Jean Keatings Cracking The Code # 7 February 2005: !

rotected by co""on #a$ co%yright

The courts are o%erating under &tatute 'a$( ) &tatute is de*ined in b#acks +th edition re,ised as a kind o* bond or ob#igation o* record- being an abbre,iation *or statute "erchant or statute sta%#e( &tatute ."erchant / is de*ined as a security *or a debt ackno$#edged to be due- entered into be*ore the chie* "agistrate o* so"e trading to$n- %ursuant to the statute 01 2d$ard 3( 4e 5ercatoribus- by $hich not on#y the body o* the debtor "ight be i"%risoned- and his goods sei6ed in satis*action o* the debt- but a#so his #ands "ight be de#i,ered to the creditor ti## out o* the rents and %ro*its o* the" the debt be satis*ied( This $as a#so ca##ed a !ocket Judg"ent( &tatute &ta%#e / ) 0151 statute estab#ishing %rocedure *or sett#ing dis%utes a"ong "erchants $ho traded in sta%#e to$ns( The statute he#%ed "erchants recei,e s$i*t 7udg"ent *or debt( C*( &T)T8T2 529C:);T( 2( ) bond *or co""ercia# debt( ) statute sta%#e ga,e the #ender a %ossessory right in the #and o* a debtor $ho *ai#ed to re%ay a #oan( &ee &T)!'2( ) %o%u#ar *or" o* security a*ter 02<5 ( ( ( $as the ( ( ( =statute sta%#e . $hereby the borro$er cou#d by "eans o* a registered contract charge his #and and goods $ithout gi,ing u% %ossession> i* he *ai#ed to %ay- the #ender beca"e a tenant o* the #and unti# satis*ied ( ( ( the borro$er under a statue or recogni6ance re"ained in %ossession o* his #and- and it #ater beca"e a co""on %ractice under the co""on?#a$ *or"s o* "ortgage #ike$ise to a##o$ the "ortgagor to re"ain in %ossession as a tenant at $i## or at su**erance o* the "ortgage(J(:( @aker- )n introduction to 2ng#ish 'ega# :istory 15+ A1d edition 0BB0C( 9ecogni6ance / ) bond or ob#igation o* record binding a %erson to so"e act as to a%%ear in court and sub7ect to *or*eit "oney i* ob#igation is not *u#*i##ed( Fi*a / Fi*a- short *or the 'atin %hrase *ieri *acias A#et it be "ade ( ( (C $as a court AeDecutionC to the sheri** to #e,y on ATakeC the %ro%erty o* a debtor in order to satis*y a 7udg"ent Asee 7udg"ent and eDecution dockets- abo,eC( The sheri** "ight ty%ica##y kee% track o* *i*as in a &heri**s Fi*a 4ocket @ook( 8sua##y $ritten on a *i##?in?the b#ank *or"- a *i*a na"es the %arties to the court 7udg"ent and the ,a#ue o* %ro%erty to be taken to satis*y the 7udg"ent( En the back- the sheri** or his de%uties annotate their actions in carrying out the order( The *i*as $ere to be returned to the court $hich issued the" and the actions annotated on the Judg"ent 4ocket( Theoretica##y- the docket books shou#d contain e,erything that $as noted on the *i*as( 3n $ebsters 0B01 dictionary the $ord stand is de*ined as being a#so the $ord statute( 3 be#ie,e this is $hy the 7udge in e,ery court a#$ays asks do you under . stand the charges being assessed against you( 3n the E(2( FE#d 2ng#ishG it is understandan- to stand under or to be sub7ected to or under the contro# o* or 3 a" sub7ecting or agreeing to %ut "y "yse#* under the contro# o* or %utting "yse#* under the statute or bond o* record( 3 ha,e been doing "ore research on our %rison syste" ,ia the internet and ha,e *ound out so"e interesting things- regarding $hat is rea##y going on in the courtroo"( The court is #ooking *or an acce%tance and acce%tor under 1?+00 o* the 8(C(C( as the !rinci%a# has the %ri"ary ob#igation to %ay or discharge any instru"ent %resented *or acce%tance( &ince they are %resenting a @i## o* 2Dchange Findict"entG *or acce%tance( This is ca##ed an acce%tance *or honor- $hich in,o#,es a negotiab#e instru"ent es%ecia##y a bi## o* eDchange Findict"entG that has been acce%ted *or %ay"ent( The co"%#aint- in*or"ation- or indict"ent is a three %arty 4ra*t- Co""ercia# %a%er- or @i## o* 2Dchange under )rtic#e 1 o* the 8(C(C( The Hrand Jury Fore"an is the 4ra$er or 5aker o* the 3ndict"ent by his signature- the 4e*endantI4ebtor or &tra$ "an is the 4ra$ee and the &tate is the !ayee and the #i,e "an is the !ayor( Jhat they are doing in the courtroo" is a## co""ercia#- this is in con*or"ity to 27 CF9 72(00- $here it says a## cri"es are co""ercia#( Jhat the 7udge and %rosecutor are doing in the courtroo" is "aking a co""ercia# %resent"ent under section 1?500 A0C K8n#ess eDcused Asection 1?500C %resent"ent is necessary to charge secondary %arties as *o##o$sK: AaC !resent"ent *or acce%tance is necessary to charge the dra$er and endorsers o* a dra*t $here the dra*t so %ro,ides- or is %ayab#e e#se$here than at the residence or %#ace o* business o* the 4ra$ee- or its date o*

%ay"ent de%ends u%on such %resent"ent( The ho#der "ay at his o%tion %resent *or acce%tance any other dra*t %ayab#e at a stated date> AbC !resent"ent *or %ay"ent is necessary to charge any endorser> AcC in the case o* any dra$er- the acce%tor o* a dra*t %ayab#e at a bank or the "aker o* a note %ayab#e at a bank- %resent"ent *or %ay"ent is necessary- but *ai#ure to "ake %resent"ent discharges such dra$eracce%tor or "aker on#y as stated in section 1?502 A0CA@C( 3* you donLt acce%t the charge or %resent"ent you are in dishonor *or non acce%tance under 1?505 o* the 8(C(C( AcC and 1?500 A2C AaC- AbC( )cce%tance is the dra$erLs signed engage"ent to honor the dra*t as %resented( 3t "ust be $ritten on the dra*t- and "ay consist o* his signature a#one( 3t beco"es o%erati,e $hen co"%#eted by de#i,ery or noti*ication 1?+00 o* the 8(C(C( Mou are the *iduciary trustee o* the stra$ "an $hich is a Cesti Nue Trust> in this ca%acity you ha,e the res%onsibi#ity to discharge a## his debts- by o%eration o* #a$( )## "oneys o* the Federa# 9eser,e @oard sha## be treated as trust *unds *or the %ur%ose o* section B0O AaC A2C AFEET;ET2 0C o* tit#e 2( This section is e**ecti,e *or *isca# year 0B<O and e,ery *isca# year therea*ter( T3T'2 02 @);K& );4 @);K3;H C:)!T29 0+ &2CT3E; 0772 AeC( 2,ery account is a trust- this is $hy e,ery deed- con,eyance or trans*er uses the $ords Hrantor- Hrantee- or )ssignor- )ssignee- or Trans*eror or Trans*eree( Mou are a#so the %rinci%a# or asset ho#der on the %ri,ate side o* the accounting #edger> you are ho#ding the eDe"%tion necessary to discharge the debt( Jhen they "oneti6e debt they ha,e to ha,e a %rinci%a#ca%ita# and interest is $hat circu#ates as %rinci%a# and is ca##ed re,enue or re?,enue( !rinci%a# is $here ,enue #ies( 9e,enue is a TaD debt or TaD bi##s( )## bi##s $hen %resented re%resent re,enue- interest- ca%ito#- or accrua#s circu#ating *ro" you as the %rinci%a#- $hen it is returned back to you as ca%ita# or interest it is ca##ed inco"e or in?co"ing( This "ethod o* accounting is ca##ed the K)ccrua# )ccounting 5ethodK and is re%resented by debits and credits( 4ebits are assets Credits are #iabi#ities( The credits and #iabi#ities ha,e to be in ba#ance- this is acco"%#ished through doub#e bookkee%ing entries or re,erse bookkee%ing entry( These bookkee%ing entries are the *unds re*erred to in co""ercia# banking( Jhen you are in dishonor they cannot use your eDe"%tion to %ass the debt or charge through your account to obtain a discharge- so they se## your dishonor- $hich has a co""ercia# o* P 0-000-000 do##ars *or each count( Jhen socia# security # is assigned or issued a b#ank bond is issued and $hen you are i"%risoned the bond is *i##ed out( This bond is ca##ed a @id @ond- standard *or" 2+ A92Q( 00? B<C %rescribed by H&)?F)9 A+<CF9C 51(22<AaC( This is a#so ca##ed a %rison bond( These are a#so re*erred to as contract surety bonds( The *irst- the bid bond- %ro,ides *inancia# assurance that the bid has been sub"itted in good *aith and that the contractor intends to enter into the contract at the %rice bid and %ro,ide the reRuired %er*or"ance and %ay"ent bonds( The second- the %er*or"ance bond- %rotects the ob#igee *ro" *inancia# #oss shou#d the contractor *ai# to %er*or" the contract in accordance $ith the ter"s and conditions o* the contract docu"ents( The Third kind o* contract bond is the %ay"ent bond $hich guarantees that the contractor $i## %ay certain subcontractor- #abor and "ateria# bi##s associated $ith the %ro7ect( The *ourth bond and "ost i"%ortant is the &T);4)94 FE95 2< A9e,( OI2001C %rescribed by H&)?F)9 A+< CF9C 51(22< AeC E5@ ;o( B000?0000- i* you read this *or" care*u##y it says under the s$orn state"ent 3 a#so de%ose and say that- concerning any stocks or bonds inc#uded in the assets #isted be#o$that there are no restrictions on the resa#e o* these securities %ursuant to the registration %ro,isions o* &ection 5 o* the &ecurities 2Dchange )ct o* 0B11( The $ord securities takes you back to section <?002 ABC o* )rtic#e < o* the 8CC- $hich de*ines securities as a *inancia# asset AiC security AiiC ob#igation o* a %erson- or a share- %artici%ation o* a %erson or in %ro%erty or an enter%rise o* a %erson- $hich is- or is o* a ty%e- dea#t in or traded on *inancia# "arkets- or $hich is recogni6ed in any area in $hich it is issued or dea#t in as a "ediu" *or in,est"ent> or AiiiC any %ro%erty he#d by a securities inter"ediary *or another %erson in a securities account i* the securities inter"ediary has eD%ress#y agreed $ith the other %erson that the %erson that the %ro%erty is to be treated as a *inancia# asset under this )rtic#e( )s the conteDt reRuires- the ter" "eans either the interest itse#* or the "eans by $hich a %ersons c#ai" to it is e,idenced- inc#uding a certi*icated or uncerti*icated security- a security certi*icate- or a security entit#e"ent( The de*inition o* security has three co"%onents( First- there is the sub%aragra%h AiC test that the interest or ob#igation be *u##y trans*erab#e- in the sense that the issuer either "aintains trans*er books or the

ob#igation or interest is re%resented by a certi*icate in bearer or registered *or"( &econd- there is the sub%aragra%h AiiC test that the interest or ob#igation be di,isib#e- that is- one o* a c#ass or series- as distinguished *ro" indi,idua# ob#igations o* the sort go,erned by ordinary contract #a$ or by )rtic#e 1( Third- there is the sub%aragra%h AiiiC *unctiona# test- $hich genera##y turns on $hether the interest or ob#igation is- or is o* a ty%e- dea#t in or traded on securities "arkets or securities eDchanges( There isho$e,er- an o%t in %ro,ision in sub%aragra%h AiiiC $hich %er"its the issuer o* any interest or ob#igation that is a "ediu" o* in,est"ent to s%eci*y that it is a security go,erned by )rtic#e <( The di,isibi#ity test o* sub%aragra%h AiiC a%%#ies to the security?that is- the under#ying intangib#e interest?not the "eans by $hich that interest is e,idenced( Thus- securities issued in book?entry on#y *or" "eet the di,isibi#ity test because the under#ying intangib#e interest is di,isib#e ,ia the "echanis" o* the indirect ho#ding syste"( This is so e,en though the c#earing cor%oration is the on#y e#igib#e direct ho#der o* the security( The third co"%onent- the *unctiona# test in sub%aragra%h AiiiC- %ro,ides *#eDibi#ity $hi#e ensuring that the )rtic#e < ru#es do not a%%#y to interest or ob#igations in circu"stances so unconnected $ith the securities "arkets that %arties are un#ike#y to ha,e thought o* the %ossibi#ity that )rtic#e < "ight a%%#y( &ub%aragra%h AiiiCA)C co,ers interests or ob#igations that either are dea#t in or traded on securities eDchanges or securities "arkets- or are o* a ty%e dea#t in or traded on securities eDchanges or securities "arkets( The is dea#t in or traded on %hrase e#i"inates %rob#e"s in the characteri6ation o* ne$ *or"s o* securities Jhich are to be traded in the "arkets- e,en though no si"i#ar ty%e has %re,ious#y been dea#t in or traded in the "arkets( &ub%aragra%h AiiiCA@C co,ers the broader category o* "edia *or in,est"ent- but it a%%#ies on#y i* the ter"s o* the interest or ob#igation s%eci*y that it is an )rtic#e < security( This o%t?in %ro,ision a##o$s *or de#iberate eD%ansion o* the sco%e o* )rtic#e <( &ection <?001 contains additiona# ru#es on the treat"ent o* %articu#ar interests as securities or *inancia# assets( 0( !art 5 ru#es a%%#y to security entit#e"ents- and &ection <?500 AbC %ro,ides that a %erson has a security entit#e"ent $hen a *inancia# asset has been credited to a security account( Thus- the ter" securities account s%eci*ies the ty%e o* arrange"ents bet$een institutions and their custo"ers that are co,ered by !art 5( ) securities account is a consensua# arrange"ent in $hich the inter"ediary undertakes to treat the custo"er as entit#ed to eDercise The rights that co"%rise the *inancia# asset( The consensua# as%ect is co,ered by the reRuire"ent that the account be estab#ished %ursuant to agree"ent( The ter" agree"ent is used in the broad sense de*ined in section 0?200A1C( There is no reRuire"ent that a *or"a# or $ritten agree"ent( 0?200A1C )gree"ent- as distinguished *ro" contract- "eans the bargain o* the %arties in *act- as *ound in their #anguage or in*erred *ro" other circu"stances- inc#uding course o* %er*or"ance- course o* dea#ing- or usage o* trade as %ro,ided in &ection 0?101( 0?101( Course o* %er*or"ance- Course o* 4ea#ing- and 8sage o* Trade( AaC ) course o* %er*or"ance is a seRuence o* conduct bet$een the %arties to a %articu#ar transaction that eDists i*> A0C the agree"ent o* the %arties $ith res%ect to the transaction in,o#,es re%eated occasions *or %er*or"ance by a %arty> and A2C the other %arty- $ith kno$#edge o* the nature o* the %er*or"ance and o%%ortunity *or ob7ection to itacce%ts the %er*or"ance or acRuiesces in it $ithout ob7ection( AbC ) course o* dea#ing is a seRuence o* conduct concerning %re,ious transactions bet$een the %arties to a %articu#ar transaction that is *air#y to be regarded as estab#ishing a co""on basis o* understanding *or inter%reting their eD%ressions and other conduct( AcC ) usage o* tradeis any %ractice or "ethod o* dea#ing ha,ing such regu#arity o* obser,ance in a %#ace,ocation- or trade as to 7usti*y an eD%ectation that it $i## be obser,ed $ith res%ect to the transaction in

Ruestion( The eDistence and sco%e o* such a usage "ust be %ro,ed as *acts( 3* it is estab#ished that such a usage is e"bodied in a trade code or si"i#ar record- the inter%retation o* the record is a Ruestion o* #a$( AdC ) course o* %er*or"ance or course o* dea#ing bet$een the %arties or usage o* trade in the ,ocation or trade in $hich they are engaged or o* $hich they are or shou#d be a$are is re#e,ant in ascertaining the "eaning o* the %arties agree"ent- "ay gi,e %articu#ar "eaning to s%eci*ic ter"s o* the agree"ent-and "ay su%%#e"ent or Rua#i*y the ter"s o* the agree"ent( ) usage o* trade a%%#icab#e in the %#ace in $hich %art o* the %er*or"ance under the agree"ent is to occur "ay be so uti#i6ed as to that %art o* the %er*or"ance( AeC 2Dce%t as other$ise %ro,ided in subsection A*C- the eD%ress ter"s o* an agree"ent and any a%%#icab#e course o* %er*or"ance- course o* dea#ing- or usage o* trade "ust be construed $hene,er reasonab#e as consistent $ith each other( 3* such a construction is unreasonab#e: A0C eD%ress ter"s %re,ai# o,er course o* %er*or"ance- course o* dea#ing-and usage o* trade> A2C course o* %er*or"ance %re,ai#s o,er course o* dea#ing and usage o* trade> )nd A1C course o* dea#ing %re,ai#s o,er usage o* trade( A*C &ub7ect to &ection 2?20B and &ection 2)?20<- a course o* %er*or"ance is re#e,ant to sho$ a $ai,er or "odi*ication o* any ter" inconsistent $ith the course o* %er*or"ance( AgC 2,idence o* re#e,ant usage o* trade o**ered by one %arty is not ad"issib#e un#ess the %arty has gi,en the other %arty notice that the court *inds su**icient to %re,ent un*air sur%rise to the other %arty( Code o* Federa# 9egu#ationsG FTit#e +<- Qo#u"e 0G F9e,ised as o* Ectober 0- 2001G Fro" the 8(&( Ho,ern"ent !rinting E**ice ,ia H!E )ccess FC3T2: +<CF92<(201?5G F!age 5+0?5+2G T3T'2 +<??F2429)' )CN83&3T3E; 92H8')T3E;& &M&T25 C:)!T29 0??F2429)' )CN83&3T3E; 92H8')T3E; !)9T 2<S@E;4& );4 3;&89);C2??Tab#e o* Contents &ub%art 2<(2S&ureties and Ether &ecurity *or @onds &ec( 2<(201?5 9e#ease o* #ien( AaC )*ter consu#tation $ith #ega# counse#- the contracting o**icer sha## re#ease the security interest on the indi,idua# suretyLs assets using the E%tiona# For" B0- 9e#ease o* 'ien on 9ea# !ro%erty- or E%tiona# For" B0- 9e#ease o* !ersona# !ro%erty *ro" 2scro$- or a si"i#ar re#ease as soon as %ossib#e consistent $ith the conditions in sub%aragra%hs AaC A0C and A2C o* this subsection( ) suretyLs assets %#edged in su%%ort o* a %ay"ent bond "ay be re#eased to a subcontractor or su%%#ier u%on Ho,ern"ent recei%t o* a Federa# district court

FF!age 5+2GG 7udg"ent- or a s$orn state"ent by the subcontractor or su%%#ier that the c#ai" is correct a#ong $ith a notari6ed authori6ation o* the re#ease by the surety stating that it a%%ro,es o* such re#ease( A0C Contracts sub7ect to the 5i##er )ct( The security interest sha## be "aintained *or the #ater o* AiC 0 year *o##o$ing *ina# %ay"ent- AiiC unti# co"%#etion o* any $arranty %eriod Aa%%#icab#e on#y to %er*or"ance bondsC- or AiiiC %ending reso#ution o* a## c#ai"s *i#ed against the %ay"ent bond during the 0?year %eriod *o##o$ing *ina# %ay"ent( A2C Contracts sub7ect to a#ternati,e %ay"ent %rotection A2<(002? 0AbCA0CC( The security interest sha## be "aintained *or the *u## contract %er*or"ance %eriod %#us one year( A1C Ether contracts not sub7ect to the 5i##er )ct( The security interest sha## be "aintained *or B0 days *o##o$ing *ina# %ay"ent or unti# co"%#etion o* any $arranty %eriod Aa%%#icab#e on#y to %er*or"ance bondsC- $hiche,er is #ater( AbC 8%on $ritten reRuest- the contracting o**icer "ay re#ease the security interest on the indi,idua# suretyLs assets in su%%ort o* a bid guarantee based u%on e,idence that the o**er su%%orted by the indi,idua# surety $i## not resu#t in contract a$ard( AcC 8%on $ritten reRuest by the indi,idua# surety- the contracting o**icer "ay re#ease a %ortion o* the security interest on the indi,idua# suretyLs assets based u%on substantia# %er*or"ance o* the contractorLs ob#igations under its %er*or"ance bond( 9e#ease o* the security interest in su%%ort o* a %ay"ent bond "ust co"%#y $ith the sub%aragra%hs AaC A0C through A1C o* this subsection( 3n "aking this deter"ination- the contracting o**icer $i## gi,e consideration as to $hether the unre#eased %ortion o* the #ien is su**icient to co,er the re"aining contract ob#igations- inc#uding %ay"ents to subcontractors and other %otentia# #iabi#ities( The indi,idua# surety sha##- as a condition o* the %artia# re#ease- *urnish an a**ida,it agreeing that the re#ease o* such assets does not re#ie,e the indi,idua# surety o* its ob#igations under the bondAsC( F5+ F9 +<B<<- ;o,( 2<- 0B<B- as a"ended at O0 F9 10O52- June 20- 0BBOG FCode o* Federa# 9egu#ationsG FTit#e +<- Qo#u"e 0G F9e,ised as o* Ectober 0- 200+G Fro" the 8(&( Ho,ern"ent !rinting E**ice ,ia H!E )ccess FC3T2: +<CF92<(20+?1G F!age 551?55+G T3T'2 +<??F2429)' )CN83&3T3E; 92H8')T3E;& &M&T25 AThis book contains cha%ter 0- %arts 0 to 50C C:)!T29 0??F2429)' )CN83&3T3E; 92H8')T3E; ???????????????????????????????????????????????????????????????????? !)9T 2<S@E;4& );4 3;&89);C2??Tab#e o* Contents &ub%art 2<(2S&ureties and Ether &ecurity *or @onds &ec( 2<(20+?1 3rre,ocab#e #etter o* credit A3'CC(

AaC )ny %erson reRuired to *urnish a bond has the o%tion to *urnish a bond secured by an 3'C in an a"ount eRua# to the %ena# su" reRuired to be secured Asee 2<(20+C( ) se%arate 3'C is reRuired *or each bond( AbC The 3'C sha## be irre,ocab#e- reRuire %resentation o* no docu"ent other than a $ritten de"and and the 3'C Aand #etter o* con*ir"ation- i* anyC- eD%ire on#y as %ro,ided in %aragra%h A*C o* this subsection- and be issuedIcon*ir"ed by an acce%tab#e *edera##y insured *inancia# institution as %ro,ided in %aragra%h AgC o* this subsection( AcC To dra$ on the 3'C- the contracting o**icer sha## use the sight dra*t set *orth in the c#ause at 52(22<?0+- and %resent it $ith the 3'C Ainc#uding #etter o* con*ir"ation- i* anyC to the issuing *inancia# institution or the FF!age 55+GG con*ir"ing *inancia# institution Ai* anyC( AdC 3* the contractor does not *urnish an acce%tab#e re%#ace"ent 3'C- or other acce%tab#e substitute- at #east 10 days be*ore an 3'CLs schedu#ed eD%iration- the contracting o**icer sha## i""ediate#y dra$ on the 3'C( AeC 3*- a*ter the %eriod o* %er*or"ance o* a contract $here 3'Cs are used to su%%ort %ay"ent bonds- there are outstanding c#ai"s against the %ay"ent bond- the contracting o**icer sha## dra$ on the 3'C %rior to the eD%iration date o* the 3'C to co,er these c#ai"s( A*C The %eriod *or $hich *inancia# security is reRuired sha## be as *o##o$s: A0C 3* used as a bid guarantee- the 3'C shou#d eD%ire no ear#ier than O0 days a*ter the c#ose o* the bid acce%tance %eriod( A2C 3* used as an a#ternati,e to cor%orate or indi,idua# sureties as security *or a %er*or"ance or %ay"ent bond- the o**erorIcontractor "ay sub"it an 3'C $ith an initia# eD%iration date esti"ated to co,er the entire %eriod *or $hich *inancia# security is reRuired or an 3'C $ith an initia# eD%iration date that is a "ini"u" %eriod o* one year *ro" the date o* issuance( The 3'C sha## %ro,ide that- un#ess the issuer %ro,ides the bene*iciary $ritten notice o* non?rene$a# at #east O0 days in ad,ance o* the current eD%iration date- the 3'C is auto"atica##y eDtended $ithout a"end"ent *or one year *ro" the eD%iration date- or any *uture eD%iration date- unti# the %eriod o* reRuired co,erage is institution $ith a $ritten state"ent $ai,ing the right to %ay"ent( The %eriod o* reRuired co,erage sha## be: AiC For contracts sub7ect to the 5i##er )ct- the #ater o*?? A)C Ene year *o##o$ing the eD%ected date o* *ina# %ay"ent> A@C For %er*or"ance bonds on#y- unti# co"%#etion o* any $arranty %eriod> or ACC For %ay"ent bonds on#y- unti# reso#ution o* a## c#ai"s *i#ed against the %ay"ent bond during the one?year %eriod *o##o$ing *ina# %ay"ent( AiiC For contracts not sub7ect to the 5i##er )ct- the #ater o*?? A)C B0 days *o##o$ing *ina# %ay"ent> or A@C For %er*or"ance bonds on#y- unti# co"%#etion o* any $arranty %eriod( AgC En#y *edera##y insured *inancia# institutions rated in,est"ent grade or higher sha## issue or con*ir" the 3'C( 8n#ess the *inancia# institution issuing the 3'C had #etter o* credit business o* at #east P25 "i##ion in the %ast year- 3'Cs o,er P5 "i##ion "ust be con*ir"ed by another acce%tab#e *inancia# institution that had #etter o* credit business o* at #east P25 "i##ion in the %ast year( A0C The o**erorIcontractor sha## %ro,ide the contracting o**icer a credit rating *ro" a recogni6ed co""ercia# rating ser,ice as s%eci*ied

in E**ice o* Federa# !rocure"ent !o#icy !a"%h#et ;o( 7 Asee 2<(20+?1AhCC that indicates the *inancia# institution has the reRuired ratingAsC as o* the date o* issuance o* the 3'C( A2C 3* the contracting o**icer #earns that a *inancia# institutionLs rating has dro%%ed be#o$ the reRuired #e,e#- the contracting o**icer sha## gi,e the contractor 10 days to substitute an acce%tab#e 3'C or sha## dra$ on the 3'C using the sight dra*t in %aragra%h AgC o* the c#ause at 52(22<?0+( AhCA0C )dditiona# in*or"ation on credit rating ser,ices and in,est"ent grade ratings is contained $ithin E**ice o* Federa# !rocure"ent !o#icy !a"%h#et ;o( 7- 8se o* 3rre,ocab#e 'etters o* Credit( This %a"%h#et "ay be obtained by ca##ing the E**ice o* 5anage"ent and @udgetLs %ub#ications o**ice at A202C 1B5?7112( A2C ) co%y o* the 8ni*or" Custo"s and !ractice A8C!C *or 4ocu"entary Credits- 0BB1 9e,ision3nternationa# Cha"ber o* Co""erce !ub#ication ;o( 500- is a,ai#ab#e *ro": 3CC !ub#ishing- 3nc(- 05O Fi*th ),enue- ;e$ Mork ;M- 00000- Te#e%hone: A202C 20O?0050- Te#e*aD: A202C O11?O025- 2?"ai#: icc%ubTinter%ort(net [61 FR 31653, June 20, 1996, as amended at 62 FR 44807, Aug. 22, 1997] 52(22<?0+ ?? 3rre,ocab#e 'etter o* Credit( As prescr !ed n 28.204"4, nsert t#e $%&&%' ng c&ause( 3rre,ocab#e 'etter o* Credit A4ec 0BBBC )a* +,rre-%ca!&e &etter %$ cred t. ),/0*, as used n t# s c&ause, means a 'r tten c%mm tment !1 a $edera&&1 nsured $ nanc a& nst tut %n t% pa1 a&& %r part %$ a stated am%unt %$ m%ne1, unt & t#e e2p rat %n date %$ t#e &etter, up%n presentat %n !1 t#e 3%-ernment )t#e !ene$ c ar1* %$ a 'r tten demand t#ere$%r. 4e t#er t#e $ nanc a& nst tut %n n%r t#e %$$er%r50%ntract%r can re-%6e %r c%nd t %n t#e &etter %$ cred t. )!* ,$ t#e %$$er%r ntends t% use an ,/0 n & eu %$ a ! d !%nd, %r t% secure %t#er t1pes %$ !%nds suc# as per$%rmance and pa1ment !%nds, t#e &etter %$ cred t and &etter %$ c%n$ rmat %n $%rmats n paragrap#s )e* and )$* %$ t# s c&ause s#a&& !e used. )c* 7#e &etter %$ cred t s#a&& !e rre-%ca!&e, s#a&& re8u re presentat %n %$ n% d%cument %t#er t#an a 'r tten demand and t#e ,/0 ) nc&ud ng c%n$ rm ng &etter, $ an1*, s#a&& !e ssued5c%n$ rmed !1 an accepta!&e $edera&&1 nsured $ nanc a& nst tut %n as pr%- ded n paragrap# )d* %$ t# s c&ause, and "" )1* ,$ used as a ! d guarantee, t#e ,/0 s#a&& e2p re n% ear& er t#an 60 da1s a$ter t#e c&%se %$ t#e ! d acceptance per %d9 )2* ,$ used as an a&ternat -e t% c%rp%rate %r nd - dua& suret es as secur t1 $%r a per$%rmance %r pa1ment !%nd, t#e %$$er%r50%ntract%r ma1 su!m t an ,/0 ' t# an n t a& e2p rat %n date est mated t% c%-er t#e ent re per %d $%r '# c# $ nanc a& secur t1 s re8u red %r ma1 su!m t an ,/0 ' t# an n t a& e2p rat %n date t#at s a m n mum per %d %$ %ne 1ear $r%m t#e date %$ ssuance. 7#e ,/0 s#a&& pr%- de t#at, un&ess t#e ssuer pr%- des t#e !ene$ c ar1 'r tten n%t ce %$ n%n"rene'a& at &east 60 da1s n ad-ance %$ t#e current e2p rat %n date, t#e ,/0 s aut%mat ca&&1 e2tended ' t#%ut amendment $%r %ne 1ear $r%m t#e e2p rat %n date, %r an1 $uture e2p rat %n date, unt & t#e per %d %$ re8u red c%-erage s c%mp&eted and t#e 0%ntract ng :$$ cer pr%- des t#e $ nanc a& nst tut %n ' t# a 'r tten statement 'a - ng t#e r g#t t% pa1ment. 7#e per %d %$ re8u red c%-erage s#a&& !e( ) * F%r c%ntracts su!;ect t% t#e < &&er Act, t#e &ater %$ "" )A* :ne 1ear $%&&%' ng t#e e2pected date %$ $ na& pa1ment9 )=* F%r per$%rmance !%nds %n&1, unt & c%mp&et %n %$ an1 'arrant1 per %d9 %r

)0* F%r pa1ment !%nds %n&1, unt & res%&ut %n %$ a&& c&a ms $ &ed aga nst t#e pa1ment !%nd dur ng t#e %ne"1ear per %d $%&&%' ng $ na& pa1ment. ) * F%r c%ntracts n%t su!;ect t% t#e < &&er Act, t#e &ater %$ "" )A* 90 da1s $%&&%' ng $ na& pa1ment9 %r )=* F%r per$%rmance !%nds %n&1, unt & c%mp&et %n %$ an1 'arrant1 per %d. )d* :n&1 $edera&&1 nsured $ nanc a& nst tut %ns rated n-estment grade %r # g#er s#a&& ssue %r c%n$ rm t#e ,/0. 7#e %$$er%r50%ntract%r s#a&& pr%- de t#e 0%ntract ng :$$ cer a cred t rat ng t#at nd cates t#e $ nanc a& nst tut %n #as t#e re8u red rat ng)s* as %$ t#e date %$ ssuance %$ t#e ,/0. >n&ess t#e $ nanc a& nst tut %n ssu ng t#e ,/0 #ad &etter %$ cred t !us ness %$ at &east ?25 m && %n n t#e past 1ear, ,/0s %-er ?5 m && %n must !e c%n$ rmed !1 an%t#er accepta!&e $ nanc a& nst tut %n t#at #ad &etter %$ cred t !us ness %$ at &east ?25 m && %n n t#e past 1ear. )e* 7#e $%&&%' ng $%rmat s#a&& !e used !1 t#e ssu ng $ nanc a& nst tut %n t% create an ,/0( @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@ [Issuing Financial Institutions Letterhead or Name and Address] ,ssue Aate @@@@@@ ,rre-%ca!&e /etter %$ 0red t 4%. @@@@@@@@@@@@@@@@ Acc%unt part1Bs name @@@@@@@@@@@@@@@@@@@@@@@@ Acc%unt part1Bs address @@@@@@@@@@@@@@@@@@@@@@ F%r C%& c tat %n 4%. @@@@@@@@@@ )for reference only* 7%( [U.S. Government agency] [U.S. Government Agencys Address] 1. De #ere!1 esta!& s# t# s rre-%ca!&e and trans$era!&e /etter %$ 0red t n 1%ur $a-%r $%r %ne %r m%re dra' ngs up t% >n ted Ctates ? @@@@@@. 7# s /etter %$ 0red t s pa1a!&e at [issuing financial institutions and if any confirming financial institutions] %$$ ce at [issuing financial institutions address and if any confirming financial institutions address] and e2p res ' t# %ur c&%se %$ !us ness %n @@@@@@, %r an1 aut%mat ca&&1 e2tended e2p rat %n date. 2. De #ere!1 underta6e t% #%n%r 1%ur %r t#e trans$ereeBs s g#t dra$t)s* dra'n %n t#e ssu ng %r, $ an1, t#e c%n$ rm ng $ nanc a& nst tut %n, $%r a&& %r an1 part %$ t# s cred t $ presented ' t# t# s /etter %$ 0red t and c%n$ rmat %n, $ an1, at t#e %$$ ce spec $ ed n paragrap# 1 %$ t# s /etter %$ 0red t %n %r !e$%re t#e e2p rat %n date %r an1 aut%mat ca&&1 e2tended e2p rat %n date. 3. [!his "aragra"h is omitted if used as a #id guarantee and su#se$uent "aragra"hs are renum#ered.] ,t s a c%nd t %n %$ t# s /etter %$ 0red t t#at t s deemed t% !e aut%mat ca&&1 e2tended ' t#%ut amendment $%r %ne 1ear $r%m t#e e2p rat %n date #ere%$, %r an1 $uture e2p rat %n date, un&ess at &east 60 da1s pr %r t% an1 e2p rat %n date, 'e n%t $1 1%u %r t#e trans$eree !1 reg stered ma &, %r %t#er rece pted means %$ de& -er1, t#at 'e e&ect n%t t% c%ns der t# s /etter %$ 0red t rene'ed $%r an1 suc# add t %na& per %d. At t#e t me 'e n%t $1 1%u, 'e a&s% agree t% n%t $1 t#e acc%unt part1 )and c%n$ rm ng $ nanc a& nst tut %n, $ an1* !1 t#e same means %$ de& -er1. 4. 7# s /etter %$ 0red t s trans$era!&e. 7rans$ers and ass gnments %$ pr%ceeds are t% !e e$$ected ' t#%ut c#arge t% e t#er t#e !ene$ c ar1 %r t#e trans$eree5ass gnee %$ pr%ceeds. Cuc# trans$er %r ass gnment s#a&& !e %n&1 at t#e 'r tten d rect %n %$ t#e 3%-ernment )t#e !ene$ c ar1* n a $%rm sat s$act%r1 t% t#e ssu ng $ nanc a& nst tut %n and t#e c%n$ rm ng $ nanc a& nst tut %n, $ an1.

5. 7# s /etter %$ 0red t s su!;ect t% t#e >n $%rm 0ust%ms and Eract ce )>0E* $%r A%cumentar1 0red ts, 1993 Re- s %n, ,nternat %na& 0#am!er %$ 0%mmerce Eu!& cat %n 4%. 500, and t% t#e e2tent n%t nc%ns stent t#ere' t#, t% t#e &a's %$ @@@@@@@@@@@@@@@@@@@@@ [state of confirming financial institution if any other%ise state of issuing financial institution]. 6. ,$ t# s cred t e2p res dur ng an nterrupt %n %$ !us ness %$ t# s $ nanc a& nst tut %n as descr !ed n Art c&e 17 %$ t#e >0E, t#e $ nanc a& nst tut %n spec $ ca&&1 agrees t% e$$ect pa1ment $ t# s cred t s dra'n aga nst ' t# n 30 da1s a$ter t#e resumpt %n %$ %ur !us ness. C ncere&1, @@@@@@@@@@@@@@@@@@@@@@@ [Issuing financial institution] )$* 7#e $%&&%' ng $%rmat s#a&& !e used !1 t#e $ nanc a& nst tut %n t% c%n$ rm an ,/0( @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@ [&onfirming Financial Institutions Letterhead or Name and Address] )Aate* @@@@@@@@@@@@@ :ur /etter %$ 0red t Ad- ce 4um!er @@@@@@@@@@@@@ =ene$ c ar1( @@@@@@@@@@@ [U.S. Government agency] ,ssu ng F nanc a& ,nst tut %n( @@@@@@@@@@@@@@@@@@ ,ssu ng F nanc a& ,nst tut %nBs /0 4%.( @@@@@@@@@@@ 3ent&emen( 1. De #ere!1 c%n$ rm t#e a!%-e nd cated /etter %$ 0red t, t#e %r g na& %$ '# c# s attac#ed, ssued !1 @@@@@@@@@@ [name of issuing financial institution] $%r dra' ngs %$ up t% >n ted Ctates d%&&ars @@@@@@@@@@@5>.C. ?@@@@@@@ and e2p r ng ' t# %ur c&%se %$ !us ness %n @@@@@@@@@@@@@ [the e'"iration date] %r an1 aut%mat ca&&1 e2tended e2p rat %n date. 2. Ara$t)s* dra'n under t#e /etter %$ 0red t and t# s 0%n$ rmat %n are pa1a!&e at %ur %$$ ce &%cated at @@@@@@@@@@@@@@@@@@@. 3. De #ere!1 underta6e t% #%n%r s g#t dra$t)s* dra'n under and presented ' t# t#e /etter %$ 0red t and t# s 0%n$ rmat %n at %ur %$$ ces as spec $ ed #ere n. 4. [!his "aragra"h is omitted if used as a #id guarantee and su#se$uent "aragra"hs are renum#ered.] ,t s a c%nd t %n %$ t# s c%n$ rmat %n t#at t !e deemed aut%mat ca&&1 e2tended ' t#%ut amendment $%r %ne 1ear $r%m t#e e2p rat %n date #ere%$, %r an1 aut%mat ca&&1 e2tended e2p rat %n date, un&ess( )a* At &east 60 da1s pr %r t% an1 suc# e2p rat %n date, 'e s#a&& n%t $1 t#e 0%ntract ng :$$ cer, %r t#e trans$eree and t#e ssu ng $ nanc a& nst tut %n, !1 reg stered ma & %r %t#er rece pted means %$ de& -er1, t#at 'e e&ect n%t t% c%ns der t# s c%n$ rmat %n e2tended $%r an1 suc# add t %na& per %d9 %r )!* 7#e ssu ng $ nanc a& nst tut %n s#a&& #a-e e2erc sed ts r g#t t% n%t $1 1%u %r t#e trans$eree, t#e acc%unt part1, and %urse&-es, %$ ts e&ect %n n%t t% e2tend t#e e2p rat %n date %$ t#e /etter %$ 0red t. 5. 7# s c%n$ rmat %n s su!;ect t% t#e >n $%rm 0ust%ms and Eract ce )>0E* $%r A%cumentar1 0red ts, 1993 Re- s %n, ,nternat %na& 0#am!er %$ 0%mmerce Eu!& cat %n 4%. 500, and t% t#e e2tent n%t nc%ns stent t#ere' t#, t% t#e &a's %$ @@@@@@@@ [state of confirming financial institution].

6. ,$ t# s c%n$ rmat %n e2p res dur ng an nterrupt %n %$ !us ness %$ t# s $ nanc a& nst tut %n as descr !ed n Art c&e 17 %$ t#e >0E, 'e spec $ ca&&1 agree t% e$$ect pa1ment $ t# s cred t s dra'n aga nst ' t# n 30 da1s a$ter t#e resumpt %n %$ %ur !us ness. C ncere&1, @@@@@@@@@@@@@@@@@@@@@@@@@@@ [&onfirming financial institution] )g* 7#e $%&&%' ng $%rmat s#a&& !e used !1 t#e 0%ntract ng :$$ cer $%r a s g#t dra$t t% dra' %n t#e /etter %$ 0red t( C g#t Ara$t @@@@@@@@@@@@@@@@@@@@@@@@ [&ity State] )Aate* @@@@@@@@@@@@@@ [Name and address of financial institution] Ea1 t% t#e %rder %$ @@@@@@@@@@@@@@ [(eneficiary Agency] @@@@@@@@@@@ t#e sum %$ >n ted Ctates ?@@@@@@@@@@@@. 7# s dra$t s dra'n under ,rre-%ca!&e /etter %$ 0red t 4%. @@@@@@@@@@@@@@. @@@@@@@@@@@@@@@@@@@ [(eneficiary Agency] @@@@@@@@@@@@@@@@@@@@ [(y] En )%ri# B- 2002 A02:0< %"C 'eh"an @rothers @anking Carte# in ;e$ Mork City agreed to %ro,ide %rison industry #eader CC) ACorrections Cor%oration o* )"ericaC $ith a ne$ P OB5-000-000 senior secured credit *aci#ity- to be co"bined $ith a P050 "i##ion notes o**ering( The $ar on terroris" has created a bu66 in the %ri,ate %rison industry( 'ess than three $eeks a*ter &e%te"ber 00th- a ;e$ Mork !ost story on the *or?%ro*it %ri,ate %rison industry stated- K)"ericaLs ne$ $a## o* ho"e#and security is creating a big de"and *or ce##s to ho#d sus%ects and i##ega# a#iens $ho "ight be rounded u%(K 3n order to %ros%er- %rison o%erators need to "aintain a steady *#o$ o* %risoners and %rison do##ars( Ene o* the 3ndustries too#s *or acco"%#ishing this is the )"erican 'egis#ati,e 2Dchange Counci#- a %o$er*u# right $ing #obby grou% that he#%s cor%orations dra*t and enacts K"ode#K #egis#ation?? *or a %rice( 3ndustry #eaders CC) and Jackenhut ha,e %aid tens Ai* not hundredsC o* thousands o* do##ars in eDchange *or a %ri,i#eged %osition on )'2CLs Cri"ina# Justice Task Force A$hich CC) chairsC( )'2C- in turn- not on#y %ro"otes %ri,ati6ation- but a#so brags o* ha,ing he#%ed enact KTruth in &entencingK and KThree &trikesK #a$s in 25 states( 3n addition to in,esting hea,i#y in grou%s #ike )'2C and the 9eason Foundation- the industry s%ends "i##ions on ca"%aign contributions( Fro" 0BB5 to 2000- CC)- Jackenhut- and Corne## s%ent P520-000 in Federa# e#ections- and in 0BB<- the industry s%ent P5+0-000 on state e#ections- $here a #itt#e "oney goes a #ong $ay( Cor%orations $ork on the Fisca# )ccounting Cyc#e because they o%erate using co""ercia# debt- $e as o$ner %rinci%a#s $ork on the Henera# Ca#endar )ccounting Mear or Cyc#e( ;e$ Mork City has a P O(O bi##ion do##ar de*icit- this de*icit re%resents unredee"ed debt on the credit side o* the accrua# accounting syste" and cannot be eDecuted to the debit side o* accrua# accounting #edger- eDce%t through the %rinci%a#Ls eDe"%tion( ;e$ Mork has there*ore %ut its bond under$riting business u% *or bid( This "eans that ;e$ Mork $i## issue P O(O bi##ion in bonds and %ay under$riters o,er P10- "i##ion in *ees in the neDt *isca# year a#one( 'eh"an @rothers @ank $i## under$rite ;e$ MorkLs P O(O bi##ion do##ar de*icit( )n under$riter is an 3nsurer or one $ho buys stock *ro" the issuer $ith an intent to rese## it to the %ub#ic or an entity or %erson- es%ecia##y an in,est"ent banker- $ho guarantees the sa#e o* ne$#y issued securities by %urchasing a## or %art o* the shares *or resa#e to the %ub#ic( The ter" under$riter deri,es its "eaning *ro" *or"er @ritish 3nsurance !ractices( Jhen insuring their cargo shi%%ers $ou#d seek out in,estors to insure their %ro%erty( The insurers $ou#d

10

add their signatures and $ou#d $rite their na"es under those o* the shi%%er> hence the ter" Lunder$riterL( @oth in ter"s o* the insurance industry and securities "arkets- the conce%t o* under$riting ha,e eD%anded signi*icant#y since its ince%tion( Jest 5utua# &hi%%ers )ssociation out o* 'uDe"burg is under$riting &ocia# &ecurity )d"inistration a surety shi% contract or @ond( ;o$ you kno$ ho$ they are *inancing the co""odities and securities "arket and $hy ;e$ Mork City is ca##ed the Hreat Jhore o* @aby#on in the @ook o* 9e,e#ations Cha%ter 0< ,erses 00?2+( The Corrections Cor%oration o* )"erica o$ns "ost o* your %rison syste"s and se##s its stock and shares on the ;e$ Mork &tock 2Dchange- the "a7or stock ho#der is the !aine Jebber Hrou%( They ha,e a 4unn U @radstreet rating and are headRuartered in ;ash,i##e- Tennessee at 00 @urton :i##s @#,d and can be reached at 0?<00?O2+?2B10( Their Ticker &y"bo# *or their stock is CVJS%b on the ;M&2 and CVJ under business ser,ices on the ;M&2( 3n @er#in Her"any there ticker sy"bo# is CVJ(@2 and CVJ(42 in Frank*urt- Her"any( CC) #ater "erged into !93&E; 92)'TM T98&T- a 9ea# 2state 3n,est"ent Trust that is eDe"%t *ro" cor%orate taDes i* it "eets certain conditions( This $as a P+ @i##ion Transaction> co"%anies acRuire 8(&( Corrections Cor%oration( Ene i"%ortant condition is that it distribute B5W o* its inco"e to shareho#ders- a %ro,ision "aking 923Ts attracti,e to in,estors( !rison 9ea#ty Trust *ai#ed to "eet those conditions o* cash *#o$ %rob#e"s> it %osted a PO2-000-000 #oss *or 0BBB and $as in de*au#t on the ter"s o* its credit *aci#ity( Ja## &treet $as uni"%ressed at the co"%anys ear#ier sche"e to issue 7unk bonds( 3n,estors are angry that !X; #ost its 923T status and the re#ated di,idend> they are *i#ing c#ass actions suits against !rison 9ea#ty Trust *or *a#se c#ai"s on &ecurities and 2Dchange Co""ission docu"ents( &%eci*ica##y- they are concerned about the non?disc#osure o* %ay"ents by !X; to CC)( 5ean$hi#e !rison 9ea#ty 7ust %aid a di,idend on their %re*erred stock Abe#onging to eDecuti,es and institutiona# %artnersC- $hich sent the co""on stock to ne$ #o$s as shareho#ders rea#i6ed they are not #ike#y to see di,idends soon( 3n )%ri# o* 2000- co"%any audits eD%ressed doubt about the co"%anys so#,ency( &hares hit a ne$ 52 $eek #o$ o* 2(02 each- do$n *ro" the 52 $eek high o* P22(17( 3n his book the !er%etua# !risoner 5achine Fsee resourcesG- Joe# 4yer notes that outside one CC) *aci#ity- there is a %#acard $ith the $ords Mesterdays c#osing stock %rice( 3"agine the #egiti"acy and con*idence that are #ost by %eo%#e dri,ing by seeing the stock %rice %#u""et- or e,en seeing Mesterdays C#osing &tock !rice: P2(02( Together- CC) and its s%in o** !rison 9ea#ty Trust- #ost P2O5 "i##ion: 3ts a s#i" chance- but bankru%tcy is a %ossibi#ity- says an ana#yst *or First 8nion &ecurities( 'oca#ities that ha,e contracts $ith the co"%anies are concerned about $hether guards $i## get %aid- and ho$ "ora#e or turno,er $i## e**ect dai#y o%erations- inc#uding %rison security( The %ri,ate %rison $as o**ered a P200-000-000 restricting %#an *ro" its current shareho#der !aci*ic 'i*e 3nsurance Co( The !ri,ate %risons #argest shareho#der- 4re"an Qa#ue 5anage"ent- $as %#eased at the o**er: Je a#$ays "aintained that the A%risonC business $as greatbut this has been a *inancia# engineering disaster( &hareho#der #a$suits sti## "ust be sett#ed on satis*actory ter"s *or the dea# to be *ina#i6ed- but the other reRuire"ent $as "et $hen 'eh"an @rothers re*inanced !X;s P 0 bi##ion credit #ine( )t the c#ose o* business 2O )%ri#- the %rice c#osed be#o$ P1 a share again a*ter brie*#y hitting P1(50 the %re,ious $eek( !rices through the *irst ha#* o* "ay ha,e genera##y been be#o$ P1 a share( En June 7- the stock hit a ne$ #o$ o* P2(00 and ta#ks started on *inancia# restructuring to re"edy de*au#t on credit #ine( 4uring the neDt $eekstock rose P0 a share on ne$s that their P0 bi##ion credit #ine is restructured and they recei,e a P7<0-000-000 *edera# contract( 3nstru"enta# in %u##ing o** this contract $as *or"er Federa# @ureau o* !risons head J( 5ichae# Nuin#an$ho is no$ on the @oard o* !X;( The Federa# Contract- $ith guaranteed B5W occu%ancy rate- %ro,ided *inancia# resources to re7ect a restructuring o**er *ro" !aci*ic 'i*e 3nsurance- but a 'egg?5ason stock ana#yst dec#ared !X; an 8;429!29FE95( Nuin#an is no$ one o* the to% eDecuti,es in the co"%any( @ecause the stock has #ost 75W o* its ,a#ue- t$o o* the eDecuti,es are #ea,ing- but not $ithout a P0(1 "i##ion se,erance( E* course- theres a#so been "i##ions in attorney *ees- c#ass action #a$suits *ro" shareho#ders about the "erger and "anage"ent *ees *or restructuring( &hare %rices botto"ed out at P0(0< .yes- 0< cents> that rea##y ins%ires con*idence in the 7ustice syste"( They instituted a 00 *or 0 s%#it- $hich does not change the under#ying *inancia#s o* the co"%any- but %re,ented the" *ro" being re"o,ed *ro" the ;e$ Mork &tock 2Dchange(

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En February 21- 2000 !aci*ic 'i*e 3nsurance Co"%any sub"itted to the board o* directors o* !rison 9ea#ty Trust a shareho#der based %ro%osa# to in,est in and restructure !rison 9ea#ty Trust A;M&2:!X;C( The shareho#der %ro%osa# $ou#d in,o#,e additiona# ,a#ue- #ess di#ution and %otentia##y higher returns *or eDisting shareho#ders o* !rison 9ea#ty Trust- than the agree"ent !rison 9ea#ty Trust current#y has $ith Fortress 3n,est"ent Hrou% ''C- the @#ackstone Hrou% and @ank o* )"erica( Fortress 3n,est"ent Hrou% is a g#oba# a#ternati,e in,est"ent and asset "anage"ent *ir" *ounded in 0BB< $ith a%%roDi"ate#y P00 bi##ion in eRuity ca%ito#( They are #ocated at 0250 ),enue o* the )"ericas 0Oth *#oor ;e$ Mork- ;M 00020 0?202?7B<?O000( Fortress 7ust recent#y co"%#eted the acRuisition o* Her"anys *ourth #argest residentia# housing co"%anyH)HF):- *ro" the Her"an Federa# Ho,ern"ents socia# security and %ension agency@undes,ersicherungsansta#t Fuer )ngeste##te Aor @*)C( The transaction- $hich is ,a#ued at a%%roDi"ate#y 1(5 bi##ion euros A8(&( P+(1 bi##ionC- inc#udes the assu"%tion o* 0(+ bi##ion euros o* eDisting *inancing- a P0(+ bi##ion acRuisition #oan- and 700 "i##ion euros o* %ri,ate eRuity ca%ito#( Fortress on ;o,e"ber 05- 200+ "erged $ith &te#"ar &hi%%ing 'td( &te#"ar is an internationa# %ro,ider o* %etro#eu" %roducts and crude oi# trans%ortation ser,ices and is :eadRuartered in )thens- Hreece- &te#"ar o%erates one o* the $or#ds #argest and "ost "odern :andy"aD and !ana"aD tanker *#eets $ith an a,erage age o* a%%roDi"ate#y siD years( &te#"ars +0 ,esse# *#eet consists o* 2+ :andy"aD- 01 !ana"aD and three )*ra"aD tankers( The @#ackstone grou% is a %ri,ate in,est"ent banking *ir" and describes itse#* as a #eading g#oba# in,est"ent and ad,isory *ir"( The @#ackstone Hrou% $as *ounded in 0B<5 by a grou% o* *our- inc#uding !eter H( !eterson and &te%hen )( &ch$ar6"an( The @#ackstone Hrou% has ties to )"erican 3nternationa# Hrou% 3nc( A)3HC and Kissinger )ssociates3nc(I:enry Kissinger( )ccording to the @#ackstone $ebsite- )3H acRuired a 7 W non?,oting interest in the co"%any in 0BB< *or P050 "i##ionand co""itted to in,est P0(2 bi##ion in *uture @#ackstone s%onsored *unds( @#ackstone has de,e#o%ed strategic a##iances $ith so"e o* the #argest and "ost so%histicated internationa# *inancia# institutions( 3n addition to )3H- they inc#ude Kissinger )ssociates- 9o#and @erger U !artnerH"b:- and &candina,iska 2nski#da @anken- the $ebsite states F0G Ahtt%:II$$$(b#ackstone(co"Ico"%anyIbstSgrou%(ht"#C( The co"%anys @#ackstone )#ternati,e )sset 5anage"ent unit hand#es P0 bi##ion in hedge *unds *or %ension giant Ca#!29&( John Kerry Forbes 200+ ca"%aign =ad,isor 9oger C( )#t"an $as Qice Chair"an o* the @#ackstone Hrou% *ro" 0B<7 through 0BB2 $here he #ed the *ir"s "erger ad,isory business( 3n 4ece"ber 2000- the @#ackstone Hrou% $as a%%ointed as 2nrons %rinci%a# *inancia# ad,isor $ith regard to *inancia# restructuring( The @#ackstone Hrou% is a#so hand#ing the restructuring o* H#oba# Crossing( The @#ackstone Hrou% is #ocated at 1+5 !ark ),enue ;e$ Mork- ;M 0005+ 8&) !hone> Y0 202 5<1 5000 FaD: Y0 202 5<1 5702( 'ondon #ocation is the @#ackstone Hrou% 3nternationa# 'i"ited- &tir#ing &Ruare- 5?7 Car#ton Hardens- +th F#oor 'ondon- &J0M 5)4 8(K( !hone: Y++ 20 7+50 +000 FaD: Y++ 20 7+50 +01<( 3n Ectober 200+- Kissinger )ssociates and )!CE Jor#d$ide announced that they had *or"ed a strategic a##iance( )!CE Jor#d$ide is #ocated at 0O05 ' &t( ;(J(- # B00- Jashington- 4(C( %hone # 0?202?77<?0000( )!CE $or#d$ide $as started by 5argery Kraus in 0B<+ and she is acti,e on the board o* Hrou% 5enate% Achair- )d,isory @oardC- the #argest 9ussian ho#ding co"%any> Teu6a Fund- a Fairchi#d techno#ogy ,enture A3srae#C( Hrou% 52;)T2! is an internationa# di,ersi*ied ho#ding co"%any and #ong?ter" 9ussian strategic and %ort*o#io in,estor in internationa# *inancia# and ca%ita# "arkets( Kissinger )ssociates is #ocated at 150 !ark ),enue- ;e$ Mork( Ether grou%s associated $ith Kissinger are Kissinger 5c'arty )ssociates- 5i#itary?industria# co"%#eD and oi# industry( :enry Kissingers rea# na"e is

