National Securities Clearing Corporation
Corporate Office 55 Water Street New York, New York 10041 (212) 510-0400 Boston One Boston Place Boston, Massachusetts 02108 Chicago 135 South LaSalle Street Chicago, Illinois 60603 Cleveland 900 Euclid Avenue Cleveland, Ohio 44101 Dallas Plaza of the Americas TCBTower Dallas, Texas 75201 Denver Dominion Plaza Table of Contents 600 17th Street Denver, Colorado 80202 To NSCC Participants 2 Detroit NSCC Board of Directors 4 3153 Penobscot Building Detroit, Michigan 48226 NSCC Officers 8 Jersey City Introduction 9 One Exchange Place Jersey City, New Jersey 07302 The Year in Review 10 Los Angeles Municipal Bond Program 12 615 South Flower Street Los Angeles, California 9001.7 Fund/SERV 14 Milwaukee Automated Customer Account Transfer Service 16 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 International Securities Clearing Corporation 18 Minneapolis Audited Financial Statements 20 IDS Center 80 South 8th Street Participating Organizations 26 Minneapolis, Minnesota 55402 New York 55 Water Street New York, New York 10041 St. Louis One Mercantile Tower Cover: 1985 was a year during which NSCC anticipated and St. Louis, Missouri 63101 responded to the expanding needs of the financial services San Francisco industry ... 50 California Street • As marketplace self-regulatory organizations, represented San Francisco, California 94111 here by a New York Stock Exchange Guide/Constitution Toronto and Rules, proposed new rules on broker-dealers' transfer Two First Canadian Place of client accounts, NSCC implemented the Automated Toronto, Ontario, Canada M5X lA9 Customer Account Transfer Service. • While continuing to serve its traditional equity, corporate bond and municipal bond marketplaces, represented by volume charts on the computer screen, NSCC expanded its comparison services to include municipal bond syndi cates, when-issued and extended-settlement trades. NSCC's continued emphasis on automation is demon strated by the data communications hardware. • During 1985, NSCC continued to support trading links . between U.S. and Canadian markets, symbolized by Canadian newspapers here. • A link with The Stock Exchange in London will be made through International Securities Clearing Corporation, a new subsidiary formed in November, and represented here by the Financial Times. The mutual fund shares on the back cover illustrate the development of Fund/SERV, a new service for central processing of mutual funds. ","\.\ \" , \ ," : r \ . .' . . I .)f' I' I , '.
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TO NSCC PARTICIPANTS
Nineteen eighty-five was a dealers and banks through bilateral provides for the orderly transfer of record-breaking year for the financial linkages with central clearing and de clients' assets from one firm to another services industry and National Secu pository organizations in other coun by standardizing, centralizing and rities Clearing Corporation. During tries. The first of these links, which will automating the process through NSCC. 1985, NSCC saw the successful results begin its pilot program in the second NSCC's Municipal Bond Program of its ongoing program of service en half of 1986, will be with The Stock was expanded to encompass compari hancements and capacity expansion Exchange in London. son and clearance processing of and entered into a new period of pro Before launching its international syndicate takedown, non-syndicate active development, including the for subsidiary, NSCC gained experience in when-issued and extended-settlement mation of a new international subsidiary. establishing international clearing links transactions. This allows centralized As marketplaces throughout North with The Canadian Depository for processing of these trades, which range America reached record volume and Securities Limited. During 1985, with between 30% and 60% of municipal price levels, particularly in the first and volume up some 50% on the Toronto dealers' overall volume, along with all fourth quarters of the year, they found Stock Exchange and Montreal Ex secondary-market transactions. capable clearing support at NSCC. change, this relationship expanded. As NSCC's emphasis on broadening NSCC, through Securities Industry participants gained greater access to its services to the industry, which is Automation Corporation, its facilities Canadian marketplaces through new the focus of this Annual Report, was manager, processed the greatest volume trading links between the American reflected in a restructuring of the of stock, corporate bond and municipal and Toronto Stock Exchanges and the committees within NSCC's Board of bond transactions ever. This was made Boston and Montreal Exchanges, Directors. In addition to the Executive, possible by a capacity-upgrade program NSCC facilitated settlement of their Membership and Finance/Audit Com of system and hardware enhancements trades in Canadian shares. mittees, there are now also Interna that began in 1981 and was sustained Fund/SERV, a new service for tional, Municipal Bond and Mutual even through lower volume cycles. central processing of mutual fund Fund Committees. This new focus of Many of these capacity enhancements transactions, was developed during the committees enables the Board to were completed during 1984, well in 1985 with the help and support of a play an even more direct role in the advance of the high volume which Joint Operations Task Force represent planning and development of new began in January 1985. ing the Investment Company Institute services and enhancements, while 1985 was also a year of looking and the National Association of Securi continuing to guide NSCC's overall forward. NSCC continued its tradition ties Dealers. Until now, there have been progress toward short-term and of anticipating and responding to the few industry standards for the process long-range goals. changing needs of the industry as ing of mutual fund purchases and re evidenced by the following new demptions transacted by broker developments: dealers. NSCC's decision to provide International Securities Clearing centralized, automated processing for ~yr»t~ Corporation, a subsidiary of NSCC, the mutual fund industry was rein President and CEO was established in November 1985. forced as mutual fund sales reached The new corporation will support the $110.5 billion during 1985, more than recent and continuing expansion of doubling 1984's record level. international trading by U.S. brokers, The Automated Customer Account Transfer Service was developed and =,;.rChairman of the Board began its pilot program. The service, which supports rule changes imple mented in early 1986 by the New York Stock Exchange, the National Associa tion of Securities Dealers and the Mu nicipal Securities Rulemaking Board,
3 NSCC BOARD OF DIRECTORS
Gerard P. Lynch, Chairman of the Board Managing Director Morgan Stanley & Co. Incorporated Samuel A. Alward o Executive Vice President --- New York Stock Exchange, Inc. Walter H. Cushman Senior Vice President The Bank of New York C. Richard Justice Executive Vice President National Association of Securities Dealers, Inc. Raymond J. Kalinowski Vice Chairman and Director A.G. Edwards & Sons, Inc. David M. Kelly President and CEO National Securities Clearing Corporation J. Kevin Kenny President and CEO J.J. Kenny Co., Inc. Donald D. Kittell Executive Vice President and CFO Dean Witter Reynolds Inc. Herbert I. Levitt General Partner Spear, Leeds & Kellogg Bernard L. Madoff Sole Proprietor Bernard L. Madoff Bruce T. Muddell President and CEO Chemical Bank (Delaware) Gilbert L. Pamplin President and CEO j.J.B. Hilliard, W.L. Lyons, Inc. Ronald W. Readmond Managing Director Alex. Brown & Sons, Inc. William A. Rogers Partner and COO Wayne Hummer & Co. Melvin B. Taub Senior Vice President Merrill Lynch, Pierce, Fenner & Smith Inc. William J. Tierney, Jr. Managing Director Salomon Brothers Inc Stephen L. Williams" Senior Vice President American Stock Exchange, Inc.
