,000 (1986- $39,050,000). The Board of Directors also D. Income taxes: adopted an additional refund policy to provide Provision is made for deferred income taxes for a monthly refund to Participants of income applicable to revenues and expenses reported earned from the overnight investment of cash in the financiat statements in periods which dividend and corporate interest and reorgani­ differ from those in which they are subject to zation payments to the Company for taxation. Investment tax credits in 1986 were Participants, reduced by certain related applied, when available, under the flow­ expenses, Such net monthly refunds totaled through method as a reduction of the income $39,034,000 in 1987 (1986-$35,285,000). tax provision when the related property was placed in service. Note 2-Summary of Significant Accounting Policies: Note ~Participants Funds: A. Securities on deposit: PartiCipants in the depository are required to Securities held by the Company for Participants contribute to one or both of two Participants are not recorded in the accompanying financial Funds amounts which relate to their activity statements. Cash dividends and interest in the depository. The Funds are available· to received or due on such securities and in . secure the Participants' obligations to the process of distribution or awaiting claim Company, and certain uninsured losses, if are recorded in the statement of condition. such should occur, could be charged to the Funds. Required contributions are received B. Short-term investments: in cash or are callable on demand and secured Repurchase agreements represent U.s. by securities of the United States Government, Government and U.S. Government Agency its agencies or instrumentalities, states and securities purchased under agreements to political subdivisions and certain eligible resell at predetermined prices, generally nonconvertible registered corporate debt over periods of three days or less. ~ese securities.

·38· .T H E DEPOSITORY T R U S T COMPANY

Note 4-Dividends and Interest on Securities The table below sets forth the plan's funded on Deposit: status and amounts recognized in the Com­ The Company receives cash and stock pany's statement of condition at December 31: dividends and interest on securities registered in the name of its nominee and interest on 1987 1986 bearer securities which it distributes to its (Dollars in thousands) . Participants for the owners of the securities. Plan assets at fair value, Amounts received on registered securities. primarily equity securi­ withdrawn before the record date but not ties and an immediate transferred from the name of the Companys participation gu~ntee nominee cannot be distributed unless claimed contract $27,277 $25,761 by the owners of the securities through a Participant or other financial institution. Accumulated benefit At December 31, 1987, cash dividends and obligation for interest payable amounted to $350,826,.000, of service rendered: . which $112,518,000 was awaiting distribution Vested 13,745 11,509 to Participants and $238,305,000 was held Non-vested 1,326 1,464 pending claim on behalf of the record date 15,071 12,973 owners of the applicable securities. Stock Additional amounts dividends payable and unclaimed are not related to projected recorded in the accompanying financial compensation increases 7,074 6,743 statements. Unclaimed cash and stock divi­ dends and corporate interest received prior to Projected benefit July 1, 1984, have been transferred to New obligation for service York State in accordance with abandoned rendered 22,145 19,716 property raws. Plan assets in excess Cash dividends and interest receivable at of projected benefit December 31, 1987, amounted to $271,584,000 obligation 5,132 6,045 (1986-$375,664,000) and have been reduced Unrecognized net asset by allowances of $4,900,000 (1986-$2,585,000) existing at the date of for possible losses. Stock dividends receivable initial application of are not recorded in the accompanying financial FAS No. 87 (11,247) (12,050) statements. Note 5-Pension Plan: Unrecognized net loss from past experience The Company.has a noncontributory defined different from that benefit pension plan covering substantially all assumed and effects full-time operational, professional, adminis­ of changes in trative and other employees. Plan benefits are assumptions 284 1,102 based on a formula percentage of annual earnings for each year of continuous Unfunded accrued participation. The Company's funding pension cost included policy is to contribute annually the in accounts payable maximum amount that can be deduded for and accrued expenses· ($ 5,831) ($ 4,903) federal income tax purposes ..

