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Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)

Independent Auditors’ Report places a market order for such a security is at risk of receiving an
shortfalls. To mitigate these performance risks, the exchanges and
8. Commitments and Contingencies clearinghouses often require members to post collateral as well as To the Member of National Financial Services LLC: execution price that is substantially different from the market price
at the time the order was placed. As discussed above, this risk can
Assets Pledged and Other Secured Transactions
In the normal course of business, the Company executes, settles
and finances customer, correspondent and proprietary securities
meet certain minimum financial standards. The Company’s maximum
potential liability under these arrangements cannot be quantified.
However, the potential for the Company to be required to make
We have audited the accompanying consolidated statement of
financial condition of National Financial Services LLC and subsidiaries
(the “Company”) as of December 31, 2007. This consolidated financial
be reduced by appropriate use of limit orders. The placement of a
limit order in such situations would address the risk of receiving an
National Financial
transactions. Customer and correspondent transactions include the payments under these arrangements is remote. Accordingly, no statement is the responsibility of the Company’s management. Our execution that is substantially away from the market price that was
sale of securities sold, but not yet purchased (short sales) and the
writing of options. These activities may expose the Company to off-
contingent liability is recorded in the Consolidated Statement of
Financial Condition for these arrangements.
responsibility is to express an opinion on this consolidated financial
statement based on our audit.
quoted at the time the order was placed. However, as with any limit
order in a volatile market, due to order imbalances and fast markets, a
limit order may not receive an execution even if the security is trading
Services LLC
balance-sheet risk arising from the potential that the customer or Collateral We conducted our audit in accordance with auditing standards
counterparty may fail to satisfy its obligations and the collateral will at your limit or better after your order was entered.
At December 31, 2007, the fair value of securities received as collateral generally accepted in the United States of America. Those standards
be insufficient. In these situations, the Company may be required to by the Company that can be repledged, delivered or otherwise require that we plan and perform the audit to obtain reasonable
purchase or sell financial instruments at unfavorable market prices to Access to Fidelity
used was approximately $28,430,237. This collateral was generally assurance about whether the financial statement is free of material Affiliate of Fidelity Brokerage Services LLC
satisfy obligations to customers and counterparties. obtained under reverse repurchase, securities borrowed or margin misstatement. An audit includes consideration of internal control over Fidelity has an ongoing commitment to provide the highest level
The Company seeks to control the risks associated with its customer and lending agreements. Of these securities received as collateral, those financial reporting as a basis for designing audit procedures that are of service and technology to enable you to access your account,
correspondent activities by requiring customers and correspondents with a fair value of approximately $13,247,502 were delivered or appropriate in the circumstances, but not for the purpose of expressing obtain market information, and to enter your orders quickly, easily,
to maintain margin collateral in compliance with various regulatory repledged, generally as collateral under repurchase or securities an opinion on the effectiveness of the Company’s internal control over and efficiently. However, during periods of extraordinary volatility and
and internal guidelines. The Company monitors trade date customer lending agreements or to cover short sales. financial reporting. Accordingly, we express no such opinion. An volume, customers using online or automated trading services may
and correspondent exposure and collateral values daily and requires audit also includes examining, on a test basis, evidence supporting experience delays in accessing their account due to high Internet traffic
In relation to non-cash loan versus pledge securities transactions, or systems capacity limitations. Similarly, customers may experience
customers and correspondents to deposit additional collateral or the Company recorded collateral received from FBS and a related the amounts and disclosures in the financial statement, assessing
reduce positions when necessary. the accounting principles used and significant estimates made by delays in reaching telephone representatives. Please be aware that
obligation to return this collateral. The collateral had a fair value of market conditions, including stock and bond prices, may change
Securities sold, but not yet purchased represent obligations of the $439,386 at December 31, 2007. management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis during these periods. Fidelity offers multiple channels through which
Company to deliver the specified security at the contracted price, Leases you may place orders or access information, including the Web, touch-
and thereby create a liability to purchase the security in the market at for our opinion.
The Company occupies office space under noncancelable operating tone phone, and telephone representatives, so you have alternative
prevailing prices. Accordingly, these transactions result in exposure to leases expiring at various dates through 2016. Future minimum rentals In our opinion, such consolidated statement of financial condition ways to do business with us. Please be assured, we are committed to
market risk as the Company’s ultimate obligation to purchase securities under these leases are $12,593, $12,735, $12,740, $12,754 and $8,181 presents fairly, in all material respects, the financial position of National providing the level of service you expect of Fidelity.
sold, but not yet purchased may exceed the amount recognized in the for each of the years ending December 2008 through December 2012, Financial Services LLC and subsidiaries at December 31, 2007, in
Consolidated Statement of Financial Condition. respectively, and $12,880 thereafter. Certain leases contain escalation conformity with accounting principles generally accepted in the United
In the normal course of business, the Company borrows and lends clauses and renewal options. States of America.
securities to finance securities transactions and to facilitate the Risks and Uncertainties Deloitte & Touche LLP
settlement process. In loaning securities, the Company utilizes The Company generates a significant portion of its revenues by New York, New York
securities owned by customers collateralizing margin debt and providing securities trading, brokerage and clearing activities to February 25, 2008
securities borrowed. domestic customers. Revenues for these services are transaction
Liabilities to other brokers and dealers related to unsettled transactions based. As a result, the Company’s revenues could vary based on the
(e.g., securities failed to receive) are recorded at the amounts for which performance of financial markets around the world. The Company’s Potential Delays in Order Execution and Reporting Consolidated Statement
the securities were acquired and are paid upon the receipt of securities financing is sensitive to interest rate fluctuations that may have an
FBS routes most orders to its affiliated broker-dealer, NFS. Orders
from the other brokers and dealers. impact on the Company’s profitability.
for exchange-listed securities are sent to an exchange specialist for of Financial Condition
The Company seeks to control the risks associated with these Litigation execution. With over-the-counter (“OTC”) securities, NFS either
transactions by establishing and monitoring credit limits for significant In the normal course of business as a clearing broker-dealer, the executes the order as market maker or routes the order to an December 31, 2007
counterparties for each type of transaction and monitoring collateral Company has been named as a defendant in several legal actions and unaffiliated market maker for execution. Market makers generally have
and transaction levels daily. lawsuits. The Company reviews such actions and lawsuits on a case by their own procedures for handling orders (consistent with industry
Guarantees case basis and establishes its reserves in accordance with SFAS No. rules). In periods of heavy trading and price volatility, market makers
The Financial Accounting Standards Board Interpretation No. 45 5, Accounting for Contingencies. Although the ultimate outcome of may alter their procedures on individual stocks or groups of stocks. For
(“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for these actions cannot be ascertained at this time, it is the opinion of example, they may execute orders manually rather than electronically,
Guarantees, Including Indirect Guarantees of Indebtedness of Others, management, after consultation with counsel, that the resolution of or reduce the order size for which they guarantee execution. Changes
requires the Company to disclose information about its obligations such actions will not have a material adverse effect on the financial in trading procedures and other circumstances may result in queues
under certain guarantee arrangements. FIN 45 defines guarantees as condition of the Company. and backlogs of orders, both intraday and at the market opening, and
contracts and indemnification agreements that contingently require Letters of Credit corresponding delays in executions in the OTC and listed markets. In
a guarantor to make payments to the guaranteed party based on At December 31, 2007, the Company had unsecured letters of credit such cases, the execution price of a market order may be significantly
changes in an underlying (such as an interest or foreign exchange outstanding of approximately $790,000. Letters of credit approximating higher or lower than the market price quoted or displayed at the time
rate, security or commodity price, an index or the occurrence or $78,253 were used as collateral for securities borrowed with a market you entered your order. During such heavy trading periods, the quotes
nonoccurrence of a specified event) related to an asset, liability or value of approximately $73,762 and the remaining letters of credit displayed on your computer screen as “real time” may not reflect the
equity security of a guaranteed party. FIN 45 also defines guarantees were used primarily to satisfy margin requirements with the Options current trading price of the security. These conditions may also delay
as contracts that contingently require the guarantor to make payments Clearing Corporation and Euroclear. the transmission of order execution reports. To help you manage The Consolidated Statement of Financial Condition filed pursuant
to the guaranteed party based on another entity’s failure to perform some of the risks of trading in a volatile market, below is a reminder to Rule 17a-5 of the Securities and Exchange Act of 1934 is
Other of the types of orders you may place and how they are handled in the available for inspection at the principal office of the Company and
under an agreement as well as indirect guarantees of the indebtedness The Company has entered into multiple overnight, uncommitted,
of others. market. at the Boston Regional Office of the Commission.
unsecured bank loans with large financial institutions. These loans are
The Company is a member of numerous exchanges and clearing- drawn down periodically to satisfy the daily operating needs of the
houses. Under the membership agreements, members are generally Company and there were no balances outstanding at December 31, IPO Securities Trading in the Secondary Market
required to guarantee the performance of other members. 2007. On September 29, 2005, FMR approved a subordinated loan Due to the extreme volatility that is sometimes associated with trading National Financial Services LLC, Member NYSE, SIPC
Additionally, if a member becomes unable to satisfy its obligations facility for $1,000,000 to be used by NFS. There were no borrowings an IPO in the secondary market (particularly one that is trading at Fidelity Brokerage Services LLC, Member NYSE, SIPC
to the clearinghouse, other members would be required to meet under this facility during the year. a price much higher than the initial offering price), a customer who 457313.2.0 1.706962.117