"Resigned as Director in January 1986
4
BOARD OF DIRECTORS
The executives who comprise The Executive, Membership and Membership Committee: Bernard NSCC's Board of Directors represent Finance/Audit Committees will con L. Madoff, Chairman; J. Kevin Kenny, the broad scope of the financial services tinue to fulfill their traditional Donald D. Kittell, Herbert I. Levitt, industry. This range of expertise is in functions at NSCC. The Executive Bruce T. Muddell, William A. Rogers keeping with NSCC's traditional recep Committee is responsible for adherence and William J. Tierney, Jr. tiveness to open communication with to Board policy and progress toward Finance/ Audit Committee: and guidance from the industry. achieving corporate goals. The Mem Donald D. Kittell, Chairman; Walter H. All of the 13 elected Participant bership Committee oversees NSCC's Cushman, Raymond J. Kalinowski, Directors, including Chairman of the programs which monitor participants' Herbert I. Levitt, Bruce T. Muddell and Board Gerard P. Lynch, are executives financial and operational accountabil Gilbert L. Pamplin. of participating brokers, dealers and ity and compliance with NSCC's rules. International Committee: banks. The other members of the Board The Finance/Audit Committee, respon William J. Tierney, Jr., Chairman; are NSCC's President and CEO David sible for NSCC's financial integrity, Walter H. Cushman, Gerard P. Lynch, M. Kelly, and three Shareholder Direc oversees NSCC's internal accounting Bernard L. Madoff, Ronald W. tors designated by the New York Stock and auditing procedures, appoints the Readmond and Melvin B. Taub. independent accountants, and moni Exchange, National Association of Municipal Bond Committee: tors operating and capital budgets. Securities Dealers and American Stock J. Kevin Kenny, Chairman; Raymond Exchange: Samuel A. Alward, C. Rich The new International, Municipal J. Kalinowski, Gilbert L. Pamplin, ard Justice and Stephen L. Williams, Bond and Mutual Fund Committees Ronald W. Readmond and Melvin respectively. When Dr. Williams left his work to guarantee the operational B. Taub. post in early 1986, the Amex ap and marketing success of new and Mutual Fund Committee: pointed Victor A. Ricciardelli, Senior developing NSCC products. These Raymond J. Kalinowski, Chairman; Vice President, to succeed him on committees review each service's Walter H. Cushman, Ronald W. NSCC's Board. operational plans to ensure that they Readmond, William A. Rogers and address the needs of the industry As representatives of participating Melvin B. Taub. organizations, NSCC's Directors and are coordinated with market regu In late 1985, NSCC's annual bring a breadth of knowledge, per latory organizations. They also electoral process was set in motion as spective and experience to the Board's monitor the overall development, cus NSCC's Nominating Committee, a deliberations and decisions. Beyond the tomer service and marketing programs group selected from the executive ranks variety of businesses represented, for each product. of participant organizations, invited Board members' professional expertise participants to propose names of six spans such areas as executive, finan The Board Committees are as follows: prospective directors and three new cial and operations management. Executive Committee: Gerard P. members of the Nominating While the Board will continue to Lynch, Chairman; Walter H. Cushman, Committee. focus its attention on both short-term David M. Kelly, Donald D. Kittell, After the Nominating Committee and long-range planning, the structure Bernard L. Madoff, Gilbert L. Pamplin reviewed suggestions from partici of several standing committees was and William J. Tierney, Jr. pants, six candidates were selected for changed in 1985 to enable Board the office of Participant Director. members to guide NSCC in specific Gerard P. Lynch and Ronald W. areas related to their own business Readmond, whose terms of office experience and areas of specialization. expire in May 1986, were nominated During 1985, the Board Com for additional terms. Other nominees mittees were reorganized into the are Jeremiah M. Callaghan, Charles A. following six categories: Executive, Moran, Richard J. Stream and Wilbert Membership, Finance/Audit, Interna A. Thiel. tional, Municipal Bond and Mutual Fund.
6 NOMINEES
These nominees will become Jeremiah M. Callaghan Participant Directors of NSCC at the Managing Director Bear, Stearns & Co., Inc. Board's Annual Meeting in May 1986. Directors who will retire from NSCC's Board at the Annual Meeting are Walter H. Cushman, Donald D. Kittell, Gilbert L. Pamplin and William A. Rogers. The members of the 1985-1986 Nominating Committee are as follows: Norman M. Epstein Executive Vice President/Managing Director E.F. Hutton & Company Inc. WilliamJ. Fields Executive Vice President Charles A. Moran Wheat, First Securities, Inc. Senior Vice President Manufacturers Hanover Trust Company James A. Jacobson Partner Benjamin Jacobson & Sons Jeffrey B. Lane Vice Chairman and COO Shearson Lehman Brothers, Inc. Daniel P. Tully President and COO Merrill Lynch & Co., Inc. George A. Vonder Linden President and CEO Smith Barney, Harris Upham & Co. Incorporated JohnA. Wing President and CEO Richard J. Stream The Chicago Corporation Managing Director Piper, Jaffray & Hopwood Incorporated The Nominating Committee also pro posed three to begin serving on the Nominating Committee in 1986: J. Ronald Morgan Chairman, CEO and Director Thomson McKinnon Securities Inc. Thomas C. Schneider Executive Vice President Dean Witter Reynolds Inc. Edward W. Wedbush President and CEO Wedbush, Noble, Cooke, Inc.
They will serve on the 1986-1987 Wilbert A. Thiel Committee with returning Committee Executive Vice President members Epstein, Jacobson, Lane and The Chicago Corporation Wing.
7
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NSCC OFFICERS
Gerard P. Lynch Chairman of the Board, NSCC and ISCC David M. Kelly President and CEO, NSCC Vice Chairman and CEO, ISCC John F. Elberfeld During 1985, as NSCC contin Senior Vice President ued to provide efficient processing of Finance stocks, corporate and municipal bonds John L. Kinnaman and unit investment trust funds, it be Senior Vice President, NSCC President and COO, ISCC gan to develop and expand its services with an eye to the future. Richard W. Myers <- Senior Vice President The benefits of a continuing pro Operations, ISCC gram of systems enhancements to Robert A. Schultz increase volume capabilities were evi Senior Vice President Planning and Operations dent during the record-breaking year. RobertJ. Woldow The success of this program, which Senior Vice President and guarantees the continued efficiency of General Counsel, NSCC Secretary and General Counsel, ISCC NSCC's services to its traditional equity and debt markets, allowed Joel Hammer First Vice President NSCC to focus on emerging financial Planning and Development industry needs through the develop Steve M. Labriola ment of major new and expanded First Vice President Marketing service programs. These include the expansion of its municipal bond Mary Ann Callahan Vice President program, the development of Fund! Corporate Communications SERV for the mutual fund industry, the Thomas F. Costa development and implementation of Vice President Regulation the Automated Customer Account Transfer Service and the establishment Catherine A. Craig Vice President of an international subsidiary. Human Resources and Administration Michael J. Kelleher Vice President Operations Planning Harvey Layton Vice President Compliance Thomas K. McCarthy Vice President Planning and Development David F. Hoyt Assistant Secretary and Director of Membership
* Effective February 3, 1986
9 THE YEAR IN REVIEW
Average Daily Volume of Trades Processed (in thousands)
L NYSE and Amex Municipal Bonds and Others
Nineteen eighty-five was an frame computer at Securities Industry outstanding year for both the financial Automation Corporation. The com services industry and NSCC. puter, an IBM 3084Q which began Volume on major United States operating in early 1986, has twice as markets achieved record levels, with much memory as the three computers ../ that it will replace, and increases pro 85 approximately 50.2 billion shares 84 changing hands, up from 39.6 billion cessing speed by 50%. 83 shares in 1984. As processing for its traditional 81 80 At NSCC, which processes an services continued to become more overwhelming majority of the stock, efficient, NSCC began developing new corporate bond and municipal bond capabilities for the financial services industry. During 1985, NSCC ex transactions in the United States, the Average Daily Value average daily volume of transactions panded its National System for Munic of Transactions Settled was the highest ever. An average of ipal Bond Processing, implemented (in billions of dollars) the Automated Customer Account Continuous Net '-- Balance Order almost 290,000 transactions were Settlement System processed each day, valued at $7.6 Transfer Service, developed Fund/SERV (CNS) and Others billion. Through the efficiencies gained for mutual fund processing, and estab from Continuous Net Settlement, an lished International Securities Clearing average of fewer than 63,000 deliveries Corporation. Each of these develop were made each day. In December ments is further detailed in the pages 1985, the month during which the which follow. Dow Jones Industrial Average sur While supporting its traditional passed 1500 for the first time, NSCC's services in the United States, NSCC average daily volume reached almost also expanded its relationship with The 370,000 transactions a day, with an av Canadian Depository for Securities erage of slightly over 74,000 deliveries Limited, which had been initiated in and a value of over $ 11. 1 billion daily. 1984. More than 25 Canadian firms Even with high volume, 1985 was can now settle securities transactions a year in which processing became executed with U.S. brokers and dealers more efficient for NSCC's participants. through this relationship. During By December, one-third of all NYSE, 1985, NSCC participants and CDS Clearing Fund Balances firms began using marketplace trading (including excess deposits) Amex and NASD transactions reported as of 12/31 to NSCC were executed as locked-in links between the American and Tor (in millions of dollars) systems trades which are reported di onto Stock Exchanges and the Mon I"1l Cash Letters of treal and Boston Stock Exchanges. u.s. Government Credit rectly to NSCC by the marketplace and Approved involved. These trades are reported to These links, which facilitate trading Municipal Securities participants on contracts one day ear between Canadian and U.S. firms, are lier than other trades. also supported within NSCC's clear In anticipation of future high ance relationship with CDS. volume periods, a major upgrade in NSCC's computing power was made through the acquisition of a new main- 85
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I (/ . , MUNICIPAL BOND PROGRAM
All inter-dealer municipal bond trades can each have special procedures for initial During 1985, NSCCexpanded now be cl eared through NSCC\ l\atJOnal input, output repons, corrections and its Municipal Bond Program so that System for Municipal Bond Pr
13 In FundlSERV, which N SCC has developed a new settlement cycle for service, called Fund/SERV, so that industry, brc,kelr-dc~Ic:n orders for pur'chal5e$ mutual fund underwriters and broker NSCC for tnrw21rdirl2 dealers can enter, confirm, settle and register purchase and redemption data in an efficient, automated environment. The highly automated service, which is based on a standard five-day settlement cycle, has central processing facilities at NSCC's New York headquarters and is supported by a network of branch offices and telecommunications links throughout North America. Fund/SERV ... increases volume capabilities for brokers, dealers and fund under writers centralizes mutual fund order entry, registration and settlement nets final money daily to a single figure for every participating broker-dealer and mutual fund underwriter standardizes procedures and time frames reduces operating costs. In the past several years, the mutual fund industry has seen unprece dented volume increases. In 1985, with the average price increase of a mutual fund share up 20%, sales were over $110 billion, more than double 1984'S record highs. Consequently, automa tion and centralization have become a priority for the mutual fund industry. NSCC developed Fund/SERV in con junction with a Joint Operations Task Force representing the Investment Company Institute and the National Association of Securities Dealers, Inc., which was formed to focus attention on the industry's expanding volume.