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:enry &tern- $ho started and trained the terrorist grou% the &tern Hang in 3srae#- $hich is no$ ca##ed the 5ossad( :e trains g#oba# terrorist grou%s *or the F@3- C3)- and the "i#itary- $hich are the grou%s running are go,ern"ent at e,ery *acet o* its eDistence( !aci*ic 'i*e- a #ong ter" in,estor- bene*icia##y o$ns a%%roDi"ate#y +(5 "i##ion shares o* !rison 9ea#ty Trust( The shareho#der %ro%osa# by !aci*ic 'i*e %ro,ides *or additiona# ,a#ue in the *or" o* &eries C !re*erred &tock Aa%%roDi"ate#y P2(20 %er shareC to be distributed to eDisting shareho#ders- and %otentia##y higher *uture returns- a#ong $ith generating bet$een P+5 to P021 "i##ion in additiona# cash *#o$ to !rison 9ea#ty Trust( !aci*ic 'i*e $as *ounded in 0<O< and %ro,ides #i*e and hea#th insurance %roducts- indi,idua# annuities and grou% e"%#oyee bene*its- and o**ers to indi,idua#s- businesses and %ension %#ans a ,ariety o* in,est"ent %roducts and ser,ices( The %aci*ic #i*e *a"i#y o* co"%anies "anages P100 bi##ion in assets- "aking it one o* the #argest *inancia# institutions in )"erica- and current#y counts O5 o* the 000 #argest 8(&( co"%anies as c#ients( !aci*ic 'i*e 3nsurance Co"%any is a "e"ber o* the *ortune 500 grou%( The !rison 9ea#ty Trust F!X;G- $hich is a rea# estate in,est"ent trust F923TG and is the $or#ds #argest %ri,ate sector o$ner and de,e#o%er( ) 923T is a co"%any that buys- de,e#o%s- "anages and se##s rea# estate assets- 923Ts a##o$s %artici%ates to in,est in a %ro*essiona##y "anaged %ort*o#io o* rea# estate %ro%erties923Ts Rua#i*y as %ass through entities- co"%anies $ho are ab#e distribute the "a7ority o* inco"e cash *#o$s to in,estors $ithout taDation at the cor%orate #e,e# A%ro,iding that certain conditions are "etC( )s %ass through entities- $hose "ain *unction is to %ass %ro*its on to in,estors- a 923Ts business acti,ities are genera##y restricted to generation o* %ro%erty renta# inco"e( )nother "a7or ad,antage o* 923T in,est"ent is its #iRuidity Aease o* #iRuidation o* assets into cashC- as co"%ared to traditiona# %ri,ate rea# estate o$nershi% $hich are not ,ery easy to #iRuidate( Ene reason *or the #iRuid nature o* 923T in,est"ents is that its shares are %ri"ari#y traded on "a7or eDchanges- "aking it easier to buy and se## 923T assetsIshares than to buy and se## %ro%erties in %ri,ate "arkets( The origins o* the rea# estate in,est"ent trust- or 923T A%ronounced reetC date back to the 0<<0s( )t that ti"e- in,estors cou#d a,oid doub#e taDation because trusts $ere not taDed at the cor%orate #e,e# i* inco"e $as distributed to bene*iciaries( This taD ad,antage- ho$e,er- $as re,ersed in the 0B10s- and a## %assi,e in,est"ents $ere taDed *irst at the cor%orate #e,e# and #ater taDed as a %art o* indi,idua# inco"es( 8n#ike stock and bond in,est"ent co"%anies- 923Ts $ere unab#e to secure #egis#ation to o,erturn the 0B10 decision unti# 10 years #ater( Fo##o$ing JJ33- the de"and *or rea# estate *unds skyrocketed and !resident 2isenho$er signed the 0BO0 rea# estate in,est"ent trust taD %ro,ision $hich reestab#ished the s%ecia# taD considerations Rua#i*ying 923Ts as %ass through entities Athus e#i"inating the doub#e taDationC( This #a$ has re"ained re#ati,e#y intact $ith "inor i"%ro,e"ents since its ince%tion( 923T in,est"ent increased throughout the 0B<0s $ith the e#i"ination o* certain rea# estate taD she#ters( 3n,est"ents in rea# estate %ro,ided in,estors $ith inco"e and a%%reciation( The TaD 9e*or" )ct o* 0B<O a##o$ed 923Ts to "anage their %ro%erties direct#y- and in 0BB1 923T in,est"ent barriers to %ension *unds $ere e#i"inated( This trend o* re*or"s continued to increase the interest in and ,a#ue o* 923T in,est"ent( Today- there are o,er 100 %ub#ic#y traded 923Ts o%erating in the 8nited &tates their assets tota# o,er P100 bi##ion( )%%roDi"ate#y t$o?thirds o* these trade on the nationa# stock eDchanges( 923Ts *a## into three broad categories: 2Ruity 923Ts: ABO(0WC 2Ruity 923T& in,est and o$n %ro%erties Athus res%onsib#e *or the eRuity or ,a#ue o* their rea# estate assetsC( Their re,enues co"e %rinci%a##y *ro" their %ro%erty rents( 5ortgage 923Ts: A0(OWC 5ortgage 923Ts dea# in in,est"ent and o$nershi% o* %ro%erty "ortgages( These 923Ts #oan "oney *or "ortgages to o$ners o* rea# estate- or in,est in A%urchaseC eDisting "ortgages or "ortgage backed securities( Their re,enues are generated %ri"ari#y by the interest that they earn on the "ortgage #oans( :ybrid 923Ts: A2(1WC

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:ybrid 923Ts co"bine the in,est"ent strategies o* 2Ruity 923Ts and 5ortgage 923Ts by in,esting in both %ro%erties and "ortgages( 3ndi,idua# 923Ts are ab#e to distinguish the"se#,es by s%ecia#i6ation( 923Ts "ay *ocus their in,est"ents geogra%hica##y Aby region- state- or "etro%o#itan areaC- or in %ro%erty ty%es Asuch as retai# %ro%ertiesindustria# *aci#ities- o**ice bui#dings- a%art"ents or hea#thcare *aci#itiesC( Certain 923Ts choose a broader *ocus- in,esting in a ,ariety o* ty%es o* %ro%erty and "ortgage assets across a $ider s%ectru" o* #ocations( The current 923T industrys in,est"ent choices can be broken do$n by %ro%erty: 9etai# 20W 9esidentia# 20(0W 3ndustria#IE**ice 11(0W &%ecia#ty 2(1 W :ea#th Care 1(<W &e#* &torage 1(OW 4i,ersi*ied <(5W 5ortgage @acked 0(5W 'odgingI9esort O(0W

Federa# !rison 3ndustries- a#so kno$n by its trade na"e 8;3CE9- *ounded in 0B1+- is o%erated by the 4e%art"ent o* Justice A4EJC and is $ho##y o$ned go,ern"ent cor%oration $hich e"%#oys 25 %ercent o* the Federa# @ureau o* !risons sentenced in"ate %o%u#ation( 8nicor is a su%%#ier to the "i#itary during the current $ar in 3raR( The go,ern"ent has a#so created the !rison 3ndustria# Co"%#eD- $hich is co"%osed o* the *o##o$ing )gencies: @io"etric Consortiu" @order 9esearch and Techno#ogy Center A@9TCC @ureau o* )#coho#- Tobacco- and Firear"s A@)TFC Corrections !rogra" E**ice AC!EC Counter drug Techno#ogy )ssess"ent Center ACT)CC 4rug 2n*orce"ent )d"inistration A42)C Federa# @ureau o* !risons AF@!C Federa# !rison 3ndustries Ao%erated by 4EJC> a#so kno$n as 8;3CE9 3""igration and ;atura#i6ation &er,ice ;ationa# 3nstitute o* Corrections A;3CC ;ationa# 3nstitute o* Justice A;3JC ;ationa# 'a$ 2n*orce"ent and Corrections Techno#ogy Center A;'2CTCC ;ationa# Technica# 3n*or"ation &er,ice A;T3&C E**ice o* Correctiona# 2ducation AEQ)2C E**ice o* 4rug Contro# !o#icy AE4C!C E**ice o* 'a$ 2n*orce"ent &tandards AE'2&C E**ice o* 'a$ 2n*orce"ent Techno#ogy Co""ercia#i6ation AE'2TCC E**ice o* ;ationa# 4rug Contro# !o#icy AE;4C!C E**ice o* &cience and Techno#ogy AE&UTC &%ace and ;a,a# Jar*are &yste"s Center- &an 4iego A;a,y &&C &an 4iegoC &outh$est @order :igh 3ntensity 4rug Tra**icking )rea A:34T)C 8;3CE9 8(&( Custo"s &er,ice 8(&( 4e%art"ent o* 4e*ense A4E4CI@io"etric 5anage"ent E**ice A@5EC 8(&( 4e%art"ent o* :o"e#and &ecurityI@order and Trans%ortation &ecurity 4irectorate A@T&C 8(&( 4e%art"ent o* Justice A4EJC 8(&( !aro#e Co""ission

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;on?Ho,ern"enta# 2ntities )#ternati,e 5onitoring &er,ices )"erican Correctiona# )ssociation )"erican 'egis#ati,e 2Dchange Counci# A)'2CC @ed brokers @3 3nc( A@io"etric &yste"sC The F@io"etric FoundationG @obby 9oss Hrou% Ca%ita# Correction 9esources Corne## Corrections correctiona#ne$s(co" corrections(co" Corrections Cor%oration o* )"erica ACC)C Corrections Me##o$ !ages 4o"inion 5anage"ent 4o,e 4e,e#o%"ent Cor%oration 2ar# Jarren 'ega# 3nstitute Federa# 2Dtradition )gency A%ri,ateC Henera# &ecurity &er,ice Ho,ern"ent o$nedIcontractor o%erated 3ridian Techno#ogies- 3nc( A*or"er#y 3ri&can- 3nc(C Ju,eni#e and Jai# Faci#ity 5anage"ent &er,ices Justice !o#icy 3nstitute AJ!3C Justice Techno#ogy 3n*or"ation ;et$ork AJT3;C 'a$ 2n*orce"ent and Corrections Techno#ogy )d,isory Counci# A'2CT)CC 5ace &ecurity 3nc( 5anage"ent and Training Cor%oration 5anhattan 3nstitute 5arriott 5anage"ent &er,ices 5isuse o* #abor ;?Hrou% &ecurities ;ationa# Cri"ina# Justice Co""ission ;ationa# 3nstitute o* Corrections A;3CC E%en &ociety 3nstituteICenter on Cri"e- Co""unities and Cu#ture !re"ier 4etention &er,ices !rintrak A5otoro#aC !rison 3ndustries The !rison 'itigation 9e*or" )ct A0BBOC !rison 9ea#ty Trust A"erged $ith Corrections Cor%oration o* )"ericaC !rison te#e%hone ser,ice A)TUT the )uthority> @e##&outh 5)V- 5C3 5aDi"u" &ecurity- ;orth )"erican 3n te#eco"C 9U& !risoner Trans%ort 9ent?a?ca## Asee bed brokersC &cienti*ic )%%#ications and 9esearch )ssociates A&)9)C The &entencing !ro7ect &2;T93I&ecured 2#ectronic ;et$ork *or Tra,e#ers 9a%id 3ns%ection &erco Hrou%- 3nc( &tun Tech 3nc( T9ansCor )"erica 8rban 4e,e#o%"ent Cor%oration 8(&( Corrections Cor%oration %urchased by Corrections Cor%oration o* )"erica Jackenhut Cor%orationIJackenhut Corrections Ether 9e#ated 4isin*o%edia 9esources

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@io"etrics 4e*ense contractors 2ugenics Federa# contractors H#oba# detention syste" H#oba# econo"y H#oba#i6ation 5i#itary?industria# co"%#eD &ur,ei##ance?industria# co"%#eD !o%u#ation contro# !rison #abor &ustainab#e de,e#o%"ent Ti"e#ine to g#oba# go,ernance 2Dterna# #inks Jiki%edia: carcera# state Jiki%edia: retribution 7ustice Jiki%edia: %rison?industria# co"%#eD 4isin*o%edia is an encyc#o%edia o* %eo%#e- issues and grou%s sha%ing the %ub#ic agenda( 3t is a %ro7ect o* the Center *or 5edia U 4e"ocracy> e"ai# bob )T 4isin*o%edia( )"erican 'egis#ati,e 2Dchange Counci# is o$ned by !au# Jeyrich o* the Free Congress Foundation and recei,es *inancia# su%%ort *ro" a## o* your "a7or cor%orations( They are the "o,ing *orce and %ro"oter o* the ;ationa# Counci# o* &tate 'egis#atures $ho %ri,ati6e cri"ina# statutes *or *inancia# gain and %ro*it( They are %ro"oting %ub#ic %o#icy in regard to %ri6e and ca%ture #a$ under the Jar !o$ers )cts( The 9eason Foundation is run by 4a,id ;ott- the %resident and is a think tank %ro"oting %ri,ati6ation o* %ena# institutions *or *inancia# gain they are #ocated at 1+05 &( &e%u#,eda @#,d( &uite +00 'os )nge#es Ca#i*ornia B001+ 0?100?1B0?22+5( The Jackenhut Cor%oration is a 8(&( based di,ision o* Hrou% + Fa#ck )I&- the $or#ds second #argest %ro,ider o* &ecurity &er,ices and is based in Co%enhagen- 4en"ark and is the %re"ier 8(&( %ro,ider o* contract ser,ices to the business- co""ercia#- and go,ern"ent "arkets( The ty%es and techniRues o* !ri,ati6ation are: 0( 2( 1( +( 5( O( 7( <( B( 00( 00( 02( Contracting Eut Fa#so ca##ed EutsourcingG 5anage"ent Contracts !ub#ic?!ri,ate Co"%etition Fa#so ca##ed "anaged co"%etition or "arket testingG Franchise 3nterna# 5arkets Qouchers Co""ercia#i6ation Fa#so re*erred to as ser,ice sheddingG &e#* :e#% Fa#so re*erred to as trans*er to non?%ro*it organi6ationG Qo#unteers Cor%orati6ation )sset &a#e or 'ong?Ter" 'ease !ri,ate 3n*rastructure 4e,e#o%"ent and E%eration

Corne## Corrections 3nc( F;M&2:C9;G is chaired by 4)Q34 5( CE9;2'' and their Co"%anys conce%t began 4ece"ber 7- 0BB0- it $as a rough business %#an- yet the 4i##on 9ead Qenture Ca%ito# beca"e there *irst in,estor on February 20- 0BB0 FThey are a#so ca##ed Trinity Qenture Ca%ita# and &hane 9eihi## is the Chair"an and *ounder( They bui#t correctiona# *aci#ities in !#y"outh- 5assachusetts- the other in Centra# Fa##s- 9hode 3s#and( They ha,e gro$n 11?*o#d in re,enues and o**enders under contract since that ti"e( They ha,e di,ersi*ied and are no$ de%endent u%on de,e#o%"ent and ha,e di,ersi*ied into the three sectors o* the business? secure institutiona#- they go u% to "aDi"u" security> 7u,eni#e> and %re?re#ease( They are the on#y co"%any rea##y in the business o* aggressi,e#y gro$ing in each o* these three sectors( There

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institutiona# re,enues are around +2 %ercent- 7u,eni#e re,enues a%%roDi"ate +0 %ercent and %rere#ease re,enues are around 0< %ercent( These *actors re%resent the outsourcing %hase o* the %rison syste"( This co"%any is current#y o%erating in *i,e di**erent ti"e 6ones and is headRuartered at 0700 J( 'EE! &E8T:&83T2 0500 :E8&TE;- T2V)& F77027G F0?701?215?B1OOG( 4i##ion 9ead Qenture Ca%ita# a ;e$ Mork based cor%oration "erged $ith &H Jarburg in 0BB7 creating Jarburg 4i##ion 9ead( 'ondon based 8@& Jarburg is the in,est"ent banking di,ision o* the &$iss giant 8@&- one o* the #argest banks in the $or#d( 3t has so"e +0-000 e"%#oyees s%read across +0 countries( This bank $as started by the !au# Jarburg *a"i#y $hich o$ns and contro#s the Jor#d @ank and started the Federa# 9eser,e &yste"( 8@& Jarburg is #ocated at 0+0 Jest Jackson @ou#e,ard Chicago- 3##inois O0O0+( !ri,ati6ation is the trans*er o* assets or ser,ice de#i,ery *ro" the go,ern"ent sector( !risons are nothing but $arehouses *or the storage o* goods and chatte# under co""ercia# #a$( The Jarden is a @ai#ee or Jarehouse"an Fbe*ore the ter" ad"ira# $as used :e $as ca##ed Custos 5aris Jarden o* the &eaG F3n so"e ancient records :e $as ca##ed Ca%itanus 5ariti"aru" or Ca%tain or Tenant in Chie* o* the 5ariti"eG $ho recei,es %ersona# %ro%erty *ro" another as @ai#"ent( The @ai#er is one $ho %ro,ides bai# as a surety *or a cri"ina# de*endants re#ease( )#so s%e##ed @ai#or( @ai#"ent is the de#i,ery o* %ersona# %ro%erty by one %erson Fthe @ai#orG to another Fthe @ai#eeG $ho ho#ds the %ro%erty *or a certain %ur%ose under an eD%ressed or i"%#ied?in?*act contract( Hoods are tangib#e or "o,ab#e %ro%erty other than "oney> es%ecia##y artic#es o* trade or ite"s o* "erchandi6e( The sa#e o* goods is go,erned by )rtic#e 2 o* the 8(C(C( Hoods "eans a## things- inc#uding s%ecia##y "anu*actured goods- that are "o,ab#e at the ti"e o* identi*ication to contract *or sa#e and *uture goods( The ter" inc#udes the unborn young o* ani"a#s- gro$ing cro%s- and other identi*ied things to be se,ered *ro" rea# %ro%erty ( ( ( ( The ter" does not inc#ude "oney in $hich the %rice is to be %aid- the sub7ect "atter o* *oreign eDchange transactions docu"ents- #etters o* credit- #etter?o*?credit rights- instru"ents- in,est"ent %ro%erty- accounts- chatte# %a%er- de%osit accounts- or genera# intangib#es( 8(C(C( 2?002AaC A2+C( Ho to the !aine Jebber grou% on any search engine or go to $$$(transnationa#e(orgI%aysI8&)s(ht" you $i## see the 20 #argest co"%anies)eros%ace- Food Chains- Credit Card Co"%anies- @anks- 3nsurance- 5edia- )uto- @iotechno#ogy- Che"ica#Consu#ting- Construction- Cos"etics- Jaste 5anage"ent- 4e*ense- 9etai#- Cong#o"erate- Jater2#ectricity- )%%#iance- 2#ectronics- !ackaging- 2nergy- &choo#- 2Rui%"ent- Finance- :o#ding- :ote#s- 9ea# 2state- Co"%uter- 9ecreationa#- 5ateria#s- 5edica#- 5ining- Fashion- 5otorbike- !a%er- !ri,ate !erson!har"aceutica#- !ost: 8&!& F8nited &tates !osta# &er,ice- C;F 3ncG- !rinting U !ub#ishing- )d,ertising9estaurants- :ea#thcare- &er,ices- 5eta#- Tobacco- Te#eco""unications- TeDti#e )%%are#- Touris"Trans%ortation- and &ta**ing( This grou% is the 8nited &tates o* )"erica and is the #argest stock ho#der in the $or#d in Corrections Cor%oration o* )"erica that o$ns and contro#s the entire $or#d %rison syste"through you and is *unded by your co""ercia# dishonor( ;otice that the !osta# &er,ice is in,o#,ed in this( ;o$ you kno$ $hy the 8nited &tates o* )"erica is the !#ainti** in e,ery Federa# TaD Case- they o$n and run the %rison syste"( Transnationa# Cor%orations Ebser,atory- non?%ro*it organi6ation created by 9egis Caste##ani in Ectober 0BBB in 5arttiRues FFranceG- "aintains a g#oba# %ro*i#e on 00-000 Cor%orations( 2,erything is being run under the 'a$ 5erchant under 8(C(C( 0?001( &ection 0775(0+ o* Tit#e 07 Cor%orations: !artnershi%s o* the Ehio 9e,ised Code says 9u#es o* 'a$ and 2Ruity- inc#uding the 'a$ 5erchant- to go,ern( 8CC 0?001 is Ruoted in the )d"inistrati,e 5anua# o* the 3nterna# 9e,enue &er,ice%ut out by CC: and says that the #a$ o* the 5erchant go,erns a## sections in the 3nterna# 9e,enue Code( @ased on the abo,e in*or"ation it #ooks #ike H&) and H)E are hea,i#y in,o#,ed in the accounting as%ect o* the !rison &yste"- $hich eD%#ains $hy they are su%%#ying a## the @ond *or"s res%ecting the @id!er*or"ance- !ay"ent and )**ida,it o* 3ndi,idua# &urety( Jhen your dishonor is so#d $ithin the 8nited &tates it has a siD digit accounting # and is ca##ed a Cardina# nu"ber- $hen it is so#d at the 3nternationa# 'e,e# it goes Erdinance or 5i#itary and uses a nine digit accounting nu"ber( This is $here )utoT93& and C8&3! co"e in( )utoT93& is the )uto"ated Forensic Traces 3n,estigation &yste" and $as designed in the 9ussian Federa# Center o* Forensic &cience using a gra%hica# too#kit that $as de,e#o%ed at )uto"ation 4esigns U &o#utions- 3nc( *or other so*t$are %roducts( )utoT93& is co%yrighted and #icensed to )4U& in the 8&) and other countries o* )"erica( This %rogra" is used as a Jai# 5anage"ent &yste" *or 3n"ate Tracking( This syste" a#so has a 'a$ 2n*orce"ent 5odu#e and a Court 5anage"ent 5odu#e *or courtroo" accounting( 2,ery "etro%o#itan !o#ice 4e%art"ent and Federa# !o#ice ha,e this syste" insta##ed in their Qehic#es and is re*erred to as the Cri"ina# Justice Tracking &yste"( Vignite- 3nc( designs the so*t$are that is used in )utoT93& and is #ocated at 02B0 2ast :i##sda#e @ou#e,ard- &uite 200 . Foster City- Ca#i*ornia B++0+? 8nited &tates o* )"erica? O50?O55?1700 or ca## to## *ree 0?<OO?V5'?&E)!( C8&3! is the trade"ark *or the syste" that uniRue#y identi*ies securities and other instru"ents o* genera# interest( The ;a"e C8&3! is deri,ed *ro" the )@) Co""ittee on 8ni*or" &ecurity 3denti*ication !rocedures( The C8&3! )gency is

17

the organi6ation $ithin the )@) F)"erican @ankers )ssociationG $hich is charged $ith the res%onsibi#ity o* de,e#o%ing- enhancing- and "aintaining the syste" and %o#icies necessary *or uni*or" securities identi*ication( C8&3! is the Trade"ark o* &tandard and !oors- $hich o%erates under a #icense agree"ent $ith the )@)( )nd is #ocated at 55 Jater &treet- +7th *#oor ;e$ Mork- ;M 000+0( 3nterested#y this is the sa"e address o* the 4TC 4e%ository Trust Coo%eration and The 4e%ository Trust Co"%any $hich is the ho#ding and sett#e"ent co"%any *or a## credit card trust accounts and is the ho#der o* a## bonds and certi*icated securities *or a## in,estors and $hich is the c#earinghouse *or a## goods- co""odities- and securities( 3t is a#so ca##ed or re*erred to as the 25CC- 5&CC- ;&CC- 4TCC- H&CC- F3CC- HC; Fthe H#oba# C#earing ;et$orkG and 4CCU& F4e*ined Contribution C#earance U &ett#e"entG( These are the c#earinghouses *or a## shares and stocks so#d through the CC) and the !aine Jebber Hrou%- )IKI) the 8nited &tates o* )"erican( 3 *ina##y understand $here the 8nited &tates o* )"erica is #ocated and $ho they are and $hy in the @#uebook %ut out by the )@) F)"erican @ar )ssociationG they are re*erred to as a *oreign country( C8&3! a#so identi*ies the issuers o* securities and other *inancia# instru"ents $ithin a standard nine?character *ra"e$ork- and disse"inating this in*or"ation to the *inancia# "arket%#ace( 3 ha,e a *or" *ro" C8&3! ca##ed a !93Q)T2 !')C252;T 2N83TM $hich identi*ies 5utua# Funds- !re*erred &tock- Jarrant and 9ights( :o$ "uch do you $ant to bet that C8&3! and 4TC is the c#earinghouse *or a## )rrest JarrantsZ Jhich are co""ercia# checks under )rtic#e 1 o* the 8(C(C(Z 3 a#so ha,e a *or" ca##ed a !93Q)T2 !')C252;T 42@T- $hich identi*ies *or %urchase &eria# @onds- Ter" @onds- Currency- and &inking Funds( )## @onds are identi*ied by using a C8&3! nine digit nu"ber( 3 ha,e a 2O !age #ist $ith @onds- Treasury @i##s- ;otes- Freddie 5ac- Hinnie 5ae- &a##y 5ae- and Fannie 5ae( They are a#so o**ering T@)s $hich are *utures contracts on "ortgaged?backed %oo#s( Jorking $ith the 5@&CC- the C8&3! &er,ice @ureau de,e#o%ed s%ecia#i6ed nu"bering sche"e T@) FThe @ond 5arket )ssociationG "ortgaged? backed securities F5ortgage @acked &ecurities is o$nershi% %osition in a grou%- or %oo#- o* "ortgage #oans( 3t is @onds in $hich interest and %rinci%a# recei,ed *ro" this %oo# o* "ortgage #oans are %assed through to the @ondho#dersG( T@) and C8&3!s incor%orate $ithin the nu"ber itse#*- a securitys "ortgage ty%e FHinnie 5ae- Fannie 5ae- &a##y 5ae- and Freddie 5acG- cou%on- "aturity- and sett#e"ent "onth( For *inancia# instru"ents acti,e#y traded on an 3nternationa# basis- $hich are either under$ritten debt issues or do"ici#ed eRuities outside the 8nited &tates and Canada- the *inancia# instru"ents $i## be identi*ied by a C3;& FC8&3! 3nternationa# ;u"bering &yste"G nu"ber( The C3;& nu"ber $as de,e#o%ed in 0B<< by &tandard U !oors and Te#ekurs F8&)G in res%onse to the ;orth )"erican &ecurities industries need *or B character identi*ier *or 3nternationa# Financia# 3nstru"ents( C3;& nu"bers a%%ear in the 3nternationa# &ecurities 3denti*ication 4irectory F3&34 !#us &er,icesG $hich is co?%roduced by &tandard U !oors and Te#kurs F8&)G( To sho$ ho$ "assi,e this syste" is 3&34 %#us contains o,er 500-000 g#oba# *inancia# instru"ents and cross re*erences a## "a7or nationa# nu"bering syste"s((( 3&34 !#us has been designed to "ini"i6e the i"%act on back?o**ice syste"s and o%erations- $hi#e *aci#itating cross?border co""unications a"ong g#oba# custodiansde%ositories- banks- securities organi6ations- and eDchanges( C3;& nu"bers e"%#oy the sa"e issuer FO charactersG 3ssue F2 characters U check digitG conce%t es%oused by the C8&3! ;u"bering &yste"( The *irst %osition o* a C3;& code is a#$ays re%resented by an a#%ha character- signi*ying the 3ssuers country code Fdo"ici#eG or Heogra%hic region( The ;ationa# )ssociation o* 3nsurance Co""issioners F;)3CG in Ectober 0B<< "andated the use by issuers o* a uni*or" %ri,ate %#ace"ent nu"ber F!!;G to identi*y in,est"ents in their annua# state"ents *i#ed $ith the &tate 9egu#atory )uthorities( &tandard U !oors C8&3! &er,ice $as se#ected by the ;)3C to create- assign- and ad"inister the !!; syste" %ri"ari#y *or the 3nsurance 3ndustry( )t the 3nternationa# #e,e# there is 2!35 Fthe 2uro%ean !re?issuance 5essagingG- $hich is a centra# "essaging hub #inking the %arties in,o#,ed in the 3ssuance o* 2uro%ean Co""ercia# !a%er F2C!G- inc#uding banks- dea#ers- issuing and %aying agents- securities de%ositories and nu"bering agencies( 2!35 $as #aunched as a coo%erati,e e**ort by 2uroc#ear- C#earstrea" 3nternationa#- and 4TCC( E"ega ''C- a 7oint ,enture co"%any o$ned eRua##y by the 4e%ository Trust U C#earing Cor%oration F4TCCG and Tho"son Financia#- is the #eading o* co"%#ete g#oba# trade "anage"ent ser,ices( ) uniRue %artnershi% bet$een the securities 3ndustries #eading uti#ity and the co""ercia# sector- E"ega is industry?backed and "arket? oriented( Through its integrated suite o* 3nte##igent Trade 5anage"ent &o#utions &5( 3 ha,e the )rtic#es o* 3ncor%oration o* T:2 )&&EC3)T3E; o* ;)T3E;)' ;85@293;H )H2;C32& or F);;) &CG the registered o**ice is #ocated and estab#ished at O- a,enue de &chi%ho#?00+0 @russe#s . @e#giu"( The ob7ect o* );;) is to "aintain and %ro"ote the standards o* 3nternationa# &tandard 3&E O0OO- as a"ended *ro" ti"e to ti"e Fherea*ter the &tandardG( 3 bet that this standard # O0OO is the nu"ber o* a "an and :is nu"ber is OOO and is ta#ked about in 9e,e#ations 01> 0< and $hose

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%ur%ose under )rtic#e 1 is to carry out any co""ercia#- *inancia#- or ci,i# transactions direct#y or indirect#y re#ated to the ob7ects o* );;)( 8nder )rtic#e 5 );;) has un#i"ited Ca%ita# through @3& F@ank *or 3nternationa# &ett#e"entsG- CC)- )'2C- J)CK2;:8T- CE9;2'' CE992CT3E;&- 92)&E; FE8;4)T3E;- 43''3E; 92)4 Q2;T892 C)!3TE'- &H J)9@89H- 8@& J)9@89H- J)9@89H 43''E; 92)4 and the !)3;2 J2@@29 H9E8!( 8nder )rtic#e 2B );;) has a #ist o* a## %ub#ic *indsshares- stocks- bonds- and other securities co"%osing );;)& !ort*o#io( 3 think );;) is o$ned by the Erder o* Jesuits out o* 9o"e 3ta#y- $hich is run by Count :ans Ko#,enbach- the head Henera#- !onti** and Hregorian Counse# *or the Erder o* Jesuits and he is ca##ed the @#ack !o%e and $ho o$ns and contro#s a## !risons- !ena# 3nstitutions- and @anks( );;) a#so assigns the 3&3; F3nternationa# &ecurities 3denti*ication ;u"berG( The First Character: Category F2Ruities- 4ebt 3nstru"ents- 9ights- E%tions- Futures- EthersG( The &econd Character: Hrou% $ithin category e(g( eRuities into shares- %re*erred shares etc( The Third to &iDth Character: attributes *or *urther descri%tion and grou%ing( The @ank *or 3nternationa# &ett#e"ents is at the a%eD o* a## o* the $or#ds centra# banks- since they contro# and dictate "onetary %o#icy $or#d$ide( 3n the #ate 0BB0s they set u% a ne$ structure ca##ed the Financia# &tabi#ity Foru"( Jhich brought together the H 7 Centra# @ank "inisters- H 7 Finance 5inisterstheir res%ecti,e &ecurities and 2Dchange Co""issions- the Co"%tro##er o* the Currency and F43C- a#ong $ith the 35F and Jor#d @ank( This re%resents a *urther integration o* the econo"ies- %o#icies and "o,e"ent o* "onies and in,est"ents( Further "ore- in addition to the Centra# @anks- there is the Hrou% o* 2ight $hich is co"%rised o* the heads o* state *ro" the 8nited &tates- Canada- Her"any- Ja%an- 3ta#yFrance- Hreat @ritain- and 9ussia( They ha,e been "eeting since 0B75 $hen there $ere on#y *i,e countries( 9ussia is the "ost recent country to 7oin( They %artici%ate *u##y in e,ery area $ith the eDce%tion o* *inance $here they on#y %artici%ate in *inancia# terroris"( For 22 years- the H7 *inance "inisters "et a#one( Then in 0BB< they $ere 7oined by the centra# bank "inisters( They are %ri,ate cor%orations estab#ished in e,ery country to "anage and contro# that countrys "onetary syste"> this "akes the Treasury &ecretary o* the 8nited &tates a %u%%et o* the Federa# 9eser,e- a %ri,ate cor%oration( The 8(&( has changed the contro# o* our banking syste" by re%ea#ing the H#ass?&tega## )ct in 0BBB that a##o$ed banks to buy brokerage *ir"s and insurance co"%anies( That set the tone *or other countries to *o##o$ suit( Further"ore- $ith the estab#ish"ent o* the Jor#d Trade Ergani6ation Financia# &er,ices )gree"ent $hich de"ands that a## countries a##o$ *oreign banks- brokerage *ir"s and insurance co"%anies to enter their "arket- they chi%%ed a$ay at nationa# *inancia# so,ereignty( &ince the centra# banks ho#d the currency o* other countries- a## that has to be done in order to destroy a country is to se## their currency at sa"e ti"e( There*ore as a resu#t o* the g#oba# ,o#ati#ity $hich 3 be#ie,e $as a resu#t o* the centra# banks se##ing the a*ore"entioned countries currencies> the Financia# &tabi#ity Foru" $as set u% as a *urther #ayer and dee%er integration o* the g#oba# econo"ies( )#so contributing to the ne$ *inancia# architecture is the rise o* "u#ti?nationa# and transnationa# cor%orations- "ergers and acRuisitions- country %ri,ati6ation o* its assets such as rai#roads- agricu#turebanks- air#ines- te#e%hone co"%anies- etc( Further"ore- the rise o* %ub#ic?%ri,ate %artnershi%s $hich is a "erger bet$een go,ern"ent and business- a#so kno$n as *ascis"- has contributed to a changed *inancia# #andsca%e( 3n addition- there is the "o,e to$ards a g#oba# stock eDchange- the estab#ish"ent o* a Jor#ds Custo"s Ergani6ation and o%en skies bet$een countries( Jhy is %ri,ati6ing %risons so a%%ea#ing to *edera#- state- and #oca# go,ern"entsZ )s the ;ation %ut it: The se##ing %oint $as si"%#e: !ri,ate co"%anies cou#d bui#d and run %risons chea%er that the go,ern"ents( 8n*ettered )"erican Ca%ita#is" $ou#d %roduce a better *etter- sa,ing cash?stra%%ed states "i##ions o* do##ars each year $hi#e si"u#taneous#y generating huge %ro*its( The ;ation eD%#ains this "irac#e $ou#d be acco"%#ished( !ri,ate %risons recei,e a guaranteed F%er die"G *ee *or each %risoner- regard#ess o* the actua# costs( 2ach di"e they dont s%end on *ood or "edica# care F*or %risonersG or on $ages and training *or the guards is a di"e they can %ocket( 5ost guards in %ub#ic %risons be#ong to the '2E8- $hich is %art o* the )"erican Federation o* &tate- County- and 5unici%a# 2"%#oyees )F&C52( 3 ha,e a %ointed Ruestion *or you- $hy arent $e as %rinci%a#s on the !ri,ate side o* the accounting cyc#e using our 2De"%tion !riority to discharge a## this !ub#ic 4ebt under the 8ni*or" 2De"%tion )ct section 1 2De"%t "eans %rotected- and eDe"%tion "eans %rotection- *ro" sub7ection to a 7udicia# #ien- %rocess- or %roceeding to co##ect a debt( The ans$er is $e are a## doub#e "inded and do not kno$ $ho $e are in a co""ercia# setting( 2,ery indi,idua# in !rison is in there- because o* a Co""ercia# 4ishonor( ) %erson $ho has doubts is thinking about t$o di**erent things at the sa"e ti"e and cant "ake u% his "ind about anything or as the King Ja"es Qersion says ) doub#e "inded "an is unstab#e in a## his $ays( Ja"es 0:<( 'et us regain and c#ai" our honor and status as the !rinci%a# $ith %ri"ary res%onsibi#ity on ob#igations *or

19

discharge on the %ub#ic and %ay"ent on the %ri,ate( Through our 2De"%tion as !rinci%a#- $e can use these &tandard *or" 2+ @id @onds F see tit#e +< section 2<(000G- !er*or"ance @onds Fsee tit#e +< sections 2<(002?0 and 2<(00O?1 AbCG &tandard For" 25- and !ay"ent @onds &tandard For" 25)- Fsee tit#e +< sections 2<(002?0 and 2<(00O?1 AbCG *or" 2< )**ida,it o* 3ndi,idua# &urety Fsee tit#e +< sections 2<(002?0 and 2<(00O?1 AbCGissued by H&) under the Co"%tro##er Henera#- to discharge any debts( @id @onds are usua##y %urchased by @rokerage :ouses- and 3nsurance Co"%anies( E%tiona# *or" B0- 9e#ease o* 'ien on 9ea# !ro%erty Fsee tit#e +< section 2<(201?5G )nd E%tiona# For" B0- 9e#ease o* !ersona# !ro%erty *ro" 2scro$ Fsee tit#e +< section 2<(201?5G( These bonds can be used to re#ease the #iens i"%osed by the bid- %er*or"ance- and %ay"ent bonds and )**ida,it o* 3ndi,idua# &urety( )n 3rre,ocab#e 'etter o* Credit under tit#e +< section 52(22<?0+ can be used in #ieu o* a bid bond( AaC 3rre,ocab#e #etter o* credit A3'CC- as used in this c#ause- "eans a $ritten co""it"ent by a *edera##y insured *inancia# institution to %ay a## or %art o* a stated a"ount o* "oney- unti# the eD%iration date o* the #etter- u%on %resentation by the Ho,ern"ent Athe bene*iciaryC o* a $ritten de"and there*or( ;either the *inancia# institution nor the o**erorIContractor can re,oke or condition the #etter o* credit( AbC 3* the o**eror intends to use an 3'C in #ieu o* a bid bond- or to secure other ty%es o* bonds such as %er*or"ance and %ay"ent bonds- the #etter o* credit and #etter o* con*ir"ation *or"ats in %aragra%hs AeC and A*C o* this c#ause sha## be used( 8nder section AgC o* the c#ause at 52(22<?0+ the contractor can dra$ on the 3'C using the sight dra*t dra$ u% in section AgC( @y #ega# de*inition a## o* your Federa# and &tate &tatutes are @onds or Eb#igations o* 9ecord and are re%resented in the courtroo" by the 9ecogni6ance @ond- $hich is a @ond o* 9ecord or Eb#igation *or the %ay"ent o* debt( ) condensed ,ersion o* $hat is going on is that the CC) as a cor%oration- creates or issues stock certi*icates based on %rison %o%u#ation- goods or chatte# as they are ca##ed in co""ercia# #a$( The under$riter is the one $ho buys the stock *ro" the 3ssuer the CC) $ith intent to rese## it to the %ub#ic or an entity or %erson- $hich is usua##y an in,est"ent banker( The in,est"ent banker %urchases a## or %art o* the shares o* the stock *or resa#e to the %ub#ic in the *or" o* ne$#y issued in,est"ent securities based on the shares o* the stock( @rokerage :ouses and 3nsurance Co"%anies @id on the 3n,est"ent &ecurities $ith a @id @ond issued by the H&)( The @id @ond is then inde"ni*ied by a surety co"%any through !er*or"ance and !ay"ent @onds( The @id- !er*or"ance- and !ay"ent @onds are then under$ritten by an )**ida,it o* 3ndi,idua# &urety through the @anks as 3n,est"ent &ecurities *or resa#e to the %ub#ic( The 3nstitutiona# :o#ders $ho o$n "ost o* the &hares are: 0( F59 FFide#ity 5anage"ent U 9esearch Cor%oration 1- 0<+-02+ shares at a ,a#ue o* P00B-7B0-25+ do##ars( 2((( 'egg 5ason 3nc( 0-215-5O1 shares ,a#ued at P+1-B<O-0+2 do##ars( 1( @arc#ays @ank !ic 0- 0+0-O70 shares ,a#ued at P17-0<1-+<7( There are se,enteen "ore cor%orations o$ning ,arious a"ounts o* shares at ,arying do##ar ,a#ues( These can be ,ie$ed by going to htt%:II*inance(yahoo(co"IRI"hZs/CVJ( The To% 3nsider U 9u#e 0++ :o#ders are: 0( 2( 1( 9usse##- Jose%h Q( O+-+50 shares as o* 2?5ay?01 Ferguson- John 4( Nuin#an- J( 5ichae# +0-1+0 shares as o* 2?5ay?01 2<-575 shares as o* 00?&e%?02

20

+( 5(

Turner- Ji""y :orne- John 9(

01-<07 shares as o* 21?5ay?01 5-750 shares as o* 2B?Jun?0+

)s you can see by the abo,e in*or"ation- this syste" %er"eates e,ery *abric o* our society( This treatise re%resents about 700 hours o* brainstor"ing( Current#y g#oba# terroris" is being *unded by the %rison syste" and the &tates 9etire"ent Fund go to $$$(4i,estTerror(Erg this is a 005 %age treatise on the Terroris" 3n,est"ents o* the 50 &tates( Ho to a search engine and ty%e in 8(& Courts( Ho to court #inks and c#ick- $hich sho$s a "a% o* the circuit courts- c#ick on 7th circuit- a #ist o* the 7th and <th circuit courts $i## a%%ear- c#ick on 3##inois ;orthern 4istrict Court- then c#ick on C#erks E**ice- then go to ad"inistrati,e ser,ices- then to Financia# 4e%art"entyou $i## see Cri"ina# Justice )ct- !ost Judg"ent 3nterest 9ates- and #ist o* sureties- c#ick on sureties it $i## take you to F5&(T92)&(HEQ- there on #e*t side you $i## see sureties #isting- ad"itted reinsurers and *or"sc#ick on *or"s and you $i## see 9einsurance )gree"ent *or a 5i##er )ct !er*or"ance @ond &F 271- and a &F27+ !ay"ent @ond and a 9einsurance )gree"ent in Fa,or o* the 8nited &tates &F 275 and a #ist o* )d"itted 9einsurers- !oo#s and )ssociations - and '#oyds &yndicates- you $i## a#so see a #ist o* the 4e%art"ent o* the Treasurys 'isting o* )%%ro,ed &ureties F4e%art"ent Circu#ar 570G( 8(&( 4istrict Courts are buying u% the &tate Court de*au#t 7udg"ents- $hen you re*use to %ay or dishonor the debt( Contractors and 3nsurance Co"%anies are bidding on the de*au#t 7udg"ents $ith a @id @ond- then a 9einsurance Co"%any co"es in and %urchases a !er*or"ance @ond as a surety *or the @id @ond( The !er*or"ance @ond is then under $ritten by a !ay"ent @ond- The !ay"ent @ond is then under $ritten by an )**ida,it o* 3ndi,idua# &urety- this is usua##y done by an in,est"ent co"%any or in,est"ent banker( Jhen these @onds are %oo#ed they beco"e "ortgage backed securities or surety bonds( They are then %ut on the bond "arket through T@) FThe @ond )ssociationG( These bonds are a#so so#d as in,est"ent securities through brokerage houses or insurance co"%anies( &ecuricor is one o* your biggest internationa# securities co"%anies and is #ocated in &outh )*rica and ha,e acRuired Hray &ecurity &er,ices( &ecuricor $as *or"ed *ro" the "erger bet$een &ecuricor %ic and Hrou% + Fa#k- $hich $as co"%#eted in Ju#y 200+( &ecuricor o%erates in 50 di**erent countries( 9einsurance is de*ined as insurance o* a## or %art o* one insurers risk by a second insurer- $ho acce%ts the risk in eDchange *or a %ercentage o* the origina# %re"iu"> this is a## ad"ira#ty "ariti"e at its *inest( )#so ter"ed reassurance( The ter" =reinsurance has been used by courts- attorneys- and teDt $riters $ith so #itt#e discri"ination that such con*usion has arisen as to $hat that ter" actua##y connotes( Thus it has so o*ten been used in connection $ith trans*erred risks- assu"ed risks- conso#idations and "ergerseDcess insurance- and in other connections that it no$ #acks a c#ear?cut *ie#d o* o%eration( 9einsurance- to an insurance #a$yer "eans one thing on#y . the ceding by one insurance co"%any to another o* a## or a %ortion o* its risks *or a sti%u#ated %ortion o* the %re"iu"- in $hich the #iabi#ity o* the reinsurer is so#e#y to the reinsured- $hich is the ceding co"%any - and in $hich contract the ceding co"%any retains a## contact $ith the origina# insured- and hand#es a## "atters %rior to and subseRuent to #oss( 01 a John )##en )%%#e"an U Jean )%%#e"an- 3nsurance 'a$ and !ractice section 7O<0- at +7B?<0 F0B7OG( The #aying o** o* risk by "eans o* reinsurance traditiona##y ser,es three basic %ur%oses( Firstreinsurance can increase the ca%acity o* the insurer to acce%t risk( The insurer "ay be enab#ed to take on #arger indi,idua# risks- or a #arger nu"ber o* s"a##er risks- or a co"bination o* both ( ( ( ( ( ( ( &econd#yreinsurance can %ro"ote *inancia# stabi#ity by a"e#iorating Fi"%ro,ingG the ad,erse conseRuences o* an uneD%ected accu"u#ation o* #osses or o* a sing#e catastro%hic #osses- because these $i##- at #east in %art- be absorbed by reinsurers( Third#y- reinsurance can strengthen the so#,ency o* an insurer *ro" the %oint o* ,ie$ o* any regu#ations under $hich the insurer "ust o%erate $hich %ro,ide *or a "ini"u" =so#,ency "argin- genera##y eD%ressed as a ratio o* net %re"iu" inco"e o,er ca%ita# and *ree reser,es( !(T( E;ei## U J(J( Jo#oniecki- the 'a$ o* 9einsurance in 2ng#and and @er"uda + F0BB<G( )## o* the %er*or"ance and %ay"ent bonds are regu#ated and contro##ed by F)9 FFedera# )cRuisition 9egu#ationsG $hich is under F+< CF9G 2<(202?0 and 51(22<AhC( These bonds are being used in cases $here it is desired to co,er the eDcess o* a 4irect Jriting Co"%anys under$riting #i"itation by reinsurance instead o* co?insurers on 5i##er act %er*or"ance bonds running to the 8nited &tates( These F)9 regu#ations co"e in t$o ,o#u"es- ,o#u"e 0 is a%%roDi"ate#y 0-12O %ages ,o#u"e 2 is <21 %ages #ong( These shou#d be consu#ted and read be*ore these bonds are used(

21

The 5i##er )ct is *ound in Tit#e +0 8(&(C()( sections 270 a . 270d?0 and is *edera# #a$ reRuiring the %osting o* %er*or"ance and %ay"ent bonds be*ore an a$ard is "ade *or a contract *or constructiona#teration- or re%air o* a %ub#ic $ork or bui#ding( The surety co"%any issuing these bonds "ust be #isted as a Rua#i*ied surety on the Treasury 'ist- $hich the 8(&( 4e%art"ent o* the Treasury issues each year( 3 be#ie,e that the %risons are re%ository institutions or *aci#ities *or securities F%risonersG as co##atera# *or the %ub#ic and nationa# debt( The %risoners re%resent asset or re%ository "oney *or the @id!er*or"ance and !ay"ent @onds( The %risons are re*erred to as credit *aci#ities- institutions or re%ositories( They *unction essentia##y the sa"e $ay that a 4e%ository @ank does under 07 CF9 section +50( The !risons are acting in the ca%acity o* a *iduciary or custodian o,er Ho,ern"ent &ecurities or other$ise *or the account o* a custo"er- and that are not go,ern"ent securities brokers or dea#ers- as de*ined in sections 1 AaC A++C o* the &ecurities 2Dchange )ct o* 0B1+ A058(&(C( 7< c AaC A+1C[A++C( The regu#ations in subcha%ter @ are %ro"u#gated by the )ssistant &ecretary A4o"estic FinanceC %ursuant to a de#egation o* )uthority *ro" the &ecretary o* The Treasury( The o**ice res%onsib#e *or the regu#ations is the E**ice o* the Co""issioner@ureau o* the !ub#ic 4ebt( &ureties and &urety @onds are co,ered in Tit#e 10 sections B100?B10B( The @id- !er*or"ance!ay"ent @onds and )**ida,it o* 3ndi,idua# &urety *a## in the category o* surety bonds under these %ro,isions( 8nder section B101 Ho,ern"ent Eb#igations "ay be substituted *or &urety @onds( Ho,ern"ent Eb#igations are de*ined as %ub#ic debt ob#igations o* the 8nited &tates Ho,ern"ent and an ob#igation $hose %rinci%a# and interest is unconditiona##y guaranteed by the Ho,ern"ent( The bid- %er*or"ance- %ay"ent bonds and )**ida,it o* 3ndi,idua# &urety in addition to being so#d on the co""odities and securities eDchange as %oo#ed "ortgaged backed securities and c#eared *or sett#e"ent through the F3CC FFiDed 3nco"e C#earing Cor%orationG- $ho is the ho#der unti# the @onds are so#d- are a#so being %#edged as co##atera# *or *unds and a #ine o* credit at the discount $indo$ or the o%en?"arket trading desk o* Freddie 5ac- Fannie 5ae- &a##y 5ae- Hinnie 5ae- or your #oca# Federa# 9eser,e @ank( )## discount Jindo$ ad,ances "ust be secured by co##atera# acce%tab#e to the 9eser,e @ank( The *o##o$ing ty%es o* assets are "ost co""on#y %#edged to secure discount $indo$ ad,ances( 0( Eb#igations o* the 8nited &tates Treasury 2( Eb#igations o* 8(&( go,ern"ent agencies and go,ern"ent s%onsored enter%rises 1( Eb#igations o* states or %o#itica# subdi,isions o* the 8(&( +( Co##ateri6ed 5ortgage Eb#igations 5( )sset backed securities O( Cor%orate bonds 7( <( B( 00( 00( 02( 5oney "arket instru"ents 9esidentia# rea# estate #oans Co""ercia#- industria#- or agricu#tura# #oans Co""ercia# rea# estate #oans Consu"er #oans Check $ith your #oca# 9eser,e @ank i* you ha,e any Ruestions )bout other ty%es o* co##atera#

YYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYYThe Federa# 9eser,e &yste" 4iscount Jindo$ Co##atera# 5argins Tab#e inc#udes ,a#uation "argins *or the "ost co""on#y %#edged asset ty%es( )ssets acce%ted as co##atera# are assigned a #end ab#e ,a#ue F"arket or

22

*ace ,a#ue "u#ti%#ied by the "arginG dee"ed a%%ro%riate by the Federa# 9eser,e @ank( Fsee the attached schedu#esG The Treasury 4e%art"ent issues certi*icates o* authority to insurance co"%anies $ho sub"it a *inancia# state"ent to the 4e%art"ent o* the Treasury( The reinsurance co"%anys #i"itation on #iabi#ity is deter"ined and %redicated on 00W o* the !o#icy :o#ders sur%#us retained by earnings *ro" ca%ito# sur%#us( The %ub#ished under$riting #i"itation is on a %er bond basis but does not #i"it the a"ount o* a bond that a co"%any "ay $rite( Co"%anies are a##o$ed to $rite bonds $ith a %ena# su" o,er their under$riting #i"itation as #ong as they %rotect the eDcess a"ount $ith reinsurance- coinsurance or other "ethods as s%eci*ied in Treasury Circu#ar 2B7- 9e,ised &e%te"ber 0- 0B7< F10 CF9 221(00?00(G Treasury re*ers to a bond o* this ty%e as an 2Dcess 9isk( Jhen 2Dcess 9isks on bonds in *a,or o* the 8nited &tates are %rotected by reinsurance- such reinsurance is to be e**ected by use o* a Federa# reinsurance *or" to be *i#ed $ith the bond or $ithin +5 days therea*ter( 3n %rotecting such eDcess risks- the under$riting #i"itation in *orce on the day in $hich the bond $as %ro,ided $i## go,ern abso#ute#y( 3* you read 4e 'o,io ,( @oit F Federa# Case ;o( 1-77OG- you $i## *ind out that a## insurance is o* )d"ira#ty 5ariti"e 'a$ and The :untress FFedera# Case ;o( O-B0+- F2 Jare A4a,( <2C <B says that a## 9e,enue is o* ad"ira#ty "ariti"e #a$( 8nder King Char#es 00re,enue causes had been heard and tried in the co#onies by the ,ice ad"ira#ty( 9ead %gs( B<< U B<B o* the :untress( Char#es To$nshend $ho %assed The To$nshend )ct in 07O7 and $ho $as the 'ord :igh )d"ira# on the @ritish @oard o* Trade caused the )"erican 9e,o#ution due to the high Tari**s- 4uties- 3"%osts and 2Dcises i"%osed on the Co#onists on i"%orts *ro" 'ondon- 2ng#and( @y ta#king $ith a broker na"ed Ji" 5cFadden *or )H 2d$ards 3 *ound out that the @ond 9egister and %aying agent *or the County o* Cuyahoga is Frank 'a"b a Trustee *or :untington ;ationa# @ank at B07 2uc#id ),enue C#e,e#and- Ehio ++005 te#e%hone # 0?20O?505?OOO2( 3 a#so *ound out that 'isa Jennings o* J(!( 5organ @ank in C#e,e#and- Ehio is the trans*er agent *or bonds her te#e%hone # 0?20O?27+?0O0O and :o##y !attison o* ;ationa# City @ank is a#so a trans*er agent( :er Te#e%hone # 0?20O?222?2552( 3 s%ent 10 "inutes on the %hone $ith 9obert 4uke- $ho is the director o* under$riting *or the &urety )ssociation o* )"erica under circu#ar 570 *or the 4e%art"ent o* the Treasury $hose te#e%hone # is 0?202?+O1?0O00( :is address is 0000 Connecticut ),enue- ;(J( &uite <00 Jashington- 4(C( 2001O( 3 $ent through circu#ar 570 o* the 4e%art"ent o* Treasury and ca##ed se,era# o* the ad"itted reinsurance co"%anies through their under$riting de%art"ent and *ound out they kne$ abso#ute#y nothing about reinsurance re#ati,e to bid- %er*or"ance and %ay"ent bonds( This *act #eads "e to be#ie,e that in addition to being a 9e%ository @ank $ith %risoners being the assets- co##atera#- or securities *or the bid%er*or"ance and %ay"ent bonds- the %risoners are the actua# reinsurance or surety and their sentence re%resents the ,a#ued and "arketab#e risk in,o#,ed $ith the "ateria#s- su%%#ies and cost *actors in,o#,ed $ith the guaranteed %er*or"ance- and %ay"ent re#ati,e to the bonds( This is ter"ed assu"ed risk in insurance and re%resents a %resent %eri#- ha6ard- or danger o* #oss- due to their dishonor and de*au#t 7udg"ent in court( That is $hy there is a %ena# su" or c#ause attached to each bond *or non %er*or"ance and %ay"ent o* the bonds( &ince e,erybody on the %ub#ic or debt side is bankru%t or inso#,ent ho$ can they assu"e a #iabi#ity or riskZ They cant that is $hy they ha,e to #ook to the eDe"%t %riority %ri,ate asset side o* the accounting #edger to assu"e reinsurance or risk( Mou cant %ay a debt or assu"e a risk $ith a debt instru"ent( This can on#y be done $ith )sset Co##atera# through goods F%risonersG under "ercanti#e ci,i# and co""ercia# #a$( Jhen a cor%oration $ants to bui#d or %er*or" construction- he recei,es bids *ro" a contractor- i* the contractor is a$arded the bid- the cor%oration $ho is the o$ner and ob#igee- then reRuires that the contractor sub"it a bid bond- the contractor then beco"es the %rinci%a# ob#igor( :e is then reRuired to get a reinsurance co"%any to act as surety on the bid bond- and then a %er*or"ance bond is issued to guarantee cost o* "ateria# and su%%#ies( The reinsurance co"%any $ho is acting as surety *or the bid bond a#so acts as the under$riter through a %ay"ent bond( )n )**ida,it o* 3ndi,idua# &urety is used as a surety *or the bid%er*or"ance- and %ay"ent bonds( The bid bond is a three %arty ob#igation $ith the ob#igee as the o$ner o* the bid- %er*or"ance and %ay"ent bonds( The &urety )ssociation o* )"erica is a ,o#untary- non%ro*it- unincor%orated association o* co"%anies engaged in the business o* suretyshi%( &)) re%resents "ore than 500 co"%anies that co##ecti,e#y under$rite the ,ast "a7ority surety and *ide#ity bonds in the 8nited &tates- as $e## as a nu"ber o* *oreign a**i#iates( &)) is #icensed as a rating or ad,isory organi6ation and has been designated as a statistica# agent by a## the states eDce%t TeDas *or the re%orting o* *ide#ity and surety eD%erience( The ;ationa# )ssociation o*