. ·39· THE DEPOSITORY T R U S T COMPANY

The discount rate used in determining the The primary differences between pretax actuarial present value of the "projected benefit "accounting income and -taxable income are obligation was 9.25% (1986-8.50%). The related to provisions for abandonment costs assumed rate of future compensation levels associated with the closing of two vauJ.ts was based on anticipated inflation and merit and related office areas and possible losses on increases. The expected long-term rate of cash dividends and interest receivable in 1987 return on assets was 10.25%. The unrecog­ and to provisions for possible losses on cash nized net asset that existed when Statement of Financial Accounting Standards No. 87 dividends and interest receivable in 1986. was adopted, as of Jantlary 1, 1986, is being Abandonment costs of $1,717,000 and amortized over 16 years. " $2,583,000 are included in depreciation and other expenses, respectively. Net pension costs for 1987 and 1986 included the following components: In December 1987, the Financial Accounting Standards Board (FASB) issued Statement No. 96, "Accounting for Income Taxes:' While 1987 1986 the actual effects of adopting FAS No. 96 have (Dollars in thousands) not yet been determined, it is anticipated that Service cost-benefits the adoption, which is required by 1989, will earned during the result in a reduction of the deferred income period $2,517 $1,896 tax asset and a corresponding reduction of Interest cost on projected undivided profits. benefit obligation 1,774 1,4i7 "Note 7-Notes Payable: Actual return on assets (2,025) (3,458) The Company has notes payable totaling Net amortization and $6,105,000, of which $2,175,000 is collater­ deferral (1,338) 138 alized by leasehold improvements and Net periodic pension cost $ 928 ($ 7) equipment with comparable book value and $3,930,000 is unsecure4. The notes are being repaid in monthly installments. The interest rate applicable to approximately $2,466,000 of Note 6 -Income Taxes: such notes is fixed at a weighted annual rate Income taxes are included in other expenses. of 10.2%, while $808,000 bears interest at the The net income tax provision for 1987 and 1986 prime rate and $2,831,000 bears interest, based is summarized as follows: upon periodic elections by the Company, at either the prime rate or the London interbank offered rate plus .375%. 1987 1986 Aggregate maturities of these notes payable (Do/lars in thousands) are summarized as follows: Current: Federal $2,987 $1,969 (Dollars in thousands) Investment tax credits (467) State and local 1,072 555 Year ending December 31: Deferred: 1988 $3,774 Federal (2;700) (698) 1989 973 Investment tax credits (364) 1990 985 State and local (951) (253) 1991 373

$ 408 $ 742 Total notes payable" $6,105

·40· THE DEPOSITORY T R U S T COMPANY

The Company also has available short-term lines of credit with three commercial banks (Dollars in thousands) of $50,000,000, $5,000,000 and $5,000,000, Capital Operating each at rates approximating the prime rate. Leases Leases A commitment fee of .125% is required on 1988 $1,229 $ 32,783 the $50,000,000 line of credit, which is 1989 389 27,726 available to support the Same-Day Funds 1990 60 24,956 Settlement system. These lines were not 1991 . 22,390 utilized during 1987. 1992 19,569 Note 8-Leases and Other Commitments: Thereafter 136,218 The Company has entered into leases for Total future minimum $263,642 office space and data processing and other lease payments 1,678 Less-Amount equipment. Leases for office space and various representing interest data processing and other equipment are on capital leases 163 classified as operating leases. The leases for office space provide for rent escalations Present value of subsequent to 1987. Rent expense in 1987 was net minimum lease $19,920,000 (1986-$15,620,000) for office space payments for and $12,752,000 (1986-$12,475,000) for data capital leases $1,515 processing and other equipment.

Certain data processing and other equipment The above table excludes future minimum leases are classified as capital leases. Assets lease payments aggregating $3,195,000 relating under capital leases are amortized using to the anticipated abandonment of vault space primarily accelerated methods over the lease and related office areas. Provision for the terms or asset lives, as applicable, and interest present value of $2,583,000 is included in expense is accrued on the basis of the out­ standing lease obligations. other expenses. Following are the future minimum lease pay­ At December 31, 1987, the Company was in ments, by year and in the aggregate, under the process of constructing a vault. Equipment capital leases and under operating leases and leasehold improvements includes approxi­ having noncancelable lease terms in excess mately 43% of the vault's total estimated of one year as of December 31, 1987: cost of $4,800,000.

·41· . THE DEPOSITORY T R U S T COMPANY:

Participants t Banks Advisory Bank & Trust Company First Interstate Bank of Oregon, N.A. National Westminster Bank PLC Amalgamated Bank of New York (The) First Interstate Bank of Washington National Westminster Bank USA American Security Bank, N.A. First Jersey National Bank (The) , New Jersey National Bank AmeriTrust Company First Kentucky Trust Company (The) Northern Trust Company (The) AmSouth Bank, N.A. First National Bank and Trust Company Norwest Bank Minneapolis, N .A. Bank IV Topeka, National Association of Tulsa (The) Norwest Bank of Casper, N .A. Bank IV Wichita, National Association First National Bank of Boston (The) Old Kent Bank and Trust Company Bank'of America National Trust First National Bank of Chicago (The) Peoples National Bank of Washington and Savings Association First National Bank of Cincinnati Philadelphia National Bank (The) Bank of Bermuda International Limited First National Bank of Colorado Springs (The) Provident National Bank Bank of Boston Connecticut First National Bank of Maryland (The) Rainier National Bank Bank of California (The) First National Bank of Minneapolis Republic National Bank of New York Bank of Montreal, New York Branch First National Bank of Omaha Rhode Island Hospital Trust National Bank Bank of New England, N.A. First Pennsylvania Bank, N.A .. Riggs National Bank of Washington, D.C. (The) Bank of New York (The) First RepublicBank Dallas, N.A. Rockland Trust Company:j: Bank of Nova Scotia (The), New York Agency First Tennessee Bank N.A. Memphis Royal Bank and Trust Company (The) Bank of Oklahoma, N.A. First Trust Company, Inc. Santa Barbara Bank & Trust Bank of Tokyo Trust Company (The) First Trust Corporation Sanwa Bank California Bank One Trust Company, N.A. First Union National Bank Savings Banks Trust Company Bankers Trust Company First Union National Bank of Florida Seattle-First National Bank Bardays Bank PLC Fleet National Bank Security Pacific National Bank Barnett Banks Trust Company, N.A. Florida National Bank Shawmut Bank of Boston, N.A. Bessemer Trust Company Fort Wayne National Bank Signet Trust Company Boston Safe Deposit and Trust Company Framingham Trust Company:j: Society National Bank Brown Brothers Harriman & Co, French American Banking Corporation Southeast Bank, N.A. California First Bank Frost National Bank .Sovran Bank, N.~. CanadiaI} Imperial Bank of Commerce- Harris Trust & Savings Bank State Street Bank and Trust Company New York Agency Hibernia National Bank Stock Yards Bank and Trust Company Cape Ann Savings Bank:j: Hong Kong and Shanghai Banking Sumitomo Bank of California Centerre Bank, N.A. Corporation (The) Summit Bank Central Bank of Denver Huntington National Bank (The) . Summit Trust Company (The) Central Bank of the South IBJ Schroder Bank & Trust Company Swiss Bank Corporation-New York Branch Central Fidelity Bank, N.A. Imperial Trust Company Texas American Bank/Fort Worth Central Trust Company Indiana National Bank (The) National Association Chase Lincoln First Bank, N.A. Industrial Bank of Japan Trust Company (The) Texas Commerce Bank National Association Chase Manhattan Bank, N.A. (The) International Central Bank & Trust Corporation Toledo Trust Company (The) Chemical Bank Irvestors Bank and Trust Company Toronto Dominion Bank (The)- Citibank, N.A. Irving'Trust Company New York Branch Citizens and Southern National Bank (The) Kellogg-Citizens National Bank Trust Company Bank Citizens Fidelity Bank and Trust Company Key Bank of Oregon Trust Services of America, Inc. City National Bank . Key Trust Company . Union Bank, Los Angeles City trust LaSalle National Bank Union Bank of Switzerland, Commerce Bank of Kansas City, N .A. Liberty National Bank and Trust Company Union Planters National Bank Commercial National Bank of Peoria of Louisville Union Trust Company Connecticut Bank and Trust Company (The) Lincoln National Bank & Trust Company United Bank of Denver, National Association Connecticut National Bank (The) of Fort Wayne United Missouri Bank of Kansas City, N.A. Continental Illinois National Bank Lloyds Bank Pic United States National Bank of Oregon and Trust Company of Chicago M&I Marshall & Iisley Bank United States Trust Company of New York Crestar Bank Manufacturers and Traders Trust Company Valley National Bank of Arizona Crestar Bank, N.A. Manufacturers Hanover Trust Company Wachovia Bank & Trust Company, N.A .. Custodial Trust Company Manufacturers National Bank of Detroit Wells Fargo Bank, National Association Daiwa Bank, Limited (The), New York Agency Marine Midland Bank Wheeling Dollar Savings & Trust Co. Denver National Bank Marine Trust Company, N.A. Wilmington Trust Company Dominion Trust Company Maryland National Bank Zions First National Bank Equitable Bank, National Association Mellon Bank, N.A. Exchange National Bank of Chicago (The) Mercantile Bank National Association Fidelity Bank, National Association Mercantile-Safe Deposit and Trust Company t As of December 31, 1987 Fiduciary Trust Company of Boston Merchants National Bank & Trust Company :j: Boslol1 Siock Exchal1ge Spol1sored AccOUl1t Fiduciary Trust Company of New York of Indianapolis Fifth Third Bank (The) Michigan National Bank-Grand Rapids First American Bank, N.A. Midlantic National Bank First City National Bank of Houston Morgan Guaranty Trust Company of New York First Fidelity Bank, National Association, NCNB National Bank of North Carolina New Jersey National Bank of Commerce First Interstate Bank of Arizona, N.A. National Bank of Detroit First Interstate Bank of California National Bank of Washington (The) First Interstate Bank of Denver, N .A. National City Bank