TRANSFER SERVICE
On a national basis, whenever ;1 detailed iOl'cntory of the account sched The Automated Customer decides to transfer an acco~~fkt uled for tran;fer. NSCC ultimately Account Transfer (ACAT) Service, which will receive it submits a provides for settlement through net Initiation to NSCC, which n ' book-entry and physical transfers to the which began its pilot program in 1985, delivering firm . Over the ne receiving firm, in exchange fo r payment to provides a standardized, centralized the delivering firm. NSCC centrally coordinates and automated means of initiating tion process between the r delivering firm, in order f account transfers, determining and efficiently confirm and, if n.e verifying account information and delivering the account assets from one broker to another, as designated by the customer. The ACA T Service .. . allows for the timely transfer of clients' accounts supports new rules established by the New York Stock Exchange, the National Association of Securities Dealers and the Municipal Securi ties Rulemaking Board can be used for most transferable assets. ACAT responds to an industry need to efficiently transfer customer accounts. Already, approximately 1,500 accounts are transferred daily through the ACAT Service, with each account representing an average of five asset positions. Before the ACAT Ser vice's pilot program began in mid-I985, the problem of account transfer delays was cited as the most common con sumer complaint to the Securities and Exchange Commission. The ACA T Service, which was operational early in I986, had already proved successful during its pilot phase, with over 100 firms participating and 2.2.,000 account transfers completed. In order to assist participants in complying with antici pated regulatory changes which went into effect in early I986, NSCC coordi nated all phases of ACA T's systems development with the NASD, NYSE and the Rule 412 Committee.
I7 IN~ERNATIONAL SECURITIES CLEARING CORPORATION
ISCC Board of Directors Gerard P. Lynch, Chairman of the Board International Securities Clearing Managing Director Corporation was es tablished as a sub Morgan Stanley & Co. Incorporated sidiary of NSCC in November 1985. joseph Anastasio Vice President ISCC will ... Salomon Brothers Inc· · support interna tional trading by Michael Black. U.S. brokers, de alers and banks Senior Vice President American Stock Exchange, Inc. · form linkages a nd bilateral Nicola L. Caporale . arrangements w ith central clearing General Partner and depository organizations in Goldman, Sachs & Co. other countries joseph L Gitterman, III Managing Partner · participate in th e evolutionary LaBranche & Co. development of standards for uni C. Richard justice form internatio nal trade compari Executive Vice President son, clearance and settlement National Association of Securities Dealers, Inc. procedures Christopher ~eith · facilitate safe cu stody of interna Senior Vice President tionally traded securities o New York Stock Exchange, Inc. facilitate increa sed overseas trad- David M. Kelly · President and CEO ing volume whil e reducing costs. National Securities Clearing Corporation The formation of ISCC demon john L. Kinnaman strates NSCC's com mitment to the President and COO I~t~rnational Securities Clearing growing internation al business of its Corporation members and the m arketplaces it Bernard L Madoff serves. ISCC's plans for 1986 include Sole Proprietor the development of a clearance link Bernard L. Madoff with The Stock Exc hange in London. Ralph M. Mastrangelo Senior Vice President The two-way access to trade compari Morgan Guaranty Trust Company of son, clearance and s ettlement services New York with dual-currency accounting alterna C. Robert P. Meyjes tives, will enable me mbers of NSCC! Senior Vice. President Citibank, N.A. ISCC and The Stoc k Exchange in Michael T. Reddy London to efficientl y settle trades in Senior Vice President U.S. and U.K. equity securities while Merrill Lynch, Pierce, Fenner & Smith Inc. continuing to obser ve the trade clear Fenton R. Talbott ance practices of ea ch national system. Managing Director The FirstBoston Corporation ISCC also plans to p ursue other clear ance links with clea ring and depository organizations in key capital market centers around the world.
18
National Securities Clearing Corporation 1985 Audited Financial Statements BALANCE SHEET
December 3 I, Assets Current Assets: Cash $ 1,068,000 Temporary investments at cost (approximates market) Accounts receivable, less allowance for doubtful accounts of $493,000 and $700,000 at December 31,1985 and 1984 4,289,000 4,139,000 Settlement accounts receivable 9,052,000 18,702,000 Other current assets 354,000 133,000 Total current assets 103,900,000 87,203,000 Clearing Fund 222.3 10,000 160,008,000 Fixed assets, less accumulated depreciation of $778,000 and $411,000 at December 3 I, 1985 and 1984 1,453,000 1,577,000 Deposits and other noncurrent assets 3.396 ,000 2,791,000 Total assets Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 3,956,000 $ 3,866,000 Regulatory fees payable 1,074,000 70 5,000 Settlement accounts payable 5 1,962,000 44,006,000 Accrued taxes and other expenses 2,40 5,000 1,3 13,000 Total current liabilities 59,397,000 49,890,000 Clearing Fund: Participants' cash deposits 43,952,000 37,781 ,000 Balance of requirement 222,310,000 160,008,000 266,262,000 197,789,000 Commitments and contingent liabilities (See Notes) Shareholders' Equity: Common stock authorized, issued and outstanding, 30,000 shares of $.50 par value 15,000 15,000 Capital in excess of par 885,000 885,000 Retained earnings 4,500,000 3,000,000 5,400,000 3,900,000 Total liabilities and shareholders' equity The accompanying Notes to Financial Statements are an integral part of this statement.