23

&urety @ond !roducers is the internationa# organi6ation o* %ro*essiona# surety bond %roducers and brokers( ;)&@! re%resents "ore than 5-000 %ersonne# $ho s%ecia#i6e in surety bonding> %ro,ide %er*or"ance and %ay"ent bonds *or the construction industry> and issue other ty%es o* surety bonds- such as #icense and %er"it bonds- *or guaranteeing %er*or"ance( ;)&@!s "ission is to strengthen %ro*essiona#is"- eD%ertiseand inno,ation in surety and to ad,ocate its use $or#d$ide( &892TM 3;FE95)T3E; EFF3C2 ;ationa# )ssociation o* 5225 Jisconsin ),enue ;J&urety @ond %roducers &uite &uite O00- Jashington- 4(C( 20005 O00 5225 Jisconsin ),e( ;JA202C O<O?7+O1 FaD A202C O<O?1O5O Jashington- 4(C( 20005 $$$(sio(org sioTsio(org 3 a#so be#ie,e that the @id @onds are being used to %urchase co""ercia# ite"s Fco""ercia# %a%erG such as court 7udg"ents this is done through H&) &F *or" 0++B contract *or" and is a rated order under 4!)& F4e*ense !riorities and )##ocations &yste"G see 05CF9 700 this is under the ;ationa# &ecurity 3ndustria# @ase 9egu#ations( This is a## under the 2Decuti,e @ranch under the !resident and 5i#itary( JE94 42F3;3T3E;& 92')T3Q2 TE @E;4& 0( :E'429 / The o$ner o* a security( &22 @E;4:E'429( 2( T9);&F29 )H2;T / The %erson or entity that %er*or"s the trans*er *unction *or an issue o* registered "unici%a# securities( This %erson or entity "ay be the issuer- an o**icia# o* the issuer or a third %arty engaged by the issuer to act as its agent( The trustee under a trust indenture o*ten a#so acts as trans*er agent( Co"%are: 92H3&T9)9( &ee: 92H3&T2924 @E;4> T9);&F29> T98&T22( 1( 92H3&T9)9 / The %erson or entity res%onsib#e *or "aintaining records on beha#* o* the issuer that identi*y the o$ners o* a registered bond issue( The trustee under a trust indenture o*ten a#so acts as registrar( Co"%are: T9);&F29 )H2;T( &ee: @E;4 92H3&T29> T98&T22( +( @E;4 92H3&T29 / ) record- ke%t by a trans*er agent or registrar on beha#* o* the issuer- that #ists the na"es and addresses o* the ho#ders o* the registered bonds( &ee: @E;4:E'429> 92H3&T2924 @E;4> 92H3&T9)9> T9);&F29 )H2;T( 5( 3&&829 / ) state- %o#itica# subdi,ision- "unici%a#ity- or go,ern"enta# agency or authority that raises *unds through the sa#e o* "unici%a# securities( O( 8;429J93T29 / ) @roker . dea#er that %urchases a ne$ issue o* "unici%a# securities *ro" the issuer *or resa#e in a %ri"ary o**ering( The under$riter "ay acRuire the securities either by negotiation $ith the issuer or by a$ard on the basis o* co"%etiti,e bidding( Co"%are: !')C252;T )H2;T( &ee: CE5!2T3T3Q2 &)'2> ;2HET3)T24 &)'2> !935)9M 43&T93@8TE9> !935)9M EFF293;H> &8;43C)T2( 7( &2TT'252;T / 4e#i,ery o* and %ay"ent *or a security( Co"%are: C'2)9);C2( &ee: 42'3Q29M 4)T2> HEE4 42'3Q29M( <( C'2)9);C2 / The %rocess o* de#i,ering securities *ro" a se##er to a buyer- either direct#y or through their agents( Co"%are: &2TT'252;T( B( @E;4 !9EC224& / The "oney %aid to the issuer by the %urchaser or under$riter o* a ne$ issue o* "unici%a# securities( These "oneys are used to *inance the %ro7ect or other %ur%ose *or $hich the securities $ere issued and to %ay certain costs o* issuance as "ay %ro,ided in the bond contract or bond %urchase agree"ent( &ee: ;2T !9EC224&(

24

00( @E;4 !89C:)&2 )H92252;T F@!)G . The contract bet$een the under$riter and the issuer setting *orth the *ina# ter"s- %rices and conditions u%on $hich the under$riter %urchases a ne$ issue o* "unici%a# securities in a negotiated sa#e( ) conduit borro$er a#so is *reRuent#y a %arty to the bond %urchase agree"ent in a conduit *inancing( The bond %urchase agree"ent is so"eti"es re*erred to as the %urchase agree"ent or- #ess co""on#y- the under$riting agree"ent( &ee: ;2HET3)T24 &)'2> 8;429J93T3;H )H92252;T> J93TT2; )J)94( 00( CE;483T @E99EJ29 / ) borro$er o* bond %roceeds in a conduit *inancing( &ee: CE;483T F3;);C3;H> E@'3HE9( 02( CE;483T F3;);C3;H / The issuance o* "unici%a# securities by a go,ern"enta# unit Are*erred to as the conduit issuer to *inance a %ro7ect to be used %ri"ari#y by a third %arty- usua##y a *or . %ro*it entity engaged in %ri,ate enter%rise or a 500 AcC A1C organi6ation Are*erred to as the conduit borro$erC( The security *or this ty%e o* issue is custo"ari#y the credit o* the conduit borro$er or %#edged re,enues *ro" the %ro7ect *inanced- rather than the credit o* the conduit issuer( &uch securities do not constitute genera# ob#igations o* the conduit issuer because the conduit borro$er is #iab#e *or generating the %#edged re,enues( 3ndustria# de,e#o%"ent bonds- "u#ti*a"i#y housing re,enue bonds and Rua#i*ied 500 AcC A1C bonds are co""on ty%es conduit *inancings( &ee: :E8&3;H 92Q2;82 @E;4? 5u#ti?*a"i#y housing re,enue bonds> 3;48&T93)' 42Q2'E!52;T> !93Q)T2 )CT3Q3TM @E;4( 01( )J)94 / The o**icia# acce%tance by the issuer o* a bid or o**er to %urchase a ne$ issue o* "unici%a# securities by an under$riter( The date o* the a$ard is genera##y considered the sa#e date o* an issue( &ee: @34> @E;4 !89C:)&2 )H92252;T> J93TT2; )J)94( Co"%are: Q29@)' )J)94( 0+( @2;2F3C3)' EJ;29 / The %erson to $ho" the bene*its o* o$nershi% o* gi,en securities accrue- e,en though the securities "ight be he#d by- or in the na"e o*- another %erson or he#d in an account o,er $hich another %erson has in,est"ent discretion( For eDa"%#e- a securities *ir" "ight ho#d securities in street na"e in its ,au#ts or at a securities de%ository- $ith the bene*icia# o$ners o* the securities on#y designated on the *ir"s records( Co"%are: @E;4:E'429( 05( 42!E&3TE9M / ) registered c#earing agency that %ro,ides i""obi#i6ation- sa*ekee%ing and book?entry c#earance and sett#e"ent ser,ices to its %artici%ants( Co"%are: C'2)93;H CE9!E9)T3E;( &ee: 92H3&T2924 C'2)93;H )H2;CM( 0O( @EEK?2;T9M E;'M A@2EC or @EEK?2;T9M &2C893TM? ) security that is not a,ai#ab#e to% %urchasers in %hysica# *or"( &uch a security "ay be he#d either as a co"%uter entry on the records o* a centra# ho#der Aas is the case $ith certain 8(&( Ho,ern"ent securitiesC or in the *or" o* a sing#e- g#oba# certi*icate( E$nershi% interests o*- and trans*ers o* o$nershi% by- in,estors are re*#ected so#e#y by a%%ro%riate books and record entries( 5ost "unici%a# securities issued in recent years ha,e been in book? entry on#y *or"( Co"%are: C29T3F3C)T24 &2C893TM> 355E@'3X24 &2C893TM( &ee: H'E@)' C29T3F3C)T2( 07( H'E@)' C29T3F3C)T2 / ) sing#e certi*icate so"eti"es re*erred to as a 7u"bo certi*icate- re%resenting an entire "aturity o* an issue o* securities( &uch certi*icates are o*ten used in book?entry syste"s( The issuer issues a g#oba# certi*icate that is then #odged in the *aci#ities o* a de%ository or other book?entry agent and ke%t sa*e#y by the agent unti# "aturity( The securities are a,ai#ab#e to bene*icia# o$ners on#y in book?entry *or"- and no certi*icates can be obtained( Co"%are: 355E@'3X24 &2C893TM( &ee: @EEK?2;T9M E;'M( 0<( 355E@3'3X24 &2C893TM / ) %hysica# security that is he#d in a centra# de%ository *or the account o* its bene*icia# o$ner but that "ay be $ithdra$n *ro" the de%ository in %hysica# *or"( 3""obi#i6ed securities "ay be trans*erred $hen so#d by entries on the records o* the de%ository or by $ithdra$a# o* actua# certi*icates( Co"%are: @EEK?2;T9M E;'M> H'E@)' C29T3F3C)T2( 0B( 500 AcC A1C E9H);3X)T3E; / )n organi6ation recogni6ed by the 3nterna# 9e,enue &er,ice as a not? *or?%ro*it organi6ation( ) 500 AcC A1C organi6ation can borro$ *unds to *inance %ro7ects on a taD?eDe"%t

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basis through a conduit issuer( 2Da"%#es inc#ude not?*or?%ro*it co##eges and uni,ersities- hos%ita#s- "useu"s and retire"ent co""unities( &ee: CE;483T @E99EJ29> !93Q)T2 )CT3Q3TM . Nua#i*ied 500 AcC A1C bonds( 20( 58;3C3!)' &2C893T32& / a genera# ter" re*erring to securities issued by #oca# go,ern"enta# subdi,isions such as cities- to$ns- ,i##ages- counties- or s%ecia# districts- as $e## as securities issued by states %o#itica# subdi,isions or agencies o* states( ) %ri"e *eature o* these securities is that interest or other in,est"ent earnings on the" usua##y are eDc#uded *ro" gross inco"e o* the ho#der *or *edera# inco"e taD %ur%oses( 3ssuers o* "unici%a# securities are eDe"%t *ro" "ost *edera# securities #a$s( Co"%are: T)V)@'2 58;3C3!)' &2C893TM( 20( 92H3&T2924 C'2)93;H )H2;CM / )n organi6ation- registered $ith the &ecurities and 2Dchange Co""ission %ursuant to section 07 ) o* the &ecurities 2Dchange )ct o* 0B1+- that %ro,ides s%ecia#i6ed syste"s *or the con*ir"ation- co"%arison- c#earance and sett#e"ent o* securities transactions( &ee: ;)T3E;)' &2C893T32& C'2)93;H CE9!E9)T3E;( 22( ;)T3E;)' &2C893T32& C'2)93;H CE9!E9)T3E; A;&CCC . ) c#earing cor%oration( &ee: C'2)93;H CE9!E9)T3E;> 42!E&3TE9M T98&T );4 C'2)93;H CE9!E9)T3E;( 21( C'2)93;H CE9!E9)T3E; / ) registered c#earing agency that %ro,ides s%ecia#i6ed co"%arisonc#earance and sett#e"ent ser,ices *or its "e"bers( ) c#earing cor%oration ty%ica##y o**ers ser,ices such as auto"ated co"%arison syste"s and transaction netting syste"s( Co"%are: 42!E&3TE9M( &ee: ;)T3E;)' &2C893T32& C'2)93;H CE9!E9)T3E;> 92H3&T2924 C'2)93;H )H2;CM( 2+( 42!E&3TE9M T98&T );4 C'2)93;H CE9!E9)T3E; A4TCCC / The entity *or"ed by the "erger o* 4e%ository Trust and ;ationa# &ecurities C#earing Cor%oration( 4TCC *aci#itates the c#earance and sett#e"ent o* securities transactions( 25( )8T:E93TM / ) unit or agency o* go,ern"ent- or a se%arate#y estab#ished not?*or?%ro*it entity *or"ed on beha#* o* a go,ern"enta# entity- estab#ished to %er*or" s%ecia#i6ed *unctions( 3n so"e cases- authorities ha,e the %o$er to issue debt that is secured by the #ease renta# %ay"ents "ade by a go,ern"enta# unit using the *aci#ities constructed $ith bond %roceeds( 3n other cases- authorities issue %ri,ate acti,ity bonds *or the %ur%ose o* "aking the %roceeds a,ai#ab#e to Rua#i*ied %ri,ate entities *or use as %er"itted under the *edera# taD #a$s( 2Da"%#es o* such conduit authorities inc#ude hea#th *aci#ities authorities- 3ndustria# de,e#o%"ent authorities and housing *inance authorities( )n authority "ay *unction inde%endent#y o* other go,ern"enta# units- or it "ay de%end u%on other units *or its creation- *unding or ad"inistrati,e o,ersight( )uthoritiesother than conduit authorities- usua##y are *inanced by ser,ice charges- *ees or to##s- a#though they a#so "ay ha,e taDing %o$ers( Conduit authorities genera##y are *inanced by *ees %ayab#e by conduit borro$ers- either %aid direct#y by the borro$er or under the bond contract( &ee: CE;483T 3&&829( 2O( CE;483T 3&&829 / )n issuer o* "unici%a# securities in a conduit *inancing( &ee: )8T:E93TM> CE;483T F3;);C3;H( 27( !93Q)T2 )CT3Q3TM @E;4 A!)@C / ) "unici%a# security the %roceeds o* $hich are used by one or "ore %ri,ate entities( ) "unici%a# security is considered a %ri,ate security bond i* it "eets either o* t$o sets o* conditions set out in section 0+0 o* the 3nterna# 9e,enue Code( ) "unici%a# security is a %ri,ate acti,ity bond i*- $ith certain eDce%tions- "ore than 00W o* the %roceeds o* the issue are used *or any %ri,ate business use Athe %ri,ate business use teDtC and the %ay"ent o* the %rinci%a# o* or interest on "ore than 00 W o* the %roceeds o* such issue is secured by or %ayab#e *ro" %ro%erty used *or a %ri,ate business use Athe %ri,ate security or %ay"ent testC( ) "unici%a# security a#so is a %ri,ate acti,ity bond i*- $ith certain eDce%tion- the a"ount o* %roceeds o* the issue used to "ake #oans to non?go,ern"enta# borro$ers eDceeds the #esser o* 5 W o* the %roceeds or P 5 "i##ion Athe %ri,ate #oan *inancing testC( 3nterest on %ri,ate acti,ity bonds is not eDc#uded *ro" gross inco"e *or *edera# inco"e taD %ur%oses un#ess the bonds *a## $ithin certain de*ined categories ARua#i*ied bonds or Rua#i*ied %ri,ate acti,ity bondsC- as described be#o$( 5ost categories o* Rua#i*ied %ri,ate acti,ity bonds are sub7ect to the a#ternati,e "ini"u" taD( The *o##o$ing categories o* %ri,ate acti,ity bonds are Rua#i*ied bonds under *edera# taD #a$s:

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2<( 2De"%t *aci#ity bonds . !ri,ate acti,ity bonds issued to *inance ,arious ty%es o* *aci#ities o$ned or used by %ri,ate entities- inc#uding air%orts- docks- and certain other trans%ortation?re#ated *aci#ities> $aterse$er- and certain other #oca# uti#ity *aci#ities> so#id and ha6ardous $aste dis%osa# *aci#ities> certain residentia# renta# %ro7ects Ainc#uding "u#ti*a"i#y housing re,enue bondsC> and certain other ty%es o* *aci#ities( 2nter%rise 6one bonds are a#so considered eDe"%t *aci#ity bonds( &ee: 2;T29!93&2 XE;2 @E;4> :E8&3;H 92Q2;82 @E;4? 5u#ti%#e?*a"i#y housing re,enue bonds( 2B( Nua#i*ied 500 AcC A1C bonds / !ri,ate acti,ity bonds issued to *inance a *aci#ity o$ned and uti#i6ed by a 500 AcC A1C organi6ation( Nua#i*ied 500 AcC A1C bonds are not sub7ect to the *edera# a#ternati,e "ini"u" taD( 10( Nua#i*ied "ortgage bonds / !ri,ate acti,ity bonds issued too *und "ortgages to *inance o$ner?occu%ied residentia# %ro%erty( Nua#i*ied "ortgage bonds are o*ten re*erred to as sing#e *a"i#y "ortgage re,enue bonds( &ee: :E8&3;H 92Q2;82 @E;4 . &ing#e *a"i#y "ortgage re,enue bonds( 10( Nua#i*ied rede,e#o%"ent bonds / !ri,ate acti,ity bonds issued to *inance certain acRuisition- c#earancerehabi#itation and re#ocation acti,ities *or rede,e#o%"ent %ur%oses by a go,ern"enta# entity in designated b#ighted areas( Nua#i*ied rede,e#o%"ent bonds are %ayab#e *ro" genera# taDes or *ro" taD incre"ent re,enues( &ee: T)V 3;C9252;T @E;4( 12( Nua#i*ied s"a## issue bonds / !ri,ate )cti,ity bonds issued to *inance "anu*acturing *aci#ities( Nua#i*ied s"a## issue bonds "ay be issued on a taD? eDe"%t basis in an a"ount u% to P0 "i##ion- taking into account certain %rior issues- or an a"ount u% to P00 "i##ion- taking into account certain ca%ita# eD%enditures incurred during the three years %rior and the three years *o##o$ing the issuance o* such bonds( 11( Nua#i*ied student #oan bonds / !ri,ate acti,ity bonds issued to *inance student #oans *or attendance at higher education institutions( 1+( Nua#i*ied ,eterans "ortgage bonds / !ri,ate acti,ity bonds that are genera# ob#igations o* a state issued to *und "ortgage #oans to *inance o$ner . occu%ied residentia# %ro%erty *or ,eterans( The abi#ity o* states to issue ne$ and re*unding Rua#i*ied ,eterans "ortgage bonds on a taD . eDe"%t basis is #i"ited( 3;T29;)T3E;)' @3'' EF 2VC:);H2 3n the E%en 5arket Trading 4esk in the 3n,esting Trading H#ossary ) bi## o* eDchange is de*ined as a Henera# Ter" *or a docu"ent de"anding %ay"ent( This says it a## i* you ha,e $isdo" and understandingso"eti"es the ob,ious esca%es e,erybody( The $ord @i## is an a#teration o* the 'atin $ord @u##a in its "ediae,a# sense( 3n c#assica# 'atin bu##a $as a bubb#e- a boss- a stud- an a"u#et *or the neck> $hence in "ediae,a# 'atin a sea# es%ecia##y the sea# a%%ended to a charter etc(> thence- trans*erred sense- a docu"ent *urnished $ith a sea#- e(g( a chartera %a%a# bu##- and- by eDtension- any o**icia# or *or"a# docu"ent- a bi##- schedu#e- "e"orandu"- note%a%er- 3t $as in these #ater senses that bu##a beca"e in 2ng#and bi##a- bi##e( @eing a $ord o* co""on usebu##a $as %robab#y %ronounced $ith u- %assing into 2ng#ish y- i> though no direct e,idence o* this has been *ound( &o the ED*ord 2ng#ish 4ictionary( This eD%#anation is not con,incing- nor $ou#d it be e,en i* =bi## and =bu## had origina##y con,eyed the sa"e or si"i#ar "eanings( )t #east u% to the end o* the *ourteenth century the t$o $ords a#"ost a#$ays carried "eanings that $ere res%ecti,e#y inconsistent $ith each other( ) =bu## $as a sea#ed docu"ent setting *orth so"ething or other in an authoritati,e "anner( ) =bi## on the other hand- so *ar as one can gather *ro" the e,idence o* conte"%orary #iterature- see"s to ha,e carried the "eaning o* a hu"b#e %etition *or re"edy o* a stated grie,ance( The $ord occurs se,era# ti"es in this senseand- as *ar as 3 can *ind- in this sense on#y- in Ho$er- and Ji##ia" 'ang#and( 8nder Tit#e 0< sections 501 A)C the ter" security as de*ined in the 2#ectronic Fund trans*er )ct under B0O AcC has been a"ended and "o,ed to Tit#e 05 section 7< AcC subsection 00- $here it says that any currencynote- dra*t- bi## o* eDchange- or bankers acce%tance $hich has a "aturity at the ti"e o* issuance o* not eDceeding nine "onths- eDc#usi,e o* days o* grace- or any rene$a# thereo* the "aturity o* $hich is #ike$ise #i"ited is not inc#uded in this de*inition o* a security(

27

)cce%tance +( @#acks 'a$ 4ictionary <th edition a negotiab#e instru"ent- es%ecia##y a bi## o* eDchange- that has been acce%ted *or %ay"ent( There are three e#e"ents o* an acce%tance 0( :onor 2( Qa#ue 1( Consideration( )n acce%tance *or honor is an undertaking not by a %arty to the instru"ent- but by a third %arty- *or the %ur%ose o* %rotecting the honor or credit o* one o* the %arties- by $hich the third %arty agrees to %ay the debt $hen it beco"es due i* the origina# 4ra$ee does not( This ty%e o* acce%tance inures to the bene*it o* a## successors to the %arty *or $hose bene*it it is "ade( )#so ter"ed acce%tance su%ra %rotest> acce%tance *or honor su%ra %rotest( FCases: @i##s and ;otes key 70( C(J(&( @i##s and ;otes> 'etters o* Credit section 17G( )cce%tance *or honor su%ra %rotest is an eDce%tion to the ru#e that on#y the 4ra$ee can acce%t a bi##( ) bi## $hich has been dishonored by non?acce%tance and is not o,erdue "ay- $ith the consent o* the ho#der- be acce%ted in this $ay *or the honor o* either the dra$er or an indorser Ai(e(- to %re,ent the bi## being sent back u%on the dra$er or indorser as un%aidC by a *riend %#acing his o$n na"e u%on it as acce%tor o* the $ho#e- or %art on#y- o* the a"ount o* the bi##> a*ter a %rotest has been dra$n u% dec#aratory o* its dishonour by the 4ra$ee( &i"i#ar#y- $here a bi## has been dishonoured by non?%ay"ent and %rotested any %erson "ay inter,ene and %ay it su%ra %rotest *or the honor o* any %erson #iab#e thereon> the e**ect being to discharge a## %arties subseRuent to the %arty *or $hose honour it is %aid( 2 &te%hens Co""entaries on the 'a$s o* 2ng#and 202?01 A'( Cris%in Jar"ington ed(- 20st ed( 0B50C( 1?101 Qa#ue and Consideration AaC )n 3nstru"ent is issued or trans*erred *or ,a#ue i*: A0C The instru"ent is issued or trans*erred *or a %ro"ise o* %er*or"ance- to the eDtent the %ro"ise has been %er*or"ed> A2C The trans*eree acRuires a security interest or other #ien in the instru"ent other than a #ien obtained by 7udicia# %roceeding( A1C The instru"ent is issued or trans*erred as %ay"ent o*- or as security *or- an antecedent c#ai" against any %erson- $hether or not the c#ai" is due> A+C The instru"ent is issued or trans*erred in eDchange *or a negotiab#e instru"ent> or A5C The instru"ent is issued or trans*erred in eDchange *or the incurring o* an irre,ocab#e ob#igation to a third %arty by the %erson taking the instru"ent( AbC Consideration "eans any consideration su**icient to su%%ort a si"%#e contract( The dra$er or "aker o* an instru"ent has a de*ense i* the instru"ent is issued $ithout consideration( 3* an instru"ent is issued *or a %ro"ise o* %er*or"ance- the issuer has a de*ense to the eDtent %er*or"ance o* the %ro"ise is due and the %ro"ise has not been %er*or"ed( 3* an instru"ent is issued *or ,a#ue as stated in subsection AaC- the instru"ent is a#so issued *or consideration( The de*inition o* negotiab#e instru"ent de*ines the sco%e o* )rtic#e 1 since &ection 1?002 states: This )rtic#e a%%#ies to negotiab#e instru"ents( The de*inition in &ection 1?00+ AaC incor%orates other de*initions in )rtic#e 1( )n instru"ent is either a %ro"ise- de*ined in &ection 1?001AaC A02C- or order- de*ined in &ection 1?001 AaC A<C( ) %ro"ise is a $ritten undertaking to %ay "oney signed by the %erson undertaking to %ay( )n order is a $ritten instruction to %ay "oney signed by the %erson gi,ing the instruction( Thus the ter" negotiab#e instru"ent is #i"ited to a signed $riting that orders or %ro"ises %ay"ent o* "oney( 5oney is de*ined in section 0?200A2+C and is not #i"ited to 8nited &tates do##ars( 3t a#so inc#udes a "ediu" o* eDchange estab#ished by a *oreign go,ern"ent or "onetary units o* account estab#ished by an intergo,ern"enta# organi6ation or by agree"ent bet$een t$o or "ore nations( F8;3CT9)' CE;Q2;T3E; E; 3;T29;)T3E;)' @3''& EF 2VC:);H2 E9 3;T29;)T3E;)' !9E53&&E9M ;ET2&G 4ece"ber <- 0B<<G( 3n C#ear*ie#d Trust Co( ,( 8nited &tates- 10< 8(&( 1O1 A0B+1C- the court he#d that i* the 8nited &tates is a %arty to an instru"ent- its rights and duties are go,erned by *edera# co""on #a$ in the absence o* a

28

s%eci*ic *edera# statute or regu#ation 3n 8nited &tates ,( Ki" be## Foods- 3nc(- ++0 8(&( 705 A0B7BC- the court stated a three %rong test to ascertain $hether the *edera# co""on #a$ ru#e shou#d *o##o$ the state ru#e( 3n "ost instances courts under the Ki"be## test ha,e sho$n a $i##ingness to ado%t the 8(C(C( ru#es in *or"u#ating *edera# co""on #a$ on the sub7ect( 3n Ki"be## the Court ado%ted the %riorities ru#es o* )rtic#e B( 3n 0B<B the 8nited ;ations Co""ission on 3nternationa# Trade 'a$ F8;3CT9)'G co"%#eted a con,ention on 3nternationa# @i##s o* 2Dchange and 3nternationa# !ro"issory ;otes( 3* the 8nited &tates beco"es a %arty to this con,ention- the con,ention $i## %ree"%t state #a$ $ith res%ect to internationa# bi##s o* eDchange and notes go,erned by the Con,ention( Thus- an internationa# bi## o* eDchange or %ro"issory note that "eets the de*inition o* instru"ent in section 1?00+ $i## not be go,erned by )rtic#e 1 i* it is go,erned by the Con,ention( That Con,ention a%%#ies on#y to bi##s and notes that indicate on their *ace that they in,o#,e cross?border transactions( 3t does not a%%#y at a## to checks( Con,ention )rtic#es 0A1C- 2A0C- 2A2C( 5oreo,er- because it a%%#ies on#y i* the bi## or note s%eci*ica##y ca##s *or a%%#ication o* the Con,entionCon,ention )rtic#e 0 there is #itt#e chance that the Con,ention $i## a%%#y accidenta##y to a transaction that the %arties intended to be go,erned by this )rtic#e( 1(00+( ;egotiab#e 3nstru"ent(

AaC 2Dce%t as %ro,ided in subsections AcC and AdC- negotiab#e 3nstru"ent "eans an unconditiona# %ro"ise or order to %ay a FiDed a"ount o* "oney- $ith or $ithout interest or other Charges 4escribed in the %ro"ise or order- i* it: A0C 3s %ayab#e to bearer or to order at the ti"e it is issued or *irst Co"es into %ossession o* a ho#der> A2C 3s %ayab#e on de"and or at a de*inite ti"e> and A1C 4oes not state any other undertaking or instruction by the !erson %ro"ising or ordering %ay"ent to do any act in addition A0C )n undertaking or %o$er to gi,e- "aintain- or %rotect co##atera# to secure %ay"ent- AiiC an authori6ation or %o$er to The ho#der to con*ess 7udg"ent or rea#i6e on or dis%ose o* co##atera# or AiiiC a $ai,er o* the bene*it o* any #a$ intended *or The ad,antage or %rotection o* an ob#igor( AbC 3nstru"ent "eans a negotiab#e instru"ent( AcC )n order that "eets a## o* the reRuire"ents o* subsection AaCeDce%t %aragra%h A0C- and other$ise *a##s $ithin the de*inition o* a check in subsection A*C is a negotiab#e instru"ent and a check( AdC ) %ro"ise or order other than a check is not an instru"ent i*- at the ti"e it is issued or *irst co"es into %ossession o* a ho#der- it contains a cons%icuous state"ent- ho$e,er eD%ressed- to the e**ect that the %ro"ise or order is not negotiab#e or is not and instru"ent go,erned by this )rtic#e( AeC )n instru"ent is a note i* it is a %ro"ise and is a dra*t i* it is )n order( 3* the instru"ent *a##s $ithin the de*inition o* both note )nd dra*t- a %erson entit#ed to en*orce the instru"ent "ay treat 3t as either(

29

A*C Check "eans AiC a dra*t- other than a docu"entary dra*t%ayab#e on de"and and dra$n on a bank or AiiC a cashiers check or te##ers check( )n instru"ent "ay be a check e,en though it is described on its *ace by another ter"- such as "oney order( AgC Cashiers check AiC "eans a dra*t $ith res%ect to $hich the dra$er and dra$ee are the sa"e bank or branches o* the sa"e bank( AhC Te##ers check "eans a dra*t dra$n by a bank AiC on another bank- or through a bank( AiC Tra,e#ers check "eans an instru"ent that AiC is %ayab#e on de"and- AiiC is dra$n on or %ayab#e at or through a bank- AiiiC is designated by the ter" tra,e#ers check or by a substantia##y si"i#ar ter"and Ai,C reRuires as a condition to %ay"ent- a countersignature by a %erson $hose s%eci"en signature a%%ears on the instru"ent( A7C ackno$#edg"ent by a bank that a su" o* "oney has been recei,ed by the bank and a %ro"ise by the bank to re%ay the su" o* "oney( ) certi*icate o* de%osit is a note o* the bank( 3nstru"ents are di,ided into t$o genera# categories: dra*ts and notes( ) dra*t is an instru"ent that is an order( ) note is an instru"ent that is a %ro"ise( &ection 1?00+AeC( The ter" bi## o* eDchange is not used in )rtic#e 1( 3t is genera##y understood to be a synony" *or the ter" dra*t( &ubsections A*C through A7C de*ine %articu#ar instru"ents that *a## $ithin the categories o* dra*t or note( The ter" dra*t- de*ined in subsection AeC- inc#udes a check $hich is de*ined in subsection A*C( Check inc#udes a share dra*t dra$n on a credit union %ayab#e through a bank because the de*inition o* bank A&ection +?005C inc#udes credit unions( :o$e,er- a dra*t dra$n on an insurance co"%any %ayab#e through a bank is not a check because it is not dra$n on a bank( 5oney orders are so#d both by banks and non?banks( They ,ary in *or" and their *or" deter"ines ho$ they are treated in )rtic#e 1( The "ost co""on *or" o* "oney order o* "oney order so#d by banks is that o* ordinary check dra$n by the %urchaser eDce%t that the a"ount is "achine i"%ressed( That kind o* "oney order is a check under )rtic#e 1 and is sub7ect to a sto% order by the %urchaser?dra$er as in the case o* ordinary checks( The se##er bank is the dra$ee and has no ob#igation to a ho#der to %ay the "oney order( 3* a "oney order *a##s $ithin the de*inition o* a te##ers check- the ru#es a%%#icab#e to te##ers checks a%%#y( !osta# "oney orders are sub7ect to *edera# #a$( Te##ers check is se%arate#y de*ined in subsection AhC( ) te##ers check is a#$ays dra$n by a bank and is usua##y dra$n on another bank( 3n so"e cases a te##ers check is dra$n on a nonb#ank but is "ade %ayab#e at or through a bank( )rtic#e 1 treats both ty%es o* te##ers checks identica##y- and both are inc#uded in the de*inition o* check( ) cashiers check- de*ined in subsection AgC- is a#so inc#uded in the de*inition o* check( Tra,e#ers checks are issued both by banks and nonbanks and "ay be in the *or" o* a note or dra*t( &ubsection AiC states the essentia# characteristics o* a tra,e#ers check( The reRuire"ent that the instru"ent be dra$n on or %ayab#e at or through a bank "ay be satis*ied $ithout $ords on the instru"ent that identi*y a bank as dra$ee or %aying agent so #ong as the instru"ent bears an a%%ro%riate routing nu"ber that identi*ies a bank as %aying agent( The de*initions in 9egu#ation CC section 22B(2 o* the ter"s checks- cashiers check- Te##ers check- and Tra,e#ers check are di**erent *ro" the de*initions o* those ter"s in )rtic#e 1( Certi*icates o* de%osit are treated in *or"er )rtic#e 1 as a se%arate ty%e o* instru"ent( 3n re,ised )rtic#e 1- &ection 1?00+ A7C treats the" as notes( There are so"e di**erences bet$een the reRuire"ents o* )rtic#e 1 and the reRuire"ents inc#uded in )rtic#e 1 o* the Con,ention on 3nternationa# @i##s o* 2Dchange and 3nternationa# !ro"issory ;otes( 5ost ob,ious#y the Con,ention does not inc#ude the #i"itation on eDtraneous undertakings set *orth in &ection 1? 00+ AaCA1C- and does not %er"it docu"ents %ayab#e to bearer that $ou#d be %er"issib#e under &ection 1?00+ AaCA0C and &ection 1?00B( &ee Con,ention )rtic#e 1( 3n "ost res%ects- ho$e,er- the reRuire"ents o* 1?00+ and )rtic#e 1 o* the Con,ention are Ruite si"i#ar( @ankers )cce%tance: Tit#e 02 &ection 172 AaC 3nstitutions> dra*ts and bi##s o* eDchange> ty%es any "e"ber bank and any Federa# or &tate branch or agency o* a *oreign bank sub7ect to reser,e reRuire"ents under section 1005 o* this tit#e Ahereina*ter in this section re*erred to as institutionsC- "ay acce%t dra*ts or bi##s o* eDchange dra$n u%on it ha,ing not "ore than siD "onths sight to run- eDc#usi,e o* days o* grace .

30

AiC AiiC AiiiC

$hich gro$s out o* transactions in,o#,ing the i"%ortation or eD%ortation o* goods> $hich gro$ out o* transactions in,o#,ing the do"estic shi%"ent o* goods> or $hich are secured at the ti"e o* acce%tance by a $arehouse recei%t or other docu"ent con,eying or securing tit#e co,ering readi#y "arketab#e sta%#es(

AbC 9atio #i"it o* bi##s to uni"%aired ca%ita# stock and sur%#us 2Dce%t as %ro,ided in subsection AcC o* this section- no institution sha## eDce%t such bi##s- or be ob#igated *or a %artici%ation share in such bi##s- in an a"ount eRua# at any ti"e in the aggregate to "ore than 050 %er centu" o* its %aid u% and uni"%aired ca%ita# stock and sur%#us or- in the case o* a 8nited &tates @ranch or agency o* a *oreign bank- its do##ar eRui,a#ent as deter"ined by the board under subsection AhC o* this section( AcC )uthori6ation *or s%ecia# ratio #i"it> *oreign banks The @oard- under such conditions as it "ay %rescribe- "ay authori6e- by regu#ation or order- any institution to acce%t such bi##s- in an a"ount not eDceeding ay any ti"e in the aggregate 200 %er centu" o* its %aid u% and uni"%aired ca%ita# stock and sur%#us or- in the case o* a 8nited &tates @ranch or agency o* a *oreign bank- its do##ar eRui,a#ent as deter"ined by the @oard under subsection AhC o* this section( AdC 9atio #i"it *or do"estic transactions ;ot$ithstanding subsections AbC and AcC o* this section- $ith res%ect to any institution- the aggregate acce%tances- inc#uding ob#igations *or a %artici%ation share in such acce%tances- gro$ing out o* do"estic transactions sha## not eDceed 50 %er centu" o* the aggregate o* a## acce%tancesinc#uding ob#igations *or a %artici%ation share in such acce%tancesauthori6ed *or such institution under this section( AeC 9atio #i"it *or sing#e entity> *oreign banks security no institution sha## acce%t such bi##s- or be ob#igated *or a %artici%ation share in such bi##s- $hether in a *oreign or do"estic transaction- *or any one %erson- %artnershi%- cor%oration- association or other entity in an a"ount eRua# at any ti"e in the aggregate to "ore than 00 %er centu" o* its %aid u% and uni"%aired ca%ita# stock and sur%#us- or- in the case o* a 8nited &tates branch or agency o* a *oreign bank- its do##ar eRui,a#ent as deter"ined by the board under subsection AhC o* this section- un#ess the institution is secured either by attached docu"ents or by so"e other actua# security gro$ing out o* the sa"e transaction as the acce%tance( A*C 2Dce%tion *or %artici%ation agree"ents Jith res%ect to an institution $hich issues an acce%tance- the #i"itations contained in this section sha## not a%%#y to that %ortion o* an acce%tance $hich is issued by such institution and $hich is co,ered by a %artici%ation agree"ent so#d to another institution ARC 4e*initions by board 3n order to carry out the %ur%oses o* this section- the board "ay 4e*ine any o* the ter"s used in this section- and- $ith res%ect to 3nstitutions $hich do not ha,e ca%ita# or ca%ita# stock- the board sha## de*ine an eRui,a#ent "easure to $hich the #i"itations contained in this section sha## a%%#y( AhC 4o##ar eRui,a#ent o* *oreign bank %aid?u% ca%ita# stock and sur%#us

31

)ny #i"itation or restriction in this section based on %aid u% and uni"%aired ca%ita# stock and sur%#us o* an institution sha## be dee"ed to re*er- $ith res%ect to a 8nited &tates branch or agency o* a *oreign bankto the do##ar eRui,a#ent o* the %aid?u% ca%ita# stock and sur%#us o* the *oreign bank- as deter"ined by the board- and i* the *oreign bank has "ore than 8nited &tates @ranch or agency- the business transacted by a## such branches and agencies sha## be aggregated in deter"ining co"%#iance $ith the #i"itation or restriction( @i##s o* 2Dchange ha,e not been discontinued or done a$ay $ith they are ca##ed dra*ts- in a recent con,ersation $ith Ja#ker Todd eDchie* and #ega# counse# *or the Federa# 9eser,e- he di,u#ged to "e that 9eser,e reRuire"ents $ere $ai,ed under Tit#e 02 section 1005( !rior to this on ti"e de%osit accounts F these are accounts $here the *unds cannot be $ithdra$n *or a *iDed %eriod o* ti"e and then on#y a*ter noticeG $ere gi,en an eDe"%tion as a reser,e reRuire"ent and this eDe"%tion $as used or tendered through a @i## o* 2Dchange- and $as one o* the instru"ents *or #oaning "oney( Huess $hat re%#aced the reser,e reRuire"ents under ti"e de%ositsZ Mour eDe"%tion as the !rinci%a# on the %ri,ate side( )## "oneti6ed debt has to ha,e a !rinci%a# *ro" $hich Ca%ita# and 3nterest circu#ates- this ca%ita# and interest is ca##ed accrua#s under H))!( This is $here the accrua# "ethod o* accounting is deri,ed *ro"- under this "ethod o* accounting the debits and credits ha,e to be in ba#ance- this is acco"%#ished through re,erse bookkee%ing entries or "atching %rinci%#es( This can on#y be acco"%#ished in the courtroo" $hen you do an acce%tance *or honor o* the charges or charging instru"ents- indict"ent- co"%#aint- in*or"ation- or su""ons- then the debt#iabi#ity- or de*icit- $hich is re%resented by the charging instru"ent can be 6eroed out by trans*erring the credits or #iabi#ities o,er to the debit or asset side o* the accounting #edger by the c#erk o* the court( Thats right bunkies- the c#erk o* the court is a %ub#ic accountant and the docket sheet is an accounting #edger *or inter"ediate accounting entries and %ractices( They ha,e to %ass the credits or #iabi#ities through your account to e**ectuate %ost sett#e"ent and c#osure o* your account- through re,erse bookkee%ing entries( JhyZ @ecause the !ub#ic side is $here the bankru%tcy or inso#,ency is through contract and agree"ent under The :ague Con,entions and the !ub#ic !o#icy o* F:J9 0B2 codi*ied at Tit#e 10 section 500< 2 AdC( The &ocia# &ecurity # on the *ront o* your &ocia# &ecurity Card is assigned to the debtor or stra$ "an- the red nu"ber on the back o* the card is your eDe"%t %riority %re%aid account nu"ber and is assigned to one o* the 02 Federa# 9eser,e @anks- designated by the #etter in *ront o* the nu"ber( There are 02 #etters and < nu"bers a*ter the #etter( These #etters designate $hich Federa# 9eser,e district or bank is hand#ing your account- the < digit # is your account nu"ber- a## charge backs shou#d be to this bank and not the &ecretary o* the Treasury- $ho in rea#ity is the &ecretary o* the Treasury o* !uerto 9ico( The o**ice o* the &ecretary o* The Treasury o* the 8nited &tates $as abo#ished in 0B20- by the )ct o* 5ay 2B- 0B20 F Ch%( 20+- +0 &tat( O5+> a#so see 10 1100 :istorica# ;otes and is the source *or 02 8&C 020( )*ter this the rea# &ecretary o* the 3nterna# 9e,enue Code is 5anua# 4ia6 Fa#dana and John &no$ is the &ecretary o* the Federa# 9eser,e I35F( :o$e,er on ;o,e"ber 0+- 200+ Congress reestab#ished the 4e%art"ent o* The Treasury and the o**ice o* the &ecretary o* the Treasury- under Cha%ter V33( &ection 0 )ct o* Congress 2stab#ishing The Treasury 4e%art"ent( This $ou#d a#so "ake John &no$ the &ecretary o* The Treasury( 3 ha,e the #egis#ati,e docu"entation o* this( The 3nternationa# 5onetary Fund has re%#aced the o**ice o* the &ecretary o* the Treasury o* the 8nited &tates- $hich $as or is being chaired by ;icho#as @rady( The #etters be#o$ designate $hich district or bank is hand#ing your account as the *iduciary trustee in bankru%tcy( The < nu"bers on the *ront o* Federa# 9eser,e ;otes ha,e t$o identica# series o* nu"bers- and t$o #etters- one is a %re*iD and the other is a su**iD #etter- #ocated in the u%%er right and #o$er #e*t sections o* the note( 3* you study this in detai# you $i## *ind out that your red nu"ber on the back o* the && card corres%onds to these seria# nu"bers on the *ront o* Federa# 9eser,e ;otes- they both ha,e < nu"bers or digits( 3 do not think that this is a coincidence( ): @oston 2: 9ich"ond @: ;e$ Mork F: )t#anta C: !hi#ade#%hia H: Chicago K: 4a##as 4: C#e,e#and :: &t( 'ouis ': &an Francisco

3: 5innea%o#is J: Kansas City

The $ho#e %rob#e" and nothing e#se is that the %ub#ic and nationa# debt or de*icit is not being redee"ed on the %ub#ic side through your eDe"%tion on the %ri,ate side( This is the reason you ha,e run a$ay in*#ation and $ars in the %ub#ic rea#"s(

32

The reason $ars are *ought is to ki## or eDecute %eo%#e to cance# the debt( Mou $i## *ind out that under Tit#e 02 section 0<00 and section 100+ Finsurance o* de%ositsG e,ery de"and de%osit account inc#uding checking- sa,ings and credit card accounts are insured under the F43) FFedera# 4e%ository 3nsurance )ctG through the F43C FFedera# 4e%ository 3nsurance Cor%orationG Tit#e 02 section 0<00 AaC( Jhen they eDecute the debtor to e#i"inate the debt- they a#so co##ect the insurance "oney> you are actua##y $orth "ore dead FdebtG than a#i,e( Jhy do you think the %o#ice are so Ruick to shoot %eo%#eZ This eDecutes or e#i"inates both the debtor and the debt- in one s$i*t action or eDecution( This is a## Kar"ic and in,o#,es the #a$s o* Kar"a- $hich in %hysics in,o#,es the 'a$s o* Cause and 2**ect( This is a#so the occu#t or hidden "eaning o* the scri%tures in regard to sa#,ation and rede"%tion( )ny body $ho tries to run *ro" the %o#ice is ca##ed an absconding debtor in ad"ira#ty "ariti"e #a$ and "ay be shot or ca%tured under the #a$ o* !ri6e( 9ead the case o* J( 5);9E ,( Jose%h )'5234) 21 8(&( +71- 00 Jheat +71- O 'ed( +71- this is one o* the best cases 3 ha,e e,er read on the )d"ira#ty and Ci,i# 'a$ and ho$ it is being a%%#ied in the courts( )nother eDce##ent case is 9)5&)M ,( )''2H92 8(&( 54( 25 8(&( O00- 02 Jheat O00- O '(24( 7+O- $hich says they "ust ha,e your consent be*ore they %rosecute you- another eDce##ent case is '3;4E ,( 9E4;2M- 2 4E8H')&( O01- this is an eDtre"e#y di**icu#t case to *ind and research( This case is Ruoted in '2 C)8V ,( 242; Qo#u"e BB 2ng#ish 9e%orts !g( 175 or at 2 4E8H')& 5B5- this case $as decided the 7th day o* February- 07<0- by 'ord 5ans*ie#d %ossib#y one o* the greatest 7urist o* ad"ira#ty $hoe,er sat on the Kings @ench( )n action $i## not #ie at co""on #a$ *or *a#se i"%rison"ent- $here the i"%rison"ent $as "ere#y in conseRuence o* taking a shi% as %ri6e- a#though the shi% has been acRuitted( 'ord 5ans*ie#d said that the action a ne$ atte"%t$hich- i* it succeeded- $ou#d destroy the @ritish ;a,y( 3* an action at #a$ shou#d #ie- by the o$ners- and e,ery "an on board a shi% taken as %ri6e- against the ca%tor- and e,ery "an on board his shi%- no "an $ou#d dare to take a shi%( !g( 5B5 or %g( 175 o* 2ng#ish 9e%orts( @esides- the argu"ent o* %o#icy- such as it is- does not a%%#y in the %resent instance> because this de*endant is ca%tain o* a #etter o* "arRue- $ho acts ,o#untari#y *or his o$n %ri,ate %ro*it- and that o* his o$ners> not- as o**icers in the ;a,y- under %ub#ic co"%u#si,e authority( )s to the other ground- that i* there is a re"edy- it "ust not be sought in a Court o* Co""on 'a$- but in the Court o* )d"ira#ty- The incon,enience $i## be 7ust as great be*ore the 7udicature*or the sa"e "u#ti%#icity o* suits "ay arise there( The current &uits in )d"ira#ty )ct %assed in 0B20 gi,es in7ured %arties the right to sue the go,ern"ent in )d"ira#ty( Tit#e +O a%%endiD sections 7+0?752 and the !ub#ic Qesse#s )ct enacted in 0B25 to a##o$ c#ai"s against the 8nited &tates *or da"ages caused by one o* its ,esse#s( Tit#e +O 8(&(C()( a%%endiD sections 7<0?7B0( 3 ha,e *ound that "ost %eo%#e do not kno$ the di**erence bet$een Federa# Co""on 'a$ and 2ng#ish Co""on 'a$( )## the 2ng#ish Co""on 'a$ $as grounded in substance and o$nershi% o* %ro%erty through )##odia# Tit#e( The %eo%#e did not ha,e tit#e to anything under the current syste"- the on#y rights they ha,e are re"edies as de*ined in 0?200 o* the 8(C(C( Federa# Co""on 'a$ is that decisiona# body o* #a$ Fru#es o* decisionG Fco""ercia#G that ca"e out o* the 2ire ,( To"%kins 10+ 8(& O+- 5< &( CT( <07 A0B1<C decision( 3 ha,e read o,er 250 'a$ 9e,ie$ artic#es and on#y one te##s you $hat ha%%ened in 0B1<( The ;a"e o* the Journa# is the )"erican @ar )ssociation Journa# Qo#u"e 2+( January- 0B1<- the na"e o* the artic#e is Jhat :a%%ened to Federa# Juris%rudence by )#bert &ch$e%%e o* the &eatt#e @ar )ssociation( The best artic#e bar none is the &8!9252 CE89T );4 T:2 !E&T? 2932 F2429)' CE55E; ')J by John !( 'udington- ''@ 10 '( 24( 2d %g( 000O( Jhat ha%%ened in 0B1< is that they changed the 9u#es o* 4ecisions under section 1+ o* the Judiciary )ct o* 07<B*ro" the 2ng#ish Co""on 'a$ to the Federa# Co""on #a$( !rior to this the 2ng#ish Co""on 'a$ $as ca##ed the genera# *edera# co""on #a$( 3n 3;T29!EE' 'T4 ,( C:)9 M3H: 5)93;2 A!);)5)C &()( <B0 F( 2d %g( 0+51 A0B<BC( 3t states that in "ariti"e co""ercia# transactions- the uni*or" co""ercia# code is taken as indicati,e o* *edera# co""on #a$ o* ad"ira#ty( This says it a##( )nother eDce##ent case is T:2 C)9TE;) 2B7 Federa# 9e%orter 0st series %g( <27( This case says you ha,e to ha,e a interest or a #ien be*ore you can inter,ene $ith a c#ai" in )d"ira#ty under ru#e 2+ o* the F(9(C(!( 3n the 8nited &tates e,erything started $ith the Ci,i# Jar and the 3nsurrection and 9ebe##ion )cts o* )ugust O- 0<O0 and Ju#y 07- 0<O2- $hich are sti## current #a$ today under tit#e 50 sections 202- U 201- $e ha,e been under a "i#itary- %ro,isiona#- occu%ationa# go,ern"ent since 0<O0( This is $hy the 8nited &tates has been di,ided into 3nterna# 9e,enue 4istricts under tit#e 2O section 7O20 by the %resident o* the 8nited &tates and is $hat the 6i% code designates( The attached treatise and other attach"ents %retty $e## eD%#ains the 39&( 9ead this in con7unction $ith the 3nsurrection U 9ebe##ion )cts o* )ugust O- 0<O0 U Ju#y 07- 0<O2 and the *irst 3nco"e TaD )ct

33

a%%ro,ed )ugust 5- 0<O0 and $as re%ea#ed by section <B o* the Ju#y 0- 0<O2 3nterna# 9e,enue )ct and reestab#ished by section B0 o* this )ct and $hich i"%osed an inco"e taD on the annua# rents- di,idendsstocks- securities- gains- %ro*its- sa#aries- *ro" any %ro*ession- trade- e"%#oy"ent- or ,ocation carried on in the 8nited &tates or e#se$here- or *ro" any other source $hate,er on the inco"e o* e,ery %erson residing in the 8nited &tates or any citi6en o* the 8nited &tates( Je are sti## under the Jar !o$ers )cts o* 0<+0 and 0<O0( The 3nco"e TaD is %assed on the )d"ira#ty side o* the court or "i#itary and is co##ected *ro" the !ri6e side o* Jar( &ection 0 o* the Ju#y 0- 0<O2 3nterna# 9e,enue )ct- estab#ished the o**ice o* the Co""issioner o* 3nterna# 9e,enue- under the direction o* the &ecretary o* The Treasury- under sections 2 U 1 o* this act the %resident di,ided the &tates and Territories into co##ection districts and *urther under section 1 the assessor is authori6ed to di,ide his district into con,enient assess"ent districts( 3 be#ie,e that this )ct $as the %redecessor *or tit#e 2O section 7O20- $here the !resident di,ided the districts u% into 3nterna# 9e,enue 4istricts( 3 be#ie,e a#so that the )ct o* 5arch 25- 0<O2 cha%ter 50 17th Congress- K)n )ct to *aci#itate Judicia# !roceedings in )d7udications u%on ca%tured !ro%erty- and *or the better )d"inistration o* the 'a$ o* !ri6eK $as the %redecessor *or the )ct o* June 10- 0<O+ c( 07+ sections 2B- 12- 11 o* the 9(&( sections +O01+O0+- +O52 and $hich estab#ished the #a$ o* !ri6e and the !ri6e Co""issioners under tit#e 00 sections 7O50? 7O<0 o* the 5i#itary Code o* Justice( 3 be#ie,e that the ,enue and 7urisdiction o* the 4istrict o* Co#u"bia $as eDtended out into the states through section 7O20 o* tit#e 2O( The 39&Ls return address is a Federa# 9egiona# address $ith a Xi% Code$hich "eans they are in a 4istrict F3nterna# 9e,enue 4istrictG $ithin a Federa# 9egiona# )rea- designated by a Xi% Code- created by eDecuti,e order 00O+B and the )ct o* Congress creating the Xi% Code a%%ro,ed &e%te"ber 2- 0BO0- !ub#ic 'a$ <O?O<2> 7+b &tat( 57<(

Jhat Frank#in 4e#ano 9oose,e#t did in June o* 0B11- is he so#d "ore go#d contracts that the treasury had go#d- this created a "arine %eri# or %eri# o* the sea- because o* the run on the treasury- do to the *oreign go#d contracts( To a,ert the #oss o* go#d- due to the run on the Treasury- 9oose,e#t out#a$ed go#d and go#d contracts to a,ert the a%%arent %eri# or #oss o* go#d in the Treasury( 3n ad"ira#ty any ti"e cargo Fgo#dG is sacri*iced to a,ert the %eri# o* the sinking or #oss o* the shi%- e,erybody $ho is a %assenger on the shi% or ,esse# Fthe 8nited &tatesG has to %ay *or the #oss or sacri*ice through the doctrine o* Contribution( They had to insure or inde"ni*y their #osses through a "ariti"e insurance %o#icy- they acco"%#ished this through F3C) FFedera# 3nsurance Contribution )ctG- $hich is the insurance %o#icy under &ocia# &ecurity( 2,erybody $ho has a && nu"ber is a Co?debtor or Co?surety *or the #oss o* the go#d or "oney under the %ub#ic %o#icy o* :(J(9( 0B2 and tit#e 10 section 500< A2C AdC( The origins o* inde"nity and contribution can be traced to the conce%ts o* contract and restitution( The $ord Contribution co"es *ro" the $ord tribu#ation- $hich is "entioned throughout scri%ture( There are *our kinds o* inde"nity and t$o kinds o* contribution( The *our kinds o* inde"nity are eD%ress agree"ent- AcontractC- i"%#ied agree"ent AcontractC- restitution inde"nityand statutory inde"nity( Contribution is either %ro rata or according to the degree o* *au#t( This is $hy you ha,e degrees o* a Fe#ony 0st- 2nd- 1rd- +th and 5th and 5isde"eanors( The &&?5 a%%#ication is an eD%ress agree"ent or contract- that "akes you a 7oint Tort*easor under the doctrine o* Contribution- be*ore you e,er go to court on any charges( Jhen you re*use to %ay the debt $hich you contracted to %ay under the &&? 5 a%%#ication- another Joint?Tort*easor Fa cor%oration #ike Ja# 5artG %ays your debt- and as a co?surety Ja# 5art no$ subrogates itse#* to the creditor under the doctrine o* suretyshi%- $hich is the court and is entit#ed to rei"burse"ent *ro" the creditor( This is ho$ a## o* your cor%orations are *inancing their o%erations- through the court and %rison syste"( :o$ "any ti"es ha,e you heard a court order a de*endant FdebtorG to %ay 9estitution to the courtZ 3nde"nity is an eDtre"e *or" o* Contribution( )n eDce##ent treatise on this can be *ound in ,o#u"e 55 %g( 00O5 o* the T8');2 ')J 92Q32J( There is a#so an eDce##ent treatise on &uretyshi% %rinci%#es in the ;e$ )rtic#e 1 C#ari*ications and &ubstanti,e Changes by ;ei# @( Cohen in Qo#u"e +2:2:5B5 o* the )#aba"a 'a$ 9e,ie$( 2,ery &tate has %assed or ado%ted the Joint?Tort?Feasors )ct under the doctrine o* Contribution( This is basica##y a## insurance- $hich is o* ad"ira#ty "ariti"e #a$( This is ca##ed genera# a,erage contribution in ad"ira#ty "ariti"e #a$( )n eDce##ent case on Contribution is 4)J&E; ,( CE;T9)CTE9& T9);&!E9T CE9!( +O7 F( 24 727 A0B72C( C3) )T');T3C) !)C3F3C)- &()( ,( :85@'2 E3' U 92F3;3;H CE( 27+ F( &8!!( <<+ A0BO7C is an eDce##ent case on genera# a,erage contributions( Hrant Hi#"ore the co?author o* the 'a$ o* )d"ira#ty $rote )rtic#e B o* the 8(C(C( on secured transactions( This shou#d te## you so"ething( )nother thing that "ost %eo%#e are not a$are o* is that e,erybody is a "erchant at #a$ under )rtic#e 2?00+ A0C- because they use co""ercia# %a%er in their e,ery

