~~y. :" .$:' ~~~; The Dep~~~i;~~Y·~;;~ Company

....-::-.,~ __ ••• '._ -:_ ';O~ = = ;; -= "~ ... In the United States and Western Europe, practically all modern commercial and financial activity stems from one watershed historical event-the Industrial Revolution. Viewed in its onset as an essentially unmixed blessing, it transformed all of society in a mere 7S years or so, especially in comparison with the squalor, isolation and recurrent hunger of the subsistence farming it displaced. Gaping flaws and hard trade-offs have since been discerned-justifiably-while pre­ industrial rural life has since been idealized-not so justifiably.

The pictorial theme of this report is to try to recapture, if briefly, that first pristine view, when most people knew that the golden age had dawned, promising even common folk the wealth, power and security once enjoyed only by the kings and emperors of old.

Often lost sight of in the complexity of today's economic and social problems is the fact that this promise has been fulfilled, despite many shortcomings, beyond any parallel in human history.

1983 Annual Report

Highlights ...... 2 A Message from Management ...... 3 History, Ownership and Policies ...... 4 Growth in 1983 ...... 6 Eligible Issues ...... 8 Municipal Bond Program ...... 8 Institutional Use of Securities Depositories ...... 10 Institutional Delivery (ID) System ...... 12 Basic Services ...... 16 Fast Automated Securities Transfer (FA.ST) ...... 17 Ancillary Services ...... 20 Dividends ...... 20 Voting Rights ...... 20 Voluntary Offerings ...... 21 Other Ancillary Services ...... 22 Automation of Depository Services ...... 26 Participant Terminal System (PTS) ...... 26 Automated Participant Interface (A.PI) ...... 26 Computer-to-Computer Facility (CCF) ...... 28 Other Automation Developments ...... 28 Interfaces in a National Clearance and Settlement System ...... 30 Protection for Participants' Securities ...... 32 Officers and Directors of The Depository Trust Company ...... 38 1983 in Retrospect ...... 40 Financial Statements ...... 48 l'articipants ...... 56 Stockholders ...... 60 Pledgees ...... 61 Depository Facilities ...... 62

The Depository Trust Company, 7 Hanover Square, New York, New York 10004 212-709-1000 1 Highlights

At the End of the Year: 1983 1982

Participants 475 455 Broker-Dealers 322 328 Banks 146 120 Gearing Agencies 7 7

Eligible Security Issues 71,397 36,361

(In Billions) Value of Securities on Deposit $1,241 $838 Banks $926 $627 Broker-Dealers $276 $192 Other Depositories $39 $19

(In Billions) Number of Shares on Deposit 40.0 26.7 Banks 20.0 14.3 Broker-Dealers 18.6 1l.9 Other Depositories 1.4 .5

(In Billions) Total Principal Amount of Debt Securities on Deposit $303.2 $184.2 Banks $240.2 $139.4 Broker-Dealers $52.8 $39.7 Other Depositories $10.2 $5.1

(In Billions) Principal Amount of Municipal Bonds on Deposit $61.5 $13.20 Banks $37.1 $ 2.53 Broker-Dealers $24.1 $10.63 Other Depositories $ .3 $ .04

(In Billions) Value of Securities Pledged for Collateral Loans $11.2 $6.0

(In Billions) Value of FAST Balance Certificates at Transfer Agents $473.3 $342.1

Total for the Year: (In Billions)

Market Value of Book-Entry Deliveries $3,570 $2,280

Cash Dividends and Interest Payments $54.8 $37.2

2 A Message From Management

With this message we introduce this by certain other developments which Less visible but equally important, record of 1983 activity and accomplish­ marked the year 1983. the depository and its Participants took ment by The Depository Trust On January 1, 1983, amendments to a number of steps to automate more of Company. It was an active year, begin­ New York Stock Exchange Rule 387 the transactions sent to DTC and report­ ning with high securities trading and comparable rules of other self­ ed by it to affected Participants. The volume which carried over from 1982, regulatory organizations had the effect driving force behind these efforts was new developments affecting the deposi­ of widely requiring use of the facilities the desire to reduce costs and to facili­ tory's Institutional Delivery (ID) of a registered securities depository for tate processing of larger numbers of system, strong growth in our young the confirmation, affirmation and set­ transactions without delay. By setting Municipal Bond Program, and more tlement of institutional trade transac­ timetables to reduce the amount of writ­ progress in automating the flow of tions in depository-eligible securities. ten instructions the depository would transactions between the depository These amendments precipitated a great process and by establishing more vehi­ and its Participants. increase in ID usage. The number of ID cles for Participants to use for automat­ Some figures about DTC service users at yearend rose to over 1,088 ed input and output, this joint planning volumes tell part of the story: broker-dealers and agents and some effort established a multi-year frame­ 3,543 institutions and investment work for automation progress. • Computerized book-entry deliveries managers, gains of almost 72% and These developments and the process­ of securities among Participants rose to 123%, respectively; ID activity itself ing accomplishments set out in this almost $3.6 trillion, up 57% over 1982's soared to some 21.5 million items for report suggest that 1983 was another level. the year, up 138% from the 1982 total. noteworthy year for Depository Trust. Growth accelerated steadily through­ For all of this, our great gratitude must • The value of securities in DTC out the year in DTC's Municipal Bond be extended to the members of the custody rose to over $1.2 trillion at Program, aided by the mid-1983 imple­ depository's staff, the officers of yearend, up 48% from a year earlier, mentation of the Tax Equity and Fiscal Participants, and the industry commit­ aided by a 50% growth in common Responsibility Act which required that tees closely concerned with DTC's work shares on deposit to 40 billion shares. municipal bonds with maturities of for their initiative, cooperation and more than one year must be in regis­ professionalism. • Net deposits of securities into the tered rather than bearer form to retain depository averaged over $1.5 billion in their tax-exempt status. By yearend value per business day during the year. 1983, some $61.5 billion of principal amount was on deposit in 48,516 • Participation of banks in the municipal issues eligible for depository depository-both for their own ac­ services-gains of 366% and 159%, counts and for their institutional respectively, from yearend 1982 totals. customers-continued to grow Bearer municipal bonds accounted for strongly. The number of bank Partici­ 40,638 of these issues and $41. 7 billion William T. Dentzer, Jr. pants rose to 146 from 120 a year in principal amount. Distributions of Chairman & Chief Executive Officer earlier, while the number of banks new municipal issues through DTC's known to be participating in DTC as Underwriting Service totaled $29.1 bil­ correspondents of Participant banks lion in principal amount of 489 new advanced to 726 from 429. offerings, and book-entry deliveries of bearer and registered municipal securi­ The records established by these and ties at yearend were running at about Conrad F. Ahrens related figures are joined in importance 3,800 daily. President & Chief Operating Officer 3 History, Ownership and Policies

The Depository Trust Company (DTC) Tllne GoveJr'mllImce was born out of the securities industry's oft'tllne IIJ)epo§ntoJr'Y paperwork crisis in the late 1960s, when processing problems caused major disruption in the financial The procedures for the governance of industry. Accordingly, the depository's Depository Trust are carefully framed first and continuing mandate is to pro­ to reflect the need for objectivity in vide efficient, secure and accurate post­ serving diverse users in the financial trade processing services for transac­ community. tions in U.S. securities markets. The right to purchase capital stock of Three functions underlie DTe's the depository is based on a formula effort to carry out this charge. First, the which takes into account each Partici­ immobilization of its user Participants' pant's use of the depository during the securities in the depository reduces the preceding calendar year. The calcula­ need for Participants to maintain their tion of use is based 60% on fees paid to own certificate safekeeping facilities. the depository during that year and Second, a computerized book-entry 40% on the market value of long securi­ ~ystem-in which changes of ownership ties positions in DTC. The purchase mterest are recorded in the depository's price of the DTC stock is based on its records-replaces costly, problem­ book value at yearend. prone physical delivery of securities for Each year, the amount of stock each settlement. Third, the communications Participant is entitled to purchase is re­ system through which DTC acts for its calculated to reflect annual variations Participants with transfer agents across in usage. Participants may purchase the country permits more efficient any, all, or none of the stock to which registration of certificates for those they are entitled, as they see fit. desiring them. In 1968, the New York Stock Total Securities on Deposit (In Billions of Dollars) Exchange initiated these functions through its Central Certificate Service (CCS), a securities depository estab­ 1200 lished to serve NYSE member firms. Pursuant to plans developed by the ad hoc Banking and Securities Industry Committee in 1970-72, DTe was created 900 in early 1973 to acquire the business of CCS and to expand the benefits of the depository approach to other areas of 600 the financial industry, particularly the bank sector. The initial sale of DTe stock by the NYSE to DTe bank Participants and 300 other self-regulatory organizations rep­ resenting broker-dealer Participants oc­ curred on October 31, 1975, after vari­ ous state laws restricting depository n1979 1980 1981 1982 1983 ownership had been amended. The stockholder base was broadened in The annual stock reallocation occurs October 1976, when the NYSE acted.to prior to the annual stockholders' meet­ give broker-dealers the right to own ing in late March so that stockholders DTC stock directly. These actions estab­ will be able to vote newly acquired lished the present nature of the deposi­ shares in the election of the Board of tory as an organization owned by its Directors, which takes place at that users or their representatives. meeting. Elections are conducted under 4 Front cover: Few pictures better epito­ mize the spirit and pride of the new age than T.T. Bury's Excavation of Olive Mount. Depicting the 1831 construction of a railroad cut for the Liverpool and Manchester Railway, it symbolizes both mankind's conquest of distance and, by inference, the certainty of ever more ennobling conquests by the new part­ nership of man and machine.

Page 1: In similar spirit, but prouder still, is this emblem of the Amalgamated Society of Engineers, designed in 1851. Proclaiming the cardinal virtues of the new society, it joins heavenly approval to ancestral blessing in confident en­ dorsement of the scenes presented in the panels and background.

That life was mean before industrialization would hardly have surprised any observer in the centuries that preceded it. lust how terribly mean is nowhere more strikingly depicted than in The Cripples, painted by Brueghel the Elder in 1568. Yet these beggars are aressed for carnival, their spirits buoyant in comparison with what they must have felt on the ordinary days of the year.

.' T ts 2·t «<• .,

a system of cumulative voting so that broker-dealers, 43 banks and 5 sel£­ tional Association of Securities Dealers. no combination of stockholders con­ regulatory organizations and clearing It is the depository's policy not to pay trolling a simple majority of stock could agencies. The 39 broker-dealer dividends to stockholders. This policy elect all Directors. Representation on stockholder Participants owned approx­ is based on the belief that distribution the Board is thereby made available to imately 13.3% of DTC stock. The 43 of depository ownership should not be users from various sectors of the finan- bank Participants owned approximately viewed as an investment vehicle, but 37.8% of DTC stock. Tbe ownership rather as a means by which diverse Shares on Deposit from Banks interests of the self-regulatory users may encourage DTC's responsive­ (In Billions) organizations, which were required to ness to their needs through the exercise sell stock to accommodate Participant of their cumulative voting rights. The 20 elections to purchase, declined to ap­ make-up of the depository's Board of proximately 38.7% for the New York Directors reflects this effort to be, and Stock Exchange, 5.1 %for the American to remain, responsive to user needs. Stock Eichange, and 5.1% for the Na- It is a further policy of DTC to limit 15 profits and return to users, whether or not they are stockholders, such revenues . , Shares on Deposit from Broker-Dealers as the Board of Directors believes 10 (In Billions) exceed the funds required for the depository's operation. Pursuant to this policy, DTC made a general refund of $7 million to users at the end of 1983. 5 15 The Depository Trust Company is regulated by the Securities and Ex­ change Commission under the Securi­ ties Exchange Act of 1934, as amended. 1979 1980 1981 1982 1983 10 As a member of the Federal Reserve System and a New York State limited cial community in proportion to their purpose trust company, it is also use of the depository. 5 regulated by the Board of Governors of At the conclusion of the annual real­ the Federal Reserve System and the location of DTC stock entitlements in New York State Banking Department. March 1983, elections to purchase entitlements increased the number of 1979 1980 1981 1982 1983 stockholders to 87, comprising 39 5 Growth in 1983

Trading activity was heavy in the na­ • Cash dividends and interest paid to tion's securities markets during 1983, DTC on securities held for Participants leading to a new high in average daily rose by 47% in 1983, to $54.8 billion trading volume of nearly 86 million from $37.2 billion for 1982. shares on the New York Stock Exchange. In the over-the-counter market, • Volume records were established in daily average NASDAQ trading volume other ways as well. Net deposits (depos­ reached a new high of 62.9 million its minus withdrawals) averaged $1.55 shares. This trading activity, together billion per business day for all of 1983. with increased institutional adaptation Cash dividends and corporate interest to depository usage and the rapid payments received for Participants hit growth of DTC's Municipal Bond Pro­ a single-day peak of $1.6 billion in June. gram, were the chief contributors to re­ cord activity for Depository Trust, as well. • The number of users of DTC's Par­ ticipant Terminal System (PTS)-a • The market value of securities on cornerstone of the depository's telecom­ deposit at DTC rose 48% to $1.24 trillion munications network-rose to 413, from $838 billion at yearend 1982. But employing a total of 608 terminals in the number of shares on deposit-a their various offices, from 303 users better indicator of depository growth and 474 terminals at yearend 1982. since it is not subject to fluctuations of equity prices - increased 50% to 40 • DTC's Institutional Delivery (ID) billion. system for the confirmation, affirma­ tion and settlement of institutional • During 1983, DTC processed over trades grew to include 4,631 users, up 69.6 million individual transactions in from 2,226 a year earlier. connection with its primary services­ deposits, deliveries, pledges and with­ • The number of issues eligible for drawals-for an average of 276,200 DTC's municipal bond program in­ transactions per business day in these creased to 48,516, in principal amount services. This record volume represent­ of $61.5 billion, from 18,697 and $13.2 ed a 28% rise from the 1982 level. billion at yearend 1982; 6,673 of these 6 Eligible Issues

The number of issues eligible for DTC Mu.nicipal Bond Program services rose to 71,397 by the end of 1983, 48,516 of which were municipal In 1981, DTC instituted a major securities issues; 40,638 of these issues municipal bond cost-saving program in were in bearer form and 7,878 either in which the benefits of book-entry registered form or interchangeable be­ delivery, depository custody and the tween registered and bearer. The ex­ Institutional Delivery (ID) system are pansion was part of DTC's plan to bring made available to broker-dealers, the benefits of book-entry delivery and banks and other institutions involved certificate immobilization to an increas­ in municipal securities transactions. ing portion of the securities held by Approximately 1.5 million municipal Participants. issues with assigned CUSIP numbers, The 22,881 corporate and U.S. valued at more than $460 billion, are government issues eligible at the end of currently outstanding-the great bulk 1983 comprised: 3,058 common and preferred stocks listed on the New York, Debt Securities on Deposit American and other stock exchanges; (In Billions of Dollars 8,374 equity issues traded over-the­ of Principal Amount) counter; 6,450 issues of listed and unlisted corporate debt securities; 482 U.S. Treasury and Federal Agency 303.2 issues; 611 warrants; 557 issues repre­ sented by American Depositary C=::J Corporate Receipts; 3,070 unit investment trusts _Municipal (UITs); and 279 unit issues. 184.2 Equity Securities on Deposit 241.7 (In Billions of Shares)

111.3 40 171.0 68.7

30 DO lIme. 1979 1980 1981 1982 1983 20 in bearer form. Depository Trust Partic­ ipants underwrite and hold a high per­ 10 centage of these amounts. The July 1, 1983 implementation of the Tax Equity and Fiscal Responsibility Act of 1982, which requires that tax-exempt bonds 1979 1980 1981 1982 1983 be in registered form if they have a maturity of more than one year, pro- 8 The conquest of distance is a recurrent theme in the body of art depicting early industrialization. Shown here: another 1831 view of the Liverpool and Manchester Railway, this time crossing the dreary Chat Moss with little apparent effort. Pre­ industrial transportation was nowhere near as effortless, as may be seen in the illustrations that follow. "S! * if! .. . 9-

issues, in principal amount of $19.8 Participants included 90 of the top 100 billion, were in registered form. Among U.S. banks, measured by trust assets other things, the 1983 growth reflected under management as reported by the municipal underwriting distributions Federal Reserve. Seven of these 90 through DTC of $29.1 billion in princi­ banks also participated in another pal amount of 489 new issues. securities depository, as did nine other Bank participation remained a sig­ banks in the top 100. nificant source of the depository's DTC's broker-dealer participation growth. The addition of 26 banks from also contributed to the year's record 15 states brought the number of direct activity. At yearend 1983, there were bank Participants to 146-31 headquar­ 322 broker-dealer Participants in DTC, tered in New York State and 115 in 29 as against 328 a year earlier. In addi­ other states and the District of Colum­ tion, nearly 1,000 firms are served indi­ bia. At the same time, the number of rectly by DTC through activity in the banks known to be indirect users of accounts of their correspondent broker­ DTC through correspondent relation­ dealers, which are direct Participants in ships with direct bank Participants the depository. Broker-dealer securities grew to at least 726 from 429 in 1982. on deposit included a record 18.6 billion By yearend 1983, securities on depos­ shares plus $52.8 billion in principal it at DTC from banks had grown to in­ amount of debt, up 56% and 33%, clude 20 billion shares plus $240.2 bil­ respectively, with a total (equity plus lion in principal amount of debt, up debt) value of $276 billion, up 44% 40% and 72%, respectively, with a total from yearend 1982. Of the direct (equity plus debt) market value of over broker-dealer Participants, 164 had $926 billion, up 48% from a year their principal bases of operations in earlier. Ninety individual bank Partici­ New York State; 158 were headquar­ pants each had more than $1 billion in tered in 26 other states, the District of securities on deposit. Direct and indirect Columbia and Canada. 7 Three views of pre-industrial transportation: A farmer's wife brings live fowls to market, 1598; two students bring home the bacon vided further momentum to DTC's to their classmates in 18th Century Municipal Bond Program. Hungary; a vegetable seller with' Under this program, Participants traditional transport. "Who'll buy may make deposits and withdrawals of my fine beets, and fresh spinach?" this ~6th Century woodcut inquires. bearer and registered bonds directly at DTC, with the securities eligible for all other depository services as well. The program offers a number of attractive benefits to users.