20 National Securities Clearing Corporation STATEMENT OF INCOME AND RETAINED EARNINGS
For the year ended December 3 I,
Revenue from clearing services $5°,293,000 $43,986,000 Interest income 2,209,000 1,476 ,000 Total revenues Expenses: Securities Industry Automation Corporation processing expenses 29,291 ,000 28,103,000 Other processing expenses 2,940 ,000 2,386,000 The Depository Trust Company fees 9,679,000 7,643,000 Employee compensation and related benefits 4,376 ,000 3,622,000 General and administrative 2,488,000 2,71 5,000 Professional fees 478,000 273,000
Total expenses 49,25 2 ,000 44,742 ,000
Income before income taxes 3,250 ,000 7 20,000 Provision for income taxes 1,750 ,000 220,000
Net income 1,500,000 5 00,000 Retained earnings, beginning of the year 3,000,000 2,500,000
Retained earnings, end of the year $ 4,500,000 $ 3,000,000 The accompanying Notes to Financial Statements are an integral part of this statement.
2I National Securities Clearing Corporation STATEMENT OF CHANGES IN FINANCIAL POSITION
For the year ended December 3 I, 1985 1984 Financial resources were provided by (used for): Net income $ 1,500,000 $ 500,000 Depreciation and amortization charges not affecting working capital 368,000 23 0,000 Working capital provided from operations 1,868,000 73 0,000 Clearing Fund cash deposits 6,171,000 (4,237,000) Purchase of fixed assets (245,000) (1,373,000) Disposal of fixed assets 1,000 117,000 Deposits and other (605,000) (2,064,000 ) Increase (decrease) in working capital $ 7,190,000 $ (6,827,000)
Analysis of Changes in Working Capital Increase (decrease) in current assets: Cash $ 1,444,000 $ (4,70 3,000) Temporary investments 24,532,000 13,946,000 Accounts receivable 150,000 9 26,000 Settlement accounts receivable (9,650,000) 8,23 1,000 Other current assets 221,000 (124,000) 16,697,000 18,276,000 (Increase) decrease in current liabilities: Accounts payable (90,000) (147,000) Regulatory fees payable (3 69,000) (70 5,000) Settlement accounts payable (7,956,000) (24,243,000) Accrued taxes and other expenses (1,092,000 ) (8,000) (9,507,000) (25,103,000) Increase (decrease) in working capital $ 7,190,000 $ (6,827,000) The accompanying Notes to Financial Statements are an integral part of this statement.
22 National Securities Clearing Corporation NOTES TO FINANCIAL STATEMENTS
Note I/Summary of Significant Accounting Policies: The accounting and reporting practices of National Securities Clearing Corporation (the Company) conform to generally accepted accounting principles. The significant policies are summarized as follows: (a) Retained earnings: The Company has retained earnings of $4,500,000, of which $1,000,000 was earmarked for the capital ization of International Securities Clearing Corporation, a wholly owned subsidiary (see Note 9), and does not plan to declare dividends. The Company determines in advance the amount of earnings, if any, it wishes to retain in a given year and has accordingly provided rebates on its billings to participants. (b) Temporary investments: Temporary investments consist of u.S. Treasury securities maturing in less than one year, and are carried at cost, adjusted for amortization of premiums and accretion of discounts. At December 3 I, 1985, $41,759,000 ($22,952,000 at December 3 I, 1984) of such investments were held in an account for the exclusive benefit of participants. The amount to be held in such account, where the Company's rules require, is determined daily in accordance with procedures established by the Company to facilitate participants' compliance with the customer segregation rules of the Securities and Exchange Commis sion. Additionally, cash of $1,144,000 and $907,000 at December 3 1,1985 and 1984, respectively, is segregated in accordance with such customer segregation rules. (c) Settlement accounts: Settlement accounts receivable and payable arise from temporary time lags in the cash settlement process between the Company and participants or other registered clearing agencies. The nature of the Com pany's business involves significant money transfers on a daily basis, certain of which are executed via Federal Funds and given effect in the financial statements on the basis of one-day earlier Clearing House Funds. In particular, Federal Funds transfers due from or to certain registered clearing organizations of $ I 59,890,000 and $4,727,000 respectively were recorded as of December 3 I, 1984, in accordance with such Company practice; this situation did not exist at December 3 I, 1985. (d) Revenue from clearing services: Revenue from clearing services is net of rebates to participants which reduce gross revenues to the approximate amount of costs in accordance with the Company's retained earnings policy for the year. Since gross revenues exceeded costs, participant invoices were discounted $4,661,000 and $2,639,000 in 1985 and 1984, respectively. (e) Provision for income taxes: The difference between the Company's 53.8% effective tax rate for the year ended December 3 I, 1985 (30.6% for the year ended December 31,1984) and the 46.0% federal statutory tax rate is primarily attributable to state and local taxes, offset by research and investment tax credits. Note 2/0rganization and Operations: All of the Company's shares are owned equally by the New York Stock Exchange, Inc. (NYSE), American Stock Exchange, Inc. (Amex), and the National Association of Securities Dealers, Inc. (NASD). The Company is managed by its staff and controlled by an independent user Board of Directors which is responsible for its policies, operations, and financing. The Company's fee structure, which was approved by the Securities and Exchange Commission, is geared to reflect the Company's cost of providing ser vices to its participants. Note 3/Clearing Fund: The rules of the Company require each participant to deposit in the Clearing Fund an amount based on its settlement activity. The Fund is available to secure participant obligations to the Company and certain liabilities and losses of NSCC, should they occur. The Company's policy is to apply 25% and, in its dis cretion, a greater percentage of its then existing retained earnings, if such losses exceed a defaulting par ticipant's Clearing Fund deposit. After appropriate notice to both its membership and the Securities and Exchange Commission, the Company may assess its membership in accordance with the Company's rules. An assessment for a loss arising from a guaranteed NSCC system is limited to those participants who utilize that guaranteed system. Under certain circumstances, a participant in a guaranteed system can limit its assessment for losses arising from the financial impairment of another member in such guaranteed system to the amount of Clearing Fund attributable or allocated to that system based on the limiting participant's overall settlement activity. Neither the Company nor its predecessors have ever subjected their memberships to such an assessment. The Clearing Fund consists of cash, securities issued or guaranteed by the U.S. Government, its states and their political subdivisions, or by Letters of Credit issued by authorized banks. National Securities Clearing Corporation NOTES TO FINANCIAL STATEMENTS (continued)
The composition of the Clearing Fund is as follows: December 3 I, 1985 1984 Calculated requirements based on settlement activity $257,199,000 $ 187,435,000 Cash in excess of such requirements 9,063,000 10,354,000 Clearing Fund 266,262,000 197,789,000
Less: Participants' cash deposits, including cash in excess of such requirements (43,952,000) (37,781 ,000) Balance of requirement $222,310,000 $ 1 60,008,000
Non-cash deposits currently on hand: Letters of Credit $198,270,000 $ 1 44,4 1 0,000 Securities (at market value) 47,5 11 ,000 49,043,000 $245,781 ,000 $193,453,000 Amounts deposited by participants in excess of those participants' individual Clearing Fund require ments are not available to meet deficiencies of another participant except to the extent that the entire Clearing Fund may be pledged by the Company to meet a short-term liquidity requirement. Title to the cash deposits and securities remains with the participant subject to the Company's contrac tual right to use them (and to present drafts under Letters of Credit deposited by participants) in accor dance with the Company's rules. Substantially all of the cash portion of the Clearing Fund is included in temporary investments at December 3 I, 1985 and 1984. Interest amounts earned by the Company from investing the cash portion of the Clearing Fund are passed through to participants on a pro-rata basis; such amounts, which are not reflected in the financial statements, totalled $3,639,000 and $3,710,000 in 1985 and 1984, respec tively. Note 4/Transactions with Related Parties: The NYSE, Amex and NASD provide regulatory services for which NSCC collects billings from partici pants on behalf of these organizations. Amounts collected and not yet remitted at December 31, 1985 and 1984 with respect to these transactions are as follows:
NYSE $594,000 NASD 111,000 Total
As described in Note 5, the Company has a facilities management agreement with Securities Industry Automation Corporation (SIAC), which is owned by the NYSE and Amex. The Company rents certain office space from SIAC for which rental payments amounted to $592,000 and $565,000 in 1985 and 1984, respectively. The NYSE also owns a minority interest in The Depository Trust Company (DTC), whose facilities are used by the Company. DTC fees included $6,632,000 and $5,005,000 in 1985 and 1984, respectively, relating to charges for NSCC participants which the Company sponsors at DTC. NSCC passes through these charges to the sponsored participants. Amounts payable at December 3 1,1985 and 1984 to SIAC and DTC are as follows:
SIAC $3,024,000 $2,880,000 DTC 3 12,000 274,000 Note slFacilities Management Agreement: Under the terms of an agreement, SIAC provides the necessary facilities, personnel and services in sup port of the Company's clearing services and related functions. SIAC's charge is based on its direct, com puter and general overhead costs arising from providing such services. The agreement has no expiration date and continues in effect unless notice of cancellation is given by either party. Under the terms of this agreement the Company was liable, in the event of cancellation, for computer equipment leases in the amount of $4,859,000 at December 3 I, 1985. This amount decreases to zero in 1990. Note 6/Lease Commitments: At December 3 I, 1985, minimum annual rental payments under all noncancellable operating leases totalled $1,492,000 payable as follows: $1,136,000 in 1986 and $356,000 in 1987. National Securities Clearing Corporation NOTES TO FINANCIAL STATEMENTS (continued)
Note 7/Contingencies: The Continuous Net Settlement (CNS) system interposes the Company between participants in each security position on a daily basis. The total long and short security positions are in balance each day. The failure of participants to deliver securities to the Company, and the corresponding failure of the Com pany to redeliver such securities results in unsettled positions. Unsettled positions are marked to the market daily and debited or credited through the settlement process to participants involved.