34

day transactions and ho#d the"se#,es by occu%ation as ha,ing kno$#edge or ski## %ecu#iar to the %ractices or goods in,o#,ed in the transaction or to $hich the kno$#edge or ski## "ay be attributed( This is one o* the reasons the court ne,er te##s or disc#ose to you $hat is going on in the courtroo" by $ay o* a co""ercia# transaction and that you are the goods or chatte# in,o#,ed in the transaction- $hich is $hy it is a## co""ercia# and $hy "ost %eo%#e end u% in %rison or 7ai#( This is $hy in tit#e 2O section O105 says u%on recei,ing a certi*ication *ro" the &ecretary o* :ea#th and :u"an &er,ices- under section +52 AbC o* the &ocia# &ecurity )ct $ith res%ect to any indi,idua#the &ecretary sha## assess and co##ect the a"ount certi*ied by the &ecretary o* :ea#th and :u"an &er,ices- in the sa"e "anner- $ith the sa"e %o$ers- and AeDce%t as %ro,ided in this sectionC sub7ect to the sa"e #i"itations as i* such a"ount $ere a taD i"%osed by subtit#e C( The in*erence here is that the &ecretary is co##ecting an insurance %re"iu" as though it $ere a taD- $hyZ @ecause there is no "oney e,erything is insurance and you cant %ay a taD $ith a debt instru"ent( Je as !rinci%a#s o$n- ho#d- and contro# both sides o* the accounting #edger> the %ri,ate- debit or asset side and the %ub#ic- credit or debt side( )n o**ender is de*ined or ca##ed a debtor in ad"ira#ty "ariti"e #a$ read the case o* CE;T3;2;T)' 3''3;E3& ;)T3E;)' @);K U T98&T CE( ,( C:3C)HE- 9ECK 3&');4 U !)C3F3C 9M( CE( 2B+ 8(&( O+<( !age OO< o* this case a debtor is re*erred to has an o**ender( )## o* your state cri"ina# statutes ha,e this ter" in their statutes or codes( 3n Ehio it is in tit#e 2B section 2B50(07( 3* the o**ender FdebtorG under co""unity contro# )@&CE;4& or other$ise #ea,es the 7urisdiction o* the court $ithout %er"ission *ro" the %robation o**icer- the %robation agency- or the court to do so- or i* the o**ender FdebtorG is con*ined in any institution *or the co""ission o* any o**ense- the %eriod o* co""unity contro# ceases to run unti# the ti"e that the o**ender FdebtorG is brought be*ore the court *or its *urther action( )n absconding debtor is de*ined in @#acks 'a$ 4ictionary <th edition as a ) debtor $ho *#ees *ro" creditors to a,oid ha,ing to %ay a debt( )bsconding *ro" a debt $as *or"er#y considered an act o* bankru%tcy( The $ord )bscond "eans To de%art secret#y or sudden#y- es%ecia##y to a,oid arrest%rosecution- or ser,ice o* %rocess( 2( To #ea,e a %#ace usua##y hurried#y- $ith anothers "oney or %ro%erty( 8nder Tit#e 2O section 0O1 a## %re%aid interest is taD deductib#e( Jhen you dont use your eDe"%tion in eDchange *or the debt or de*icit they eDecute on you to e#i"inate the debt- in the %risons or credit *aci#ities as they are rea##y ca##ed- this is ca##ed the death or debt %ena#ty( 3snt "urder a Ca%ita# E**ense and isnt Ca%ita# interest or accrua#s *ro" you as the !rinci%a#Z )n eDe"%tion is inte##ectua# %ro%erty under internationa# #a$- i* you dont use it- it beco"es abandoned %ro%erty and the cor%orations use it on a 00BO or 00B< taD return as %re%aid interest to get your deduction and %ass the taD on to you( ) taD is nothing but a return o* ca%ita# and interest back to the %rinci%a# that is $hy a return is ca##ed a taD return( This is $hat you are %aying e,ery ti"e you "ake a %urchase at the retai# #e,e# on a retai# contract under the truth in #ending( 3* you #ook at any 00BB E34 Forigina# issue discountG or 00BB 3;T FinterestG or 00BB !T9 F%atronG $hich are issued by banks to cor%orations- these docu"ents $i## #ist you as the !rinci%a# as the reci%ient or Fiduciary Creditor and the Cor%oration as the %ayor Fiduciary 4ebtor( They are su%%osed to return your Ca%ita# and 3nterest back to you as the Creditor and !rinic%a#- this is $hat "akes it a %re%aid account and taD deductib#e- this $ay they can use your eDe"%tion to %ay the taD and re#ease the "erchandise to you in eDchange( )## "erchandise is %re%aid be*ore it #ea,es the *actory- $hat "erchants are co##ecting at the retai# #e,e# is the taD- ca%ita#- interest- accrua# or re,enue on you as the %rinci%a#- because you ha,e abandoned your eDe"%tion as the !rinci%a#( They cannot eDecute on a contract under the co""on #a$- because there is no "oney that is $hy they ha,e to do an eDchange using your eDe"%tion *or the debt to discharge- redee" or e**ectuate %ost sett#e"ent and c#osure o* your account( This is $hy the banks ne,er c#ose your account a*ter you ha,e $ithdra$n a## your "oney( Jhen you are re*used access to a credit card by a##eged bad credit they Fthe bankG are "aking a c#ai" on your account by using your eDe"%tion( They are assu"ing o$nershi% o* your na"e as the %rinci%a#> i* they do sett#e"ent and c#osure and re#ease the account they are gi,ing you your deduction *or the %re%aid account as the %rinci%a#( The botto" #ine to a## this is that you on#y ha,e $hat you #ay c#ai" to( 9e"e"ber that rights are de*ined under 0?200 A1+C o* the 8CC as re"edies( The Je$ish !asso,er is 7ust an eDchange o* the *uture to the %ast or the %ast to the *uture( 3n other $ords your treasury @i## is eDchanged *or a Treasury @ond "aking the @i## a *uture e,ent or Futures Contract( This co"es *ro" a Federa# 9eser,e 9e%ort $hich says that 05 W o* 000 / <5- 05 W o* <5 / 72(25 etc( tota# 000- <5- and 72(25 and so on you get OOO( Ho#d he#d in reser,e is 05 W based on P000 de%osit / OOO- 20 W / 500 this is co""odities and 00 W / 0000 and Frank#in 4e#ano 9oose,e#t so#d "ore Ho#d

35

Contracts than the Treasury had Ho#d and $as the reason *or the %assage o* the Federa# 9eser,e )ct and $hy they had to take go#d and si#,er out o* circu#ation to co,er u% the *raud( This is $hy they %assed :J9 0B2 FTit#e 10 section 500< 2 AdCG and goes into the 11 W that %ro,ides *unds *or *unding the %ub#ic "unici%a#ities( T:2 !9)CT3C2 );4 J893&43CT3E; EF T:2 CE89T EF )4539)'TM 3; T:922 !)9T& by John 2( :a##- 2sRuire 4ate: 0<0B This %ractice $as used by !roctors in the Qice )d"ira#ty Courts in the Co#onies %rior to the )"erican 9e,o#ution and $as de#i,ered to the c#erk o* the 5ary#and district court- !hi##i% 5oore on the +th day o* Ectober- 0<0B( The *irst edition $as %rinted in 0O7B- a third edition $as %ub#ished in the year 0722 and a ne$ edition in 07B0 o* $hich this is a eDact and *aith*u# co%y o* $hich 'ord :ard$icke considered o* unRuestionab#e character( This %ractice is Ruoted in Jaring ,( C#arke 5 :o$ard- F+O 8(&(G +5+( This %ractice $as $ritten *or %ri,ate ,ie$ing on#y and not %ub#ic as e,idenced by its substance( First !art :istorica# 2Da"ination o* )d"ira#ty &econd !art Trans#ation o* the !raDis F%racticeG &u%re"ae Curiae )d"ira#ita#is FThe :igh Court o* )d"ira#tyG- by Francis C#erke- $ho $as registrar o* the Court o* )rches during the reign o* Nueen 2#i6abeth: )rches Court / 3n 2ng#ish 2cc#esiastica# 'a$ a Court o* )%%ea# be#onging to the )rchbisho% o* Canterburythe 7udge o* $hich is ca##ed the The 4ean o* )rches because his court $as ancient#y he#d in the church o* &aint 5ary 'e?@o$( F&ancta 5aria de . )rcubusG( &o na"ed *ro" the stee%#e- $hich is raised u%on %i##ars bui#t arch $ise 1 @' Co""entary O+( The court $as *or"er#y he#d in the ha## be#onging to the Co##ege o* Ci,i#ians- co""on#y ca##ed 4octors Co""ons( 3t is no$ he#d in Jest"inster :a##( 3ts %ro%er 7urisdiction is on#y o,er the thirteen %ecu#iar %arishes be#onging to the )rchbisho% in 'ondon- but the o**ice o* the 4ean o* the )rches- ha,ing been *or a #ong ti"e united $ith that o* the )rchbisho%s %rinci%a# o**icia#- The 7udge o* the )rches- in right o* such added o**ice- it recei,es and deter"ines a%%ea#s *ro" the sentences o* a## in*erior 2cc#esiastica# Courts $ithin the %ro,ince( Ci,i#ian / Ene $ho is ca##ed or ,ersed in the Ci,i# 'a$- a doctor- %ro*essor- or student o* the Ci,i# 'a$( )#so a %ri,ate citi6en- as distinguished *ro" such as be#ong to the )r"y and ;a,y or Fin 2ng#andG the church( 9egister / )n o**icer authori6ed by #a$ to kee% a record ca##ed a 9egister or 9egistry as the 9egister *or the !robate o* Ji##s( C893) / 3n o#d 2uro%ean 'a$( ) court( The %a#ace- househo#d- or retinue o* a so,ereign( ) 7udicia# tribuna# or court he#d in the &o,ereigns %a#ace( ) court o* 7ustice The ci,i# %o$er- as distinguished *ro" the 2cc#esiastica#( ) "anor> a nob#e"ans house> the ha## o* a "anor( ) %iece o* ground attached to a house> a yard or courtyard( &%e#"an( ) 'ords court he#d his "anor( The tenants $ho did suit and ser,ice at the #ords court( ) "anse- Co$e##( 3n 9o"an 'a$ ) di,ision o* the 9o"an %eo%#e- said to ha,e been "ade by 9o"u#us( They $ere di,ided into three tribesand each tribe into ten curiae- "aking thirty curiae in a##( &%e#"an( The %#ace or bui#ding in $hich each curia asse"b#ed to o**er sacred rites( The %#ace o* "eeting o* the 9o"an senate> the senate house( The senate house o* a %ro,ince> the %#ace $here the decuriones asse"b#ed( Cod( 00- 10- 2( 42C893E / 'atin( ) decurion 3n the %ro,incia# ad"inistration o* the 9o"an 2"%ire- the decurions $ere the chie* "en or o**icia# %ersonages o* the #arge to$ns( Taken as a body- the decurions o* a city $ere charged

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$ith the entire contro# and ad"inistration o* its interna# a**airs> ha,ing %o$ers both "agisteria# and #egis#ati,e( &ee 0 &%ence- 2R( Jur( 5+( &o"e o* the courts $ere ca##ed ad"ira#ty- others $ere ca##ed consu#ar courts( The 7udges $ere ca##ed consu#s and the code $hich they o%erated by $as ca##ed the consu#ate o* the sea( These consu#s $ere ci,i# 7udges( The district courts today %ossess the authority and 7urisdiction o* the :igh Court o* )d"ira#ty( The 'ords co""issioners o* the )d"ira#ty- $ho %ossess the sa"e 7urisdiction as the 'ord :igh )d"ira#( The 'ord :igh )d"ira# grants the o**ice o* 9egistrar o* the )d"ira#ty *or #i*e( 3n this country the c#erks o* the 4istrict Courts o* the 8nited &tates are a%%ointed by the Courts res%ect*u##y in $hich they )ct- and ho#d their o**ices at $i##( The ter" 9egistrar is a#"ost synony"ous $ith 9egister does this ring a be##( The Ci,i# 'a$ distinguishes bet$een a 'etter and a Jarrant o* )ttorney( The *or"er is ca##ed a %rocuration- %roDy%rocuracy- or %rocuratory $ith the !roDy or !rocuratory ad #ites- in 2cc#esiastica# causes( This is the sa"e "anner in $hich %a%ers are *i#ed and authenticated in the 2cc#esiastica# Courts( Constitutor by ro"an #a$ is a %erson $ho by agree"ent beco"es res%onsib#e *or the %ay"ent o* anothers debt- no$ you kno$ $hy under )rtic#e O &ection 2- the su%re"acy c#ause o* the constitution- Jays Treaty a co""ercia# treaty entered into on ;o,e"ber 0B- 07B+ is the su%re"e #a$ o* the #and under the 8(&( Constitution- $hich $as a debt contract to %reser,e the debt o$ed to the cro$n under this treaty and $hich $e sti## are %aying *or today( @onds $ere re*erred to as Fide7ussory &ecurity( Fide7ussores $ere the guarantors *or %ay"ent o* the 4e*endant F4ebtorG debts( ) de*endant needs at #east t$o Fide7ussores- $ho shou#d be bound to the %#ainti**- in the su" *or $hich the action $as instituted( ) 'etter 9ogatory $as ca##ed a %atent $rit Fo%en $rit one not sea#ed or c#osedG c#ose $rit Fa roya# $rit sea#ed because the contents $ere not dee"ed a%%ro%riate *or %ub#ic ins%ection( The !#ainti** is a#so ob#iged to *ind Fide7ussores to these e**ects- ,i6( *or the %rosecution o* the suit> *or the %ay"ent o* the de*endants costs i* the %#ainti** *ai# in his cause- and *or the %roduction o* the %#ainti** %ersona##y as o*ten as he "ay be ca##ed( )s a## ci,i# and "ariti"e cause is su""ary- the "ode o* %roceeding and the *ina# sentencing are the sa"e as in 2cc#esiastica# cases( The co""ercia# Courts or Tribuna#s on the continent o* 2uro%e $ere *or"er#y ca##ed Consu#s( 3n France- Judges and Consu#s> 3n &%ain !riors and Consu#s> 3n 3ta#y- 5ariti"e Consu#s( :ence the "ost ancient $ork- $hich is eDtant- on "ariti"e and co""ercia# #a$ is ca##ed- the Consu#ate o* the sea( Co""ercia# agents $ho are sent *ro" one country to another are ca##ed Consu#s- because they *or"er#y had a consu#ar 7urisdiction- or cogni6ance o* a## co""ercia# and "ariti"e causes bet$een sub7ects o* their o$n nations( To these co""ercia# and "ariti"e Courts- there*ore- co""issions sub "utuoe or #etters rogatory $ere- in our authours ti"e- usua##y directed> and at this day it see"s that they "ight $ith %ro%riety be directed to the Court or Judge- o* the %#ace to $hich they are sent- eDercising ad"ira#ty and "ariti"e 7urisdiction( @e*ore "aking the sei6ure- a *u## %roo* o* the debt is to be "ade to the Judge according to his discretion( 3* he be dec#ared in contu"acy Fconte"%tG &cacc( n( 5( the 7udges o* our day- according to custo"- decree a seRuestration Fre"o,a# o* %ro%erty *ro" debtorG at the instance o* the creditor a#one- $ithout the eDistence o* any sus%icion( &cacc( n( 00( 3* nothing is %ro,ed to the Judge and nothing is s$orn by the creditor- the attach"ent is granted u%on the si"%#e assertion o* the creditor( 4e*au#t "entioned abo,e- co""on#y signi*ies an o**ence in o"itting that $hich $e ought to do- yet here it is taken as a non a%%earance in Court at a day assigned 3* you dont "ake an a%%earance and %ay the debt- you are in contu"acy Fconte"%tG and in %ain o* their contu"acyFconte"%tG be decreed to ha,e incurred the *irst de*au#t( ) #oan is a "ariti"e contract- a 7uratory caution in "ariti"e #a$ is a courts %er"ission *or an indigent to disregard *i#ing *ees an court costs( ) suit u%on 7uratory caution is the eRui,a#ent o* a suit in *or"a %au%eris( The right $as *irst recogni6ed in 8nited &tates ad"ira#ty courts in @rad*ord ,( @rad*ord- 1 F( Case 002B A0<7<C( Four de*au#ts are to be %ronounced against the de*endant- i* he does not a%%ear $ithin the ter" assigned to hi" by the Judge- be*ore the Judge sha## decree the %#ainti** to be %ut in %ossession o* the goods o* the de*endant- $hich is contrary to the ancient usage o* the Court o* )d"ira#ty( 3t o*ten ha%%ens- and es%ecia##y in ti"e o* $ar or co""otion- that your goods or ,esse# are taken by ene"ies or %irates- and a*ter$ards brought to this kingdo"> or are %ossessed or detained by others in so"e other "anner> or the *actor or agent o* your corres%ondents in %arts beyond seas- "ay consign certain goods to your use or bene*it- and they are detained un7ust#y %ossessed by so"e %erson( 3n such cases you "ay obtain a Jarrant to arrest the goods a*ter this "atter as your %ro%er goods: and a#so a citation as $e## against those in %articu#ar thus occu%ying or detaining- as against a## others in genera#- $ho ha,e or

37

%retend to ha,e any interest in the"- to ans$er you in a certain cause o* a ci,i# and "ariti"e nature( Jhich Jarrant being eDecuted and returned as abo,e- in Tit( 11- i* no one a%%ears- the %roceedings are to be in a## things as abo,e- Tit( 10- and a*ter the *ourth de*au#t- the goods are to be ad7udged to you> not *or a debt as in the *or"er case- but the decree is to be that in %ain o* the contu"acy Fconte"%tG o* those $ho ha,e not a%%eared- the goods be#ong to you- and being your %ro%erty- you are to be %ut in %ossession o* the"( The %ur%ose o* attach"ent o* debtors goods $as to co"%e# an a%%earance to obtain Ruasi in %ersona" 7urisdiction o,er the 9es( The *act is that unti# the ++th year o* 2#i6abeth- the %ri6e 7urisdiction $as not ,ested in the :igh Court o* )d"ira#ty- but in a board o* Co""issioners- ca##ed The Co""issioners *or causes o* de%redations F%#undering or %i##agingG( )t the ti"e this $ork $as authored the )d"ira#ty Court $as "ere#y a Ci,i# Court o* 3nstance( There $ere argu"ents brought on ,arious grounds such as in*ra %raesidia F$ithin the de*ensesG this is the internationa# doctrine that so"eone $ho ca%tures goods $i## be considered the o$ner o* the goods i* they are brought co"%#ete#y $ithin the Ca%tors %o$er( This ter" is a corru%tion o* the 9o"an?#a$ ter" intra %raesidia- $hich re*erred to goods or %ersons taken by an ene"y during $ar( 8nder the %rinci%#e o* %ost#i"iniu"- the ca%tured %ersons rights or goods $ere restored too %re$ar status $hen the ca%tured %erson returned( The oath to ho#d bai# $as an oath o* ca#u"ny Foath to su%%ort %#ainti** or de*endants good *aith and be#ie* that there $as a bone *ide c#ai"G( 3nstru"ents are *or the "ost %art t$o?*o#d either %ub#ick or %ri,ate !ub#ick 3nstru"ents are: 0( 3nstru"ent dra$n under the hand o* a ;otary !ub#ic- or other %ub#ick %erson- either in or out o* Court( 2( That $hich is sea#ed $ith so"e %ub#ick or authentick sea#- Athough $ritten by a %ri,ateC as o* a !rinceCity- 8ni,ersity or Co##ege( 1( )## $ritings $hatsoe,er Athough %ri,ateC $hich are eDe"%#i*ied by the authority o* the Judge or 5agistrate( +( )## such $ritings as are taken out o* %ub#ic registries- U c( or those "ade at %ub#ick acts> Fthat is to say"atters o* record(G 5( Those $ritings $hich are subscribed by the %erson and $itnesses( )nd this is %ub#ick as to its e**ects( !ri,ate 3nstru"ents are such as are "ade $ithout any so#e"nity> and they are either: 0( )ccounts 2( !ri,ate 3n,entories or 9egisters( 1( !ri,ate #etters bet$iDt one *riend and another- one trades"an and another( )n a%%ea# o* an inter#ocutory decree "ay be done either ,i,a ,oce Fora##y or by $ord o* "outhG be*ore the Judge or a%ud acta Frecorded in $riting and to a%%ea#s taken ora##y in *ront o* the 7udgeG $hen he de#i,ers the sentence or inter#ocutory decree- or be*ore a notary and $itnesses $ithin the 05 days $hich are a##o$ed by the statutes o* the kingdo" *or bringing a%%ea#s( Consetios !ractice o* the 2cc#esiastica# Courts- 'ondon- 070<( This essay- a#though it re#ates to the %ractice o* the 2cc#esiastica# Court- is eRua##y a%%#icab#e to the )d"ira#ty Courts( 3n res%ect o* the sub7ect "atter o* the #ibe#- there are on#y t$o sorts in use F%g( 021G- one o* $hich is con,entiona# or ci,i#- Fa con,eniendo- *ro" con,eningG the other cri"ina#- Fa cri"ine seu Rueri"oniaG( 3* you read Tit#e 0< section 7 says that Citi6ens o* the 8nited &tates are Co""ercia# Qesse#s( &ection 7 ta#ks about &%ecia# "ariti"e and territoria# 7urisdiction o* the 8nited &tates de*ined: The ter" s%ecia# "ariti"e and territoria# 7urisdiction o* the 8nited &tates- as used in this tit#e- inc#udes:

38

A0C The high seas- any other $aters $ithin the ad"ira#ty and "ariti"e 7urisdiction o* the 8nited &tates and out o* the 7urisdiction o* )ny %articu#ar &tate- and any Qesse# be#onging in $ho#e or %art to the 8nited &tates or any citi6en thereo*- or to any cor%oration created by or under the #a$s o* the 8nited &tates- or o* any &tates- Territory- 4istrict- or %ossession thereo*( A2C )ny ,esse# registered- #icensed- or enro##ed under the #a$s o* the 8nited &tates- and being on a ,oyage u%on the $aters o* any o* the Hreat 'akes- or any o* the $aters connecting the"- or u%on the &aint 'a$rence 9i,er $here the sa"e constitutes the 3nternationa# @oundary 'ine( 3 ha,e ta#ked to 'ee @robst and he has in*or"ed "e that he has researched and checked out the *act that a## the bui#dings- that house the birth certi*icates ha,e a stake outside the bui#ding that has a high $ater "ark on the stake( 3* you understand )d"ira#ty 5ariti"e 'a$ you kno$ that the :igh Jater 5ark de*ines the 7urisdiction o* the 'a$ o* )d"ira#ty( This is re*erred to in case #a$ as the ebb and *#o$ o* the tide( 2bb is the inco"ing or high tide and the *#o$ is the outgoing or #o$ tide( The tide$ater #i"itation has been abandoned in The Henesee Chie* ,( Fit6hugh- 51 8(&( A02 :o$ardC ++1 A0<50C( This is because ad"ira#ty "ariti"e #a$ has been brought in#and through the #a$ o* trusts and is so stated in 9u#ing Case 'a$ on the 'a$s o* Trusts( This %o$er is as eDtensi,e u%on #and as u%on $ater( The Constitution "akes no distinction in that res%ect( )nd i* the ad"ira#ty 7urisdiction- in "atters o* contract and tort $hich the courts o* the 8nited &tates "ay #a$*u##y eDercise on he high seas- can be eDtended to the #akes under the %o$er to regu#ate co""erce- it can $ith the sa"e %ro%riety and u%on the sa"e construction- be eDtended to contracts and torts on #and $hen the co""erce is bet$een di**erent &tates( )nd it "ay e"brace a#so the ,ehic#es and %ersons engaged in carrying it on( 3t $ou#d be in the %o$er o* Congress to con*er ad"ira#ty 7urisdiction u%on its courts- o,er the cars engaged in trans%orting %assengers or "erchandise *ro" one &tate to another- and o,er the %ersons engaged in conducting the"- and deny to the %arties the tria# by 7ury( ;o$ the 7udicia# %o$er in cases o* ad"ira#ty and "ariti"e 7urisdiction- has ne,er been su%%osed to eDtend to contracts "ade on #and and to be eDecuted on #and( @ut i* the %o$er o* regu#ating co""erce can be "ade the *oundation o* 7urisdiction in its courts- and a ne$ and eDtended ad"ira#ty 7urisdiction beyond its hereto*ore kno$n and ad"itted #i"its- "ay be created on $ater under that authority- the sa"e reason $ou#d 7usti*y the sa"e eDercise o* %o$er on #and( . !9E!2''29 H2;2&&22 C:32F ,( F3TX:8H:51 8(&( A02 :EJ(C ++1 A0<50C( 3* you ha,e a neDus or acti,ity that bears a re#ationshi% to a traditiona# "ariti"e acti,ity- such as insurance- trusts- co""ercia# %a%er- or co""erce you ha,e %assed or Rua#i*ied under the neDus and situs reRuire"ents( 9ead 2V2C8T3Q2 J2T )Q3)T3E;- 3;C( ,( C3TM EF C'2Q2');4- +0B 8(&( 2+B2O<- B1 &(CT( +B1- 50+- 1+ '(24( 2d +5+ A0B72C- :))&3;H29 Q( T342');4 2'2C( 525@29&:3! CE9!( 7<0 F( 2d 0022 A+T: Cir( 0B<OC- @');C:)94 ,( )5293C); CE5529C3)' @)9H2 '3;2& CE(- 1+1 F( &8!!( B20 A5(4( ')( 0B72C- )FF4 +O< F( 2d B50 A0B72C> 5)M29 @E)T JE9K&- 3;C( ,( @93H:T 5)93;2 @)&3;- 3;C(- 2O5 F( &8!!( 152 A2(4( ;(M( 0BOOC( This has recent#y been changed to be the &itus or 'oca#ity test( This is one o* the reasons a## checks and dra*ts ha,e a $ater "ark on the"- a##eged#y *or security %ur%oses( )## citi6ens o* the 8nited &tates are debtors( This $hy under 2O CF9 0(O002(0 AaC( 3t says that a## citi6ens and residents o* the 8nited &tates ha,e to "ake returns o* inco"e to the &ecretary and $hy a citi6en or resident o* the 8nited &tates- under the +th section o* the 0+th a"end"ent o* the Constitution o* the 8nited &tates cannot cha##enge the ,a#idity o* the %ub#ic )nd nationa# debt and $hy under the @ankru%tcy Code o* Tit#e 00 Jho "ay be a debtor section 00B AaC ;ot$ithstanding any other %ro,ision o* this section- on#y a %erson that resides or has a do"ici#e- a %#ace o* business- or %ro%erty in the 8nited &tates- or a "unici%a#ity- "ay be debtor under this tit#e( T3T'2 +O &2CT3E;& 10100? 101+1 8nder C:)!T29 101 ??? CE55293C)' 3;&T9852;T&

39

);4 5)93T352 '32;& &2CT3E; 1010O( 42C')9)T3E; EF C3T3X2;&:3! AaC 2Dce%t as %ro,ided by the &ecretary o* Trans%ortation- $hen an instru"ent Fbirth certi*icateG trans*erring an interest in a ,esse# is %resented to the &ecretary *or *i#ing or recording- the trans*eree sha## *i#e $ith the instru"ent a dec#aration- in the *or" the &ecretary "ay %rescribe by regu#ationstating in*or"ation about citi6enshi% and other in*or"ation the &ecretary "ay reRuire to sho$ the transaction in,o#,ed does not ,io#ate section B or 17 o* the &hi%%ing )ct- 0B0O A+O 8(&(C( <0<- <15C( &8@C:)!T29 00 . CE5529C3)' 3;&T9852;T& &2CT3E; 10120( Fi#ing- recording- and discharge AaCA0C ) bi## o* sa#e- con,eyance- "ortgage- assign"ent- or re#ated instru"ent- $hene,er "ade- that inc#udes any %art o* a docu"ented ,esse# Fbirth certi*icateG or a ,esse# *or $hich an a%%#ication *or docu"entation Fbirth certi*icate a%%#icationG is *i#ed- "ust be *i#ed $ith the &ecretary o* Trans%ortation to be ,a#id- to the eDtent the ,esse# is in,o#,ed- against any %erson eDce%t( C#earing under "ariti"e #a$ is the de%arture o* a shi% or ,esse# *ro" %ort Fhos%ita#G- a*ter co"%#ying $ith custo"s- hea#th #a$s and other #oca# regu#ations( Fsee c#earanceG( The hos%ita# $here you are born is the %ort or harbor o* entry( C#earance is the right o* a shi% or ,esse# to #ea,e %ort or harbor Fhos%ita#G( The birth certi*icate is issued by the %ort co##ector F4e%art"ent o* :ea#th and :u"an 9esourcesG e,idencing the shi% or ,esse#s right to #ea,e %ort or harbor Fhos%ita#G( This is one o* the reasons the &ecretary o* Trans%ortation is the trustee or recei,er in bankru%tcy and ad"ira#ty under +O 8&C& )%%D section 02+7( 3n 0BOO the Federa# 9u#es o* Ci,i# !rocedure $ere "erged $ith the )d"ira#ty "ariti"e ru#es( This is s%e##ed out in 1+ F(9(4( Federa# 9u#es 4ecisions %age 125( )#*red J( Knauth a charter "e"ber o* the ru#es co""ittee stated this The near a%%roach o* the co""on #a$?eRuity %rocedure to the re#ati,e#y si"%#e and untechnica# state o* the traditiona# )d"ira#ty !ractice has %roduced a ne$ series o* tra%s and %it?*a##s consisting o* the re"aining di**erences- *reRuent#y subt#e in their nature- to tra% the un$ary ( ( ( 2 @enedict on )d"ira#ty iii?i, AOth edition AKnauthC 0B+0C( )d"ira#ty %ractice- said 5r( Justice Jackson- 3s a uniRue syste" o* substanti,e #a$ and %rocedure$ith $hich "e"bers o* this court are singu#ar#y de*icient in eD%erience( To the eDtent that ad"ira#ty %rocedure di**ers *ro" ci,i# %rocedure- it is a "ystery to "ost tria# and )%%e##ate 7udges- and to the non? s%ecia#ist #a$yer $ho *inds hi"se#* . so"eti"es to his sur%rise . in,o#,ed in a case cogni6ab#e on#y on the ad"ira#ty side o* the court( @')CK 43)5E;4 &(&( CE9! ,( &T2J)9T U &E;&- 11O 8(&( 1<O- +01OB &(CT( O22- B1 '(24( 75+ A0B+BC( Federa# courts are authori6ed- in one ci,i# action- to eDercise se,era# ty%es o* sub7ect "atter 7urisdiction historica##y eDercised by se%arate courts- inc#uding courts o* #a$- eRuity- and ad"ira#ty- and as a resu#tsing#e *edera# court has at #east three se%arate de%art"ents . #a$- eRuity- and ad"ira#ty . each o* $hich has its o$n traditiona# %rocedures( QE48&2K ,( @)M'3;29 5)93;2 CE9!( 70 F( 1d 0+< A+T: Cir( 0BB5C( C9243T C)94 T98&T )CCE8;T ;EJ )CCE8;T / ;egotiab#e order o* $ithdra$a# account- a bank account $ith $hich the custo"er is %er"itted to $rite dra*ts against "oney he#d on de%osit( ) debit card is direct#y tied to 4e%ository Trust Co"%any F4TCG a

40

Custodia# C#earing Faci#ity o$ned by the "a7or banks and security *ir"s and "onitored by ,arious banking regu#atory agencies and the &ecurities and 2Dchange Co""ission( The 4TC and ;&CC are a integrated ho#ding co"%any "e"bers that ha,e 4TC sett#ing accounts and a 4TC credit card bi##ing *aci#ity to a##o$ the" to ha,e their ;&CC "onth#y bi##s auto"atica##y bi##ed to a credit card( The 4TC $i## act as securities de%ository *or the securities( The securities $i## be issued as *u##y?registered securities registered in the na"e o* Cede U Co(- $hich is 4TCs %artnershi% no"inee- or any other na"e as "ay be reRuested by an authori6ed re%resentati,e o* 4TC( Henera##y- one *u##y registered g#oba# security $i## be issued *or each issue securities- each in the aggregate %rinci%a# a"ount o* the issue- and $i## be de%osited $ith 4TC( 3*- ho$e,erthe aggregate %rinci%a# a"ount o* any issue eDceeds P500-000 "i##ion- one certi*icate $i## be issued $ith res%ect to each P500-000 "i##ion o* %rinci%a# a"ount and an additiona# certi*icate $i## be issued $ith res%ect to any re"aining %rinci%a# a"ount o* the issue( 4TC- the $or#ds #argest de%ository- is a #i"ited %ur%ose trust co"%any organi6ed under the ;e$ Mork @anking 'a$- a banking organi6ation $ithin the "eaning o* the ;e$ Mork @anking 'a$- a "e"ber o* the Federa# 9eser,e &yste"- a c#earing cor%oration $ithin the "eaning o* the ;e$ Mork 8ni*or" Co""ercia# Code section <?002 A5C- and a c#earing agency registered under &ection 07 ) o* the &ecurities 2Dchange )ct o* 0B1+( 4TC ho#ds and %ro,ides asset ser,icing *or o,er t$o "i##ion issues o* 8nited &tates and non?8nited &tates eRuity issues- cor%orate and "unici%a# debt issues- and "oney "arket instru"ents *ro" o,er <5 countries that its %artici%ants de%osit $ith 4TC( 4TC a#so *aci#itates the %ost?trade sett#e"ent a"ong direct %artici%ants o* sa#es and other securities transactions in de%osited securities through e#ectronic co"%uteri6ed book?entry trans*ers and %#edges bet$een direct %artici%ants( This e#i"inates the need *or %hysica# "o,e"ent o* certi*icates re%resenting certi*icates( 4irect %artici%ants inc#ude both 8nited &tates and non? 8nited &tates securities brokers and dea#ers- banks trust co"%anies- c#earing cor%orations- and certain other organi6ations( 4TC is a $ho##y o$ned subsidiary o* the 4e%ository Trust U C#earing Cor%oration A4TCCC( 4TCC- in turn- is o$ned by a nu"ber o* direct %artici%ants o* 4TC and "e"bers o* the ;ationa# &ecurities C#earing Cor%oration- Ho,ern"ent &ecurities C#earing Cor%oration- 5@& C#earing Cor%oration- and 2"erging 5arkets C#earing Cor%oration- a#so subsidiaries o* 4TCC- as $e## as by the ;e$ Mork &tock 2Dchange- 3nc(- the )"erican &tock 2Dchange ''C- and the ;ationa# )ssociation o* &ecurities 4ea#ers- 3nc( )ccess to the 4TC syste" is a#so a,ai#ab#e to others such as both 8nited &tates and non?8nited &tates securities brokers and dea#ers- banks trust co"%anies- and c#earing cor%orations that c#ear through or "aintain a custodia# re#ationshi% $ith a direct %artici%ant- either direct#y or indirect#y( The 4TC ru#es a%%#icab#e to its %artici%ants are on *i#e $ith the &2C( 5ore in*or"ation about the 4TC can be *ound at $$$(dtcc(co"( !urchases o* the securities under the 4TC syste" "ust be "ade by or through direct %artici%ants$hich $i## recei,e a credit *or the securities on 4TCs records( The bene*icia# interest o* each actua# %urchaser o* security is in turn to be recorded on the direct and indirect %artici%ants records( @ene*icia# o$ners $i## not recei,e $ritten con*ir"ation *ro" 4TC o* their %urchase( ) bene*icia# o$ner- ho$e,er- is eD%ected to recei,e $ritten con*ir"ations %ro,iding detai#s o* the transaction- as $e## as %eriodic state"ents o* their ho#dings- *ro" the direct or indirect %artici%ant through $hich the bene*icia# o$ner entered into the transaction( Trans*ers o* bene*icia# interests in the securities are to be acco"%#ished by entries "ade on the books o* direct and indirect %artici%ants acting on beha#* o* bene*icia# o$ners( @ene*icia# o$ners $i## not recei,e certi*icates re%resenting their bene*icia# interests in the securities- eDce%t i* the use o* the book?entry syste" *or the securities is discontinued( CC 5aster Credit Card Trust 00 00?K( For 02I10IB7 Che,y Chase @ank- F(&(@( Athe @ankC is the trans*eror and ser,icer under the !oo#ing and &er,icing )gree"ent dated as o* June 0- 0BB5 A)s a"ended and su%%#e"ented- the )gree"entC by and bet$een the @ank and the @ankers Trust Co"%any- as the trustee- %ro,iding *or the issuance *ro" ti"e to ti"e o* one or "ore &eries o* )sset @acked Certi*icates and is the originator o* the Che,y Chase 5aster Credit Card Trust 00 Athe 9egistrant or the TrustC( The Certi*icates #isted on %age 0 hereo* $i## be re*erred to co##ecti,e#y herein as the Certi*icates( The Certi*icates do not re%resent ob#igations o* or interests in the @ank( The @ank has "ade a%%#ication *or an eDe"%tion *ro" certain reRuire"ents( !ursuant to a #etter *ro" the &ecurity and 2Dchange Co""ission- 4i,ision o* Cor%oration Finance- E**ice o* Chie* Counci#- dated Ju#y 10- 0B<B granting the @anks a%%#ication- the @ank is not reRuired to res%ond to ,arious ite"s o* *or" 00?K( &uch ite"s are designated herein as ;ot )%%#icab#e(

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2ach o* the Certi*icates- re%resenting in,estors interest in the Trust- are re%resented by a sing#e certi*icate registered in the na"e o* Cede U Co(- the no"inee o* the 4e%ository Trust Co"%any( To the best kno$#edge o* the 9egistrant- there is no estab#ished %ub#ic trading "arket *or the Certi*icates( 2ach o* the Certi*icates- re%resenting in,estors interests in the Trust- are re%resented by a sing#e certi*icate registered in the na"e o* Cede U Co(- the no"inee o* the 4e%ository Trust Co"%any A4TCC- an in,estor ho#ding an interest in the Trust is not entit#ed to recei,e a Certi*icate re%resenting such interest eDce%t in certain #i"ited circu"stances( )ccording#y- Cede U Co is the so#e ho#der o* record o* the Certi*icates- $hich it he#d beha#* o* a%%roDi"ate#y 50 brokers- dea#ers- banks and other direct %artici%ants in the 4TC syste" at 4ece"ber 10- 0BB7( &uch direct %artici%ants "ay ho#d Certi*icates *or their o$n accounts or *or the accounts o* their custo"ers( The *o##o$ing tab#e sets *orth- $ith res%ect to each o* the Certi*icates- the identity o* each direct 4TC %artici%ant that ho#ds %ositions in such Certi*icates in eDcess o* 5W o* the outstanding !rinci%a# a"ount thereo* at 4ece"ber 10- 0BB7( First 8&) @ank- ;ationa# )ssociation Athe @ankC- a direct $ho##y o$ned subsidiary o* @);K E;2 CE9!E9)T3E; A@);K E;2C- is the Trans*eror- $ith res%ect to the CC 5aster Credit Card Trust 33 A*or"er#y Che,y Chase 5aster Credit Card Trust 33C Athe TrustC under the !oo#ing and &er,icing )gree"ent dated as o* June 0- 0BB5- a"ong the @ank- as Trans*eror and &er,icer- and @ankers Trust Co"%any- as Trustee Athe TrusteeC- as su%%#e"ented and a"ended Athe !oo#ing and &er,icing )gree"entC( The Certi*icates #isted on %age 0 hereo* $i## be re*erred to co##ecti,e#y herein as the Certi*icates( The Certi*icates do not re%resent ob#igations o* or interests in the @ank( The @ank $i## res%ond on#y to certain ite"s o* *or" 00?K( 3n doing so- the @ank $i## be re#ying on a #etter dated Ju#y 10- 0B<B *ro" the &ecurities and 2Dchange Co""ission- 4i,ision o* Cor%orate Finance- E**ice o* Chie* Counse# to Che,y Chase @ank- F(&(@(- the then &er,icer o* the Trust- granting the &er,icer o* the Trust re#ie* *ro" the reRuire"ent to res%ond to ,arious ite"s o* *or" 00?K( The ite"s to $hich the @ank is not reRuired to res%ond are designated herein as ;ot )%%#icab#e( The *ina# %ay"ents $ith res%ect to c#ass ) F#oating 9ate )sset @acked Certi*icates- &eries 0BBO?) and c#ass @ F#oating 9ate )sset @acked Certi*icates- &eries 0BBO?) $ere "ade on &e%te"ber 05- 2000 and ;o,e"ber 05- 2000- res%ecti,e#y( 3n*or"ation $ith res%ect to such Certi*icates is on#y inc#uded in 3te" 0+ AaC AiC $hich contains the &u""ary o* )nnua# 4istributions on the Certi*icate ho#ders *or the year ended 4ece"ber 102000( There are no "ateria# %ending #ega# %roceedings $ith res%ect to the Trust- in,o#,ing the Trust- the Trustee or the 9egistrant( The @ank is a de*endant in ,arious #a$suits- inc#uding #a$suits seeking c#ass action certi*ication in both state and *edera# courts( These #a$suits cha##enge certain %o#icies and %ractices o* @anks credit card business( ) *e$ o* these #a$suits ha,e been conditiona##y certi*ied as c#ass actions( The @ank has de*ended itse#* against c#ai"s in the %ast and intends to continue to do so in the *uture( Jhi#e it is i"%ossib#e to %redict the outco"e o* any o* these #a$suits- the @ank be#ie,es that any #iabi#ity $hich "ight resu#t *ro" these #a$suits $i## not ha,e a "ateria# ad,erse e**ect on the Trust( 2ach o* the Certi*icates- re%resenting in,estors interests in the Trust- are re%resented by a sing#e certi*icate registered in the na"e o* Cede U Co(- the no"inee *or the 4e%ository Trust Co"%any A4TCC( To the best kno$#edge o* the 9egistrant- there is no estab#ished %ub#ic trading "arket *or the Certi*icates( !93&5 / !ara##e# 9isk 5anage"ent &yste" / "onitoring U risk "anage"ent syste" *or the *utures o%tions "arket seg"ent at ;&CC'( ;&CC' / 3s $ho##y o$ned subsidiary o* ;&2( &H' / &ubsidiary Henera# 'edger(

42

8(C(C( / 'a$ o* agree"ent( 4ocket o* a%%arent authority( This in*or"ation ca"e o** o* the 00?K *or" o* Chase Credit Card 5aster Trust *or 02I10IBB F*or"er#y kno$ as Che"ica# 5aster Credit Card Trust 0G AissuerC Chase 5anhattan @ank 8&)- ;ationa# )ssociation Ade%ositorC A2Dact na"e o* registrant as s%eci*ied in its charterC &ecurities are registered %ursuant to &ection 02 AbC o* the )ct( The Chase 5aster Credit Card Trust 3 Athe %redecessor o* Chase Credit Card 5aster Trust Athe TrustC $as *or"ed %ursuant to a !oo#ing and &er,icing agree"ent- as a"ended Athe )gree"entC bet$een The Chase 5anhattan @ank A*or"er#y kno$n as Che"ica# @ankC- as se##er and ser,icer- and an unre#ated trustee Athe TrusteeC( The trust *i#es re%orts %ursuant to section 01- 05 AdC and 0O o* the &ecurities 2Dchange )ct o* 0B1+- as a"ended Athe 2Dchange )ctC- sub"itted to the E**ice o* Chie* Counse# on beha#* o* the originators o* the Trust( )ccording#y- res%onses to certain ite"s ha,e been o"itted *ro" or "odi*ied in this )nnua# 9e%ort on For" 00?K( The Chase Credit Card 5aster Trust is the 3ssuer o* )sset @acked Certi*icates- &eriesn0BB5?2&eries 0BB5?1- &eries 0BB5?+- &eries \BBO?0- &eries 0BBO?2- &eries 0BBO?1- &eries 0BBO?+- &eries 0BB7?0- &eries 0BB7?2- &eries 0BB7?1- &eries 0BB7?+- &eries 0BB7?5- &eries 0BB<?2- &eries 0BB< ?1- &eries 0BB<?5- &eries ?O &eries 0BBB?0- &eries 0BBB?2 and &eries 0BBB?1( 8nder 3te" 02 F&ecurity E$nershi% o* Certain @ene*icia# E$ners and 5anage"entG o* the 00?k sho$s the records o* the 4TC syste" that ho#d %ositions in Certi*icates re%resenting interests in the Trust eRua# to "ore than 5 W o* the tota# %rinci%a# a"ount o* one or "ore c#asses o* Certi*icates outstanding on that date as *o##o$s( There are "ore than a hundred banks and co"%anies #isted as bene*iciaries o* the trust and Certi*icates( 5ost i"%ortant )rtic#es o* 8CC in order o* i"%ortance is the *o##o$ing: 0( )rtic#e 2 &a#es 2( )rtic#e 2) 'eases 1( )rtic#e 0 FHenera# !ro,isionsG +( )rtic#e < 3n,est"ent &ecurities 5( )rtic#e 5 'etters o* Credit O( )rtic#e + @ank 4e%osits and Co##ections 7( )rtic#e +) Funds Trans*ers <( )rtic#e 1 ;egotiab#e 3nstru"ents B( )rtic#e B &ecured Transactions 00( )rtic#e 7 4ocu"ents o* Tit#e 00( )rtic#e O @u#k &a#es 3n order *or there to be a secured interest there "ust be a sa#e- contract- or agree"ent under )rtic#e 2 section 2?00O A0C( This "eans that a bi## o* sa#e "ust eDist at the retai# #e,e#( Jhen a baby is born a birth certi*icate is issued and registered $ith the @ureau o* Qita# &tatistics and is then registered $ith the 4e%art"ent o* Co""erce- a*ter it is registered it beco"es a Certi*icated &ecurity and is sent to the 4TC F4e%ository Trust Cor%orationG- $here it is de%osited in a Trust Co"%any and a 3ndenture trustee is a%%ointed o,er the account( The trustee kee%s an accounting o* a## o* the bookkee%ing entries and the %aid out interest to direct %artici%ants as in,estors( This sa"e %rocedure is *o##o$ed in the @anking 3ndustry on checking- sa,ing accounts- or credit card accounts( The @irth Certi*icate no$ beco"es a certi*icated security- *inancia# asset- or %ossessory %#edge under )rtic#e < 3n,est"ent &ecurities to %er*ect a security interest in the %ro%erty( )#ong $ith the re,ision o* )rtic#e <signi*icant changes ha,e been "ade in the ru#es concerning security interests in securities( The re,ision returns to the %re?0B7< structure in $hich the ru#es on securities interest in in,est"ent securities are set out in )rtic#e B- rather than )rtic#e <( The changes in )rtic#e B are- in %art- con*or"ing changes to ada%t )rtic#e

43

B to the ne$ conce%t o* a security entit#e"ent( The )rtic#e B changes- ho$e,er go beyond that to estab#ish a si"%#i*ied structure *or the creation and %er*ection o* security interests in in,est"ent securities- $hether he#d direct#y or indirect#y( The 9e,ised )rtic#e B ru#es continue the #ong estab#ished %rinci%#e that a security interest in security re%resented by a certi*icate can be %er*ected by %ossessory %#edge( The 9e,ised ru#es- ho$e,er- do not reRuire that a## security interests in in,est"ent securities be i"%#e"ented by %rocedures based on the conce%tua# structure o* the co""on #a$ %#edge( 8nder the re,ised )rtic#e B ru#es- a security interest in securities can be created %ursuant to &ection B?201 in the sa"e *ashion as a security interest in any other *or" o* %ro%erty- that is- by agree"ent bet$een the debtor and secured %arty( There is no reRuire"ent o* a Trans*er- de#i,ery- or any si"i#ar action- %hysica# or "eta%hysica#- *or the creation o* an e**ecti,e security interest( ) security interest in securities is- o* course- a *or" o* %ro%erty interest- but the on#y reRuire"ents *or creation o* this *or" o* %ro%erty interest are those set out in &ection B?201( B?002 AO5C !ro"issory note "eans an instru"ent that e,idences a %ro"ise to %ay a "onetary ob#igationdoes not e,idence an order to %ay- and does not contain an ackno$#edge"ent by a bank that the bank has recei,ed *or de%osit a su" o* "oney or *unds( The %er*ection "ethods *or security interests in in,est"ent securities are set out in &ections B?10B- B?101and B?10+( The basic ru#e is that a security interest "ay be %er*ected by contro#( The conce%t o* contro#de*ined in &ection <?00O- %#ays an i"%ortant ro#e in both )rtic#e < )nd )rtic#e B( 3n genera#- obtaining contro# "eans taking the necessary ste%s to %#ace the #ender in a %osition $here it can ha,e the co##atera# so#d o** $ithout the *urther coo%eration o* the debtor( Thus- *or certi*icated securities- a #ender obtains contro# by taking %ossession o* the certi*icate $ith any necessary indorse"ent( For securities he#d through a securities inter"ediary- the #ender can obtain contro# in t$o $ays( First- the #ender obtains contro# i* it beco"es the entit#e"ent ho#der> that is- has the securities %ositions trans*erred to an account in its o$n na"e( &econd- the #ender obtains contro# i* the securities inter"ediary agrees to act on instructions *ro" the secured %arty to dis%ose o* the %ositions- e,en though the debtor re"ains the entit#e"ent ho#der( &uch an arrange"ent su**ices to gi,e the #ender contro# e,en though the debtor retains the right to trade and eDercise other ordinary rights o* an entit#e"ent ho#der( 2Dce%t $here the debtor is itse#* a securities *ir"- *i#ing o* an ordinary )rtic#e B *inancing state"ent is a#so a %er"issib#e a#ternati,e "ethod o* %er*ection( :o$e,er- *i#ing $ith res%ect to in,est"ent %ro%erty does not assure the #ender the sa"e %rotections as *or other *or"s o* co##atera#- since the %riority ru#es %ro,ide that a secured %arty $ho obtains contro# has %riority o,er a secured %arty $ho does not obtain contro#( The detai#s o* the ne$ ru#es on security interests- as a%%#ied both to the retai# #e,e# and arrange"ents *or secured *inancing o* securities dea#ers- are eD%#ained in the E**icia# Co""ents to &ections B?10B- B?102- B? 101- and B?10+B?10B &ecurity 3nterest !er*ected 8%on )ttach"ent( B?10B AOC a security interest arising under &ection 2?+00- 2?505- 2?700A1C- or 2)50<A5C- unti# the debtor obtains %ossession o* the co##atera#> 2?+00 A0C Tit#e to goods cannot %ass under a contract *or sa#e %rior to their identi*ication to the contract F&ection 2?500G( !29FE95);C2 2?500( 3nsurab#e 3nterest in Hoods> 5anner o* 3denti*ication o* Hoods( A0C The buyer obtains a s%ecia# %ro%erty and an insurab#e interest in goods by identi*ication o* eDisting goods as goods to $hich the contract re*ers e,en i* the goods so identi*ied are noncon*or"ing and the buyer has an o%tion to return or re7ect the"( &uch identi*ication "ay be "ade at any ti"e and in any "anner eD%#icit#y agreed to by the %arties( 3n the absence o* eD%#icit agree"ent identi*ication occurs:

44

AaC $hen the contract is "ade i* it is *or the sa#e o* goods a#ready eDisting and identi*ied> AbC 3* the contract is *or the sa#e o* *uture goods other than those described in %aragra%h AcC- $hen goods are shi%%ed- "arked- or other$ise designated by the se##er as goods to $hich the contract re*ers> AcC $hen the cro%s are %#anted or other$ise beco"e gro$ing cro%s or the young to be born $ithin 02 "onths a*ter contracting or *or the sa#e o* cro%s to be har,ested $ithin 02 "onths or the neDt nor"a# har,est season a*ter contracting $hich e,er is #onger( A2C The se##er retains an insurab#e interest in goods so #ong as tit#e to or any security in the goods re"ains in the se##er( 3* the identi*ication is by the se##er a#one- the se##er "ay unti# de*au#t or inso#,ency or noti*ication to the buyer that the identi*ication is *ina# substitute other goods *or those identi*ied( A1C ;othing in this section i"%air any insurab#e interest recogni6ed under any other statute or ru#e o* #a$( B?10B ABC a security interest arising in the de#i,ery o* a *inancia# asset under &ection B?20OAcC> B?102 !er*ection o* &ecurity 3nterest in Chatte# !a%er- 4e%osit )ccounts- 4ocu"ents- Hoods co,ered by 4ocu"ents- 3nstru"ents- 3n,est"ent !ro%erty- 'etter o* Credit 9ights- and 5oney> !er*ection by !er"issi,e Fi#ing> Te"%orary !er*ection Jithout Fi#ing or Trans*er o* !ossession( AaC F!er*ection by *i#ing %er"itted(G AbC FContro# or !ossession o* certain Co##atera#(G A1C a security interest in "oney "ay be %er*ected on#y by the secured %artys taking %ossession under &ection B?101( B?101( Jhen %ossession by or 4e#i,ery to &ecured !arty !er*ects &ecurity 3nterest Jithout Fi#ing( AaC F!er*ection by %ossession or de#i,eryG 2Dce%t as other$ise %ro,ided in subsection AbC- a secured %arty "ay %er*ect a security interest in tangib#e negotiab#e docu"ents- goods- instru"ents- "oney- or tangib#e chatte# %a%er by taking %ossession o* the co##atera#( ) secured %arty "ay %er*ect a security interest in certi*icated securities by taking de#i,ery o* the certi*icated securities under section <?100( B?10+( !er*ection by Contro#( AaC F!er*ection by Contro#(G ) security interest in in,est"ent %ro%erty- de%osit accounts- #etter?o* .credit rights- e#ectronic chatte# %a%er- or e#ectronic docu"ents "ay be %er*ected by contro# o* the co##atera# under &ection 7?00O- B?00+- B?005- B?00O- or B?007( B?00O( Contro# o* 3n,est"ent !ro%erty AaC FContro# under &ection <?00OG ) %erson has contro# o* a certi*icated security- uncerti*icated security- or security entit#e"ent as %ro,ided in &ection <?00O( AbC FContro# o* Co""odity contract(G ) secured %arty has contro# o* a co""odity contract( i*: A0C the secured %arty is the co""odity inter"ediary $ith $hich the co""odity contract is carried> or A2C the co""odity custo"er- secured %arty- and co""odity inter"ediary ha,e agreed that the co""odity inter"ediary $i## a%%#y any ,a#ue distributed on account o* the co""odity contract as directed by the secured %arty $ithout *urther consent by the co""odity custo"er(