• Book-entry delivery reduces fails and cuts delivery time, thereby trim­ ming financing costs.

• The risk of loss to Participants during the handling and shipping of bearer bonds is sharply diminished. Use of DTC's municipals program In 1983, Participants submitted will be encouraged by the planned addi­ 9,787 Unit "Swingover" book-entry in­ • Labor-intensive operations of all tion of about 35,000 bearer issues and structions to combine 224.8 million types associated with the processing of the greatest number possible of regis­ component shares already on deposit in munis are reduced, together with the tered issues during 1984. About their accounts into 90.4 million units costs related to those activities. 100,000 eligible municipal issues of and 8,225 instructions to separate 60.6 both types is projected by yearend. million units into 151.8 million compo­ • Bonds can be immobilized substan­ More usage of the program also will nent shares. The resulting units and tially at the outset when an underwrit­ stem from the rule amendments an­ components immediately became eligi­ ing is being effected. nounced by the Municipal Securities ble for the full range of DTC book­ Rulemaking Board which, beginning. entry services, the Institutional Deliv­ During 1983, underwriters distribut­ August 1, 1984, will require the use of ery (ID) system, and National Securities ed through DTC $29.1 billion principal automated trade confirmation/affirma­ Clearing Corporation's continuous net amount of 489 new issues. tion and comparison services, and settlement system. The number of unit By yearend, 48,516 municipal issues beginning February 1, 1985, book­ issues included in the program grew to had been made eligible for depository entry delivery services for the great 279 at yearend 1983. services and some $61.5 billion in face bulk of municipal transactions. amount was on deposit. Included were 7,878 registered issues totaling $19.8 Depository Services for Units billion principal amount. These bearer and registered issues represent 50 DTC's program to provide Participants states, the District of Columbia and the with depository services for units got Commonwealth of Puerto Rico; Califor­ under way in August 1981. A unit is a nia leads in the number of eligible combination of two or more component issues, followed by Texas and New securities (such as a stock and a war­ York in that order. Around yearend, rant) initially sold and transferred as average daily activity in major services though they were one; after a period was running at over 4,000 book-entry determined by the issuer and under­ deliveries and pledges and over 3,600 writers, the components can be sold deposits and withdrawals. and transferred separately. 9 Institutional Use of Securities Depositories

The Institutional Market the area of state and municipal retire­ ment systems. In the past, a major obstacle to depository usage by state As banks became more familiar with and municipal pension funds arose depository usage and book-entry from the fact that these pension funds operations, they became increasingly are state regulated, with each state active in encouraging their institutional imposing its own restrictions. Most of customers to authorize the deposit of these restrictions were enacted long their assets into the system. At the same before the depository system was devel­ time, an increasing number of institu­ oped and had to be modified to permit tional investors initiated the deposit of depository usage. their assets by so instructing their cus­ Significant strides were made in 1983 todian banks. Accordingly, bank depos­ to overcome these restrictions so that its of their own and other institutional state and municipal retirement system assets into DTC increased by $299 bil­ assets could be placed in a depository, lion in 1983. and a number of states authorized the The amount of institutional deposi­ deposit of their funds during the year. tory assets currently in the national There are currently 45 states that depository system is estimated at almost have no regulatory or statutory bars to $1.1 trillion. These assets, over $926 bil­ the use of book-entry systems and/or lion of which are on deposit with DTC the depository system by state pension and the balance distributed throughout funds. Indeed, 42 of these states and the rest of the depository system, are in the District of Columbia are known to the accounts of approximately 963 U.S. have all or part of the state pension banks (99 of them among the top 100 in fund assets on deposit or in the process managed trust assets) that participate of being deposited at DTC, indirectly in depositories directly or indirectly. through their custodian banks. The re­ A major continuing need is to ac­ maining 5 states require that pension quaint the appropriate institutional and fund assets be physically domiciled regulatory personnel with the benefits within their state boundaries or be kept of depository participation -lower in the form of physical certificates costs, reduced errors, increased flexi­ wherever they may be domiciled. bility, and simplified operations. DTC's DTC's efforts are directed at helping efforts in this direction have been eliminate such restrictions. focused on three institutional categories in particular: public pension funds, • Deposit of Investment Company investment companies, and insurance Assets companies, as described below. During 1983, the number of mutual funds with the eligible portions of their • Deposit of Pension Fund Assets portfolios deposited into DTC through DTC bank Participants continued to their custodian banks increased by 166, deposit private pension fund assets into bringing to 565 the number of mutual their accounts throughout 1983; the funds reported to have done so and to great bulk of such assets has already $88 billion the total value of the securi­ been placed in the depository system ties believed to have been so deposited. by bank Participants. These figures represent increases of Considerable growth also occurred in 42% and 105%, respectively, from the 10 Heavy industry was old before the Industrial Revolution was new, but it was the tools of the trade that made all the difference. Compare the 17th Century iron founder's reliance on his own muscle power, and this 1775 view of a Welsh iron forge operated by water power, with the late 19th Century steam hammer on the following pages .

• '.... S i W.

comparable yearend 1982 figures of securities is the framework of statutes 399 funds with a value of $43 billion. and regulations in the various states. Several additional funds laid the Many states permit depository usage at groundwork for 1984 depository usage the discretion of the state insurance by preparing proposals for action by commissioners, but have not yet estab­ their Boards of Directors. Accordingly, lished the necessary guidelines for DTC expects continued growth of supervisory review. In a number of mutual fund deposits during the year other states the problem is statutory­ ahead. frequently in the form of a requirement that the assets be physically domiciled • Deposit of Insurance Company within the state, or that they be kept in Assets the form of physical certificates wher­ The total value of insurance company ever domiciled. assets on deposit at DTC continued to State barriers have made the insur­ increase in 1983. Nevertheless, the ance sector of the financial industry the dollar value remains relatively small, slowest to adapt to depositories. Never­ both in comparison to the assets on theless, 612 insurers were reported to deposit from other sectors of the institu­ be using at least some depository serv­ tional market and in relation to the ices indirectly through their agent total value of depository-eligible securi­ banks at yearend, versus a total of 370 ties held by insurance companies at yearend 1982. These 612 companies throughout the United States. have assets on deposit totaling approxi­ As in the case of public pension mately $87.2 billion in market value, funds, the major obstacle to depository up from $47.5 billion for the 370 custody of insurance company owned companies a year earlier. 11 Institutional Delivery Briefly stated, the system works as ment date and process the related (ID) follows: money settlement as directed. No physi­ System cal delivery activity by any party to the (1) A broker executing an institutional trade is required. The Institutional Delivery (ID) system trade furnishes DTC with the trade is a method for clearing and settling data (price, quantity, date, etc.), which Institutional Delivery (ID) System Use trades initiated by institutions in a the depository then passes on to the (In Thousands of Items) 21,481 manner which reduces cost and in­ broker's customer, the institution, in a creases certainty of timely settlement. form that is recognized as a legal

Its most important features are that it confirmation. l~ ~ -~ -~' Confirms introduces a single entity to coordinate (2) If the confirmation accurately re­ c:=::=:J Acknowledgments all settlement activity among brokers, flects the institution's order, the institu­ - Locked-in Deliveries institutions and custodian banks, and tion sends an acknowledgment that it offers convenient electronic, au­ (affirmation) to DTC. If the confirma­ tomated methods to accomplish this. tion is faulty (i.e., does not agree with the institution's records of its order), 9,044 • It coordinates the many steps that the institution can act early enough in have to be taken by brokers, custodian the settlement cycle so that the broker banks and investment managers from can enter the appropriate corrections 5,400 trade confirmations through final into the ID system. DTC will notify the 5,183 settlement, helping to insure that each broker of a problem concerning the 3,505 party takes the right action at the right trade so that the broker can contact the 3,324 2,091 time. institution to resolve it. 2 (3) Upon receipt of the affirmation, 1 364 1 1;;Q,i~,2j 1 , 1 ,35°1 • It can eliminate redundant paper­ DTC forwards deliver/receive instruc­ ~ work and the delivery "fails" that lead tions to both the custodian and broker 1979 1980 1981 1982 1983 to repeat paperwork. to schedule settlement. - (4) If the deliverer has enough securi­ (5) If the deliverer does not have • It is simple and inexpensive to phase ties in its DTC account, the depository enough securities in its DTC account, it into, and even simpler and less expen­ will automatically complete the delivery will be notified by DTC early in the sive to use. by book-entry on the morning of settle- morning on settlement date. The 12 The King of Hammers held sway at the Woolwich Arsenal in England, where it helped fashion turn-of-the-century dreadnoughts for the British Navy. "The head of the hammer-which, of course, works vertically-is detachable, so that if the monster breaks his steel fist upon coil or anvil, another call quickly be supplied," one awestruck journalist confided to illcredulous readers.

deliverer still has the opportunity to custodians to authorize each trade for of service ID users can offer their own provide securities for delivery later on settlement. The ID affirmation to one customers. settlement date. central source, DTC-together with use ID growth was substantial in 1983. (6) If the security is not DTC-eligible of the Standard Letter of Agreement Average monthly volume of confirma­ (i.e., not one of over 71,397 issues for designed by the Ad Hoc Committee of tions processed through the system rose which DTC provides depository Custodian Bankers and Investment to 909,000 for the fourth quarter, up services), the deliverer and receiver Managers-eliminates the time­ approximately 33% from the compara­ may use specially prepared ID instruc­ consuming effort of preparing indi­ ble 1982 period. At the same time, the tions to settle the transaction outside vidual authorizations and communicat­ number of participating institutions the depository system. In such cases, ing them, through the mails or elec­ and investment managers increased though delivery must be by physical tronically or both, to multiple 123% to 3,543 from a year earlier; means rather than book-entry, DTC's custodians. (In some instances, custo­ 1,088 broker-dealers and agents were role as a clearinghouse for instructions dians may still require letters of author­ users of the ID system, up 72% from can help insure that delivery and pay­ ization subsequently, for file copy pur­ 1982. ment will be successfully completed on poses only.) The most important aspect of ID's the first attempt. growth in 1983 reflected the amend­ A primary goal of the ID system is to • A greater certainty of trade settle­ ment of New York Stock Exchange increase user efficiency by eliminating . ment enables institutions and custodian most of the error and delay associated banks to better manage their cash with traditional settlement methods, balances, providing early notice of thereby reducing the personnel and funds needed and available. time required by users to conduct their operations. • All of the labor associated with re­ processing uncompleted deliveries can • Institutions may no longer have to be eliminated, which not only reduces send letters of authorization to their the costs, but also improves the quality 13 Rule 387 on "COD Orders" and com­ Municipal Securities Rulemaking parable rules of other self-regulatory Board (MSRB) Rules G-12 and G-15 to organizations. Approved by the Securi­ require the use of depository and clear­ ties and Exchange Commission in ing corporation services for the cus­ November 1982, these amendments tomer confirmation, inter-dealer became effective at the beginning of comparison, and delivery and settle­ 1983. Their effect is to deny the deliver­ ment of the vast majority of municipal versus-payment privilege which bro­ bond trades. Under the new MSRB kers can extend for settlement of trades Rules, customer trades will have to be of institutional customers when the cus­ confirmed and affirmed through the tomer or its agent is a securities deposi­ use of a depository's institutional deliv­ tory user and the depository's facilities ery system beginning August 1, 1984, are available, but not used, for confir­ and inter-dealer comparisons will have mation, acknowledgment and book­ to be effected through the trade com­ entry settlement of trades in depository­ parison facilities of the user's clearing eligible securities. Adoption of these corporation or depository. Trade settle­ rule changes stimulated strong growth ment for depository-eligible issues will in the number of ID users in December be required to be completed by book­ 1982 and at the outset of 1983. The in­ entry effective February 1, 1985. De­ terfaces constructed between the ID signed to streamline the post-trade system and the institutional delivery processing of municipal securities in systems of the regional securities depos­ the same way that use of ID has benefit­ itories contributed to the utility of such ed corporate securities processing, systems for users. these amendments are expected to add During the fourth quarter of 1983, significantly to growth of the ID system the SEC approved the amendment of in 1984 and beyond. 14 Epitomizing the purposeful bustle of industrialization, this 1839 draw­ ing by John C. Bourne was entitled Building the Stationary Engine House. What it showed most clearly was the use of modern construc­ tion technology to house the instru"ments of modern transportation technology, a symbolic synergy that was not lost on viewers of the day.

15 Basic Services

There are four basic services Depository value of almost $3.6 trillion, including Trust performs for Participants: deliveries between brokers and clearing • It accepts deposits of securities for corporations. This represented a sub­ custody; stantial increase from 1982, when about • It makes computerized book-entry 37 million deliveries were processed deliveries of securities which are im­ with a value of about $2.3 trillion. mobilized in its custody; • It makes computerized book-entry Dollar Value of Deliveries pledges of securities in its custody; and (In Billions of Dollars) • It provides for withdrawals of securities on a routine or urgent basis. These services allow a Participant to place securities with DTC for safe­ keeping, deliver them conveniently to 3000 another party on the books of the depository, collect payment from the other party for the securities delivered, 2000 and withdraw certificates desired by any of its customers. It is the massive use of these services by Participants that creates the econo­ 1000 mies of scale which offer low-cost proc­ essing and speed to users without sacri­ fice of security and accuracy. Partici­ pants instructed DTC to execute 69.6 1979 1980 1981 1982 1983 million of these transactions in 1983, up from 54 million in 1982. Increasingly, these instructions are Pledges in automated form, further reducing labor-intensive work both for Partici­ This program allows Participants to pants and for DTC. make book-entry pledges of securities on deposit with DTC to banks and Deposits others who have agreed to accept pledges through DTC as collateral for Deposits of certificates can be made in bank loans or to secure letters of credit any eligible security issue at DTC's or for other purposes. office or at various bank and clearing At yearend 1983, the value of out­ corporation offices across the country standing pledges totaled $1l.2 billion, which cooperate as DTC Depository up 87% from the comparable 1982 Facilities. During 1983, DTC processed figure; 21 banks each had over $100 daily an average of 30,100 deposits in­ million in securities pledged to them on volving 108,100 registered certificates. DTC's books among the 101 banks par­ Bearer municipal bond activity added ticipating in this program. These figures another 1,200 deposits per day, involv­ do not include some $5.2 billion in ing 34,000 certificates, to this volume. additional pledges to The Options Clear­ ing Corporation by brokers and banks, Deliveries primarily to meet collateralization re­ quirements on CALL option sales. Deliveries in the settlement of securities transactions may be with or without the Certificate Withdrawals condition of money payment, depend­ ing upon the Participant's instructions. Certificate withdrawals from DTC can In 1983, DTC processed more than 50 be accomplished in either of two wars: million computer book-entry deliveries (1) Withdrawal-by-Transfer (WT), among Participants with a settlement in which securities are transferred rou- 16 tinely to the name of a Participant's customer, or any other name. Ultimately, rural life itself came to enjoy the blessings of the new age. This Normally, the newly registered certifi­ 1884 steam plow pulled the wheeled blades back and forth across the field moving laterally every so often to create a new set of furrows. Proponents ' cates requested by Participants are claimed it increased productivity to 20 acres per person per day from the available to them one week after DTC I-acre yield of hand plowing. receives the withdrawal instructions. (2) Urgent withdrawals of Certificates-on -Demand (CODs), in which certificates are released to the requesting Participant in three hours. In 1983, DTC processed an average of 33,700 WTs per day, for total routine withdrawal instructions of 8.5 million, requiring 10.4 million certificates. During the same period, the depository processed an average of 4,300 urgent CODs per day for registered securities, Fast Automated Securities (WT) portion of the program is de­ for a total of l.l million requests satis­ Transfer (FAST) signed for routine withdrawals; agents fied by about 3.2 million certificates. can fulfill Participant requests within Bearer municipal bond withdrawals, DtC initiated FASTto eliminate the normal transfer turnaround time, usu­ which are processed as urgent CODs, cost of unnecessary creation, movement ally three business days. added another 1,100 CODs per day (or and storage of certificates needed for The Certificate-on-Demand (COD) over 275,000 per year satisfied by withdrawals. portion of FAST is designed to include almost 4 million certificates) to this Under the FASTprogram, DTC urgent withdrawals, as well as routine volume. leaves securities with transfer agents in WTs. Transfer agents who subscribe to DTC's Fast Automated Securities the form of balance certificates regis­ the COD part of FAST must make the Transfer (FAST) program provides an tered in the depository's nominee COD certificates requested by Partici­ alternative, more economical method of name-Cede & Co. The balance certifi­ pants available to DTC overnight, and processing both types of certificate cates are adjusted daily for DTC deposit twice each business day on two hours withdrawals. The FASTprogram is de­ and withdrawal activity. notice. Because it covers all types of scribed more fully in the section that There are two parts to the FASTpro­ withdrawals, this part of the program follows. gram. The Withdrawal-by-Transfer permits DTC to eliminate its entire vault supply of Cede & Co. certificates Number of FAST Issues Dollar Value of FAST in the issues subject to the program. (In Thousands) Balance Certificates However, some Cede & Co. certificates (In Billions of Dollars) B.O 500 in FAST issues must be retained by the depository for CODs when agents perform only routine FASTwithdraw­ als in those issues. 6.0 375 FAST confers a number of benefits on all parties involved in the issuance and transfer of securities. Transporta­ 4.0 250 tion, handling and insurance costs are substantially reduced by the elimina­ tion of regular shipments of large-value certificates between transfer agents and 2.0 125 DTC. The cost of researching dividend