081106_01_FRIAG_SOFC.indd 1 3/20/08 2:53:58 PM


Consolidated Statement of Financial Condition as Notes to Consolidated Statement of Financial Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
of December 31, 2007 Condition as of December 31, 2007
Furniture, Office Equipment and Leasehold Improvements New Accounting Pronouncements 4. Net Capital Requirements
(Dollars in Thousands) (Dollars in Thousands) Depreciation of furniture and office equipment is computed on a In June 2006, the Financial Accounting Standards Board (“FASB”)
straight-line basis using estimated useful lives which range from three issued FASB Interpretation No. 48, Accounting for Uncertainty in As a registered broker-dealer, NFS is subject to the Uniform Net Capital
to five years. Amortization of leasehold improvements is provided on Income Taxes (“FIN 48”). The Company will adopt the provisions of Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Rule”) in
1. Summary of Significant Accounting Policies a straight-line basis over the lesser of their useful lives or the life of FIN 48 beginning January 1, 2008. This interpretation prescribes a addition to the rules of The New York Stock Exchange Inc. and other
ASSETS Basis of Presentation the lease. recognition threshold and measurement attribute for the financial principal exchanges of which it is a member. NFS has elected the
The Consolidated Statement of Financial Condition includes the statement recognition of a tax position taken or expected to be taken alternative method permitted by the Rule which requires that minimum
Cash ........................................................................................... $ 103,017 Income Taxes net capital, as defined, be the greater of $1,000 or 2% of aggregate
accounts of National Financial Services LLC (“NFS”) and its wholly As single-member limited liability companies, NFS and Combined in a tax return. The adoption of this statement is not expected to
owned subsidiaries, Correspondent Services Corporation (“CSC”) and have a material effect on the Company’s Consolidated Statement of debit items arising from customer transactions. At December 31, 2007,
Federal funds sold ................................................................... 400,000 Collateral LLC are disregarded as entities separate from their owner NFS had net capital of $2,191,254, which was 15.87% of aggregate
Combined Collateral LLC (collectively referred to as the “Company”). and the operations are included in the federal and state income tax Financial Condition.
Cash and securities segregated under All material intercompany transactions and balances have been debit items and exceeded its minimum requirement by $1,915,078.
returns of the Parent. Therefore, the Company has no income tax In September 2006, the FASB issued SFAS No. 157, Fair Value
federal regulations .............................................................. 9,641,407 eliminated. expense/benefit or tax assets/liabilities except with regards to CSC. Measurements (“SFAS 157”), which is effective for the Company’s fiscal 5. Transactions with Affiliated Companies
Securities borrowed ................................................................ 3,498,342 Description of Business CSC accounts for income taxes in accordance with Statement of year beginning January 1, 2008. SFAS 157 defines fair value as the price The Company earned clearing fees for executing and clearing securities
The Company is wholly owned by Fidelity Global Brokerage Group, Financial Accounting Standards No. 109, Accounting for Income Taxes, received to transfer an asset or paid to transfer a liability in an orderly transactions on a fully disclosed basis for Fidelity Brokerage Services
Securities received as collateral ............................................ 439,386 Inc. (the “Parent”), a wholly owned subsidiary of FMR LLC (“FMR”), which requires the recognition of tax benefits or expenses on the transaction between market participants at the measurement date and LLC (“FBS”) and mutual funds managed by an affiliate, respectively.
Receivable from brokers, dealers and formerly FMR Corp. Fidelity Global Brokerage Group, Inc. was formerly temporary differences between the financial reporting and tax basis of further expands disclosures about such fair value measurements. In
included in the consolidated federal income tax return of FMR Corp. assets and liabilities. February 2007, the FASB issued SFAS No. 159, The Fair Value Option NFS collects and distributes FBS’ customer related interest pursuant
clearing organizations......................................................... 895,399 to their clearing agreement. The Company earned fees from affiliated
Effective October 1, 2007, FMR Corp. merged into FMR LLC with FMR Collateralized Securities Transactions for Financial Assets and Financial Liabilities - Including an amendment
Receivable from customers, net of LLC the surviving entity. of FASB Statement No. 115 (“SFAS 159”), which is effective for the companies related to mutual fund transactions and balances.
Resale and repurchase agreements are accounted for as collateralized
allowance of $46,552 .......................................................... 11,622,867 When FMR Corp. merged into FMR LLC, FMR LLC became subject financing transactions and are recorded at their contractual amounts Company’s fiscal year beginning January 1, 2008. SFAS 159 permits Various charges, such as occupancy, administration, computer
to flow-through tax treatment under Subchapter S of the Internal plus accrued interest and are presented on a net-by-counterparty entities to elect to measure many financial instruments at fair value. processing, systems development and certain employee benefits are
Securities owned — at fair value Upon adoption of SFAS 159, an entity may elect the fair value option for allocated to the Company by affiliated companies.
Revenue Code which generally allows taxable income, deductions and basis, where permitted by accounting principles generally accepted
($42,133 pledged as collateral) ......................................... 1,323,112 credits to flow directly to its shareholders but will remain subject to tax in the United States of America. These agreements are generally eligible items that exist at the adoption date. Subsequent to the initial Transactions with affiliated companies are settled with FMR, with the
Resale agreements .................................................................. 341,759 at the entity level in certain state and international jurisdictions. collateralized by U.S. government and government agency securities. adoption, the election of the fair value option should only be made at exception of transactions with FBS which are settled directly. Payable
It is the Company’s policy to take possession of securities purchased initial recognition of the asset or liability or upon a re-measurement to affiliate represents the amounts due to FBS based on their clearing
Furniture, office equipment and leasehold NFS is a registered broker-dealer, a member of various national and event that gives rise to new-basis accounting. SFAS 159 does not
regional stock exchanges, and is licensed to trade on the New York under resale agreements with a market value in excess of the principal agreement. The payable to FBS was $52,256 at December 31, 2007.
improvements, at cost, less accumulated amount loaned plus accrued interest to collateralize these transactions. affect any existing accounting literature that requires certain assets Receivable from FMR of $5,840 is included in other assets on the
Stock Exchange, Inc. NFS provides a wide range of securities related and liabilities to be carried at fair value nor does it eliminate disclosure
depreciation and amortization of $65,775 ..................... 48,743 services to a diverse customer base primarily in the United States. Similarly, the Company is generally required to provide securities to Consolidated Statement of Financial Condition.
counterparties in order to collateralize repurchase agreements. This requirements included in other accounting standards. The adoption of
Other assets .............................................................................. 223,144 The Company’s customer base includes institutional and individual SFAS 157 and SFAS 159 is not expected to have a material effect on the The Company entered into a stock loan transaction with FBS of $9,630
investors, other broker-dealers and corporations, all of which effect collateral is valued daily and the Company may require counterparties at December 31, 2007. The Company also entered into non-cash loan
TOTAL ASSETS ........................................................................ $28,537,176 to deposit additional securities or return securities pledged when Company’s Consolidated Statement of Financial Condition.
transactions in a wide array of financial instruments. NFS engages versus pledge securities transactions with FBS commencing in 2007.
in brokerage, clearance, custody and financing activities for which appropriate. A portion of securities obtained as collateral under resale 2. Receivable from and Payable to Brokers, Dealers The fair value of the collateral was $439,386 at December 31, 2007.
it receives fees from a diverse group of correspondent brokers and agreements are segregated for the exclusive benefit of customers and Clearing Organizations
LIABILITIES AND MEMBER’S EQUITY dealers. NFS also trades on a proprietary basis for itself and the pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. 6. Employee Benefit Plans
Receivable from brokers, dealers and clearing organizations include
correspondent firms for which it clears. Securities borrowed and securities loaned are recorded based on the The Company participated in FMR’s noncontributory trusteed pension
LIABILITIES: amounts receivable for securities not delivered by the Company to
Securities Transactions amount of cash collateral advanced or received. Securities borrowed plan covering all of its eligible employees prior to the plan’s termination
a purchaser by the settlement date, margin deposits, commissions,
Securities loaned .................................................................... $ 1,819,781 Proprietary inventory transactions and the related principal transactions transactions facilitate the settlement process and require the Company of future benefits effective May 31, 2007. Pension expense, excluding
net receivables arising from unsettled trades and the Company’s
Obligation to return securities received revenues are recorded on a trade date basis. to deposit cash, letters of credit or other collateral with the lender. introducing brokers’ margin loans. the effect of plan curtailment in 2007, was allocated to the Company
With respect to securities loaned, the Company receives collateral in based upon its pro rata share of total eligible salary expense of FMR
as collateral from affiliate .................................................. 439,386 Customer Transactions the form of cash or other collateral. The amount of collateral required Payable to brokers, dealers and clearing organizations include amounts and its subsidiaries.
Receivable from and payable to customers include amounts related to to be deposited for securities borrowed, or received for securities payable for securities not received by the Company from a seller
Payable to brokers, dealers and both cash and margin transactions. The Company records customer The Company participates in FMR’s defined contribution profit sharing
loaned, is an amount generally in excess of the market value of the by the settlement date, clearing deposits from introducing brokers,
clearing organizations ....................................................... 2,428,724 transactions on a settlement date basis, which is generally three commissions, net payables arising from unsettled trades and amounts plans covering substantially all employees. Annual contributions to the
applicable securities borrowed or loaned. In non-cash loan versus profit sharing plan are based on either stated percentages of eligible
Payable to customers ............................................................. 20,338,325 business days after trade date, while the related commission revenues pledge securities transactions, the Company, as lender, records the payable to the Company’s introducing brokers.
and clearing fees and related expenses are recorded on a trade date employee compensation or employee contributions.
Securities sold, but not yet purchased—at fair value ...... 156,697 collateral received as both an asset and as a liability, recognizing the 3. Concentrations of Credit Risk
basis. The Company’s customer base is monitored through a review of obligation to return the collateral to the borrower. The Company The Company also participates in FMR’s Retiree Health Retirement
Repurchase agreements ........................................................ 221,547 account balance aging and assessment of customer financial condition. monitors the market value of securities borrowed and loaned, with The Company provides brokerage, clearance, financing and related Plan, a health reimbursement arrangement covering all eligible
An allowance against doubtful receivables is established through a excess collateral retrieved, or additional collateral obtained, when services to a diverse customer base primarily in the United States, employees. The charge is based on the number of full-time and part-
Payable to affiliate .................................................................. 52,256 combination of specific identification of accounts and percentages time employees participating in the plan.
deemed appropriate. including institutional and individual investors and brokers and dealers,
Accrued expenses and other liabilities................................ 512,265 based on aging. NFS collects and distributes introducing brokers’ including affiliates. The Company’s exposure to credit risk associated The Company participates in various FMR share based compensatory
customer related interest pursuant to their clearing agreements. Interest related to collateralized securities transactions is recorded on with these transactions is measured on an individual customer or
TOTAL LIABILITIES .................................................................. 25,968,981 an accrual basis. plans and is allocated a compensation charge that is amortized over
Securities owned by customers, including those that collateralize margin counterparty basis. To reduce the potential for risk concentration, the period in which it is earned. This charge is based on the change in
transactions, are not reflected in the accompanying Consolidated Fair Value of Financial Instruments credit limits are established and continually monitored in light of the Net Asset Value of FMR shares, as defined.
MEMBER’S EQUITY ................................................................ 2,568,195 Assets, including cash, federal funds sold, resale agreements, securities changing customer and market conditions. In the normal course of
Statement of Financial Condition.
TOTAL LIABILITIES AND borrowed, receivables and other assets, are carried at amounts which providing such services, the Company requires collateral on a basis 7. Liability Subordinated to Claims of
Use of Estimates approximate fair value. Securities owned and securities sold, but not consistent with industry practice or regulatory requirements. The type General Creditors
MEMBER’S EQUITY............................................................ $28,537,176 Preparation of the Consolidated Statement of Financial Condition yet purchased are recorded at fair value using quoted market prices and amount of collateral is continually monitored and counterparties On November 3, 1997, the Company entered into a $150,000 revolving
in conformity with accounting principles generally accepted in the for exchange traded securities or dealer price quotations for actual are required to provide additional collateral as necessary.
United States of America requires management to make estimates and or similar instruments. Securities loaned, repurchase agreements, cash subordination agreement with an affiliated company that expired
See notes to consolidated statement of financial condition..
assumptions regarding the outcome of litigation and other matters accrued expenses, payables and other liabilities are carried at amounts on November 3, 2007. There were no borrowings outstanding under
that affect the reported amounts and the disclosure of contingencies which approximate fair value. this agreement.
in the Consolidated Statement of Financial Condition. Actual results
could differ from these estimates.