45

AbC F2**ect o* contro# o* securities account or co""odity accountG ) secured %arty ha,ing contro# o* a## security entit#e"ents or co""odity contracts carried in a securities account or co""odity account has contro# o,er the securities account or co""odity account( B?007 Contro# o* 'etter?o*?Credit 9ight( ) secured %arty has contro# o* a #etter o* credit right to the eDtent o* any right to %ay"ent or %er*or"ance by the issuer or any no"inated %erson i* the issuer or no"inated %erson has consented to an assign"ent o* %roceeds o* the #etter o* credit under &ection 5?00+AcC or other$ise a%%#icab#e #a$ or %ractice( This account is a &ecurities account $hich under )rtic#e < section <?500 AaC "eans an account to $hich a *inancia# asset is or "ay be credited in accordance $ith an agree"ent under $hich the %erson "aintaining the account undertakes to treat the %erson *or $ho" the account is "aintained as entit#ed to eDercise the rights that co"%rise the *inancia# asset( AcC 2Dce%t as other$ise %ro,ided in subsections AdC and AeC- a %erson acRuires a security entit#e"ent i* a securities inter"ediary: A0C indicates by book entry that a *inancia# asset has been credited to the %ersons securities account> A2C recei,es a *inancia# asset *ro" the %erson or acRuires a *inancia# asset *or the %erson and- in either case- acce%ts it *or credit to the %ersons securities account> or A1C beco"es ob#igated under other #a$- regu#ation- or ru#e to credit a *inancia# asset to the %ersons securities account( AcC 3* a condition o* subsection AbC has been "et- a %erson has a security entit#e"ent e,en though he securities inter"ediary does not itse#* ho#d the the *inancia# asset( AdC 3* a securities inter"ediary ho#ds a *inancia# asset *or another %erson- and the *inancia# asset is registered in the na"e o*- %ayab#e to the order o*- or s%ecia##y indorsed to the other %erson- and has not been indorsed to the securities inter"ediary or in b#ank- the other %erson is treated as ho#ding the *inancia# asset direct#y rather than as ha,ing a security entit#e"ent $ith res%ect to the *inancia# asset( AeC 3ssuance o* a security is not estab#ish"ent o* a security entit#e"ent( ) Financia# asset- is de*ined in <?002 ABC as a: AiC a security> AiiC an ob#igation o* a %erson or share- %artici%ation- or other interest in a %erson or in %ro%erty or an enter%rise o* a %erson- $hich is- or is o* a ty%e- dea#t in or traded on *inancia# "arkets- or $hich is recogni6ed in any area in $hich is issued or dea#t in as a "ediu" *or in,est"ent> or AiiiC any %ro%erty that is he#d by a securities inter"ediary *or another %erson in a securities account i* the securities inter"ediary has eD%ress#y agreed $ith the other %erson that the %ro%erty is to be treated as a *inancia# asset under this )rtic#e( )s conteDt reRuires- the ter" "eans either the interest itse#* or the "eans by $hich a %ersons c#ai" to it is e,idenced- inc#uding a certi*icated or uncerti*icated security- a security certi*icate- or a security entit#e"ent( 1?005 3ssue o* 3nstru"ent AaC 3ssue "eans the *irst de#i,ery o* an instru"ent by the "aker or dra$er- $hether to a ho#der or nonho#der- *or the %ur%ose o* gi,ing rights on the instru"ent to any %erson(

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AbC )n unissued instru"ent- or an unissued inco"%#ete instru"ent that is co"%#eted- is binding on the "aker or dra$er- but nonissueance is a de*ense( )n instru"ent that is conditiona##y issued or is issued *or a s%ecia# %ur%ose is binding on the "aker or dra$er- but *ai#ure o* the condition or s%ecia# %ur%ose to be *u#*i##ed is a de*ense( AcC 3ssuer a%%#ies to issued and unissued instru"ents and "eans a "aker or dra$er o* an instru"ent( 3ssuer / Ene $ho agrees- by contract to assu"e the risk o* anothers #oss and to co"%ensate *or that #oss( )#so ter"ed under$riter> insurance under$riter carrier- assurer F*or #i*e insuranceG( 5ust ha,e right in order to ha,e interest- to "ake so"ething %ub#ic( 1?00O AdC 8nconditiona# !ro"ise or Erder( 3* a %ro"ise or order at the ti"e it is issued or *irst co"es into %ossession o* a ho#der contains a state"entreRuired by a%%#icab#e statutory or ad"inistrati,e #a$- to the e**ect that the rights o* a ho#der or trans*eree are sub7ect to c#ai"s or de*enses that the issuer cou#d assert against the origina# %ayee- the %ro"ise or order is not thereby "ade conditiona# *or the %ur%oses o* section 1?00+ AaC> but i* the %ro"ise or order is an instru"ent- there cannot be a ho#der in due course o* the instru"ent( )rtic#e +?002( )%%#icabi#ity AaC To the eDtent that ite"s $ithin this )rtic#e are a#so $ithin )rtic#e 1 and <- they sub7ect to those )rtic#es( 3* there is con*#ict- this artic#e go,erns )rtic#e 1- but )rtic#e < go,erns this )rtic#e( AaC The #iabi#ity o* a bank *or action or nonaction $ith res%ect to an ite" hand#ed by it *or %ur%oses o* %resent"ent- %ay"ent- or co##ection is go,erned by the #a$ o* the %#ace $here the bank is #ocated( 3n the case o* action or non?action by or at a branch or se%arate o**ice o* a bank- its #iabi#ity is go,erned by the #a$ o* the %#ace $here the branch or se%arate o**ice is #ocated( )rtic#e + )?00+( Funds trans*er . 4e*initions 3n this )rtic#e: AaC Funds trans*er "eans the series o* transactions- beginning $ith the originators %ay"ent order"ade *or the %ur%ose o* "aking %ay"ent to the bene*iciary o* the order( The ter" inc#udes any %ay"ent order issued by the originators bank or inter"ediary bank intended to carry out the originators %ay"ent order( ) *unds trans*er is co"%#eted by acce%tance by the bene*iciarys bank o* a %ay"ent order *or the bene*it o* the bene*iciary o* the originators %ay"ent order( AbC 3nter"ediary bank "eans a recei,ing bank other than the originators bank or the bene*iciarys bank( AcC Eriginator "eans the sender o* the *irst %ay"ent order in a *unds trans*er( AdC Eriginator bank "eans AiC the recei,ing bank to $hich the %ay"ent order o* the originator is issued i* the originator is not a bank- or AiiC the originator i* the originator is a bank( E**icia# Co""ent

47

0( The ru#es o* )rtic#e 1 go,erning negotiab#e instru"ents- their trans*er- and the contracts o* the %arties thereto a%%#y to the ite"s co##ected through banking channe#s $here no s%eci*ic %ro,ision is *ound in this )rtic#e 3n the case o* con*#ict- this )rtic#e go,erns( &ee section 1?002 AbC( @onds and #ike instru"ents constituting in,est"ent securities under )rtic#e < "ay a#so be hand#ed by banks *or co##ection %ur%oses( Qarious sections o* )rtic#e < %rescribe ru#es o* trans*er so"e o* $hich Asee sections <? 00< and <?10+C "ay con*#ict $ith %ro,isions o* this )rtic#e A&ections +?205- +?207- and +?20<C( 3n the case o* con*#ict- )rtic#e < go,erns( )"end"ents a%%ro,ed by the !er"anent 2ditoria# @oard *or 8ni*or" Co""ercia# Code ;o,e"ber +- 0BB5( &ection +?200 dea#s s%eci*ica##y $ith o,er#a%%ing %rob#e"s and %ossib#e con*#icts bet$een this )rtic#e and )rtic#e B( :o$e,er - si"i#ar reconci#ing %ro,isions are not necessary in the case o* )rtic#es 5 and 7( &ections +? 100 and +?102 are consistent $ith section 5?002( 3n the case o* )rtic#e 7 docu"ents o* tit#e *reRuent#y acco"%any ite"s but they are not the"se#,es ite"s( &ee section +?00+AaCABC( 3n addition- a%%#icab#e *edera# #a$ "ay su%ercede %ro,isions o* this )rtic#e( Ene *edera# #a$ that does so is the 2D%edited Funds ),ai#abi#ity )ct- 02 8(&(C( section +000 et seR(- and its i"%#e"enting 9egu#ation CC- 02 CF9 !t( 22B( 3n so"e instances this #a$ is a##uded to in the statute- e(g(- &ection +?205AeC and A*C( 3n other instances- a#though not re*erred to in this )rtic#e- the %ro,isions o* the 2FF) and the 9egu#ation CC contro# $ith res%ect to checks( For eDa"%#e- eDce%t bet$een the de%ository bank and its custo"er- a## sett#e"ents are *ina# and not %ro,isiona# A9egu#ation CC- &ection 22B(1OAdC- and the "idnight dead#ine "ay be eDtended A9egu#ation CC- &ection 22B(10AcC( The co""ents to this )rtic#e suggest in "ost instances the re#e,ant 9egu#ation CC %ro,isions( 2( &ubsection AbC is designed to state a $orkab#e ru#e *or the so#ution o* other$ise ,eDatious %rob#e"s o* the con*#icts o* #a$s: a( The routine and "echanica# nature o* bank co##ections "akes it i"%erati,e that one #a$ go,ern the acti,ities o* one o**ice o* a bank( The reRuire"ents *ound in so"e cases that to ho#d an indorser notice "ust be gi,en in accordance $ith the #a$ o* the %#ace o* indorse"ent- since that "ethod o* notice beca"e an i"%#ied %art ter" o* the indorsers contract- is "ore theoretica# than %ractica#( b( )do%tion o* $hat is in essence a tort theory o* the con*#ict o* #a$s is consistent $ith the genera# theory o* this )rtic#e that the basic duty o* a co##ecting bank is one o* good *aith and the eDercise o* ordinary care( Justi*ication #ies in the *act that- in using an a"bu#atory instru"ent- the dra$er- %ayee- and indorsers "ust kno$ that action $i# be taken $ith res%ect to it in other 7urisdictions( This is es%ecia##y %ertinent $ith res%ect to the #a$ o* the %#ace o* %ay"ent( b( The %hrase action or non?action $ith res%ect to nay ite" hand#ed by it *or %ur%oses %resent"ent%ay"ent or co##ection is intended to "ake the con*#icts ru#e o* subsection AbC a%%#y *ro" the ince%tion o* the co##ection %rocess o* an ite" through a## %hases o* de%osit- *or$arding- %resent"ent%ay"ent and re"ittance or credit o* %roceeds( &%eci*ica##y the subsection a%%#ies to the initia# act o* a de%ository bank in recei,ing an ite" and to the incidents o* such recei%t( The con*#icts o* ru#e o* Jeiss"an ,( @anRue 4e @ruDe##es- 25+ ;(M( +<<- 071 ;(2( <15 A0B10C- is re7ected( The subsection a%%#ies to Ruestions o* %ossib#e ,icarious #iabi#ity o* a bank *or action or non?action o* sub?agents Asee &ection +?202AcCC- and tests these by the #a$ o* the state o* the #ocation o* the bank $hich uses the subagent( The con*#icts ru#e o* &t( ;icho#as @ank o* ;e$ Mork ,( &tate ;at( @ank- 02< ;(M( 2O- 27 ;(2( <+B- 01 '(9()( 2+0 A0<B0C- is re7ected( The subsection a%%#ies to action or non?action o* a %ayor bank in connection $ith hand#ing an ite" Asee &ections +?205AaC- +?100- +?102- +?101C as $e## as action or non?action o* a co##ecting bank A+?200 through +?20OC> to action or non?action o* a bank $hich sus%ends %ay"ent or is a**ected by another bank sus%ending %ay"ent A+?20OC> to action or nonaction o* a bank $ith res%ect to an ite" under the ru#e o* %art + o* )rtic#e +( 3n a case in $hich subsection AbC "akes this )rtic#e a%%#icab#e- &ection +?001 AaC #ea,es o%en the %ossibi#ity o* an agree"ent $ith res%ect to a%%#icab#e #a$( This *reedo" o* agree"ent *o##o$s the genera# %o#icy o* &ection 0?005(

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Tennessee Qa##ey )uthority / !art o* eDecuti,e branch o* Ho,ern"ent( ) go,ern"ent o$ned cor%orationcreated in 0B11- that conducts a uni*ied %rogra" o* resource de,e#o%"ent to ad,ance econo"ic gro$th in the Tennessee Qa##ey region( The authorities acti,ities inc#ude *#ood contro#- na,igation de,e#o%"ent- e#ectric %o$er %roduction- *erti#i6er de,e#o%"ent- recreation i"%ro,e"ent- and *orest and $i#d#i*e de,e#o%"ent( Though its %o$er %rogra" is *inancia##y se#* su%%orting- the )uthoritys other %rogra"s are *inanced %ri"ari#y by congressiona# a%%ro%riations( 8nder section + AhC o* the TQC its o**icers can conde"n rea# estate in conde"nation %roceedings under the right o* e"inent do"ain( 8(C(C( 0?200 A17C &igned inc#udes using any sy"bo# eDecuted or ado%ted $ith %resent intention to ado%t or acce%t a $riting( &i#ence is acRuiescence( <?002 A+C Certi*icated &ecurity "eans a security that is re%resented by a certi*icate( <?002 A7C 2ntit#e"ent :o#der "eans a %erson identi*ied in the records o* a &ecurities inter"ediary as the %erson ha,ing a &ecurity 2ntit#e"ent against the &ecurities 3nter"ediary( 3* a %erson acRuires a &ecurity 2ntit#e"ent by ,irtue o* section <?005 AbC A2C or A1C- That %erson is the 2ntit#e"ent :o#der <?002 A<C 2ntit#e"ent Erder "eans a noti*ication co""unicated to a &ecurities 3nter"ediary directing trans*er or rede"%tion or rede"%tion o* a *inancia# asset to $hich the entit#e"ent has a security entit#e"ent( @ank "ust be debtor to ha,e secured interest( )rtic#e < 005( ;otice o* )d,erse C#ai" AaC ) %erson has notice o* an ad,erse c#ai" i*: A0C the %erson has notice o* the ad,erse c#ai"> A2C the %erson is a a$are o* *acts su**icient to indicate that there is a signi*icant %robabi#ity that the ad,erse c#ai" eDists and de#iberate#y a,oids in*or"ation that $ou#d estab#ish the eDistence o* the ad,erse c#ai"( A1C The %erson has a duty- i"%osed by statute or regu#ation- to in,estigate $hether an ad,erse c#ai" eDists- and the in,estigation so reRuired $ou#d estab#ish the eDistence o* the ad,erse c#ai"( AbC :a,ing kno$#edge that a *inancia# asset or interest therein is or has been trans*erred by a re%resentati,e i"%oses no duty o* inRuiry into the right*u#ness o* a transaction and is not notice o* an ad,erse c#ai"( :o$e,er- a %erson $ho kno$s that a re%resentati,e has trans*erred a *inancia# asset or interest therein in a transaction that is- or $hose %roceeds are being used- *or the indi,idua# bene*it o* the re%resentati,e or other$ise in breach o* duty has notice o* an ad,erse c#ai"( AbC )n act or e,ent that creates a right to i""ediate %er*or"ance o* the %rinci%a# ob#igation re%resented by a security certi*icate or sets a date on or a*ter $hich the certi*icate is to be %resented or surrendered *or rede"%tion or eDchange does not itse#* constitute notice o* an ad,erse c#ai" eDce%t in the case o* a trans*er "ore than: A0C one year a*ter a date set *or %resent"ent or surrender *or rede"%tion or eDchange> or A2C siD "onths a*ter a date set *or %ay"ent o* "oney against %resentation or surrender o* the certi*icate- i* "oney $as a,ai#ab#e *or %ay"ent on that date( AdC ) %urchaser o* a certi*icated security has notice o* an ad,erse c#ai" i* the security certi*icate:

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A0C $hether in bearer or registered *or"- has been indorsed *or co##ection or *or surrender or *or so"e other %ur%ose not in,o#,ing trans*er> or A2C is in bearer *or" and has on it an una"biguous state"ent that it is the %ro%erty o* a %erson other than the trans*eror- but the "ere $riting o* a na"e on the certi*icate is not such a state"ent( AeC Fi#ing o* a *inancing state"ent under )rtic#e B is not notice o* a ad,erse c#ai" to a *inancia# asset( )rtic#e B?00B A5C an assign"ent o* accounts- chatte# %a%er- %ay"ent intangib#es- or %ro"issory notes $hich is *or the %ur%ose o* co##ection on#y( )rtic#e B 00B AdC this artic#e does not a%%#y to: )rtic#e B?00B A7C )n assign"ent o* a sing#e account%ay"ent intangib#e- or %ro"issory note to an assignee in *u## or %artia# satis*action o* a %reeDisting indebtness( B?201 )ttach"ent and 2n*orceabi#ity o* &ecurity 3nterest> !roceeds> &u%%orting Eb#igations> For"a# 9eRuisites( AaC F)ttach"entG ) security interest attaches to co##atera# $hen it beco"es en*orceab#e against the debtor $ith res%ect to the co##atera#- un#ess an agree"ent eD%resse#y %ost%ones the ti"e o* attach"ent( AbC F2n*orceabi#ityG 2Dce%t as other$ise %ro,ided in subsections AcC through AiC- a security interest is en*orceab#e against the debtor and third %arties $ith res%ect to the co##atera# on#y i*: A0C ,a#ue has been gi,en> A2C the debtor has rights in the co##atera# or the %o$er to trans*er rights in the co##atera# to a secured %arty> A1C one o* the *o##o$ing conditions is "et: A)C the debtor has authenticated a security agree"ent that %ro,ides a descri%tion o* the co##atera# and- i* the security interest co,ers ti"ber to be cut- a descri%tion o* the #and concerned( A@C the co##atera# is not a certi*icated security and is in the %ossession o* the secured %arty under &ection B?101 %ursuant to the debtors security agree"ent( ACC the co##atera# is a certi*icated security in registered *or" and the security certi*icate has been de#i,ered to the secured %arty under section <?100 %ursuant to the debtors security agree"ent> or A4C the co##atera# is de%osit accounts- e#ectronic chatte# %a%erin,est"ent %ro%erty- #etter?o*?credit rights- or e#ectronic docu"ents- and the secured has contro# under section 7?00O- B? 00+- B?005- B?00O- or B?007 %ursuant to the debtors security agree"ent( 02 CF9 200(1 AdC

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2"ergency credit *or others( 3n unusua# and eDigent circu"stances- a Federa# 9eser,e @ank "ay- a*ter consu#tation $ith the @oard o* Ho,ernors- ad,ance credit to indi,idua#s- %artnershi%s- and cor%orations that are not de%ository institutions i*- in the 7udg"ent o* the Federa# 9eser,e @ank credit is not a,ai#ab#e *ro" other sources and *ai#ure to obtain such credit $ou#d ad,erse#y e**ect the econo"y( Tit#e grants and agree"ents the rate a%%#icab#e to such credit $i## be abo,e the highest rate in e**ect *or ad,ances to de%ository institutions( Jhere the co##atera# used to secure such credit consists o* assets other than ob#igations o*- or *u##y guaranteed as to %rinci%a# and interest by- the 8nited &tates or an agency thereo*- an a**ir"ati,e ,ote o* 5 or "ore "e"bers o* the @oard o* Ho,ernors is reRuired be*ore credit "ay be eDtended( )rtic#e B?100( !er*ection o* &ecurity 3nterests in %ro%erty sub7ect to certain &tatutes- 9egu#ations- and Treaties( AaC F&ecurity interest sub7ect to other #a$(G 2Dce%t as other$ise %ro,ided in subsection AdC- the *i#ing o* a *inancing state"ent is not necessary or e**ecti,e to %er*ect a security interest in %ro%erty sub7ect to: A0C a statute- regu#ation or treaty o* the 8nited &tates $hose reRuire"ents *or a security interests obtaining %riority o,er the rights o* a #ien creditor $ith res%ect to the %ro%erty %ree"%t &ection B?100AaC: 7FG AGE:C,7:RH 7R>C7 0:<EA4H RGCE:4CG 7: 7FG A,C0/:C>RG FRA<GD:RI F:R CG0>R,7,GC CG77/G<G47 CHC7G<C J>4G 2002 "2" Tab#e o* Contents 4isc#osure Fra"e$ork 3ntroduction ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((1 3( @asic 3n*or"ation(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((+ 33( 9u#es and !rocedures o* the &&&((((((((((((((((((((((((((((((((((((((0+ 333( 9e#ationshi%s $ith !artici%ants(((((((((((((((((((((((((((((((((((((((((0O 3Q( 9e#ationshi%s $ith other &&&s and Co""ercia# 3nter"ediaries ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((20 Q( &ecurities Trans*ers- Funds Trans*ers and 'inkages @et$een Trans*ers(((((((((((((((((((((((((((((((((((((((((((((2+ Q3( 4e*au#t !rocedures ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((10 Q33( &ecurities E,erdra*ts- &ecurities 'ending and @ack?to?@ack Transactions ((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((11 Q333( 9isk Contro# 5easures (((((((((((((((((((((((((((((((((((((((((((((((((((((1< 3V( E%erationa# 9isks(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((+7 2V:3@3T& 0( 4iagra"s o* the Ergani6ationa# and E$nershi% &tructures o* 4TC(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((51 2( &chedu#e o* the Ti"es o* &igni*icant !rocessing 2,ents (((((((((5+ "3" ,ntr%duct %n 7#e $%&&%' ng d%cument c%ns sts %$ t#e resp%nse made !1 7#e Aep%s t%r1 7rust 0%mpan1 )+A70.* t% t#e 8uest %nna re ent t&ed A sc&%sure Frame'%r6 F%r Cecur t es Cett&ement C1stems )t#e +A sc&%sure Frame'%r6.*. 7#e A sc&%sure Frame'%r6 'as de-e&%ped under t#e ausp ces %$ t#e 0%mm ttee %n Ea1ment and Cett&ement C1stems and t#e ,nternat %na& :rgan Jat %n %$ Cecur t es 0%mm ss %ns. 0%ns stent ' t# t#e purp%se %$ t#e A sc&%sure Frame'%r6, A70Bs resp%nse pr%- des %n&1 a genera& %-er- e' %$ #%' A70 dea&s ' t# certa n r s6 management ssues. 7#ere$%re, t# s d%cument s#%u&d n%t !e re& ed up%n !1 A70 Eart c pants %r %t#ers as a c%mp&ete d scuss %n %$ t#ese matters. Re8uests $%r $urt#er n$%rmat %n ma1 !e d rected t%( <s. A ane =rennan

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A rect%r"R s6 <anagement E#%ne( )212* 855"3320 Fa2( )212* 855"3274 "4" ,. =AC,0 ,4F:R<A7,:4 A. What is the name of the SSS? 7#e Aep%s t%r1 7rust 0%mpan1 )+A70.*. B. Where and in which time zone is the SSS located? A70Bs pr nc pa& %$$ ces are &%cated n 4e' H%r6, 4e' H%r6 )Gastern 7 me*, ' t# %perat ng $ac & t es n mu&t p&e &%cat %ns. C. What functions does the SSS perform? 1. Does the SSS serve as a securities depository and/or provide securities settlement services? Hes. A70 ser-es as a cust%d an %$ t#e secur t es dep%s ted !1 ts Eart c pants and pr%- des secur t es sett&ement ser- ces. a! What types of instrument are eli"i#le for deposit at the SSS e.".$ de#t$ e%uities$ warrants$ etc.! 7#e $%&&%' ng t1pes %$ nstruments are e& g !&e $%r dep%s t at A70( 42@T ) n add t %n t% 3%-ernment and <un c pa& Ae!t* Asset =ac6ed Cecur t es Auct %n Rate 4%tes =an6 4%tes 0ert $ cates %$ Aep%s t )Reta & K ,nst tut %na& 0As* 0%&&atera& <%rtgage :!& gat %ns )0<:s* 0%mmerc a& Eaper )0E* 0%nsumer Er ce ,nde2"/ n6ed =%nds )0E, =%nds* 0%n-ert !&e Ae!t 0%rp%rate =%nds Aep%s t 4%tes A sc%unt 4%tes ,nsured 0ust%d a& Rece pts <ed um 7erm 4%tes )<74s* 4%tes57ender Rate 4%tes "5" Lar a!&e Rate Aemand :!& gat %ns )LRA:s* Mer% 0%up%n =%nds 2N83TM Amer can Aep%s tar1 Rece pts )AARs* Auct %n Rate Ere$erred Cecur t es 0&%sed Gnd Funds 0%mm%n Ct%c6 / m ted Eartners# ps Ere$erred Ct%c6 R g#ts t% Eurc#ase Cecur t es >n t ,n-estment 7rusts )>,7s* >n ts Darrants HEQ29;52;T &2C893T32& =rad1 =%nds 4%n">.C. 3%-ernment Ae!t >.C. 7reasur1, Federa& Agenc1 and 3%-ernment Cp%ns%red Gnterpr ses ,ssues 58;3C3!)' &2C893T32& Auct %n Rate 4%tes ,nsured 0ust%d an Rece pts

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<un c pa& =%nds <un c pa& 4%tes Lar a!&e Rate Aemand :!& gat %ns )LRA:s* #! What types of instrument are eli"i#le for transfer within the SSS? A&& t#e t1pes %$ nstruments & sted a!%-e are e& g !&e $%r trans$er am%ng Eart c pants %$ A70 !1 !%%6"entr1 de& -er1 ' t# n A70. c! &lease descri#e whether eli"i#le securities are dematerialized$ immo#ilized or transferred physically. G2cept $%r >.C. 7reasur1 secur t es )and a sma&& num!er %$ %t#er ssues* '# c# are demater a& Jed, e& g !&e secur t es are mm%! & Jed. "6" d! Does the SSS provide safe'eepin" for physical certificates? Hes. (. Does the SSS provide cash accounts and/or provide funds transfers in con)unction with securities transfers? *f so$ in what currencies? A70 pr%- des eac# %$ ts Eart c pants ' t# !%t# a secur t es acc%unt and a >.C. d%&&ar m%ne1 sett&ement acc%unt n %rder t% perm t Eart c pants t% e$$ect de& -er es %$ secur t es aga nst pa1ment. +. Does the SSS provide a trade matchin" service? Do others provide such services for securities settled at the SSS? A70 d%es n%t pr%- de a trade matc# ng ser- ce. 0urrent&1, m%st nst tut %na& trades t#at are t% !e sett&ed at A70 are su!m tted $%r matc# ng t% :mge%, a ser- ce pr%- der t#at s ;% nt&1 %'ned !1 A70Bs parent, 7#e Aep%s t%r1 7rust K 0&ear ng 0%rp%rat %n )+A700.*, and 7#%ms%n F nanc a& GC3. F%r trades netted n t#e 0%nt nu%us 4et Cett&ement )+04C.* s1stem %$ 4at %na& Cecur t es 0&ear ng 0%rp%rat %n )+4C00.*, '# c# s a&s% a '#%&&1%'ned su!s d ar1 %$ A700, 4C00 pr%- des a trade matc# ng ser- ce. 7#e 04C s1stem, '# c# s current&1 a-a &a!&e %n&1 $%r A70"e& g !&e secur t es, c%nt nua&&1 nets a&& trades due t% sett&e t#e ne2t da1 aga nst eac# %t#er and aga nst pr %r da1sB unsett&ed &%ng and s#%rt p%s t %ns n t#e same secur t es. As part %$ 4C00Bs guarantee %$ sett&ement %$ mar6etp&ace transact %ns n 04C"e& g !&e secur t es, 4C00 !ec%mes t#e c%ntra"part1 t% eac# 04C transact %n. 4C00 Eart c pants %!& gated t% de& -er secur t es de& -er t#em t% 4C00 as $ree !%%6entr1 m%-ements at A70 )re$erred t% #ere n as +s#%rt c%-ers.*. / 6e' se, 4C00 Eart c pants %!& gated t% rece -e secur t es rece -e t#em $r%m 4C00, a&s% as $ree !%%6"entr1 m%-ements at A70 )re$erred t% #ere n as +&%ng a&&%cat %ns.*. ,. Does the SSS provide a trade nettin" service as distinct from underta'in" the settlement of securities transfers on a net #asis!? Do others provide such services for securities settled at the SSS? *n either case$ what types of nettin" #ilateral or multilateral!$ if any$ are performed? "7" A70 tse&$ d%es n%t pr%- de a trade nett ng ser- ce as de$ ned a!%-e. F%'e-er, trades netted n 4C00Bs 04C s1stem are sett&ed !1 trans$ers t% and $r%m acc%unts at A70. 4C00Bs 04C s1stem pr%- des $%r mu&t &atera& nett ng. -. Does the SSS offer a securities lendin" or #orrowin" pro"ram? A70 pr%- des ser- ces t#at $ac & tate secur t es &end ng and !%rr%' ng transact %ns n t ated !1 ts Eart c pants. Cecur t es &ent !1 %ne Eart c pant t% an%t#er can !e de& -ered !1 !%%6"entr1 e t#er $ree %r aga nst pa1ment. A70Bs pa1ment %rder ser- ce pr%- des a -e# c&e $%r t#e trans$er %$ cas# !et'een secur t es !%rr%'ers and &enders t% acc%unt $%r ad;ustments n t#e mar6et -a&ue %$ t#e !%rr%'ed secur t es dur ng t#e per %d t#e &%an s %utstand ng. .. Does the SSS provide custodial and/or related services such as the collection of interest$ dividends$ principal or withholdin" ta/ reclamations?

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Which types of service are provided? A70 c%&&ects and d str !utes t% Eart c pants d - dend and nterest pa1ments $%r secur t es n ts cust%d1. D#en perm tted !1 an ssuerBs re n-estment p&an, A70Bs A - dend Re n-estment ser- ce a&&%'s Eart c pants, %n !e#a&$ %$ nterested cust%mers, t% re n-est d - dends %n s#ares ' t#%ut ' t#dra' ng t#em $r%m A70. Eart c pants can accept tender and e2c#ange %$$ers $%r secur t es n t#e r acc%unts and de& -er t#em t% %$$er%rsB agents t#r%ug# A70. C m &ar&1, A70 pr%- des t#e means $%r Eart c pants t% e2erc se 'arrants, puts, c%n-ers %ns, r g#ts t% purc#ase add t %na& s#ares, and %t#er r g#ts respect ng secur t es n t#e r A70 acc%unts. D#en a secur t1 n t#e dep%s t%r1Bs cust%d1 matures %r s ca&&ed !1 t#e ssuer, A70 presents t#e secur t1 $%r redempt %n and d str !utes t#e pr%ceeds t% t#e appr%pr ate Eart c pants. A70Bs Er%21 ser- ce perm ts Eart c pants t% e2erc se -%t ng r g#ts %n secur t es n t#e dep%s t%r1Bs cust%d1. ,n e$$ect, A70Bs n%m nee, 0ede K 0%., t#e #%&der %$ rec%rd, ass gns eac# Eart c pant t#e -%t ng r g#ts %n secur t es cred ted t% t#at Eart c pantBs secur t es acc%unt as %$ t#e rec%rd date. "8" D t# respect t% ' t##%&d ng ta2es app& ca!&e t% d - dends pa d %n $%re gn %rd nar1 s#ares and Amer can Aep%s tar1 Rece pts n A70Bs cust%d1, t#r%ug# arrangements ' t# t#e ta2 ng aut#%r t es n certa n c%untr es A70 pr%- des a ser- ce $%r !ene$ c a& %'ners ent t&ed t% a reduced rate t% %!ta n reduced ' t##%&d ng at s%urce, rat#er t#an !1 re$und. A70 pr%- des ser- ces $%r t#e cust%d1, c&earance and sett&ement !1 p#1s ca& de& -er1 %$ secur t es $%r '# c# !%%6"entr1 ser- ces are n%t made a-a &a!&e. 7#ese secur t es nc&ude cert $ cates t#at t#e Eart c pant des res t% #a-e reg stered n ts name %r n t#e name %$ ts cust%mer, as 'e&& as secur t es ssues t#at cann%t !e made e& g !&e $%r !%%6"entr1 ser- ces $%r &ega& %r regu&at%r1 reas%ns )e.g., secur t es ' t# certa n trans$er restr ct %ns*. 0. Does the SSS act as a central counterparty or principal to transactions with its participants? 4%. 1. 2ther? &lease specify. A70 %$$ers a num!er %$ ser- ces t#at are re&ated t% ts c%re cust%d a& and secur t es sett&ement ser- ces. F%r e2amp&e, A70Bs >nder'r t ng ser- ce perm ts under'r ters %$ ne' and sec%ndar1 ssues %$ secur t es t% d str !ute t#em !1 !%%6"entr1 aga nst pa1ment t#r%ug# t#e dep%s t%r1. :t#er ser- ces are descr !ed n A70Bs m%st recent annua& rep%rt and n %t#er A70 pu!& cat %ns, '# c# can !e $%und %n A70Bs 'e!s te( '''.dtc.%rg. D. What type of or"anization is the SSS? 1. &lease indicate whether the SSS is a pu#lic sector or private sector entity. A70 s a pr -ate sect%r c%mpan1 %'ned !1 mem!ers %$ t#e $ nanc a& ndustr1. (. &lease indicate whether the SSS is or"anized on a for3profit or a nonprofit #asis. "9" A70 s %rgan Jed %n a $%r"pr%$ t !as s. F%'e-er, under a p%& c1 ad%pted !1 A70Bs =%ard %$ A rect%rs, n% d - dends are pa d t% st%c6#%&ders and eac# 1ear su!stant a&&1 a&& re-enues n e2cess %$ A70Bs current and ant c pated needs are re$unded t% Eart c pants. +. What is the le"al #asis for the esta#lishment of the SSS and for securities transfers made throu"h it? A70 s a & m ted"purp%se trust c%mpan1 %rgan Jed under t#e 4e' H%r6 =an6 ng /a', a +!an6 ng %rgan Jat %n. ' t# n t#e mean ng %$ t#e 4e' H%r6

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=an6 ng /a', and a mem!er %$ t#e Federa& Reser-e C1stem. A70 s a&s% a +c&ear ng c%rp%rat %n. ' t# n t#e mean ng %$ Art c&e 8 %$ t#e 4e' H%r6 >n $%rm 0%mmerc a& 0%de. A70 s reg stered as a c&ear ng agenc1 ' t# t#e >.C. Cecur t es and G2c#ange 0%mm ss %n )+CG0.* pursuant t% t#e pr%- s %ns %$ Cect %ns 17A and 19)a* %$ t#e Cecur t es G2c#ange Act %$ 1934, as amended )t#e +G2c#ange Act.*. 4. &lease descri#e and provide a dia"ram outlinin" the or"anizational and ownership structure of the SSS. Attac#ed as G2# ! t 1 are d agrams %$ t#e %rgan Jat %na& and %'ners# p structures %$ A70. 1. Who are the owners of the SSS? A70 s a '#%&&1"%'ned su!s d ar1 %$ A700. A700, n turn, s ndustr1%'ned. Eart c pants %$ A700, 4C00 and t#e %t#er reg stered c&ear ng agenc es t#at are su!s d ar es %$ A700 )3C00, <=C00 and G<00* are a&&%cated ent t&ements t% purc#ase t#e c%mm%n st%c6 %$ A700 !ased up%n t#e r usage %$ a&& $ -e reg stered c&ear ng agenc es. 0erta n part c pants, suc# as s%me sma&&er !r%6er"dea&ers, #a-e c#%sen n%t t% purc#ase t#e s#ares t% '# c# t#e1 are ent t&ed. 7#ese s#ares are #e&d !1 t#e r se&$"regu&at%r1 %rgan Jat %ns n a representat -e capac t1 $%r t#e r mem!ers. (. What entity or entities operate the SSS? Which functions of the SSS$ if any$ are outsourced to third parties? " 10 " A70 carr es %n a&& %$ ts %'n act - t es and #as n%t %uts%urced ts %perat %ns t% t# rd part es. +. Does the SSS have a Board of Directors? Hes. a! What is its composition? 7#e $%&&%' ng s a & st %$ A70Bs current A rect%rs and t#e r a$$ & at %ns( =rad&e1 A!e&%' <anag ng A rect%r 3%&dman, Cac#s K 0%. J%nat#an G. =e1man 0# e$ ,n$%rmat %n :$$ cer /e#man =r%t#ers Fran6 J. = s gnan% 0# e$ Adm n strat -e :$$ cer and Cen %r G2ecut -e L ce Eres dent 0 t gr%up5Ca&%m%n Cm t# =arne1 0%rp%rate K ,n-estment =an6 < c#ae& 0. =%ds%n <anag ng A rect%r <%rgan Ctan&e1 Ctep#en E. 0asper <anag ng A rect%r and 0# e$ :perat ng :$$ cer F sc#er Franc s 7rees K Datts, ,nc. J && <. 0%ns d ne 0#a rman, Eres dent and 0# e$ G2ecut -e :$$ cer 7#e Aep%s t%r1 7rust K 0&ear ng 0%rp%rat %n Aenn s J. A r6s 0# e$ :perat ng :$$ cer 7#e Aep%s t%r1 7rust K 0&ear ng 0%rp%rat %n " 11 " <ar1 <. Fen%g& % G2ecut -e L ce Eres dent Ctate Ctreet 0%rp%rat %n 3e%rge Fra!%-s61

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Eres dent A&& ance 3&%!a& ,n-est%r Cer- ces R%na&d J. Iess&er L ce 0#a rman A.3. Gd'ards, ,nc. 0at#er ne R. I nne1 Eres dent and 0%"0# e$ :perat ng :$$ cer 4e' H%r6 Ct%c6 G2c#ange Eeter =. <ad%$$ Cen %r <anag ng A rect%r =ernard /. <ad%$$ ,n-estment Cecur t es James F. <essenger 0# e$ G2ecut -e :$$ cer 4at %na& F nanc a& Cer- ces //0 G &een I. <urra1 <anag ng A rect%r 0red t Cu sse F rst =%st%n 7#%mas J. Eerna Cen %r G2ecut -e L ce Eres dent 7#e =an6 %$ 4e' H%r6 R%na&d Eurp%ra 0# e$ G2ecut -e :$$ cer 3ar!an //0 Eeter Nu c6 Eres dent Amer can Ct%c6 G2c#ange R%!ert F. C &-er G2ecut -e L ce Eres dent and Eres dent %$ Ea neDe!!er Cer- ces >=C Ea neDe!!er, ,nc. " 12 " 7#%mps%n <. C'a1ne G2ecut -e L ce Eres dent JE <%rgan 0#ase Art#ur /. 7#%mas Cen %r L ce Eres dent and 0#a rman <err && /1nc# Cecur t es Cer- ces A - s %n James D. Me g%n <anag ng A rect%r Aeutsc#e =an6 A3 #! What are its responsi#ilities? 3enera&&1, t#e =%ard %$ A rect%rs s resp%ns !&e $%r super- s ng t#e !us ness and a$$a rs %$ A70 n %rder t% pr%m%te A70Bs a! & t1 t% ser-e ts Eart c pants. 5. &lease descri#e the financial resources of the SSS. 1. Amount of paid3in capital and retained earnin"s? As %$ Aecem!er 31, 2001, A70 #ad ?77.8 m && %n pa d" n cap ta& and ?24 m && %n n reta ned earn ngs. (. 6uarantees$ insurance covera"e or other similar arran"ements? :n %ccas %n, A70 #as re8u red certa n Eart c pants t% %!ta n a t# rdpart1 guarantee %$ t#e r %!& gat %ns t% A70. A70 current&1 ma nta ns nsurance c%-erage n t#e $%&&%' ng am%unts( . ?650 m && %n %n prem ses c%-erage under =&an6et =%nd5A&&"R s6 p%& c es. . ?650 m && %n n"trans t c%-erage under =&an6et =%nd5A&&"R s6 p%& c es $%r secur t es n trans t '# &e n t#e cust%d1 %$ messengers %r a " 13 "

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transp%rtat %n c%mpan19 add t %na& trans t c%-erage s a-a &a!&e $%r n%n"neg%t a!&e secur t es. . ?800 m && %n n"trans t c%-erage pr%- ded !1 t#e nsurer %$ t#e arm%red car carr er ser- ce used !1 A70. A70Bs c%-erage under t#e =&an6et =%nds5A&&"R s6 p%& c es pr%- des sec%ndar1 c%-erage $%r secur t es &%st '# &e n t#e cust%d1 %$ an arm%red carr er. . ?1 m && %n under <a & E%& c1 c%-er ng reg stered secur t es &%st a$ter #a- ng !een sent - a $ rst c&ass ma &. . ?25 m && %n under <a & E%& c1 c%-er ng reg stered secur t es &%st a$ter #a- ng !een sent - a reg stered %r e2press ma & %r e2press c%ur er. +. Credit lines or letters of credit? A70 current&1 ma nta ns a ?1.75 ! && %n c%mm tted & ne %$ cred t ' t# a gr%up %$ !an6s t% pr%- de & 8u d t1 n t#e e-ent a Eart c pant $a &s t% pa1 ts da &1 m%ne1 sett&ement %!& gat %n t% A70. A70 a&s% ma nta ns a ?50 m && %n c%mm tted & ne %$ cred t ' t# a !an6 t% pr%- de $unds s% t#at A70 can d str !ute pr nc pa& and nc%me pa1ments t% ts Eart c pants '#en t#e pa1ments are rece -ed t%% &ate t% a&&%cate %n t#e pa1a!&e date. ,. &owers to assess participants or e%uity holders? A70 #as t#e r g#t under ts Ru&es t% app&1 ts Eart c pants Fund t% an1 un nsured &%ss su$$ered !1 A70 and t% re8u re ts Eart c pants t% ma6e add t %na& dep%s ts t% t#e Eart c pants Fund n %rder t% rep&en s# t. Re$erence s made t% t#e d scuss %n %$ A70Bs Eart c pants Fund n Cect %n L, !e&%'. 6. &lease descri#e whether the SSS or its operator is su#)ect to authorization$ supervision or oversi"ht #y an e/ternal authority. A70 and ts act - t es are regu&ated !1 t#e CG0, t#e =%ard %$ 3%-ern%rs %$ t#e Federa& Reser-e C1stem )t#e +Fed.*, and t#e 4e' H%r6 Ctate =an6 ng Aepartment. " 14 " 33( 98'2& );4 !9EC24892& EF T:2 &&& A. Does the SSS maintain a complete list of the rules and procedures "overnin" the ri"hts and o#li"ations of participants and the duties of the SSS? Hes. 7#e r g#ts and resp%ns ! & t es %$ A70 t% ts Eart c pants and %$ A70Bs Eart c pants t% A70 are set $%rt# n A70Bs Ru&es and Er%cedures. 1. 7ow can participants o#tain a copy of the rules and procedures? A70 pr%- des eac# Eart c pant ' t# a c%p1 %$ A70Bs Ru&es and Er%cedures. An1 c#anges are a&s% pr%- ded t% Eart c pants. (. Does other documentation provided to participants e.".$ user "uides! have the same status as the rules and procedures? Hes. +. Descri#e the process for chan"in" rules and procedures$ includin" any need for re"ulatory approval. a! What authority is re%uired$ and how does this differ dependin" on the type of chan"e involved? Appr%-a& !1 A70Bs =%ard %$ A rect%rs s re8u red t% amend A70Bs Ru&es. 0#anges n A70Bs Er%cedures are su!;ect t% appr%-a& !1 t#e =%ard %$ A rect%rs %r !1 t#e 0#a rman %$ t#e =%ard. 4%ne %$ t#e amendments t% A70Bs Ru&es and Er%cedures can !ec%me e$$ect -e unt & $ &ed ' t#, and appr%-ed %r %t#er' se perm tted !1, t#e CG0 )a$ter re- e' !1 t#e Fed* pursuant t% t#e standards set $%rt# n Cect %n 19)!* %$ t#e G2c#ange Act. #! 7ow are participants notified of chan"es in rules and procedures? A70 n%t $ es Eart c pants %$ re- s %ns t% ts Ru&es and Er%cedures !1 ,mp%rtant 4%t ce. " 15 " c! *s there a procedure for participants or others to comment on proposed rule chan"es?

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Hes. Eart c pants %r %t#ers ma1 su!m t t% A70 $%r ts c%ns derat %n t#e r c%mments ' t# respect t% an1 pr%p%sa& t% re- se ts Ru&es %r Er%cedures. ,t s#%u&d !e n%ted, #%'e-er, t#at m%st A70 pr%p%sa&s )e.g., pr%p%sed ne' ser- ces* are de-e&%ped n c&%se c%nsu&tat %n ' t# Eart c pants. Dr tten c%mments, $ an1, rece -ed !1 A70 must !e su!m tted t% t#e CG0 as part %$ A70Bs $ & ng. >nder CG0 pr%cedures, t#e CG0 a&s% s%& c ts c%mments %n pr%p%sa&s $ &ed !1 A70. B. Are the rules and procedures #indin" on the SSS as well as its participants? 8nder what conditions and on whose authority can written rules and procedures #e waived or suspended #y the SSS? A70Bs Ru&es and Er%cedures are nc%rp%rated !1 re$erence nt% t#e Eart c pant Agreement t#at s e2ecuted !1 t#e Eart c pant and A70, and are ! nd ng %n !%t# t#e Eart c pant and A70. A70Bs Ru&es a&&%' $%r t#e e2tens %n, 'a -er %r suspens %n %$ an1 %$ A70Bs Ru&es !1 t#e =%ard %$ A rect%rs, t#e 0#a rman %$ t#e =%ard, t#e Eres dent, %r an1 <anag ng A rect%r %r L ce Eres dent, '#ene-er suc# act %n s deemed necessar1 %r e2ped ent. " 16 " 333( 92')T3E;&:3!& J3T: !)9T3C3!);T& A. &lease descri#e the types of mem#ership offered #y the SSS. 1. 7ow do the types differ? A70 #as t'% categ%r es %$ mem!ers# p( . Fu&& ser- ce mem!ers# p O +Eart c pants. . <em!ers# p $%r certa n ser- ces %n&1 O +/ m ted Eart c pants.. E&edgees n A70Bs s1stem are n%t re8u red t% !e Eart c pants. (. Within each mem#ership cate"ory$ are all participants su#)ect to the same rules and procedures? &lease descri#e important e/ceptions$ includin" #oth differences in rules across participants and the rationale for these differences. D t# n eac# mem!ers# p categ%r1 eac# Eart c pant s su!;ect t% t#e same Ru&es and Er%cedures. D# &e eac# Eart c pant s re8u red t% ma6e at &east t#e m n mum dep%s t t% A70Bs Eart c pants Fund, a / m ted Eart c pant, depend ng up%n '#et#er t#e ser- ces t ut & Jes c%u&d resu&t n a sett&ement %!& gat %n t% A70, ma1 n%t !e re8u red t% ma6e a Eart c pants Fund dep%s t. B. Can participants esta#lish accounts for their customers9 assets that are se"re"ated from their own asset accounts at the SSS? Eart c pants can re8uest A70 t% pr%- de an add t %na& acc%unt n A70Bs s1stem n %rder t% segregate t#e r assets $r%m t#%se %$ t#e r cust%mers. Cuc# add t %na& acc%unts are su!;ect s%&e&1 t% t#e nstruct %ns %$ t#e Eart c pant. 1. *f so$ is this accomplished throu"h a sin"le omni#us customer account or throu"h a multiplicity of accounts and/or su#3accounts? Eart c pants #a-e t#e %pt %n %$ segregat ng secur t es ' t# n t#e r %'n acc%unt )%mn !us* %r %$ us ng add t %na& acc%unts. (. *s the se"re"ation optional or compulsory? " 17 " 7#e segregat %n %$ secur t es s n%t c%mpu&s%r1 under A70Bs Ru&es and Er%cedures. A70Bs pr%cedures are des gned t% $ac & tate ts Eart c pantsB segregat %n %$ secur t es s% t#at t#e1 ma1 c%mp&1 ' t# t#e r &ega& %r regu&at%r1 %!& gat %ns. +. Does the fact that a su#3account at the SSS #ears the name of a third party "ive any ri"hts to that third party as a participant under the rules of the system? 4%. A t# rd part1 '#%se name ma1 appear %n an add t %na& acc%unt #as n% r g#ts under A70Bs Ru&es. C. &lease descri#e participant re%uirements for each type of mem#ership.

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1. Are participants re%uired to #e domiciled or resident in a particular )urisdiction? 4%. (. Are participants re%uired to #e su#)ect to a supervisory re"ime? *f so$ please descri#e. Hes. A70Bs Eart c pant adm ss %ns p%& c1 perm ts ent t es t% !ec%me Eart c pants %n&1 $ t#e1 are su!;ect t% regu&at %n n t#e r #%me ;ur sd ct %n. +. Are participants re%uired to hold an e%uity sta'e in the SSS? 4%. ,. Are there financial$ economic$ personal or other re%uirements e.".$ minimum capital re%uirements$ :fit and proper; tests!? *f so$ please descri#e. Hes. A70Bs Ru&es set $%rt# t#e !as c standards $%r t#e adm ss %n %$ A70 Eart c pants. A70Bs Ru&es pr%- de t#at t#e adm ss %n %$ a Eart c pant s su!;ect t% an app& cantBs dem%nstrat %n t#at t meets reas%na!&e standards %$ $ nanc a& resp%ns ! & t1, %perat %na& capa! & t1, and c#aracter. 7#e Ru&es a&s% " 18 " re8u re a&& A70 Eart c pants t% dem%nstrate t% A70 t#at t#ese standards are met %n an %ng% ng !as s. Gac# app& cant s ;udged %n ts %'n mer ts. 7#e e2tent and nature %$ t#e !us ness '# c# t#e app& cant ntends t% c%nduct t#r%ug# A70 s care$u&&1 ana&1Jed s% t#at t#e & 6e&1 range %$ sett&ement %!& gat %ns t#at t#e app& cant ' && #a-e n A70 and t#e degree %$ r s6 t% A70 can !e e-a&uated. A70 ana&1Jes t#e cap ta& and $ nanc a& sta! & t1 %$ t#e app& cant as 'e&& as t#e !us ness and mar6et r s6s t% '# c# t#e app& cant s su!;ect and dec des '#et#er t#e app& cant #as t#e $ nanc a& capa! & t1 t% meet ts & 6e&1 A70 %!& gat %ns. ,n n% case, #%'e-er, d%es A70 adm t !r%6ers"dea&ers ' t# &ess t#an ?500,000 n e2cess net cap ta& %r !an6s ' t# &ess t#an ?2 m && %n n e8u t1. A70 a&s% e-a&uates t#e %perat %na& capa! & t1 %$ t#e app& cant " '#et#er t #as t#e pers%nne&, data pr%cess ng capa! & t1, etc., t% meet t#e tec#n ca& demands %$ nter$ac ng ' t# t#e dep%s t%r1. D. Does the SSS en"a"e in oversi"ht of its participants to ensure that their actions are in accordance with its rules and procedures? *f so$ please descri#e. Hes. A70 m%n t%rs ts Eart c pants %n an %ng% ng !as s t% assure t#at t#e Eart c pants are n c%mp& ance ' t# A70Bs Ru&es and Er%cedures. A70Bs 0%mp& ance Aepartment %!ta ns n$%rmat %n da &1 $r%m %t#er nterna& A70 departments regard ng sett&ement, %perat %na&, %r rec%rd6eep ng pr%!&ems e2per enced ' t# an1 A70 Eart c pant. 7#e 0%mp& ance Aepartment re- e's t#e $ nanc a& c%nd t %n %$ a&& A70 Eart c pants at &east 8uarter&1. F nanc a& statements $ &ed ' t# regu&at%r1 agenc es, n$%rmat %n %!ta ned $r%m %t#er se&$"regu&at%r1 %rgan Jat %ns and n$%rmat %n gat#ered $r%m -ar %us $ nanc a& pu!& cat %ns are ana&1Jed t% assure t#at t#e Eart c pant c%nt nues t% !e $ nanc a&&1 sta!&e. 7#e Aepartment a&s% m%n t%rs Eart c pantsB sett&ement %!& gat %ns, cap ta& ade8uac1, and transact %n act - t1 %n a da &1 !as s t% assure t#at t#e Eart c pant c%nt nues t% !e capa!&e %$ meet ng ts %!& gat %ns t% A70. " 19 " 4. 8nder what conditions can participants terminate their mem#ership in the SSS? Does this mar' the end of all lia#ilities of the participant? *f not$ please descri#e what lia#ilities could remain. A Eart c pant ma1 term nate ts mem!ers# p n A70 !1 s% n%t $1 ng A70 n 'r t ng. 4%t' t#stand ng an1 suc# term nat %n, a Eart c pant rema ns %!& gated t% sat s$1 an1 %!& gat %ns and & a! & t es ar s ng %ut %$ ts mem!ers# p n A70. 5. 8nder what conditions can the SSS terminate a participant9s mem#ership in the SSS?

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A70 ' && term nate a Eart c pantBs mem!ers# p ) .e., cease t% act $%r t#e Eart c pant* up%n determ n ng t#at under A70Bs Ru&es t#e Eart c pant s n% &%nger 8ua& $ ed %r s deemed t% !e ns%&-ent. ,n add t %n, A70 ma1 term nate a Eart c pantBs mem!ers# p under an1 %$ t#e $%&&%' ng c rcumstances( . 7#e Eart c pant #as $a &ed t% ma6e re8u red dep%s ts t% t#e Eart c pants Fund ' t# n t#e re8u red ten !us ness da1 per %d a$ter demand. . 7#e Eart c pant #as $a &ed t% ma6e an1 %t#er re8u red dep%s t ' t# A70. . 7#e Eart c pant #as $a &ed t% pa1 an1 $ ne, $ee %r %t#er c#arge pr%- ded under A70Bs Ru&es %r Er%cedures. . 7#e Eart c pant #as $a &ed t% meet ts sett&ement %!& gat %n t% A70. . 7#e Eart c pantBs $ nanc a& %r %perat %na& c%nd t %n #as deter %rated t% a p% nt t#at ts c%nt nuat %n as a Eart c pant '%u&d ;e%pard Je t#e nterests %$ A70 and ts %t#er Eart c pants. . A70Bs =%ard %$ A rect%rs, %r a c%mm ttee aut#%r Jed t#ere!1, #as reas%na!&e gr%unds t% !e& e-e t#at t#e Eart c pant %r an1 pers%n " 20 " ass%c ated ' t# t#e Eart c pant s resp%ns !&e $%r )1* $raud, $raudu&ent acts %r !reac# %$ $ duc ar1 dut1, )2* ma6 ng a m sstatement %$ a mater a& $act %r %m tt ng t% state a mater a& $act t% A70 n c%nnect %n ' t# ts app& cat %n t% !ec%me a Eart c pant %r t#erea$ter, )3* - %&at ng an1 Ru&e %r an1 agreement ' t# A70 %r )4* t#e ' &&$u& - %&at %n %$ t#e Cecur t es Act, t#e G2c#ange Act, t#e ,n-estment 0%mpan1 Act, t#e ,n-estment Ad- sers Act, %r an1 ru&e %r regu&at %n t#ereunder. . 7#e Eart c pant %r an1 pers%n ass%c ated ' t# t#e Eart c pant s permanent&1 %r temp%rar &1 en;% ned !1 %rder, ;udgment %r decree %$ an1 c%urt %r %t#er g%-ernmenta& aut#%r t1 %$ c%mpetent ;ur sd ct %n $r%m act ng as a !r%6er, dea&er, n-estment c%mpan1, n-estment ad- ser, under'r ter, !an6, trust c%mpan1, $ duc ar1, nsurance c%mpan1 %r %t#er $ nanc a& nst tut %n %r $r%m engag ng n %r c%nt nu ng an1 c%nduct %r pract ce n c%nnect %n ' t# an1 suc# act - t1, %r n c%nnect %n ' t# t#e purc#ase, sa&e %r de& -er1 %$ an1 secur t1. . 7#e Eart c pant %r an1 pers%n ass%c ated ' t# t#e Eart c pant s e2pe&&ed %r suspended $r%m a nat %na& secur t es ass%c at %n %r e2c#ange reg stered under t#e G2c#ange Act. 6. &lease descri#e the scope of the SSS9s lia#ility to participants$ includin" the standard of lia#ility ne"li"ence$ "ross ne"li"ence$ willful misconduct$ strict lia#ility or other!$ the force ma)eure standard$ and any limitation to the scope of lia#ility of the SSS e.".$ indirect or conse%uential dama"es!. Where are these lia#ilities and their limitations set out e.".$ in statute or contract!? As a genera& pr%p%s t %n, A70Bs resp%ns ! & t es t% Eart c pants $%r t#e manner n '# c# A70Bs ser- ces are pr%- ded are a matter %$ c%ntract !et'een A70 and ts Eart c pants, and are set $%rt# n A70Bs Er%cedures. " 21 " 3Q( 92')T3E;&:3!& J3T: ET:29 &&&s );4 CE5529C3)' 3;T295243)932& A. Does the SSS maintain lin'a"es includin" su#3custodian or cash correspondent relationships! or other relationships with other SSSs? 1. &lease identify each of the other SSSs used and the type of securities transferred via the lin'a"es. a! What is the name of the other SSS? Where is it located? #! What securities are eli"i#le for transfer via the lin'a"e to the other SSS?