At December 3 I, 1985, unsettled positions due the Company approximated $817,000,000 ($587,000,000 at December 3 1,1984), and the amounts due from the Company approximated $500,000,000 ($354,000,000 at December 31,1984) for unsettled positions and $317,000,000 ($233,000,000 at December 3 I, 1984) for securities borrowed through the Company's Stock Borrow Program. Note 8/Pension Plan: The Company has a trusteed noncontributory pension plan covering all employees who have attained age 21 (age 25 in 1984) and have six months of service. The total pension expense, which includes amor tization of past service cost over 10 years, was $ 17 1,000 and $148,000 for 1985 and 1984, respectively, calculated under the entry age normal actuarial cost method. The Company makes annual contributions to the plan equal to the amount accrued for pension expense. Benefits and net assets for the pension plan are presented below:
January I, 1985 19 84 Actuarial present value of accumulated plan benefits: Vested $55 1,000 $55 8,000 Nonvcsted 35,000 55,000 $5 86,000 $61 3,000 Net assets available for plan benefits $953,000 $745,000 During the past two plan years, certain actuarial assumptions and plan provisions were modified, including an increase in the rate of return used in determining the actuarial present value of accumulated plan benefits to 7.5% for 1984. The effect of these changes on pension expense and the accumulated plan benefits information is not significant. Note 9/Subsequent Event: On November 12, 1985, the Company established International Securities Clearing Corporation (ISCC), a wholly owned subsidiary which was incorporated in the State of New York; this international securities clearing subsidiary was formed to support U.S. brokers, dealers and banks through bilateral linkages with central clearing and depository organizations in other countries. On January 2, 1986, NSCC contributed capital of $ 1,000,000 to ISCC in exchange for 10,000 common shares of $.50 par value per share. ISCC has also offered to interested settling members and shareholders of NSCC the opportunity to subscribe to ISCC debt through a private placement. It is expected that the approximate $ 3,000,000 to be raised through this debt offering, together with the initial capitalization by NSCC, will assure the availability of adequate working capital to ISCC.
REPORT OF INDEPENDENT ACCOUNTANTS 153 East 53rd Street New York. NY 10022
Price JJaterhouse February 19, 1986 To the Board of Directors and Shareholders of National Securities Clearing Corporation In our opinion, the accompanying balance sheet and the related statements of income and retained earn ings and of changes in financial position present fairly the financial position of National Securities Clear ing Corporation at December 3 I, 1985 and 1984, and the results of its operations 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 standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. Participating Organizations Merrimack Valley Investment Inc. Capital Shares, Inc. First Birmingham Securities (as of April 10, 1986) Oftring & Co., Inc. Carolina Securities Corporation Corporation H.M. Payson & Co. Carr Securities Corp. The First Boston Corporation Spencer, Swain & Co., Inc. Carr & Thompson, Inc. First Jersey National Bank ABD Securities Corporation Trusteed Funds, Inc. Challenge Securities Inc. First Jersey Securities, Inc. Adams, Harkness & Hill, Inc. Arthur W. Wood Company Chase Dealer & Investment First Manhattan Co. Adler, Coleman & Co., Inc. Boston Stock Exchange Specialist The Chase Manhattan Bank, N.A. First of Michigan Corporation Advest, Inc. Account Chase/Syndicate First Options of Chicago, Inc. Agora Securities, Inc. ABD Securities Corp. Chemical Bank First Southwest Company Fred Alger & Company Incorporated Steven j. Agoston Chemical Bank - Municipal Dealer Fossett Corporation Allen & Company Incorporated Andrew Company The Chicago Corporation Walter N. Frank & Co. Alpine Associates John N. Aufiero The Cincinnati Stock Exchange Wm. V. Frankel & Co., Inc. Amalgamated Bank of New York Blodgett & Co., Inc. Citibank Dealer - Municipal Freehling & Co. American Investment Group Cantella & Co. Operations Freeman Securities Company, Inc. American Securities Corporation Dietrich & Company CitibankliFI Custody Freeman Wei wood & Co., Inc. American Stock Exchange Clearing Feigelman Securities Citibank, N.A. French American Banking Corp. Corporation Gus N. Ganoudis Simmons First National Bank Albert Fried & Company Arnhold and S. Bleichroeder, Inc. Garden State Securities, Inc. Citibank - Private Banking Division j.W. Gant & Associates Asiel &Co. Gowell Securities Corp. Conklin, Cahill & Co. Gay&Co. B.E.S. Partners H.T.N. Securities The Connecticut Bank and Trust Gintelco, Inc. BHF Securities Corporation Hawthorne Securities Corporation Company Goldberg Securities, Inc. B & S Financial Services Inc. Jorgenson Securities, Inc. Connecticut National Bank Goldman, Sachs & Co. BT Brokerage Corporation K. and S., Inc. Cosentino & DeFelice, Inc. Gordon & Co. Julius Baer Securities Inc. King, Keller & Co. Coughlin & Co., Inc. Gradison & Company Incorporated Robert W. Baird & Co., Incorporated May & Gannon, Inc. Cowen & Co. Greenfield Partners Baird, Patrick & Co., Inc. Mermelstein & Co. Craig-Hallum, Inc. Oscar Gruss & Son Incorporated Bank of Montreal, New York Branch Gerald P. Michaud Craigie Incorporated Haas Securities Corporation The Bank of New York John Murphy & Associates Custodial Trust Company Hanifen, Imhoff Inc. Bankers Trust Broker Clearing Unit Olwell, McCallion, Inc. (subsidiary of Bear, Stearns & j.F. Hartfield & Co., Inc. Bankers Trust - Clearance j. C. Bradford & Co. Co., Inc.) The Heitner Corporation Bankers Trust Company Branch, Cabell & Co. Cutter & Dixon Henderson Brothers, Inc. Adams, McEntee & Company H. A. Brandt & Associates, Inc. DBC Clearing Corporation Herzog, Heine, Geduld, Inc. Citizens First National Bank of New Broadcort Capital Corporation DLJ Fixed-Income Hill, Thompson, Magid & Co., Inc. Jersey Brokerage Clearance Services, Inc. Dain Bosworth Incorporated j. j. B. Hilliard, W. L. Lyons, Inc. Citizens Trust Company Brounoff, Claire & Co., Inc. Daiwa Securities America Inc. Hirshon, Roth & Co. Columbian Securities, Inc. Brown Brothers Harriman & Co. Davenport & Co. of Virginia, Inc. Howard, Weil, Labouisse, Friedrichs Langdon P. Cook & Co. Brown & Company Securities Shelby Cullom Davis & Co. Incorporated Incorporated Corporation Dean Witter Reynolds Inc. Wayne Hummer & Co. Crocker National Bank Brown, Lisle/Cummings, Inc. deCordova, Cooper & Co. E.F. Hutton & Company Inc. First Interstate Bank of Nevada Alex. Brown & Sons, Inc. Deltec Securities Corporation IFB Managing Partnership, L.P. First Wisconsin National Bank of P. R. Burke & Co. The Depository Trust Company leahn & Co., Inc. Milwaukee Burns Fry & Timmins Inc. Citizens Commercial & Savings The Illinois Company Incorporated Fleet National Bank Burns, Pauli & Co., Inc. Bank (Municipal Dealer) Ingalls & Snyder Glickenhaus - Ltg. & Co. CBT Municipal Dealer First National Bank of Cincinnati Interstate Securities Corporation Midlantic National Bank Cable, Howse & Ragen First National Bank of Louisville Irving Trust Company National City Bank, Cleveland Canadian Depository for Securities Manufacturers National Bank of The First National Bank in D.A. Pincus & Co., Inc. Limited Detroit - Municipal Bond Albuquerque Refco Municipal Securities Co. Andras Canavest Hetherington Dept. Mitsui Manufacturers Bank RepublicBank Dallas, N.A. Limited Wachovia Bank & Trust - Bond United Bank of Arizona Sterling, Grace Municipal Securities Bache Securities Inc. Department Irving TrustllnvestmentlDealer Corporation Alfred Bunting & Company Ltd. Deutsche Bank Capital Corporation JMS Execution Services Strahsmeier Securities Co. Burns Fry Limited Dillon, Read & Co. Inc. Benjamin Jacobson & Sons The Summit Trust Company Connor, Clark & Company Ltd. Doft & Co., Inc. Janney Montgomery Scott Inc. Tollner & Bean, Inc. Darier Management Dominick Investor Services Corp. Jefferies & Co., Inc. United Virginia Bank Corporation Inc. Dominion Securities Pitfield Inc. Jesup & Lamont Clearing Corp. Wheeler Municipals Corp. Davidson Partners Limited Donald & Co. Securities, Inc. Johnson, Lane, Space, Smith Bankers TrustlInvestment Services F. H. Deacon, Hodgson Inc. Drexel Burnham Lambert & Co., Inc. Bankers Trust-J.J. Kenny Co., Inc. Disnat Investment Inc. Incorporated Johnston, Lemon & Co. Incorporated Barclays Bank International Limited Dominick Corporation of Canada E. I. Loan Services Edward D. Jones & Co. Barrett & Company Limited Easton & Co. Josephthal & Co. Incorporated Bear, Stearns & Co., Inc. Dominion Securities Pitfield Limited Eberstadt Fleming, Inc. Kalb, Voorhis & Co. Beare Brothers & Co., Inc. First Canada Securities Corporation A. G. Edwards & Sons, Inc. Kall & Co., Inc. Beauchamp & Co. First Marathon Securities Limited Einhorn & Co. Kaufmann, Alsberg & Co., Inc. Benton & Company Geoffrion, Leclerc Inc. Engler & Budd Company Kellner, DiLeo & CO. Sanford C. Bernstein & Co., Inc. Gordon Capital Corporation Eppler, Guerin & Turner, Inc. J. J. Kenny Co., Inc. William Blair & Company Levesque, Beaubien Inc. Equity Securities Trading Co., Inc. Kidder, Peabody & Co. Incorporated Blinder, Robinson & Co., Inc. Loewen, Ondaatje, McCutcheon & Ernst & Company C. L. King & Associates, Inc. Boettcher & Company, Inc. Company, Ltd. EuroPartners Securities Corporation Koonce Securities Inc. Boston Stock Exchange Clearing Corp. MacDougall, MacDougall & Evans & Co., Incorporated Henry Krieger & Co. Bodell Overcash Anderson & Co., MacTier Inc. Exchange Services, Inc. LaBranche & Co. Inc. McLeod Young Weir Limited Execution Services Incorporated Lafer Amster & Co. Buell Securities Corp. McNeil, Mantha, Inc. Fagenson & Company, Inc. Lashco, Inc. Cantella & Co. (Retail) Merit Investment Corporation Fagenson & Company, Inc. - Retail Lasker, Stone & Stern Robert C. Carr & Co., Inc. Midland Doherty Limited Fahnestock & Co. CyrusJ. Lawrence Incorporated Clayton, Polleys & Co. Odium Brown Limited George R. Fairweather Securities, Inc. Lawrence, O'Donnell & Co. Diamant Investment Corp. Pictet (Canada) and Company, Fechtor, Detwiler & Co., Inc. Lazard Freres & Co. . Gage-Wiley & Co., Inc. Limited Fernandez, Bartsch & Mirra Legg Mason Masten Inc. Gowell Securities Corporation, Pemberton Houston Willoughby Fiduciary Trust Company of New York Lewco Securities Corp. (Retail) Incorporated Financial Clearing & Services S. B. Lewis & Company Instant Funds Incorporated Richardson Greenshields of Corporation MKI Securities Corp. Investors Discount Corporation Canada, Limited First Albany Corporation MN Services Kimball & Cross Walwyn Stodgell Cochran Murray M. S. Securities Services Inc. Linsco Corp. Limited McCourtney-Breckenridge & Canadian Imperial Bank of Commerce Company S.B. Cantor & Co., Inc. Cantor, Fitzgerald & Co., Inc.
