Volume 17 Number 2 -- JUNE 1997

Volume 17 Number 2 -- JUNE 1997

Financial Statements - Fiscal Years Ended September 30, 1996 and 1995



a professional services firm



Report of Independent Accountants


To the Members of the

Municipal Securities Rulemaking Board, Inc.


We have audited the accompaying statements of financial position of the Municipal Securities Rulemaking Board, Inc. (the Board) as of September 30, 1996 and 1995, and the related statements of activities 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, 1996 and 1995, and the changes in its net assets and its cash flows for the years then ended in conformity with generally accepted accounting principles.


As discussed in Note 2 to the financial statements, the Board implemented Statements of Financial Accounting Standards (SFAS) No. 116, "Acccounting for Contributions Received and Contributions Made," and SFAS No. 117 "Financial Statements of Not-for-Profit Organizations."  

Coopers & Lybrand LLP

Washington, D.C.

November 1, 1996







September 30, 1996 and 1995



Asset 1996 1995
Cash and cash equivalents $ 483,191 $ 327,757
Accounts receivable $ 830,849 $ 472,581
Accrued intrest receivable $ 48,155 $ 56,813
Other assets $ 58,518 $ 89,795
Investments $ 6,210,165 $ 6,019,465
Fixed assets, net $ 841,183 $ 1,174,884
Total assets $ 8,472,061 $ 8,141,295




Accounts payable $ 141,673 $ 266,770
Accrued salaries payable $ 105,173 $ 87,561
Deferred revenue $ 19,696 $ 39,393
Deferred rent credit $ 340,817 $ 339,901
Total Liabilities $ 607,359 $ 733,625
Unrestricted net assets $ 7,864,702 $ 7,407,670
Total liabilities and net assets $ 8,472,061 $ 8,141,295




for the years ended September 30, 1996 and 1995


Revenue: 1996 1995
Underwriting assessment fees $ 4,850,173 $ 4,070,747
Annual fees 546,100 272,500
Initial fees 20,600 19,500
MSIL fees 359,606 154,062
Investment income $ 303,933 $ 318,789
Transaction fees $ 1,019,164 ---------------------------------
Board manuals and other $ 107,238 $ 128,985
Total revenue $ 7,206,814 $ 4,964,583


EXPENSES: 1996 1995
Administration and operations $ 1,529,149 $ 1,556,927
Board and committee $ 568,606 $ 526,967
Professional qualifications $ 375,642 $ 351,667
Arbitration $ 244,685 $ 246,273
MSIL $ 2,029,983 $ 2,033,107
Education and communications $ 386,659 $ 398,545
Rulemaking and policy development $ 1,615,058 $ 1,603,195
Total Expenses $ 6,749,782 $ 6,716,681
Change in net assets $ 457,032 ($ 1,752,098)
Unrestricted net assets, begining of year $ 7,407,670 $ 9,159,768
Unrestricted net assets, end of year $7,864,702 $ 7,407,670





for the years ended September 30, 1996 and 1995


  1996 1995
Cash flows from operating activities:    
Change in net assets $ 457,032 ($ 1,752,098)
Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities:    
Depreciation and amortization $ 519,713 $ 637,499
Amortization of investment discount (premium) $ 9,300 ($ 369,508)
Gain on sale of fixed assets -------------------------------- ($ 790)
(Increase) decrease in accounts receivable ($ 358,268) $ 62,718
Decrease (increase) in accrued interest receivable 8,658 (14,016)
Decrease in other assets 31,277 74,155
(Decrease) increase in accounts payable (125,097) 5,706
Increase in accrued salaries payable 17,612 12,672
(Decrease) increase in deferred revenue (19,697) 39,393
Increase in deferred rent credit 916 203,856
Total adjustments 84,414 651,685
Net cash provided by (used in) operating activities 541,446 (1,100,413)
Cash flows from investing activities:    
Purchase of fixed assets (186,012) (482,616)
Proceeds from sale of fixed assets ------------------------------------------------- 918
Purchases of U.S. Treasury notes (5,200,000) (2,733,813)
Maturities of U.S. Treasury notes 5,000,000 4,299,500
Net cash (used in) provided by investing activities (386,012) 1,083,989
Net increase (decrease) in cash and cash equivalents 155,434 (16,424)
Cash and cash equivalents, begining of year : 327,757 344,181
Cash and cash equivalents, end of year $ 483,191 $ 327,757

The accompanying notes are an integral part of these financial statements





1. Organization and nature of activities


The Municipal Securities Rulemaking Board, Inc. (The Board) was established in 1975 pursuant to authority granted by the Security 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.


2. Summary of significant accounting policies


Cash and cash equivalents 

Cash and cash equilalents include cash on hand, time and demand deposits, and money market funds with original 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 funds with high quality financial institutions.