081106_01_FRIAG_SOFC.indd 2 3/20/08 2:53:58 PM


Consolidated Statement of Financial Condition as Notes to Consolidated Statement of Financial Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
of December 31, 2007 Condition as of December 31, 2007
Furniture, Office Equipment and Leasehold Improvements New Accounting Pronouncements 4. Net Capital Requirements
(Dollars in Thousands) (Dollars in Thousands) Depreciation of furniture and office equipment is computed on a In June 2006, the Financial Accounting Standards Board (“FASB”)
straight-line basis using estimated useful lives which range from three issued FASB Interpretation No. 48, Accounting for Uncertainty in As a registered broker-dealer, NFS is subject to the Uniform Net Capital
to five years. Amortization of leasehold improvements is provided on Income Taxes (“FIN 48”). The Company will adopt the provisions of Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Rule”) in
1. Summary of Significant Accounting Policies a straight-line basis over the lesser of their useful lives or the life of FIN 48 beginning January 1, 2008. This interpretation prescribes a addition to the rules of The New York Stock Exchange Inc. and other
ASSETS Basis of Presentation the lease. recognition threshold and measurement attribute for the financial principal exchanges of which it is a member. NFS has elected the
The Consolidated Statement of Financial Condition includes the statement recognition of a tax position taken or expected to be taken alternative method permitted by the Rule which requires that minimum
Cash ........................................................................................... $ 103,017 Income Taxes net capital, as defined, be the greater of $1,000 or 2% of aggregate
accounts of National Financial Services LLC (“NFS”) and its wholly As single-member limited liability companies, NFS and Combined in a tax return. The adoption of this statement is not expected to
owned subsidiaries, Correspondent Services Corporation (“CSC”) and have a material effect on the Company’s Consolidated Statement of debit items arising from customer transactions. At December 31, 2007,
Federal funds sold ................................................................... 400,000 Collateral LLC are disregarded as entities separate from their owner NFS had net capital of $2,191,254, which was 15.87% of aggregate
Combined Collateral LLC (collectively referred to as the “Company”). and the operations are included in the federal and state income tax Financial Condition.
Cash and securities segregated under All material intercompany transactions and balances have been debit items and exceeded its minimum requirement by $1,915,078.
returns of the Parent. Therefore, the Company has no income tax In September 2006, the FASB issued SFAS No. 157, Fair Value
federal regulations .............................................................. 9,641,407 eliminated. expense/benefit or tax assets/liabilities except with regards to CSC. Measurements (“SFAS 157”), which is effective for the Company’s fiscal 5. Transactions with Affiliated Companies
Securities borrowed ................................................................ 3,498,342 Description of Business CSC accounts for income taxes in accordance with Statement of year beginning January 1, 2008. SFAS 157 defines fair value as the price The Company earned clearing fees for executing and clearing securities
The Company is wholly owned by Fidelity Global Brokerage Group, Financial Accounting Standards No. 109, Accounting for Income Taxes, received to transfer an asset or paid to transfer a liability in an orderly transactions on a fully disclosed basis for Fidelity Brokerage Services
Securities received as collateral ............................................ 439,386 Inc. (the “Parent”), a wholly owned subsidiary of FMR LLC (“FMR”), which requires the recognition of tax benefits or expenses on the transaction between market participants at the measurement date and LLC (“FBS”) and mutual funds managed by an affiliate, respectively.
Receivable from brokers, dealers and formerly FMR Corp. Fidelity Global Brokerage Group, Inc. was formerly temporary differences between the financial reporting and tax basis of further expands disclosures about such fair value measurements. In
included in the consolidated federal income tax return of FMR Corp. assets and liabilities. February 2007, the FASB issued SFAS No. 159, The Fair Value Option NFS collects and distributes FBS’ customer related interest pursuant
clearing organizations......................................................... 895,399 to their clearing agreement. The Company earned fees from affiliated
Effective October 1, 2007, FMR Corp. merged into FMR LLC with FMR Collateralized Securities Transactions for Financial Assets and Financial Liabilities - Including an amendment
Receivable from customers, net of LLC the surviving entity. of FASB Statement No. 115 (“SFAS 159”), which is effective for the companies related to mutual fund transactions and balances.
Resale and repurchase agreements are accounted for as collateralized
allowance of $46,552 .......................................................... 11,622,867 When FMR Corp. merged into FMR LLC, FMR LLC became subject financing transactions and are recorded at their contractual amounts Company’s fiscal year beginning January 1, 2008. SFAS 159 permits Various charges, such as occupancy, administration, computer
to flow-through tax treatment under Subchapter S of the Internal plus accrued interest and are presented on a net-by-counterparty entities to elect to measure many financial instruments at fair value. processing, systems development and certain employee benefits are
Securities owned — at fair value Upon adoption of SFAS 159, an entity may elect the fair value option for allocated to the Company by affiliated companies.
Revenue Code which generally allows taxable income, deductions and basis, where permitted by accounting principles generally accepted
($42,133 pledged as collateral) ......................................... 1,323,112 credits to flow directly to its shareholders but will remain subject to tax in the United States of America. These agreements are generally eligible items that exist at the adoption date. Subsequent to the initial Transactions with affiliated companies are settled with FMR, with the
Resale agreements .................................................................. 341,759 at the entity level in certain state and international jurisdictions. collateralized by U.S. government and government agency securities. adoption, the election of the fair value option should only be made at exception of transactions with FBS which are settled directly. Payable
It is the Company’s policy to take possession of securities purchased initial recognition of the asset or liability or upon a re-measurement to affiliate represents the amounts due to FBS based on their clearing
Furniture, office equipment and leasehold NFS is a registered broker-dealer, a member of various national and event that gives rise to new-basis accounting. SFAS 159 does not
regional stock exchanges, and is licensed to trade on the New York under resale agreements with a market value in excess of the principal agreement. The payable to FBS was $52,256 at December 31, 2007.
improvements, at cost, less accumulated amount loaned plus accrued interest to collateralize these transactions. affect any existing accounting literature that requires certain assets Receivable from FMR of $5,840 is included in other assets on the
Stock Exchange, Inc. NFS provides a wide range of securities related and liabilities to be carried at fair value nor does it eliminate disclosure
depreciation and amortization of $65,775 ..................... 48,743 services to a diverse customer base primarily in the United States. Similarly, the Company is generally required to provide securities to Consolidated Statement of Financial Condition.
counterparties in order to collateralize repurchase agreements. This requirements included in other accounting standards. The adoption of
Other assets .............................................................................. 223,144 The Company’s customer base includes institutional and individual SFAS 157 and SFAS 159 is not expected to have a material effect on the The Company entered into a stock loan transaction with FBS of $9,630
investors, other broker-dealers and corporations, all of which effect collateral is valued daily and the Company may require counterparties at December 31, 2007. The Company also entered into non-cash loan
TOTAL ASSETS ........................................................................ $28,537,176 to deposit additional securities or return securities pledged when Company’s Consolidated Statement of Financial Condition.
transactions in a wide array of financial instruments. NFS engages versus pledge securities transactions with FBS commencing in 2007.
in brokerage, clearance, custody and financing activities for which appropriate. A portion of securities obtained as collateral under resale 2. Receivable from and Payable to Brokers, Dealers The fair value of the collateral was $439,386 at December 31, 2007.
it receives fees from a diverse group of correspondent brokers and agreements are segregated for the exclusive benefit of customers and Clearing Organizations
LIABILITIES AND MEMBER’S EQUITY dealers. NFS also trades on a proprietary basis for itself and the pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. 6. Employee Benefit Plans
Receivable from brokers, dealers and clearing organizations include
correspondent firms for which it clears. Securities borrowed and securities loaned are recorded based on the The Company participated in FMR’s noncontributory trusteed pension
LIABILITIES: amounts receivable for securities not delivered by the Company to
Securities Transactions amount of cash collateral advanced or received. Securities borrowed plan covering all of its eligible employees prior to the plan’s termination
a purchaser by the settlement date, margin deposits, commissions,
Securities loaned .................................................................... $ 1,819,781 Proprietary inventory transactions and the related principal transactions transactions facilitate the settlement process and require the Company of future benefits effective May 31, 2007. Pension expense, excluding
net receivables arising from unsettled trades and the Company’s
Obligation to return securities received revenues are recorded on a trade date basis. to deposit cash, letters of credit or other collateral with the lender. introducing brokers’ margin loans. the effect of plan curtailment in 2007, was allocated to the Company
With respect to securities loaned, the Company receives collateral in based upon its pro rata share of total eligible salary expense of FMR
as collateral from affiliate .................................................. 439,386 Customer Transactions the form of cash or other collateral. The amount of collateral required Payable to brokers, dealers and clearing organizations include amounts and its subsidiaries.
Receivable from and payable to customers include amounts related to to be deposited for securities borrowed, or received for securities payable for securities not received by the Company from a seller
Payable to brokers, dealers and both cash and margin transactions. The Company records customer The Company participates in FMR’s defined contribution profit sharing
loaned, is an amount generally in excess of the market value of the by the settlement date, clearing deposits from introducing brokers,
clearing organizations ....................................................... 2,428,724 transactions on a settlement date basis, which is generally three commissions, net payables arising from unsettled trades and amounts plans covering substantially all employees. Annual contributions to the
applicable securities borrowed or loaned. In non-cash loan versus profit sharing plan are based on either stated percentages of eligible
Payable to customers ............................................................. 20,338,325 business days after trade date, while the related commission revenues pledge securities transactions, the Company, as lender, records the payable to the Company’s introducing brokers.
and clearing fees and related expenses are recorded on a trade date employee compensation or employee contributions.
Securities sold, but not yet purchased—at fair value ...... 156,697 collateral received as both an asset and as a liability, recognizing the 3. Concentrations of Credit Risk
basis. The Company’s customer base is monitored through a review of obligation to return the collateral to the borrower. The Company The Company also participates in FMR’s Retiree Health Retirement
Repurchase agreements ........................................................ 221,547 account balance aging and assessment of customer financial condition. monitors the market value of securities borrowed and loaned, with The Company provides brokerage, clearance, financing and related Plan, a health reimbursement arrangement covering all eligible
An allowance against doubtful receivables is established through a excess collateral retrieved, or additional collateral obtained, when services to a diverse customer base primarily in the United States, employees. The charge is based on the number of full-time and part-
Payable to affiliate .................................................................. 52,256 combination of specific identification of accounts and percentages time employees participating in the plan.
deemed appropriate. including institutional and individual investors and brokers and dealers,
Accrued expenses and other liabilities................................ 512,265 based on aging. NFS collects and distributes introducing brokers’ including affiliates. The Company’s exposure to credit risk associated The Company participates in various FMR share based compensatory
customer related interest pursuant to their clearing agreements. Interest related to collateralized securities transactions is recorded on with these transactions is measured on an individual customer or
TOTAL LIABILITIES .................................................................. 25,968,981 an accrual basis. plans and is allocated a compensation charge that is amortized over
Securities owned by customers, including those that collateralize margin counterparty basis. To reduce the potential for risk concentration, the period in which it is earned. This charge is based on the change in
transactions, are not reflected in the accompanying Consolidated Fair Value of Financial Instruments credit limits are established and continually monitored in light of the Net Asset Value of FMR shares, as defined.
MEMBER’S EQUITY ................................................................ 2,568,195 Assets, including cash, federal funds sold, resale agreements, securities changing customer and market conditions. In the normal course of
Statement of Financial Condition.
TOTAL LIABILITIES AND borrowed, receivables and other assets, are carried at amounts which providing such services, the Company requires collateral on a basis 7. Liability Subordinated to Claims of
Use of Estimates approximate fair value. Securities owned and securities sold, but not consistent with industry practice or regulatory requirements. The type General Creditors
MEMBER’S EQUITY............................................................ $28,537,176 Preparation of the Consolidated Statement of Financial Condition yet purchased are recorded at fair value using quoted market prices and amount of collateral is continually monitored and counterparties On November 3, 1997, the Company entered into a $150,000 revolving
in conformity with accounting principles generally accepted in the for exchange traded securities or dealer price quotations for actual are required to provide additional collateral as necessary.
United States of America requires management to make estimates and or similar instruments. Securities loaned, repurchase agreements, cash subordination agreement with an affiliated company that expired
See notes to consolidated statement of financial condition..
assumptions regarding the outcome of litigation and other matters accrued expenses, payables and other liabilities are carried at amounts on November 3, 2007. There were no borrowings outstanding under
that affect the reported amounts and the disclosure of contingencies which approximate fair value. this agreement.
in the Consolidated Statement of Financial Condition. Actual results
could differ from these estimates.

081106_01_FRIAG_SOFC.indd 2 3/20/08 2:53:58 PM


Consolidated Statement of Financial Condition as Notes to Consolidated Statement of Financial Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
of December 31, 2007 Condition as of December 31, 2007
Furniture, Office Equipment and Leasehold Improvements New Accounting Pronouncements 4. Net Capital Requirements
(Dollars in Thousands) (Dollars in Thousands) Depreciation of furniture and office equipment is computed on a In June 2006, the Financial Accounting Standards Board (“FASB”)
straight-line basis using estimated useful lives which range from three issued FASB Interpretation No. 48, Accounting for Uncertainty in As a registered broker-dealer, NFS is subject to the Uniform Net Capital
to five years. Amortization of leasehold improvements is provided on Income Taxes (“FIN 48”). The Company will adopt the provisions of Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Rule”) in
1. Summary of Significant Accounting Policies a straight-line basis over the lesser of their useful lives or the life of FIN 48 beginning January 1, 2008. This interpretation prescribes a addition to the rules of The New York Stock Exchange Inc. and other
ASSETS Basis of Presentation the lease. recognition threshold and measurement attribute for the financial principal exchanges of which it is a member. NFS has elected the
The Consolidated Statement of Financial Condition includes the statement recognition of a tax position taken or expected to be taken alternative method permitted by the Rule which requires that minimum
Cash ........................................................................................... $ 103,017 Income Taxes net capital, as defined, be the greater of $1,000 or 2% of aggregate
accounts of National Financial Services LLC (“NFS”) and its wholly As single-member limited liability companies, NFS and Combined in a tax return. The adoption of this statement is not expected to
owned subsidiaries, Correspondent Services Corporation (“CSC”) and have a material effect on the Company’s Consolidated Statement of debit items arising from customer transactions. At December 31, 2007,
Federal funds sold ................................................................... 400,000 Collateral LLC are disregarded as entities separate from their owner NFS had net capital of $2,191,254, which was 15.87% of aggregate
Combined Collateral LLC (collectively referred to as the “Company”). and the operations are included in the federal and state income tax Financial Condition.
Cash and securities segregated under All material intercompany transactions and balances have been debit items and exceeded its minimum requirement by $1,915,078.
returns of the Parent. Therefore, the Company has no income tax In September 2006, the FASB issued SFAS No. 157, Fair Value
federal regulations .............................................................. 9,641,407 eliminated. expense/benefit or tax assets/liabilities except with regards to CSC. Measurements (“SFAS 157”), which is effective for the Company’s fiscal 5. Transactions with Affiliated Companies
Securities borrowed ................................................................ 3,498,342 Description of Business CSC accounts for income taxes in accordance with Statement of year beginning January 1, 2008. SFAS 157 defines fair value as the price The Company earned clearing fees for executing and clearing securities
The Company is wholly owned by Fidelity Global Brokerage Group, Financial Accounting Standards No. 109, Accounting for Income Taxes, received to transfer an asset or paid to transfer a liability in an orderly transactions on a fully disclosed basis for Fidelity Brokerage Services
Securities received as collateral ............................................ 439,386 Inc. (the “Parent”), a wholly owned subsidiary of FMR LLC (“FMR”), which requires the recognition of tax benefits or expenses on the transaction between market participants at the measurement date and LLC (“FBS”) and mutual funds managed by an affiliate, respectively.
Receivable from brokers, dealers and formerly FMR Corp. Fidelity Global Brokerage Group, Inc. was formerly temporary differences between the financial reporting and tax basis of further expands disclosures about such fair value measurements. In
included in the consolidated federal income tax return of FMR Corp. assets and liabilities. February 2007, the FASB issued SFAS No. 159, The Fair Value Option NFS collects and distributes FBS’ customer related interest pursuant
clearing organizations......................................................... 895,399 to their clearing agreement. The Company earned fees from affiliated
Effective October 1, 2007, FMR Corp. merged into FMR LLC with FMR Collateralized Securities Transactions for Financial Assets and Financial Liabilities - Including an amendment
Receivable from customers, net of LLC the surviving entity. of FASB Statement No. 115 (“SFAS 159”), which is effective for the companies related to mutual fund transactions and balances.
Resale and repurchase agreements are accounted for as collateralized
allowance of $46,552 .......................................................... 11,622,867 When FMR Corp. merged into FMR LLC, FMR LLC became subject financing transactions and are recorded at their contractual amounts Company’s fiscal year beginning January 1, 2008. SFAS 159 permits Various charges, such as occupancy, administration, computer
to flow-through tax treatment under Subchapter S of the Internal plus accrued interest and are presented on a net-by-counterparty entities to elect to measure many financial instruments at fair value. processing, systems development and certain employee benefits are
Securities owned — at fair value Upon adoption of SFAS 159, an entity may elect the fair value option for allocated to the Company by affiliated companies.
Revenue Code which generally allows taxable income, deductions and basis, where permitted by accounting principles generally accepted
($42,133 pledged as collateral) ......................................... 1,323,112 credits to flow directly to its shareholders but will remain subject to tax in the United States of America. These agreements are generally eligible items that exist at the adoption date. Subsequent to the initial Transactions with affiliated companies are settled with FMR, with the
Resale agreements .................................................................. 341,759 at the entity level in certain state and international jurisdictions. collateralized by U.S. government and government agency securities. adoption, the election of the fair value option should only be made at exception of transactions with FBS which are settled directly. Payable
It is the Company’s policy to take possession of securities purchased initial recognition of the asset or liability or upon a re-measurement to affiliate represents the amounts due to FBS based on their clearing
Furniture, office equipment and leasehold NFS is a registered broker-dealer, a member of various national and event that gives rise to new-basis accounting. SFAS 159 does not
regional stock exchanges, and is licensed to trade on the New York under resale agreements with a market value in excess of the principal agreement. The payable to FBS was $52,256 at December 31, 2007.
improvements, at cost, less accumulated amount loaned plus accrued interest to collateralize these transactions. affect any existing accounting literature that requires certain assets Receivable from FMR of $5,840 is included in other assets on the
Stock Exchange, Inc. NFS provides a wide range of securities related and liabilities to be carried at fair value nor does it eliminate disclosure
depreciation and amortization of $65,775 ..................... 48,743 services to a diverse customer base primarily in the United States. Similarly, the Company is generally required to provide securities to Consolidated Statement of Financial Condition.
counterparties in order to collateralize repurchase agreements. This requirements included in other accounting standards. The adoption of
Other assets .............................................................................. 223,144 The Company’s customer base includes institutional and individual SFAS 157 and SFAS 159 is not expected to have a material effect on the The Company entered into a stock loan transaction with FBS of $9,630
investors, other broker-dealers and corporations, all of which effect collateral is valued daily and the Company may require counterparties at December 31, 2007. The Company also entered into non-cash loan
TOTAL ASSETS ........................................................................ $28,537,176 to deposit additional securities or return securities pledged when Company’s Consolidated Statement of Financial Condition.
transactions in a wide array of financial instruments. NFS engages versus pledge securities transactions with FBS commencing in 2007.
in brokerage, clearance, custody and financing activities for which appropriate. A portion of securities obtained as collateral under resale 2. Receivable from and Payable to Brokers, Dealers The fair value of the collateral was $439,386 at December 31, 2007.
it receives fees from a diverse group of correspondent brokers and agreements are segregated for the exclusive benefit of customers and Clearing Organizations
LIABILITIES AND MEMBER’S EQUITY dealers. NFS also trades on a proprietary basis for itself and the pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. 6. Employee Benefit Plans
Receivable from brokers, dealers and clearing organizations include
correspondent firms for which it clears. Securities borrowed and securities loaned are recorded based on the The Company participated in FMR’s noncontributory trusteed pension
LIABILITIES: amounts receivable for securities not delivered by the Company to
Securities Transactions amount of cash collateral advanced or received. Securities borrowed plan covering all of its eligible employees prior to the plan’s termination
a purchaser by the settlement date, margin deposits, commissions,
Securities loaned .................................................................... $ 1,819,781 Proprietary inventory transactions and the related principal transactions transactions facilitate the settlement process and require the Company of future benefits effective May 31, 2007. Pension expense, excluding
net receivables arising from unsettled trades and the Company’s
Obligation to return securities received revenues are recorded on a trade date basis. to deposit cash, letters of credit or other collateral with the lender. introducing brokers’ margin loans. the effect of plan curtailment in 2007, was allocated to the Company
With respect to securities loaned, the Company receives collateral in based upon its pro rata share of total eligible salary expense of FMR
as collateral from affiliate .................................................. 439,386 Customer Transactions the form of cash or other collateral. The amount of collateral required Payable to brokers, dealers and clearing organizations include amounts and its subsidiaries.
Receivable from and payable to customers include amounts related to to be deposited for securities borrowed, or received for securities payable for securities not received by the Company from a seller
Payable to brokers, dealers and both cash and margin transactions. The Company records customer The Company participates in FMR’s defined contribution profit sharing
loaned, is an amount generally in excess of the market value of the by the settlement date, clearing deposits from introducing brokers,
clearing organizations ....................................................... 2,428,724 transactions on a settlement date basis, which is generally three commissions, net payables arising from unsettled trades and amounts plans covering substantially all employees. Annual contributions to the
applicable securities borrowed or loaned. In non-cash loan versus profit sharing plan are based on either stated percentages of eligible
Payable to customers ............................................................. 20,338,325 business days after trade date, while the related commission revenues pledge securities transactions, the Company, as lender, records the payable to the Company’s introducing brokers.
and clearing fees and related expenses are recorded on a trade date employee compensation or employee contributions.
Securities sold, but not yet purchased—at fair value ...... 156,697 collateral received as both an asset and as a liability, recognizing the 3. Concentrations of Credit Risk
basis. The Company’s customer base is monitored through a review of obligation to return the collateral to the borrower. The Company The Company also participates in FMR’s Retiree Health Retirement
Repurchase agreements ........................................................ 221,547 account balance aging and assessment of customer financial condition. monitors the market value of securities borrowed and loaned, with The Company provides brokerage, clearance, financing and related Plan, a health reimbursement arrangement covering all eligible
An allowance against doubtful receivables is established through a excess collateral retrieved, or additional collateral obtained, when services to a diverse customer base primarily in the United States, employees. The charge is based on the number of full-time and part-
Payable to affiliate .................................................................. 52,256 combination of specific identification of accounts and percentages time employees participating in the plan.
deemed appropriate. including institutional and individual investors and brokers and dealers,
Accrued expenses and other liabilities................................ 512,265 based on aging. NFS collects and distributes introducing brokers’ including affiliates. The Company’s exposure to credit risk associated The Company participates in various FMR share based compensatory
customer related interest pursuant to their clearing agreements. Interest related to collateralized securities transactions is recorded on with these transactions is measured on an individual customer or
TOTAL LIABILITIES .................................................................. 25,968,981 an accrual basis. plans and is allocated a compensation charge that is amortized over
Securities owned by customers, including those that collateralize margin counterparty basis. To reduce the potential for risk concentration, the period in which it is earned. This charge is based on the change in
transactions, are not reflected in the accompanying Consolidated Fair Value of Financial Instruments credit limits are established and continually monitored in light of the Net Asset Value of FMR shares, as defined.
MEMBER’S EQUITY ................................................................ 2,568,195 Assets, including cash, federal funds sold, resale agreements, securities changing customer and market conditions. In the normal course of
Statement of Financial Condition.
TOTAL LIABILITIES AND borrowed, receivables and other assets, are carried at amounts which providing such services, the Company requires collateral on a basis 7. Liability Subordinated to Claims of
Use of Estimates approximate fair value. Securities owned and securities sold, but not consistent with industry practice or regulatory requirements. The type General Creditors
MEMBER’S EQUITY............................................................ $28,537,176 Preparation of the Consolidated Statement of Financial Condition yet purchased are recorded at fair value using quoted market prices and amount of collateral is continually monitored and counterparties On November 3, 1997, the Company entered into a $150,000 revolving
in conformity with accounting principles generally accepted in the for exchange traded securities or dealer price quotations for actual are required to provide additional collateral as necessary.
United States of America requires management to make estimates and or similar instruments. Securities loaned, repurchase agreements, cash subordination agreement with an affiliated company that expired
See notes to consolidated statement of financial condition..
assumptions regarding the outcome of litigation and other matters accrued expenses, payables and other liabilities are carried at amounts on November 3, 2007. There were no borrowings outstanding under
that affect the reported amounts and the disclosure of contingencies which approximate fair value. this agreement.
in the Consolidated Statement of Financial Condition. Actual results
could differ from these estimates.