·42· THE DEPOSITORY T R U S T COMPANY

Broker-Dealers # ABD Securities* Cenpac Securities Inc,' Financial Clearing & Services Corporation ABD Securities Corporation Challenge Securities Inc. First Albany Corporation AGF Securities Inc.* Charles-Bush awl Securities, Inc. ,First Birmingham Securities Corporation' Adams-Fastnow Company Inc.' Chicago Corp. (The)' First Boston Corporation (The) Adams, Harkness & Hill, Inc. Chicago Corporation (The) First Canada Securities Corporation* Adler, Coleman & Co., Inc. CJayton, Polleys & Co! First Financial Group Inc.* Advest, Inc. Coast Options, Inc! First Jersey Securities, Inc. Agora Securities, Inc. Conklin, Cahill & Co. First Manhattan Co. Alexander a.) Securities, Inc! Connor, Clark & Co. Limited' First Marathon Securities Limited* Alger (Fred) & Company, Incorporated Coughlin and Company, Inc! , First of Michigan Corporation' Allen & Company Incorporated County Securities Corporation USA First Options of Chicago, Inc.* Alpine Associates . Cowen&Co. First.5outhwest Company American Municipal Securities, Inc. Craig-Hallum, Inc. First Wachovia Brokerage Service Corporation American Securities Corporation Craigie Incorporated FOssett Corporation' Andras Canavest Hetherington Limited' Cresvale International,' Limited Frank (Walter N.) & Co. Arnhold and S. Bleichroeder, Inc. Crews & Associate.s, Inc. Frankel (Wm. V.) & Co., Inc" Asiel& Co. Crowell, Weedon & Co.* Freeman Securities Company, ·Inc. B&S Financial Services Dain Bosworth Incorporated Freeman Welwood & Co., Inc. BHF Securities Corporation Daiwa Securities America, Inc. Fried (Albert) & Co. . . BSE Specialist Account*_ Darier Canada Inc" Fundamental Corporate Bond Brokers, Inc. Baer aulius) Securities Inc. Datek Securities Corporation * Gage-Wiley & Company, Inc" Bair,d, Patrick & Co" Inc. Daugherty, Cole Inc! Gant a.w.) & Associates, Inc.* Baird (Robert w.) & Co. Incorporated Davenport & Co. of Virginia, Inc .. Garat & Co.* Barr Brothers'& Co., Inc. David Lerner Associates, Inc. Gardiner Group Stockbrokers, Inc! Barrett & Company Davidson (D.A.) & Co., Inc! Geoffrion, Leclerc & Co. Ltd.* Bateman Eichler, Hill Richards Inc.* Davidson Partners Limited* Geoffrion, Leclerc Inc.* Baum (George K) &'Compariy Davis (Shelby Cullom) & Co. Ginteico, Inc: Bear, Stearns & Co. Inc. / Deacon, Morgan, McEwen, Easson, Limited* Goldberg Securities, Inc.* Beckman & Co. Inc! de Cordova, Cooper & Co. Goldman, Sachs & Co. Benton & Company' Deltec Securities Corporation* Gordon & Co. Bernstein (Sanford C.) & Co., Inc. De.ragon Langlois Ltd! Gordon Capital Corporation Bidwell & Company' Deutsche Bank Capital Corporation Gowell Securities Corporation (Retail)* Blackmore & Co., Inc! piamant Investment Corp! ' Gradison & Company Incorporated Blair (Charles M.) & Co., Inc! Dillon, Read & Co. Inc. Greenfield Partners Blair (William) & Company Dillon Securities Inc" Gruss (Oscar) & Son Incorporated Blinder, Robinson & Co., Inc! Disnat Investment Inc" Guardian Trust Company* Bodell, Overcash Anderson & Co., Inc! . Doft & Co" Inc. Halcyon Investments Bradford a.c.) & Co. Dominick Corporation of Canada Limited* Hanifen, Imhoff, Inc.' Branch, Cabell & Co. Dominick Investor Services Corporation Hartfield a.E) & Co., Inc! Brokerage Clearance Service's Inc. Dominion Securities Pitfield Inc: Heitner Corporation (The)* Brounoff, Claire, '& Co., Inc. Dominion Securities Pitfield Limited* Henderson Brothers, Inc. Brown (Alex.) & Sons, Inc. Donaldson, Lufkin & Jenrette Securities Corp! Herzog, Heine, Geduld, Inc. Btown & Company Securities Corporation' Donaldson; Lufkin & Jenrette . Hill, Thompson, Magid & Co., Inc! Brown, Lisle/Cummings, Inc. Securities Corporation . Hilliard a.J.B.), Lyons (W.L.), I~c. Buell Securities Corp.' Doyle (EW.) & Company* Hirshon, Roth & Co. Bunting (Alfred) & Co. Limited* Drake (Clifford) & Company, Inc.* Hoelscher (Shiels) & Co.* . Burke (P.R.) & Co. Drexel Burnham Lambert Incorporated Hopkins, Harbach & Co .* Burns Fry and Timmins Inc. Easton & Co. Hopper Soliday & Co., Inc. Burns Fry Limited' Easton & Co! Hough (William R.) & Co. Burns, Pauli & Co., Inc. . Eberstadt Fleming, Inc. Howard, Weil, Labouisse, Friedrichs Butler (K.R), Inc.* Edwards (A. G.) & Sons, Inc: Incorporated Cable Howse & Ragen Egan, Marrin & Rubano Inc" Hummer (Wayne) & Co. Campbell (D.A.) Co.', Inc! Einhorn & Co. Hutchinson, Shockey, Erley & Co. Campbell, Waterman, Inc! Engler & Budd Company' Button (E.E) & Company Inc. . Cantella & Company (Retail)' Eppler, Guerin & Turner, Inc. ' INC Trading Corporation' Cantor Fitzgerald & Co. EqUity Securities Trading Co., Inc.* Icahn & Co., Inc. Cantor Fitzgerald & Co., Inc! Ernst & Co. Illinois Company Incorporated (The) Cantor Fitzgerald Corporate Brokers, Inc. Essex Company Ingalls & Snyder Cantor Fitzgerald Municipal Brokers, Inc! EuroPartners Securities·Corp. Instant Funds Incorporated' Caritor (S.B.) & Co., Inc! Evans & Co., Inc. . Interstate Securities Corporation Capital Shares, Inc! Exchange Services, Inc.* InvestNet Corporation Carolina Securities Corp'oration Execution Services Incorporated. Investors Discount Corporation * . Carr & Thompson, Inc.* Fagenson & Co., Inc. Jaco~son (Benjamin) & Sons Carr (Robert C.) & Co., Inc! Fahnestock & Co., Inc. Jamie Securities Co. Carr Securities Corporation Fairweather (GeorgeR) Securities, Inc. Janney Montgomery Scott Inc. Carroll McEntee & McGinley Securities, Inc. Fechtor, Detwiler & Co., Inc.* ' Jefferies & Company, Inc.: Cazenove Incorporated . Fernand~z, Bartsch & Mirra Jefferies & Company, Inc.*