1979 1980 1981 1982 1983 1979 1980 1981 1982 1983

17 means that FASTwithdrawals are possi­ American National Bank and Trust Number of FAST Transfer Agents ble in about 25% of DTC-eligible regis­ Company of Chicago tered issues. American Transtech, Inc. 60 As of December 31, 1983, the follow­ AmeriTrust Company ing 21 agents participated in the full Bank of America National Trust and FASTprogram, holding $329.1 billion Savings Association in 5,376 issues. Bank of New England, N.A. 45 Central Bank of Denver BankAmerica Trust Company Chemical Bank of New York Citizens and Southern National Bank (The) 30 Bank of New York (The) Bankers Trust Company Oeveland Electric illuminating Chase Manhattan Bank, N.A. (The) Company (The) Citibank, N.A. Commerce Union Bank 15 Connecticut Bank and Trust Connecticut National Bank (The) Company (The) Fidelity Union Bank First Jersey National Bank (The) First City National Bank of Houston First National Bank of Boston (The) First Interstate Bank of California 1979 1980 1981 1982 1983 Girard Bank First & Merchants National Bank Irving Trust Company First National Bank of Atlanta (The) First National Bank of Chicago (The) claims is also reduced, and proxy Lincoln First Bank, N.A. First Pennsylvania Bank, N.A. voting made easier, by FAST CODs, Manufacturers Hanover Trust First Union National Bank since Cede & Co. certificates no longer Company GTE Shareholder Services, must be issued and circulated through­ Marine Midland Bank, N.A. Morgan Guaranty Trust Company Incorporated ?ut the financial industry. In addition, Harris Trust and Savings Bank Issuers and transfer agents enjoy re­ of New York Northern Trust Company (The) Idaho First National Bank (The) duced certificate issuance costs by the InterFirst Bank Dallas, N.A. elimination of hundreds, and some­ Santa Fe Southern Pacific Corporation InterFirst Bank Fort Worth, N.A. times thousands, of certificates for each International Business Machines issue annually. Since the inception of Schroder (J. Henry) Bank & Trust Company Corporation the program, for example, the issuance Litton Industries of some 5.5 million Cede & Co. certifi­ Security Pacific National Bank Texas Commerce Bank National Maryland National Bank cates which would have been required NCNB National Bank of North to replenish DTC's vault inventory was Association Third National Bank in Nashville Carolina avoided. National Bank of Detroit United States Trust Company At yearend 1983,57 transfer agents Northwestern Trust Company held balance certificates valued at of New York R~gistrar ~nd Transfer Company $473.3 billion in 7,709 issues. The com­ Riggs Nabonal Bank of Washington, parable prior-year figures were 52 The following 36 agents, participating D.C. (The) transfer ~ents holding 5,958 issues on a WT-only basis, held $144.2 billion State Street Bank and Trust Company valued at $342.1 billion. This growth in 2,333 issues. United Missouri Bank of Kansas City, N.A. Wachovia Bank & Trust Company, N.A. Xerox Corporation

One of the advantages of DTC's Fast Auto­ 1800 ~ated Securities Transfer (FAST) system IS the degree to which it eliminates the need ~or issuing. many certificates, substituting mstead a smgle balance certificate in an 1200 issue for the conventional certificates in wha~ever quantity required. Since the in­ ceptIOn of FAST, DTC estimates that corpo­ rate issuer~ and ~geI!-ts have been spared 800 the neceSSIty of ISSUIng some 5.5 million certificates as a result of this feature. The enormo.us savings this implies in printing, p~oces.smg; and auditing costs might best be Vls~ahzed .m the accompanying chart, whIch depIcts these certificates as if they John Hancock Standard 011 Empire State World Trade Sears Tower, Certificates required Cenler, Chicago Building, Chicago Building, New York Center, New York Chicago in the absence ~ad been i.ssued and stacked 2,000 per foot, 1,127ft. 1,I36ft. 1 ,250 ft. 1 ,350 ft. 1,454 ft. of FAST m companson with the five tallest commer­ ft. cial buildings in the world. 18 Thomas Telford built this suspension bridge in Ireland between 1819 and 1826. It was a great achievement in a period of intense roadbuilding, with pride of workmanship everywhere evident in the grace and elegance with which it was designed and constructed.

19 Ancillary Services

DTC's ancillary services flow out of its The ease with which DTC accom­ custody of securities for Participants. plished this volume of processing evi­ Many of them are designed to permit dences the efficiency of the depository's the owners of securities to receive highly automated system. The benefits benefits and exercise rights of own­ of this system to DTC users and their ership easily despite immobilization of customers are substantial. Organizations certificates and to diminish the need that do not use a depository are faced for Participants to handle physical with the prospect of handling a multi­ certificates. tude of checks, coming from many The most important of these services points in the United States and Canada, are dividend and interest collection, with all of the associated mail problems, provision for voting rights, collaterali­ underpayments and other discrepan­ zation of options, dividend reinvest­ cies, complicated by the need to claim ment, voluntary offerings, and distri­ dividends from other parties and to un­ bution of underwritings. dertake all of the associated communi­ These and other services are de­ cations and follow-up expense. scribed more fully in the paragraphs DTC's system spares Participants the that follow. trouble of dealing with these tasks and the expense of maintaining the neces­ Dividends sary facilities for doing so. Surveys indi­ cate that Participants also tend to re­ In 1983, DTC received over $52.9 bil­ ceive cash dividends and interest pay­ lion of corporate cash dividend and ments more quickly through DTC than interest payments for Participants. This if payments were received directly amount represented payments to DTC from paying agents. from approximately 1,000 bank and corporate paying agents. Stock divi­ Voting Rights dends received for Participants amounted to almost 2.6 billion shares. Depository Trust arranges for deposited In addition, interest payments related securities to be registered in the name to DTC's rapidly expanding Municipal of its nominee, Cede & Co., for three Bond Program totaled $1.9 billion in major reasons: (1) To permit prompt 1983. determination of whether the deposited certificates are indeed transferable, or whether they are subject to a "stop Total Cash Dividends and Interest Paid (In Billions of Dollars) transfer" order, counterfeit, or other­ wise not negotiable. If such a problem is found to exist, DTC can quickly take the appropriate steps to obtain replace­ 45 ment securities from the depositing Participant. (2) To permit re-transfer, when necessary, in the simplest and quickest manner possible. (3) To 30 permit DTC to allocate dividends, distributions and voting rights to depositors on a proper and timely basis. 15 Given these reasons for holding securities in the depository's nominee name, one of DTC's primary objectives has been to avoid being a barrier to 1979 1980 1981 1982 1983 communications between issuers and beneficial owners. Indeed, in some 20 Mining was another ancient labor transformed by the stream of new tools and the energy of steam. Always grim and cramped, ancient mines left little room to swing a sledge or pick, or even to stand upright, as may be seen in this early 16th Century view of the Croix-de-Lorraine silver mines in the Vosges, France. Pits, ladders, windlasses and wagons for transporting ore proved ultimately unequal to the task; the mines were abandoned in 1670.

cases, the existence of DTC may assist securities. In effect, the Omnibus Voluntary Offerings the corporate issuer in keeping up with Proxy is an assignment-Cede & Co., changes in the ownership of its voting the shareholder of record, assigns to DTC offers several services related to stock. The depository's Security Posi­ each Participant the voting rights asso­ voluntary offerings, each designed to tion Listing Report lists the number of ciated with the shares in that Partici­ keep securities immobilized in the shares of the issue on deposit with DTC pant's DTC account as of record date. depository during periods when Partici­ itemized by Participant; prior to the DTC sends the Omnibus Proxy pants or their customers have the right existence of the depository, many of the (together with a list identifying the to surrender them for cash and/or shares now included in this report Participant assignees) to the issuer after other securities. Use of these services would have been represented by certifi­ the record date for the shareholders' grew substantially in 1983. The services cates that might have circulated by meeting at which the votes may be cast. themselves are as follows. endorsement for prolonged periods At the same time, DTC notifies each before being re-registered. Security shareholder Participant that the Omni­ • Tender and Exchange Offers Position Listings are automatically sent bus Proxy has been sent to the issuer In 1983, Depository Trust processed 181 to each issuer, free of charge, once each and of the number of shares the Partici­ tender and exchange offers by book­ year, indicating Participant positions pant is entitled to vote. entry, involving 104 agents. These as of the record date for the issuer's Upon completion of these steps­ offers included 16 in which the book­ annual meeting. Issuers may also which normally take place in a single entry program was used to elect a pay­ obtain interim listings on a daily, day soon after record date-DTC is re­ ment option under a mandatory reor­ weekly, monthly or dividend-record­ moved from the chain of communica­ ganization plan. date basis, upon request and for a tions between issuer and beneficial These 181 offers, which generated modest fee. owners. Each Participant is able to ask $4.5 billion in acceptances through DTC's Participant Proxy Contact List the issuer or its agent directly for what­ DTC, constituted 69% of the total specifies the name and address of each ever quantity of proxy material it needs number of offers that could have been DTC Participant, together with the to discharge its obligations to beneficial accepted in part by book-entry name and telephone number of the in­ owners and each issuer is able to contact procedures, up from the 48% of 1982. dividual responsible for handling prox­ Participants directly. These communi­ Nevertheless, 74 agents who could have ies there. The Contact List is updated cations occur in the same manner as if used the service during 1983 failed to and reprinted four times a year and DTC did not exist. sent to issuers free of charge. The depository has published and DTC's Omnibus Proxy provides for distributed a detailed brochure on this the exercise of voting rights and for subject, entitled Shareholder Com­ direct communications between issuers munications and The Depository Trust and Participants holding their voting Company, which is available on request. 21 do so. Agents and depository Partici­ Distrihution • The "Third-Party Pledge System" pants thereby incurred increased proc­ offered by DTC is an alternative to the essing costs. of Underwritings escrow receipt method, in which a bank To deal with this lack of voluntary holds securities in an escrow account, The DTC service for the book-entry use of depository procedures to reduce issuing a receipt which can be used in distribution of and payment for securi­ the cost of accepting, or withdrawing lieu of the securities to satisfy segrega­ ties offered in public underwritings acceptance of, such offers, the Securities tion requirements for the writer's showed vigorous growth in 1983. The and Exchange Commission proposed CALL option. Under the Third-Party service was used by 113 managing un­ and subsequently adopted Rule 17 Ad-14, Pledge System, banks may pledge to derwriters to distribute $180.5 billion which requires transfer agents acting OCC securities on deposit at DTC. One of the total value of 3,209 issues. In on behalf of bidders (as tender agents) major improvement over the escrow 1982, the service handled 1,425 issues to establish and maintain special receipt method is that changes in the with $148.3 billion distributed through accounts with DTC and any other quali­ quantity of shares pledged do not DTC. The 1983 distributions comprised fied registered securities depository require release and re-issuance of 2,720 equity and corporate debt issues, holding the subject company's escrow receipts, nor do changes in the and 489 municipal bond issues, with securities. This rule becomes effective option series to be collateralized. In the values of $143.4 billion and $37.1 March 1, 1984. Overwhelming support former case, the amount of shares billion, respectively. for DTC's service in this area, originally pledged is simply increased or reduced, initiated in 1978, will then make use of as required, while in the latter the this service option generally mandatory Numher of Underwriting pledgor merely submits a "rollover" for bidders and their agents. Distributions Through DTC form supplied by OCc. In addition, processing is simplified because there • Conversions 3200 are no repeated movements of paper DTC's conversion procedures allow Par­ among the parties to the transaction. ticipants to use book-entry methods to And, finally, since certain shareholders' surrender convertible debt and equity equity limits of the escrow receipt securities in their depository accounts 2400 method do not apply, any bank deposi­ for same-day credit in the underlying tory member may use the pledge securities, usually common stock. Par­ method to the full extent that it has the ticipant processing expense is thereby 1600 securities to pledge. reduced, while the costs of financing Early in 1981, DTC expanded its in­ transactions during the interval when terface with OCC to establish a Third­ the certificates would otherwise be at Party Pledge System for PUTS. This the conversion agent are eliminated. 800 capability provides for a situation in Over 380 convertible issues are eligible which a PUT writer has deposited cash for this service; approximately $4.5 with a bank and the bank has invested billion of book-entry securities conver­ III the cash in U.S. Treasury bills. Under sions were completed in 1983. 1979 1980 1981 1982 1983 these circumstances, the PUT writer may instruct the bank to deposit the • Redemption of Floating Rate DTC's underwriting distribution T -bills with a securities depository and Notes and Rollovers of Government service is designed to benefit underwrit­ then pledge them to OCC for the ac­ Securities ers and issuers, in addition to broker count of the OCC clearing member DTC Participants may redeem floating and bank Participants. carrying the writer's short position. rate notes and other securities with OCC then reduces the clearing mem­ similar repayment options by means of Options ber's margin requirements accordingly. instructions to the depository, the cash proceeds being credited to their DTC Use of DTC's interface with The Op­ settlement accounts. Participants with tions Clearing Corporation (OCC) in­ Dividend Reinvestment maturing U.S. Treasury bills on deposit creased substantially throughout 1983. can also use DTC to reinvest, or By yearend, 128 banks and broker­ DTC's Dividend Reinvestment Service "rollover," the proceeds into new bills dealers had securities "pledged" to (DRS) expanded to include 144 partici­ issued on the maturity date. Although satisfy OCC requirements, as compared pating plans by yearend 1983. It helped the number of transactions effected with 116 banks and broker-dealers at generate almost $1.2 billion of new capi­ through these two services is not large, the end of 1982. The total value of tal for participating issuers through div­ the services themselves are considered securities pledged approximated $5.2 idend reinvestments in 1983, up from useful by Participants in that they billion, up from $3.7 billion a year 132 plans and $823 million in 1982. reduce the expense associated with earlier, or 92% of the value of securities The fourth quarter of 1983 marked the exception processing. collateral with OCC from all sources. twenty-seventh consecutive quarter- 22 By the 19th Century, mines began to be perceived, with greater pride, as a proving ground for the new technology. This 1813 scene shows a collier strolling past the Middleton Colliery, near Leeds, with a year­ old Blenkinsop and Murray locomotive gliding effortlessly past. Colliery, collier and locomotive are all puffing cheerfully, in obvious reference to their new-found partnership. Inside the mines, it was another story, and hard labor was still the rule. But this 19th Century miner has pneumatic help undreamed of by countless generations of his predecessors.