081106_01_FRIAG_SOFC.indd 2 3/20/08 2:53:58 PM


Consolidated Statement of Financial Condition as Notes to Consolidated Statement of Financial Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
of December 31, 2007 Condition as of December 31, 2007
Furniture, Office Equipment and Leasehold Improvements New Accounting Pronouncements 4. Net Capital Requirements
(Dollars in Thousands) (Dollars in Thousands) Depreciation of furniture and office equipment is computed on a In June 2006, the Financial Accounting Standards Board (“FASB”)
straight-line basis using estimated useful lives which range from three issued FASB Interpretation No. 48, Accounting for Uncertainty in As a registered broker-dealer, NFS is subject to the Uniform Net Capital
to five years. Amortization of leasehold improvements is provided on Income Taxes (“FIN 48”). The Company will adopt the provisions of Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Rule”) in
1. Summary of Significant Accounting Policies a straight-line basis over the lesser of their useful lives or the life of FIN 48 beginning January 1, 2008. This interpretation prescribes a addition to the rules of The New York Stock Exchange Inc. and other
ASSETS Basis of Presentation the lease. recognition threshold and measurement attribute for the financial principal exchanges of which it is a member. NFS has elected the
The Consolidated Statement of Financial Condition includes the statement recognition of a tax position taken or expected to be taken alternative method permitted by the Rule which requires that minimum
Cash ........................................................................................... $ 103,017 Income Taxes net capital, as defined, be the greater of $1,000 or 2% of aggregate
accounts of National Financial Services LLC (“NFS”) and its wholly As single-member limited liability companies, NFS and Combined in a tax return. The adoption of this statement is not expected to
owned subsidiaries, Correspondent Services Corporation (“CSC”) and have a material effect on the Company’s Consolidated Statement of debit items arising from customer transactions. At December 31, 2007,
Federal funds sold ................................................................... 400,000 Collateral LLC are disregarded as entities separate from their owner NFS had net capital of $2,191,254, which was 15.87% of aggregate
Combined Collateral LLC (collectively referred to as the “Company”). and the operations are included in the federal and state income tax Financial Condition.
Cash and securities segregated under All material intercompany transactions and balances have been debit items and exceeded its minimum requirement by $1,915,078.
returns of the Parent. Therefore, the Company has no income tax In September 2006, the FASB issued SFAS No. 157, Fair Value
federal regulations .............................................................. 9,641,407 eliminated. expense/benefit or tax assets/liabilities except with regards to CSC. Measurements (“SFAS 157”), which is effective for the Company’s fiscal 5. Transactions with Affiliated Companies
Securities borrowed ................................................................ 3,498,342 Description of Business CSC accounts for income taxes in accordance with Statement of year beginning January 1, 2008. SFAS 157 defines fair value as the price The Company earned clearing fees for executing and clearing securities
The Company is wholly owned by Fidelity Global Brokerage Group, Financial Accounting Standards No. 109, Accounting for Income Taxes, received to transfer an asset or paid to transfer a liability in an orderly transactions on a fully disclosed basis for Fidelity Brokerage Services
Securities received as collateral ............................................ 439,386 Inc. (the “Parent”), a wholly owned subsidiary of FMR LLC (“FMR”), which requires the recognition of tax benefits or expenses on the transaction between market participants at the measurement date and LLC (“FBS”) and mutual funds managed by an affiliate, respectively.
Receivable from brokers, dealers and formerly FMR Corp. Fidelity Global Brokerage Group, Inc. was formerly temporary differences between the financial reporting and tax basis of further expands disclosures about such fair value measurements. In
included in the consolidated federal income tax return of FMR Corp. assets and liabilities. February 2007, the FASB issued SFAS No. 159, The Fair Value Option NFS collects and distributes FBS’ customer related interest pursuant
clearing organizations......................................................... 895,399 to their clearing agreement. The Company earned fees from affiliated
Effective October 1, 2007, FMR Corp. merged into FMR LLC with FMR Collateralized Securities Transactions for Financial Assets and Financial Liabilities - Including an amendment
Receivable from customers, net of LLC the surviving entity. of FASB Statement No. 115 (“SFAS 159”), which is effective for the companies related to mutual fund transactions and balances.
Resale and repurchase agreements are accounted for as collateralized
allowance of $46,552 .......................................................... 11,622,867 When FMR Corp. merged into FMR LLC, FMR LLC became subject financing transactions and are recorded at their contractual amounts Company’s fiscal year beginning January 1, 2008. SFAS 159 permits Various charges, such as occupancy, administration, computer
to flow-through tax treatment under Subchapter S of the Internal plus accrued interest and are presented on a net-by-counterparty entities to elect to measure many financial instruments at fair value. processing, systems development and certain employee benefits are
Securities owned — at fair value Upon adoption of SFAS 159, an entity may elect the fair value option for allocated to the Company by affiliated companies.
Revenue Code which generally allows taxable income, deductions and basis, where permitted by accounting principles generally accepted
($42,133 pledged as collateral) ......................................... 1,323,112 credits to flow directly to its shareholders but will remain subject to tax in the United States of America. These agreements are generally eligible items that exist at the adoption date. Subsequent to the initial Transactions with affiliated companies are settled with FMR, with the
Resale agreements .................................................................. 341,759 at the entity level in certain state and international jurisdictions. collateralized by U.S. government and government agency securities. adoption, the election of the fair value option should only be made at exception of transactions with FBS which are settled directly. Payable
It is the Company’s policy to take possession of securities purchased initial recognition of the asset or liability or upon a re-measurement to affiliate represents the amounts due to FBS based on their clearing
Furniture, office equipment and leasehold NFS is a registered broker-dealer, a member of various national and event that gives rise to new-basis accounting. SFAS 159 does not
regional stock exchanges, and is licensed to trade on the New York under resale agreements with a market value in excess of the principal agreement. The payable to FBS was $52,256 at December 31, 2007.
improvements, at cost, less accumulated amount loaned plus accrued interest to collateralize these transactions. affect any existing accounting literature that requires certain assets Receivable from FMR of $5,840 is included in other assets on the
Stock Exchange, Inc. NFS provides a wide range of securities related and liabilities to be carried at fair value nor does it eliminate disclosure
depreciation and amortization of $65,775 ..................... 48,743 services to a diverse customer base primarily in the United States. Similarly, the Company is generally required to provide securities to Consolidated Statement of Financial Condition.
counterparties in order to collateralize repurchase agreements. This requirements included in other accounting standards. The adoption of
Other assets .............................................................................. 223,144 The Company’s customer base includes institutional and individual SFAS 157 and SFAS 159 is not expected to have a material effect on the The Company entered into a stock loan transaction with FBS of $9,630
investors, other broker-dealers and corporations, all of which effect collateral is valued daily and the Company may require counterparties at December 31, 2007. The Company also entered into non-cash loan
TOTAL ASSETS ........................................................................ $28,537,176 to deposit additional securities or return securities pledged when Company’s Consolidated Statement of Financial Condition.
transactions in a wide array of financial instruments. NFS engages versus pledge securities transactions with FBS commencing in 2007.
in brokerage, clearance, custody and financing activities for which appropriate. A portion of securities obtained as collateral under resale 2. Receivable from and Payable to Brokers, Dealers The fair value of the collateral was $439,386 at December 31, 2007.
it receives fees from a diverse group of correspondent brokers and agreements are segregated for the exclusive benefit of customers and Clearing Organizations
LIABILITIES AND MEMBER’S EQUITY dealers. NFS also trades on a proprietary basis for itself and the pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. 6. Employee Benefit Plans
Receivable from brokers, dealers and clearing organizations include
correspondent firms for which it clears. Securities borrowed and securities loaned are recorded based on the The Company participated in FMR’s noncontributory trusteed pension
LIABILITIES: amounts receivable for securities not delivered by the Company to
Securities Transactions amount of cash collateral advanced or received. Securities borrowed plan covering all of its eligible employees prior to the plan’s termination
a purchaser by the settlement date, margin deposits, commissions,
Securities loaned .................................................................... $ 1,819,781 Proprietary inventory transactions and the related principal transactions transactions facilitate the settlement process and require the Company of future benefits effective May 31, 2007. Pension expense, excluding
net receivables arising from unsettled trades and the Company’s
Obligation to return securities received revenues are recorded on a trade date basis. to deposit cash, letters of credit or other collateral with the lender. introducing brokers’ margin loans. the effect of plan curtailment in 2007, was allocated to the Company
With respect to securities loaned, the Company receives collateral in based upon its pro rata share of total eligible salary expense of FMR
as collateral from affiliate .................................................. 439,386 Customer Transactions the form of cash or other collateral. The amount of collateral required Payable to brokers, dealers and clearing organizations include amounts and its subsidiaries.
Receivable from and payable to customers include amounts related to to be deposited for securities borrowed, or received for securities payable for securities not received by the Company from a seller
Payable to brokers, dealers and both cash and margin transactions. The Company records customer The Company participates in FMR’s defined contribution profit sharing
loaned, is an amount generally in excess of the market value of the by the settlement date, clearing deposits from introducing brokers,
clearing organizations ....................................................... 2,428,724 transactions on a settlement date basis, which is generally three commissions, net payables arising from unsettled trades and amounts plans covering substantially all employees. Annual contributions to the
applicable securities borrowed or loaned. In non-cash loan versus profit sharing plan are based on either stated percentages of eligible
Payable to customers ............................................................. 20,338,325 business days after trade date, while the related commission revenues pledge securities transactions, the Company, as lender, records the payable to the Company’s introducing brokers.
and clearing fees and related expenses are recorded on a trade date employee compensation or employee contributions.
Securities sold, but not yet purchased—at fair value ...... 156,697 collateral received as both an asset and as a liability, recognizing the 3. Concentrations of Credit Risk
basis. The Company’s customer base is monitored through a review of obligation to return the collateral to the borrower. The Company The Company also participates in FMR’s Retiree Health Retirement
Repurchase agreements ........................................................ 221,547 account balance aging and assessment of customer financial condition. monitors the market value of securities borrowed and loaned, with The Company provides brokerage, clearance, financing and related Plan, a health reimbursement arrangement covering all eligible
An allowance against doubtful receivables is established through a excess collateral retrieved, or additional collateral obtained, when services to a diverse customer base primarily in the United States, employees. The charge is based on the number of full-time and part-
Payable to affiliate .................................................................. 52,256 combination of specific identification of accounts and percentages time employees participating in the plan.
deemed appropriate. including institutional and individual investors and brokers and dealers,
Accrued expenses and other liabilities................................ 512,265 based on aging. NFS collects and distributes introducing brokers’ including affiliates. The Company’s exposure to credit risk associated The Company participates in various FMR share based compensatory
customer related interest pursuant to their clearing agreements. Interest related to collateralized securities transactions is recorded on with these transactions is measured on an individual customer or
TOTAL LIABILITIES .................................................................. 25,968,981 an accrual basis. plans and is allocated a compensation charge that is amortized over
Securities owned by customers, including those that collateralize margin counterparty basis. To reduce the potential for risk concentration, the period in which it is earned. This charge is based on the change in
transactions, are not reflected in the accompanying Consolidated Fair Value of Financial Instruments credit limits are established and continually monitored in light of the Net Asset Value of FMR shares, as defined.
MEMBER’S EQUITY ................................................................ 2,568,195 Assets, including cash, federal funds sold, resale agreements, securities changing customer and market conditions. In the normal course of
Statement of Financial Condition.
TOTAL LIABILITIES AND borrowed, receivables and other assets, are carried at amounts which providing such services, the Company requires collateral on a basis 7. Liability Subordinated to Claims of
Use of Estimates approximate fair value. Securities owned and securities sold, but not consistent with industry practice or regulatory requirements. The type General Creditors
MEMBER’S EQUITY............................................................ $28,537,176 Preparation of the Consolidated Statement of Financial Condition yet purchased are recorded at fair value using quoted market prices and amount of collateral is continually monitored and counterparties On November 3, 1997, the Company entered into a $150,000 revolving
in conformity with accounting principles generally accepted in the for exchange traded securities or dealer price quotations for actual are required to provide additional collateral as necessary.
United States of America requires management to make estimates and or similar instruments. Securities loaned, repurchase agreements, cash subordination agreement with an affiliated company that expired
See notes to consolidated statement of financial condition..
assumptions regarding the outcome of litigation and other matters accrued expenses, payables and other liabilities are carried at amounts on November 3, 2007. There were no borrowings outstanding under
that affect the reported amounts and the disclosure of contingencies which approximate fair value. this agreement.
in the Consolidated Statement of Financial Condition. Actual results
could differ from these estimates.