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 December 1998. Effective fiscal year 1997, the Board will be required to adopt Statement of Financial Accounting Standards (SFAS) No. 124, "Accounting For Certain Investments Held by Not-For-Profit Organizations." SFAS No. 124 requires that investments in certain equity securities and all investments in debt securites be reported at fair value. Management does not expect SFAS No. 124 to significantly impact its financial position or change in net assets.


Fixed Assets

 Furniture and fixtures and office equiptment are recorded at cost and are depreciated using 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 the statement of activities.


Underwriting assessment fees

On March 10, 1992, the Board filed with the Securities and Exchange Commission (the SEC) 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 underwriting 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 $200 with respect to each fiscal year of the Board in which the municipal securities broker or municipal securities dealer conducts business.


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 provides, collects, stores, and provides access to information necessary for the municipal securities market. MSIL operates three computer-based information systems - an electronic document system for the collection, storage and dissemination of official statements and advanced refunding documents (the OS/ARD system), a broadcast system for collection and dissemination of material events notices from municipal securities issuers (the CDI system), the collection, processing and dissemination of all inter-dealer transactions for purposes of price transparency and surveillance (the TRS system). Information in these systems are sold to subscribers, primarily commercial information vendors, on a subscription basis with billing quarterly in arrears. In addition, MSIL maintains files for public access of all Forms G-37 - G-38 and other documents. Copying fees are levied at time of use for the reproduction of any documents.


Transaction fees

On May 10, 1996, the SEC approved an amendment to Board Rule A-13 to implement a new transaction fee on each inter-dealer sales transaction in municipal securities. The fee, one-half cent per $1,000 par value of bonds, is levied on the sellers on inter-dealer transactions.  

The new transaction fee will help pay for the Board's transaction reporting program, which is designed to provide the public and federal regulators with pricing and other information on bond trades.

 The new transaction fee was retroactively applied to transactions that settled after March 1, 1996. Dealers are

billed monthly for sales transactions that settled during the previous month. Revenue is recognized when billings are made.


 Management estimates and uncertainties

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.


Adoption of SFAS Nos. 116 and 117

The adoption of SFAS No. 116, "Accounting for Contributions Received and Contributions Made," and SFAS No. 117, "Financial Statements of Not-For-Profit Organizations," was required for fiscal years begining on or after December 15, 1994. The Board adopted the provisions of both SFAS No. 116 and 117, effective October 1, 1995. 

SFAS No. 116 changes the timing and method of recognizing certain contributions. It also requires that unconditional promises to give with payments due in future periods be recorded as receivables and support of either unrestricted, temporarily restricted, or permanently restricted net assets as appropriate, in the period received at their net present value. Conditional promises to give are not recorded as support until the condition upon which they depend has been substantially met by the recipient organization. Adoption of SFAS No. 116 had no significant effect on the net assets or the change in net assets of the Board as of or for the year ended September 30, 1996.

 SFAS No. 117 primarily affects the display of the financial statements and requires that the amounts for each of the three classes of net assets -- unrestricted, temporarily restricted, and permanently restricted -- be displayed in an aggregate statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities. Accordingly, these statements are presented inlieu of the balance sheet and statement of revenues and expenses and changes in fund balance presented in prior years. SFAS No. 117 also requires that a statement of cash flows be presented. This statement has been presented consistant with the prior year. Adoption of SFAS No. 117 also had no significant effect on the financial statements of the Board as the Board has only unrestricted net assets.


3. Lease agreements

 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 $21,609 each month. The Board has indicated its intention to exercise an option to extend the lease term for an additional 60 months at the current market rate.

 In August, 1993, the Board entered into a lease agreement for office space in Washington, D.D. to replace the current lease agreement which was to expire 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.


Future minimum rental cash commitments are as follows:


Year ending September 30 Minimum rentals
1997 $ 652,593
1998 $ 393,288
1999 $ 382,693
2000 $ 323,004
Thereafter $ 966,630
  $ 2,718,208


Total lease expense for office space and equiptment for the years ended September 30, 1996 and 1995, was $830,311 and $779,406, respectively.



4. Retirement plans

 The Board has a defined contribution 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 approximatly $163,557 and $132,662 for the years ended September 30, 1996 and 1995, respectively. 

The Board also has another defined contribution plan in which employees are eligable to participate upon attaining a minimum length of service, if they so choose. 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 $13,610 for the year ended September 30, 1995.


5. 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, 1996 and 1995, since the Board believes that any related business income is not significant.


6. Fixed assets

 Fixed assets consist of the following as of September 30, 1996 and 1995:


  1996 1995
Leasehold improvements $ 480,122 $ 477,932
Office equipment $ 1,589,717 $ 1,410,907
Furniture and fixtures $ 880,133 $ 875,975
Total fixed assets $ 2,949,972 $ 2,764,814
Accumulated depreciation and amortization ($ 2,108,789) ($ 1,589,930)
  $ 841,183 $ 1,174,884

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