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c! Are transfers of securities made via the lin'a"e to the other SSS limited to only those that are free of payment or are transfers a"ainst payment also made via the lin'a"e to the other SSS? *f a"ainst payment$ please descri#e the timin" of the transfers and the correspondin" payments. d! Does the other SSS provide custody services to the SSS and$ if so$ who #ears any credit or custody ris's? A70 ma nta ns an acc%unt at t#e Federa& Reser-e =an6 %$ 4e' H%r6. ,ssues '# c# are trans$erred %-er t#e Federa& Reser-e C1stemBs secur t es trans$er s1stem )e.g., >.C. 7reasur1 secur t es* and '# c# are e& g !&e at A70 ma1 !e trans$erred t% and $r%m t#at acc%unt $ree %$ pa1ment. 0a;a de La&%res )Argent na*, 7#e 0anad an Aep%s t%r1 $%r Cecur t es 0anada )+0AC.*, 0ALA/, )Eeru*, 0&earstream =an6 ng Fran6$urt )3erman1*, 0RGC70% )t#e >n ted I ngd%m*, F%ng I%ng Cecur t es 0&ear ng 0%mpan1 / m ted )F%ng I%ng*, <%nte 7 t%& ),ta&1*, 4G0,3GF )7#e 4et#er&ands* and t#e 7e& A- - Ct%c6 G2c#ange 0&ear ng#%use ),srae&* #a-e eac# %pened a Eart c pant acc%unt at A70. 7rans$ers %$ A70"e& g !&e secur t es t% and $r%m t#e A70 acc%unts %$ t#%se centra& secur t es dep%s t%r es ma1 !e made $ree %$ pa1ment and, n t#e case %$ 0AC, aga nst pa1ment. 7#e 0anad an, 3erman and C' ss )C,C Cega ,ntersett&e* dep%s t%r es pr%- de cust%d1 ser- ces t% A70. A70 #as nd rect & n6ages ' t# Gur%c&ear and 0&earstream /u2em!urg. ,n eac# %$ t#%se & n6ages, a A70 Eart c pant acts %n !e#a&$ %$ t#e CCC. 7#at Eart c pant uses ts A70 acc%unt t% ma6e and rece -e trans$ers %$ A70"e& g !&e secur t es !et'een A70 Eart c pants and t#e CCC. 7#e trans$ers at A70 t% and $r%m t#e acc%unt %$ t#at Eart c pant ma1 !e $ree %r aga nst pa1ment. " 22 " 7rans$ers aga nst pa1ment are e$$ected n t#e n%rma& manner $%r suc# trans$ers at A70. 4e t#er CCC pr%- des cust%d1 ser- ces t% A70. B. Does the SSS use securities custodians other than the other SSSs addressed in the previous %uestion! and/or commercial cash correspondents? &lease identify the custodians or cash correspondents used and the duties that each performs. ,n A70Bs Fast Aut%mated Cecur t es 7rans$er )FAC7* Er%gram, a num!er %$ trans$er agents #%&d !a&ance cert $ cates reg stered n t#e name %$ A70Bs n%m nee as cust%d ans $%r A70. As secur t es are dep%s ted n and ' t#dra'n $r%m t#e A70 s1stem, t#e 8uant t es %$ secur t es represented !1 t#e app& ca!&e !a&ance cert $ cates n t#e FAC7 pr%gram are ad;usted acc%rd ng&1. ,n A70Bs Aep%s t%r1 Fac & t1 Er%gram, certa n !an6s )as 'e&& as reg %na& %$$ ces %$ 4C00* #%&d secur t es %-ern g#t as cust%d ans $%r A70 a$ter t#e secur t es #a-e !een dep%s ted n t#e A70 s1stem. 7#e secur t es are s# pped t% A70 %n t#e ne2t !us ness da1. C. &lease descri#e the standards used in approvin" or reviewin" relationships with other SSSs$ custodians or cash correspondents$ includin" any financial or operational re%uirements or the presence of insurance or pu#lic supervision. A70 Ps R s6 <anagement 0%mm ttee, '# c# s descr !ed n Cect %n L,,, !e&%', re- e's & n6ages ' t# %t#er secur t es sett&ements s1stems, cust%d ans and cas# c%rresp%ndents n %rder t% assess an1 %perat %na& and $ nanc a& r s6s ar s ng $r%m suc# & n6ages. CG0 regu&at %ns re8u re t#at t#e $%rm %$ agreement t#at A70 e2ecutes ' t# a secur t es cust%d an c%nta n certa n spec $ ed pr%- s %ns re&at ng t%, am%ng %t#er t# ngs, A70Bs a! & t1 t% %!ta n ts secur t es pr%mpt&1. 7#e $%rm %$ agreement must !e $ &ed ' t# t#e CG0 $%r appr%-a&. A70 rece -es rep%rts %n t#e nterna& c%ntr%&s %$ ts secur t es cust%d ans $r%m t#e r ndependent acc%untants %r nterna& aud t%rs. <%st trans$er agents n t#e FAC7 Er%gram and a&& !an6s n t#e Aep%s t%r1 Fac & t1 Er%gram are re8u red t% carr1 nsurance n a $%rm and

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am%unt sat s$act%r1 t% A70. Cecur t es and cas# p%s t %ns at a&& %$ A70Bs cust%d ans and cas# c%rresp%ndents are !a&anced and c%n$ rmed da &1. " 23 " D. Does the SSS advance funds or securities to or on #ehalf of other intermediaries such as issuin" or payin" a"ents? *f so$ please identify the circumstances in which such e/posure could arise. 4%. A70 d%es n%t ad-ance secur t es %r $unds t% %r %n !e#a&$ %$ %t#er ntermed ar es, suc# as ssu ng and pa1 ng agents. 4. &lease descri#e measures in place to protect the SSS and its mem#ers a"ainst the failure of other SSSs or commercial intermediaries to meet o#li"ations to the SSS$ includin" ris' controls$ collateral or alternative sources of funds and securities. As n%ted a!%-e, A70 d%es n%t ad-ance secur t es %r $unds %n !e#a&$ %$ %t#er ntermed ar es. Eart c pant acc%unts ma nta ned !1 secur t es dep%s t%r es are su!;ect t% a&& %$ A70Bs n%rma& r s6 management c%ntr%&s, nc&ud ng c%&&atera& c%ntr%&s, as descr !ed n Cect %n L,,, !e&%'. " 24 " Q( &2C893T32& T9);&F29&- F8;4& T9);&F29& );4 '3;K)H2& @2TJ22; T9);&F29& A. &lease discuss whether and how settlement instructions are matched #etween participants prior to processin" #y the SSS. 1. *s matchin" re%uired for all transactions without e/ception? (. What procedure is used when instructions do not match? +. Are matched settlement instructions #indin" on participants? a! *f so$ please descri#e the conse%uences of failure #y participants to meet o#li"ations e.".$ forced settlement$ penalties$ short positions!. #! &lease descri#e whether this is a feature of the SSS9s rules and procedures or of national law or re"ulations. c! &lease provide a time line indicatin" the points at which matched instructions #ecome #indin"$ as well as any pre3matchin" process that ta'es place. 4%. <atc# ng s n%t re8u red $%r a&& transact %ns at A70. A trans$er %$ secur t es at A70 can !e e$$ected %n nstruct %ns t% A70 %n&1 $r%m t#e de& -er ng Eart c pant. As descr !ed n Cect %n , a!%-e, trans$ers %$ secur t es at A70 %n t#e nstruct %ns %$ 4C00 are t#e resu&t %$ matc# ng n t#e 4C00 s1stem. =r%6er"dea&ers and t#e r nst tut %na& cust%mers can agree %n t#e deta &s %$ trades !1 us ng a matc# ng ser- ce pr%- der suc# as :mge%, and agreed"%n trades can t#en !e sett&ed at A70. B. Are securities transferred within the SSS re"istered? 1. Who is the re"istrar? (. *s it normal practice to re"ister the securities in the name of the SSS or its nominee! or in the name of the #eneficial owner? Are there instances in which securities housed within the SSS are re"istered to neither the SSS or its nominee! nor the #eneficial owner? +. *f the SSS offers custodial services$ will it hold securities re"istered in the name of the #eneficial owner? " 25 " ,. 8nder what circumstances does the SSS initiate re"istration of securities in the #uyer9s name? -. 7ow lon" does the re"istration process typically ta'e? Are participants notified when re"istration is complete? .. Can securities #e transferred within the SSS #efore re"istration in the #uyer9s name is complete? *f so$ do the rules and procedures of the SSS provide for an unwind or reversal of such transfers in case of #an'ruptcy or other events which result in the #uyer9s name not #ein" entered on the

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re"ister? D t# t#e e2cept %n %$ secur t es n A70Bs cust%d1 $%r '# c# !%%6"entr1 ser- ces are n%t a-a &a!&e, secur t es cert $ cates $%r reg stered ssues dep%s ted n t#e A70 s1stem are sent !1 A70 t% t#e ssuerBs trans$er agent $%r reg strat %n %$ trans$er nt% t#e name %$ A70Bs n%m nee, 0ede K 0%. =earer secur t es can a&s% !e dep%s ted at A70. A Eart c pant dep%s t ng a secur t1 s g -en mmed ate cred t $%r t#e dep%s t n t#e Eart c pantBs A70 acc%unt and can use t#at cred t t% e$$ect !%%6entr1 transact %ns. F%r m%st reg stered secur t es ssues, a Eart c pant ' t# secur t es %n dep%s t ' t# n t#e A70 s1stem can ' t#dra' t#e secur t es p#1s ca&&1 and #a-e t#em rereg stered n t#e name %$ t#e Eart c pant, ts cust%mer %r an%t#er part1. :n t#e nstruct %ns %$ t#e ' t#dra' ng Eart c pant, A70 de! ts t#e secur t es $r%m t#e Eart c pantBs acc%unt and nstructs t#e trans$er agent t% reg ster t#e trans$er %$ t#e secur t es nt% t#e name des gnated !1 t#e Eart c pant. 7#e rereg stered secur t es are t#en sent t% t#e Eart c pant %r ts cust%mer. F%r trans$er agents re8u red t% reg ster ' t# t#e CG0, t#e t me per %d $%r t#e reg strat %n pr%cess re$erred t% n t#e preced ng paragrap#s s su!;ect t% CG0 ru&es. 7#e reg strat %n pr%cess usua&&1 ta6es 2"3 da1s. 7#e Eart c pant, up%n n8u r1, s a!&e t% determ ne '#en reg strat %n s c%mp&ete. A &arge num!er %$ reg stered secur t es ssues are ssued n !%%6"entr1"%n&1 )+=G:.* $%rm. F%r t#ese ssues, t#ere are %ne %r m%re g&%!a& cert $ cates reg stered n t#e name %$ 0ede K 0%. and t#e ssuer d%es n%t ma6e secur t es cert $ cates a-a &a!&e t% Eart c pants %r t#e r cust%mers. " 26 " C. &lease descri#e how securities transfers are processed within the SSS. 1. &lease indicate whether the transfers are processed as de#its and credits to mem#ers9 accounts or via some other method. (. 2n a continuous real3time! #asis$ or in one or more #atches? +. *f continuous$ durin" what hours does the processin" occur? *f in #atches$ at what time or times is the processin" initiated and completed? ,. Do securities settlements occur daily? &lease identify securities for which settlement occurs only on specific days of the wee' or month. 7rans$ers %$ secur t es ' t# n t#e A70 s1stem are pr%cessed !1 de! ts and cred ts t% Eart c pantsB acc%unts. C%me trans$ers are pr%cessed n !atc#es, and %t#er trans$ers are pr%cessed %n a rea&"t me !as s. 7#e s%urce %$ t#e trans$er nstruct %ns determ nes '#et#er a !atc# met#%d %r rea&"t me met#%d s used. F%r e2amp&e, trans$er nstruct %ns rece -ed ear&1 n t#e pr%cess ng da1 $r%m 4C00 %r $r%m a trade matc# ng ser- ce pr%- der suc# as :mge% are pr%cessed at t#at t me n !atc#es. 7rans$er nstruct %ns rece -ed $r%m Eart c pants dur ng t#e da1 are pr%cessed %n a rea&"t me !as s. Cecur t es sett&ements %ccur da &1. 7rans$ers %$ secur t es de& -ered aga nst pa1ment are e$$ect -e s mu&tane%us&1 ' t# pa1ment. 3enera&&1, de& -er es %$ secur t es $%r -a&ue can !e e$$ected unt & 3(30 E.<. and $ree de& -er es can !e e$$ected unt & 6(00 E.<. D. &lease descri#e whether final funds transfers in con)unction with the SSS are made as de#its and credits to #alances held at the SSS$ at one or more commercial #an's$ at the central #an'$ or via some other method. 1. Does the SSS maintain cash accounts for its participants? Are these accounts e%uivalent to deposit accounts at a commercial or central #an' or do they serve only as :cash memorandum; accounts? (. 2n what entity SSS or other! does the participant #ear cash deposit ris'? +. 8nder what circumstances does the SSS provide credit e/tensions or advances of funds to its participants and there#y e/pose itself to credit ris'?

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" 27 " ,. 7ow lon" can such credit e/tensions last? 7ow lon" do they typically last? A70 d%es n%t ma nta n cas# acc%unts $%r ts Eart c pants. ,n add t %n t% a secur t es acc%unt at A70, eac# Eart c pant #as a sett&ement acc%unt. Aur ng t#e da1, de! ts and cred ts are entered nt% t#e Eart c pantBs sett&ement acc%unt. 7#e de! ts and cred ts ar se $r%m secur t es trans$ers aga nst pa1ment made and rece -ed !1 t#e Eart c pant and $r%m %t#er transact %ns suc# as pr nc pa& and nc%me pa1ments rece -ed n respect %$ secur t es cred ted t% t#e Eart c pantBs secur t es acc%unt. At t#e end %$ eac# da1, t#e de! ts and cred ts n t#e Eart c pantBs sett&ement acc%unt are netted. 7#en, A70 and 4C00 net t#e sett&ement !a&ances %$ eac# A70 Eart c pant t#at s a&s% a mem!er %$ 4C00. A$ter nett ng ' t# 4C00, A70 pa1s an1 net cred t !a&ance n t#e acc%unt t% t#e Eart c pant, and t#e Eart c pant pa1s an1 net de! t !a&ance t% A70. Ea1ments are made t% and $r%m A70Bs acc%unt at t#e Federa& Reser-e =an6 %$ 4e' H%r6 t#r%ug# t#e Federa& Reser-e C1stemBs m%ne1 trans$er s1stem )s%met mes ca&&ed t#e Fed' re s1stem*. Gac# Eart c pant must engage a Cett& ng =an6, '# c# s a A70 Eart c pant !an6 ' t# access t% t#e Fed' re s1stem, t% act %n t#e Eart c pantBs !e#a&$ n sett& ng ' t# A70. A Eart c pant '# c# 8ua& $ es as a Cett& ng =an6 ma1 act as ts %'n Cett& ng =an6. A Cett& ng =an6 s n%t re8u red t% pa1 A70 a de! t !a&ance %n !e#a&$ %$ a Eart c pant and s n%t re8u red t% ad-ance $unds t% a Eart c pant. A70 ne t#er ad-ances $unds n%r pr%- des ntra"da1 cred t e2tens %ns t% ts Eart c pants. 4. *s the SSS a D<& system? *f so$ please descri#e the D<& model used accordin" to the models outlined in the D<& =eport see the *ntroduction!. &lease also provide a dia"ram indicatin" the timin" of events in the processin" of securities and funds transfers in the SSS. Where the SSS provides more than one alternative for settlement processin"$ please provide a response for each alternative and indicate the relative importance of each alternative. 1. Are funds transfers and securities transfers processed within the same system or in different systems? *f different$ how are they lin'ed? a! &lease descri#e whether each securities transfer is lin'ed to a specific funds transfer on a trade3#y3trade #asis or on a net #asis or via some other method. #! Does the SSS :split; lar"e transactions into multiple transactions or re%uire participants to do so? " 28 " (. When do securities transfers and funds transfers #ecome final? a! At what time do securities transfers #ecome final? After what event or events? #! At what time do funds transfers #ecome final? After what event or events? Does this timin" allow for same3day retransfer of funds received in e/chan"e for securities? c! *f final delivery of securities precedes the final transfer of funds$ can participants dispose freely of such securities prior to funds finality? *f so$ what actions will #e ta'en if funds are not received? d! *f final delivery of funds precedes the final transfer of securities$ can participants dispose freely of such funds prior to securities finality? *f so$ what actions will #e ta'en if securities are not received? e! Does the timin" of finality differ dependin" on the type of security transferred or the currency in which payment is to #e made? &lease descri#e. +. &lease discuss whether participants are notified of securities or funds transfers while they are still provisional$ only when they are final$ or #oth. 7#e A70 s1stem pr%- des a ALE mec#an sm. 7#e A70 s1stem s

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s m &ar t% <%de& 2. A70 emp&%1s t#ree pr nc pa& r s6 management c%ntr%&s t% pr%tect A70 and ts Eart c pants aga nst t#e r s6 t#at a Eart c pant ' && $a & t% pa1 t#e net de! t !a&ance n ts sett&ement acc%unt. 7#%se r s6 management c%ntr%&s, '# c# are d scussed n Cect %n L,,, !e&%', are t#e c%&&atera& c%ntr%&, t#e net de! t cap c%ntr%& and t#e &argest pr%- s %na& net cred t pr%cedure app& ca!&e t% m%ne1 mar6et nstruments )+<<,s.*. Funds trans$ers and secur t es trans$ers are pr%cessed ' t# n t#e same s1stem at A70. As descr !ed n su!sect %n A, a!%-e, '#en a de& -er1 %$ secur t es aga nst pa1ment s made at A70, t#e c%rresp%nd ng de! t and cred t are entered n t#e sett&ement acc%unts %$ t#e rece - ng and de& -er ng Eart c pants. At t#e end %$ t#e pr%cess ng da1, t#e de! ts and cred ts n eac# Eart c pantBs sett&ement acc%unt are netted, and t#e net cred t !a&ance %r net de! t !a&ance s sett&ed !et'een A70 and t#e Eart c pant. /arge transact %ns are n%t sp& t nt% mu&t p&e transact %ns. F%'e-er, t#ere s a s Je & m tat %n %$ ?50 m && %n %n de& -er es aga nst pa1ment %$ <<,s. " 29 " Cecur t es trans$ers at A70 are $ na& '#en made, $r%m t#e standp% nt %$ t#e de& -er ng Eart c pant. >nder certa n c rcumstances, #%'e-er, t#e rece - ng Eart c pant can return )rec&a m* t#e secur t es %n t#e da1 %$ t#e trans$er %r t#e ne2t da1. Funds trans$ers %-er t#e Fed' re !et'een A70 and a Cett& ng =an6 act ng %n !e#a&$ %$ a Eart c pant are $ na& '#en made. A rece - ng Eart c pant s perm tted t% d sp%se %$ secur t es pr %r t% m%ne1 sett&ement ' t# A70 su!;ect t% t#e app& cat %n %$ A70Bs r s6 management c%ntr%&s, '# c# are descr !ed n Cect %n L,,, !e&%'. 7#e t m ng %$ $ na& t1 %$ secur t es trans$ers and $unds trans$ers d%es n%t depend %n t#e t1pe %$ secur t1 trans$erred. At present, a&& pa1ments n A70Bs da &1 m%ne1 sett&ement are made n >.C. d%&&ars. Eart c pants are n%t $ ed %$ secur t es %r $unds trans$ers !1 A70 '#en pr%cessed. Attac#ed as G2# ! t 2 s a sc#edu&e %$ t#e t mes %$ s gn $ cant pr%cess ng e-ents. 5. Does the SSS itself :"uarantee; funds or securities transfers? 1. 8nder what circumstances and at what point are transfers "uaranteed #y the SSS? (. What actions does the "uarantee o#li"ate the SSS to ta'e? +. &lease indicate whether the "uarantee is a feature of the SSS9s rules and procedures or of national law or re"ulations. 4%. A70 d%es n%t tse&$ guarantee an1 $unds %r secur t es trans$ers '# c# ts Eart c pants are %!& gated t% ma6e. " 30 " Q3( 42F)8'T !9EC24892& A. &lease discuss the events or circumstances that would constitute default of a participant under the rules and procedures of the SSS or that would lead the SSS to ma'e use of e/ceptional settlement arran"ements or unwind procedures. 1. 5ailure #y a participant to meet a test of its solvency under the applica#le laws of its )urisdiction? (. 5ailure to ma'e payments or deliveries of securities within the time specified? +. >o the e/tent that the rules and procedures "rant discretion in the determination of the use of default or other e/ceptional procedures$ please discuss where the authority to e/ercise such discretion resides and the circumstances in which this authority would #e used. 7#e c%nd t %ns under '# c# A70 ' && cease t% act $%r a Eart c pant are set $%rt# n Cect %n ,,, a!%-e. A70 ' && emp&%1 t#e de$au&t pr%cedures

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descr !ed !e&%' %n&1 $ A70 #as determ ned t#at t#e Eart c pant s ns%&-ent as de$ ned n A70Bs Ru&es )e.g., entr1 %$ a c%urt %rder ad;udg ng t#e Eart c pant a !an6rupt %r ns%&-ent* %r t#e Eart c pant $a &s t% sett&e ' t# A70. B. What procedures are followed #y the SSS once it has determined that a default event has occurred or that e/ceptional settlement arran"ements are to #e employed? 1. 7ow and at what point are participants notified that this has occurred? 4%t $ cat %n %$ A70Bs dec s %n t% cease t% act $%r a Eart c pant ' && !e pr%- ded mmed ate&1 t% t#e CG0 and t% %t#er c&ear ng agenc es n '# c# t#e Eart c pant s a&s% a mem!er. A70 ' && !r%adcast suc# n%t $ cat %n t% ts Eart c pants %-er A70Bs Eart c pant 7erm na& C1stem )E7C*, pu!& s# an ,mp%rtant 4%t ce t% ts Eart c pants and su!m t a $ & ng t% t#e CG0. (. Would the SSS #e e/pected to continue to meet all its o#li"ations to participants under these circumstances? &lease discuss the resources in place to ensure that this would occur e.".$ collateral$ participants fund$ insurance$ loss3sharin" arran"ements$ etc.!. " 31 " +. &lease descri#e and provide a time line indicatin" the order in which these resources would #e used as well as the timin" of participant notifications and important deadlines e.".$ when the SSS9s o#li"ations to participants would #e met$ when participants would need to cover their loss3sharin" o#li"ations!. ,n t#e e-ent t#at t ceases t% act $%r a Eart c pant, A70 ' && !e e2pected t% c%nt nue t% meet a&& ts %!& gat %ns, nc&ud ng t#e c%mp&et %n %$ sett&ement. A70 #as a-a &a!&e & 8u d t1 res%urces %$ ?2.35 ! && %n, c%ns st ng %$ an a&& cas# Eart c pants Fund )t#e +Fund.* %$ ?600 m && %n and a c%mm tted !an6 & ne %$ cred t %$ ?1.75 ! && %n, n %rder t% c%mp&ete sett&ement. Gac# Eart c pant s re8u red t% ma6e a dep%s t t% t#e Fund !ased up%n a s 2t1 !us ness"da1 r%&& ng a-erage %$ t#e Eart c pantBs ntra"da1 net de! t pea6s. ,n t#e e-ent t#at A70 !ec%mes c%ncerned ' t# a Eart c pantBs %perat %na& %r $ nanc a& s%undness, A70 ma1 re8u re an add t %na& dep%s t t% t#e Fund. 7#e m n mum dep%s t s ?10,000. A Eart c pant ma1 ma6e a -%&untar1 dep%s t t% t#e Fund n e2cess %$ t#e am%unt re8u red. ,n add t %n t% !e ng a & 8u d t1 res%urce, t#e Fund s a-a &a!&e t% sat s$1 an1 un nsured &%ss ncurred !1 A70, nc&ud ng a &%ss resu&t ng $r%m a Eart c pantBs $a &ure t% sett&e. ,n t#e e-ent %$ suc# &%ss, A70 '%u&d $ rst c#arge t#e &%ss t% t#at Eart c pantBs dep%s t t% t#e Fund ) nc&ud ng ts -%&untar1 dep%s t, $ an1*. ,$ t#e &%ss e2ceeded t#e $a & ng Eart c pantBs dep%s t, A70 c%u&d c#arge t#e e2cess t% ts reta ned earn ngs %r pr% rata t% t#e re8u red Fund dep%s ts %$ a&& %t#er Eart c pants. C#%u&d A70 ma6e a c#arge aga nst a Eart c pantBs re8u red dep%s t t% t#e Fund )pr% rata %r %t#er' se*, t#e Eart c pant must ma6e an add t %na& dep%s t t% t#e Fund n an am%unt e8ua& t% t#e c#arge. ,$ t#e Fund s app& ed t% a &%ss, A70 s re8u red t% n%t $1 t#e CG0 and eac# Eart c pant pr%mpt&1 t#erea$ter. Gac# Eart c pantBs %!& gat %n t% ma6e an add t %na& dep%s t t% t#e Fund ' && !e re$&ected as a de! t n ts m%ne1 sett&ement acc%unt %n t#e !us ness da1 $%&&%' ng suc# n%t $ cat %n. ,. &lease descri#e all conditions under which provisional transfers of securities or funds could #e unwound #y the SSS. " 32 " a! 7ow and on what authority would a decision to unwind securities or funds transfers #e made #y the SSS? #! When and how would participants #e notified of a decision to unwind provisional securities or funds transfers? c! 7ow lon" would participants have to cover any de#it positions in their own securities or funds accounts resultin" from an unwind? d! *n the event of an unwind$ would all transfers #e unwound or

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would only a su#set of transfers e.".$ only securities purchases or only those of a su#set of participants! #y unwound? e! *f only a su#set of transfers$ what procedure would #e followed to determine which transfers and in what order? ,n t#e e-ent %$ a Eart c pantBs $a &ure t% sett&e, A70 ' && $ rst use t#e Fund ) nc&ud ng an1 -%&untar1 dep%s ts* as a & 8u d t1 res%urce t% c%mp&ete sett&ement. ,$ t#e Fund s n%t su$$ c ent, A70 ' && !%rr%' $r%m ts & ne %$ cred t !an6s, p&edg ng c%&&atera& secur t es n t#e $a & ng Eart c pantBs acc%unt. 7#ese $unds ' && %rd nar &1 !e rest%red %n t#e da1 $%&&%' ng t#e $a &ure t% sett&e, '#en t#e $a & ng Eart c pant pa1s A70. 7#e $a & ng Eart c pant #as unt & 10(00 A.<. %n t#at da1 t% ' re t#e necessar1 sett&ement $unds, nc&ud ng nterest, t% A70Bs acc%unt. ,$ t#e Eart c pant $a &s t% ' re t#e necessar1 sett&ement $unds, A70 s aut#%r Jed t% se&& t#e c%&&atera& secur t es n t#e $a & ng Eart c pantBs acc%unt. -. Can #an'ruptcy or insolvency #e declared retrospectively in the SSS9s )urisdiction e.".$ under a :zero3hour; rule!$ and could this cause provisional securities or funds transfers to #e unwound? 4%. .. &lease descri#e any circumstances in which transfers of securities or funds that were defined as final in response to %uestion <.4.( a#ove would ever #e unwound. 7rans$ers %$ secur t es %r $unds s% de$ ned are $ na&. " 33 " C. 7as a participant in the SSS ever #een declared in default or #ecome insolvent? 1. 7ave loss3sharin" procedures #een invo'ed? (. &lease descri#e whether any of these defaults or insolvencies resulted in losses for the SSS or its participants and how they were a#sor#ed. C nce t#e creat %n %$ t#e dep%s t%r1 n 1973, A70 #as ne-er su$$ered a &%ss resu&t ng $r%m a Eart c pant de$au&t %r ns%&-enc1 and #as ne-er made a c#arge aga nst t#e Eart c pants Fund. Q33( &2C893T32& EQ2949)FT&- &2C893T32& '2;43;H );4 @)CK?TE?@)CK?T9);&)CT3E;& A. *s it possi#le for de#it positions overdrafts! in securities accounts at the SSS to arise? Hes. Ae! t p%s t %ns ) .e., s#%rt p%s t %ns* can %ccur. 1. 8nder what conditions could such de#it positions occur? 4%rma&&1, s nce de& -er es are n%t pr%cessed !1 A70 un&ess t#e de& -er ng Eart c pant #as a su$$ c ent 8uant t1 %$ secur t es cred ted t% ts acc%unt pr %r t% t#e de& -er1, a Eart c pant cann%t %-erdra' ts acc%unt at A70. F%'e-er, t'% pr%cesses n t ated e2terna&&1 can cause s#%rt p%s t %ns t% ar se. . Aep%s t Re;ects( <%st s#%rt p%s t %ns are t#e resu&t %$ dep%s t re;ects. As descr !ed n Cect %n L a!%-e, a Eart c pant dep%s t ng a reg stered secur t1 at A70 s g -en mmed ate cred t $%r t#e dep%s t n t#e Eart c pantBs A70 acc%unt, and t#e dep%s ted cert $ cate s sent !1 A70 t% t#e ssuerBs trans$er agent $%r reg strat %n %$ trans$er nt% t#e name %$ A70Bs n%m nee. ,$ t#e trans$er agent re$uses t% reg ster t#e secur t1 n t#e name %$ A70Bs n%m nee, t#e dep%s ted cert $ cate re;ected !1 t#e trans$er agent s returned t% t#e Eart c pant and t#e 8uant t1 %$ t#e dep%s ted secur t1 s deducted $r%m t#e Eart c pantBs A70 acc%unt. ,$ t#at deduct %n resu&ts n a negat -e p%s t %n n t#e Eart c pantBs acc%unt )a +s#%rt p%s t %n.*, t#e Eart c pant s re8u red t% pr%- de a cas# secur t1 dep%s t t% A70 )t#e +s#%rt p%s t %n pena&t1.* e8ua& t% 130Q %$ t#e mar6et -a&ue %$ t#e dep%s ted secur t1 )mar6ed t% t#e mar6et eac# da1* unt & t#e matter s res%&-ed.

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" 34 " . Eart a& 0a&& /%tter es( >nder A70Bs Er%cedures re&at ng t% a ca&& ) .e., redempt %n* %$ part %$ an ssue, A70 a&&%cates t#e ca&&ed secur t es !1 means %$ an mpart a& &%tter1, !ased up%n Eart c pantsB net &%ng p%s t %ns as %$ t#e c&%se %$ !us ness %n t#e da1 pr %r t% t#e pu!& cat %n %$ t#e ca&& n%t ce. F%r t#e -ast ma;%r t1 %$ part a& ca&&s %$ ca&&a!&e secur t es %n dep%s t ' t# A70, t#e dep%s t%r1 d%es n%t rece -e n%t ce %$ t#e ca&& n ad-ance %$ t#e pu!& cat %n date and, t#ere$%re, must run ts &%tter1 a$ter pu!& cat %n date. 7% t#e e2tent t#at, !ecause %$ de& -er es e$$ected !1 a Eart c pant !et'een t#e pu!& cat %n date and t#e date A70 s a!&e t% a&&%cate ca&&ed secur t es t% ts acc%unt, t#e Eart c pantBs rema n ng &%ng p%s t %n s &ess t#an t#e am%unt a&&%cated, t#e Eart c pant ' && !e &e$t ' t# a s#%rt p%s t %n. a! Do these conditions always result in de#it positions in securities accounts rather than failed transactions? *f not$ please e/plain the #asis for differential treatment #y the SSS. 7#e pr%cesses descr !ed a!%-e resu&t n s#%rt p%s t %ns %n&1, and d% n%t create $a &ed transact %ns. #! Are these situations covered e/plicitly #y the rules and procedures of the SSS? Hes. (. 7ow lon" can such de#it positions last? 7ow lon" do they typically last? D# &e t#e%ret ca&&1 t#ere s n% & m t t% t#e t me s#%rt p%s t %ns can !e %utstand ng, s#%rt p%s t %ns n de!t secur t es )'# c# represent t#e -ast ma;%r t1 %$ s#%rt p%s t %ns at A70* can !e %utstand ng at m%st unt & t#e secur t es are redeemed %r mature. 0urrent&1, t#e a-erage age %$ a s#%rt p%s t %n at A70 s !et'een se-en and e g#t da1s. +. 7ow are de#it positions in securities accounts prevented$ rectified or mana"ed? A70 d sc%urages s#%rt p%s t %ns !1 c#arg ng t#e s#%rt p%s t %n pena&t1 unt & t#e p%s t %n s c%-ered. A70 a&s% #as a num!er %$ pr%cedures t% #e&p reduce and e& m nate s#%rt p%s t %ns, part cu&ar&1 t#%se t#at are %utstand ng $%r " 35 " &%ng per %ds !ecause, $%r e2amp&e, t#e ssues are d $$ cu&t t% purc#ase %n t#e %pen mar6et. 7#e $%&&%' ng !r e$&1 descr !es a $e' %$ t#ese pr%cedures( . A Eart c pant #a- ng a s#%rt p%s t %n n a part cu&ar secur t1 as t#e resu&t %$ a re;ected dep%s t s perm tted $%r a & m ted per %d %$ t me t% re-erse !%%6"entr1 de& -er es %$ t#at secur t1 e$$ected !1 t#e Eart c pant !et'een t#e date %$ t#e dep%s t and t#e date %$ t#e re;ect. ,$ a !%%6"entr1 de& -er1 s re-ersed under t# s pr%cedure, t#e sett&ement %!& gat %ns %$ t#e part es are re%pened ) .e., t#e Eart c pant t#at re-erses t#e !%%6"entr1 de& -er1 ' && st && #a-e an %!& gat %n t% de& -er t% t#e rece - ng Eart c pant secur t es n sett&ement %$ t#e %r g na& transact %n*. . A Eart c pant #a- ng a s#%rt p%s t %n n a part cu&ar secur t1 as t#e resu&t %$ t#e part a& ca&& a&&%cat %n pr%cess s perm tted $%r a & m ted per %d %$ t me t% re-erse !%%6"entr1 de& -er es %$ t#at secur t1 e$$ected !1 t#e Eart c pant !et'een t#e pu!& cat %n date and t#e a&&%cat %n date. ,$ a !%%6"entr1 de& -er1 s re-ersed under t# s pr%cedure, t#e sett&ement %!& gat %ns %$ t#e part es are re"%pened. . A70 perm ts a Eart c pant #a- ng a s#%rt p%s t %n n a part cu&ar secur t1 t% use A70Bs $ac & t es t% c%mmun cate ' t# %t#er Eart c pants #a- ng &%ng p%s t %ns n t#at secur t1 n %rder t% arrange t% purc#ase a su$$ c ent 8uant t1 t% c%-er t#e s#%rt p%s t %n.

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. D t# respect t% a Eart c pant s#%rt p%s t %n t#at #as !een %utstand ng $%r 90 da1s %r m%re, A70 tse&$ s aut#%r Jed t% purc#ase a su$$ c ent 8uant t1 %$ t#e secur t1 t% c%-er t#e s#%rt p%s t %n, us ng t#e Eart c pantBs s#%rt p%s t %n pena&t1 t% $und t#e purc#ase pr ce. ,. What procedures would #e followed #y the SSS in case the de#it cannot #e rectified e.".$ failure #y a participant with a de#it #alance in a securities account or unavaila#ility of the securities in the mar'et!. a! Application of loss3sharin" provisions allocatin" the loss to participants? #! A#sorption of the loss #y the SSS? c! 2ther? &lease specify. " 36 " 7#e s#%rt p%s t %n pena&t1 '%u&d !e a-a &a!&e t% c%-er t#e %!& gat %n %$ a $a & ng Eart c pant. ,n t#e e2treme&1 un& 6e&1 e-ent t#at t#e s#%rt p%s t %n pena&t1 and t#e $a & ng Eart c pantBs dep%s t t% t#e Eart c pants Fund are n%t su$$ c ent t% c%-er an1 &%ss su$$ered !1 A70, A70Bs reta ned earn ngs as 'e&& as t#e Eart c pants Fund ) n-%&- ng &%ss s#ar ng !1 Eart c pants %n a pr% rata !as s* '%u&d !e a-a &a!&e $%r suc# &%ss. @( 8nder $hat circu"stances does the &&& %ro,ide *or the #ending o* securities to ensure sett#e"entsZ 1. *s the process for lendin" securities automatic? *f not$ please descri#e the procedures used #y the SSS to determine whether a securities loan will #e made. (. At what point are participants notified that securities are #ein" lent to them in order to complete their settlements? +. Which securities on deposit at the SSS are eli"i#le for lendin"? Do participants have the option to ma'e securities availa#le for lendin" or is it mandatory? ,. Are lent securities identified #y the SSS with specific participants as lenders or only with a common pool of securities availa#le for lendin"? Does the participant whose securities are lent #ecome a principal to the transaction? A70 tse&$ d%es n%t pr%- de $%r t#e &end ng %$ secur t es t% ensure sett&ements. F%'e-er, as descr !ed n Cect %n , a!%-e, A70 pr%- des ser- ces t#at $ac & tate secur t es &end ng !1 ts Eart c pants and t#e r cust%mers. C. 7ow does the SSS settle #ac'3to3#ac' transactions? 1. 8nder what conditions are delivery instructions #y participants receivin" and redeliverin" securities on the same day under #ac'3to3#ac' transactions settled for same3day value? a! 2nly if the participant has securities on deposit with the SSS that have #een received pursuant to a final securities transfer? #! *f the participant has securities on deposit with the SSS that have #een received pursuant to a provisional securities transfer? " 37 " c! Before securities have #een received either provisionally or finally$ #ut when a matched receipt instruction e/ists for the same or "reater value? *s such a practice limited to mar'ets where matchin" is #indin"? d! Before securities have #een received either provisionally or finally$ #ut when a third party has promised to deliver to the SSS securities of the same or "reater value? ?ust the provider of the "uarantee have itself received the securities throu"h a final transfer? &lease descri#e how the SSS evaluates such promises$ and whether they are addressed #y the written rules and procedures of the SSS. e! 2ther? &lease specify.

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(. &lease descri#e limits or controls in place with respect to any of the a#ove arran"ements for the settlement of #ac'3to3#ac' transactions$ includin" limits on amounts involved or related to the li%uidity of the underlyin" securities. +. 8nder what conditions are payment instructions #y participants in the SSS under #ac'3to3#ac' transactions settled for same3day value? Can participants use the proceeds of an on3delivery of securities without the need for an e/tension of credit? A70 d%es n%t sett&e +!ac6"t%"!ac6. transact %ns as de$ ned #ere n. F%'e-er, a Eart c pant rece - ng a de& -er1 %$ secur t es ntra"da1 s a!&e t% rede& -er t#%se secur t es $%r same"da1 -a&ue n ad-ance %$ $ na& sett&ement s% &%ng as A70Bs c%&&atera&, net de! t cap and /argest Er%- s %na& 4et 0red t )+/E40.* c%ntr%&s app& ca!&e t% !%t# t#e rede& -er ng Eart c pant and t#e c%unterpart1 t% t#e rede& -er1 are sat s$ ed. 7#ese c%ntr%&s are descr !ed n Cect %n L,,, !e&%'. " 38 " Q333( 93&K CE;T9E' 52)&892& A. &lease descri#e the roles and responsi#ilities of those areas of the SSS responsi#le for ris' mana"ement and control. A70 #as a R s6 <anagement 0%mm ttee )t#e +0%mm ttee.* t% e-a&uate and c%%rd nate t#e r s6 management act - t es ' t# n t#e %rgan Jat %n. 7#e 0%mm ttee s c%mp%sed %$ n ne %$$ cers, represent ng t#e $%&&%' ng areas( F nance, Aud t ng, ,n$%rmat %n Cer- ces, :perat %ns, R s6, ,nternat %na&, C1stems Er%cess ng and /ega&. A70Bs 3enera& 0%unse& acts as 0#a rman. 7#e 0%mm ttee rep%rts t% t#e Aud t 0%mm ttee %$ A70Bs =%ard %$ A rect%rs. 1. &lease descri#e the process for the internal review of ris' mana"ement policies and procedures. A70 c%nt nua&&1 per$%rms r s6 assessments %$ ts %perat %ns, data pr%cess ng s1stems, c%mmun cat %ns net'%r6s and $ac & t es. D#ene-er a ne' %r e2panded ser- ce s pr%p%sed, t#e pr%;ect s re- e'ed !1 mem!ers %$ sen %r management. R s6 assessment s a cruc a& e&ement %$ suc# re- e's. ,n appr%pr ate cases, a pr%;ect ma1 !e su!;ect t% r s6 assessment re- e's !1 t#e 0%mm ttee, att%rne1s, nterna& aud t%rs and A70Bs ndependent acc%untant. (. *s there a ris' mana"ement policy that addresses the review and approval of new products and services offered #y the SSS? At what level of the or"anization is ris' mana"ement approval "iven for a new product or service? As a matter %$ A70 pract ce, !e$%re !e ng %$$ered, a ne' pr%duct %r ser- ce must rece -e r s6 management appr%-a& !1 A70Bs 0# e$ :perat ng :$$ cer, Eres dent %r 0#a rman. +. Does the SSS have a ris' mana"ement function with clear independence from and authority over operational mar'etin" functions? Hes. 7#e 0%mm ttee s ndependent $r%m t#e %perat %na& and mar6et ng $unct %ns. " 39 " ,. Does the Board of Directors review ris' mana"ement policies and procedures? Does the Board have a ris' mana"ement or audit committee? Hes. A70Bs =%ard %$ A rect%rs #as an Aud t 0%mm ttee '#%se resp%ns ! & t es nc&ude t#e re- e' %$ A70Bs r s6 management p%& c es and pr%cedures. B. &lease descri#e any internal or e/ternal audits or supervisory/re"ulatory e/aminations that are performed with respect to the SSS. 5or each such audit or e/amination$ please address the followin" %uestions. 1. Who performs the audit or e/amination? A70Bs ,nterna& Aud t Aepartment and ts ndependent acc%untant

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regu&ar&1 re- e' t#e ade8uac1 %$ A70Bs nterna& c%ntr%&s, pr%cedures and rec%rds. ,n add t %n, t#e Federa& Reser-e =an6 %$ 4e' H%r6, t#e 4e' H%r6 Ctate =an6 ng Aepartment, and t#e Cecur t es and G2c#ange 0%mm ss %n r%ut ne&1 e2am ne t#e dep%s t%r1. (. What is the scope of the audit or e/amination? a! &lease indicate whether and how it addresses the sufficiency of and compliance with internal controls. G-a&uat %ns %$ A70Bs $ nanc a& statements and nterna& c%ntr%&s %-er secur t es and re&ated m%n es pr%cessed and5%r #e&d $%r Eart c pants and %t#ers are c%nducted %n a per %d c !as s. Cuc# e2am nat %ns c%-er a&& cr t ca& pr%cess ng areas %$ t#e %perat %n, as 'e&& as t#e data pr%cess ng en- r%nment. #! &lease indicate whether and how it addresses the SSS9s compliance with its own rules and procedures. A&& e2am nat %ns are des gned t% test $%r c%mp& ance ' t# A70Bs Ru&es and Er%cedures. An1 nstances %$ n%nc%mp& ance are rep%rted t% sen %r A70 management and are c%rrected. +. What is the fre%uency of the audit or e/amination? " 40 " A70Bs ndependent acc%untant, t#e Federa& Reser-e =an6 %$ 4e' H%r6 and t#e 4e' H%r6 Ctate =an6 ng Aepartment eac# c%nduct annua& re- e's. 7#e Cecur t es and G2c#ange 0%mm ss %n c%nducts an annua& nspect %n %$ A70Bs data pr%cess ng areas and #as c%nducted an nspect %n %$ se&ected %perat ng areas e-er1 %t#er 1ear. A70Bs ,nterna& Aud t Aepartment c%nducts, %n a r%tat %n sc#edu&e, an annua& aud t %$ a&& cr t ca& areas. ,. Are audit or e/amination reports availa#le for review #y participants? A70Bs ndependent acc%untant ssues a rep%rt %n nterna& c%ntr%&s '# c# s pr%- ded t% a&& Eart c pants and nterested t# rd part es. C. &lease discuss whether the SSS has the capacity to value i.e.$ mar' to mar'et! the securities that it holds. 1. &lease descri#e how these valuations are used #y ris' control systems at the SSS. A70 m%n t%rs t#e -a&ue %$ t#e secur t es used as c%&&atera& t% supp%rt a Eart c pantBs net sett&ement de! t. 7#e c%&&atera& Jat %n c%ntr%& s meant t% assure t#at A70 #as a-a &a!&e su$$ c ent c%&&atera& t% c%-er t#e Eart c pantBs net sett&ement de! t n t#e e-ent t#at t $a &s t% sett&e. (. 7ow fre%uently are securities revalued? Aa &1. +. What are the sources for security valuations? a! What outside price or data sources are used? A70 attempts t% %!ta n an end"%$"da1 pr ce n an aut%mated $%rmat $r%m a t# rd"part1 -end%r $%r eac# %$ ts e& g !&e secur t es. ,n t#e case %$ 0<:s, '# c# are c%mp&e2, # g#&1 nterest"rate"sens t -e secur t es, A70 attempts t% %!ta n pr c ng data $r%m t'% %uts de s%urces. ,n add t %n, pr c ng data s supp& ed !1 &ead under'r ters $%r ne' ssues n%t 1et pr ced !1 a -end%r. " 41 " #! *f pricin" models are used$ please descri#e how the models are chosen and how the model inputs are o#tained. 7#e a!%-e -end%r data s supp&emented ' t# A70Bs ma n$rame!ased pr c ng m%de&s $%r <%ne1 <ar6et ,nstruments. D. &lease discuss whether the SSS has a lien on the securities held in or transferred throu"h it. 1. Does the lien apply only to the securities owned #y the participants themselves or does it e/tend to the securities #eneficially owned #y customers

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of participants? (. 8nder what circumstances and in what manner would such a lien allow the SSS to use the securities? As nd cated a!%-e, t#e g%a& %$ A70Bs c%&&atera& Jat %n c%ntr%& s t% assure t#at A70 #as access t% su$$ c ent c%&&atera& %$ t#e Eart c pant t% c%-er an1 net de! t n ts m%ne1 sett&ement acc%unt. 0%&&atera& nc&udes( )1* t#e Eart c pantBs dep%s t t% t#e Eart c pants Fund9 )2* secur t es n t#e Eart c pantBs acc%unt t#at t#e Eart c pant #as des gnated as c%&&atera&9 and )3* secur t es t#at #a-e !een de& -ered ntra"da1 t% t#e Eart c pantBs acc%unt aga nst pa1ment. A70 s n%t a'are %$ t#e !ene$ c a& %'ners# p %$ secur t es cred ted t% t#e acc%unts %$ ts Eart c pants, nc&ud ng secur t es t#at are treated as c%&&atera&. A70Bs Ru&es g -e A70 t#e r g#t t% p&edge suc# c%&&atera& secur t es t% A70Bs & ne %$ cred t !an6s n t#e e-ent %$ a Eart c pant $a &ure t% sett&e. ,n t#e e-ent t#at a $a & ng Eart c pant s ns%&-ent and una!&e t% pa1 ts sett&ement de! t, A70 s aut#%r Jed t% se&& t#e c%&&atera& secur t es n %rder t% c%-er t#at de! t. 4. &lease discuss the circumstances in which the SSS re%uires collateral to limit or miti"ate ris's. 1. Does the SSS mana"e its own collateral system? Hes. A70 manages ts %'n c%&&atera& s1stem. " 42 " (. Does the SSS share a collateral system with another SSS or payment system? 4%. A70 d%es n%t s#are ts c%&&atera& s1stem ' t# an1 %t#er CCC. A70 and 4C00 #a-e entered nt% a & m ted cr%ss"guarant1 agreement '# c# pr%- des, ' t# respect t% 04C &%ng a&&%cat %ns, a A70 guarantee e t#er t% return t#e secur t es t% 4C00 %r t% c%mpensate 4C00 $%r t#ese secur t es $ t#e rece - ng A70 Eart c pant )'# c# s a&s% a mem!er %$ 4C00* rede& -ers t#e secur t es. A70Bs guarantee e& m nates a p%tent a& 4C00 r s6. 4%t g - ng c%&&atera& -a&ue t% &%ng a&&%cat %ns, t%get#er ' t# t#e c%&&atera& c%ntr%&s app& ca!&e n A70Bs s1stem, m t gates A70Bs r s6 n pr%- d ng t# s guarantee. +. Can collateral at the SSS #e posted and returned on the same day? Hes. 0%&&atera& can !e returned t% t#e Eart c pant ntra"da1 as &%ng as t#e returned c%&&atera& s e2cess ) .e., at t#e t me %$ t#e return t#e Eart c pantBs net de! t ' t# A70 s $u&&1 supp%rted !1 %t#er c%&&atera& accepta!&e t% A70*. ,. What types of transaction at the SSS involve the use of collateral? 7ransact %ns t#at are pr%cessed n A70Bs end"%$"da1 net sett&ement s1stem are su!;ect t% A70Bs c%&&atera& re8u rements. -. What are the policies with re"ard to the type of collateral used or haircuts re%uired? A&& t1pes %$ secur t es t#at are e& g !&e $%r dep%s t ma1 !e used as c%&&atera&. 7#e c%&&atera& -a&ue attr !uted t% secur t es s e8ua& t% t#e pr %r !us ness da1Bs c&%s ng mar6et pr ce, &ess a #a rcut as determ ned !1 A70. =ecause A70 ma1 #a-e t% $ nance a Eart c pantBs $a &ure t% sett&e, t#e #a rcut structure ta6es nt% c%ns derat %n mar6et $&uctuat %ns and t#e #a rcuts mp%sed %n A70 !1 A70Bs & ne %$ cred t !an6s. Cecur t es t#at are n%t accepta!&e t% t#e !an6s rece -e n% c%&&atera& -a&ue n A70Bs s1stem. .. 7ow are collateral valuation methodolo"ies developed and reviewed? " 43 " A secur t1Bs #a rcut s determ ned !1 t#e app& cat %n %$ cr ter a re&at ng t% secur t1 t1pe, rat ng, mar6et pr ce and '#et#er t#e secur t1 s traded %n an e2c#ange ) nc&ud ng 4ACAAN*. A70Bs #a rcuts range $r%m 2Q t% 100Q. A70Bs #a rcut p%& c1 s re- e'ed at &east annua&&1, usua&&1 n c%n;unct %n ' t# t#e rene'a& %$ ts agreement ' t# ts & ne"%$"cred t !an6s. A70Bs R s6 <anagement 0%mm ttee s resp%ns !&e $%r appr%- ng an1 c#anges n t#e

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esta!& s#ed #a rcut &e-e&s. 7#e mar6et -a&ues %$ c%&&atera& secur t es are m%n t%red da &1 !ased up%n pr ce and rat ng data pr%- ded !1 ndependent s%urces. 0. >o what e/tent are collateral policies descri#ed in the written rules and procedures of the SSS? A70 c%&&atera& p%& c es are descr !ed n A70Bs Er%cedures. 5. &lease descri#e the SSS9s use of limits on e/posures to monitor or control ris's. 1. &lease e/plain the types of limit used and the e/posures to which they apply. A70Bs pr nc pa& r s6 '%u&d ar se $r%m t#e $a &ure %$ %ne %r m%re %$ ts Eart c pants t% sett&e t#e r net de! t %!& gat %ns ' t# A70 at t#e end %$ a !us ness da1. ,n %rder t% assure t#at A70 s a!&e t% c%mp&ete sett&ement %n t#e da1 %$ a Eart c pant $a &ure, A70 ma nta ns & 8u d t1 res%urces %$ ?2.35 ! && %n, nc&ud ng a cas# Eart c pants Fund and a c%mm tted & ne %$ cred t. A70 a&s% emp&%1s net de! t caps, c%&&atera& re8u rements and t#e /argest Er%- s %na& 4et 0red t )+/E40.* c%ntr%&. A70Bs sett&ement s1stem mp%ses net de! t caps %n a&& Eart c pants. Gac# Eart c pantBs net de! t s & m ted t#r%ug#%ut t#e pr%cess ng da1 t% a net de! t cap t#at s t#e &esser %$ $%ur am%unts( )1* a net de! t cap !ased %n t#e t#ree &argest net de! ts t#at eac# Eart c pant ncurs %-er a r%&& ng t#ree"m%nt# per %d9 )2* an am%unt, $ an1, determ ned !1 t#e Eart c pantBs Cett& ng =an69 )3* an am%unt, $ an1, determ ned !1 A709 %r )4* ?1.8 ! && %n )an am%unt t#at s ?550 m && %n &ess t#an t#e am%unt %$ A70Bs t%ta& & 8u d t1 res%urces*. As d scussed a!%-e, A70Bs s1stem re8u res t#at a Eart c pantBs net sett&ement de! t !e $u&&1 c%&&atera& Jed. " 44 " 7#e /E40 c%ntr%& s des gned t% address r s6s ass%c ated ' t# A70Bs pr%cess ng %$ matur t1 pa1ments %n <<,s. F%r m%st secur t es t#at pa1 pr nc pa& at matur t1, $%r e2amp&e c%rp%rate %r mun c pa& !%nds, A70 rece -es matur t1 pr%ceeds $r%m t#e ssuerBs pa1 ng agent !1 Fed' re and d%es n%t cred t t#ese pr%ceeds t% Eart c pants unt & t#e1 are rece -ed. F%r <<,s, #%'e-er, matur t es are #and&ed d $$erent&1. 7#e ssuerBs pa1 ng agent must !e a A70 Eart c pant. Gar&1 %n t#e matur t1 date, matur t1 pr%ceeds are aut%mat ca&&1 de! ted t% t#e pa1 ng agentBs Eart c pant acc%unt and cred ted t% t#e acc%unts %$ Eart c pants t#at #a-e p%s t %ns n t#e <<,. >nt & 3(00 E.<., #%'e-er, t#ese de! ts and cred ts are %n&1 pr%- s %na& !ecause t#e pa1 ng agent #as unt & t#at t me t% n$%rm A70 %$ ts re$usa& t% pa1 $%r t#e matur t1. ,n suc# a case, A70 '%u&d n-%6e <<, ssuer $a &ure pr%cedures '# c# enta & re-ers ng a&& %$ t#at da1Bs act - t es n t#e ssuerBs <<,, nc&ud ng an1 ne' ssuances t#at da1. A&& %$ t#ese re-ersa&s '%u&d !e pr%cessed ' t#%ut regard t% t#e s1stemBs c%&&atera& and net de! t cap c%ntr%&s. 7% #e&p & m t t#e r s6 t% A70 ar s ng $r%m t#e c%m! nat %n %$ an ssuerBs $a &ure and a Eart c pantBs $a &ure t% sett&e, A70 esta!& s#ed t#e /E40 c%ntr%&. 7# s c%ntr%& %perates !1 pr%# ! t ng t#e Eart c pant pr %r t% 3(00 E.<. $r%m us ng t#e &argest net sett&ement cred t t #as rece -ed ' t# respect t% an1 s ng&e <<, ssuer. 7# s cred t s n%t a-a &a!&e as c%&&atera&, n%r s t used n t#e ca&cu&at %n %$ t#e Eart c pantBs net de! t. 7#e /E40 c%ntr%& s & $ted a$ter 3(00 E.<. n t#e a!sence %$ a re$usa& t% pa1. (. Do the limits apply to all participants and/or to other SSSs with which the SSS is lin'ed? What are the e/ceptions to the limits? 7#e r s6 management c%ntr%&s app&1 t% a&& Eart c pants, nc&ud ng %t#er CCCs t#at part c pate n A70Bs s1stem. +. Do limits apply to participants individually or in the a""re"ate or #oth? R s6 management c%ntr%&s are app& ed t% Eart c pants %n an nd - dua& !as s. ,. Do limits apply to implicit as well as e/plicit e/tensions of credit or