081106_01_FRIAG_SOFC.indd 2 3/20/08 2:53:58 PM


Consolidated Statement of Financial Condition as Notes to Consolidated Statement of Financial Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
of December 31, 2007 Condition as of December 31, 2007
Furniture, Office Equipment and Leasehold Improvements New Accounting Pronouncements 4. Net Capital Requirements
(Dollars in Thousands) (Dollars in Thousands) Depreciation of furniture and office equipment is computed on a In June 2006, the Financial Accounting Standards Board (“FASB”)
straight-line basis using estimated useful lives which range from three issued FASB Interpretation No. 48, Accounting for Uncertainty in As a registered broker-dealer, NFS is subject to the Uniform Net Capital
to five years. Amortization of leasehold improvements is provided on Income Taxes (“FIN 48”). The Company will adopt the provisions of Rule 15c3-1 under the Securities Exchange Act of 1934 (the “Rule”) in
1. Summary of Significant Accounting Policies a straight-line basis over the lesser of their useful lives or the life of FIN 48 beginning January 1, 2008. This interpretation prescribes a addition to the rules of The New York Stock Exchange Inc. and other
ASSETS Basis of Presentation the lease. recognition threshold and measurement attribute for the financial principal exchanges of which it is a member. NFS has elected the
The Consolidated Statement of Financial Condition includes the statement recognition of a tax position taken or expected to be taken alternative method permitted by the Rule which requires that minimum
Cash ........................................................................................... $ 103,017 Income Taxes net capital, as defined, be the greater of $1,000 or 2% of aggregate
accounts of National Financial Services LLC (“NFS”) and its wholly As single-member limited liability companies, NFS and Combined in a tax return. The adoption of this statement is not expected to
owned subsidiaries, Correspondent Services Corporation (“CSC”) and have a material effect on the Company’s Consolidated Statement of debit items arising from customer transactions. At December 31, 2007,
Federal funds sold ................................................................... 400,000 Collateral LLC are disregarded as entities separate from their owner NFS had net capital of $2,191,254, which was 15.87% of aggregate
Combined Collateral LLC (collectively referred to as the “Company”). and the operations are included in the federal and state income tax Financial Condition.
Cash and securities segregated under All material intercompany transactions and balances have been debit items and exceeded its minimum requirement by $1,915,078.
returns of the Parent. Therefore, the Company has no income tax In September 2006, the FASB issued SFAS No. 157, Fair Value
federal regulations .............................................................. 9,641,407 eliminated. expense/benefit or tax assets/liabilities except with regards to CSC. Measurements (“SFAS 157”), which is effective for the Company’s fiscal 5. Transactions with Affiliated Companies
Securities borrowed ................................................................ 3,498,342 Description of Business CSC accounts for income taxes in accordance with Statement of year beginning January 1, 2008. SFAS 157 defines fair value as the price The Company earned clearing fees for executing and clearing securities
The Company is wholly owned by Fidelity Global Brokerage Group, Financial Accounting Standards No. 109, Accounting for Income Taxes, received to transfer an asset or paid to transfer a liability in an orderly transactions on a fully disclosed basis for Fidelity Brokerage Services
Securities received as collateral ............................................ 439,386 Inc. (the “Parent”), a wholly owned subsidiary of FMR LLC (“FMR”), which requires the recognition of tax benefits or expenses on the transaction between market participants at the measurement date and LLC (“FBS”) and mutual funds managed by an affiliate, respectively.
Receivable from brokers, dealers and formerly FMR Corp. Fidelity Global Brokerage Group, Inc. was formerly temporary differences between the financial reporting and tax basis of further expands disclosures about such fair value measurements. In
included in the consolidated federal income tax return of FMR Corp. assets and liabilities. February 2007, the FASB issued SFAS No. 159, The Fair Value Option NFS collects and distributes FBS’ customer related interest pursuant
clearing organizations......................................................... 895,399 to their clearing agreement. The Company earned fees from affiliated
Effective October 1, 2007, FMR Corp. merged into FMR LLC with FMR Collateralized Securities Transactions for Financial Assets and Financial Liabilities - Including an amendment
Receivable from customers, net of LLC the surviving entity. of FASB Statement No. 115 (“SFAS 159”), which is effective for the companies related to mutual fund transactions and balances.
Resale and repurchase agreements are accounted for as collateralized
allowance of $46,552 .......................................................... 11,622,867 When FMR Corp. merged into FMR LLC, FMR LLC became subject financing transactions and are recorded at their contractual amounts Company’s fiscal year beginning January 1, 2008. SFAS 159 permits Various charges, such as occupancy, administration, computer
to flow-through tax treatment under Subchapter S of the Internal plus accrued interest and are presented on a net-by-counterparty entities to elect to measure many financial instruments at fair value. processing, systems development and certain employee benefits are
Securities owned — at fair value Upon adoption of SFAS 159, an entity may elect the fair value option for allocated to the Company by affiliated companies.
Revenue Code which generally allows taxable income, deductions and basis, where permitted by accounting principles generally accepted
($42,133 pledged as collateral) ......................................... 1,323,112 credits to flow directly to its shareholders but will remain subject to tax in the United States of America. These agreements are generally eligible items that exist at the adoption date. Subsequent to the initial Transactions with affiliated companies are settled with FMR, with the
Resale agreements .................................................................. 341,759 at the entity level in certain state and international jurisdictions. collateralized by U.S. government and government agency securities. adoption, the election of the fair value option should only be made at exception of transactions with FBS which are settled directly. Payable
It is the Company’s policy to take possession of securities purchased initial recognition of the asset or liability or upon a re-measurement to affiliate represents the amounts due to FBS based on their clearing
Furniture, office equipment and leasehold NFS is a registered broker-dealer, a member of various national and event that gives rise to new-basis accounting. SFAS 159 does not
regional stock exchanges, and is licensed to trade on the New York under resale agreements with a market value in excess of the principal agreement. The payable to FBS was $52,256 at December 31, 2007.
improvements, at cost, less accumulated amount loaned plus accrued interest to collateralize these transactions. affect any existing accounting literature that requires certain assets Receivable from FMR of $5,840 is included in other assets on the
Stock Exchange, Inc. NFS provides a wide range of securities related and liabilities to be carried at fair value nor does it eliminate disclosure
depreciation and amortization of $65,775 ..................... 48,743 services to a diverse customer base primarily in the United States. Similarly, the Company is generally required to provide securities to Consolidated Statement of Financial Condition.
counterparties in order to collateralize repurchase agreements. This requirements included in other accounting standards. The adoption of
Other assets .............................................................................. 223,144 The Company’s customer base includes institutional and individual SFAS 157 and SFAS 159 is not expected to have a material effect on the The Company entered into a stock loan transaction with FBS of $9,630
investors, other broker-dealers and corporations, all of which effect collateral is valued daily and the Company may require counterparties at December 31, 2007. The Company also entered into non-cash loan
TOTAL ASSETS ........................................................................ $28,537,176 to deposit additional securities or return securities pledged when Company’s Consolidated Statement of Financial Condition.
transactions in a wide array of financial instruments. NFS engages versus pledge securities transactions with FBS commencing in 2007.
in brokerage, clearance, custody and financing activities for which appropriate. A portion of securities obtained as collateral under resale 2. Receivable from and Payable to Brokers, Dealers The fair value of the collateral was $439,386 at December 31, 2007.
it receives fees from a diverse group of correspondent brokers and agreements are segregated for the exclusive benefit of customers and Clearing Organizations
LIABILITIES AND MEMBER’S EQUITY dealers. NFS also trades on a proprietary basis for itself and the pursuant to Rule 15c3-3 under the Securities Exchange Act of 1934. 6. Employee Benefit Plans
Receivable from brokers, dealers and clearing organizations include
correspondent firms for which it clears. Securities borrowed and securities loaned are recorded based on the The Company participated in FMR’s noncontributory trusteed pension
LIABILITIES: amounts receivable for securities not delivered by the Company to
Securities Transactions amount of cash collateral advanced or received. Securities borrowed plan covering all of its eligible employees prior to the plan’s termination
a purchaser by the settlement date, margin deposits, commissions,
Securities loaned .................................................................... $ 1,819,781 Proprietary inventory transactions and the related principal transactions transactions facilitate the settlement process and require the Company of future benefits effective May 31, 2007. Pension expense, excluding
net receivables arising from unsettled trades and the Company’s
Obligation to return securities received revenues are recorded on a trade date basis. to deposit cash, letters of credit or other collateral with the lender. introducing brokers’ margin loans. the effect of plan curtailment in 2007, was allocated to the Company
With respect to securities loaned, the Company receives collateral in based upon its pro rata share of total eligible salary expense of FMR
as collateral from affiliate .................................................. 439,386 Customer Transactions the form of cash or other collateral. The amount of collateral required Payable to brokers, dealers and clearing organizations include amounts and its subsidiaries.
Receivable from and payable to customers include amounts related to to be deposited for securities borrowed, or received for securities payable for securities not received by the Company from a seller
Payable to brokers, dealers and both cash and margin transactions. The Company records customer The Company participates in FMR’s defined contribution profit sharing
loaned, is an amount generally in excess of the market value of the by the settlement date, clearing deposits from introducing brokers,
clearing organizations ....................................................... 2,428,724 transactions on a settlement date basis, which is generally three commissions, net payables arising from unsettled trades and amounts plans covering substantially all employees. Annual contributions to the
applicable securities borrowed or loaned. In non-cash loan versus profit sharing plan are based on either stated percentages of eligible
Payable to customers ............................................................. 20,338,325 business days after trade date, while the related commission revenues pledge securities transactions, the Company, as lender, records the payable to the Company’s introducing brokers.
and clearing fees and related expenses are recorded on a trade date employee compensation or employee contributions.
Securities sold, but not yet purchased—at fair value ...... 156,697 collateral received as both an asset and as a liability, recognizing the 3. Concentrations of Credit Risk
basis. The Company’s customer base is monitored through a review of obligation to return the collateral to the borrower. The Company The Company also participates in FMR’s Retiree Health Retirement
Repurchase agreements ........................................................ 221,547 account balance aging and assessment of customer financial condition. monitors the market value of securities borrowed and loaned, with The Company provides brokerage, clearance, financing and related Plan, a health reimbursement arrangement covering all eligible
An allowance against doubtful receivables is established through a excess collateral retrieved, or additional collateral obtained, when services to a diverse customer base primarily in the United States, employees. The charge is based on the number of full-time and part-
Payable to affiliate .................................................................. 52,256 combination of specific identification of accounts and percentages time employees participating in the plan.
deemed appropriate. including institutional and individual investors and brokers and dealers,
Accrued expenses and other liabilities................................ 512,265 based on aging. NFS collects and distributes introducing brokers’ including affiliates. The Company’s exposure to credit risk associated The Company participates in various FMR share based compensatory
customer related interest pursuant to their clearing agreements. Interest related to collateralized securities transactions is recorded on with these transactions is measured on an individual customer or
TOTAL LIABILITIES .................................................................. 25,968,981 an accrual basis. plans and is allocated a compensation charge that is amortized over
Securities owned by customers, including those that collateralize margin counterparty basis. To reduce the potential for risk concentration, the period in which it is earned. This charge is based on the change in
transactions, are not reflected in the accompanying Consolidated Fair Value of Financial Instruments credit limits are established and continually monitored in light of the Net Asset Value of FMR shares, as defined.
MEMBER’S EQUITY ................................................................ 2,568,195 Assets, including cash, federal funds sold, resale agreements, securities changing customer and market conditions. In the normal course of
Statement of Financial Condition.
TOTAL LIABILITIES AND borrowed, receivables and other assets, are carried at amounts which providing such services, the Company requires collateral on a basis 7. Liability Subordinated to Claims of
Use of Estimates approximate fair value. Securities owned and securities sold, but not consistent with industry practice or regulatory requirements. The type General Creditors
MEMBER’S EQUITY............................................................ $28,537,176 Preparation of the Consolidated Statement of Financial Condition yet purchased are recorded at fair value using quoted market prices and amount of collateral is continually monitored and counterparties On November 3, 1997, the Company entered into a $150,000 revolving
in conformity with accounting principles generally accepted in the for exchange traded securities or dealer price quotations for actual are required to provide additional collateral as necessary.
United States of America requires management to make estimates and or similar instruments. Securities loaned, repurchase agreements, cash subordination agreement with an affiliated company that expired
See notes to consolidated statement of financial condition..
assumptions regarding the outcome of litigation and other matters accrued expenses, payables and other liabilities are carried at amounts on November 3, 2007. There were no borrowings outstanding under
that affect the reported amounts and the disclosure of contingencies which approximate fair value. this agreement.
in the Consolidated Statement of Financial Condition. Actual results
could differ from these estimates.

