(Volume 16, Number 2) JUNE 1996

COOPERS & LYBRAND L.L.P. A professional services firm

Report of Independent Accountants


To the Members of the Municipal Securities Rulemaking Board,Inc.

We have audited the accompanying balance sheets of the Municipal Securities Rulemaking Board, Inc.(the Board) as of September 30, 1995 and 1994, and the related statements of revenues and expenses and changes in fund balance and cash flows for the years then ended. These financial statements are the responsibility of the Board's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Municipal Securities Rulemaking Board, Inc. as of September 30, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P. Washington, D.C. November 14, 1995


MUNICIPAL SECURITIES RULEMAKING BOARD, INC. BALANCE SHEETS

September 30, 1995 and 1994 ___________________________

ASSETS

1995 1994 ____ ____

Cash and cash equivalents $ 327,757 $ 344,181 Investments 6,019,465 7,215,644 Accounts receivable 472,581 535,299 Accrued interest receivable 56,813 42,797 Other assets 89,795 163,950 Fixed assets, net 1,174,884 1,329,895 ___________ __________

Total assets $ 8,141,295 $ 9,631,766 ___________ __________ ___________ __________

LIABILITIES AND FUND BALANCE

Accounts payable $ 266,770 $ 261,064 Accrued vacation pay 87,561 74,889 Deferred revenue 39,393 - Deferred rent credit 339,901 136,045 __________ _________

733,625 471,998

Fund balance 7,407,670 9,159,768 __________ __________

Total liabilities & fund balance $8,141,295 $9,631,766 __________ __________ __________ __________

The accompanying notes are an integral part of these financial statements.

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MUNICIPAL SECURITIES RULEMAKING BOARD, INC.

STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN FUND BALANCE

for the years ended September 30,1995 and 1994

____________

1995 1994 Revenues: ____ ____

Assessment fees $4,070,747 $5,937,999 Annual fees 272,500 275,700 Initial fees 19,500 19,700 MSIL fees 154,062 95,165 Investment income 318,789 284,418 Board manuals and other 128,985 109,389 __________ __________

4,964,583 6,722,371 __________ __________

Expenses: Administration and 1,556,927 2,746,376 operations Board and committee 526,967 631,879 Professional 351,667 210,819 qualifications Arbitration 246,273 141,855 MSIL 2,033,107 1,297,873 Education and 398,545 318,170 communications Rulemaking and 1,603,195 1,097,716 policy development _________ _________

6,716,681 6,444,688

Excess (deficiency)of (1,752,098) 277,683 revenues over expenses

Fund balance, beginning 9,159,768 8,882,085 of year _________ _________

Fund balance, end of $7,407,670 $9,159,768 year __________ __________ __________ __________

The accompanying notes are an integral part of these financial statements.

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MUNICIPAL SECURITIES RULEMAKING BOARD, INC.

STATEMENTS OF CASH FLOWS for the years ended September 30, 1995 and 1994 ____________

1995 1994 ____ ____ Cash flows from operating activities:

Excess (deficiency) of revenues over $(1,752,098) $ 277,683 expenses ____________ _________

Adjustments to reconcile excess (deficiency) of revenues over expenses to net cash provided by (used in) operating activities:

Depreciation and amortization 637,499 500,734 Amortization of investment (369,508) 60,982 premium/discount Loss (gain) on sale of fixed assets (790) 35,686 Decrease in accounts receivable 62,718 498,382 (Increase) decrease in accrued (14,016) 14,253 interest receivable (Increase) decrease in other assets 74,155 (65,467) Increase in accounts payable & accrued 18,378 105,503 vacation pay Increase in deferred revenue 39,393 - Increase in deferred rent credit 203,856 101,255 ________ _________

Total adjustments 651,685 1,251,328 __________ _________

Net cash provided by (used in) (1,100,413) 1,529,011 operating activities __________ _________

Cash flows from investing activities: Purchase of fixed assets (482,616) (854,617) Proceeds from sale of fixed assets 918 9,425 Purchases of U.S. Treasury Notes (2,733,813) (3,219,001) Maturities of U.S. Treasury Notes 4,299,500 2,636,563 _________ ___________

Net cash provided by (used in) 1,083,989 (1,427,630) investing activities _________ ___________

Net increase (decrease) in cash (16,424) 101,381 and cash equivalents Cash and cash equivalents, beginning 344,181 242,800 of year _________ _________

Cash and cash equivalents, end of year $ 327,757 $ 344,181 _________ _________ _________ _________

The accompanying notes are an integral part of these financial statements.

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MUNICIPAL SECURITIES RULEMAKING BOARD, INC.

NOTES TO FINANCIAL STATEMENTS

____________

1. Accounting policies

The Municipal Securities Rulemaking Board, Inc. (the Board)was established in 1975 pursuant to authority granted by the Securities Exchange Act of 1934, as amended by the Securities Acts Amendments of 1975, as an independent, self-regulatory organization charged with rulemaking responsibility for the municipal securities industry. Effective May 17, 1989,the Board became incorporated as a nonprofit, nonstock corporation in the Commonwealth of Virginia.

Assessment fees _______________

On March 10, 1992, the Board filed with the Securities and Exchange Commission an amendment to Rule A-13 on assessments relating to the underwriting of municipal securities offerings. The amendment relates to the Board's method of assessment, the scope of offerings which are assessed and assessment rates.