26 McDonald & Company Securities, Inc. Morgan Stanley & Co. Incorporated Security Pacific Broker Services Seligman Securities, Inc. McLeod Young Weir Incorporated Muller and Company, Inc. Security Pacific Clearing & H. B. Shaine & Co., Inc. Mabon, Nugent & Co. Murphey, Marseilles, Smith & Services Corp. Shatkin Investment Corp. MacAllaster Pitficld MacKay Inc. Nammack American Municipal Securities Inc. Shatkin-Lee Clearance Bernard L. Madoff Murphy & Durieu James Baker & Company Shatkin-Lee Securities Co. Manufacturers and Traders Trust NASD Market Services, Inc. Bancroft, O'Connor, Chilton & Shearson Lehman Brothers, Inc. Company National Financial Services Lavell, Inc. I. M. Simon & Company, Inc. Manufacturers Correspondent Corporation Berghoff, Marsh & Company Smith Barney, Harris Upham & Co. Clearing Services National Westminster Bank USA Bernardi Securities, Inc. Incorporated Manufacturers Hanover Trust Neuberger & Berman A. F. Best Securities, Inc. E. H. Smith, Jacobs & Co. Company Newbridge Securities Inc. Bowman & Company, Inc. Smith, Moore & Co. Alamo National Bank New Japan Securities Brean Murray, Foster Securities Inc. Southwest Securities Incorporated American Fletcher National Bank International, Inc. Bryan, Worley & Co., Inc. Spear, Leeds & Kellogg The Arizona Bank Newhard, Cook & Co. Incorporated Capitol Municipal Securities, Inc. State Street Boston Securities Banco Popular de Puerto Rico J. F. Nick & Co. Carl & Company Incorporated Services Corp. BancOhio National Bank The Nikko Securities Co. Carolan & Co., Inc. R. J. Steichen & Co. Bank of Virginia International, Inc. Carty & Company, Inc. Stern & Kennedy Bankers Trust of South Carolina Nippon Kangyo Kakumaru Chase Lincoln First Bank, N.A. Sterne, Agee & Leach, Inc. Boatmen's National Bank of International, Inc. Columbian Securities, Inc. Stifel, Nicolaus & Company St. Louis Nomura Securities International, Inc. Cranston Securities Company Incorporated Central Fidelity Bank Norbay Securities, Inc. Crews & Associates, Inc. Stock Clearing Corporation Central Fidelity Bank -Investments John Nuveen & Co. Incorporated Croake, Roberts, Inc. Stock Clearing Corporation of Central Fidelity Bank O'Connor & Associates Dayton, Kahn, Heppe, Philadelphia (Lynchburg, VA) O'Connor Securities Hancock & Co. Butcher & Singer Inc. Corpus Christi National Bank Offerman & Co., Inc. Dorsey & Company Incorporated Stock Cross, Inc. The Exchange National Bank of Olde & Co., Incorporated A. Webster Dougherty & Co., Inc. Stokes, Hoyt & Co. Chicago Oppenheimer & Co., Inc. Duncan-Williams, Inc. J. Streicher & Co. The First National Bank of Outwater & Wells, Inc. Dupree & Company, Inc. The Stuart-James Company, Inc. Shreveport Pacific Brokerage Services R.W. Ellwood & Co., Inc. Swiss American Securities, Inc. First National Bank of South Pacific Clearing Corporation Essex Company Swiss Bank Corporation International Carolina Crowell, Weedon & Co. First Eastern Bank, N.A. Securities Inc. First Union National Bank PaineWebber Incorporated First Miami Securities, Inc. Thomson McKinnon Securities Inc. Hibernia National Bank in S. C. Parker & Co., Inc. First St. Louis Securities, Inc. A. B. Tompane & Co. New Orleans Pershing Division of Donaldson, Flagship Securities, Inc. The Toronto-Dominion Bank Imperial Bank (Los Angeles) Lufkin & Jenrette Securities GFC Securities Corporation Transaction Services, Inc. Landmark First National Bank Corporation Gibralter Securities Co. Transatlantic Securities Company LaSalle National Bank Carl H. Pforzheimer & Co. A. F. Green & Co., Inc. Tucker, Anthony & R. L. Day, Inc. Mellon Bank, N.A. Piper, Jaffray & Hopwood Greer Moreland Fosdick UBS Securities Inc. NCNB National Bank of North Incorporated Shepherd Inc. Underwood, Neuhaus & Co., Carolina E. J. Pittock & Co., Inc. Griffin, Kubik, Stephens & Incorporated Old Stone Corporation Prescott, Ball & Turben, Inc. Thompson, Inc. United Missouri Bank of Pittsburgh National Bank Prudential-Bache Securities Inc. J.B. Hanauer & Co. Kansas City, N.A. South Carolina National Bank Purcell, Graham & Co., Inc. HenrylKearns Municipals, Inc. United States Trust Company of Southeast Bank, N.A. Q&R Clearing Corporation Horizon Securities, Inc. New York Southtrust Bank of Alabama, N.A. E. J. Quinn & Co., Inc. Investment Securities of Universal Securities Corporation Sovran Bank, N.A. RSF Partners Oklahoma, Inc. Vail Securities Investment, Inc. Sovran Bank, N.A. - Trading T. J. Raney & Sons, Inc. A.D. Jack & Company Van Kampen Merritt Inc. Unibanc Trust Rauscher Pierce Refsnes, Inc. Landmark Investments, Inc. Edward A. Viner & Co., Inc. United Bank and Trust Company Raymond, James & Associates, Inc. Lasater & Company W & D Securities, Inc. Manufacturers Hanover Trust W. H. Reaves & Co., Inc. Leedy Corporation Wachovia Brokerage Service Company - Municipal Dealer Regional Clearing Corp. David Lerner Associates, Inc. Wagner, Stott & Co. Operations Reich & Co. Inc. M. G. Lewis & Co., Inc. Wall Street Clearing Company Marcus & Company Richardson Greenshields John P. McGowan and Wall Street Trust, A Bank of New Marcus Schloss & Co., Inc. Securities Inc. Company, Inc. York Division Marine Midland Bank, N.A.- M. Rimson & Co., Inc. Matthews & Wright, Inc. Jefferson Guaranty Bank Capital Markets Clearance Robb, Peck, McCooey Clearing Meuse, Rinker & Chapman Maryland National Bank Marine Midland Bank - New York Corporation Incorporated NCNB National Bank of First National Bank of Toms River, Robertson, Colman & Stephens Mid-State Securities Corp. North Carolina ale Cape N.J. Rodman & Renshaw, Inc. Municipal Securities, Inc. Securities Second National Bank of Saginaw Roney & Co. National Bank of Commerce Texas Independent Bank United Jersey Bank Rose & Company Investment (Birmingham, Ala.) Walsh, Greenwood & Co. Carl Marks & Co., Inc. Brokers, Inc. National Bank of Commerce S. G. Warburg, Rowe & Pitman, Mayer & Schweitzer, Inc. L.F. Rothschild, Unterberg, (Memphis, Tenn.) Akroyd Inc. M. J. Meehan & Co. Towbin, Inc. Plansmith Securities, Inc. S. G. Warburg, Rowe & Pitman, Mericka & Co., Inc. Roulston Research Corp. Powell & Satterfield, Inc. Akroyd Securities, Inc. Merrill Lynch, Pierce, R. Rowland & Co., Incorporated Arch W. Roberts & Co. Weber, Hall, Sale & Associates, Inc. Fenner & Smith Inc. Ryan, Beck & Co. Russell, Rea & Zappala, Inc. Wechsler & Krumholz, Inc. Mesirow & Company, Incorporated Sage, Rutty & Co., Inc. St. Johns Capital Investors Wedbush, Noble, Cooke, Inc. Metropolitan Securities Salomon Brothers Inc Corporation Weiss, Peck & Greer Midland Doherty Inc. M. A. Schapiro & Co., Inc. Sauerman Securities, Inc. H. G. Wellington & Co., Inc. Midwest Clearing Corporation J. Henry Schroder Bank & Trust R. Seelaus & Co., Inc. Wells Fargo Bank, N.A. Bartlett & Co. Company Southeastern Municipal Bonds, Inc. Wheat, First Securities, Inc. Alan Bush Brokerage Company Charles Schwab & Co., Inc. Spelman & Co., Inc. Williams Securities Group, Inc. Equitable Securities Corporation Scott & Stringfellow, Inc. Townes & Co., Inc. Wilshire Associates Howe, Barnes & Johnson, Inc. Season good & Mayer Vining-Sparks Securities, Inc. Windsor Associates The Milwaukee Company Securities Clearing of Colorado, Inc. Michael A. Weisser, Inc. Wittow & Company, Inc. Texas First Brokerage Services (Doing Business as: SECO Westcap Securities, Inc. Wolfe & Drizos Corporates, Inc. Montgomery Securities Securities, Inc.) A.H. Williams & Co., Inc. Wood Gundy Corp. Morgan Guaranty Trust Company of Securities Corp. (Allen) Young Moore & Company, Inc. Yamaichi International (America) Inc. New York Securities Settlement Corporation B. C. Ziegler & Company Zeller, Torykian & Co., Inc. Morgan Guaranty Trust Company of Ziegler Securities, Inc. Ziegler Thrift Trading, Inc. N.Y. - Muni