ri;;;; ;~ .,' 4?ii

to-quarter increase in Participant use that is subject to an issuer's reinvest­ flexible and less costly set of largely of this service since its implementation, ment plan to do so by book-entry, with­ automated book-entry transactions capping the five years of extraordinary out withdrawing the underlying shares withDTC. growth depicted in the accompanying from their DTC accounts. The advan­ chart. tages to Participants are significant. Special Order'-Out The purpose of DRS is to allow those Without DRS, a Participant would Participants who wish to reinvest all or either have to refrain from depositing In 1978, with the cooperation of DTC, part of their dividends in a security or withdraw from the depository prior the National Securities Clearing Corpo­ to record date those securities in which ration (NSCC) developed a new service designed to substantially reduce the Dividends Reinvested Through DTC dividends might be reinvested, even if (In Millions of Dollars) 1200 a definite decision had not yet been delays that brokers normally experience reached. In either case, the certificates when delivering physical securities to involved would have to be handled on institutional customers around the an exception basis and the benefits of country. This service, which is known 900 certificate immobilization through as Special Order-Out, permits the deliv­ depository usage would be partially ery of certificates on settlement day to defeated. In addition, Participants institutions in 21 cities. themselves would have to arrange for Under the Special Order-Out service, 600 reinvestment of dividends through the brokers who are members of NSCC and various plan administrators, and then DTC may use the depository's urgent handle both the certificates for the COD withdrawal procedure to order 300 stock thereby purchased and the checks for cash in lieu of fractional shares. With DRS, these cumbersome and duplicative tasks are eliminated as between Participant and plan admin­ 1979 1980 1981 1982 1983 istrator' and replaced by a far more 23 physical securities out of DTC on the their DTC accounts to settle money pay­ afternoon before settlement day, in ments that are associated with securities anticipation of DTC book-entry receipt transactions that have taken place of those securities on settlement day. separately. Major applications of the NSCC then ships the certificates to the service include marks-to-the-market of designated cities for availability on set­ stock loans previously made {known as tlement day if book-entry receipt at the Securities Payment Order, or SPO, DTC has occurred as anticipated. Prior portion of the service} and the collec­ to the service, brokers had to wait until tion of options contract premiums relat­ positions had been established on the ed to third-party deposits or releases of depository's books on settlement day underlying securities into and out of before initiating the withdrawal for the DTC account of The Options Clear­ subsequent shipment via courier to the ing Corporation {known as the Premi­ remote city, thereby delaying delivery um Payment Order, or PPO, portion of until the day after settlement day, at best. the service}. In the latter part of 1983, Participants Payment Orders were able to enter their Payment Orders on the Participant Terminal System instead of using paper instructions, DTC's Payment Order service affords thus significantly increasing service Participants the opportunity to use accessibility. 24 Financial ruin went hand-'in-hand with famine when almost everyone farmed and there was rarely enough money to bring in food from more fortunate areas. The land­ lord in this 1745 Dutch engraving of a cattle plague is probably powerless to avert trag­ edy in the absence of the technology to deal with the disease or the wage economy that could have supported large-scale relief efforts.

m 25 Automation of Depository Services

A continuing priority at DTC has been sages, as well as instructions for specific the automation of internal depository transactions-grew to 340,000 at year­ operations and of the channels of com­ end from 332,500 a year earlier. (For munication which link DTC with the full year, daily volume averaged Participants, other users, and transfer 331,200, up 29% from 257,000 a year agents. Major emphasis has been given earlier.) Among these types of trans­ to automating the receipt and proces­ actions, the average daily number of sing of Participant instructions and to Deliver Orders rose to 51,000, repre­ DTC reporting back to Participants. senting about 72% of the depository's The depository reduces its operating total Deliver Order volume; the daily costs by such means and, more impor­ number of COD urgent withdrawals tant, Participants can reduce their own averaged 3,600, representing approxi­ processing costs; moreover, all parties mately 85% of total COD volume; and gain through the reduction of errors pledges of collateral averaged 2,100 per caused by manual procedures. day at yearend, or some 68% of the The systems DTC uses to communi­ depository's overall pledge volume. cate with others fall into three major Releases of collateral may also be effect­ categories-the Participant Terminal ed by means of PTS. System (PTS), Automated Participant The steady growth of PTS since its Interface (API), and Computer-to­ inception in 1975 reflects the many Computer Facility (CCF) , each of which benefits it accords its users. In addition is described below. to its capabilities for processing instructions, PTS facilitates improved Participant Terminal System money management by allowing the quick turnaround or reclamation of The depository's Participant Terminal deliveries. It is also a major aid in the System (PTS) is a network of computer prompt balancing of settlement state­ terminal stations located in Participants' ments and-through the capability it offices throughout the United States provides for the verification of CUSIP and tied directly to DTC's computers. numbers, issue eligibility, Participants' Participants use their terminals to com­ security positions at DTC and similar municate instructions, inquiries and information-the avoidance of costly other messages to DTC and to receive errors. messages and reports from DTC via the printer with which each terminal is Automated Participant equipped. The direct link between Par­ Interface ticipants and the depository afforded by PTS speeds and eases the communi­ Many of DTC's Participants have large cations process, replacing the prepara­ volumes of depository activity for tion and delivery of hard-copy instruc­ which input through PTS would not be' tions and reports. This is particularly economical. But the underlying data useful for Participants located outside have already been captured by their New York City. computers in a form readable by DTC's During 1983, the number of termi­ computers. The Automated Participant nals in Participants' offices increased to Interface (API) allows DTC Partici­ 608 from 474 a year earlier, while the pants or their data processing service average daily number of total trans­ bureaus who are able to produce actions - including inquiries and mes- depository instructions by computer to 26 English Miners Leaving the Pit shows the Families were not so fortunate in 17th Century new perception of mining as an essentially rural Holland, where industrial jobs were nowhere routine-though hard and sometimes to be found. This peasant family is thankful to dangerous-trade, with well-fed wife and have gruel, and what the breadwinner's feelings children as the laborer's just reward. must have been when the gruel failed can easily be imagined.

enter those instructions directly into Eight transfer agents were accepting DTC's computer system by means of FAST WT magnetic tape instructions hand-delivered or transmitted magnetic for 6,024 issues. The eight agents were: tapes instead of by clerically processed American Transtech, Inc.; The Bank of paper forms. API capabilities currently New York; Central Bank of Denver; include magnetic tape instructions for The Chase Manhattan Bank, N.A.; routine Withdrawals-by-Transfer and International Business Machines Deliver Orders. Corporation; Manufacturers Hanover Trust Company; Morgan Guaranty • Magnetic Tape Transfer Trust Company of New York; and Instructions United States Trust Company of New Under this program, DTC is able to York. (1) receive customer name Withdrawal­ In addition, another five agents were by-Transfer (WT) instructions from accepting FAST WT instructions for Participants in magnetic tape form, 350 issues through the depository's (2) process the tapes through its own Computer-to-Computer Facility: The computers, and (3) deliver or transmit Connecticut Bank and Trust Company; the resulting DTC output tapes to trans­ The First National Bank of Boston; The fer agents for automated processing First National Bank of Chicago; GTE through the transfer agents' computer Shareholder Services, Incorporated; systems. and Security Pacific National Bank. By yearend 1983, the number of Par­ ticipants submitting transfer instruc­ • Direct Mailing of Certificates tions in magnetic tape form had grown Early in 1981, DTC launched a program to 99, accounting for approximately to provide an optional enhancement to 77% of DTC's average daily transfer its magnetic tape transfer instruction volume of about 33,700 instructions service: the direct mailing of new certi­ for over 41,000 certificates. ficates by transfer agents to the custom- m 27 ers of depository Participants. • Magnetic Tape and Computer­ operational in 1980. During 1983, the In its current phase, the program in­ to-Computer Deliver Orders number of CCF users grew to 90 from cludes 5,045 issues for which the FAST Under the Deliver Order (DO) portion 25 at yearend 1982, and the number of transfer agents are: The Chase Manhat­ of API, Participants can input delivery CCF applications in use grew to 273 tan Bank, N.A.; GTE Shareholder instructions to DTC on magnetic tape from 80. Services, Incorporated; International for either day- or night-cycle processing. DTC's plans call for further develop­ Business Machines Corporation; Manu­ The program comprises two banks, ment of CCF during the year ahead. facturers Hanover Trust Company; seven broker-dealer Participants, three Efforts will focus on increasing the fre­ Morgan Guaranty Trust Company of regional depositories and a service quency and speed of data transmissions New York; and United States Trust Com­ bureau that provides record keeping to and from Participants. pany of New York. Six Participants services for brokers and other financial program their daily magnetic tape or institutions. At yearend 1983, the Other Automation PTS instructions to DTC to include the volume of regular delivery instructions Developments names and addresses of the customers received on tape and through DTC's to whom these certificates are to be Computer-to-Computer Facility In addition to various developments in mailed: AmSouth Bank, N.A.; Edward accounted for 25% of DTC's total the growth of DTC's automated services D. Jones & Co.; Kidder, Peabody & Co. DO volume. for Participants in 1983, other signifi­ Incorporated; Merrill Lynch, Pierce, cant developments occurred in the Fenner & Smith Incorporated; John Computer-to-Computer depository's automated capabilities. Nuveen & Co. Incorporated; and Paine, Facility Webber, Jackson & Curtis Incorporated. Upon receipt of magnetic tape Though use of magnetic tape substan­ • Dual Host PTS or PTS transfer instructions from the tially reduces the manual processing During 1983, DTC launched a major Participant, DTC passes the tape and associated costs of accepting Partici­ enhancement to the Participant Termi­ through its own analytic program, pants' instructions, it does not eliminate nal System - Dual Host PTS. Under the which reformats the instructions so that them entirely, since the tapes them­ Dual Host approach, a PTS user's old they will be readable by the transfer selves must be physically handled. terminal is replaced by an IBM Series/l agent's computer. Upon receipt of the Toward the end of eliminating such minicomputer with attached video dis­ instructions, the transfer agent issues physical handling, DTC designed a play terminals, disk drive and printers. and mails the new certificates to the Computer-to-Computer Facility (CCF) In addition to affording users all of the name and address indicated by the Par­ to be used for direct computer-to­ display and printing capabilities avail­ ticipant and sends a "return tape" to computer communications between able in the old PTS configuration, the DTC so that the depository may update DTC and Participants. Designed to minicomputer permits the storage of its own records. DTC, in turn, passes allow the transmission of instructions receive and deliver information on the tape on to the Participant, to com­ from Participants' computers to DTC's disk, in machine-readable form, for plete the record updating process. computers and for transmission of cer­ subsequent transmission to the user's At yearend, some 300,000 certificates tain data from DTC's computers to Par­ computer for further automated had been mailed by this method since ticipants' computers, making use of processing, as time and capacity are the inception of the program. DTC-supplied software, CCF became conveniently available. (Under the old 28 Child labor, however undeniable its evils, had at least the virtue of providing the wherewithal for food and lodging. The children at the table are working a lO-hour day in an 1873 paper box factory for $3.00 per week, with the op­ portunity to take more work home for extra pay.

The children in this 18th Century Russian peasant hut are seated around the fire, eating without a table, all members of the family drinking from a common goblet, the cradle of the youngest hanging from the ceiling. These children also labored, out of doors, in all weathers, usually more than ten hours a day, with no pay except­ sometimes-enough to eat.

method, when a PTS message is • Optical Scanning Capability received, the printout must be physi­ Continued progress was registered cally detached from the terminal and during the year in the development of physically carried to the appropriate optical scanning equipment as an alter­ destination for further clerical and/or native to key-entering certain data, machine processing.) This allows Par­ thereby permitting substantial cost ticipants to automatically match book­ savings. The equipment was brought to entry receive notifications and facili­ an acceptance recognition level of 95% tates redelivery to other Participants. of certain documents, and the volume of documents scanned, to approxi­ • Computer Output on Microfiche mately 55,000 daily at yearend. In 1979, DTC developed the capability for producing certain computer output • Diskette to Tape Conversion reports on microfiche for distribution In 1982, DTC expanded the methods to Participants and for internal DTC available to ID system users for the use at significant savings in handling submission of ID trade data to include and record storage requirements. computer produced diskettes (data stor­ During 1983, DTC's microfiche output age devices). Upon receipt by DTC, increased; further growth is expected these diskettes are rewritten to tape for in 1984 and beyond, as the number of subsequent processing in the ID reports DTC is capable of producing in system. At yearend, 13 system users this form continues to expand. provided trade data in this manner. 111 29 Interfaces in a National Clearance and Settlement System

Depository Trust's interfaces with service which permits a sole member of other clearing agencies - both clearing anyone of these depositories to settle corporations and other securities depos­ transactions with any member of DTC, itories-constitute a major element in eliminating the requirement that a the national system for the clearance member belong to both depositories in and settlement of securities trans­ order to effect such settlements. Each actions. These interfaces enable partici­ of these interfaces was supplemented in pants in various clearing agencies to 1982 and early 1983 by the linking of use their securities positions in one lo­ DTC's Institutional Delivery system cation to settle transactions in other with the institutional delivery systems clearing corporations and with users of the regional depositories. of other depositories by book-entry To assist settlements of trades on the deliveries. This arrangement eliminates Boston Stock Exchange, a DTC inter­ the inter-regional movement of securi­ face also exists with the Boston Stock ties certificates, thereby contributing to Exchange Clearing Corporation and their further immobilization. NSCC. Depository Trust maintains an inter­ DTC also has an interface with The face with the National Securities Clear­ Options Clearing Corporation ing Corporation (NSCC) in New York. (described elsewhere in this report). In Broker-dealer Participants in DTC may addition, the Canadian Depository for use their positions at DTC to settle with Securities is a Participant in the system. other broker-dealers whose transactions Interfaces for use in connection with are cleared by NSCC. DTC's Municipal Bond Program cur­ DTC also has interfaces for registered rently exist between DTC and NSCC securities services with Midwest Securi­ and, for registered municipal bon~s, ties Trust Company (MSTC), Pacific between DTC and MSTC, PSDTC and Securities Depository Trust Company Philadep. Additional interfaces with (PSDTC) and Philadelphia Depository other depositories concerning bearer Trust Company (Philadep). An impor­ municipal bonds will be implemented tant facility made possible by these rela­ as the municipal bond processing capa­ tionships is the "third-party" delivery bilities of those depositories develop. 30 Four views of the entrance to one of DTC's vaults. Built in 1908, its walls were of nickel-steel battleship armor, up to 18 inches thick and 55 tons per plate, each capable of withstanding a 5-inch armor­ piercing shell. The door shown here weighs 25 tons, but it is the artistry of the metalwork that gives the vault its most distinctive quality.

31 Protection for Participants' Securities

The Depository Trust Company is the • Automated certificate-number con­ world's largest custodian of corporate trol is DTC's single most important safe­ stocks and bonds and rapidly growing guard. A unique computerized record as a custodian of municipal bonds. Its cross-indexes each certificate by issue, record holdings and their steady growth number, denomination and date of reflect the fact that the depository's receipt, permitting maintenance of con­ program of safeguards is widely trol and rapid reconstruction of paper­ regarded as the most comprehensive flow regardless of volume. The data yet developed to monitor the movement available from this record provide an and custody of securities. DTC's unique important tool in reconciliation, research system rests upon the extensive internal and the collection of dividend and controls, physical security, repeated interest payments. Auditing is also internal and external audits, insurance facilitated, with the auditors accounting coverage, a multimillion-dollar for certificates by denomination and protective Participants Fund, and certificate number, when comparing other features described below. Its physical certificates to computer­ effectiveness is perhaps best evidenced generated inventory listings. by three facts. • Registered certificates deposited • In the 16 years since the inception with DTC normally are quickly trans­ of the Depository Trust system, it has ferred into the depository's nominee transferred ownership of securities name, Cede & Co. This step permits worth approximately $10.5 trillion. prompt determination of certificate validity, i.e., that the certificate is not • There has never been a claim against subject to a "stop transfer" order or Participants' contributions to the DTC otherwise defective. It also enhances Participants Fund. control over the collection of dividends and interest. • There has never been a claim against DTC or its insurers for the negotiation • Large denomination "jumbo" certif­ of missing certificates. icates are used to consolidate many of the securities on deposit. Because of their high value, "jumbos" are extreme­ ly difficult for unauthorized persons to Internal Controls negotiate, and the risk of loss is thereby further reduced. DTC's internal control system is designed to record the movements and • DTC places restrictive endorsements location of every individual certificate on the back of certain "jumbo" certif­ in DTC's custody, from the time it is icates to further preclude their negotia­ received, through its processing to and tion by unauthorized persons. from transfer agents, through its entry into and delivery from the vault. The • Registered certificates remain in records required by this system are also non-negotiable form while in DTC's used to resolve processing errors, facili­ custody. tate reconciliation and audits and for similar purposes. The key features are • Microfilm records of registered as follows. certificates and their related documen- 32 Eggs were a staple of peasant diet, then as now providing concentrat­ ed protein at relatively moderate cost. Old Woman with Eggs was painted by Velasquez in 1618. The late 19th Century scene of organized egg-candling is undeni­ ably less artistic, but just as eloquent, showing how widespread the process of mass production had become by the time the Indus­ trial Revolution was lOO years old.