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securities e.".$ when on3deliveries of securities are permitted pursuant to provisional #ut not final delivery of securities!? Re$erence s made t% n$%rmat %n pr%- ded n resp%nse t% su!sect %n L.G. a!%-e. " 45 " -. Does the SSS automatically re)ect transactions that e/ceed limits or is compliance determined e/ post? A70Bs c%&&atera& m%n t%r c%ntr%& s1stemat ca&&1 re- e's eac# transact %n t% assure t#at $ c%mp&eted t#ere ' && !e en%ug# c%&&atera& n t#e acc%unts %$ !%t# t#e de& -erer and t#e rece -er t% supp%rt t#e net de! t %$ eac#. ,$ a c%mp&eted transact %n ' && resu&t n a net sett&ement de! t t#at s e t#er n%t $u&&1 c%&&atera& Jed %r e2ceeds t#e Eart c pantBs net de! t, t#e transact %n ' && !e aut%mat ca&&1 !&%c6ed and pended. .. 7ow are limit policies developed and reviewed? A70Bs R s6 <anagement 0%mm ttee s resp%ns !&e $%r de-e&%p ng & m t p%& c es. 7#ese p%& c es are re- e'ed !1 A70 sen %r management and !1 t#e Aud t 0%mm ttee %$ A70Bs =%ard %$ A rect%rs. A70Bs 0%mp& ance Aepartment s resp%ns !&e $%r t#e app& cat %n %$ t#ese p%& c es. 0. >o what e/tent are limit policies descri#ed in the written rules and procedures of the SSS? Where does additional authority to set or amend limit policies reside? A70Bs & m t p%& c es are descr !ed n ts 'r tten Er%cedures. 7#e aut#%r t1 t% set %r amend t#ese p%& c es c% nc des ' t# t#e aut#%r t1 t% amend A70Bs Er%cedures )as descr !ed n Cect %n , a!%-e*. 6. &lease descri#e other controls to miti"ate or reduce ris's at the SSS. 1. Does the SSS or its participants have the capacity to monitor participants9 accounts continuously durin" processin"? Gac# A70 Eart c pant #as t#e capa! & t1 t% m%n t%r ts %'n acc%unt %n a rea&"t me !as s. A70 #as t#e capac t1 t% m%n t%r a&& %$ ts Eart c pantsB acc%unts %n a rea&"t me !as s. " 46 " (. *s there a special ris' control re"ime that the SSS would apply to a participant 'nown to #e e/periencin" financial difficulties? A70 ma nta ns re&at %ns# ps ' t# %t#er se&$"regu&at%r1 %rgan Jat %ns s% t#at t#ere s an e2c#ange %$ - ta& n$%rmat %n c%ncern ng Eart c pantsB %perat %na& and $ nanc a& s%undness. ,n t#e e-ent %$ $ nanc a& nade8uac1, A70 care$u&&1 m%n t%rs a Eart c pantBs da &1 act - t1 and ma1 e2erc se ts r g#t under ts Ru&es t% & m t t#e Eart c pantBs access t% A70 ser- ces. Aepend ng up%n t#e c rcumstances, A70 c%u&d ta6e t#e $%&&%' ng p%ss !&e c%urses %$ act %n( . ,ncrease t#e Eart c pantBs re8u red dep%s t t% t#e Eart c pants Fund. . /%'er t#e Eart c pantBs net de! t cap. . ,$ t#e tr%u!&ed Eart c pant s a pr mar1 mar6et ma6er %r t#e spec a& st n an ssue %r ssues, A70 c%u&d ra se t#e #a rcuts n ts c%&&atera& -a&uat %n %$ t#%se secur t es. . Re8u re t#e Eart c pant t% sett&e ts net de! t ear& er n t#e da1. . Re8uest t#at t#e Eart c pant arrange t% c&ear ts transact %ns t#r%ug# an%t#er A70 Eart c pant and tse&$ ret re as a Eart c pant. +. Does the SSS maintain or administer loss3sharin" arran"ements other than those applica#le to events of default and addressed in Section <* a#ove? Are these loss3sharin" pools pre3funded #y participants? 4%. A70 d%es n%t ma nta n %r adm n ster &%ss"s#ar ng arrangements %t#er t#an as descr !ed n Cect %n L, a!%-e. " 47 " 3V( E!29)T3E;)' 93&K& A. &lease provide assessments of the operational relia#ility of the computer and

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other systems used #y the SSS$ includin" any criteria that the SSS uses internally for this purpose. 1. What is the percenta"e uptime of the systems used #y the SSS? a! Whole system overall? #! Bro'en down #y ma)or components e.".$ communications networ'$ central processin" facility!? c! Durin" critical processin" periods? (. 7as the SSS e/perienced ma)or operational pro#lems durin" the past two years? a! 7ave settlements #een delayed$ #een disrupted or otherwise failed #ecause of operational pro#lems durin" this period? AbC !#ease describe the nature o* any such %rob#e"s( A70 c%nducts se&$"assessments %$ t#e %perat %na& re& a! & t1 %$ t#e dep%s t%r1Bs c%mputer and %t#er s1stems, nc&ud ng c%mmun cat %ns net'%r6s, and rep%rts t#e m%nt#&1 resu&ts 8uarter&1 t% t#e A70 =%ard %$ A rect%rs. 7#ese re& a! & t1 rep%rts nc&ude #ard'are, s%$t'are app& cat %ns, %n"t me sett&ement per$%rmance and term na& s1stems per$%rmance. Ae$ n t %ns %$ t#ese metr cs $%&&%'( . +Fard'are A-a &a! & t1. s de$ ned as t#e read ness %$ pr%duct %n s1stem #ard'are t% pr%cess de& -er es and c%mp&ete sett&ement. 7#e per %d measured s 8(00 a.m. t% 5(00 p.m., '# c# c%-ers pea6 Eart c pant use. :utages are measured '#ene-er a $a &ure %ccurs t#at a$$ects m ss %n"cr t ca& s1stems t#at n turn de&a1 Eart c pant pr%cess ng. . +C%$t'are A-a &a! & t1. s de$ ned as t#e a! & t1 %$ A70Bs s%$t'are t% %perate ' t#%ut d%'nt me. 7#e per %d measured s 8(00 a.m. t% 5(00 p.m., '# c# c%-ers pea6 Eart c pant use. :utages are " 48 " measured '#ene-er a $a &ure %ccurs t#at a$$ects m ss %n"cr t ca& s1stems t#at n turn de&a1 Eart c pant pr%cess ng. . +:n"7 me Cett&ement Eer$%rmance. s ac# e-ed $ sett&ement cut"%$$ and pa1ment %$ cred ts are n%t &ater t#an 15 m nutes !e1%nd sc#edu&ed t mes and 6e1 pr %r cut"%$$s are n%t 30 m nutes &ate. . +Eart c pant 7erm na& A-a &a! & t1. s de$ ned as t#e a-a &a! & t1 %$ A70Bs Eart c pant 7erm na& C1stem )E7C* term na& net'%r6 n Eart c pant &%cat %ns. 7#e per %d measured s 8(00 a.m. t% 5(00 p.m., '# c# c%-ers pea6 Eart c pant use. :-er t#e per %d Januar1 2000 t#r%ug# Aecem!er 2001, t#e s1stems used !1 A70 'ere a-a &a!&e at a rate %$ 99.85Q %-era&& and 99.865Q dur ng cr t ca& per %d pr%cess ng, n !%t# cases e2ceed ng A70Bs g%a&s. Ctat st cs $%r cr t ca& per %d pr%cess ng )!et'een 8(00 a.m. and 5(00 p.m.* $%r ma;%r s1stems c%mp%nents are as $%&&%'s "" Fard'are A-a &a! & t1, 99.98Q9 C%$t'are A-a &a! & t1, 99.85Q9 :n"7 me Cett&ement Eer$%rmance, 99.865Q9 Eart c pant 7erm na& A-a &a! & t1, 99.866Q. A70 #as n%t e2per enced an1 ma;%r %perat %na& pr%!&ems dur ng t#e past t'% 1ears. A70 #as ne-er e2per enced a $a &ure n ts da &1 sett&ement. B. &lease descri#e contin"ency or disaster recovery plannin" at the SSS. 1. Does the SSS have a formal plan for #usiness continuity in place? (. *s this plan availa#le for review #y participants? +. 7ow often is this plan tested? Does this involve participants in the SSS? ,. What are the ma)or elements of the #usiness continuity plan? -. 7ow lon" would it ta'e the SSS to resume operations if primary systems #ecome unusa#le? A70 ma nta ns an a&ternate data center and #as a state"%$"t#e"art d saster rec%-er1 capa! & t1. 7# s capa! & t1 pr%- des $%r $u&& rec%-er1 %$ A70Bs ent re s1stem ' t# n %ne #%ur, ' t# n% &%ss %$ data. 7#e s1stem uses a rem%te

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data $ac & t1 under '# c# ma n$rame"!ased d s6 dr -es c%nnected t% t#e pr%duct %n ma n$rame mmed ate&1 rep& cate an1 c#anges t% d s6 dr -es %n t#e " 49 " !ac6"up s1stem &%cated at a separate s te. 7#us, n t#e e-ent %$ a d saster at t#e pr mar1 pr%duct %n s te data center, t#e !ac6"up ma n$rame at a sec%ndar1 s te '%u&d !e n t a& Jed $%r pr%duct %n us ng a c%mp&ete dup& cate set %$ pr%duct %n $ &es ma nta ned at t#e !ac6"up s te. G2tens -e p#1s ca& and en- r%nmenta& c%ntr%& s1stems are used n !%t# t#e data centers. =ac6up emergenc1 generat%rs and an un nterrupted p%'er supp&1 are a-a &a!&e and tested per %d ca&&1. A c%mmand center $%r m%n t%r ng 6e1 en- r%nmenta& c%ntr%& s1stems s sta$$ed 24 #%urs a da1, se-en da1s a 'ee6. An1 p%tent a& pr%!&ems resu&t n an a&arm s%und ng and tr gger super- s%r1 nter-ent %n. A70 per %d ca&&1 %perates ts pr%duct %n s1stem and c%mmun cat %ns net'%r6 $r%m ts a&ternate data center. 4e' pr%gram c%de s e2tens -e&1 tested t#r%ug# esta!& s#ed cert $ cat %n pr%cedures !e$%re !e ng m%-ed t% t#e pr%duct %n en- r%nment. ,nterna& s1stems c%nt ngenc1 and d saster rec%-er1 test ng s c%nducted 'ee6&1. Gac# 'ee6end A70 tests t#e s1stem !1 c%mpar ng a p%rt %n %$ t#e data !et'een t#e t'% s tes. 7#e rec%-er1 pr%cesses are d%cumented and pract ced !1 A70 sta$$. A70 a&s% s' tc#es pr mar1 and a&ternate pr%cess ng s tes %n a 8uarter&1 !as s t#ere!1 test ng t#e d saster rec%-er1 pr%cesses ' t# e-er1 Eart c pant t#at ut & Jes t#e rem%te access capa! & t es %$ t#e dep%s t%r1. <%st %$ t#e dep%s t%r1Bs !us ness pr%cesses re&1 %n %perat %na& act - t es as 'e&& as c%mputer $ac & t es. 7% ensure ts a! & t1 t% susta n !us ness pr%cesses n t#e e-ent %$ $ re, $&%%d, c - & d stur!ance, %r an1 %t#er c%nt ngenc1 a$$ect ng ts %perat ng prem ses, t#e dep%s t%r1 #as de-e&%ped a =us ness 0%nt nu t1 p&an9 t# s p&an s tested %n an %ng% ng !as s. 7#e p&an addresses a s ng&e catastr%p# c $a &ure, suc# as t#e &%ss %$ %ne !u &d ng. 7#e p&an deta &s #%' cr t ca& %perat %na& un ts '%u&d d sp&ace &ess urgent $unct %ns n t#e e-ent t#e cr t ca& %perat %nBs $ac & t es 'ere n%t a-a &a!&e. A70 c%nducts d saster rec%-er1 tests $%r eac# m ss %n cr t ca& %perat %n %n an %ng% ng !as s. 7est ng -ar es $r%m ta!&et%p test ng t% actua&&1 c&%s ng departments and resum ng %perat %ns at t#e c%nt ngenc1 s te. 7#e deta &s %$ t#e d saster rec%-er1 p&an are n%t a-a &a!&e $%r re- e' e2cept !1 A70Bs regu&at%rs. " 50 " C. What are the 'ey features of the internal controls coverin" operations and security at the SSS e.".$ chan"e controls or those coverin" remote access!? 1. &lease descri#e controls or security procedures in place to ensure that the SSS acts only on authentic settlement instructions from valid participants. (. Are internal operational and security controls included in the internal and/or e/ternal audits of the SSS? +. Are internal operational and security controls covered #y re"ulatory re%uirements applica#le to the SSS? Annua& r s6 assessments nc&ude t#e re- e' %$ A70Bs pr mar1 data centers, t#e ntegr t1 %$ A70Bs c%mputer pr%cess ng, and p%ss !&e secur t1 !reac#es. ,n add t %n t% -er $ cat %n pr%cedures n p&ace perm tt ng Eart c pants t% -er $1 t#at %n&1 -a& d sett&ement nstruct %ns #a-e !een rece -ed $%r c%mpared trades, e&ectr%n c access t% A70Bs c%mputers s genera&&1 c%ntr%&&ed - a &eased & nes and d a&" n5ca&&"!ac6 net'%r6s. >ser ,A and pass'%rd aut#ent cat %n s re8u red n %rder t% #e&p pre-ent unaut#%r Jed transact %ns $r%m enter ng A70 s1stems, t% pre-ent secur t1 !reac#es and t% esta!& s# acc%unta! & t1 $%r transact %ns entered. ,n man1 cases, nstantane%us c%n$ rmat %n %$ rec%rded transact %ns s a-a &a!&e t% Eart c pants t#r%ug# E7C. Access t% sens t -e E7C $unct %ns re8u res t#e aut#%r Jat %n %$ a A70 %$$ cer. A&& s1stems act - t1 s

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&%gged and s a-a &a!&e $%r rep%rt ng purp%ses as t#e need ar ses. Cecur t1 - %&at %n rep%rts are m%n t%red and appr%pr ate $%&&%'"up act %n s ta6en. F%rma& esca&at %n pr%cedures e2 st $%r rep%rt ng, n-est gat ng and res%&- ng attempted secur t1 - %&at %ns. 7#e use %$ sens t -e c%mputer c%ns%&e c%mmands s restr cted - a a c%ns%&e secur t1 s1stem. A&& secur t es transact %ns are nc&uded %n da &1 act - t1 statements g -en t% Eart c pants. Eart c pants are resp%ns !&e $%r rep%rt ng t% A70 an1 pr%!&ems ' t# rec%rded transact %ns, and rep%rted d $$erences are $%&&%'ed up unt & res%&-ed !1 A70 pers%nne&. A -ar et1 %$ measures are ta6en !1 A70 t% pr%tect t#e Aata 0enter and 0%mmun cat %ns areas. 7#e s1stems de-e&%pment and ma ntenance act - t es a&s% are c%ntr%&&ed t#r%ug# t#e use %$ a separate test mac# ne. An ndependent 0ert $ cat %n >n t s resp%ns !&e $%r trans$err ng a&& app& cat %n pr%grams $r%m test t% pr%duct %n & !rar es and s%urce c%de s rec%mp &ed pr %r t% !e ng m%-ed " 51 " nt% pr%duct %n. F na&&1, standards and pr%cedures %-er t#e cert $ cat %n pr%cess #a-e !een de-e&%ped, d%cumented and ad#erence !1 emp&%1ees s re8u red. A70 '%r6s d & gent&1 t% e& m nate t#e p%ss ! & t1 %$ access t% sens t -e data and rec%rds !1 unaut#%r Jed users and pr%grams. >naut#%r Jed access s pre-ented t#r%ug# a'areness, %rgan Jat %na& structure, pre-ent %n, acc%unta! & t1, and - %&at %n m%n t%r ng. 7#e g%a& %$ A70Bs nterna& c%ntr%& structure s t% ensure t#at t#e ntegr t1 %$ %ur pr%duct %n s1stems s ne-er ;e%pard Jed. ,n add t %n t% t#e aut#ent cat %n and access pr%cedures descr !ed a!%-e, t#e nterna& c%ntr%& structure nc&udes( . A # g#"&e-e& Cecur t1 0%mm ttee, '# c# addresses 6e1 areas %$ r s6 ass%c ated ' t# ,n$%rmat %n Cer- ces and d rects t#at appr%pr ate act %ns !e ta6en t% m n m Je r s69 and . An e2tens -e ,n$%rmat %n Cer- ces Cecur t1 E%& c1 Ctatement )d str !uted t% a&& emp&%1ees annua&&1*, '# c# #e&ps ensure t#e accurac1 and ntegr t1 %$ c%mpan1 data, t#e c%n$ dent a& t1 %$ pr%pr etar1, pers%na&, and %t#er sens t -e data, t#e c%nt nuance %$ data pr%cess ng n t#e e-ent %$ an emergenc1, c%mpan1"' de a'areness %$ t#e need $%r data secur t1, and management part c pat %n n mp&ement ng t#e data secur t1 p%& c1. A70Bs nterna& %perat %na& and secur t1 c%ntr%&s are nc&uded n t#e nterna& and e2terna& aud ts %$ A70 and are c%-ered !1 t#e regu&at%r1 re8u rements app& ca!&e t% A70. F%r e2amp&e, t#e dep%s t%r1 s su!;ect t% t#e CG0Bs Aut%mat %n Re- e' E%& c1 )ARE*, under '# c# t#e CG0 e-a&uates -ar %us aspects %$ A70Bs data pr%cess ng en- r%nment, nc&ud ng( . 0apac t1 p&ann ng pr%cesses. . C1stems de-e&%pment met#%d%&%g es. . 0%nt ngenc1 p&ann ng pr%cesses. . Cecur t1 assessments. ,n t# s c%nnect %n, CG0 tec#n ca& sta$$ ma6es annua& %n"s te - s ts t% A70 and c%n$ers ' t# A70 sta$$ $r%m t me"t%"t me t#r%ug#%ut t#e 1ear. ,n add t %n t% t#e nterna& and e2terna& aud ts descr !ed a!%-e, A70 #as $r%m t me"t%"t me reta ned %uts de c%nsu&tants t% pr%- de ndependent assessments %$ A70Bs s1stems and s1stems secur t1. " 52 " 4( 4oes the &&& i"%ose "ini"u" o%erationa# or %er*or"ance standards on third %arties Ae(g(- co""unications %ro,idersCZ 1. 7ow does the SSS ensure that such standards are met on a continuin" #asis and what sanctions are availa#le to the SSS if they are not? (. 7ow would the SSS allocate losses incurred due to operational pro#lems

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caused #y third parties? A70 mp%ses !%t# %perat %na& and per$%rmance standards %n ts s%$t'are -end%rs as part %$ ts c%ntractua& agreements. Actua& per$%rmance aga nst standards s m%n t%red as part %$ A70Bs %ng% ng s1stems re& a! & t1 ana&1s s and rep%rt ng. ,n t#e e-ent t#at &%sses are ncurred !1 t#e dep%s t%r1 as t#e resu&t %$ %perat %na& pr%!&ems caused !1 s1stems %r app& cat %ns s%$t'are pac6ages %r e2terna& data pr%- ded !1 -end%rs )t# rd part es*, A70 ' && pursue a c&a m aga nst t#e -end%r. ,$ A70Bs c&a m s n%t $u&&1 sat s$ ed, an1 rema n ng &%sses n%t c%-ered !1 A70Bs nsurance ' && !e sat s$ ed $r%m A70Bs reta ned earn ngs %r t#e Eart c pants Fund. Attac#ments " 53 " 2V:3@3T 3

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5946" 16 < ng t#e <ec#an c !he Ne%sLog of Flemming Funch 7#e un6n%'n 20 tr && %n d%&&ar c%mpan1 2003"10"30 17(37 13 c%mments

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#y Flemming Funch 7#ere s a !us1 & tt&e pr -ate c%mpan1 1%u pr%!a!&1 ne-er #a-e #eard a!%ut, !ut '# c# 1%u s#%u&d. ,ts name s t#e Aep%s t%r1 7rust K 0&ear ng 0%rp%rat %n. Cee t#e r 'e!s te. /%%6s prett1 !%r ng. C%me 6 nd %$ $ nanc a& ser- ce t# ng, ' t# a p%s t -e s&%gan and %ut t#ere t% ma6e a & tt&e !us ness. H%u can e-en get a ;%! t#ere. 4%', g% and ta6e a &%%6 at t#e r annua& rep%rt. Ctarts ' t# a n ce & tte F&as# presentat %n and #as a n ce message $r%m t#e 0G:. And ta6e a &%%6 at t#e num!ers. ,t turns %ut t#at t# s c%mpan1 #%&ds 23 tr && %n d%&&ars n assets, and #ad 917 tr && %n d%&&ars '%rt# %$ transact %ns n 2002. 7#atRs tr && %ns, as n t#%usands %$ t#%usands %$ m && %ns. 23,000,000,000,000 d%&&ars n assets. As t s% turns %ut, t s n%t !ecause A700 #as a n ce 'e!s te and sa1s g%%d t# ngs a!%ut sa- ng t#e r cust%mers m%ne1 t#at t#e1 are trusted ' t# t#at 6 nd %$ res%urces. Rat#er t s !ecause t#e1 seem t% #a-e a m%n%p%&1 %n '#at t#e1 d%. ,n !r e$, t#e1 pr%cess t#e -ast ma;%r t1 %$ a&& st%c6 transact %ns n t#e >n ted Ctates as 'e&& as $%r man1 %t#er c%untr es. And " and t#atRs t#e rea& nterest ng part " 99Q %$ a&& st%c6s n t#e >.C. appear t% !e &ega&&1 %'ned !1 t#em. ,n t#e %&d da1s, '#en 1%u %'ned st%c6s 1%u '%u&d #a-e t#e st%c6 cert $ cates &1 ng n 1%ur sa$e. And $ 1%u needed t% trade t#em, 1%u needed t% get t#em s# pped %$$ t% a !r%6er. 4%'ada1s t#at '%u&d !e c%ns dered -er1 cum!ers%me, and t '%u&d !e mpract ca& t% n-est - a c%mputer %r %-er t#e p#%ne. C% t#e s#%rtcut 'as n-ented t#at t#e !r%6er '%u&d #%&d 1%ur st%c6s nstead %$ 1%u. And n %rder $%r # m t% &ega&&1 !e a!&e t% trade t#em $%r 1%u, t#e st%c6s 'ere p&aced under t#e r Sstreet nameS. ,.e. t#e1Rre n t#e name %$ t#e !r%6erage, !ut t#e1Rre ;ust #%&d ng t#em n trust and trad ng t#em $%r 1%u. And 1%uRre n rea& t1 t#e !ene$ c ar1 rat#er t#an t#e %'ner. D# c# s a&& $ ne and dand1 $ e-er1t# ng g%es r g#t. 4%', t appears t#e ru&es 'ere t#en c#anged s% t#e !r%6ers are n%t a&&%'ed an1 &%nger t% put t#e st%c6s n t#e r %'n name. ,nstead, '#at t#e1 t1p ca&&1 d% s t% put t#e st%c6s nt% t#e name %$ S0ede and 0%mpan1S %r S0ede K 0%S %r s%me suc# -ar at %n. And t#e !r%6er m g#t te&& 1%u t#at t s ;ust a $ ct t %us name, and ' && e2p&a n '#1 t s rea&&1 m%re pract ca& t% d% t#at t#an t% put t n 1%ur name. 7#e pr%!&em ' t# t#at s t#at t appears t#at 0ede snRt ;ust s%me dumm1 name, !ut an actua& c%rp%rat %n t#at A700 c%ntr%&s. And, 'e&&, $ 1%u as6 an1!%d1 a!%ut t# s, '#% actua&&1 6n%'s a!%ut t, t#e1 ' && natura&&1 te&& 1%u t#at t s a&& a $%rma& t1. 7% ser-e 1%u !etter, %$ c%urse. And, 'e&&, ma1!e t s. A700 seems & 6e a n ce and $r end&1 c%mpan1. ,t s a pr -ate c%mpan1, %'ned !1 t#e same pe%p&e )ma;%r >.C. !an6s* '#% %'n t#e Federa& Reser-e =an6. And $ t#e1 a&& st c6 t% t#e r ;%!, and ;ust 6eep t#e m%ne1 and 1%ur st%c6s $&%' ng sm%%t#&1, ,Rm sure t#at s a&& 'e&& and g%%d. =ut $ s%me!%d1 at s%me p% nt s#%u&d dec de %t#er' se, and t#ereRs a nat %na& >.C. emergenc1 and5%r t#e >.C. g%-ernment !ec%mes una!&e t% pa1 ts de!ts, 'e&&, t#e1 m g#t ;ust n%t g -e 1%u 1%ur st%c6s !ac6. =ecause &ega&&1 t#e1 %'n t#em. C%met# ng t% t# n6 a!%ut. An $asc nat ng art c&e a!%ut t# s '#%&e t# ng s #ere. , ' && nc&ude t at t#e !%tt%m t%%, n case t s#%u&d d sappear. 4%t t#at , can -%uc# $%r %r agree ' t# e-er1t# ng t#e gu1 s sa1 ng, and s%me %$ t s a & tt&e '#ac6%, !ut %!- %us&1 #eRs !een researc# ng t# s 8u te a ! t. H%uR&& $ nd -er1 & tt&e a!%ut t %n t#e net %t#er' se. The 8nkno$n P0B Tri##ion 4e%ository Trust Co"%any !1 Ant#%n1 Da1ne Eart , %$ ,, 7# s e2c&us -e rep%rt s a c%mp &at %n %$ nter- e's and !ac6gr%und researc# $r%m :ct%!er 1995 t#r%ug# Apr & 1999. 7#e Aep%s t%r1 7rust 0%mpan1 )A70* s t#e !est 6ept secret n Amer ca. Fead8uartered at 55 Dater Ctreet n 4e' H%r6 0 t1, t#e a-erage Amer can #as n% c&ue t#at t# s $ nanc a& nst tut %n s t#e m%st p%'er$u& !an6 ng c%rp%rat %n n t#e '%r&d. 7#e genera& pu!& c #as n% 6n%'&edge %$ '#at t#e A70 s %r '#at t#e1 d%. F%' can a pr -ate !an6 ng trust c%mpan1 #%&d assets %$ %-er ?19 tr && %n and !e un6n%'nT ,n a recent press re&ease dated Apr & 19, 1999, t#e Aep%s t%r1 7rust 0%mpan1 stated(

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7#e Aep%s t%r1 7rust 0%mpan1 )A70* s t#e '%r&dRs &argest secur t es dep%s t%r1, #%&d ng near&1 ?19 tr && %n n assets $%r ts Eart c pants and t#e r cust%mers.... /ast 1ear, A70 pr%cessed %-er 164 m && %n !%%6"entr1 de& -er es -a&ued at m%re t#an ?77 tr && %n. ,n dea& ng ' t# t#e trust department %$ < d&ant c =an6, 4.A. n 4e' Jerse1 [n%' E40 =an6, 4.A.], t# s 'r ter 'as aut#%r Jed, as trustee and p%'er %$ att%rne1, t% trans$er %r g na& trust assets c%mpr s ng %$ c%mm%n st%c6s and !%nds t% a ne' trust set up n an%t#er ;ur sd ct %n. An Ass stant L ce Eres dent $r%m t#e 7rust K F nanc a& <anagement :$$ ce %$ < d&ant c =an6 sa d t% me S t ' && ta6e at &east 6 'ee6s t% d% t# s as t#e ma;%r t1 %$ t#e st%c6s and !%nds are n%t #e&d n t#e name %$ t#e trustS. 7# s same < d&ant c =an6 Ass stant L.E. a&s% stated n a &etter dated 4%-em!er 17, 1995, S:$ t#e 11 mun c pa& !%nds, 8 are #e&d n !%%6 entr1 %n&1. 7# s means t#e1 cann%t !e p#1s ca&&1 re"reg stered ' t# a cert $ cate sent t% t#e ne' trustees.S )U t#ese are n%t t#e actua& $ gures 8u%ted n t#e &etter n %rder t% pr%tect t#e pr -ac1 %$ t#e acc%unt #%&der, at t#e r re8uest. A&s%, 'e 'ere as6ed n%t t% name t#e < d&ant c Ass stant L.E. n %rder t% pr%tect #er pr -ac1 R g#ts. De respect t#ese re8uests ' t# $u&& m%ra& c%mp& ance*. ,n d s!e& e$, , !r%ug#t t# s matter t% t#e attent %n %$ %ur researc# ass stants at t#e 0#r st an 0%mm%n /a' ,nst tute [$%rmer&1 t#e 4%rt# =r dge 4e's] and 'e !egan %ur &engt#1 n-est gat %n nt% t#e matter. A$ter 3 1ears, t#e can %$ '%rms 'eR-e %pened up s#%u&d $r g#ten e-er1 Amer can. D t# t#e ad-ent %$ rep%rted H2I c%mputer g& tc#es and t#e p%ss !&e c%&&apse %$ %ur Rpaper assetR ec%n%m1, e-er1 pers%n '#% #as a st%c6 %r !%nd n t#e r p%rt$%& % #ad !etter read t# s rep%rt and act %n t#e n$%rmat %n 'e are d sc&%s ng #ere. ,n 4%-em!er 1995, a$ter enc%unter ng numer%us Sn% c%mmentsS and a m1r ad %$ St#atRs n%t m1 departmentS e2cuses - a te&ep#%ne, , e-entua&&1 sp%6e ' t# <r. J m <c4e$$ '#% t%&d me # s p%s t %n 'as A rect%r %$ 7ra n ng $%r t#e A70. Fe sa d #eRd !een emp&%1ed t#ere $%r 19 1ears and 'as S-er1 pr%udS %$ # s emp&%1er. Aur ng m1 n t a& te&ep#%ne nter- e', e t#er J mRs emp&%1er %r s%me %t#er un6n%'n pers%n %r pers%ns 'ere &&ega&&1 & sten ng %r tap ng %ur te&ep#%ne c%n-ersat %n acc%rd ng t% t#e e&ectr%n c ea-esdr%pp ng e8u pment 'e #a-e nsta&&ed %n %ur end. D#1 d d an1%ne $ee& t 'as necessar1 t% &&ega&&1 rec%rd %ur c%n-ersat %n ' t#%ut ad- s ng usT Das s%me $edera& a&p#a!et agenc1 m%n t%r ng A70 ca&&s t% sa$eguard 4at %na& Cecur t1T 7#at n tse&$ s susp c %us en%ug# t% 'arrant a ! g red 'arn ng $&ag. J m n$%rmed me !ac6 t#en )1995* t#at St#e A70 s t#e &argest & m ted trust c%mpan1 n t#e '%r&d ' t# assets %$ ? 9.1 tr && %nS. ,n Ju&1 1998, , sp%6e ' t# <s. R%se =arna! c %$ t#e A70 F nance Aepartment '#% sa d t#at SA70 assets are current&1 est mated at ar%und ?11 tr && %nS. As %$ Apr & 19, 1999, t#e A70 tse&$ #as stated t#at t#e r assets t%ta& Snear&1 ?19 tr && %nS )see a!%-e*. <r. <c4e$$ #ad a&s% stated St#e A70 s a !r%6erage c&ear ng $ rm and trans$er center. DeRre a pr -ate !an6 $%r secur t es. De #and&e t#e !%%6 entr1 transact %ns $%r a&& !an6s and !r%6ers. G-er1 !an6 and !r%6erage $ rm must secure t#e r mem!ers# p ' t# us n case t#e1 !ec%me ns%&-ent, s% 1%ur assets are secure ' t# A70S. Hes, 1%u read t#at c%rrect&1. 7#e A70 s a pr -ate !an6 t#at pr%cesses e-er1 st%c6 and !%nd )paper secur t es* $%r a&& >.C. !an6s and !r%6erage #%uses. 7#e ! g 8uest %n s t# s9 Just '#% ga-e t# s pr -ate !an6 and trust c%mpan1 suc# a !r%ad range %$ $ nanc a& p%'er and c&%utT 7#e reas%n t#e pu!& c d%esnRt 6n%' a!%ut A70 s t#at t#e1Rre a pr -ate&1 %'ned dep%s t%r1 !an6 $%r nst tut %na& and !r%6erage $ rms %n&1. 7#e1 pr%cess a&& %$ t#e r !%%6 entr1 sett&ement transact %ns. J m <c4e$$ sa d S7#ereRs n% need $%r t#e pu!& c t% 6n%' a!%ut us... tRs re8u red !1 t#e Federa& Reser-e t#at A70 #and&e a&& transact %nsS. 7#e Federa& Reser-e 0%rp%rat %n, a565a 7#e Federa& Reser-e C1stem, s a&s% a pr -ate c%mpan1 and s n%t an agenc1 %r department %$ %ur $edera& g%-ernment, acc%rd ng t% t#e 1998 Federa& Reg str1. 7#e Federa& Reser-e =%ard %$ 3%-ern%rs s & sted, !ut t#e1 are n%t t#e %'ners. 7#e Federa& Reser-e =%ard, #eaded !1 <r. A&an 3reenspan, s n%t# ng m%re t#an a & a s%n ad- s%r1 pane& !et'een t#e %'ners and t#e Federa& 3%-ernment. 7#e FGA, as t#e1 are m%re c%mm%n&1 ca&&ed, mandates t#at t#e A70 pr%cess e-er1 secur t es transact %n n t#e >C. ,tRs n% '%nder t#at t#e A70 ) nc&ud ng t#e Eart c pants 7rust 0%mpan1, n%' t#e <%rtgage"=ac6ed Cecur t es A - s %n %$ t#e A70* s %'ned !1 t#e same st%c6#%&ders as t#e Federa& Reser-e C1stem. ,n %t#er '%rds, t#e Aep%s t%r1 7rust 0%mpan1 s rea&&1 ;ust a R$r%ntR %r a d - s %n %$ t#e Federa& Reser-e C1stem. SA70 s 35.1Q %'ned !1 t#e 4e' H%r6 Ct%c6 G2c#ange %n !e#a&$ %$ t#e G2c#angeRs mem!ers. ,t s %perated !1 a separate management and #as an ndependent !%ard %$ d rect%rs. ,t s a & m ted purp%se trust c%mpan1 and s a un t %$ t#e Federa& Reser-e.S "4e' H%r6 Ct%c6 G2c#ange, ,nc. 4%', &etRs see #%' t# s e$$ects t#e a-erage '%r6 ng Amer can $am &1. ,$ 1%uRre n%t a'are #%' t#e s1stem '%r6s, 1%u s#%u&d - s t %r ca&& a st%c6 !r%6er %r !an6 and nstruct t#em 1%u 'ant t% purc#ase s%me s#ares %$ c%mm%n

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st%c6 %r a sma&& mun c pa& !%nd, $%r e2amp&e. 7#e1 ' && set up a !r%6erage acc%unt $%r 1%u and act as 1%ur agent ' t# $u&& dura!&e p%'er %$ att%rne1 )'# c# 1%u must &ega&&1 s gn %-er t% t#em* t% c%nduct !us ness %n 1%ur !e#a&$, up%n 1%ur !u1 %r se&& nstruct %ns. 7#e !r%6er ' && p&ace 1%ur st%c6 %r !%nd purc#ase nt% t#e r sa$e6eep ng under a Sstreet nameS. Acc%rd ng t% <r. <c4e$$ %$ t#e A70, n% !an6 %r !r%6er can p&ace an1 st%c6 %r !%nd nt% t#e r $ rmRs %'n name due t% Federa& 7rade 0%mm ss %n )F70* and Cecur t1 and G2c#ange 0%mm ss %n )CG0* regu&at %ns. 7#e !r%6er %r !an6 must t#en send t#e transact %n t% t#e A70 $%r &edger p%st ng %r !%%6 entr1 sett&ement under mandate !1 t#e Federa& Reser-e C1stem. Remem!er, s nce 1%ur !an6 %r !r%6er canRt use t#e r name %n t#e cert $ cate, t#e1 use a $ ct t %us street name. SC nce t#e A70 s a !an6 ng trust c%mpan1, 'e canRt #%&d t#e cert $ cates n %ur name, s% t#e A70 trans$ers t#e cert $ cates t% %ur %'n pr -ate #%&d ng c%mpan1 %r n%m nee name.S states <r. <c4e$$. 7#e A70Rs pr -ate #%&d ng c%mpan1 %r street name, as s#%'n %n cert $ cates 'e #a-e pers%na&&1 e2am ned $r%m numer%us cert $ cate #%&ders, s s#%'n as e t#er S0GAG and 0%mpan1S, S0ede 0%mpan1S %r S0ede K 0%S. De #a-e searc#ed e-er1 s%urce 6n%'n t% &earn '#% 0GAG rea&&1 s, !ut #a-e !een una!&e t% get an1 !ac6gr%und n$%rmat %n %n t#em. ,s 0ede 0%mpan1 $ ct t %us %r s t#e r dent t1 per#aps a &arger secret t#an A70T De must presume t#at t#e n$%rmat %n <r. <c4e$$ ga-e us 'as c%rrect '#en #e c%n$ rmed t#at 0ede 0%mpan1 'as a c%ntr%&&ed pr -ate #%&d ng c%mpan1 %$ t#e A70. De #a-e n%' $%und t#e $%&&%' ng pr%%$ t#at 0GAG s rea& $r%m t#e =ear Ctearns nternet s te( 4GD H:RI, 4e' H%r6 " <arc# 16, 1999 " =ear Ctearns F nance //0 t%da1 ann%unced t#at t ' && redeem a&& %$ t#e 6,000,000 %utstand ng 8.00Q G2c#angea!&e Ere$erred ,nc%me 0umu&at -e C#ares, Cer es A )SGE,0CS* %$ =ear Ctearns F nance //0, & 8u dat %n pre$erence %$ ?25.00 per Cer es A C#are, 0>C,E num!er 309198105. A&& %$ t#e Cer es A C#ares are #e&d !1 0ede K 0%., as n%m nee %$ 7#e Aep%s t%r1 7rust 0%mpan1, and t#e pa1ment %$ t#e redempt %n pr ce ' && !e made t% 0ede K 0%. !1 0#ase<e&&%n C#are#%&der Cer- ces, //0, as pa1 ng agent, '#%se address s( 85 0#a&&enger R%ad, R dge$ e&d Ear6, 4e' Jerse1 07660. 7#e !an6s and !r%6ers are mere&1 cust%d ans $%r t#e r c& ents. =1 $edera& &a' )CG0*, t#e1 cann%t #%&d an1 assets n t#e cust%merRs name. 7#e assets must !e #e&d n t#e name %$ A70Rs #%&d ng c%mpan1, 0GAG K 0%. 7#atRs #%' A70 #as m%re t#an ?19 tr && %n d%&&ars %$ assets n trust... %r s t rea&&1 n StrustS $ t#e pr -ate Federa& Reser-e C1stem s tec#n ca&&1 #%&d ng t n t#e r Sun6n%'nS ent t1Rs nameT :!- %us&1, $ st%c6 and !%nd cert $ cates 1%uR-e purc#ased arenRt n 1%ur name, t#en t#e S#%&derS )t#e Federa& Reser-e C1stem* c%u&d t#e%ret ca&&1 re$use t% surrender t#em !ac6 t% 1%u under a Snat %na& emergenc1S acc%rd ng t% t#e 7rad ng ' t# t#e Gnem1 Act )as amended*. ,s t# s t#e c%&&atera& !e ng #e&d !1 t#e pr -ate Federa& Reser-e C1stem t% pa1 %$$ t#e nat %na& de!t %'ed t% t#em !1 %ur $edera& g%-ernment, $ rst n t ated !1 / nc%&nRs de!t !%nds %$ 1864T Acc%rd ng t% <r. <c4e$$, t#e A70 'as a $%rmer mem!er %$ t#e 4e' H%r6 Ct%c6 G2c#ange )4HCG*, and S:ur s ster c%mpan1 s t#e 4at %na& Cecur t es 0&ear ng 0%rp%rat %n... t#e 4C00S )t#e1 #a-e s nce merged*. Fe 'as c%rrect s nce 'e n%' 6n%' t#at t#e 4HCG #%&ds 35.1Q %$ t#e S%'ners# pS %$ t#e A70 %n !e#a&$ %$ t#e r 4HCG mem!ers. C mp&1 put, t#e Aep%s t%r1 7rust 0%mpan1 a!s%&ute&1 c%ntr%&s e-er1 paper asset transact %n n t#e >n ted Ctates as 'e&& as t#e ma;%r t1 %$ %-erseas transact %ns, and t#e1 n%' p#1s ca&&1 #%&d )as %$ Apr & 1999* 99Q %$ a&& st%c6 and !%nd !%%6"entr1s n t#e r street name, n%t t#e actua& %'nerRs names. ,$ 1%u #a-e st%c6 %r !%nd cert $ cates n 1%ur name !ur ed n 1%ur !ac6 1ard %r under 1%ur mattress, 'e suggest 1%u 6eep t#em t#ere. ,$ n%t, t m g#t !e -er1 ' se t% cance& 1%ur !r%6erage acc%unt and p%'er %$ att%rne1 status, re"reg ster t#e st%c6s and !%nds n 1%ur name ) $ 1%u st && can*, and 6eep t#em # dden '#ere %n&1 1%u 6n%' t#e r &%cat %n. :t#er' se, 1%u #a-e a!s%&ute&1 n% c%ntr%& %-er t#em )see Eart ,, %$ %ur e2c&us -e researc# rep%rt %n t#e A70 $%r m%re n$%rmat %n %n !ene$ c a& %'ners# p status*. F%'e-er, gett ng a st%c6 %r !%nd cert $ cate t#ese da1s s n%t s% eas1 $ p%ss !&e at a&&( SF%r t#e m%st part, ssuers 6n%' & tt&e a!%ut t#e r%&e %$ t#e Aep%s t%r1 7rust 0%mpan1 )A70*. 7#e A70 'as created n 1973 as a user"%'ned c%%perat -e $%r p%st"trade sett&ement. :ur mem!ers are !an6s and !r%6er5dea&ers, '#%m 'e re$er t% as part c pants. De #and&e & sted and un& sted e8u t es, nc&ud ng 51,000 e8u t1 ssues and 170,000 c%rp%rate de!t ssues, e8uat ng t% m%re t#an 78Q %$ s#ares %utstand ng %n t#e 4e' H%r6 Ct%c6 G2c#ange )4HCG*. De a&s% #a-e m%re t#an 95Q %$ a&& mun c pa&s %n dep%s t. ,n t#e 1980s, t#e S3r%up %$ 30S [!us ness &eaders] rec%mmended t#at st%c6 cert $ cates !e e& m nated, !ecause p#1s ca& cert $ cates create r s6. 7#e Cecur t es G2c#ange 0%mm ss %n )CG0* ssued a c%ncept re&ease n 1994 t%

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gradua&&1 decrease cert $ cates, pr%- d ng %pt %na& d rect reg strat %n %n t#e !%%6s %$ t#e ssuer nstead %$ a cert $ cate.... t# s en#ances t#e p%rta! & t1 %$ s#ares !et'een trans$er agents and !r%6erage acc%unts. D t# t#e d rect reg strat %n s1stem, !r%6ers transm t nstruct %ns t% purc#ase t#r%ug# A70, '# c# t#e ssuer %r trans$er agent t#en reg sters, s% s#ares can !e de& -ered e&ectr%n ca&&1.S "J%#n A. Fa t#, <anager, 0%rp%rate 7rust Cer- ces, 7#e Aep%s t%r1 7rust 0%mpan1 )1996* 4%' 'eRre a!%ut t% re-ea& t% 1%u t#e m%st s#%c6 ng d sc%-er1 'e came acr%ss dur ng %ur researc# nt% t# s matter. <%st %$ us remem!er a $e' 1ears !ac6 t#e purp%rted c%mputer Jed se&& ng %$ st%c6s t#at resu&ted n Da&& CtreetRs S=&ac6 <%nda1S( A%' A -es 508.32 E% nts n Ean c %n Da&& Ctreet S7#e &argest st%c6"mar6et dr%p n Da&& Ctreet # st%r1 %ccurred %n S=&ac6 <%nda1S "" :ct%!er 19, 1987 "" '#en t#e A%' J%nes ,ndustr a& A-erage p&unged 508.32 p% nts, &%s ng 22.6Q %$ ts t%ta& -a&ue. 7#at $a&& $ar surpassed t#e %ne"da1 &%ss %$ 12.9Q t#at !egan t#e great st%c6 mar6et cras# %$ 1929 and $%res#ad%'ed t#e 3reat Aepress %n. 7#e A%'Rs 1987 $a&& a&s% tr ggered pan c se&& ng and s m &ar dr%ps n st%c6 mar6ets '%r&d' deS "C%urce( Facts %n F &e D%r&d 4e's 0A R:< 7#e st%c6 e2c#anges #ad dramat c rec%rd &%sses, and a rec%rd -%&ume %$ s#ares 'ere traded %n t#at n$am%us <%nda1 n :ct%!er 1987. De a&& as6ed %urse&-es #%' c%mputers c%u&d #a-e d%ne t# s !1 t#emse&-es ' t#%ut s%me%ne 6n%' ng a!%ut t. A$ter a&&, s%me%ne #as t% pr%gram a c%mputer t% te&& t '#at t% d%, '#at n%t t% d%, %r e-en '#en t% d% %r n%t d% t. Aur ng m1 te&ep#%ne c%n-ersat %n, <r. <c4e$$ 'as tr1 ng t% assure me t#at t#e1 [t#e A70] #a-e Sne-er &%st a cert $ cate %r made a m sta6e n a !%%6 &edger transact %nS. ,n attempt ng t% g -e me an e2amp&e %$ #%' trust'%rt#1 t#e A70 s '#en , as6ed # m #%' #e c%u&d !ac6 up suc# a statement, #e rep& ed SA70Rs $ rst c%ntr%&&ed test 'as 4 %r 5 1ears ag%. A% 1%u remem!er =&ac6 <%nda1T 7#ere 'ere 535 m && %n transact %ns %n <%nda1, and 400 m && %n transact %ns %n 7uesda1S. Fe 'as -er1 pr%ud t% n$%rm me t#at SA70 c&eared e-er1 transact %n ' t#%ut a s ng&e g& tc#VS. Read t#ese 8u%tes aga n( Fe stated t#at =&ac6 <%nda1 'as a c%ntr%&&ed test. =&ac6 <%nda1 'as a de& !erate&1 man pu&ated d saster $%r man1 Amer cans at t#e '# m %$ a c%ntr%&&ed test !1 t#e A70. D#at 'as t#e purp%se %$ t# s testT 0%mm%n sense te&&s 1%u t#at 1%u test s%met# ng !e$%re 1%u ntend t% use t. ,tRs 8u te %!- %us t#at t#e st%c6 mar6ets are g% ng t% Rcras# and !urnR at s%me $uture date and $%r s%me Run6n%'nR reas%n s nce t#e c%ntr%&&ed test 'as s% success$u&. Das t# s ;ust %ne %$ t#e p&anned tests $%r a H2I nternat %na&&1 p&anned '%r&d' de ec%n%m c me&td%'nT 7#e 3reat Aepress %n s a!%ut t% !e repeated, and t ' && !e as de& !erate and man pu&ated as t#e $ rst %ne t#at !egan ' t# t#e st%c6 mar6et cras# %$ 1929. De are, ' t#%ut a d%u!t, %n t#e !r n6 %$ t#e <%t#er %$ a&& ec%n%m c Aepress %ns. As %$ <a1 3, 1999, t#e A%' J%nes ,ndustr a& A-erage )AJ,A* 'ent a!%-e a rec%rd 11,000 p% nts. Just pr %r t% t#e 1929 st%c6 mar6et cras#, Da&& Ctreet 'as p%st ng rec%rd pr ces, rec%rd earn ngs, and rec%rd pr%$ ts.... ;ust & 6e t#e scenar % 'e are e2per enc ng t%da1. D && H2I !e a man pu&ated and de& !erate a $ nanc a& me&td%'nT 7%% man1 $acts a&read1 supp%rt t# s pr%!a! & t1. :n June 7, 1995, t#e $edera& g%-ernment ssued a ne' regu&at %n re8u r ng st%c6 and !%nd cert $ cate trans$ers t% !e c&eared n t#ree da1s nstead %$ t#e pre- %us $ -e da1 t me per %d. ,t c% nc ded ' t# t#e n$am%us Regu&at %n 00 t#at purp%rted&1 ga-e us $aster t#ree da1 a-a &a! & t1 %$ $unds $r%m dep%s ted c#ec6s. 7# s means t#at !r%6ers and !an6s must get 1%ur st%c6 %r !%nd transact %n nt% t#e street name )0ede K 0%.* %$ t#e A70 ' t# n 3 '%r6 ng da1s. 7#atRs #ard t% d% c%ns der ng !an6s c&a m t ta6es 3 %r m%re da1s t% c&ear a c#ec6 t#at 1%uR-e su!m tted t% pa1 $%r a st%c6 purc#ase. =ut, t#ereRs a reas%n $%r t# s ne' regu&at %n and t c% nc des ' t# t#e ntr%duct %n %$ t#e ne' FRC Sd%&&arsS. :n Fe!ruar1 22, 1996, St#e A70 ' && $& p t#e s' tc#S acc%rd ng t% <r. <c4e$$. SD#at s' tc#TS, , as6ed. S7# s s t#e da1 t#at c&ear ng #%use $unds ' && n% &%nger !e accepted $%r st%c6 %r !%nd transact %nsS 'as m1 rep&1 $r%m J m. S,nstead, %n&1 Fed Funds ' && !e acceptedS. Fed Funds, %r a Fed' re, are e&ectr%n c c%mputer &edger de! t trans$ers !et'een Federa& Reser-e C1stem mem!er !an6s. 4% c#ec6s %r dra$ts #a-e !een a&&%'ed $r%m t#at da1, ;ust as <r. <c4e$$ accurate&1 stated. 7# s s m%re c%mm%n&1 ca&&ed a Rcas#&ess transact %nR. , ca&& t t#e rea& t1 %$ t#e mar6 %$ t#e !east. 7# s s t#e man $estat %n %$ t#e ne' nternat %na& g%d, t#e 4e' D%r&d :rder [, pre$er t#e

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term R4e' D%r&d A,C%rderR as a m%re accurate descr pt %n]. 0%ns der t# s m1 $e&&%' 0#r st an Amer cans( A&& pens %n $unds and %t#er nst tut %na& Rmanaged $undsR are c%mpr sed %$ paper asset n-estments suc# as st%c6s, !%nds, and mutua& $unds. 7#ese cert $ cates are tec#n ca&&1 n t#e name %$ A70Rs pr -ate #%&d ng c%mpan1, 0GAG and 0%mpan1. 7#e A70 s %'ned !1 t#e pr -ate Federa& Reser-e C1stem %'ners )0& c6 $%r a c%mp&ete & st %$ names*. 0%ngress #as attempted, %n n% &ess t#an t'% %ccas %ns s nce 1995, t% pass &eg s&at %n a&&%' ng pens %n $unds t% !e used !1 t#e g%-ernment as purp%rted R&%ansR. A&& t#e Federa& Reser-e C1stem #as t% d% s #and t %-er. =ut, '#at #appens t% t#e pe%p&e c%unt ng %n t#%se pens %n $und n-estments n %rder t% $eed t#emse&-es n t#e r ret rementT 7%% !ad $%r t#em.... t#e1Rre %ut %$ &uc6 !ecause $%r t#e Rg%%d %$ t#e nat %nR, t#e1 ma1 !e $%rced t% s#are %r re& n8u s# t#e r & $et me %$ #ard"earned 'ea&t#. 7# s can !e d%ne ' t#%ut t#e c%nsent %$ 0%ngress under an G2ecut -e :rder !ased %n t#e Dar and Gmergenc1 E%'ers Act and a state %$ 4at %na& Gmergenc1, ;ust & 6e 'e are a&read1 under )Cee $urt#er G2ecut -e :rders*. C nce t#e Federa& Reser-e C1stem a&read1 #%&ds %ur st%c6s and !%nds n t#e r $ ct t %us A70 Sstreet nameS, 0GAG, t#en per#aps t#e1R&& cas# t#em n $%r t#e $edera& g%-ernmentRs $a &ure t% repa1 t#e &%ans t#at #a-e !ec%me 'a1 %-erdue. Fec6, s%me %$ / nc%&nRs g%&d !ac6ed !%nds $r%m 1864 #a-e n%t !een repa d 1et.... and $%r a reas%n. :n <arc# 6, 1933, a&& !u&& %n g%&d and g%&d c% ns 'ere $%rc !&1 ta6en $r%m t#e #ands %$ pr -ate c t Jens )see 4e' H%r6 7 mes*. >nder t#e Dar E%'ers Act, Eres dent R%%se-e&t dec&ared a nat %na& emergenc1 t%uted as a S=an6 ng F%& da1S. ,t 'as dec&ared due t% t#e de& !erate&1 ca&cu&ated st%c6 mar6et cras# t#at preceded t#e 3reat Aepress %n. D#ere d d t# s g%&d end upT ,nt% t#e #ands %$ t#e Federa& Reser-e C1stem %'ners. 7#e ma;%r t1 s st%red n t#e mper- %us r%c6 -au&ts t#e1 %'n !eneat# 4e' H%r6 0 t1. ,s t an1 surpr se t#at t#e A70 p#1s ca&&1 #%&ds a&& t#e rema n ng n%n"!%%6 entr1 ssued st%c6 and !%nd cert $ cates n t#e same p&aceT 7ec#n ca&&1, %ur ent re nat %n s st && under t#e G2ecut -e :rder dec&arat %n %$ t#e Dar E%'ers Act and n a c%nt nua& state %$ nat %na& emergenc1 )Cee 0& nt%nRs 1994 G2ecut -e :rder 12919*. 7#e Eres dent can en$%rce an1 ne' emergenc1 at an1 t me under G2ecut -e :rder %r Eres dent a& A rect -e. ,n 1995, 'e [t#e $%rmer 4%rt# =r dge 4e's] pu!& s#ed t#at 'e e2pected a ne' nat %na& Sd%&&arS emergenc1 t% !e dec&ared ' t# n a 1ear %r t'%. Just & 6e 'e t#%ug#t at t#e t me, t#e1 #a-e n%' !&amed t %n t#e purp%rted drug dea&ers '#% are a&&eged&1 destr%1 ng %ur currenc1 !1 m%ne1 &aunder ng sc#emes. C nce &ate 1996, %&d >.C. ?100 FR= n%tes ssued !1 t#e Federa& Reser-e =an6 are !e ng e2c#anged $%r ne' ?100 FRC ssued !1 t#e Federa& Reser-e C1stem. 7#ese ne' n%tes #a-e scana!&e magnet c p&at num encr1pt %n %n t#e p&ast c str ps em!edded ns de t#e ! &&s. 7#e >.C. 7reasur1 c&a ms t# s s $%r St#e !& ndS. 4%', ne' ?20 and ?50 FRCRs are rep&ac ng t#e %&der n%tes as 'e&&. D#at pe%p&e d%nRt rea& Je s t#at -er1 s%%n, t#e %&der FR= n%tes ' && n% &%nger !e R&ega&R and t#ere ' && !e a pena&t1 $%r #%ard ng t#em. 7# s s '#at #appened t% t#%se Amer cans #%&d ng g%&d and g%&d c% ns a$ter 1933. SDe are m%st grat $ ed ' t# t#e success$u& ntr%duct %n %$ t#e ne' ?100 and ?50 n%tes and &%%6 $%r'ard t% t#e same success ' t# t#e ne' ?20s,S 0#a rman 3reenspan sa d. F%r t#e $ rst t me, a mac# ne"reada!&e capa! & t1 #as !een nc%rp%rated $%r t#e !& nd. A ne' $eature n t#e ?20 ' && $ac & tate t#e de-e&%pment %$ c%n-en ent scann ng de- ces t#at c%u&d dent $1 t#e n%te as a ?20. ">.C. 7reasur1, :$$ ce %$ Eu!& c A$$a rs, RR"2449 re&eased <a1 20, 1998. D#1 ne' paper Rm%ne1R and $%r '#at purp%seT =ecause t#e ne' FRC n%tes n 1%ur p%c6et can !e scanned and '#%e-er scans t#em can 6n%' e2act&1 #%' muc# m%ne1 1%u #a-e %n 1%u. 7#e %&der FR= n%tes are n%t enc%ded t% d% t# s. 7# s 'r ter 6n%'s $ rst#and %$ at &east %ne mac# ne, manu$actured !1 A e!%&d, ,nc. )a565a ,nter=%&d* t#at scans t#e m%ne1 n 1%ur p%c6ets, 'a&&et %r purse n% d $$erent n t#e%r1 t#an a cred t card scanner, !ut muc# m%re s%p# st cated. , part c pated n a RtestR %$ t# s mac# ne at a >.C. nternat %na& a rp%rt n 1998. 7% me, t &%%6s muc# & 6e t#e standard meta& detect%r scanners 1%u 'a&6 t#r%ug# at a&& a rp%rts. , 'as as6ed )!1 '#% , !e& e-e 'as a >.C. 7reasur1 Agent, as #e ntr%duced # mse&$ and $&as#ed # s ,A 8u c6&1 n m1 $ace s% , c%u&dnRt read t* $ , #ad an1 %$ t#e ne' ?100 %r ?50 ! &&s n m1 p%c6ets. , &%%6ed n m1 'a&&et and sa' , #ad %ne ne' ?100 FRC n%te. , t%&d # m S1esS, t#en #e sa d S3%%d, !ut d%nRt te&& me #%' muc#S. A$ter sa1 ng #e '%u&d Srea&&1 apprec ate tS $ , '%u&d #e&p t#em ' t# a test, #e as6ed me t% 'a&6 t#r%ug# '#at &%%6ed & 6e a t1p ca& a rp%rt scanner. 4% !eeps. 4% n% se. 4% s%und at a&&. Fe &%%6ed at a c%mputer screen and sa d SA% 1%u #a-e a ne' ?100 ! &&TS. D#en , c%n$ rmed t#at 'as true, #e t#an6ed me and t%&d me t% p&ease m%-e %n. , tr ed t% as6 # m #%' t#e mac# ne 6ne' t#at, !ut #e gn%red m1 8uest %n. , t%%6 a g%%d &%%6 at t#e scann ng s1stem and !e& e-e , #a-e n%' sp%tted t#em at Ienned1, At&anta,

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< am and /%s Ange&es a rp%rts. 7#e %dd part a!%ut t# s s t#at t#ese mac# nes seem t% a&& !e &%cated n t#e cust%ms areas '#ere 1%u enter t#e >.C. $r%m a $%re gn c%untr1. :!- %us&1, t#e1 'ant t% 6n%' $ s%me%ne s carr1 ng m%re t#an ?10,000 nt% t#e >.C. 0%mm%n sense d ctates t#at t#e1 s#%u&d !e m%re c%ncerned a!%ut pe%p&e &ea- ng ' t# m%re t#an ?10,000 $ t#e1Rre rea&&1 tr1 ng t% t#'art t#e drug dea&ers.... unt & 1%u !eg n t% rea& Je t#at t#ere must !e s%me %t#er # dden agenda( 7#e1 are apparent&1 g% ng t% st%p m%ne1 $r%m enter ng t#e >.C. $%r a reas%n. D && t#e Eres dent ca&& $%r t#e c%n$ scat %n %$ a&& g%&d !u&& %n and !u&& %n c% ns as R%%se-e&t d dT D#% ' && end up ' t# tT 7#e Federa& Reser-e C1stem %'ners, ;ust & 6e !e$%re. C nce June 1998, nternat %na& g%&d supp& es #a-e !een s% &%' t#at s%me pr -ate C' ss =an6s #a-e !een pa1 ng a prem um a!%-e t#e mar6et '#%&esa&e -a&ue $%r g%&d !u&& %n. 7# s 'as c%n$ rmed t% us !1 a g%&d and d am%nd m n ng 0# e$ G2ecut -e $r%m Re2 < n ng n 3u nea, Dest A$r ca, '#% supp& es ra' g%&d t% a ma;%r C' ss =an6 ng c%mpan1 sme&ter and pr%cess%r 7#e sp%t g%&d mar6et #as !een man pu&ated t% 6eep t#e pr ce &%' s% t#at t#e Federa& Reser-e C1stem %'ners can purc#ase a&& t#at s a-a &a!&e t#r%ug# t#e r -ar %us trusts and c%rp%rat %ns. D%r&d g%&d a-a &a! & t1 %n t#e %pen mar6et s n%' at a rec%rd &%' and m n ng pr%duct %n %$ g%&d s a&s% at a rec%rd &%' %utput. D#at #appened t% Rsupp&1 and demandR ' t# g%&d and s &-erT 4%rma&&1, '#en supp&1 s # g# t#e pr ce decreases. D#en supp&1 s &%', prec %us meta& pr ces ncrease. Eer#aps t#e pr -ate FGA ' && peg t#e ne' d%&&ar t% g%&d pr ces, as man1 e2perts #a-e a&read1 specu&ated. D#at ' && st%c6s and !%nds purc#ased ' t# %&d d%&&ars !e '%rt# t#enT Eenn es t% t#e d%&&ar, s% t% spea6. D#% ends up !e ng t#e %n&1 ' nnerT 7#e Federa& Reser-e C1stem st%c6#%&ders. 7#e1 c%ntr%& t#e c rcu&at %n am%unts %$ paper m%ne1 n t#e >.C. 0%m! ne t#at ' t# t#e ne' scanner t% st%p &arge am%unts $r%m enter ng nt% t#e >.C., and t#e scenar % am%unts t% a p&anned s#%rtage %$ paper FRC n%tes, t#e !ann ng %$ t#e %&der FR= n%tes, and t#e s%%n t% !e astr%n%m ca& pr ce %$ g%&d '# c# m%st Amer cans ' && !e $%r! dden t% #a-e %r #%ard, %nce aga n. 7#e $acts 'eR-e presented n t# s rep%rt a&& p% nt t% t# s. Ee%p&e ' && !e at t#e merc1 %$ t#e $edera& g%-ernment $%r da &1 $%%d and $%r ;%!s. 0#ec6s are s%%n t% !e t%ta&&1 p#ased %ut. =an6s ssue A7< de! t cards and te&& 1%u t#e1 must c#arge m%re $%r 1%ur acc%unt $ 1%u use a rea& & -e #uman te&&er nstead %$ t#e mac# ne. 7#e s' tc# s !e ng turned %n. 7# s s n%t specu&at %n. 7# s s t#e trut# %$ rea& t1. ,tRs a&read1 !een tested, and t#e r ne' s1stem '%r6s. Just as6 J m <c4e$$ %$ t#e A70. 7#e da1 #as c%me '#en 1%u must dec de t% accept %r re;ect t#e !east and t#e 4e' D%r&d A s%rder.