·43· THE DEPOSITORY T R U S T COMPANY

Jesup & Lamont Clearing Corp. Inc. Midland Doherty Limited' Rothschild (L.E) & Co. Incorporated Johnson, Lane, Space, Smith & Co., Inc. Mitchum, Jones & Templeton, Inc.' Roulston Research Corp. Johnston, Lemon & Co.; Inc.' Montgomery Securities' Rowland (R.) & Co., Incorporated Jones (Edward D.) & Co. Morgan, Keegan & Corripany, Inc. Ryan Beck & Co: Josephthal & Co. Incorporated Morgan, Olmstead, Kennedy & Gardner, ' Sage Clearing Corporation' Judah (S.A.) & Co., Inc.' Incorporated Sage, Rutty & Co., Inc. Kalb, Voorhis & Co. ' Morgan Stanley & Co. Incorporated Salomon Brothers Inc Kaufmann, Alsberg & Co" Inc. Muller & Company, Inc. Schapiro (M.A.) & Co., Inc. Kavanewsky & Associates' Municicorp. of California' Schwab (Charles) & Co., Inc: Kawano (H.) & Co" Inc,' Murphey Favre, Inc.' Scott & Stringfellow, Inc. , Keeley (K.J.) & Co., Inc.' , Murphey, Marseilles, Smith & Nammack Seasongood & Mayer' , Kellner, DiLeo & Co. Murphy & Durieti ' Seattle-Northwest Securities Corporation Kemper Financial SerVices, Inc, NB Clearing Corporation Securities Settlement Corporation Kenny O.J.) Co" Inc,* National Financial Services Corporation Seidel (Morton) & Co. Inc: Kidder, Peabody & Co. Incorporated Neuberger & Berman Seidler Amdec Securities Inc: , Kimball & Cross' New Japan Securities International, Inc. Seligman Securities, Inc. King (C.L.) & Associates Inc. Newbridge Securities Inc. Shatkin Investment Corp: Knox (W.L) & Company Newhard, Cook & Co. Incorporated Shatkin-Lee Securities Co. , Koonce Securities, Inc.' Nikko Securities Co. Inb:~rnational, Inc. (The) Shearson Lehman Brothers Inc. Krieger (Henry) & Co, Nippon Kangyo Kakumaru International Inc. Shearson Lehman Special Securities LaBranche & Co. Nomura Securities International, Inc. Incorporated Lafer Amster & Co. Nuveeh Oohn) & Co. Incorporated Shelter Rock Securities Corporation' Lafferty, Harwood & Partners Ltd.' O'Connor & Associates Sherwood Securities Corp. Larkin (Emmet A.) & Co:, Inc,' O'Connor Securities , Simon (I.M.) & Co., In,c. Lasker, Stone & Stem 'Odlum Brown Limited* Smith Barney, Harris Upham & Co. Laterman & Co, Offerman & Co;, Inc.', Incorporated Lawrence (Cyrus J.) Incorporated OldeDiscount Corporation Smith, Moore & Co: Lawrence, O'Donnell & Co. Opperiheimer & Co., Inc. Southwest Securities, Inc. Lazard Freres & Co. ' Osler Inc:' Spear, Leeds & Kellogg - , Lebenthal & Co., Inc. Outwater & Wells, Inc.' Spear Securities, Inc: , Legg Mason Masten Inc, Pacific Brokerage Services, Inc. Steichen (R.J.) & Company' Legg Mason Wood Walker, Inc. Paine Webber Incorp,orated Stephens, Inc. Levesque, Beaubien Inc.