081106_01_FRIAG_SOFC.indd 2 3/20/08 2:53:58 PM


Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
Independent Auditors’ Report places a market order for such a security is at risk of receiving an
shortfalls. To mitigate these performance risks, the exchanges and
8. Commitments and Contingencies clearinghouses often require members to post collateral as well as To the Member of National Financial Services LLC: execution price that is substantially different from the market price
at the time the order was placed. As discussed above, this risk can
Assets Pledged and Other Secured Transactions
In the normal course of business, the Company executes, settles
and finances customer, correspondent and proprietary securities
meet certain minimum financial standards. The Company’s maximum
potential liability under these arrangements cannot be quantified.
However, the potential for the Company to be required to make
We have audited the accompanying consolidated statement of
financial condition of National Financial Services LLC and subsidiaries
(the “Company”) as of December 31, 2007. This consolidated financial
be reduced by appropriate use of limit orders. The placement of a
limit order in such situations would address the risk of receiving an
National Financial
transactions. Customer and correspondent transactions include the payments under these arrangements is remote. Accordingly, no statement is the responsibility of the Company’s management. Our execution that is substantially away from the market price that was
sale of securities sold, but not yet purchased (short sales) and the
writing of options. These activities may expose the Company to off-
contingent liability is recorded in the Consolidated Statement of
Financial Condition for these arrangements.
responsibility is to express an opinion on this consolidated financial
statement based on our audit.
quoted at the time the order was placed. However, as with any limit
order in a volatile market, due to order imbalances and fast markets, a
limit order may not receive an execution even if the security is trading
Services LLC
balance-sheet risk arising from the potential that the customer or Collateral We conducted our audit in accordance with auditing standards
counterparty may fail to satisfy its obligations and the collateral will at your limit or better after your order was entered.
At December 31, 2007, the fair value of securities received as collateral generally accepted in the United States of America. Those standards
be insufficient. In these situations, the Company may be required to by the Company that can be repledged, delivered or otherwise require that we plan and perform the audit to obtain reasonable
purchase or sell financial instruments at unfavorable market prices to Access to Fidelity
used was approximately $28,430,237. This collateral was generally assurance about whether the financial statement is free of material Affiliate of Fidelity Brokerage Services LLC
satisfy obligations to customers and counterparties. obtained under reverse repurchase, securities borrowed or margin misstatement. An audit includes consideration of internal control over Fidelity has an ongoing commitment to provide the highest level
The Company seeks to control the risks associated with its customer and lending agreements. Of these securities received as collateral, those financial reporting as a basis for designing audit procedures that are of service and technology to enable you to access your account,
correspondent activities by requiring customers and correspondents with a fair value of approximately $13,247,502 were delivered or appropriate in the circumstances, but not for the purpose of expressing obtain market information, and to enter your orders quickly, easily,
to maintain margin collateral in compliance with various regulatory repledged, generally as collateral under repurchase or securities an opinion on the effectiveness of the Company’s internal control over and efficiently. However, during periods of extraordinary volatility and
and internal guidelines. The Company monitors trade date customer lending agreements or to cover short sales. financial reporting. Accordingly, we express no such opinion. An volume, customers using online or automated trading services may
and correspondent exposure and collateral values daily and requires audit also includes examining, on a test basis, evidence supporting experience delays in accessing their account due to high Internet traffic
In relation to non-cash loan versus pledge securities transactions, or systems capacity limitations. Similarly, customers may experience
customers and correspondents to deposit additional collateral or the Company recorded collateral received from FBS and a related the amounts and disclosures in the financial statement, assessing
reduce positions when necessary. the accounting principles used and significant estimates made by delays in reaching telephone representatives. Please be aware that
obligation to return this collateral. The collateral had a fair value of market conditions, including stock and bond prices, may change
Securities sold, but not yet purchased represent obligations of the $439,386 at December 31, 2007. management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis during these periods. Fidelity offers multiple channels through which
Company to deliver the specified security at the contracted price, Leases you may place orders or access information, including the Web, touch-
and thereby create a liability to purchase the security in the market at for our opinion.
The Company occupies office space under noncancelable operating tone phone, and telephone representatives, so you have alternative
prevailing prices. Accordingly, these transactions result in exposure to leases expiring at various dates through 2016. Future minimum rentals In our opinion, such consolidated statement of financial condition ways to do business with us. Please be assured, we are committed to
market risk as the Company’s ultimate obligation to purchase securities under these leases are $12,593, $12,735, $12,740, $12,754 and $8,181 presents fairly, in all material respects, the financial position of National providing the level of service you expect of Fidelity.
sold, but not yet purchased may exceed the amount recognized in the for each of the years ending December 2008 through December 2012, Financial Services LLC and subsidiaries at December 31, 2007, in
Consolidated Statement of Financial Condition. respectively, and $12,880 thereafter. Certain leases contain escalation conformity with accounting principles generally accepted in the United
In the normal course of business, the Company borrows and lends clauses and renewal options. States of America.
securities to finance securities transactions and to facilitate the Risks and Uncertainties Deloitte & Touche LLP
settlement process. In loaning securities, the Company utilizes The Company generates a significant portion of its revenues by New York, New York
securities owned by customers collateralizing margin debt and providing securities trading, brokerage and clearing activities to February 25, 2008
securities borrowed. domestic customers. Revenues for these services are transaction
Liabilities to other brokers and dealers related to unsettled transactions based. As a result, the Company’s revenues could vary based on the
(e.g., securities failed to receive) are recorded at the amounts for which performance of financial markets around the world. The Company’s Potential Delays in Order Execution and Reporting Consolidated Statement
the securities were acquired and are paid upon the receipt of securities financing is sensitive to interest rate fluctuations that may have an
FBS routes most orders to its affiliated broker-dealer, NFS. Orders
from the other brokers and dealers. impact on the Company’s profitability.
for exchange-listed securities are sent to an exchange specialist for of Financial Condition
The Company seeks to control the risks associated with these Litigation execution. With over-the-counter (“OTC”) securities, NFS either
transactions by establishing and monitoring credit limits for significant In the normal course of business as a clearing broker-dealer, the executes the order as market maker or routes the order to an December 31, 2007
counterparties for each type of transaction and monitoring collateral Company has been named as a defendant in several legal actions and unaffiliated market maker for execution. Market makers generally have
and transaction levels daily. lawsuits. The Company reviews such actions and lawsuits on a case by their own procedures for handling orders (consistent with industry
Guarantees case basis and establishes its reserves in accordance with SFAS No. rules). In periods of heavy trading and price volatility, market makers
The Financial Accounting Standards Board Interpretation No. 45 5, Accounting for Contingencies. Although the ultimate outcome of may alter their procedures on individual stocks or groups of stocks. For
(“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for these actions cannot be ascertained at this time, it is the opinion of example, they may execute orders manually rather than electronically,
Guarantees, Including Indirect Guarantees of Indebtedness of Others, management, after consultation with counsel, that the resolution of or reduce the order size for which they guarantee execution. Changes
requires the Company to disclose information about its obligations such actions will not have a material adverse effect on the financial in trading procedures and other circumstances may result in queues
under certain guarantee arrangements. FIN 45 defines guarantees as condition of the Company. and backlogs of orders, both intraday and at the market opening, and
contracts and indemnification agreements that contingently require Letters of Credit corresponding delays in executions in the OTC and listed markets. In
a guarantor to make payments to the guaranteed party based on At December 31, 2007, the Company had unsecured letters of credit such cases, the execution price of a market order may be significantly
changes in an underlying (such as an interest or foreign exchange outstanding of approximately $790,000. Letters of credit approximating higher or lower than the market price quoted or displayed at the time
rate, security or commodity price, an index or the occurrence or $78,253 were used as collateral for securities borrowed with a market you entered your order. During such heavy trading periods, the quotes
nonoccurrence of a specified event) related to an asset, liability or value of approximately $73,762 and the remaining letters of credit displayed on your computer screen as “real time” may not reflect the
equity security of a guaranteed party. FIN 45 also defines guarantees were used primarily to satisfy margin requirements with the Options current trading price of the security. These conditions may also delay
as contracts that contingently require the guarantor to make payments Clearing Corporation and Euroclear. the transmission of order execution reports. To help you manage The Consolidated Statement of Financial Condition filed pursuant
to the guaranteed party based on another entity’s failure to perform some of the risks of trading in a volatile market, below is a reminder to Rule 17a-5 of the Securities and Exchange Act of 1934 is
Other of the types of orders you may place and how they are handled in the available for inspection at the principal office of the Company and
under an agreement as well as indirect guarantees of the indebtedness The Company has entered into multiple overnight, uncommitted,
of others. market. at the Boston Regional Office of the Commission.
unsecured bank loans with large financial institutions. These loans are
The Company is a member of numerous exchanges and clearing- drawn down periodically to satisfy the daily operating needs of the
houses. Under the membership agreements, members are generally Company and there were no balances outstanding at December 31, IPO Securities Trading in the Secondary Market
required to guarantee the performance of other members. 2007. On September 29, 2005, FMR approved a subordinated loan Due to the extreme volatility that is sometimes associated with trading National Financial Services LLC, Member NYSE, SIPC
Additionally, if a member becomes unable to satisfy its obligations facility for $1,000,000 to be used by NFS. There were no borrowings an IPO in the secondary market (particularly one that is trading at Fidelity Brokerage Services LLC, Member NYSE, SIPC
to the clearinghouse, other members would be required to meet under this facility during the year. a price much higher than the initial offering price), a customer who 457313.2.0 1.706962.117