tation are made upon receipt into or Physical Security • A silent alarm system is strategically delivery out of the depository. The film located at points throughout the securi­ is developed on premises to ensure the ties processing areas. Vibration alarms capture of all information while the DTC's physical security system is an are installed to signal any attempt to certificates are still in the processing extremely sophisticated one, encompas­ forcibly penetrate the vaults. A modern stream. sing both electronic and physical smoke and heat detection and fire con­ devices, a large security force and other trol system protects the vaults and • Duplicate computer files of all trans­ security professionals. computer sites. Systems interruptions actions are maintained in separate stor­ The salient features of the system or malfunctions themselves trigger age locations, including one remote include the following: independent malfunction alarms that rural site, permitting prompt recon­ alert the Security Department. struction of files in the event that a • An access control mechanism, processing interruption were to occur. including floor-to-ceiling steel turn­ • A security force monitors the televi­ DTC also maintains comprehensive stiles, inhibits unauthorized entry into sion surveillance, access control, and files of original documents and produc­ sensitive areas. Entry is restricted to fire control systems, screens all persons tion reports in addition to the duplicate employees with specially encoded entering and leaving security areas, and computer files and microfilm records. photo identification cards. The turn­ determines the contents of all packages. stiles are monitored by closed circuit • DTC has made backup arrangements television; a record of all entries and with a data processing facility in another exits is maintained. city; should the depository's own data processing capabilities be interrupted • A surveillance system of closed cir­ for what appears will be a prolonged cuit television cameras and video moni­ period, these backup capabilities will tors provides complete coverage of the be brought into play for the duration vaults and other securities processing of the emergency. areas. Color video is used to monitor Additionally, proposed significant especially sensitive areas, such as those changes to the internal control system in which coupon clipping and other are tested by DTC's internal auditors processing of bearer instruments are and independent accountants. conducted. m 33 • Several vaults contain most of the ing and summarizing the previous of systems during development. Certifi­ securities deposited with DTC. Separate day's activity in their accounts. These cate inventory tests include daily areas are provided for bearer reports start with the opening balance counts of all certificates in selected instruments, working denominations of securities in each issue in which issues in the vault, utilizing random of registered securities, and "jumbo" there was a transaction and go on to list sampling techniques. Special counts of certificates of registered issues, each each transaction in that issue on that high-value certificates are also with its own access requirements and day and the closing balance of securities conducted. DTC's Auditor submits to controls over personnel authorized to in that issue after accounting for all the Audit Committee of the Board of enter. Other securities are kept in the transactions. Daily reports of cash trans­ Directors monthly reports which sum­ form of balance certificates maintained actions are also available. Under the marize the status of his work. The Com­ by qualifying transfer agents. depository's Rules, Participants are mittee consists of several Directors required to report any differences be­ charged with the responsibility of su­ • Registered securities delivered to or tween their own records and the deposi­ pervising the Auditor and the Auditing received from transfer agents and other tory's statements. DTC has a research Department and reviewing and approv­ parties are required to be in non­ staff to help reconcile any differences. ing the internal audit program. negotiable form. In addition, each Participant and Price Waterhouse, in addition to its Pledgee receives a monthly position examination of the financial • Special waste paper treatment and statement showing the status of all of its statements, performs an annual study disposal methods help to prevent the securities positions, including those in and evaluation of the system of internal escape of certificates or usable written which there may not have been any control surrounding securities proc­ information from secured processing transactions. Participants and Pledgees essed and/or held for others. The areas. are required to confirm the accuracy of report indicating Price Waterhouse's their monthly position statements in opinion on the system is available to Securities Recordkeeping writing, within 10 business days after Participants, Pledgees, and their the statement has been made available accountants, upon request. DTC uses a double-entry recordkeeping to them. Failure to confirm can result DTC's Audit Committee also reviews system to control securities positions. in a fine under the depository's Rules. the scope of the auditing procedures of Every transaction in a Participant's ac­ These continual confirmations protect the independent accountants, directly count is recorded and the physicalloca­ the integrity of the DTC system and receiving all reports issued by such tion of underlying certificates-at DTC, encourage a high degree of cooperation accountants to the depository, and with transfer agents, at other deposi­ at the operational level between the meets with them periodically to discuss tories, or in transit-is identified. depository and its users. the results of their work. These records are also used as a source for internal reports and reports to Internal and External Audits Participants, and by the depository's Insurance Reconciliation Division to locate and The securities records of Depository The insurance coverage available for correct any differences with Partici­ Trust are tested both by DTC's internal securities deposited in DTC is among pant records. auditors and by Price Waterhouse, the the most extensive of any private insti­ User Verifications depository's independent accountants. tution in the financial industry. The internal audit program focuses Specifically, insurance is available in Among the most effective depository on DTC's certificate processing, data the following amounts per event: safeguards is the continuous verifica­ processing, and financial operations. tion of DTC records by users, based on The program includes tests of the A. Losses Occurring on Premises: their own records of activity with the major systems of internal control with 1. $100 million coverage under Primary depository. emphasis on controls surrounding and Excess Blanket Bonds; plus Each morning, Participants and securities processed and/or held for 2. $100 million under excess All Risk Pledgees receive a daily report itemiz- others and pre-implementation reviews Securities coverage; plus 34 Kitchen help was quickly forthcoming as industrializa­ tion transformed society and a spate of new inventions made their appearance in many new contexts. Modern readers may find the primitive scene more recognizable than the modern, however, at least in terms of the feelings it engenders.

3. $5 million Lost Instrument Bond and in excess of $600 million when Addressee service; Premium Policy, covering premiums securities are in the custody of an 3. $250,000 under Mail Policy covering for purchase of lost instrument bonds armored car carrier; securities lost after having been sent for securities losses in excess of $200 (c) $5 million under Armored Car and via First Class Mail. million. Messenger Policy covering securities Still more protection is available to losses in excess of $120 million when bank and broker-dealer Participan ts B. Losses Occurring in Transit by securities are in the custody of messen­ with their own standard blanket bond Messenger or Armored Car Carrier: gers, and in excess of $620 million coverage, in the form of riders to their 1. Primary coverage of when securities are in the custody of an policies providing that such bonds will (a) $5 million under Air Courier armored car carrier; cover securities held by DTC for the Messenger Policy covering securities (d) $5 million under Lost Instrument account of the Participant. A bank or lost in transit via Brink's or Wells Fargo Bond Premium Policy covering premi­ broker-dealer with such a rider to its Armored Service Corporation; and ums for the purchase of lost instrument blanket bond would be reimbursed by (b) $500 million In-Transit coverage bonds for securities losses in excess of its own insurer (to the extent of the provided by the insurer of the armored $125 million when securities are in the coverage provided by the rider) for its car carrier service used by DTC; and custody of messengers, and in excess pro rata share of uninsured securities (c) $100 million under Primary and of $625 million when securities are in losses by DTC in the unlikely event Excess Blanket Bonds for securities lost the custody of an armored car carrier. that such losses were to exceed DTC's while in the custody of messengers; insurance coverage. 2. Excess coverage of C. Losses Occurring in the Mail: (a) $100 million under Primary and 1. $15 million under Mail Policy cover­ Excess Blanket Bonds for securities lost ing securities lost after having been while in the custody of an armored sent via registered mail; carner; 2. $15 million under Mail Policy cover­ (b) $20 million under Excess In-Transit ing securities lost after having been Bond covering securities losses in sent via United States Postal Service excess of $100 million when securities Express Mail Service, Option 1 are in the custody of messengers, (Door-to-Door) and Post Office-to- 35 Participants Fund To date, no pro rata charges have ever been made to the Participants Fund of either DTC or its predecessor The Participants Fund is a $200 million organizations. reserve fund contributed by Partici­ pants and maintained by DTC to satisfy Protective Procedures any losses not covered by DTC's insurance. DTC's Rules provide that Other depository procedures are also any such loss would normally be available to protect Participants. DTC's charged initially against undivided Rules provide a variety of remedies to profits or retained earnings, but permit minimize the possibility of loss arising the Board of Directors instead to elect from the unexpected insolvency of a to charge it to the Participants Fund. Participant. In the event of signs of a Should a loss be suffered by DTC Participant's operational or financial due to the failure of a Participant to inadequacy, or advice to that effect satisfy its obligations to DTC, such loss from self-regulatory organizations or would first be charged to that Partici­ others, DTC carefully monitors that pant's contribution to the Participants Participant's further activity, imple­ Fund. If the loss were in excess of that menting such protective remedies as Participant's contribution (or if the loss events warrant. were sustained for reasons other than a Participant's failure), the excess may Regulatory Examinations then be charged to the contributions of other Participants to the Participants The Depository Trust Company is a Fund on a pro rata basis. limited purpose trust company organ­ DTC's Rules provide that, in the ized under the banking laws of New event of any charge against a Partici­ York State and a member of the Federal pant's contribution to the Participants Reserve System. As such, DTC under­ Fund (whether pro rata or otherwise), goes unannounced annual examinations the Participant is required to make an by the New York State Banking Depart­ additional contribution to the Partici­ ment and the Federal Reserve Bank of pants Fund in an amount equal to the New York, which report their findings charge. to DTC's Board of Directors. 36 The Entrance into Manchester across Water Street evidences the pride of respectable citizens in the technological marvels of their day. The original drawing was by T. T. Bury in 1831.

37 The senior officers of DTC: Arnold Fleisig (left), John P. Crowley, Thomas 1. Lee, Edward J. McGuire, Jr., William F. Jaenike. Seated are William T. Dentzer, Jr. (left) and Conrad F. Ahrens.

Officers of The Depository Trust Company

William T. Dentzer, Jr. SecretarllCounsel Comptroller Chairman and Chief Edward . McGuire, Jr. Stuart A. Fishhein Executive Officer Vice Presidents Treasurer Conrad F. Ahrens Michael A. Agnes Philip E. Plasencia President and Chief Nicholas J. Arrigan Operating Officer Joseph J. Bellantoni Auditor Neil F. Brander Thomas F. Coleman Senior Vice Presidents Raymond R. DeCesare John P. Crowley Robert A. Dick Director of Security Arnold Fleisig Dennis J. Dirks Michael T. Mullen William F. Jaenike Michael Fedorochko Thomas J. Lee Ronald A. Garguilo Assistant Secretaries Charles J. Horstmann Jane Klueger John M. Lanning, Jr. Donna Grant Reilly Joseph J. Marino Vincent A. Mauro Assistant Treasurer Richard J. O'Brien Leonard A. Miele Frank Petrillo James V. Reilly Kenneth M. Scholl Clifford A. Vangor

Committees of the Board of Directors

Nominating Committee Audit Committee Compensation Committee Robert P. Rittereiser, Chairman Arthur F. Ryan, Chairman Richard B. Fisher, Chairman Donald 1. Calvin John J. Evans Joseph R. Hardiman John F. Lee James F. Ganley Jeffrey B. Lane Robert H. Smith Thomas C. Schneider G. Christian Lan tzsch 38 The Board of Directors

William T. Dentzer, Jr. Conrad F. Ahrens Donald 1. Calvin John J. Evans Richard B. Fisher Chairman and Chief President and Chief Executive Vice President, Vice Chairman, President, Executive Officer, Operating Officer, Public Affairs, Manufacturers Hanover Morgan Stanley & The Depository The Depository New York Stock Trust Company Co. Incorporated Trust Company Trust Company Exchange, Inc.

James F. Ganley Joseph R. Hardiman C. Richard Justice Jeffrey B. Lane G. Christian Lantzsch Executive Vice President, Managing Director, Executive Vice President, Vice Chairman and Vice Chairman, Irving Trust Company Alex. Brown & Sons, Inc. National Association of Chief Operating Officer, Mellon Bank, N.A. Securities Dealers, Inc. ShearsonlAmerican Express Inc.

JohnF. Lee Robert P. Rittereiser Arthur F. Ryan Thomas C. Schneider Robert H. Smith Executive Vice President, Executive Vice President, Executive Vice President, Executive Vice President, Executive Vice President, New York Qearing Strategic Development, The Chase Manhattan Dean Witter Security Pacific House Association Merrill Lynch & Co., Inc. Bank,N.A. Financial Services Inc. National Bank

Retiring from the Board of Directors during 1983 were: Jon A. Bulkley, President and Co-Chief Executive Officer, Moseley, Hallgarten, Estabrook & Weeden Inc.; Peter A. Cohen, President and Chief Executive Officer, Shearson/American Express Inc.; Frank E. Dominach, Jr., Executive Vice President and Director, Prudential-Bache Securities Inc.; William S. Edgerly, Chairman, President, and Chief Executive Officer, State Street Boston Corporation, State Street Bank and Trust Company; and Stephen C. Eyre, Senior Vice President-Secretary, Citicorp, and Director, Citibank. 39 1983 in Retrospect

The full year's growth of DTC's various An Underwriting services is described elsewhere in this report. The particular events or Distribution of activities mentioned below are some of Over $1 Billion the major milestones that the depository experienced in the year just ended. On March 17, the bulk of American Telephone and Telegraph Company's DTC Activity Records (AT &T) mammoth $1 billion plus common stock offering was distributed Total DTC activity rose to a record high by Morgan Stanley & Co. Incorporated, during 1983, reflecting both the heavy the lead underwriter, through DTC. trading volume and the continued Comprising 17.6 million shares with a growth of depository usage. On value of over $1.16 billion, the offering average, there were 276,200 transac­ was the largest equity financing in tions processed in DTC's major services dollar value ever underwritten. The each business day of the year, with a portion distributed through DTC had a peak daily average of 296,000 transac­ value of $1.15 billion, or approximately tions throughout the second quarter. In 99% of the total. round numbers, the daily average fig­ The AT&T underwriting helped ures for major services included 31,300 make March a record month for the deposits, 33,700 Withdrawals-by­ DTC underwriting service: 293 Transfer, 5,400 urgent COD withdrawals, underwritings, with a total value of 199,300 book-entry deliveries, and $15.9 billion. The portion distributed 6,500 book-entry pledges or releases through DTC represented $13.9 billion, of collateral. or 87% of the total offerings.

Edward W. Wedbush, President and At Fiduciary Trust Company's headquarters in Treasurer, Wedbush, Noble & Cooke, Boston: Stephen Little, President (left), and Inc. (left); Howard E. Ritt, Executive Edward F. Costigan, Executive Vice President, Vice President, and James L. Birdwell, both of Adams, Harkness & Hill, Inc.; Fiduci­ Vice President, both of Lloyds Bank ary's H. Gilman Nichols, President, and Anthony California, with DTC's John O'Grady, B. Bova, Trust Officer; Vinnie I. Rardin, Director, examine a statistical analysis Assistant Vice President, and Sid Watt, Jr., Vice of current trading volume. President, both of State Street Bank and Trust Company; and DTC's Ann Vece, Associate Director.

40 Reading a balance certificate in the depository's vault: Bernard B. Beal, First Vice President, E.F. Hutton & Company Inc. {left}; George R. Plender, First Vice President, Prudential-Bache Securities Inc.; Charles F. Lynch, Manager, Brown Brothers Harriman & Co.; and Ronald A. Garguilo, Vice President, Diane L. Brennan, Compli­ ance Officer, and Richard Nesson, Associate Counsel, all of DTC.

