To be a valued partner, Knight has expanded its products and services and will continue to tailor its equity markets and asset management offerings to meet the needs of its clients.       INNOVATIVE PRODUCTS AND SERVICES Knight has the ability to execute orders in more cash equity and option securities than any other independent trade execution firm. Knight’s other critical business is an asset management fund that has served institutional and high-net-worth investors well. However, Knight recognizes that a valued partner must deliver an entire range of products and services to meet its client demands. To be this valued partner, Knight has recently expanded its offerings to include Listed Block Trading, Soft Dollar Services, Institutional Options, Program Trading and Corporate Services. Knight will continue to tailor its equity markets and asset management offerings to meet the needs of its clients. Whether it means building products and services on the inside or obtaining them from the outside. CASH EQUITY Knight’s trading platform is firmly established. No one trades more cash equities. No other execution specialist has the ability to make markets or trade in virtually every domestic market … NYSE and AMEX. Nasdaq NMS and Small-Cap. OTC Bulletin Board and Pink Sheets. This range makes Knight a destination for both broker-dealer and institutional order flow. Knight’s trading professionals have the capability to handle all types of orders, from the smallest or most simple to the largest or most highly complex. And in agency, principal and riskless principal capacity. Knight’s technology also sets it apart. Connectivity to external liquidity sources is all-encompassing. Internally, Knight has the systems for intelligent trading and inventory management. Knight is building upon these strengths by improving client service. In the fourth quarter of 2002, Knight introduced a sectorized approach to trading in order to assist institutional clients in their trading decisions. Compensation structure was changed to further align the interests of the trading floor with the interests and expectations of Knight’s clients. Going forward, Knight’s cash equity trading desk seeks to develop even stronger institutional trading practices and to answer the needs of broker-dealers. Knight is determined to earn its place as a valued partner to its clients. OPTIONS In 2002, Knight’s equity options volume made it the second-largest in the industry with a footprint that increased to 70% at the close of the year, from 60% at the beginning. The company is the named specialist in approximately 550 options classes, covering more than two-thirds of all equity options order flow on all five U.S. options exchanges. While Knight increased its size, it did so efficiently through organic growth and by making selective purchases of specialist trading rights in additional options classes. Knight began to reap the benefits of increased scale with a reduction in fixed costs per contract. Technology allows fewer people to handle greater options volume. Knight also has the technology to capitalize on an increasingly electronic marketplace and to intelligently manage risk through further automation and standardization. Knight can connect to any venue and mass quote across all options classes. To combine historical volatility curve and live data to provide valuable information to clients. And to customize order routing per client designations, best markets or other protocols. Further, Knight’s proprietary models allow for automated inventory management – essentially, risk-adjusted market-making. ASSET MANAGEMENT Knight offers asset management services to institutional investors and high-net-worth individuals through Deephaven Capital Management. A wholly owned subsidiary of Knight since it was acquired in 2000, Deephaven remains a substantial, independent business. Deephaven manages a multi-strategy market neutral hedge fund. Funds with “market neutral” strategies are not interested in making the occasional major profit from exploiting directional price movement. Rather, market neutral managers capture mispricings or spreads between related capital instruments on an ongoing and consistent basis. Deephaven’s investment philosophy is to earn returns with low risk and low correlation to the equity markets. The primary focus is preservation of capital. Deephaven pursues this strategy through diversified investments utilizing soph-isticated arbitrage trading, including convertible, statistical, and risk arbitrage; private placement; and distressed debt. Like Knight’s trading operations, Deephaven also believes that technology is an important driver for achieving long-term success. The fund’s commitment to superior client service is achieved by combining advanced technology with highly skilled and educated staff.