* Paine Webber Specialists Inc.' Stem & Kennedy Lewco Securities Corp. Parker (S.c.) & Co., Inc:' Sterne, Agee & Leach, Inc. Lewis (S.B.) & Company Payson (H.M.) & Cd.* 'Stifel, Nicolaus & Company 'Incorporated Linsco Corporation* Pemberton Houston Willoughby Bell Gouin StockCross, Inc.* Loewen Ondaatje, McCutcheon Lock Inc.' ' Stoever, Glass & Co., Inc. & Company Ltd.' Pflueger & Baerwald Inc.' Stokes, Hoyt & Co. MKI Securities Corp. Pforzheimer (Carl H.) & Co. Stone & Youngberg' Mabon, Nugent & Co. Pictet (Canada) and Company, Limited* Streicher 0.) & Co, MacAliaster Pitfield Mackay, Inc. Piper, Jaffray & Hopwood, Incorporated Stuart-James Company Inc.* , MacDougall, MacDougall &,MacTier, Inc.' Pittock Financial Corporation' Sunrise Capital Corporation', Madoff (Bernard L.) Porter, White & Yardley, Inc. Swift (Henry E) & Co.* Marcus & Company Preferred Technology, Inc: Swiss American Securities Inc. Marcus Schloss & Co., Inc. Prescott, Ball & Turben, Inc. Swiss Bank Corporation International Marks (Carl) & Go" Inc. ' Prudential-Bache Securities Inc, Securities Inc. Mayer & Schweitzer, Inc. Purcell, Graham & Co, ' lCWInc: ' McCarthy Securities Ltd.* Q&R Clearing Corporation Thomson Kernaghan & Co., Ltd: McCourtney-Breckenridge' & Company' Quinn (E.J.) & Co., Inc: Thomson McKinnon Securities Inc. McDaniel Lewis & Co. ' Quinn (EP.) & Co: Timber Hill Inc. McDonald & Company Securities, Inc. RFG Company* Titus & Donnelly, Inc: McKinney (C.L.) & Co., Inc,' RSF Partners Transaction Services, Inc: , McLeod Young Weir Incorporated' Raney (T.J.) & Sons Inc. , Transatlantic Securities Company McLeod Young Weir Limited' Rauscher Pierce Refsnes, Inc. ' Trusteed Funds, Inc: McNeil Mantha Inc.' Raymond, James & Associates, Inc. Tucker, Anthony & Day'(R.L.), Inc. Meehan (M.J.) & Company Reaves (W.H.) & Co., Inc. , UBS Securities Inc. MelviiIe (Ronald E.) Inc.' Refco Securities, Inc. , Underwood Neuhaus & Co.,Inc. Mercator Partners Regional Clearing Corp. Universal Securities Corporation Mericka & Co., Inc.' Reich & Co., Inc. Vail Securities Investment, Inc. Merit Investment Corporation' Richardson Greenshields of Canada, Ltd: Van Kampen Merritt Inc.' Merrill Lynch Canada Inc.' ' Richardson Greenshields Securities, Inc. Vickers da Costa Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Rimson (M.) & Co.; Inc. Viner (Edward A.) & Co., Inc. Incorporated Robb, Peck, McCooey Clearing Corporation W&D Securities Merrill Lynch Specialists Inc.' Robertson, Colman & Stephens Wachtel & Co.; Inc. , Merrimack Valley Investment Inc.* Rodman & Renshaw, Inc. Wagner Stott & Co. Mesirow & Company Incorporated Roney & Co. Wagner Stott Clearing Corp. Midland Doherty Inc. Rose & Company Investment Brokers, Inc.' Wall Street Clearing Company