Later in the year, AT&T once again became the focus of industrywide atten­ tion as efforts got under way to prepare for the split-up of the utility into a Debit and credit listings for June 1983 book-entry deliveries are "new" AT&T plus seven regional hold­ examined by: John J. Lynch, Executive Vice President, J.F. Hart­ ing companies. Working closely with field & Co., Inc. (left); Ralph Sorrentino, First Vice President, Participants, DTC modified its Institu­ Drexel Burnham Lambert Incorporated; Edward E. Bao, Partner, tional Delivery system and other proce­ Gruntal & Co., Incorporated; and Salvador R. Martinez, Jr., Senior Securities Officer, and Lynn Brenman, Participant Services dures to handle the "when-issued" Representative, both of DTC. trading of the eight new issues and pre­ pare for the anticipated volume of the February 24,1984 settlement date. Book-Entry Deliveries: A 12.3 Billion-Share Month High volume in the nation's securities markets, increased institutional partici­ pation in the depository system, and a substantial increase in the number of DTC-eligible issues propelled DTC's book-entry delivery volume to a new monthly record in May 1983. Average daily deliveries swelled to 221,500-up 35% from the 1982 daily average. At the same time, the average daily number of shares delivered rose to 586.6 million - up 17% from the 1982 average. Altogether, 12.3 billion shares were delivered through DTC in May and 135.4 billion, valued at $3.57 trillion, in all of 1983. 41 New Deposit Records

A strong surge in deposits throughout the month of May helped set new depository records. The market value of deposits for the full month totaled $73.7 billion, or $3.5 billion per business day, up from the prior record of $50.5 billion and $2.7 billion per business day of February 1983. The total market value of securi­ ties on deposit with DTC thereby ended the month well above the $1 trillion line, rising to approximately $1.1 tril­ lion from $569 billion a year earlier. Dividends: 99% Payment Date Performance Yields $1.6 Billion, 100% in Same-Day Funds Antonio G. Pinto, General Partner, Cowen & Co. (left); Pasquale DTC's cash dividends and interest proc­ Luongo, Executive Vice President and Director, Dominick Investor essing operation posted a new single­ Services Corporation; and Michael Hont, Operations Partner, day high on June 10, 1983, when a Asiel & Co., review daily activity statements with DTC's John record $1.6 billion of dividends and Scheuermann, Director: Recon~iliation Division, and Jacob Feuchtwanger, Manager, Systems & Computing. corporate interest payments was re­ ceived for Participants' accounts. For all of 1983, dividends and corporate interest payments rose to $52.9 billion from $36.7 billion for 1982. Both sets of figures reflect the large increase in the number of shares and bonds on deposit with DTC during 1983. At the same time, the percentages of payments received on payment date and in same-day funds also improved. Of the value of all such payments re­ ceived from disbursing agents in 1983, approximately 84% was received on payment date and approximately 92% was in same-day funds. Comparable Reviewing terminal accessing procedures for the display of dividend 1982 figures were 83% and 90%, payment performance results: John P. Sullivan, Investment Vice respectively. On June 10, the day on President, New York Life Insurance Company (left); Richard J. which the new record was set, the $1.6 O'Brien, Vice President, and Cheryl T. Lambert, Associate Director, billion received represented over 99% both of DTC; Vincent S. Morano, Senior Vice President, Prescott, Ball & Turben, Inc.; Gary Chinery, Cash Management Officer, of the payments due to DTC that day; TIAA-CREF; and Stephen Cass, Vice President-New York Operations, of this amount, 100% was received in Charles Schwab & Co., Inc. same-day funds. 42 Discussing the Dual Host PTS system: Martin L. Schlow, Director of Operations, F. Eberstadt & Co., Inc. (left); Allenby R. Lyson, First Vice President, Herzfeld & Stern Inc.; James B. Sweeney, First Vice President, Administration, Dean Witter Reynolds Inc.; and Clifford L. Testa, Senior Marketing Consultant, and Charles J. Horstmann, Record Book-Entry Vice President, both of DTC. Stock Split

On Wednesday, June 1, DTC received over 123 million shares of General Elec­ tric Company common stock, represent­ ing the additional shares Participants were entitled to as the result of a two­ for-one stock split. Valued at $6.7 billion at the then­ current market price, the stock was al­ located to DTC Participants on June 9, the close of the due bill period. Because of the large dollar value, special ar­ rangements were made to transport the stock from Morgan Guaranty Trust Company of New York, the dividend disbursing agent, to DTC. Representa­ tives of Morgan Guaranty delivered 2,700 certificates and registered them on DTC's premises, thereby avoiding numerous multiple deliveries which insurance limitations would otherwise have required.

Getting set for processing the AT&T divestiture: Joseph P. Markey, Vice President, Kidder, Peabody & Co. Incorporated (left); Joseph Fiorito, Vice President, A.G. Becker Paribas Incorporated; Robert Baer, Director, and Frank Petrillo, Vice President, both of DTC, examine an IDwhen-issued trading list.

43 Growth of Book-Entry-Only uted in 15 underwritings, by underwrit­ ers E. F. Hutton & Company Inc. and Municipal Bonds and CDs Ryan, Beck & Co., in addition to Prudential-Bache. The first "book-entry-only" municipal Use of DTC's underwriting service to bond issue-for which no physical distribute book-entry-only Certificate securities are issued for investors and of Deposit (CD) issues was more changes of ownership are recorded substantial. Six managing underwriters only in book-entry form-was distrib­ distributed 563 issues in total principal uted through DTC on the initiative of amount of $4.3 billion during 1983, up the underwriter, Prudential-Bache from 22 issues and $634 million in Securities Inc. The issue was $1,175,000 1982. The 1983 managing underwriters Philadelphia Authority for Industrial were: Boettcher & Company; J.c. Development bonds issued on Decem­ Bradford & Co.; Dean Witter Reynolds ber 30,1982. Inc.; A.G. Edwards & Sons, Inc.; Merrill During 1983, 88 book-entry-only Lynch, Pierce, Fenner & Smith municipal issues, in total principal Incorporated; and Wheat, First amount of $65.6 million, were distrib- Securities, Inc.

G.w. Hamilton, Second Vice President, The Chase Manhattan Bank, N.A. (seated, left), with Charles P. Smith, Treasurer, and Joel G. William 1. Lemp, Vice President (left), and Albert R. Powell, Pittelman, Capital Finance Director, both from Assistant Secretary, both of Mercantile Trust Company National the Department of Administration of the State of Association, discuss municipal bond activity with Barbara Wisconsin, examine copies of registered muni Thompson, Investment Operations Officer, Centerre Bank, N.A., certificates at DTC. Looking on are George E. and Clarice C. Brown, Participant Services Representative, DTC. Monk, Jr., Director and Municipal Bond Product Looking on are Larry D. Hoffman, Vice President, Centerre Bank, Manager, DTC (left), and Euclid A. Mahon, Sec­ N.A. (left), and William 1. Winter, Vice President, A.G. Edwards & tion Manager, Bond Syndicate Section, The Sons, Inc. Chase Manhattan Bank, N.A.

44 Output data from DTC's CCF system are reviewed by: Daniel A. Maglio, Vice President (left); Armand Bueno, Assistant Vice President, John M. O'Brien, Assistant Treasurer, Ian Jones, Control Officer, and Michael E. Zelhof, Senior Data Center Coordinator, all of French American Banking Corporation; and DTC's Katherine Lee, Participant Services Represen­ tative, and Carmen Coleman, Interface Planning Representative.

Examining bearer bond certificates being withdrawn from a DTC vault are: Neal H. Attermann, Deputy General Counsel, Public Securities Asso­ ciation (left); Joseph C. Poggio, Senior Vice President, United States Trust Company of New York and President of The Stock Transfer Association, Inc.; John A. Ferguson, Executive Vice President, MS Securi­ ties Services Inc. and President of the Cashiers' Association of Wall Street, Inc.; DTC's Joseph 1. Marino, Vice President, and John C. Martin, Jr., Director.

Registered Municipal month municipal bonds had to be issued in registered form as a conse­ Bond Underwritings: quence of the Tax Equity and Fiscal Re­ $7 Billion in a Single Month sponsibility Act of 1982 (TEFRA). For the full six-month period, the principal In December, a record 117 registered amounts processed through DTC repre­ muni underwritings, valued at over sented approximately 84% of the total $7.2 billion, or almost 87% of the total principal value of the issues involved. dollar volume of those offerings, were The largest underwriting processed processed through DTC. This $7.2 bil­ through DTC in December was the lion amount is believed to be well over $600 million Intermountain Power half the principal amount of all muni Agency (IPA) Power Supply issue, underwritings settled in December. managed by Salomon Brothers Inc. The The December underwritings offering consisted of four term bond brought to 366 the number of regis­ issues representing $565 million and 10 tered municipal bond underwritings, serial bond issues representing $34.7 valued at more than $20 billion, proc­ million. The portion deposited in DTC essed through DTC since July, the first was $583.8 million, or 97% of the total. 45 interest, and reorganization payments DTC General Refund (dividends payments) received by the $7 Million in 1983; Other depository during 1983. The monthly Refunds $20.1 Million refunds stem from the income the depository earns from overnight invest­ DTC's Board of Directors at its Decem­ ment of such payments as they are ber meeting voted to refund $7 million disbursed. Dividends payments to Par­ of excess 1983 income to Participants ticipants are included in the deposi­ and Pledgee banks, representing some tory's daily clearinghouse (next-day) 7% of total service fees paid to DTC in funds settlement system; DTC's pur­ 1983. pose in making these refunds is to Excess income occurs chiefly, and come as close as practicable to a pass­ to the extent that, trading volume in through of such payments to Partici­ various markets exceeds DTC's budget pants in same-day funds. Refunds to a assumptions. Each user organization's Participant are based on the amount of share of the refund is proportional to such payments DTC passed on to that its share of total fees paid for depository Participant the prior month in propor­ services during the first 11 months of tion to the amount of all such payments the year. to Participants. Refunds of cash divi­ In addition, DTC made $20.1 million dends and interest are calculated sepa­ in monthly refunds to Participants of rately from reorganization payment investment income from cash dividend, interest.

At a dial-in terminal at DTC: Roger L. DuBois, Vice President, Bankers Trust Company (left); Richard A. Pecorella, Manager, Cashiers Dept., Bear, Stearns & Co.; Dominic Rossi, Partner, Forstmann-Leff Associates; and DTC's Anthony 1. Gazzola, Jr., Associate Director, Weyman Lew, Manager, and William F. Lackner, Director, ID Account Administration.

46 The old and the new meet for comparison in this 1889 juxtaposition from Frank Leslie's Illustrated Newspaper. The scene-for once unrecognizable to most modern readers-is Central Park West in New York City. .. S8NS "' e

47 Report of Independent Accountants

To the Board of Directors and Stockholders of The Depository Trust Company

In our opinion, the accompanying statement of condition and the related statements of revenues and expenses and undivided profits and of changes in financial position present fairly the financial position of The Depository Trust Company at December 31, 1983 and 1982, and the results of its opera­ tions and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing stan­ dards and accordingly included such tests of the accounting records and such other auditing procedures as we consid­ ered necessary in the circumstances.

153 East 53rd Street New York, New York January 23, 1984 48 The Depository Trust Company Statement of Condition

December 31,

1983 1982 Assets

Cash $127,989,000 $ 85,443,000 Repurchase agreements (Note 1) 172,258,000 204,096,000 U.S. Government securities (Note 1) 14,772,000 10,393,000 Receivables: - Participants: For settlements 3,649,000 82,896,000 F or services 8,940,000 8,268,000 Dividends, interest and other (Note 4) 9,198,000 6,764,000 Prepaid expenses and deposits 1,039,000 954,000 Equipment and leasehold improvements, less accumulated depreciation of $8,269,000 in 1983 and $5,687,000 in 1982 (Note 6) 19,340,000 8,930,000 Leased property under capital leases, less accumulated amortization of $9,676,000 in 1983 and $9,156,000 in 1982 (Note 7) 5,763,000 5,325,000 Contributions to Participants Fund, callable

on demand (Note 3) 19427522000 195,266,000 $55727002000 $608l 335,000

Liabilities and stockholders' equity

Liabilities: - Drafts payable (Note 1) $ 75,576,000 $175,704,000 Accounts payable and accrued expenses 16,447,000 12,274,000 Payable to Participants: On settlements 23,537,000 12,208,000 On receipt of securities 19,486,000 19,432,000 Dividends and interest received (Note 4) 199,572,000 173,708,000 Financing arrangements, including $2,182,000 in 1983 and $272,000 in 1982 due within one year (Note 6) 8,726,000 1,225,000 Obligations under capital leases, including $1,621,000 in 1983 and $2,126,000 in

1982 due within one year (Note 7) 6 21962000 5,589,000 3492540,000 400,140,000 Participants Fund (Note 3): Deposits received 5,058,000 4,581,000

Contributions callable on demand 19427522000 195,266,000 19928102000 199,847,000

Stockholders' equity: Capital stock-authorized, issued and outstanding, 18,500 shares of $100 par value 1,850,000 1,850,000 Surplus (Note 1) 950,000 950,000

Undivided profits 5,5502000 5l 548 l 000 8 23502000 8,348,000 $55727002000 $608,335,000 The accompanying notes are an integral part of the financial statements. m 49 The Depository Trust Company Statement of Revenues and Expenses and Undivided Profits

For the years ended December 31,

1983 1982 Revenues: Services to Participants $102,168,000 $ 73,052,000 Interest income 31,991,000 32,177,000

134,159,000 105,229,000

Less-Refunds to Participants (Note 2) 27,056,000 20,403,000

107,103,000 84,826,000

Expenses: Employee costs 65,127,000 51,548,000 Rent, maintenance and utilities 13,630,000 7,934,000 Data processing rentals and supplies 8,346,000 6,456,000 Professional and other services 5,982,000 4,583,000 Amortization and interest on capital leases 3,038,000 2,945,000 Depreciation and amortization 2,582,000 1,551,000 Other expenses (Note 5) 8,396,000 8,076,000

107,101,000 83,093,000

Excess of revenues over expenses and refunds 2,000 1,733,000

Undivided profits, beginning of year 5 25482000 32989,000 5,550,000 5,722,000

Transfer to surplus (Note 1) (174 2000)

Undivided profits, end of year $ 5 25502000 $ 5,548,000

The accompanyin!( notes are an integral part of the financial statements. 50 The Depository Trust Company Statement of Changes in Financial Position

For the years ended December 31,

1983 1982 Financial resources were provided by: Operations: Excess of revenues over expenses and r.efunds $ 2,000 $ 1,733,000 Charges (credits) not affecting resources- Depreciation and amortization 2,5~2,000 1,551,000 Amortization on capital leases 2,136,000 2,209,000 Other operating items, net (432,000) (162,000)

Resources provided from operations 4,288,000 5,331,000

Decrease in receivable from Participants 78,575,000 Increase in payable to Participants 37,247,000 80,439,000 Financing and capital lease obligations incurred 10,434,000 1,757,000 Increase in accounts payable and accrued expenses 4,164,000 2,073,000 Increase (decrease) in cash contributions to Participants Fund 477,000 (569,000) Increase in drafts payable 72,212,000 Other, net 376,000 183,000 135,561,000 161,426,000 i Financial resources were used for: Decrease in drafts payable 100,128,000 Purchase of equipment and leasehold improvements 12,992,000 5,190,000 Additions to leased property under capital leases 2,574,000 396,000 Increase in dividends, interest and other receivables 2,454,000 113,000 Financing and capital lease payments 2,326,000 2,172,000 Increase in receivable from Participants 42,835,000 120,474,000 50,706,000

Net increase in cash, repurchase agreements and US. Government securities during the year 15,087,000 110,720,000 Cash, repurchase agreements and US. Government securities, beginning of year 299,932,000 189,212,000 Cash, repurchase agreements and US. Government securities, end of year $315,019,000 $299,932,000

The accompanying notes are an integral part of the financial statements. 51 The Depository Trust Company