The underwriting assessment fee is equal to a percentage of the face amount of all municipal securities which are purchased from an issuer as part of a new issue. The fee charged ranges from.001% to .003% of the par value of the offerings.

Revenue from assessment fees is recognized when the underwriter files the offering statement with the Board.

Annual fees ___________

Each municipal securities broker and municipal securities dealer is required to pay an annual fee of $100 with respect to each fiscal year of the Board in which the municipal securities broker or municipal securities dealer conducts business.

Continued

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MUNICIPAL SECURITIES RULEMAKING BOARD, INC.

NOTES TO FINANCIAL STATEMENTS

____________

Initial fees ____________

The initial fee is a one-time fee of $ 100, which is to be paid by every municipal securities broker or municipal securities dealer registered with the Securities and Exchange Commission.

Revenue from initial fees is recognized when received by the Board.

MSIL Fees _________

The Municipal Securities Information Library (MSIL) is an information storage and retrieval process which collects, stores and disseminates official statements and advance refunding documents. The Board charges users of the MSIL system for information retrieval and copy. The fees for these services are recognized when rendered.

Investments ___________

Investments in securities are stated at amortized cost, which approximates market value. Investments consist entirely of U.S. Treasury notes, maturing on various dates through May 1996. It is management's intention to hold each note through maturity.

Fixed assets ____________

Furniture and fixtures and office equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease period or the estimated useful life of the improvement.

When assets are retired or sold, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss arising from such disposition is included in current operations.

Continued

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MUNICIPAL SECURITIES RULEMAKING BOARD, INC.

NOTES TO FINANCIAL STATEMENTS ____________

Cash and cash equivalents _________________________

Cash and cash equivalents include cash on hand, time and demand deposits, and money market funds with maturities of three months or less. Portions of these funds consist of amounts that are maintained in excess of federally insured amounts, and, as a result, subject the Board to a degree of credit risk. The Board's policy is to limit credit risk by depositing its finds with high quality financial institutions.

2. Lease agreements

On November 16, 1984, the Board leased office space under a lease agreement expiring in November 1994. This agreement calls for the Board to receive a rent credit equal to one-half of the base monthly rent for the first 30 months of the lease. This lease was terminated by the Board in May 1994 and settled for $77,500. Accordingly, the remaining rent abatement of $19,290 and the amount incurred to settle the lease were recognized as rent expense in 1994.

On October 1, 1992, the Board entered into a lease agreement for office space in Alexandria, VA for a term of sixty months. This lease was amended in October, 1994 for additional space. The rental payments are $21,101 each month.

In August, 1994, the Board entered into a lease agreement for office space to replace the current lease agreement which expires in November, 1994. The lease term is for 120 months, commencing on March, 1994, with one five year renewal option. The lease agreement also includes a rent abatement period of fifteen months commencing on the second month of the lease term. As a result, the total rental payment was $21,579 for May 1994, and is $22,119 a month commencing September 1995 for the remainder of the lease term, subject to an annual escalation of two and one-half percent (2.5%). For financial reporting purposes, the Board is recognizing rental expense evenly during the 10-year lease term at $22,518.

Continued

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MUNICIPAL SECURITIES RULEMAKING BOARD, INC.

NOTES TO FINANCIAL STATEMENTS

________________

Future minimum rental commitments are as follows:

Year ending Minimum September 30, rentals ____________ _______

1996 $ 637,008 1997 619,034 1998 281,773 1999 299,395 2000 321,022 Thereafter 1,009,165

Total lease expense for office space and equipment for the years ended September 30, 1995 and 1994, was $779,406 and $906,475, respectively.

3. Retirement plans

The Board has a deferred compensation retirement plan which covers all employees. The Board makes contributions to an insurance company based on a percentage of the salaries of covered employees and their lengths of service. Retirement plan costs are funded as they accrue. Employees may also make voluntary contributions. Cost of the plan was approximately $132,662 and $122,300 for the years ended September 30, 1995 and 1994, respectively.

The Board also has a defined contribution plan. All employees are eligible to participate upon attaining a minimum length of service. The Board contributed $0.50 for every $1 contributed by an employee up to 4% of annual compensation, through April 30, 1995. Effective May 1, 1995, employer matching of employee contributions was terminated. The cost of the plan was approximately $13,610 and $17,700 for years ended September 30, 1995 and 1994, respectively.

Continued

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MUNICIPAL SECURITIES RULEMAKING BOARD, INC.

NOTES TO FINANCIAL STATEMENTS ____________

4. Income taxes

Under section 501(c)(6) of the Internal Revenue Code and applicable income tax regulations of the District of Columbia, the Board is exempt from taxes on income other than unrelated business income. No provision for income taxes has been made as of September 30, 1995 and 1994, since the Board believes that any unrelated business income is not significant.

5. Fixed assets Fixed assets consist of the following as of September 30, 1995 and 1994.

1995 1994 ____ ____

Leasehold improvements $ 477,932 $ 304,891 Office equipment 1,410,907 1,155,823 Furniture and fixtures 875,975 827,578 __________ _________

2,764,814 2,288,292

Accumulated depreciation(1,589,930) (958,397) amortization ___________ _________

$1,174,884 $1,329,895 ___________ __________

___________ __________

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