081106_01_FRIAG_SOFC.indd 1 3/20/08 2:53:58 PM


Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
Independent Auditors’ Report places a market order for such a security is at risk of receiving an
shortfalls. To mitigate these performance risks, the exchanges and
8. Commitments and Contingencies clearinghouses often require members to post collateral as well as To the Member of National Financial Services LLC: execution price that is substantially different from the market price
at the time the order was placed. As discussed above, this risk can
Assets Pledged and Other Secured Transactions
In the normal course of business, the Company executes, settles
and finances customer, correspondent and proprietary securities
meet certain minimum financial standards. The Company’s maximum
potential liability under these arrangements cannot be quantified.
However, the potential for the Company to be required to make
We have audited the accompanying consolidated statement of
financial condition of National Financial Services LLC and subsidiaries
(the “Company”) as of December 31, 2007. This consolidated financial
be reduced by appropriate use of limit orders. The placement of a
limit order in such situations would address the risk of receiving an
National Financial
transactions. Customer and correspondent transactions include the payments under these arrangements is remote. Accordingly, no statement is the responsibility of the Company’s management. Our execution that is substantially away from the market price that was
sale of securities sold, but not yet purchased (short sales) and the
writing of options. These activities may expose the Company to off-
contingent liability is recorded in the Consolidated Statement of
Financial Condition for these arrangements.
responsibility is to express an opinion on this consolidated financial
statement based on our audit.
quoted at the time the order was placed. However, as with any limit
order in a volatile market, due to order imbalances and fast markets, a
limit order may not receive an execution even if the security is trading
Services LLC
balance-sheet risk arising from the potential that the customer or Collateral We conducted our audit in accordance with auditing standards
counterparty may fail to satisfy its obligations and the collateral will at your limit or better after your order was entered.
At December 31, 2007, the fair value of securities received as collateral generally accepted in the United States of America. Those standards
be insufficient. In these situations, the Company may be required to by the Company that can be repledged, delivered or otherwise require that we plan and perform the audit to obtain reasonable
purchase or sell financial instruments at unfavorable market prices to Access to Fidelity
used was approximately $28,430,237. This collateral was generally assurance about whether the financial statement is free of material Affiliate of Fidelity Brokerage Services LLC
satisfy obligations to customers and counterparties. obtained under reverse repurchase, securities borrowed or margin misstatement. An audit includes consideration of internal control over Fidelity has an ongoing commitment to provide the highest level
The Company seeks to control the risks associated with its customer and lending agreements. Of these securities received as collateral, those financial reporting as a basis for designing audit procedures that are of service and technology to enable you to access your account,
correspondent activities by requiring customers and correspondents with a fair value of approximately $13,247,502 were delivered or appropriate in the circumstances, but not for the purpose of expressing obtain market information, and to enter your orders quickly, easily,
to maintain margin collateral in compliance with various regulatory repledged, generally as collateral under repurchase or securities an opinion on the effectiveness of the Company’s internal control over and efficiently. However, during periods of extraordinary volatility and
and internal guidelines. The Company monitors trade date customer lending agreements or to cover short sales. financial reporting. Accordingly, we express no such opinion. An volume, customers using online or automated trading services may
and correspondent exposure and collateral values daily and requires audit also includes examining, on a test basis, evidence supporting experience delays in accessing their account due to high Internet traffic
In relation to non-cash loan versus pledge securities transactions, or systems capacity limitations. Similarly, customers may experience
customers and correspondents to deposit additional collateral or the Company recorded collateral received from FBS and a related the amounts and disclosures in the financial statement, assessing
reduce positions when necessary. the accounting principles used and significant estimates made by delays in reaching telephone representatives. Please be aware that
obligation to return this collateral. The collateral had a fair value of market conditions, including stock and bond prices, may change
Securities sold, but not yet purchased represent obligations of the $439,386 at December 31, 2007. management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis during these periods. Fidelity offers multiple channels through which
Company to deliver the specified security at the contracted price, Leases you may place orders or access information, including the Web, touch-
and thereby create a liability to purchase the security in the market at for our opinion.
The Company occupies office space under noncancelable operating tone phone, and telephone representatives, so you have alternative
prevailing prices. Accordingly, these transactions result in exposure to leases expiring at various dates through 2016. Future minimum rentals In our opinion, such consolidated statement of financial condition ways to do business with us. Please be assured, we are committed to
market risk as the Company’s ultimate obligation to purchase securities under these leases are $12,593, $12,735, $12,740, $12,754 and $8,181 presents fairly, in all material respects, the financial position of National providing the level of service you expect of Fidelity.
sold, but not yet purchased may exceed the amount recognized in the for each of the years ending December 2008 through December 2012, Financial Services LLC and subsidiaries at December 31, 2007, in
Consolidated Statement of Financial Condition. respectively, and $12,880 thereafter. Certain leases contain escalation conformity with accounting principles generally accepted in the United
In the normal course of business, the Company borrows and lends clauses and renewal options. States of America.
securities to finance securities transactions and to facilitate the Risks and Uncertainties Deloitte & Touche LLP
settlement process. In loaning securities, the Company utilizes The Company generates a significant portion of its revenues by New York, New York
securities owned by customers collateralizing margin debt and providing securities trading, brokerage and clearing activities to February 25, 2008
securities borrowed. domestic customers. Revenues for these services are transaction
Liabilities to other brokers and dealers related to unsettled transactions based. As a result, the Company’s revenues could vary based on the
(e.g., securities failed to receive) are recorded at the amounts for which performance of financial markets around the world. The Company’s Potential Delays in Order Execution and Reporting Consolidated Statement
the securities were acquired and are paid upon the receipt of securities financing is sensitive to interest rate fluctuations that may have an
FBS routes most orders to its affiliated broker-dealer, NFS. Orders
from the other brokers and dealers. impact on the Company’s profitability.
for exchange-listed securities are sent to an exchange specialist for of Financial Condition
The Company seeks to control the risks associated with these Litigation execution. With over-the-counter (“OTC”) securities, NFS either
transactions by establishing and monitoring credit limits for significant In the normal course of business as a clearing broker-dealer, the executes the order as market maker or routes the order to an December 31, 2007
counterparties for each type of transaction and monitoring collateral Company has been named as a defendant in several legal actions and unaffiliated market maker for execution. Market makers generally have
and transaction levels daily. lawsuits. The Company reviews such actions and lawsuits on a case by their own procedures for handling orders (consistent with industry
Guarantees case basis and establishes its reserves in accordance with SFAS No. rules). In periods of heavy trading and price volatility, market makers
The Financial Accounting Standards Board Interpretation No. 45 5, Accounting for Contingencies. Although the ultimate outcome of may alter their procedures on individual stocks or groups of stocks. For
(“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for these actions cannot be ascertained at this time, it is the opinion of example, they may execute orders manually rather than electronically,
Guarantees, Including Indirect Guarantees of Indebtedness of Others, management, after consultation with counsel, that the resolution of or reduce the order size for which they guarantee execution. Changes
requires the Company to disclose information about its obligations such actions will not have a material adverse effect on the financial in trading procedures and other circumstances may result in queues
under certain guarantee arrangements. FIN 45 defines guarantees as condition of the Company. and backlogs of orders, both intraday and at the market opening, and
contracts and indemnification agreements that contingently require Letters of Credit corresponding delays in executions in the OTC and listed markets. In
a guarantor to make payments to the guaranteed party based on At December 31, 2007, the Company had unsecured letters of credit such cases, the execution price of a market order may be significantly
changes in an underlying (such as an interest or foreign exchange outstanding of approximately $790,000. Letters of credit approximating higher or lower than the market price quoted or displayed at the time
rate, security or commodity price, an index or the occurrence or $78,253 were used as collateral for securities borrowed with a market you entered your order. During such heavy trading periods, the quotes
nonoccurrence of a specified event) related to an asset, liability or value of approximately $73,762 and the remaining letters of credit displayed on your computer screen as “real time” may not reflect the
equity security of a guaranteed party. FIN 45 also defines guarantees were used primarily to satisfy margin requirements with the Options current trading price of the security. These conditions may also delay
as contracts that contingently require the guarantor to make payments Clearing Corporation and Euroclear. the transmission of order execution reports. To help you manage The Consolidated Statement of Financial Condition filed pursuant
to the guaranteed party based on another entity’s failure to perform some of the risks of trading in a volatile market, below is a reminder to Rule 17a-5 of the Securities and Exchange Act of 1934 is
Other of the types of orders you may place and how they are handled in the available for inspection at the principal office of the Company and
under an agreement as well as indirect guarantees of the indebtedness The Company has entered into multiple overnight, uncommitted,
of others. market. at the Boston Regional Office of the Commission.
unsecured bank loans with large financial institutions. These loans are
The Company is a member of numerous exchanges and clearing- drawn down periodically to satisfy the daily operating needs of the
houses. Under the membership agreements, members are generally Company and there were no balances outstanding at December 31, IPO Securities Trading in the Secondary Market
required to guarantee the performance of other members. 2007. On September 29, 2005, FMR approved a subordinated loan Due to the extreme volatility that is sometimes associated with trading National Financial Services LLC, Member NYSE, SIPC
Additionally, if a member becomes unable to satisfy its obligations facility for $1,000,000 to be used by NFS. There were no borrowings an IPO in the secondary market (particularly one that is trading at Fidelity Brokerage Services LLC, Member NYSE, SIPC
to the clearinghouse, other members would be required to meet under this facility during the year. a price much higher than the initial offering price), a customer who 457313.2.0 1.706962.117

081106_01_FRIAG_SOFC.indd 1 3/20/08 2:53:58 PM


Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
Independent Auditors’ Report places a market order for such a security is at risk of receiving an
shortfalls. To mitigate these performance risks, the exchanges and
8. Commitments and Contingencies clearinghouses often require members to post collateral as well as To the Member of National Financial Services LLC: execution price that is substantially different from the market price
at the time the order was placed. As discussed above, this risk can
Assets Pledged and Other Secured Transactions
In the normal course of business, the Company executes, settles
and finances customer, correspondent and proprietary securities
meet certain minimum financial standards. The Company’s maximum
potential liability under these arrangements cannot be quantified.
However, the potential for the Company to be required to make
We have audited the accompanying consolidated statement of
financial condition of National Financial Services LLC and subsidiaries
(the “Company”) as of December 31, 2007. This consolidated financial
be reduced by appropriate use of limit orders. The placement of a
limit order in such situations would address the risk of receiving an
National Financial
transactions. Customer and correspondent transactions include the payments under these arrangements is remote. Accordingly, no statement is the responsibility of the Company’s management. Our execution that is substantially away from the market price that was
sale of securities sold, but not yet purchased (short sales) and the
writing of options. These activities may expose the Company to off-
contingent liability is recorded in the Consolidated Statement of
Financial Condition for these arrangements.
responsibility is to express an opinion on this consolidated financial
statement based on our audit.
quoted at the time the order was placed. However, as with any limit
order in a volatile market, due to order imbalances and fast markets, a
limit order may not receive an execution even if the security is trading
Services LLC
balance-sheet risk arising from the potential that the customer or Collateral We conducted our audit in accordance with auditing standards
counterparty may fail to satisfy its obligations and the collateral will at your limit or better after your order was entered.
At December 31, 2007, the fair value of securities received as collateral generally accepted in the United States of America. Those standards
be insufficient. In these situations, the Company may be required to by the Company that can be repledged, delivered or otherwise require that we plan and perform the audit to obtain reasonable
purchase or sell financial instruments at unfavorable market prices to Access to Fidelity
used was approximately $28,430,237. This collateral was generally assurance about whether the financial statement is free of material Affiliate of Fidelity Brokerage Services LLC
satisfy obligations to customers and counterparties. obtained under reverse repurchase, securities borrowed or margin misstatement. An audit includes consideration of internal control over Fidelity has an ongoing commitment to provide the highest level
The Company seeks to control the risks associated with its customer and lending agreements. Of these securities received as collateral, those financial reporting as a basis for designing audit procedures that are of service and technology to enable you to access your account,
correspondent activities by requiring customers and correspondents with a fair value of approximately $13,247,502 were delivered or appropriate in the circumstances, but not for the purpose of expressing obtain market information, and to enter your orders quickly, easily,
to maintain margin collateral in compliance with various regulatory repledged, generally as collateral under repurchase or securities an opinion on the effectiveness of the Company’s internal control over and efficiently. However, during periods of extraordinary volatility and
and internal guidelines. The Company monitors trade date customer lending agreements or to cover short sales. financial reporting. Accordingly, we express no such opinion. An volume, customers using online or automated trading services may
and correspondent exposure and collateral values daily and requires audit also includes examining, on a test basis, evidence supporting experience delays in accessing their account due to high Internet traffic
In relation to non-cash loan versus pledge securities transactions, or systems capacity limitations. Similarly, customers may experience
customers and correspondents to deposit additional collateral or the Company recorded collateral received from FBS and a related the amounts and disclosures in the financial statement, assessing
reduce positions when necessary. the accounting principles used and significant estimates made by delays in reaching telephone representatives. Please be aware that
obligation to return this collateral. The collateral had a fair value of market conditions, including stock and bond prices, may change
Securities sold, but not yet purchased represent obligations of the $439,386 at December 31, 2007. management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis during these periods. Fidelity offers multiple channels through which
Company to deliver the specified security at the contracted price, Leases you may place orders or access information, including the Web, touch-
and thereby create a liability to purchase the security in the market at for our opinion.
The Company occupies office space under noncancelable operating tone phone, and telephone representatives, so you have alternative
prevailing prices. Accordingly, these transactions result in exposure to leases expiring at various dates through 2016. Future minimum rentals In our opinion, such consolidated statement of financial condition ways to do business with us. Please be assured, we are committed to
market risk as the Company’s ultimate obligation to purchase securities under these leases are $12,593, $12,735, $12,740, $12,754 and $8,181 presents fairly, in all material respects, the financial position of National providing the level of service you expect of Fidelity.
sold, but not yet purchased may exceed the amount recognized in the for each of the years ending December 2008 through December 2012, Financial Services LLC and subsidiaries at December 31, 2007, in
Consolidated Statement of Financial Condition. respectively, and $12,880 thereafter. Certain leases contain escalation conformity with accounting principles generally accepted in the United
In the normal course of business, the Company borrows and lends clauses and renewal options. States of America.
securities to finance securities transactions and to facilitate the Risks and Uncertainties Deloitte & Touche LLP
settlement process. In loaning securities, the Company utilizes The Company generates a significant portion of its revenues by New York, New York
securities owned by customers collateralizing margin debt and providing securities trading, brokerage and clearing activities to February 25, 2008
securities borrowed. domestic customers. Revenues for these services are transaction
Liabilities to other brokers and dealers related to unsettled transactions based. As a result, the Company’s revenues could vary based on the
(e.g., securities failed to receive) are recorded at the amounts for which performance of financial markets around the world. The Company’s Potential Delays in Order Execution and Reporting Consolidated Statement
the securities were acquired and are paid upon the receipt of securities financing is sensitive to interest rate fluctuations that may have an
FBS routes most orders to its affiliated broker-dealer, NFS. Orders
from the other brokers and dealers. impact on the Company’s profitability.
for exchange-listed securities are sent to an exchange specialist for of Financial Condition
The Company seeks to control the risks associated with these Litigation execution. With over-the-counter (“OTC”) securities, NFS either
transactions by establishing and monitoring credit limits for significant In the normal course of business as a clearing broker-dealer, the executes the order as market maker or routes the order to an December 31, 2007
counterparties for each type of transaction and monitoring collateral Company has been named as a defendant in several legal actions and unaffiliated market maker for execution. Market makers generally have
and transaction levels daily. lawsuits. The Company reviews such actions and lawsuits on a case by their own procedures for handling orders (consistent with industry
Guarantees case basis and establishes its reserves in accordance with SFAS No. rules). In periods of heavy trading and price volatility, market makers
The Financial Accounting Standards Board Interpretation No. 45 5, Accounting for Contingencies. Although the ultimate outcome of may alter their procedures on individual stocks or groups of stocks. For
(“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for these actions cannot be ascertained at this time, it is the opinion of example, they may execute orders manually rather than electronically,
Guarantees, Including Indirect Guarantees of Indebtedness of Others, management, after consultation with counsel, that the resolution of or reduce the order size for which they guarantee execution. Changes
requires the Company to disclose information about its obligations such actions will not have a material adverse effect on the financial in trading procedures and other circumstances may result in queues
under certain guarantee arrangements. FIN 45 defines guarantees as condition of the Company. and backlogs of orders, both intraday and at the market opening, and
contracts and indemnification agreements that contingently require Letters of Credit corresponding delays in executions in the OTC and listed markets. In
a guarantor to make payments to the guaranteed party based on At December 31, 2007, the Company had unsecured letters of credit such cases, the execution price of a market order may be significantly
changes in an underlying (such as an interest or foreign exchange outstanding of approximately $790,000. Letters of credit approximating higher or lower than the market price quoted or displayed at the time
rate, security or commodity price, an index or the occurrence or $78,253 were used as collateral for securities borrowed with a market you entered your order. During such heavy trading periods, the quotes
nonoccurrence of a specified event) related to an asset, liability or value of approximately $73,762 and the remaining letters of credit displayed on your computer screen as “real time” may not reflect the
equity security of a guaranteed party. FIN 45 also defines guarantees were used primarily to satisfy margin requirements with the Options current trading price of the security. These conditions may also delay
as contracts that contingently require the guarantor to make payments Clearing Corporation and Euroclear. the transmission of order execution reports. To help you manage The Consolidated Statement of Financial Condition filed pursuant
to the guaranteed party based on another entity’s failure to perform some of the risks of trading in a volatile market, below is a reminder to Rule 17a-5 of the Securities and Exchange Act of 1934 is
Other of the types of orders you may place and how they are handled in the available for inspection at the principal office of the Company and
under an agreement as well as indirect guarantees of the indebtedness The Company has entered into multiple overnight, uncommitted,
of others. market. at the Boston Regional Office of the Commission.
unsecured bank loans with large financial institutions. These loans are
The Company is a member of numerous exchanges and clearing- drawn down periodically to satisfy the daily operating needs of the
houses. Under the membership agreements, members are generally Company and there were no balances outstanding at December 31, IPO Securities Trading in the Secondary Market
required to guarantee the performance of other members. 2007. On September 29, 2005, FMR approved a subordinated loan Due to the extreme volatility that is sometimes associated with trading National Financial Services LLC, Member NYSE, SIPC
Additionally, if a member becomes unable to satisfy its obligations facility for $1,000,000 to be used by NFS. There were no borrowings an IPO in the secondary market (particularly one that is trading at Fidelity Brokerage Services LLC, Member NYSE, SIPC
to the clearinghouse, other members would be required to meet under this facility during the year. a price much higher than the initial offering price), a customer who 457313.2.0 1.706962.117