Notes To Financial Statements December 31,1983 and 1982

Note 1 - Summary of Significant over ten years of actuarial gains and (f) Income taxes Accounting Policies losses. In 1983, the actuarial assumption Provision is made for income taxes for investment return was increased, applicable to revenues and expenses (a) Securities on deposit reducing 1983 pension expense by reported in the financial statements in Securities held by the Company for Par­ $327,000. periods which differ from those in ticipants are not recorded in the accom­ which they are subject to taxation. panying financial statements. Cash divi­ The actuarial present value of Investment tax credits on property dends and interest received or due on vested and non-vested accumulated acquired and leased are applied, when such securities and in process of distri­ plan benefits at January 1, 1983, for the available, under the flow-through bution or awaiting claim are recorded Company's eligible employees, is method as a reduction of the income in the statement of condition. $7,422,000 and $963,000, respectively, tax provision when the property is assuming a 7% rate of return. The placed in service. (h) Equipment and leasehold plan's net assets available for benefits improvements was not available for 1983 on a separate (g) Surplus Equipment and leasehold improve­ company basis; however, the value of Transfers to surplus of 10% of excess of ments are recorded at cost. Equipment the net assets of the pension plan of revenues over expenses and refunds is depreciated over estimated useful New York Stock Exchange, Inc. at Jan­ will be made annually until such time lives (generally five to eight years), uary 1, 1983 in total exceeded the actu­ as surplus equals 65% of capital stock as using principally accelerated methods. arially computed value of vested and required by the New York State Bank­ Leasehold improvements are amortized non-vested benefits of the plan. ing Law. on the straight-line method over the lives of the related leases or the useful Note 2 - Organization and lives of the improvements, whichever (e) Marketable securities Ownership is less. Repurchase agreements represent U.S. Government and u.s. Government The Company is a limited purpose trust (c) Leases Agency securities purchased under company providing central securities Leased property under capital leases agreements to resell at predetermined depository and related services to the consists principally of data processing prices, generally over periods of three securities, banking and related equipment and related facilities. These days or less. These agreements are industries. At December 31, 1983, New assets are amortized using primarily ac­ recorded at cost and interest is accrued York Stock Exchange, Inc. owned celerated methods over the lease terms as earned. U.S. Government securities approximately 39% of the capital stock or asset lives, as applicable, and interest are recorded at amortized cost, which of the Company, with the remainder expense is accrued on the basis of the approximates market value. owned by the American Stock outstanding lease obligations. Exchange, National Association of The Company invests available Securities Dealers and certain Partici­ (d) Pension plan federal funds in repurchase agreements pants or their representatives. The Company's eligible employees are and at the same time makes disburse­ A Stockholders Agreement provides for included in the defined benefit pension ments against such in clearinghouse an annual reallocation of the entitle­ plan of New York Stock Exchange, Inc. funds. The resulting book overdrafts ment to purchase outstanding capital and its subsidiary companies. Pension are included in drafts payable and are stock by eligible Participants or their costs charged to expense in 1983 were eliminated the next business day when representatives based on relative $1,526,000 (1982-$1,980,000) and the repurchase agreements are con­ depository activity of Participants comprise normal costs and amortization verted back to cash. during the prior year. 52 Pursuant to a policy adopted by could be charged to the Fund. Required of the securities through a Participant the Board of Directors in 1975, the contributions are received in cash or or other financial institution. At Decem­ Company does not pay dividends to are callable on demand and secured by ber 31, 1983, cash dividends and inter­ stockholders, but refunds to all of its securities of the United States or in­ est payable on registered securities Participants each year revenues in strumentalities of the United States, amounted to $199,572,000, of which excess of current needs. In 1983 this states and political subdivisions and cer­ $134,972,000 was awaiting distribution refund amounted to $7,000,000. No tain eligible nonconvertible registered to Participants on the next business day such refund was made in 1982. The corporate debt securities. and $64,600,000 was held pending Board of Directors adopted an addition­ claim on behalf of the record date al refund policy in 1980 to provide for a The Board of Directors has limited owners of the applicable securities. monthly refund to Participants of the aggregate amount of all contribu­ Stock dividends payable and unclaimed income earned from the overnight tions to the Fund to $200,000,000. are not recorded in the accompanying investment of cash dividends, interest financial statements. Unclaimed cash and reorganization payments to the Note 4 - Dividends and Interest on and stock dividends and interest re­ Company for Participants. Such month­ Securities on Deposit ceived prior to July 1,1980 have been IX refunds totaled $20,056,000 in 1983 transferred to New York State in accord­ ($20,403,000 in 1982). The Company receives cash and stock ance with abandoned property laws. dividends and interest on securities Note 3 - Participants Fund registered in the name of its nominee Cash dividends and interest receiva­ and interest on bearer securities which ble for registered securities at December Participants in the depository are re­ it distributes to its Participants for the 31, 1983 amounted to $7,035,000. Stock quired to contribute to the Participants owners of the securities. Amounts re­ dividends receivable are not recorded in Fund amounts which relate to their ceived on registered securities with­ the accompanying financial statements. activity in the depository. The Fund is drawn before the record date but not available to secure the Participants' transferred from the name of the obligations to the Company, and certain Company's nominee cannot be dis­ uninsured losses, if such should occur, tributed unless claimed by the owners 53 Note 5 - Income Taxes

Income taxes are included in other expenses. The net income tax provision for 1983 and 1982 is summa­ rized as follows:

1983 1982

Current: Federal $458,000 $ 806,000 Investment tax credits (353,000) (686,000) Other tax credits (120,000) State and local 450,000 639,000 Deferred: Federal (451,000) (29,000) Investment tax credits 386,000 60,000 Other tax credits (31,000) State and local (396,000) (29,000) $ 94,000 $ 610,000

The primary difference between pretax accounting income and taxable income is related to pension expense.

At December 31,1983, the Company has available for federal income tax purposes investment tax credit carryforwards of $427,000, all of which expire in 1998, and $813,000 for financial statement purposes.

Note 6 - Financing Arrangements

The Company has financing arrangements with three commercial banks collateralized by an equal amount of leasehold improvements and equipment. The obligations are being repaid in monthly installments. The interest rate applicable to approxi­ mately $3,938,000 of such obligations is fixed at 12% and the remainder bears interest at the prime rate.

Aggregate maturities of these financing arrangements are summarized as follows:

Year ending December 31 : 1984 $2,182,000 1985 1,423,000 1986 1,600,000 1987 1,797,000 1988 1,724,000

Total financing arrangements $8,726,000

The Company also has available short-term lines of credit of $5,000,000 with each of two commercial banks at rates approximating the prime rate. These lines were not utilized during 1983. 54 Note 7 - Leases and Other Commitments

Capital leases-See Note 1 regarding the treatment of capital leases. The following is a schedule by year of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31,1983:

Year ending December 31 : 1984 $2,368,000 1985 1,909,000 1986 1,318,000 1987 1,197,000 1988 1,169,000 1989 329,000

Total minimum lease payments 8,290,000

Less-Amount representing interest 2,094,000

{'resent value of net minimum . lease payments (including Timeless and trenchant, this 1869 Harper's current installments Weekly cartoon zeroes in on one human of $1,621,000) $6,196,000 dilemma to which the Industrial Revolution has yet to find a remedy. Operating leases-The Company leases its office space and certain data processing equipment under long-term operating leases. Such leases for office space provide for increases in rental escalations sub­ sequent to 1983.

Presented below are the future minimum rental payments required under operating leases having ini­ tial noncancellable lease terms in excess of one year as of December 31, 1983:

Year ending December 31: 1984 $15,989,000 1985 15,979,000 1986 14,833,000 1987 11,922,000 1988 10,425,000 1989-2002 97,343,000

Total minimum payments required $166,491,000

Rent expense in 1983 was $10,032,000 (1982- $5,074,000) for office space and $6,838,000 0982-$3,927,000) for data processing equipment. 1111 55 P.rticipantst Banks (146) American Security Bank, N.A. AmeriTrust Company AmSouth Bank, N.A. Atlantic National Bank BankAmerica Trust Company of New York Bank Leumi Trust Company of New York Bank of America National Trust and Savings Association Bank of California (The) Bank of Montreal Bank of New England, N.A. Bank of New England-North Shorett Bank of New England-West, N.A. Fiduciary Trust Company of New York Bank of New York (The) Fifth Third Bank (The) Bank of Oklahoma, N.A. First American Bank, N.A. Bank of Tokyo Trust Company (The) First & Merchants National Bank Bank One Trust Company, N.A. First City National Bank of Houston Bankers Trust Company First Jersey National Bank (The) Barclays Bank International Limited First Kentucky Trust Company (The) Bessemer Trust Company First National Bank and Trust Company Boston Safe Deposit and Trust Company of Oklahoma City Bradford Trust Company First National Bank & Trust Company Brown Brothers Harriman & Co. of Tulsa California First Bank First National Bank in Palm Beach Centerre Bank, N.A. First National Bank of Atlanta (The) Central Fidelity Bank, N.A. First National Bank of Boston (The) Central National Bank of Cleveland First National Bank of Chicago (The) Central Trust Company First National Bank of Cincinnati Chase Manhattan Bank, N.A. (The) First National Bank of Colorado Springs Chemical Bank (The) Citibank, N.A. First National Bank of Maryland (The) Citizens and Southern National Bank (The) First National Bank of Minneapolis Citizens Fidelity Bank and Trust Company First National Bank of Omaha Commerce Bank of Kansas City, N.A. First National Bank of St. Paul Commercial National Bank of Peoria First National Bank of Topeka (The) Connecticut Bank and Trust Company First National State Bank (The) First Pennsylvania Bank, N.A. Connecticut National Bank (The) First Tennessee Bank N.A. Memphis Crocker National Bank First Trust Company of Saint Paul Daiwa Bank, Limited (The), First Trust Corporation New York Agency First Union National Bank Denver National Bank First Vermont Bank & Trust Co. t t Equitable Bank, National Association Fleet National Bank European American Bank & Trust Fort Wayne National Bank Company Fourth National Bank & Trust Company Fidelity Bank (The) of Wichita Fidelity Union Bank Framingham Trust Companytt Fiduciary Trust Company of Boston French American Banking Corporation 56 "The more things change, the more they remain the same" is as true today as when Alphonse Karr coined the expression in 1875. Not even the Industrial Revolution could eliminate the absurd little harrassments of everyday life. Though the forms they take may be different, the petty dilemmas shown here and on the pages that follow should prove all too familiar to the reader of today. Just as familiar today as a century ago, this 1881 cartoon appeared in Harper's Weekly, captioned: "At a recent meeting of the Board of Aldermen, it was Resolved to let the streets take care of themselves, as heretofore." 9& F-U t "..* .;:of

Girard Bank National City Bank Wells Fargo Bank, National Association Huntington National Bank (The) National Commercial Banking Corporation Wheeling Dollar Savings & Trust Co. IDS Trust Company of Australia Limited Wilmington Trust Company Imperial Trust Company National Savings and Trust Company Wyoming National Bank of Casper (The) Indiana National Bank (The) National Westminster Bank PLC Zions First National Bank InterFirst Bank Dallas, N.A. National Westminster Bank USA InterFirst Bank Fort Worth, N.A. Northern Trust Company (The) IntraWest Bank of Denver, N.A. Norwest Bank Minneapolis, N.A. Investors Bank and Trust Company Old Kent Bank and Trust Company Irving Trust Company Philadelphia National Bank (The) Broker-Dealers (317)§ Kellogg-Citizens National Bank Proctor Banktt ABD Securities Corporation Key Trust Company RepublicBank Dallas, N.A. Adams, Harkness & Hill, Inc. Landmark Union Trust Bank Republic National Bank of New York Adler, Coleman & Co. LaSalle National Bank Rhode Island Hospital Trust National Bank Advest, Inc. Liberty National Bank and Trust Company Riggs National Bank of Washington, D.C. Agora Securities, Inc. of Oklahoma City (The) (The) Alger (Fred) & Company, Incorporated Lincoln First Bank, N.A. Royal Bank and Trust Company (The) Allen & Company Incorporated Lloyds Bank California Santa Barhara Bank & Trust Alpine Associates M&I Marshall & Ilsley Bank Schroder (J. Henry) Bank & Trust Company American Securities Corporation Manufacturers and Traders Trust Company Seattle-First National Bank Anderson & Strudwick, Incorporated* Manufacturers Hanover Trust Company Security Pacific National Bank Arhitrage Management Company Manufacturers National Bank of Detroit Shawmut Bank of Boston, N.A. Arnhold and S. Bleichroeder, Inc. Marine Midland Bank, N.A. Society National Bank Asiel & Co. Maryland National Bank State Street Bank and Trust Company Atlantic Capital Corporation Mellon Bank, N.A. Swiss Bank Corporation-New York Branch BHF Securities Corporation Mercantile Trust Company Texas American Bank/Fort Worth BSE Specialist Account* National Association National Association Baird {Robert W.) & Co. Incorporated Mercantile-Safe Deposit and Trust Company Texas Commerce Bank, National Association Merchants National Bank & Trust Company Toledo Trust Company (The) t As of December 31,1983 of Indianapolis Trust Company Bank § Excludes some firms with limited activity Michigan National Bank-Grand Rapids Union Bank, Los Angeles tt Boston Stock Exchange Sponsored Account Michigan National Bank of Detroit United Bank of Denver, National Association • NSCC Sponsored Account Morgan Guaranty Trust Company United States Trust Company of New York of New York U ni ted Virginia Bank NCNB National Bank of North Carolina Valley National Bank of Arizona National Bank of Detroit Wachovia Bank & Trust Company, N.A. 57 Baird, Patrick & Co., Inc. Davenport & Co. of Virginia, Inc. Greenfield Arbitrage Partners Barr Brothers & Co., Inc. Davis (Shelby Cullom) & Co. Gruntal & Co. Barrett & Company de Cordova, Cooper & Co. Gruss (Oscar) & Son Incorporated Bateman Eichler, Hill Richards Incorporated Deltec Securities Corporation* Haas Securities Corporation* Bear, Stearns & Co. Denton & Company, Inc. * Hackert/Modesitt Investments Ltd. * Beare Brothers & Co., Inc. * Diamant Investment Corp. * Hanifen, Imhoff, Inc. * Beauchamp & Co. Dillon, Read & Co. Inc. Henderson Brothers, Inc. Becker (A.G.) Paribas Incorporated Doft & Co., Inc. ,Herzfeld & Stern Inc. Benton & Company Dominick Investor Services Corporation Herzog, Heine, Geduld, Inc. Bernstein (Sanford c.) & Co., Inc. Dominion Securities Ames Inc. Hill, Thompson, Magid & Co., Inc. * Blair (William) & Company Donald & Co. Securities, Inc. * Hilliard (U.B.), Lyons (W.L.), Inc. Blinder, Robinson & Co., Inc. * Donaldson, Lufkin & Jenrette Hirshon, Roth & Co. Blunt Ellis & Loewi Incorporated Securities Corporation Howard, Weil, Lahouisse, Friedrichs Bodell, Overcash Anderson & Co., Inc. * Drexel Burnham Lambert Incorporated Incorporated Boettcher & Company Easton & Co. Hummer (Wayne) & Co. Boyd, Upton & Co. Eberstadt (F.) & Co., Inc. Hutton (E.F.) & Company Inc. Bradford (J.C.) & Co. Edwards (A.G.) & Sons, Inc. Icahn & Co., Inc. Bradford Broker Settlement, Inc. Einhorn & Co. Illinois Company Incorporated (The) Branch, Cabell & Co. Engler & Budd Company* Independance Securities, Inc. Brandt (Robert) & Co. Eppler, Guerin & Turner, Inc. Ingalls & Snyder Brounoff, Claire, & Co., Inc. Equity Securities Trading Co., Inc. * Instant Funds Incorporated * Brown & Company Securities Corporation* Ernst & Co. Institutional Equity Corporation Brown (Alex.) & Sons, Inc. EuroPartners Securities Corp. Interstate Securities Corporation Brown, Lisle & Marshall Incorporated Evans & Co., Inc. Investors Discount Corporation* Buell Securities Corp. * Exchange Services, Inc. * Jacobson (Benjamin) & Sons Burgess & Leith Incorporated* Execution Services Incorporated Janney Montgomery Scott Inc. Burns Fry and Timmins Inc. Fagenson & Co., Inc. Jefferies & Company, Inc. Burns, Pauli & Co., Inc. Fahnestock & Co. Johnson, Lane, Space, Smith & Co., Inc. Cable Howse & Ragen Fechtor, Detwiler & Co., Inc. * Johnston, Lemon & Co., Inc. * Cantor (S.B.) & Co., Inc. * Ferris & Company, Incorporated* Jones (Edward D.) & Co. Cantor, Fitzgerald & Co. Financial America Securities, Inc. * Josephthal & Co. Incorporated Capital Shares, Inc. * Financial Oearing & Services Corporation Kalb, Voorhis & Co. Carolina Securities Corporation First Albany Corporation Kall & Co., Inc. Carr (Robert C.) & Co., Inc. * First Birmingham Securities Corporation* Kaufmann, Alsberg & Co. Carr & Thompson, Inc. * First Boston Corporation (The) Kellner, DiLeo & Co. Carr Securities Corporation First Florida Securities, Inc. Kidder, Peabody & Co. Incorporated Carroll McEntee & McGinley First Jersey Securities, Inc. Kimball & Cross* Securities Corporation First Manhattan Co. King (C.L.) & Associates Inc. Castock Corporation* First Options of Chicago, Inc. Koonce Securities, Inc. * Chicago Corporation (The) First Southwest Company Krieger (Henry) & Co. Christopher (B.C.) Securities Co. Frank (Walter N.) & Co. LaBranche & Co. Clayton, Polleys & Co. * Frankel (Wm. V.) & Co., Inc. * Lafer Amster & Co. Conklin, Cahill & Co. Freehling & Co. Laidlaw Adams & Peck Inc. Cosentino & DeFelice, Inc.* Freeman Securities Company, Inc. Lasker, Stone & Stern Coughlin and Company, Inc. * Fried (Albert) & Co. Lawrence (Cyrus J.) Incorporated Cowen & Co. Gage-Wiley & Company, Inc. * Lawrence, O'Donnell & Co. Craig-Hallum, Inc. Gant (J.W.J & Associates, Inc.* Lazard Freres & Co. Craigie Incorporated Gintel & Co. Legg Mason Wood Walker, Inc. Cummings & Company* Goldberg Securities Leonard (B.1.) and Company, Inc.* Dain Bosworth Incorporated Goldman, Sachs & Co. Lewco Securities Corp. Daiwa Securities America, Inc. Gradison & Company Incorporated Lewis (S.B.) & Company 58 The problem with progress is caricatured here in a pair of 19th Century engravings. Walking by Steam­ Riding by Steam-Flying by Steam was an 1830 cartoon by Shortshanks. Aiken!s 1828 Progress of Steam is just as self-explanatory, and far more relevant to the concerns of modern pedestrians.