·44· THE DEPOSITORY T R U S T COMPANY

Participants in Same-Day Funds Settlement System** Wall Street Equities Incorporated* Amalgamated Bank of New York (The) Walsh, Greenwood & Co. Bank of America National Trust Walwyn Stodgell Cochran Murray Limited* and Savings Association Warburg (S.G.) & Co. Inc. Bank of New England, N.A. Weber, Hall, Sale & Associates, Inc. Bank of New York (The) Wechsler & Krumholz, Inc. Bankers Trust Company Wedbush Securities, Inc.* Bear, Stearns & Co. Inc. Weedon & Co.* Blair (William) & Company Weiss, Peck & Greer Bradford a,c.) & Co. , Wellington (H.G.) & Co. Inc. Brown (Alex.) & Sons, Inc. Wheat, First Securities, Inc. Chase Manhattan Bank, N.A. (The) Whitaker (Don C.) Inc.* Chemical Bank White (Thomas E) & Co., Inc.* Citibank, N.A. Williams Securities Group, Inc.* Connecticut Bank and Trust Company (The) Wilshire Associates* Continental lllinois National Bank and Trust Wilson (L.w.) & Co., Inc.* Company of Chicago Windsor Associates Cowen&Co, Witter (Dean) Reynolds (Canada) Inc.* Dain Bosworth Incorporated Witter (Dean) Reynolds Inc. Dillon, Read & Co. Inc. Wolfe & Hurst Bond Brokers, Inc. Donaldson, Lufkin & Jenrette Wolfe & Hurst Bond Brokers, Inc.* Securities Corporation Wood (Arthur w.) Company* Drexel Burnham Lambert Incorporated Wood Gundy Corp. Edwards (A.G.) & Sons, Inc. Wood Gundy Inc.* First Albany Corporation Yamaichi International (America), Inc. First Boston Corporation (The) Yamaichi International (America), Inc.* First Interstate Bank of California Yorkton Securities Inc.* First National Bank of Boston (The) Ziegler Thrift Trading, Inc.* Goldman, Sachs & Co. Herzog, Heine, Geduld, Inc. Clearing Agencies Hutton (E.E) & Company Inc. IDS Bank & Trust Boston Stock Exchange Clearing Corp. Irving Trust Company. Midwest Securities Trust Company Kemper Clearing Corp. National Securities Clearing Corporation Kidder, Peabody & Co. Incorporated Options Clearing Corporation (The) Manufacturers Hanover Trust Company Pacific Clearing Corporation Marine Midland Bank . Philadelphia Depository Trust Company McDonald & Company Securities, Inc. Mellon Bank, N.A. Other Agencies Merrill Lynch, Pierce, Fenner & Smith Canadian Depository for Incorporated Securities Limited (The)* Morgan Guaranty Trust Company of New York Morgan, Keegan & Company, Inc. Morgan Stanley & Co. Incorporated . # Excludes some firms with limited activity NCNB National Bank of North Carolina * National Securities Clearing'Corporation Northern Trust Company (The) Sponsored Account Nuveen aohn) & Co. Incorporated Paine Webber Incorporated Provident National Bank Prudential-Bache Securities Inc. Rainier National Bank Rauscher Pierce Refsnes, Inc. Rodman & Renshaw, Inc. Salomon Brothers Inc Securities Settlement Corporation Security Pacific National Bank Shawmut Bank of Boston, N .A. Shearson Lehman Hutton Inc. Smith Ilarney, Harris Upham & Co. Incorporated Southwest Securities, Inc. State Street Bank and Trust Company Thomson McKinnon Securities Inc. United States Trust Company of New York Van Kampen Merritt Inc. Wachovia Bank & Trust Company, N.A. Witter (Dean) Reynolds Inc.

**As of March 31, 1988

·45. THE DEPOSITORY T R U S T COMPANY

DTC Stockholders'