081106_01_FRIAG_SOFC.indd 1 3/20/08 2:53:58 PM


Notes Continued (Dollars in Thousands) Notes Continued (Dollars in Thousands)
Independent Auditors’ Report places a market order for such a security is at risk of receiving an
shortfalls. To mitigate these performance risks, the exchanges and
8. Commitments and Contingencies clearinghouses often require members to post collateral as well as To the Member of National Financial Services LLC: execution price that is substantially different from the market price
at the time the order was placed. As discussed above, this risk can
Assets Pledged and Other Secured Transactions
In the normal course of business, the Company executes, settles
and finances customer, correspondent and proprietary securities
meet certain minimum financial standards. The Company’s maximum
potential liability under these arrangements cannot be quantified.
However, the potential for the Company to be required to make
We have audited the accompanying consolidated statement of
financial condition of National Financial Services LLC and subsidiaries
(the “Company”) as of December 31, 2007. This consolidated financial
be reduced by appropriate use of limit orders. The placement of a
limit order in such situations would address the risk of receiving an
National Financial
transactions. Customer and correspondent transactions include the payments under these arrangements is remote. Accordingly, no statement is the responsibility of the Company’s management. Our execution that is substantially away from the market price that was
sale of securities sold, but not yet purchased (short sales) and the
writing of options. These activities may expose the Company to off-
contingent liability is recorded in the Consolidated Statement of
Financial Condition for these arrangements.
responsibility is to express an opinion on this consolidated financial
statement based on our audit.
quoted at the time the order was placed. However, as with any limit
order in a volatile market, due to order imbalances and fast markets, a
limit order may not receive an execution even if the security is trading
Services LLC
balance-sheet risk arising from the potential that the customer or Collateral We conducted our audit in accordance with auditing standards
counterparty may fail to satisfy its obligations and the collateral will at your limit or better after your order was entered.
At December 31, 2007, the fair value of securities received as collateral generally accepted in the United States of America. Those standards
be insufficient. In these situations, the Company may be required to by the Company that can be repledged, delivered or otherwise require that we plan and perform the audit to obtain reasonable
purchase or sell financial instruments at unfavorable market prices to Access to Fidelity
used was approximately $28,430,237. This collateral was generally assurance about whether the financial statement is free of material Affiliate of Fidelity Brokerage Services LLC
satisfy obligations to customers and counterparties. obtained under reverse repurchase, securities borrowed or margin misstatement. An audit includes consideration of internal control over Fidelity has an ongoing commitment to provide the highest level
The Company seeks to control the risks associated with its customer and lending agreements. Of these securities received as collateral, those financial reporting as a basis for designing audit procedures that are of service and technology to enable you to access your account,
correspondent activities by requiring customers and correspondents with a fair value of approximately $13,247,502 were delivered or appropriate in the circumstances, but not for the purpose of expressing obtain market information, and to enter your orders quickly, easily,
to maintain margin collateral in compliance with various regulatory repledged, generally as collateral under repurchase or securities an opinion on the effectiveness of the Company’s internal control over and efficiently. However, during periods of extraordinary volatility and
and internal guidelines. The Company monitors trade date customer lending agreements or to cover short sales. financial reporting. Accordingly, we express no such opinion. An volume, customers using online or automated trading services may
and correspondent exposure and collateral values daily and requires audit also includes examining, on a test basis, evidence supporting experience delays in accessing their account due to high Internet traffic
In relation to non-cash loan versus pledge securities transactions, or systems capacity limitations. Similarly, customers may experience
customers and correspondents to deposit additional collateral or the Company recorded collateral received from FBS and a related the amounts and disclosures in the financial statement, assessing
reduce positions when necessary. the accounting principles used and significant estimates made by delays in reaching telephone representatives. Please be aware that
obligation to return this collateral. The collateral had a fair value of market conditions, including stock and bond prices, may change
Securities sold, but not yet purchased represent obligations of the $439,386 at December 31, 2007. management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis during these periods. Fidelity offers multiple channels through which
Company to deliver the specified security at the contracted price, Leases you may place orders or access information, including the Web, touch-
and thereby create a liability to purchase the security in the market at for our opinion.
The Company occupies office space under noncancelable operating tone phone, and telephone representatives, so you have alternative
prevailing prices. Accordingly, these transactions result in exposure to leases expiring at various dates through 2016. Future minimum rentals In our opinion, such consolidated statement of financial condition ways to do business with us. Please be assured, we are committed to
market risk as the Company’s ultimate obligation to purchase securities under these leases are $12,593, $12,735, $12,740, $12,754 and $8,181 presents fairly, in all material respects, the financial position of National providing the level of service you expect of Fidelity.
sold, but not yet purchased may exceed the amount recognized in the for each of the years ending December 2008 through December 2012, Financial Services LLC and subsidiaries at December 31, 2007, in
Consolidated Statement of Financial Condition. respectively, and $12,880 thereafter. Certain leases contain escalation conformity with accounting principles generally accepted in the United
In the normal course of business, the Company borrows and lends clauses and renewal options. States of America.
securities to finance securities transactions and to facilitate the Risks and Uncertainties Deloitte & Touche LLP
settlement process. In loaning securities, the Company utilizes The Company generates a significant portion of its revenues by New York, New York
securities owned by customers collateralizing margin debt and providing securities trading, brokerage and clearing activities to February 25, 2008
securities borrowed. domestic customers. Revenues for these services are transaction
Liabilities to other brokers and dealers related to unsettled transactions based. As a result, the Company’s revenues could vary based on the
(e.g., securities failed to receive) are recorded at the amounts for which performance of financial markets around the world. The Company’s Potential Delays in Order Execution and Reporting Consolidated Statement
the securities were acquired and are paid upon the receipt of securities financing is sensitive to interest rate fluctuations that may have an
FBS routes most orders to its affiliated broker-dealer, NFS. Orders
from the other brokers and dealers. impact on the Company’s profitability.
for exchange-listed securities are sent to an exchange specialist for of Financial Condition
The Company seeks to control the risks associated with these Litigation execution. With over-the-counter (“OTC”) securities, NFS either
transactions by establishing and monitoring credit limits for significant In the normal course of business as a clearing broker-dealer, the executes the order as market maker or routes the order to an December 31, 2007
counterparties for each type of transaction and monitoring collateral Company has been named as a defendant in several legal actions and unaffiliated market maker for execution. Market makers generally have
and transaction levels daily. lawsuits. The Company reviews such actions and lawsuits on a case by their own procedures for handling orders (consistent with industry
Guarantees case basis and establishes its reserves in accordance with SFAS No. rules). In periods of heavy trading and price volatility, market makers
The Financial Accounting Standards Board Interpretation No. 45 5, Accounting for Contingencies. Although the ultimate outcome of may alter their procedures on individual stocks or groups of stocks. For
(“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for these actions cannot be ascertained at this time, it is the opinion of example, they may execute orders manually rather than electronically,
Guarantees, Including Indirect Guarantees of Indebtedness of Others, management, after consultation with counsel, that the resolution of or reduce the order size for which they guarantee execution. Changes
requires the Company to disclose information about its obligations such actions will not have a material adverse effect on the financial in trading procedures and other circumstances may result in queues
under certain guarantee arrangements. FIN 45 defines guarantees as condition of the Company. and backlogs of orders, both intraday and at the market opening, and
contracts and indemnification agreements that contingently require Letters of Credit corresponding delays in executions in the OTC and listed markets. In
a guarantor to make payments to the guaranteed party based on At December 31, 2007, the Company had unsecured letters of credit such cases, the execution price of a market order may be significantly
changes in an underlying (such as an interest or foreign exchange outstanding of approximately $790,000. Letters of credit approximating higher or lower than the market price quoted or displayed at the time
rate, security or commodity price, an index or the occurrence or $78,253 were used as collateral for securities borrowed with a market you entered your order. During such heavy trading periods, the quotes
nonoccurrence of a specified event) related to an asset, liability or value of approximately $73,762 and the remaining letters of credit displayed on your computer screen as “real time” may not reflect the
equity security of a guaranteed party. FIN 45 also defines guarantees were used primarily to satisfy margin requirements with the Options current trading price of the security. These conditions may also delay
as contracts that contingently require the guarantor to make payments Clearing Corporation and Euroclear. the transmission of order execution reports. To help you manage The Consolidated Statement of Financial Condition filed pursuant
to the guaranteed party based on another entity’s failure to perform some of the risks of trading in a volatile market, below is a reminder to Rule 17a-5 of the Securities and Exchange Act of 1934 is
Other of the types of orders you may place and how they are handled in the available for inspection at the principal office of the Company and
under an agreement as well as indirect guarantees of the indebtedness The Company has entered into multiple overnight, uncommitted,
of others. market. at the Boston Regional Office of the Commission.
unsecured bank loans with large financial institutions. These loans are
The Company is a member of numerous exchanges and clearing- drawn down periodically to satisfy the daily operating needs of the
houses. Under the membership agreements, members are generally Company and there were no balances outstanding at December 31, IPO Securities Trading in the Secondary Market
required to guarantee the performance of other members. 2007. On September 29, 2005, FMR approved a subordinated loan Due to the extreme volatility that is sometimes associated with trading National Financial Services LLC, Member NYSE, SIPC
Additionally, if a member becomes unable to satisfy its obligations facility for $1,000,000 to be used by NFS. There were no borrowings an IPO in the secondary market (particularly one that is trading at Fidelity Brokerage Services LLC, Member NYSE, SIPC
to the clearinghouse, other members would be required to meet under this facility during the year. a price much higher than the initial offering price), a customer who 457313.2.0 1.706962.117

081106_01_FRIAG_SOFC.indd 1 3/20/08 2:53:58 PM