Bond Dealer A. W. Zucker & Co. Morgan, Keegan & Company, Inc. Security Pacific Loan Group Morgan, Olmstead, Kennedy & Security Pacific Retail Services Gardner Incorporated Seidler Amdec Securities Inc. For Municipal Comparison Only: Egan, Marrin & Rubano, Inc. Kaiser & Company Schaffer, Necker & Co. Ehrlich-Bober & Co., Inc. Kansas State Bank & Trust Company Scharff & Jones, Inc. Acker, Wolman Securities Corp. Emanuel & Company (Wichita, KS) Scheetz, Smith & Company Inc. Allied Bank of Texas Equibank, N.A. Keenan & Clarey, Inc. Schmidt Securities, Inc. M.E. Allison & Co., Inc. European American Bank & Trust Kemper Sales Company Season good & Mayer Municipals Allison-Williams Co. Company Kirchner, Moore & Company Seattle First National Bank American National Bank - St. Paul Faherty, Aliaga & Co., Incorporated W.L. Knox & Company Seattle Northwest Securities American Security Bank, N.A. The Fidelity Bank (Philadelphia, PAl Lebenthal & Co., Inc. Corporation (Washington, DC) The Fifth Third Bank Liberty National Bank and Trust Securicorp. Inc. AmSouth Bank, N.A. FinSer Investment Company Company (Louisville, KY) Security National Bank of Kansas City Anderson Traub & Fisher Inc. First Alabama Bancshares, Inc. Liberty National Bank & Trust Security Pacific National Bank Atlantic National Bank of Florida First American National Bank - Company Investment Dept. Shawmut Bank - Investment Division A.E. Aub & Co. Nashville (Oklahoma City, OK) Shawmut Worcester County Bank, Bank IV Wichita, N.A. First Bank (N.A.) Milwaukee Lovett Mitchell Webb & Garrison, Inc. N.A. Bank of America, BISD First Charlotte Corporation M&[ Marshall & I1sley Bank Herbert J. Sims & Co., Inc. Dealer-Portfolio First Citizens Bank & Trust Company McLaughlin, Piven, Vogel Inc. R.W. Smith & Associates, Inc. Bank of California First City National Bank of Houston- McLiney and Company Society National Bank Bank of Hawaii Safekeeping Mann, Urfer Inc. ].W. Sparks Municipals, Inc. Bank of New England, N.A. First Fidelity Bank, N.A., New Jersey Manufacturers and Traders Trust Co. Stepp Investments, Ltd. Bank of Oklahoma, N.A. First [nternational Investment - Muni Trading & Safekeeping M.L. Stern & Co., Inc. Bank South, N.A. (Atlanta) Corporation Manufacturers Hanover Securities Stoever, Glass & Co. Inc. Bankers Trust Company First [nterregional Equity Corp. Corporation Sun Bank, N.A. (Orlando, FL) - Investment Dealer First Interstate Bank of Arizona, N.A. Marcotte Hume & Associates Swink & Company, Inc. Barnett Bank of Jacksonville, N.A. First Interstate Bank of California- Incorporated Texas American Bank/Fort Worth, Barr Brothers & Co., Inc. Dealer Bond Department Marine Bank, N.A. (Milwaukee, WI) N.A. BayBank Boston, N.A. First Interstate Bank of Denver, N.A. Mark Twain National Bank Texas Commerce Bank - EI Paso Blank, Conger and Sen a First Interstate Bank of Oregon, N.A. (St. Louis, MO) Texas Commerce Bank, N.A. Branch Banking & Trust Co. First Interstate Bank of Washington MBank Austin, N.A. Texas State Securities, Inc. Brislin & Woram First Investment Securities, Inc. MBank Dallas Third National Bank in Nashville Buetti, Cannon & Co., Inc. First Missouri Bank & Trust Company MBank Houston, N.A. Thorn, Alvis, Welch, [nc., Investment K.R. Butler Inc. The First National Bank & Trust Co. MCG Portfolio Management Corp. Securities Cantor, Fitzgerald Municipal Brokers, of Tulsa Mercantile Trust Company, N.A. Thornton, Farish & Gauntt, Inc. Inc. The First National Bank of Boston Merchants National Bank & Trust Titus & Donnelly Inc. Capital Markets Corporation Dealer Company of [ndianapolis Trust Company Bank - Investment Centerre Bank, N.A. St. Louis First National Bank in Palm Beach- N.D. Meyer & Co., Inc. Banking Division (Atlanta, GA) Central Bank of the South Bond Department Miller & Schroeder Financial Inc. Trustmark National Bank The Central Trust Co. N.A. First National Bank of Atlanta Miller Securities, Incorporated UM[C,[nc. (Cincinnati) First National Bank of Chicago E. A. Moos & Co., Inc. Union Bank - Treasury Department Chapdelaine & Co. First National Bank of Commerce R. H. Moulton & Co. Union Planters National Bank- Citizens Fidelity Bank & Trust (New Orleans, LA) Mounger & Bartlett, Incorporated Investment Banking Group Company (Louisville, KY) First National Bank of Maryland Mountaineer Securities Co. United Bank of Denver, N.A. The Citizens & Southern National First National Bank of Minneapolis- Municipal Investors Service, Inc. Valley National Bank of Arizona Bank - Dealer Account Bond Dealer NCNB National Bank of Florida St. DenisJ. Villere & Co. City National Bank, Beverly Hills, First National Bank of Springfield National Bank of Commerce Trust & J.H. Wagner & Co. Inc. California The First National Bank of St. Paul Savings Association - Dealer Wells Fargo Bank, N.A. - Funding Colorado National Bank of Denver First National Bank & Trust Co., National Bank of Georgia - Dealer Group Comerica Bank - Detroit Oklahoma City National Bank of Detroit R.D. White & Company Commerce Bank of Kansas City, N.A. First National Bank of Topeka The National Bank of Washington Whitney National Bank of New Commerce Union Bank First of America Bank - Detroit, N.A. Newman and Associates, Inc. Orleans Commercial National Bank of Peoria First Southern Securities, Inc. Norstar Bank, N.A. - Buffalo Wolfe & Drizos Municipals, Inc. Commonwealth Securities and First Tennessee Bank, N.A. Norstar Bank of Long [sland Wood Gundy Corporation Investments, Inc. Florida National Bank Uacksonville) Norstar Bank of Upstate New York Worthen Bank & Trust Co., N.A., B. J. Compton & Sons, Inc. Fox Reusch & Co., Inc. (Albany) (Little Rock, AR) Connecticut National Bank The Frazier Lanier Company Norstar Bank, Rochester - Investment Dealer Garvin Independent Municipal Norwest Bank Minneapolis - Norwest For FUlIdlSER V: Connors & Company Brokers Securities Coogan, Gilbert & Co., Inc. Georgia Railroad Bank & Trust Co. O'Brien & Shepard, Inc. Colonial Investment Services, Inc. R. W. Corby & Company, Inc. Glickenhaus & Co. Old National Bank of Washington A. G. Edwards & Sons, Inc. R. L. Crary & Co., Inc. Halliburton & Associates, Inc. Leo Oppenheim & Co., Inc. Smith Barney, Harris Upham & Co. Cronin & Co., Inc. Halpert, Oberst and Company Oregon Bank Incorporated Cullen/Frost Bank - Dallas Hand Investment Company, Inc. J.A. Overton & Co. Cusack, Light & Company, Inc. Harper, McLean & Company Pacific Securities, Inc. Dahlke & Company, Inc. Chester Harris & Co., Inc. Park Investment Corp. Denver National Bank -Investment Hatcher & Co., Inc. Peoples National Bank of Washington Dept. Hattier, Sanford & Reynoir R.W. Peters, Rickel & Co., Inc. Deposit Guaranty National Bank, Frank Henjes & Company, Inc. Philadelphia National Bank - Jackson,MS Hill, Crawford & Lanford, Inc. Corestates Capital Markets Ladd Dinkins & Company William R. Hough & Co. Group Discount Corporation of New York John F. Houlahan & Co., Inc. Wm. E. Pollock & Co., Inc. Municipals The Huntington National Bank Porter, White & Yardley, Inc. Dolphin & Bradbury (Columbus,OH) Rainier National Bank Doley Securities Inc. Hutchinson, Shockey, Erley & Co. RepublicBank First National Dominion Bank, N.A. (Roanoke, VA) Independent State of Minnesota Midland (TX) Douglas & Co. Municipals, Inc. Indiana National Bank Rhode [sland Hospital Trust Harry Downs & Co., Inc. [nterFirst Bank Dallas - Dealer National Bank Clifford Drake & Company, Inc. [nternational Bank Rogers & Lamb Duke McElroy and Company Lex Jolley & Co., Inc. Roosevelt & Cross, Incorporated R.J. Edwards, Inc. Joe Jolly & Co., Inc. Ross Capital Group Inc. Johnston, Brown, Burnett & Knight, S.S.B. - Bank Portfolio Inc.
Design: Bloch Graulich Whelan Inc. New York
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