Advisory Bank & Trust Company First Boston Corporation (The) Morgan Guaranty Trust Company of New York American Security Bank, N.A. First City National Bank of Houston Morgan Stanley & Co. Incorporated American Stock Exchange Clearing Corporation Firsf Fidelity Bank, National Association, NCNB National Bank of North Carolina American Stock Exchange, Inc .. ' New Jersey • National Association of Securities Dealers, Inc. AmeriTrust Company First Interstate Bank of California . National Bank of Washington (The) AmSouth Bank, N.A. First Interstate Bank of Denver, N.A. National City Bank . Arnhold and S. Bleichroeder, Inc. First Interstate Bank of Oregon, N.A. National Westminster Bank PLC Baer (Julius) Securities Inc. First Jersey National Bank (The) National Westminster Bank USA Bank of America National Trust First National Bank and Trust Company New Jersey National Bank and Savings Association of Tulsa (The) Ne"" York Stock Exchange, Inc. Bank of Boston Connecticut First National Bank of Boston (The) Northern Trust Company (The) Bank of California {The) First National Bank of Chicago (The) Norwest Bank Minneapolis, N.A. Bank of Montreal, New York Branch First National Bank of Cincinnati Oppenheimer & Co., Inc. Bank of New England, N .A. First National Bank of Colorado Springs (The) Pforzheimer (Carl H.) & Co. Bank of New York (The) First National Bank of Maryland (The) Philadelphia National Bank (The) Bank One Trust Company, N.A. First National Bank of Minneapolis Prescott, Ball & Turben, Inc. Bankers Trust Company First RepublicBank Dallas, N.A. Reaves (W.H.) & Co., Inc. Barclays Bank PLC First Tenriessee Bank N.A. Memphis Rhode Island Hospital Trust National Bank Barnett Banks Trust Company, N.A. First Trust Company, Inc. Salomon Brothers inc Barrett & Company . Fleet National Bank Santa Barbara Bank & Trust Bear, Stearns & Co. Inc. Fort Wayne National Bank Sanwa Bank California Boston Safe Deposit and Trust Company Frost National Bank Scott & Stringfellow, Inc. Brounoff, Claire, & Co:, Inc. Goldman, Sachs & Co. Seattle-Northwest Securities Corporation Brown (Alex.) & Sons, Inc. Gradison & Company Incorporated Securities Settlement Corporation Brown Brothers Harriman & Co. Gruss (Oscar) & Son Incorporated Security Pacific National Bank Cazenove Incorporated Hough (William R.) & Co. Shawmut Bank of Boston, N.A. Centerre Bank, N:A. Huntington National Bank (The)' Shearson Lehman Special Securities Central Bank of the South Imperial Trust Company Incorporated Chase Lincoln First Bank, N.A. Investors Bank and Trust Company Sovran Bank, N.A. Chase Manhattan Bank, N.A. (The) Irving Trust Company State Street Bank and Trust Coinpany Chemical Bank . Jesup & Lamont Clearing Corp. Inc. Stock Clearing Corporation Cincinnati Stock Exchange (The) Johnson, Lane, Space, Smith & Co., Inc. Stock Yards Bank and Trust Company, Citibank, N.A. Josephthal & Co. Incorporated 'Swiss American Securities Inc, Citizens and Southern National Ba~ (The) Key Trust Company Swiss Bank Corporation-New York Branch City National Bank LaBranche & Co. Texas American BaTtk/Fort Worth Connecticut Bank and Trust Company (The) Lafer Amster & Co. National Association Connecticut National Bank (The) Lewco Securities Corp. Texas' Commerce Bank National Association County Securities Corporation USA MacAllaster Pitfield Mackay, Inc. Thomson McKinnon Securities Inc. . Craigie Incorporated Manufacturers and Traders Trust Company Trust Company Bank Denver National Bank Manufacturers Hanover Trust Company United States Trust Company of New York Dominion Trust Company Marcus Schloss & Co., Inc. Valley National Bank of Arizona Donaldson, Lufkin & Jenrette Marine Midland Bank Van Kampen Merritt Inc. Securities Corporation Marks (Carl) & Co., Inc. Viner (Edward A.) & Co., Inc. Eberstadt Fleming, Inc . Maryland National Bank Wachovia Bank & Trust Company, N.A. . Edwards (A.G.) & Sons, Inc. Mayer & Schweitzer, Inc. Wechsler & Krumholz, Inc. Equitable Bank, National Association Mellon Bank, N.A. Wells Fargo Bank, National Association Execution Services Incorporated Merchants National Bank & Trust Company Wilmington Trust Company Fagenson & Co., Inc. of Indianapolis Wood Gundy Corp. : Fidelity Bank, National Association Merrill Lynch & Co., Inc. Zions First National Bank Fiduciary Trust Company of Boston 'Michigan National Bank-Grand Rapids First Albany Corporation Midlantic National Bank * As of December 31, 1987

The Depository Trust Company 7. Hanover Square, New York, NY 10004 (212) 709-1000.

·46· Presidents of the United States George w..shington John Adams Thomas Jefferson James Madison James Monroe John Quincy Adams Andrew jackson Martin v.m Buren William Henry Harrison tI- ~ John Tyler james K. Polk Zachary Thylor Millard Fillmore Franklin Pierce James Buchanan Abraham Lincoln Andrew Johnson .. f~i;~ Ulysses S. Grant Rutherford B. Hayes James A. Garfield Chester A. Arthur Grover Oeveland Benjamin Harrison Grover Oeveland (iL William McKinley t!fi!(~ ~ ~ Theodore Roosevelt William Howard Thft \\bodrow WIlson Wuren G. Harding Calvin Coolidge Herbert C. Hoover Franklin D. Roosevelt Harry S Truman Dwight D. Eisenhower John F. Kennedy Lyndon B. Johnson Richard M. Nixon Gerald R. Ford Jimmy Carter Ronald W. Reagan

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