Eart ,, %$ ,," H%u d%nRt %'n 1%ur Ct%c6s....%r an1 %$ 1%ur =%nds...7#e Aep%s t%r1 7rust 0%mpan1 d%es. !1 Ant#%n1 Da1ne ,n Eart , %$ t# s ser es, e2cerpts %$ '# c# 'ere $ rst pu!& s#ed n 4%-em!er 1995 !1 t#e $%rmer 4%rt# =r dge 4e's, 'e e2p%sed 7#e Aep%s t%r1 7rust 0%mpan1 )A70* as t#e >n6n%'n ? 9.1 7r && %n 0%mpan1. ,t appears t#at %ur start& ng d sc%-er es %$ t#e nner"'%r6 ngs %$ t#e A70 #ad %n&1 scratc#ed t#e sur$ace. DeRd & 6e t% add m%re $ue& t% t# s !&aJ ng $ re !1 $urt#er e2p%s ng t#e A70 and t#%se !e# nd t. 7#e Aep%s t%r1 7rust 0%mpan1 #as gr%'n s nce :ct%!er 1995. :n Ju&1 1998, t# s am%unt 'as est mated !1 a A70 emp&%1ee at m%re t#an ?11 7r && %n. As %$ Apr & 19, 1999, t#e A70 tse&$ #as stated n a press re&ease t#at t#e r asset -a&ue s near&1 ?19 tr && %n. ,n 3 152 1ears, t#e r assets ncreased near&1 ? 10 7r && %n. 7#atRs a &%t %$ st%c6s and !%nds supp%sed&1 #e&d n trust. 7#e &atest trend %-er t#e past ten 1ears s $%r st%c6 and !%nd !r%6ers t% %$$er S!%%6"entr1 %'ners# pS %n&1. G-er1 !%%6"entr1 st%c6 %r !%nd s & tera&&1 %'ned !1 t#e A70. C nce 1985, m%st !%nd and man1 st%c6 ssuers #a-e c%n-erted $r%m t#e ssuance %$ cert $ cates t% !%%6"entr1 s1stems adm n stered and c%ntr%&&ed !1 t#e A70. As %$ <arc# 1999, t#e 4at %na& Cecur t es 0&ear ng 0%rp%rat %n )4C00* and t#e Eart c pants 7rust 0%mpan1 )E70* are n%' merged nt% t#e A70. Eract ca&&1, t#ere snRt %ne st%c6 %r !%nd ssued t#at s n%t c%ntr%&&ed !1 t#e A70. ,$ 1%u purc#ase an1 st%c6 %r !%nd t#r%ug# a !r%6er, t s !e ng #e&d $%r 1%u under a Sstreet nameS !1 t#e A70

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un&ess 1%u #a-e spec $ ca&&1 re8uested t% #%&d t#e cert $ cate 1%urse&$. ,$ 1%u #a-e a !%%6 entr1 st%c6 %r !%nd, 1%u '%nRt !e ssued a cert $ cate. ,tRs mp%rtant t% n%te t#at 1%u #a-e purc#ased t#at part cu&ar st%c6 %r !%nd ' t#%ut !ec%m ng a reg stered #%&der %$ t#e actua& st%c6 %r !%nd cert $ cate. ,nstead, 1%u #a-e !ec%me a !ene$ c a& %'ner. 7#e d $$erence !et'een t#e t'% s & 6e n g#t and da1. 7a6e t#e t me t% a!s%r! and understand t#e $%&&%' ng de$ n t %ns( RG3,C7GRGA F:/AGR" A Reg stered F%&der & tera&&1 p%ssesses, %'ns, and #%&ds, # s st%c6 %r !%nd ' t# # s name appear ng %n t#e $ace %$ t#e cert $ cate. 7#e c%mpan1 t#at ssued t#e cert $ cate #as reg stered t#e %'nerRs )#%&derRs* name %n t#e r %$$ c a& !%%6s. 7# s s t#e sa$est 'a1 t% %'n a paper asset. H%u & tera&&1 p%ssess t#e $u&&1 reg stered cert $ cate and %n&1 1%u can trans$er %r se&& t. =1 a&& R g#ts and de$ n t %n %$ &a', 1%u are t#e %'ner. H%u #a-e t, 1%u #%&d t, 1%u p%ssess t, and 1%u 6eep t. H%u #a-e t#e c%mp&ete c%ntr%& %-er t. =G4GF,0,A/ :D4GR" A =ene$ c a& :'ner s n%t# ng m%re t#an a !ene$ c ar1, S:ne '#% s ent t&ed t% t#e !ene$ t %$ a c%ntractS" A A ct %nar1 %$ /a', 1893. A&& !%%6"entr1 st%c6s and !%nds 1%u purc#ase ma6e 1%u t#e !ene$ c a& %'ner, n%t t#e reg stered #%&der. 7#e %'ner %$ a !%%6"entr1 st%c6 %r !%nd s t#e ent t1 %r name t#at t s reg stered under. 7#e A70 %'ns t#at !%nd %r st%c6, n%t 1%u. Rat#er t#an n 1%ur name, tRs reg stered )as t#e &ega& Reg stered :'ner %r agent* n t#e r Sstreet nameS, 0ede K 0%mpan1. ),n t#e past, t ma1 #a-e !een reg stered n 1%ur !r%6erRs street name, !ut t# s s n% &%nger a&&%'ed*. 7#e A70 s t#e Reg stered :'ner " #%&der " %$ 1%ur st%c6 %r !%nd. 7#e A70 s t#e &ega& pr%pert1"#%&der, s#are"#%&der, st%c6"#%&der, %'ner and purc#aser. H%ur name appears n%'#ere %n t#e !%%6 entr1 %r cert $ cate as t#e actua& %'ner. ,nstead, 1%u #a-e !een des gnated !1 t#e &ega& reg stered %'ner, t#e A70, as t#e =ene$ c a& :'ner. 7# s means t#at 1%ur &a'$u& R g#ts n t#at st%c6 %r !%nd are c%n$ ned t% t#at %$ a success%r %r #e r. At t#e >n -ers t1 %$ >ta# 0%&&ege %$ /a', 'e $%und t#e $%&&%' ng e2am nat %n 8uest %n a!%ut 0ede K 0%.( 7#e c%mm%n st%c6 %$ /arge0%, ,nc. s pu!& c&1 traded %n t#e 4e' H%r6 Ct%c6 G2c#ange. :-er 253rds %$ t#e s#ares are reg stered %n /arge0%Rs !%%6s n t#e name %$ 0ede K 0%. 0ede s a dep%s t%r1 c%mpan1 '# c# #%&ds t#e s#ares as n%m nee %n !e#a&$ %$ !r%6erage $ rms, mutua& $unds and %t#er act -e traders. 7#e !r%6erage $ rms n turn are a&s% n%m nees ' t# respect t% s%me %$ t#e s#ares, '# c# t#e1 #%&d %n !e#a&$ %$ t#e r cust%mers. 4%m nees, suc# as 0ede and !r%6erage $ rms #%&d ng $%r cust%mers, - e' t#e cust%mer as t#e !ene$ c a& %'ner %$ t#e s#ares and c%ns der t#e cust%mer t% !e t#e %ne ' t# t#e r g#t t% -%te t#e s#ares9 mutua& $unds, #%'e-er, - e' t#e $und as t#e %'ner %$ t#e s#ares t #%&ds and -%te t#e s#ares t#emse&-es. <%st %$ t#e rema nder %$ /arge0%Rs st%c6 )26Q %$ t#e t%ta&* s #e&d !1 t#e /arge $am &1, '# c# s st && act -e&1 n-%&-ed n management. /arge0% s a'are t#at t#e !ene$ c a& %'ner %$ a!%ut #a&$ t#e st%c6 reg stered n 0edeRs name s t#e Cma&& $am &1, '#% & -e ne2t d%%r t% t#e /arges n d%'nt%'n R%me, and t#at t#e rema nder %$ t#e 0ede st%c6 s !ene$ c a&&1 %'ned !1 se-era& 'e&& 6n%'n mutua& $unds. Acc%rd ng t% t#e A70, under t#e >C Cecur t1 and G2c#ange 0%mm ss %n )CG0* ru&es, 1%u %n&1 #a-e t#e r g#t t% Srece -e pr%ceeds %r %t#er ad-antages as t#e !ene$ c ar1S. H%u are n%t t#e %'ner... 1%u are t#e c%ns gnee, S:ne '#% #as dep%s ted ' t# a t# rd pers%n an art c&e %$ pr%pert1 $%r t#e !ene$ t %$ a cred t%rS" A A ct %nar1 %$ /a', 1893. ,n &ega& terms, 1%u are c%ns dered t#e #e r presumpt -e %r #e r at &a' t% t#e st%c6 %r !%nd 1%u pa d $%r. 7#e A70 c%ntr%&s, p%ssesses as cred t%r, #%&ds and %'ns 1%ur !%%6"entr1 st%c6 %r !%nd. 7# s s a d $$ cu&t p && t% s'a&&%' $%r t#%se '#% #a-e p&aced t#e r assets n st%c6s and !%nds %-er t#e past decade. H%ur !r%6er sends 1%u a $anc1 acc%unt ng e-er1 m%nt# %$ 1%ur purp%rted #%&d ngs, a&%ng ' t# d - dend and nterest pa1ments pa d. 7#e $act s, 1%u %n&1 rece -e t#e !ene$ t %$ %'ners# p ) nterest and d - dends* ' t#%ut #%&d ng t t&e t% 1%ur pr%pert1. H%u are at t#e merc1 %$ t#e reg stered %'ner, t#e A70. ,$ 1%u d%nRt !e& e-e t# s s true, t#en ca&& 1%ur !r%6er r g#t n%' and as6 t#em '#%Rs name s & sted as t#e Reg stered F%&der %$ 1%ur !%%6"entr1 st%c6s and !%nds. ,$ 1%uRre &uc61, t#e !r%6er ' && te&& 1%u S'#1 %$ c%urse 1%uRre t#e =ene$ c a& :'nerS, t#en 1%uR&& 6n%' t#e trut#. Fe ma1 emp#as Je t% 1%u t#at t#e st%c6s and !%nds are !e ng #e&d n Ssa$e 6eep ngS $%r 1%ur %'n pr%tect %n. 7# s s !r%6er &anguage $%r S1%ur st%c6s and !%nds are #e&d !1 t#e A70 n t#e r street name as t#e cred t%rS. Fr%m J.E. <%rganRs nternet s te(

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Reg stered and !ene$ c a& s#are#%&ders 7#ere are t'% t1pes %$ s#are#%&ders( reg stered, '#% #%&d an AAR n p#1s ca& $%rm, and !ene$ c a&, '#%se AARs are #e&d !1 t# rd"part es and are & sted under a Sn%m neeS %r SstreetS name. Reg stered s#are#%&ders are & sted d rect&1 ' t# t#e ssuer %r ts >.C. trans$er agent. 7#e trans$er agent #and&es t#e rec%rd"6eep ng ass%c ated ' t# c#anges n s#are %'ners# p, d str !ut %n %$ d - dend pa1ments, and n-est%r n8u r es9 t a&s% $ac & tates annua& meet ngs. An ssuerRs dep%s tar1 !an6 can pr%- de t#e dent t es %$ reg stered s#are#%&ders %n a regu&ar !as s. F%'e-er, t# s ma1 n%t pr%- de t#e &e-e& %$ s#are#%&der dent $ cat %n re8u red $%r a success$u& n-est%r re&at %ns e$$%rt. Reg stered s#are#%&ders are t1p ca&&1 nd - dua& n-est%rs '#% #a-e p#1s ca& p%ssess %n %$ t#e r s#are cert $ cates, genera&&1 n &%ts %$ 100 s#ares %r $e'er. 7#e reg stered & st a&s% nc&udes n%m nee names suc# as 0ede K 0%., '# c# represent t#e aggregate p%s t %n %$ t#e Aep%s t%r1 7rust 0%mpan1 )A70*, t#e pr mar1 sa$e6eep ng, c&ear ng, and sett&ement %rgan Jat %n $%r secur t es traded n t#e >n ted Ctates. A70 uses e&ectr%n c !%%6"entr1 t% $ac & tate sett&ement and cust%d1 rat#er t#an t#e p#1s ca& de& -er1 %$ cert $ cates. =ene$ c a& s#are#%&ders, '# c# can nc&ude nd - dua& as 'e&& as nst tut %na& n-est%rs, d% n%t #a-e p#1s ca& p%ssess %n %$ t#e r cert $ cates9 t# rd"part1 !r%6er"dea&ers %r cust%d an !an6s #%&d t#e r secur t es %n t#e r !e#a&$. 7#ese s#ares are sa d t% !e #e&d n street name !ecause t#e1 are 6ept ' t# t#e A70 n t#e name %$ t#e !r%6er"dea&er %r t#e cust%d an !an6 " n%t t#e under&1 ng s#are#%&der. / sts %$ !ene$ c a& s#are#%&ders '#% d% n%t %!;ect t% d sc&%s ng t#e r #%&d ngs are a-a &a!&e $r%m !an6s and !r%6er"dea&ers. 7#ese & sts, ca&&ed 4:=: $%r 4%n":!;ect ng =ene$ c a& :'ner, t1p ca&&1 pr%- de t#e names %$ nd - dua& n-est%rs. 7% #e&p dent $1 nst tut %na& n-est%rs, '#% d% n%t usua&&1 d sc&%se t#e r #%&d ngs, ssuers use pu!& c&1 a-a &a!&e $ & ngs. /arge #%&ders, nc&ud ng n-estment managers, are re8u red t% ma6e per %d c $ & ngs " suc# as 13"F, 13"3, and 13"A " ' t# t#e Cecur t es and G2c#ange 0%mm ss %n )CG0* d sc&%s ng t#e name and -a&ue %$ t#e p%s t %ns n t#e r p%rt$%& %s. D# c# !r ngs us t% t#e street name used, reg stered, and des gnated !1 t#e A70 as t#e reg stered %'ner %$ %-er ?19 7r && %n )>CA* %$ %ur st%c6s and !%nds... 0GAG K 0%. G-er1%ne n t#e !r%6erage !us ness 6eeps pr%n%unc ng t# s name as SCee AeeS and 0%mpan1, !ut tRs spe&&ed 0"G"A"G and pr%n%unced SCeedS. 7# s s '#ere t#e rea& r%n1 c%mes. Acc%rd ng t% =&ac6Rs /a' A ct %nar1, C 2t# Gd t %n, 1990, t#e '%rd 0ede s de$ ned as S7% 1 e&d up9 t% ass gn9 t% grant9 t% surrender9 t% ' t#dra'. 3enera&&1 used t% des gnate t#e trans$er %$ terr t%r1 $r%m %ne g%-ernment t% an%t#erS. ,n t#e =&ac6Rs 1951 F%urt# Gd t %n, t & sts t#e $%&&%' ng as supp%rt -e case &a'9 3%etJe -. >n ted Ctates, 0.0.4.H., 103 Fed. 72. Fa-e 1%u made t#e c%nnect %n 1etT H%ur !%%6"entr1 st%c6s and !%nds and a&& st%c6 and !%nd cert $ cates purc#ased t#r%ug# 1%ur !r%6er and #e&d !1 t#em under 1%ur !r%6erage acc%unt are %'ned !1 0GAG K 0:<EA4H )t#e A70* as t#e reg stered %'ner. H%u #a-e surrendered, ass gned and granted %'ners# p t% s%me%ne e&se %t#er t#an 1%urse&$. 7#e r name sa1s t a&&. F%' r%n c and sarcast c can t#e1 !eT S0GAG" 7% surrender p%ssess %n %$, espec a&&1 !1 treat1. Cee C1n%n1ms at Rre& n8u s#R.S "Amer can Fer tage A ct %nar1 %$ t#e Gng& s# /anguage, 3rd Gd t %n %$ 1992 ,$ Amer cans #ad an1 dea t#at t#e1 #a-e re& n8u s#ed t#e &a'$u& %'ners# p %$ t#e r st%c6s and !%nds t% s%me%ne %r s%met# ng e&se, t#ere '%u&d !e a re-%&ut %n. ,n a sense, t#atRs '#1 'e are e2p%s ng t# s paper asset scam t% 1%u. 7#e p% nt s, n%' t#at 1%u 6n%' t#e trut#, d% s%met# ng a!%ut t and get 1%ur assets !ac6 nt% 1%ur name. :ur suggest %n t% 1%u s t# s( ,$ 1%u d%nRt & tera&&1 #a-e e-er1 st%c6 and !%nd reg stered cert $ cate n 1%ur p%ssess %n, t#en pr%mpt&1 ca&& 1%ur !r%6er and te&& # m 1%u 'ant a&& 1%ur secur t es trans$erred and re"reg stered nt% 1%ur name as t#e Reg stered F%&der and :'ner. ,$ #e sa1s #e canRt d% t#at !ecause 1%ur st%c6 %r !%nd s a !%%6"entr1 transact %n %n&1, 'e str%ng&1 suggest, $%r 1%ur %'n secur t1, t#at 1%u se&& 1%ur !%%6"entr1 assets

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mmed ate&1. A%nRt &et t#e !r%6er te&& 1%u t#at tRs Ssa$erS $%r 1%u $ t#e1 6eep 1%ur cert $ cates. Remem!er, 1%u 6n%' t#e trut#. G-en $ a&& 1%ur st%c6 and !%nd cert $ cates 'ere !urned n a $ re, t#e pr%cess t% #a-e t#em rep&aced s s mp&e. ,$ s%me%ne 'ere t% stea& 1%ur cert $ cates, 1%u s mp&1 rep%rt t#em st%&en t% t#e c%mpan1 t#at ssued t#em and t#e1Rre aut%mat ca&&1 cance&&ed, ;ust & 6e a st%&en cred t card. Rep&acement cert $ cates are t#en ssued t% rep&ace t#e &%st %r st%&en %r g na&s. <%st pe%p&e d%nRt rea& Je t#at '#en t#e1 %pen a !r%6erage acc%unt, t#e1 #a-e entered nt% an c%ntractura& agreement a&&%' ng t#e !r%6er t% ass gn t#e st%c6s and !%nds t% an und sc&%sed cred t%r, t#e A70. )De suggest 1%u read t#e sma&& pr nt %n 1%ur !r%6erage agreement*. 7# s g -es t#e !r%6er 1%ur e2press 'r tten perm ss %n t% p&ace a&& 1%ur secur t es nt% t#e %'ners# p %$ t#e A70. H%ur !r%6er s an agent $%r t#e A70 t#r%ug# mandat%r1 Cecur t es and G2c#ange 0%mm ss %n regu&at %ns and mandates !1 t#e Federa& Reser-e C1stem pr -ate !an6. H%ur !r%6er represents t#em, n%t 1%u. H%ur !r%6erage acc%unt s n%t# ng m%re t#an a &edger %$ acc%unt ng. ,t re$&ects n% assets #e&d n 1%ur name. 7#e assets are reg stered n a Sstreet nameS t#at s n%t 1%u %r 1%ur name. Cure.... 1%u rece -e t#e nterest and d - dends, !ut 1%u d% s% as a !ene$ c ar1 t% t#e rea& %'ner. H%ur !r%6erage acc%unt n n% 'a1, s#ape, %r manner re$&ects '#% & tera&&1 %'ns 1%ur secur t es. D#at 1%u %'n s a !r%6erage acc%unt and n%t# ng m%re. A greater c%ns derat %n s ;ust e2act&1 '#% d%es t#e A70 #%&d t#ese secur t es $%rT As t#e %'ner, '#% #as t#e A70 p&edged t#ese secur t es t%T :ur researc# p% nts t% t#e Federa& Reser-e C1stem, an nternat %na& pr -ate !an6 ng carte& ' t# ma;%r %$$ ces $%und n <%sc%', /%nd%n, 7%61%, and Ee6 ng. =1 treat1 ' t# t#e >n ted 4at %ns and n c%mp& ance ' t# t#e =rett%n D%%ds Agreement, t#e A70 under regu&at %n %$ t#e Federa& Reser-e C1stem #as p&edged a&& t#%se st%c6s and !%nds t% t#e ,nternat %na& <%netar1 Fund ),<F*. 7#ese are t#e same paper secur t es $%und n 1%ur ,RA and pens %n $und acc%unts, as 'e&& as n 1%ur !r%6erage acc%unt. Remem!er, 1%u d%nRt %'n t#em.... 1%uRre ;ust a !ene$ c ar1. 7#e trut# s, t#e secur t es 1%u purc#ased and pa d $%r ' t# 1%ur #ard earned m%ne1 s c%&&atera& $%r t#e >n ted 4at %ns '# c# s !ac6ed !1 t#e Federa& Reser-e C1stem and tRs ass%c ated agenc es, suc# as t#e ,nternat %na& <%netar1 Fund. ,s t an1 '%nder t#at t#e >4 can %perate 1ear a$ter 1ear ' t# ncreas ng !udgets, !ut ' t#%ut su$$ c ent $undsT 7#e >4 #as near&1 ?19 7r && %n %$ !ac6 ng and reser-es, t#an6s t% m && %ns %$ duped Amer cans. De are $ nanc ng t#e 4e' D%r&d A s":rder ' t# %ur st%c6s and !%nds. [W =ac6] [< ng t#e <ec#an c] [Add a c%mment]

01 co""ents 31 :ct 2003 X 14(33 !1 'aa&straat ( 7#e 'a1 , see t A70 s mere&1 st%c6 ng up $%r %ur $a&& ng............. 31 :ct 2003 X 17(44 !1 6%ra-1a ( 7#an6s $%r t# s ,n$% , apprec ate t, and s% t#e Gc%n%m cs students , s#are t ' t#. 0&ear&1, 'e a&& need t% 6n%' '#at 6 nd %$ scenar % 'e ma1 !e &%%6 ng $%r'ard t%. 6 4%- 2003 X 09(14 !1 Cte$ant X80.137.195.30 ( Dea6 7#e m%re , &earn a!%ut t#e S$reeS g&%!a& ec%n%m1 %-er t#e 1ears, t#e m%re un!e& e-a!&e t &%%6s and t#e m%re 'ea6er , $ee&. D#at t% d% ' t# t#e n$%rmat %n n%'T Ce&& t#e $e' s#ares , #%&dT 7# s s%rt %$ n$%rmat %n ma6es &%ng term p&ann ng ncreas ng&1 d $$ cu&t. Cte$an 7# esen 6 4%- 2003 X 14(17 !1 m ng ( ,n-est ng De&&, $ t#e & tt&e secret ment %ned a!%-e actua&&1 resu&ted n a&& st%c6s !e ng c%n$ scated, t#e '%r&d ec%n%m1 '%u&d

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cras#. C%, , d%nRt rea&&1 t# n6 t#atRs '#at an1!%d1 #as n m nd. <%re & 6e&1 t s !e ng used as a c%&&atera&. C%, , '%u&dnRt rea&&1 c#ange m1 n-estment #a! ts !ased %n t# s. A -ers $ cat %n s a&'a1s g%%d, %$ c%urse, s% d%nRt ;ust #a-e st%c6s. 10 4%- 2003 X 03(13 !1 Cte$ant X80.137.206.87 ( ,n-est ng De&& < ng " '#at , mean a&s% s t#at !1 s mp&1 !u1 ng st%c6s, 'e a&& seem t% #and %-er ncred !&e p%'er t% an %rgan Jat %n %$ tremend%us s Je and ' t# t%ta&&1 du! %us g%a&s and n% dem%crat c &eg t mat %n '#ats%e-er. 10 4%- 2003 X 05(29 !1 m ng ( Fand ng %-er p%'er Hea#, !ut t s '%rse t#an t#at. =1 ;ust us ng nat %na& currenc es $%r an1t# ng '#ats%e-er 'e a&& #and %-er ncred !&e p%'er t% essent a&&1 t#e same une&ected !unc# %$ pe%p&e. C%, $ 'e are t% create an a&ternat -e, t '%u&d #a-e t% c%-er m%st aspects %$ '#at 'e need, %r 1%uR&& ;ust !e $eed ng an%t#er arm %$ t#e same m%nster. DeRd need an ec%n%m c s1stem t#at snRt t ed n at a&& ' t# d%&&ars and t#e st%c6 mar6et and !an6s, !ut t#at '%u&d $ && t#e same needs t#at are met $%r us $r%m t#%se. ,.e. an eas1 'a1 %$ gat#er ng and transp%rt ng and st%r ng and e2c#ang ng t%6ens %$ -a&ue. And t#at s n%t as un& 6e&1 a !att&e as t m g#t seem. ,$ s%me!%d1 came up ' t# s%me e2panded Ea1Ea& t1pe %$ sc#eme t#at rea&&1 '%r6ed !etter t#an t#e a&ternat -es, and '# c# 'e c%u&d trust, and '# c# 'as anc#%red nt% d $$erent !edr%c6, &%ts %$ pe%p&e '%u&dnRt &%%6 !ac6 at a&&. 22 Aec 2003 X 14(11 !1 t%n1 X68.14.28.235 ( dtc5cede =an6 dep%s ts appear t% !e s m &ar t% st%c6 Sdep%s tsS ' t# cede. 0#ec6 1%ur state &a's. F%r nstance, n <A, $unds %n genera& dep%s t n a !an6 are t#e pr%pert1 %$ t#e !an6. 7#e !an6 acc%unt s t#e pr%pert1 %$ t#e dep%s t%r, and t#e re&at %ns# p !et'een t#e dep%s t%r and t#e !an6 s t#at %$ cred t%r t% de!t%r. ,$ 1%u #a-e 1%ur pr%pert1 n t#e #ands %$ a t# rd part1, t#e t# rd part1 m g#t un&a'$u&&1 )' t#%ut a c%urt %rder* depr -e 1%u %$ 1%ur asset. :$ c%urse 1%u can t#en sue t#em, $ 1%u can st && a$$%rd t% d% s%V 26 Jun 2004 X 15(02 !1 #sc%tt X68.52.209.126 ( 7r1 ng t% -er $1 , c#ec6ed %ut t#e A70 annua& rep%rt and cann%t $ nd t#e num!ers 1%u suggest. 7#e r Asset c%&umn $%r 2002 s#%'s ?17.9 = && %n 4:7 ?23 7r && %n as 1%u state. And t#e / a! & t1 c%&umn s#%'s appr%2 mate&1 t#e same -a&ue, '# c# '%u&d ma6e sense $ t#e1 are #%&d ng secur t es n trust. D#ere e2act&1 d d 1%u get t#e ?23 7r && %n d%&&ar num!erT 26 Jun 2004 X 16(05 !1 m ng ( Ler $ cat %n 3&ad 1%uRre c#ec6 ng t %ut. De&&, part %$ t#e tr c6 s t#at A70 )'# c# #and&es st%c6 trans$ers* s a separate c%mpan1 $r%m 0GAG )'# c# s t#e &ega& %'ner*, !ut 0GAG s a '#%&&1 %'ned su!s d ar1. 7#e 'a1 , understand t. =ut &et me see aga n '#ere , $%und t#e num!er ... Hea#, t#e d%cument ca&&ed A70 0%ns%& dated F nanc a& Ctatements s#%'s 17.9 ! && %n n assets. , t# n6 t 'as t#e annua& rep%rt. D# c# #as c#anged s nce &ast 1ear and n%' s#%'s t#e 2003 rep%rt. ... C%, t sa1s ts su!s d ar es sett&ed transact %ns '%rt# ?923 tr && %n, and t sa1s t#at -a&ues %$ secur t es %n dep%s t s 24.6 tr && %n, '# c# s%unds & 6e t#at 23 tr && %n num!er $%r 2003 rat#er t#an 2002. Fm, , d% seem t% remem!er t#em sa1 ng t m%re d rect&1, and us ng t#e '%rd SassetsS. =ut t 'as n a s%me'#at pr%m%t %na& p ece )& 6e t#e annua& rep%rt*, '#ere t#e1 'ere !ragg ng a!%ut t, rat#er t#an n t#e r actua& $ nanc a& statement. An1'a1, a 6e1 t% t#e argument s '#at t#e re&at %n s !et'een A70 and 0GAG. ,$ A70 %'ns 0GAG and 0GAG &ega&&1 %'ns t#%se n%' 24.6 tr && %n " t#atRs '#atRs remar6a!&e. G-en $ e-er1!%d1 n-%&-ed ' && sa1 t#at S%#, t s ;ust a $%rma& t1, and %$ c%urse t rea&&1 s t#e st%c6 #%&dersR st%c6sS. :#, e-en $ t#e1 d dnRt %'n t#em, t s#%u&d !e ma;%r ne's t#at t#e1Rre e-en #%&d ng t#at am%unt %$ st%c6s $%r an1!%d1. =ut t#e tru&1 eart#"s#atter ng part '%u&d !e t#e 0GAG part. >n$%rtunate&1, t#e re&at %ns# p !et'een A70 and 0GAG, %r e-en t#e $actua& e2 stence %$ 0GAG, s !ased %n #eresa1 and rum%rs. ,.e. , #a-enRt seen an1 d%cumentat %n %$ t. And %!- %us&1 A70 d%nRt e-en ment %n 0GAG as $ar as , can see. G-en $ t#e1 d% %'n 0GAG, and 0GAG d%es %'n a&& t#e st%c6s, , d%nRt $ nd t surpr s ng t#at t#e1 can get a'a1 ' t# gn%r ng t n t#e r actua& $ nanc a& statement. ,$ t#e aud t%rs e-en 6ne' t#at, t#e1 '%u&d pr%!a!&1 !e 8u te c%ntent ' t# t#e e2p&anat %n t#at, %#, t s ;ust stu$$ 'eRre temp%rar &1 #%&d ng, and t s %$ c%urse a&& t#e cust%merRs

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m%ne1. A&& seems &%g ca& and reas%na!&e. G2cept $%r t#at t snRt, $ t#e &ega& rea& t1, '#en t c%mes d%'n t% t, s t#at t#e1 %'n t and t#e cust%mers d%nRt. 28 Jun 2004 X 09(38 !1 #sc%tt X68.52.209.126 ( re( -er $ cat %n , understand 1%ur c%ncern !ut $r%m a pure acc%unt ng perspect -e t#e ?23 tr && %n d%&&ars n assets '%u&d !e %$$set !1 e2act&1 t#e am%unt n & a! & t es suc# t#at n terms %$ !%%6 -a&ue ts a 'as#. 4e t#er c%mpan1 s S'%rt#S ?23 tr && %n. 7# s $ac & t1 s a!s%&ute&1 necessar1 n %rder t% #a-e a & 8u d mar6etp&ace and t#at & 8u d t1 s a ! g p%rt %n %$ t#e grease t#at 6eeps t#e mac# ne %$ %ur ec%n%m1 m%- ng. 7#e !est t# ng t#at c%u&d !e d%ne t% sta!a& Je t#e mar6ets and de$end us $r%m !u!!&es t#at u&t mate&1 !urst '%u&d !e t% e& m nate t#e ta2at %n %$ d - dends. ,$ a&& c%mpan es pa d d - dends, t#at '%u&d !e a t#r%tt&e s' tc# '# c# pre-ents rrat %na& pr c ng. EG rat %s '%u&d !e #e&d n c#ec6 !1 A - dend He &ds !ecause st%c6#%&ders '%u&d #a-e t'% s%urces %$ -a&ue, t#e e8u t1 -a&ue %$ t#e st%c6 A4A t#e stream %$ cas# $&%'s $r%m d - dends. 7#e &ac6 %$ d - dends !1 m%st c%mpan es s '#at creates up'ard pr ce pressure !e1%nd a rat %na& -a&uat %n %$ a c%mpan1 !ecause t#atRs t#e %n&1 'a1 a pers%n can ma6e a return n t#e mar6ets. G-er1 trade #as a se&&er '#% t# n6 t#e st%c6 s capped %ut and a !u1er '#% t# n6s t #as ups de p%tent a&. 28 Jun 2004 X 14(07 !1 m ng ( Gc%n%m1 ,t s pr%!a!&1 -er1 use$u& t% #a-e mec#an sms & 6e t#at n t#e ec%n%m1. And, ,Rm sure, n%rma& pr%per acc%unt ng '%u&dnRt c%unt t#e ?23 tr && %n as an asset, e-en $ t s n 0GAGRs name s%me %r a&& %$ t#e t me. F%r m%st pe%p&e t matters n%t -er1 muc# $ 0GAG %'ns t#e r st%c6s, !ecause t#e1 &et 1%u trade t#em and get t#e m%ne1. A ! t & 6e #%' m%st e-er1t# ng e&se '%r6s n t#e m%ne1 s1stem. H%u put 1%ur m%ne1 n t#e !an6 ' t#%ut muc# #es tat %n, !ecause 1%u e2pect t#at 1%u can use t '#en 1%u $ee& & 6e t, and m%st %$ t#e t me 1%u can. H%u trust t#e paper m%ne1 %t#ers g -e 1%u, e-en t#%ug# t s %n&1 p eces %$ paper, !ecause 1%u e2pect t#em t% c%n-ert t% stu$$ 1%u 'ant, an1 t me. =ut t can a&s% get t% &%%6 a ! t & 6e mus ca& c#a rs. ,t s n% pr%!&em at a&& as &%ng as t#e mus c 6eeps p&a1 ng. De #%pe t d%esnRt st%p, and ma1!e t '%nRt. =ut $ t d%es, %ne m g#t sudden&1 !ec%me pa n$u&&1 a'are %$ a &%t %$ sma&& pr nt %ne d dnRt pa1 attent %n t%. / 6e t#at %neRs st%c6s are %'ned !1 s%me!%d1 e&se. And , understand t#at t '%r6s n a -er1 s m &ar 'a1 t#e %'ners# p %$ rea& estate and %$ m%t%r -e# c&es. ,R&& #a-e t% 'r te a!%ut t#at s%me %t#er t me. =ut, essent a&&1, un&ess 1%u #a-e a &and patent %n 1%ur &and, t s rea&&1 %'ned !1 a g%-ernment agenc1. D# c# grace$u&&1 &ets 1%u & -e t#ere and use t and act & 6e 1%uRre !u1 ng and se&& ng t. / 6e' se ' t# a car. 7#ereRs a certa n p ece %$ paper t#at m%st pe%p&e d%nRt 6n%' a!%ut t#at t#e $act%r1 sends t% t#e g%-ernment, un&ess 1%u ns st t#at t#e1 d%nRt and g -e t t% 1%u nstead. D# c# &ega&&1 )aga n, ;ust as a $%rma& t1, t% ser-e 1%u !etter* g -es t#e g%-ernment t#e %'ners# p, s% t#e1 can t#en ssue 1%u a p n6 s& p '# c# g -es 1%u t#e r g#t t% use t, nc&ud ng t#e a! & t1 t% trans$er t#at r g#t t% s%me!%d1 e&se )Yse&& ng t*. 30 4%- 2004 X 18(03 !1 Ient X63.85.201.10 ( 4ecess t1T An1 acc%unta! & t1 t% meT #sc%tt sa d( S7# s $ac & t1 s a!s%&ute&1 necessar1 n %rder t% #a-e a & 8u d mar6etp&ace and t#at & 8u d t1 s a ! g p%rt %n %$ t#e grease t#at 6eeps t#e mac# ne %$ %ur ec%n%m1 m%- ng.S /etRs assume 1%ur prem se s c%rrect9 d%es t#e need a&s% ;ust $1 gn%r ng nd - dua& n-est%rs )me*T D# &e , am n%t S%&dS, , #a-e !een ar%und &%ng en%ug# t% 6n%' '#en s%met# ng s n%t %n t#e up"and"up. D#1 a-% d meT 7# s c&ear ng#%use #as n% ad-%cates $%r t#e nd - dua& n-est%r. ,ts sec%ndar1 reas%n $%r e2 stence #as !ec%me t#at %$ $eed ng t#e $ nanc a& c%mmun t1 '#%se & -e&1#%%d depends up%n !ett ng %n t#e $uture -a&ues %$ st%c6. 7rans&at %n( t !ene$ ts t#%se '#% e2pect s%met# ng $%r n%t# ng. Cee m1 & n6 a!%-e $%r m1 $rustrat ng tr a& ' t# t# s Snecessar1 $ac & t1S. 21 Aec 2004 X 18(42 !1 d X66.139.39.158 ( %t#er tr && %n c%mpan esT D#at n$%rmat %nV 7#an6 1%u $%r a&& %$ t#e deta &s.

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/ n6 t% t# s art c&e as( #ttp(55m ng.t-5$&emm ng2.p#p5@@s#%'@art c&e5@a000010"000923.#tm <a n Eage( m ng.t%pent%p a 8CC is not #a$( Three e#e"ents o* #a$ 9u#es and 9egu#ations- )uthority- Contro#( )rtic#e 0 is Henera# !ro,isions( )rtic#e 2 &a#es- )rtic#e 1 ;egotiab#e 3nstru"ents( )rtic#e + is @ank Co##ections( )rtic#e 5 'etters o* Credit- )rtic#e < 3n,est"ent or 2ntit#e"ent &ecurities( There has to be a sa#e or contract under )rtic#e 2 be*ore there is a secured interest( Tit#e 22 section 2<O- 8(&( beca"e "e"ber o* 35F F3nternationa# 5onetary FundG( 8nder @uck )ct a## &tates beca"e an ar" o* the 8nited &tates Ho,ern"ent( )gree"ents are i"%#ied- re"edies are $ritten( 8nderstand co"es *ro" the o#d French $ord $hich "eans to stand under( @ank co""its dece%ti,e trade %ractices by %retending to #end you there Ca%ita# and 3nterest or "oney( 'a$ is re"edy( C#ai"s court is $here co""on #a$ is( 2ntit#e"ent 9ights under )rtic#e < are Four "a7or issues to understand under code as ascertained by !ro*essor Hrant Hi#"ore $ho $rote the book- the #a$ o* ad"ira#ty and )rtic#e B and they are 0(C )ttach"ent 2(C Contro# 1(C !er*ection and +(C 2n*orce"ent( 5ust be a Creditor and 4ebtor( 4ebtor has 2ntit#e"ent 9ights( 4ebtor had to ha,e right- tit#e- and interest in order to %ass it to secured %arty or creditor( 3* bank c#ai"s o$nershi%- $here did they get o$nershi% Z- it had to be so#d to the" by debtor( Jhen 4id bank te## you that you $ere se##ing the" note Z Jhat did they gi,e to you *or note Z 4id 3- 7ust gi,e you the note so 3 cou#d get a #oan o* Ca%ita# and 3nterest Z 4ebtor is de*ined in )rtic#e B?002 A2<C A)C as a %erson ha,ing an interest Fo$nershi%G- other than a security interest or other #ien- in the co##atera#- $hether or not the %erson is an ob#igor( Erganic )ct o* 0<70 created 4istrict o* Co#u"bia and @ureau o* Qita# &tatistics- $here the @irth Certi*icate is registered is an agency o* 4istrict o* Co#u"bia or 8nited &tates( Consent co"es *ro" )ccord( )ttach"ent is the "ost as%ect o* 8CC( !er*ection eRua#s *i#ing( Fi#ing 5akes security agree"ent %ub#ic *i#ing( 2ntit#e"ent is on#y ,a#id i* ,a#ue has been gi,en( 3* the @ank ga,e ,a#ue $here did they get it *ro" Z 4ebtor co##ector "ust ha,e entit#e"ent rights in order to co##ect a debt( !ossession is sub7ect to %ro,isions o* )rtic#e +?200( 3n order to ha,e attach"ent rights they "ust be se##er( 0(C !er*ection F)ttach"entG 2(C !ossession 1(C Contro# F)ttach"entG +(C !riority F$ho is *irst ZG )ttach"ent is %ara"ount( )rtic#e B?002 A2BC 4e%osit account "eans a de"and- ti"e- sa,ings- %assbook- or si"i#ar account "aintained $ith a bank( The ter" does not inc#ude in,est"ent %ro%erty or accounts e,idenced by an instru"ent( &igned sho$s intent( 0?200 A170C( Jho has *irst contro# and attach"ent Z( The 4ebtor does( 0(C )ttach"ent 2(C 2ntit#e"ent 1(C Contro#

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+(C !riority They ha,e to %ro,e there case or c#ai"( Mou ha,e to use cut o** ru#e( !riority ru#e is %urchaser or bi## o* sa#e$hich gi,es attach"ent rights( !ro"issory ;ote is order *or %ay"ent- there is no sa#e agree"ent( )rtic#e 1 is go,erned by )rtic#e +( !ro"issory ;ote is order to %ay( )rtic#e +) 00+ AcC de*ines %ay"ent order Eriginator "eans the sender o* the *irst %ay"ent order in a *unds trans*er( &ecurity 3nter"ediary is @ank( 1(005( 3ssue o* 3nstru"ent(

AaC 3ssue "eans the *irst de#i,ery o* an instru"ent by the "aker or dra$er- $hether to a ho#der or nonho#der- *or the %ur%ose o* gi,ing rights on the instru"ent to any %erson( AbC :o$ are you entit#ed to stand here as the !#ainti** Z :o$ can you ha,e a #ien on so"ething that $as ne,er so#d Z 'oan Eriginator Ji## the rea# bank %#ease stand u% Z )## @anks are nothing but a ser,icer or #aundering "achine and not 'enders- they are under a %oo#ing and ser,ice agree"ent through a %arent Trust Co"%any *or trans*erred Certi*icated &ecurities Fa#so kno$n as %ro"issory notesG *ro" you as the Eriginator under )rtic#e +)?00+ o* 8(C(C( F"eans the sender o* the *irst %ay"ent order in a *unds trans*erG or 3ssue under 1?005 AaC o* the 8(C(C( being the *irst de#i,ery o* an instru"ent by the "aker or dra$er- $hether to a ho#der or nonho#der- *or the %ur%ose o* gi,ing rights on the instru"ent to any %erson and 1?005 AcC 3ssuer issued and unissued instru"ents and "eans a "aker or dra$er o* an instru"ent( 8nder +?002 )%%#icabi#ity AaC To the eDtent that ite"s Fco""ercia# %a%erG $ithin this )rtic#e are a#so $ithin )rtic#es 1 and <- they are sub7ect to those )rtic#es( 3* there is a con*#ict- this )rtic#e go,erns )rtic#e 1but )rtic#e < F3n,est"ent &ecuritiesG go,erns this )rtic#e( )## banks *i#e a 9egistration &tate"ent For" &?1 under the &ecurities )ct o* 0B11 $ith the Co""odity U &ecurities 2Dchange- this *or" under 2Dhibit +(1 states 8;'2&& );4 8;T3' 3T F!9E53&&E9M ;ET2G 3& 2VC:);H24 3; J:E'2 E9 3; !)9T FE9 ;ET2& 3; C29T3F3C)T24 FE95- T:3& ;ET2 5)M ;ET @2 T9);&F29924 2VC2!T )& ) J:E'2 @M T:2 42!E&3TE9M TE ) ;E53;22 EF T:2 42!E&3TE9M E9 @M ) ;E53;22 EF T:2 42!E&3TE9M TE T:2 42!E&3TE9M E9 );ET:29 ;E53;22 EF T:2 42!E&3TE9M E9 @M T:2 42!E&3TE9M E9 );M &8C: ;E53;22 TE ) &8CC2&&E9 42!E&3TE9M E9 ) ;E53;22 EF &8C: &8CC2&&E9 42!E&3T)9M( 8;'2&& T:3& C29T3F3C)T2 3& !92&2;T24 @M ); )8T:E93X24 92!92&2;T)T3Q2 EF T:2 42!E&3TE9M T98&T CE5!);M F55 J)T29 &T922T- ;2J ME9K;2J ME9KG TE T:2 3&&829 E9 3T& )H2;T FE9 92H3&T9)T3E; EF T9);&F29- 2VC:);H2 E9 !)M52;T- );4 );M C29T3F3C)T2 3&&824 3& 92H3&T2924 3; T:2 ;)52 EF C242 U CE( E9 &8C: ET:29 ;)52 )& 92N82&T24 @M ); )8T:E93X24 92!92&2;T)T3Q2 EF T:2 42!E&3TE9M T98&T CE5!);M );4 );M !)M52;T 3& 5)42 TE C242 U CE(- );M T9);&F29- !'24H2 E9 ET:29 8&2 :292EF FE9 Q)'82 E9 ET:29J3&2 @M E9 TE );M !29&E; 3& J9E;HF8' &3;C2 T:2 92H3&T2924 EJ;29 :292EF- C242 U CE(- :)& ); 3;T292&T :2923;( T:2&2 &2C893T32& )92 ;ET &)Q3;H& E9 42!E&3T )CCE8;T& E9 ET:29 E@'3H)T3E;& EF );M @);K E9 ;E;@);K &8@&343)9M EF @);K E;2 CE9!E9)T3E; );4 )92 ;ET 3;&8924 @M T:2 F2429)' 42!E&3TE9M 3;&89);C2 CE9!E9)T3E;- T:2 @);K 3;&89);C2 F8;4 E9 );M HEQ29;52;T)' )H2;CM(

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8nder an indenture agree"ent the bank is to "ake interest %ay"ents at "aturity on the %rinci%a# to the %erson in $hose na"e the note or one or "ore %redecessor &ecurities is registered at the c#ose o* business on the 9egu#ar 9ecord 4ate *or such interest( )ny such interest not %unctua##y %aid or du#y %ro,ided *or sha## *orth$ith cease to be %ayab#e to the ho#der on such 9egu#ar 9ecord 4ate and "ay either be %aid to the %erson in $hose na"e this note For one or "ore !redecessor &ecuritiesG is registered at the c#ose o* business on a &%ecia# 9ecord 4ate *or the %ay"ent o* such 4e*au#ted 3nterest to be *iDed by the Trustee- notice $hereo* sha## be gi,en to the :o#der o* this ;ote not #ess than 00 days %rior to such &%ecia# 9ecord 4ate- or be %aid at any ti"e in any other #a$*u# "anner not inconsistent $ith the reRuire"ents o* any securities( The $ord #ender is de*ined in 5ortgage @anking ter"s *ro" the 5ortgage @ankers )ssociation as a %erson or entity that originates "ortgage #oans( This is a reiteration o* section +)00+ AcC( The 3n,est"ent Co"%any )ct o* 0B+0 section < AaC reRuires a## in,est"ent co"%anies organi6ed or created under the #a$s o* the 8nited &tates to register $ith the &ecurities 2Dchange Co""ission by *i#ing a ;oti*ication o* 9egistration For" ;?<)( For %ur%oses o* the )ct- unincor%orated in,est"ent organi6ationssuch as trusts- *unds- or any organi6ed grou%s o* %ersons- are regarded as distinct entities( 3n such cases it is the trust- the *und or other unincor%orated entity "ust *i#e an indi,idua# noti*ication o* registration( This is true e,en though such entities ha,e been created under and %ursuant to the sa"e indenture o* trust or contract o* custodianshi%- or ha,e the sa"e cor%orate trustee- in,est"ent ad,iser- "anager de%ositor- or distributor o* their securities( )ttention is *urther directed to the *act that a trust or other *or" o* organi6ation $hich issues %eriodic %ay"ent %#an certi*icates and the assets o* $hich are securities issued by an in,est"ent co"%any is itse#* an in,est"ent co"%any- and has such "ust *i#e a noti*ication o* registration inde%endent o* that o* the in,est"ent co"%any the securities o* $hich constitute its assets( 3n,est"ent Co"%anies "ust a#so *i#e a FE95 &?1 92H3&T9)T3E; &T)T252;T under section 02 o* the Co""odities &ecurities 2Dchange )ct o* 0B1+ as a"ended( 1?005 AaC 3ssue "eans the *irst de#i,ery o* an instru"ent by the "arker or dra$er- $hether to a ho#der or nonho#der- *or the %ur%ose o* gi,ing rights on the instru"ent to any %erson( AcC 3ssuer a%%#ies to issued and unissued instru"ents and "eans a "aker or dra$er o* an instru"ent( +)00+( Funds Trans*er?4e*initions 3n this )rtic#e: AaC Funds trans*er "eans the series o* transactions- beginning $ith the originators %ay"ent order- "ade *or the %ur%ose o* "aking %ay"ent to the bene*iciary o* the order( The ter" inc#udes any %ay"ent order issued by the originators bank or an inter"ediary bank intended to carry out the originators %ay"ent

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order( ) *unds trans*er is co"%#eted by acce%tance by the bene*iciarys bank o* a %ay"ent order *or the bene*it o* the bene*iciary o* the originators %ay"ent order( AbC 3nter"ediary bank "eans a recei,ing bank other than the originators bank or the bene*iciarys bank( AcC Eriginator "eans the sender o* the *irst %ay"ent order in a *unds trans*er( AdC Eriginator bank "eans AiC the recei,ing bank to $hich the %ay"ent order o* the originator is issued i* the originator is not a bank- or AiiC the originator i* the originator is a bank( 3ssuer is de*ined in the &ecurities 2Dchange )ct o* 0B11 section 2 A+C as e,ery %erson $ho issues or %ro%oses to issue any security> eDce%t $ith res%ect to certi*icates o* de%osit- ,oting?trust certi*icates- or co##atera#?trust certi*icates- or $ith res%ect to certi*icates o* interest or shares in an unincor%orated in,est"ent trust not ha,ing a board o* directors Aor %ersons %er*or"ing si"i#ar *unctioningC or o* the *iDed- restricted "anage"ent- or unit ty%e- the ter" issuer the %erson or %ersons %er*or"ing the acts and assu"ing the duties o* de%ositor or "anager %ursuant to the %ro,isions o* the trust or other agree"ent or instru"ent under $hich such securities are issued> eDce%t that in the case o* an unincor%orated association $hich %ro,ides by its artic#es *or #i"ited #iabi#ity o* any or a## o* its "e"bersor in the case o* a trust- co""ittee or other #ega# entity> eDce%t that $ith res%ect to eRui%"ent?trust certi*icates or #ike securities- the ter" issuer "eans the %erson by $ho" the eRui%"ent or %ro%erty is to be used> and eDce%t that $ith res%ect to *ractiona# undi,ided interests in oi#- gas- or such right or o* any interest in such right A$hether $ho#e or *ractiona#C $ho creates *ractiona# interests therein *or the %ur%ose o* %ub#ic o**ering(

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