Linsco Corporation* Murphy & Durieu Pittock (EJ.) & Co., Inc.* MKI Securities Corp. National Financial Services Corporation Prescott, Ball & Turben, Inc. Mabon, Nugent & Co. Neuberger & Berman Prudential-Bache Securities Inc. Madoff (Bernard L.) New Japan Securities International, Inc. Purcell, Graham & Co., Inc. Manley, Bennett, McDonald & Co. * Newhard, Cook & Co. Incorporated Q & R Clearing Corporation Marcus & Company Nick (J.F.) & Co. Quinn (EJ.) & Co., Inc.* Marcus Schloss & Co., Inc. Nikko Securities Co. International, Inc. (The) RFGOptions Marks (Carl) & Co., Inc. Nippon Kangyo Kakumaru International Inc. Raney (TJ.) & Sons Inc. Masten (A.E.) & Co., Incorporated Nomura Securities International, Inc. Rauscher Pierce Refsnes, Inc. Mayer & Schweitzer, Inc. Norbay Securities, Inc. * Raymond, James & Associates, Inc. McCourtney-Breckenridge & Company* Norton & Co. Reaves (W.H.) & Co., Inc. McDonald & Company Securities, Inc. Nuveen (John) & Co. Incorporated Regional Clearing Corp. McLeod Young Weir Incorporated OTC Net, Incorporated* Reich & Co., Inc. McMahan, Brafman, Morgan & Co. O'Connor & Associates Richardson Greenshields Securities, Inc. Meehan (MJ.) & Company O'Connor Securities Riviere Securities Corporation* Mericka & Co., Inc. * Offerman & Co., Inc. * Robb, Peck, McCooey Clearing Corporation Merrill Lynch, Pierce, Fenner & Smith Oftring & Co., Inc. * Robertson, Colman & Stephens Incorporated Olde & Co., Incorporated Rodman & Renshaw, Inc. Merrimack Valley Investment Inc. * Oppenheimer & Co., Inc. Roney & Co. Mesirow & Company Incorporated Outwater & Wells, Inc. * Rooney, Pace Inc. Midland Doherty Inc. Pacific Brokerage Services* Rothschild (L.F.), Unterberg, Towbin Montgomery Securities Paine, Webber, Jackson & Curtis Roulston Research Corp. Moore & Schley, Cameron & Co. Incorporated Rowland Clearing Services, Inc. Moors & Cabot, Inc. * Parker (S.C.) & Co., Inc. * Morgan, Keegan & Company, Inc. Pasternak Securities • NSCC Sponsored Account Morgan, Olmstead, Kennedy & Gardner, Payson (H.M.) & Co. * Incorporated Pforzheimer (Carl H.) & Co. Morgan Stanley & Co. Incorporated Phelan, Silver, Vesce Barry & Co. Muller & Company, Inc. Piper, Jaffray & Hopwood, Incorporated Murphey, Marseilles and Smith Pitfield, Mackay & Co., Inc. 59 Ryan Beck & Co. * Vail Securities Investment, Inc. National Association of Securities Rybeck (Wm. H.) & Co., Inc.* Van Kampen Merritt Inc. Dealers, Inc. Sage, Rutty & Co., Inc. Vincent (Burton J.), Chesley & Co. The Chase Manhattan Bank, N.A. Salomon Brothers Inc Viner (Edward A.) & Co., Inc. Citibank, N.A. Morgan Guaranty Trust Company Schapiro (M.A.) & Co., Inc. W & D Securities of New York Scherck, Stein & Franc, Inc. Wagner, Stott & Co. Manufacturers Hanover Trust Company Schwab (Charles) & Co., Inc.* Wall Street Clearing Company State Street Bank and Trust Company Scott & Stringfellow, Inc. Walsh, Greenwood & Co. The Bank of New York Seasongood & Mayer* Weber, Hall, Sale & Associates, Inc. United States Trust Company of New York Securities Clearing of Colorado* Wechsler & Krumholz, Inc. Irving Trust Company Securities Settlement Corporation Wedbush, Noble & Cooke, Inc. * Mellon Bank, N.A. Seemala Corporation Weiss, Peck & Greer Chemical Bank Brown Brothers Harriman & Co. Seligman Securities, Inc. Wellington & Co. Wells Fargo Bank, National Association Shaine (H.B.) & Co., Inc. Wheat, First Securities, Inc. Goldman, Sachs & Co. Shatkin Investment Corp. * Williams Securities Group, Inc. * Morgan Stanley & Co. Incorporated Shatkin-Lee Securities Co. Wilshire Associates* Marine Midland Bank, N.A. Shearson/American Express Inc. Witter (Dean) Reynolds Inc. Salomon Brothers Inc Sheppards and Chase (Overseas) Wittow & Company, Inc. * Norwest Bank Minneapolis, N.A. Sherr (Carl p.) & Company Wolf & Drizos Corporates, Inc. A.G. Edwards & Sons, Inc. Simon (I.M.) & Co., Inc. Wood (Arthur W.) Company* AmeriTrust Company Smith Barney, Harris Upham & Co., Wood Gundy Incorporated Shawmut Bank of Boston, N.A. Incorporated Wreszin, Prosser, Romano & Co. The Citizens and Southern National Bank Lewco Securities Corp. Smith (E.H.) Jacobs & Co. * Yamaichi International (America), Inc. Bear, Stearns & Co. & Smith, Moore Co. * Ziegler Thrift Trading, Inc. * Donaldson, Lufkin & Jenrette Securities Southwest Securities, Inc. Corporation Spear, Leeds & Kellogg Clearing Agencies (7) The Connecticut National Bank Spencer, Swain & Co., Inc. * Boston Stock Exchange Clearing Corporation First & Merchants National Bank Steichen (RJ.) & Company* Canadian Depository for Securities Limited The First National Bank of Chicago Stern & Kennedy (The) Security Pacific National Bank Swiss American Securities Inc. Sterne, Agee & Leach, Inc. Midwest Securities Trust Company Stifel, Nicolaus & Company Incorporated Bank of New England, N.A. National Securities Clearing Corporation Centerre Bank, N.A. Stillman, Maynard & Co. Options Clearing Corporation (The) The First Boston Corporation StockCross, Inc. * Pacific Securities Depository Trust Company The Connecticut Bank and Trust Company Stokes, Hoyt & Co. Philadelphia Depository Trust Company Alex. Brown & Sons, Inc. Streicher (J.) & Co. Edward A. Viner & Co., Inc. Stuart Brothers National Westminster Bank PLC Sutro & Co. Incorporated Burgess & Leith Incorporated Swiss American Securities Inc. National Westminster Bank USA Thomson McKinnon Securities Inc. Boston Safe Deposit and Trust Company Tonge (RM.) Company* DTC Stockholders (86)t NCNB National Bank of North Carolina Transatlantic Securities Company Wood Gundy Incorporated The full list of 1983 DTC stock­ The First Jersey National Bank Travers, Dear & Fernandez holders, in order of their holdings, Wilmington Trust Company Trusteed Funds, Inc. * is as follows: Fleet National Bank Tucker, Anthony & Day (RL.), Inc. New York Stock Exchange, Inc. Equitable Bank, National Association Tweedy Browne Clearing Corporation Merrill Lynch & Co., Inc. Arnhold and S. Bleichroeder, Inc. UBS Securities Inc. Bankers Trust Company Valley National Corporation Ultrafin International Corporation* American Stock Exchange, Inc. Maryland National Bank 60 OLD STYLE OF TOOTH-DRAWING. NEW STYLE, WITH THE AID OF ELECTRICITY. DENTIST. "One or two more pulls, Sir, and the tooth'. PATIENT. "Really, Doctor, the sensation is delightful bound to come." Couldn't I spare another tooth or two?" The impact of the new technology on dentistry drew friendly fire from Harper's Weekly in this 1858 cartoon.

d + W *

F. Eberstadt & Co., Inc. Van Kampen Merritt Inc. Brown Brothers Harriman & Co. Mayer & Schweitzer, Inc. Barrett & Company Canadian Imperial Bank of Commerce Gradison & Company Incorporated Stock Clearing Corporation Centerre Bank, N.A. Carl Marks & Co., Inc. The Cincinnati Stock Exchange Central National Bank of Cleveland Bradford Trust Company First City National Bank of Houston Chase Manhattan Bank, N.A. (The) Execution Services Incorporated Craigie Incorporated Chemical Bank Rhode Island Hosfital Trust National Bank Citibank, N.A. Michigan Nationa Bank-Grand Rapids Citizens and Southern National Bank (The) Oscar Gruss & Son Incorporated Citizens Fidelity Bank and Trust Company Pitfield, Mackay & Co., Inc. Commerce Bank of Kansas City, N.A. LaBranche & Co. Pledgees (98)t§ Commercia Bank-Detroit Boettcher & Company Connecticut Bank and Trust Company (The) Prescott, Ball & Turben, Inc. AmeriTrust Company Connecticut National Bank (The) The Fidelity Bank Arizona Bank (The) Continental Illinois National Bank and Johnson, Lane, Space, Smith & Co., Inc. Bank Hapoalim, B.M. Trust Company of Chicago (The) Stillman, Maynard & Co. Bank Leumi Trust Company of New York Credit Lyonnais, New York Branch Carl H. Pforzheimer & Co. Bank of America National Trust and Crocker National Bank W.H. Reaves & Co., Inc. Savings Association Daiwa Bank, Limited (The), First National State Bank Bank of New England, N.A. New York Agency Fagenson & Co., Inc. Bank of New York (The) Equitable Bank, National Association Bank of Montreal Bank of Nova Scotia (The) The First National Bank of Atlanta Bank of Tokyo Trust Company (The) • NSCC Sponsored Account J.F. Nick & Co. Bankers Trust Company t As of December 31, 1983 Lafer Amster & Co. Banque Paribas § Excludes some firms with limited activity Brounoff, Claire & Co., Inc. Barclays Bank International Limited, Scott & Stringfellow, Inc. New York Branch Texas American Bank/Fort Worth National Boatmen's National Bank of St. Louis (The) Association Bradford Trust Company 61 European American Bank & Trust Company Morgan Guaranty Trust Company Fidelity Bank (The) of New York Fiduciary Trust Company of New York NCNB National Bank of North Carolina Fifth Third Bank (The) National Bank of Detroit First American Bank of Nashville National Westminster Bank PLC First & Merchants National Bank National Westminster Bank USA First Interstate Bank of Arizona, N.A. New England Merchants National Bank First Interstate Bank of California Northern Trust Company (The) First Jersey National Bank (The) Norwest Bank Minneapolis, N.A. First National Bank & Trust Company Pittsburgh National Bank Depository Facilities (35)t of Tulsa (The) Provident National Bank Atlanta, Georgia First National Bank in Palm Beach Republic National Bank of New York First National Bank of Atlanta (The) First National Bank of Atlanta (The) RepublicBank Dallas, N.A. Baltimore, Maryland First National Bank of Chicago (The) RepublicBank Houston, National Association First National Bank of Maryland (The) First National Bank of Louisville Royal Bank and Trust Comp.any (The) Birmingham, Alabama First National Bank of Maryland (The) Royal Bank of Canada (The), AmSouth Bank, N.A. First National Bank of Minneapolis New York Agency Central Bank of the South First Pennsylvania Bank, N.A. Sanwa Bank Limited (The) Boston, Massachusetts First Union National Bank Seattle-First National Bank Boston Stock Exchange Clearing Corp. Fuji Bank and Trust Company (The) Security Pacific Clearing & Services Corp. Shawmut Bank of Boston, N.A. Harris Trust and Savings Bank Security Pacific National Bank State Street Bank and Trust Company Indiana National Bank (The) Shawmut Bank of Boston, N.A. Charlotte, North Carolina InterFirst Bank Dallas, N.A. Society National Bank First Union National Bank Investors Bank and Trust Company Standard Chartered Bank Limited Cincinnati, Ohio Irving Trust Company State Street Bank and Trust Company Fifth Third Bank (The) Lincoln First Bank, N.A. Swiss Bank Corporation-New York Branch Cleveland, Ohio Manufacturers and Traders Trust Company Swiss Credit Bank AmeriTrust Company Manufacturers Hanover Trust Company Texas Commerce Bank, National Association Columbus, Ohio Manufacturers National Bank of Detroit Toronto-Dominion Bank (The) Bank One Trust Company, N.A. Marine Midland Bank, N.A. Trans Canada Options, Inc. Dallas, Texas Maryland National Bank United Bank of Denver, National Association InterFirst Bank Dallas, N.A. Mellon Bank, N.A. United States Trust Company of New York RepublicBank Dallas, N.A. Mercantile Trust Company United Virginia Bank Denver, Colorado National Association Wachovia Bank & Trust Company, N.A. United Bank of Denver, Mercantile-Safe Deposit and Trust Company Wells Fargo Bank, National Association National Association 62 On July 11, 1857, these cartoons appeared in Harper's Weekly, prophesying female lamplighters and lady police as a reductio ad absurdum with the caption "What May We Expect Next?" The prophecy has since proved accurate; the question remains.

Hartford, Connecticut Philadelphia, Pennsylvania Connecticut Bank and Trust Fidelity Bank (The) Company (The) Pittsburgh, Pennsylvania Connecticut National Bank (The) Mellon Bank, N.A. Houston, Texas Providence, Rhode Island RepuhlicBank Houston, Fleet National Bank National Association Rochester, New York Indianapolis, Indiana Lincoln First Bank, N.A. Merchants National Bank & Trust St. Louis, Missouri Company of Indianapolis Centerre Bank, N.A. Los Angeles, California Mercantile Trust Company National Security Pacific National Bank Association Wells Fargo Bank, National Association San Francisco, California Louisville, Kentucky Security Pacific National Bank Citizens Fidelity Bank and Trust Company Wells Fargo Bank, National Association First Kentucky Trust Company (The) Winston-Salem, North Carolina Milwaukee, Wisconsin Wachovia Bank & Trust Company, N.A. First Wisconsin Trust Company Minneapolis, Minnesota t As of December 31, 1983 First National Bank of Minneapolis IDS Trust Company Norwest Bank Minneapolis, N.A. 63 The graphic theme and appearance of this Annual Report were conceived by David S. Jobrack, Executive Assistant to the Chairman and Editor of the DTC Newsletter, who also acted as Creative Director throughout thelroduction process and wrote, edited and/or compile the text, illustrations and captions.

DTC is indebted to the following individuals and or­ ganizations for much of the material that appears in this Annual Report.

Art Director: Mario Messina. Associate Art Director: Phoebe Mont. Line drawings: Mikhail Ivenitsky, Andrey Babanovsky, Felix Vo\tsinger. Engraving of the dies for the covers: Eugene Prohaske, Styleart Engraving Co., New York City. Stamping and emboss­ ing of covers: Larry Fischer, Fischer-Partelow, Inc., New York City. DTC photographs: Robert Essel, Bob Winokur, mya Margulies, all of New York City.

Administrative Coordination: Daniel Farrell, Barbara Lieberwitz, Linda Guthrie. Typography: Dwight Dixon, Nelida Maldonado, Brenda Whitener. Mechani­ cal Art: Mino Hiromura, Amanda Humphrey, Maxim Ivenitsky, Eleanor Kyle, Charles Shands. Final Proof­ ing and Administrative Assistance: Kay Allen, John Anderson, Peggy Cowan, Michael DeMeo, John Manning, Michele Salcedo. Printed by Raleigh Litho­ graph Corporation, New York City. Bound by Printers Bindery, New York City. Special thanks to: Murry Abrams, Joseph DelGuidice, Regina M. Rubenstein; The Solid Enjoyment of Bottle and Friend is an English engraving of 1774. Alcohol and Joan Friedman, Curator, Yale Center for British Art; Clare Lamers, Long Island Historical Society; Ph yIlis tobacco have stilled the conversation, but what the Industrial Revolution could have done Lucas, Old Print Center; Reginald Williams, Depart­ to cause or prevent it seems somehow unimportant. ment of Prints and Drawings, The British Museum; and the many people at DTC who contributed their Back Cover: All is not well in this seemingly pastoral picture of The Prodigal Son by time and effort to ensuring the accuracy of this report. Hieronymus Bosch, early 16th Century. The traveler IS a vagrant, his clothes in tatters, and the people and farmhouse in the background are in little better shape. The scene was an Sources of illustrations: Yale Center for British Art (front cover, pp. 11, 15,37); Francis D. Klingender, appallingly common one, in life as well as art, in the centuries before industrialization. Art and the Industrial Revolution, London: Royle Publications Ltd., 1947 (pp. 1,7,19,23,59); Fernand Braudel, Civilization & Capitalism, 15th-18th Century, New York: Harper & Row, 1979 (pp. 5, 9, 21, 25,27,29,33,64, back cover); Old Print Center of Phyllis Lucas, 981 Second Avenue, New York, N.Y. (pp. 13, 17,23,27,29,33,35); Frank Leslie's Illus­ trated Newspaper, September 7, 1889 (p. 47); Harper's Weekly, May 8,1869 (p. 55), January 29, 1881 (p.57), November 27,1858 (p. 61), July 11, 1857 (p.63).

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