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                                                        December 3, 1996



David Lee
Pennsylvania State Employees'
 Retirement System
30 North Third Street
Harrisburg, Pennsylvania  17108-1147


Attached are answers to the questions you raised in regard to Norfolk
Southern's proposed acquisition of Conrail. I hope these are useful to
you in your board presentation.

If you need any additional information from us, please do not hesitate
to call me at (757) 629-2861 or FAX (757) 629-2361.

                                     Sincerely,



                                    /s/ Deborah H. Noxon

cy:  W. J. Romig



PA SERS response to questions regarding an CR/NS merger

Q. What are the job impact implications of the Norfolk Southern proposal?

o  The CSX and Conrail systems are duplicative (see enclosed rail
   maps) in many areas. This means redundancies, particularly in PA,
   MD, DE, and OH, and thus major job losses if CSX acquires Conrail.
   As the Conrail and Norfolk Southern rail systems complement each
   other, job losses will be less in the Norfolk Southern proposal.
o  In the long term, Norfolk Southern expects the Norfolk
   Southern-Conrail combination to generate substantial new business
   and increased job security.

Q. What are the potential implications of your proposal on PA state
   tax revenue (vs. a stand-alone Conrail)?

   Due to Norfolk Southern's limited presence in the State of
   Pennsylvania, if Norfolk Southern successfully merges with Conrail
   we project tax revenues in the State of Pennsylvania to increase.
   Income taxes should remain at Conrail's current level with an
   increase in taxes corresponding to an expected increase in
   operating income after the merger. Property taxes in Pennsylvania
   also are expected to increase a minimum of 15%. In addition, we
   project an increase in franchise taxes in Pennsylvania.

Q. Are there any provisions in the Norfolk Southern plan which could
   enhance economic development at the Port of Philadelphia?

o  A new high-tech multimodal terminal is planned for the old
   Philadelphia Navy Yard, which has been discussed with the Mayor of
   Philadelphia.
o  RoadRailer(R) trains, via the NS and CR bimodal subsidiary Triple
   Crown Services Co., will provide truck competitive service to
   midwest and southern destinations.
o  A Norfolk Southern-Conrail combination will provide the only
   doublestack container service from the Port of Philadelphia to and
   from the southeast.
o  Norfolk Southern brings superior intermodal experience to the Port
   of Philadelphia. NS intermodal growth more than doubles the growth
   of the industry average while Conrail reaches the mean and CSX lags
   far behind(since 1988).

Q. Have job security issues been discussed under your plan?

o  As discussed, since the Norfolk Southern and Conrail systems
   complement each other, job losses are expected to be less than in a
   CSX-Conrail combination.
o  Federal law mandates application of standard labor protection in
   rail mergers. These conditions protect rail employees against
   merger related adverse effects.
o  As the pension plans of both Conrail and Norfolk Southern are
   overfunded, retirement security is ensured, while the CSX pension
   fund has been on the Pension Benefit Guarantee Corporation's list
   of "Top Fifty Companies with the Largest Underfunded Pension
   Liability." Conrail employees should not want their retirement plan
   commingled with CSX.

Q. In the public media, CSX appears to be committed to the merged
   corporate headquarters in a Philadelphia location. Does your plan
   provide for a similar framework as your rival bidder?

o  CSX's headquarters in Richmond, VA, employs under 200 people, and a
   Philadelphia headquarters under CSX ownership would require no more
   jobs and perhaps fewer. CSX has made no guarantees regarding the
   other Philadelphia-based Conrail jobs--they could go to
   Jacksonville, FL, where CSX's operations are centralized.
o  In a letter to Conrail's board of directors (October 23, 1996),
   Norfolk Southern Chairman, President and CEO David R. Goode
   indicated that Norfolk Southern would be willing to consider the
   location of a merged corporate headquarters in Philadelphia. A copy
   of the letter is attached.

Q. In addition to the valuation differences between the CSX and
   Norfolk Southern offers, what do you feel are the most compelling
   reasons for a Norfolk-Conrail vs. a CSX-Conrail combination?

o  A Norfolk Southern-Conrail combination encourages a balanced
   competitive structure for Eastern railroad service with two rail
   systems of comparable size and scope. It acknowledges that large
   markets must be served by more than one railroad; that ownership of
   major trunk lines and effective terminal access are required for
   true competition; and that competition is weakened when less than
   fair value is paid for assets (see enclosed Principles of Balanced
   Rail Competition).
o  A Norfolk Southern-Conrail combination will create a stronger, more
   competitive eastern transportation market and a far more balanced
   freight rail system than the proposed CSX-Conrail merger. A
   combined CSX-Conrail will control almost 70% of the total of CSX,
   Conrail and NS rail freight, resulting in extreme market dominance.
   A Norfolk Southern-Conrail combination will not dominate eastern
   freight.
o  Important markets, including New York, Northern New Jersey, Boston,
   Pittsburgh, Philadelphia, Wilmington and Youngstown, will only have
   one Class I carrier service in a CSX-Conrail combination (an
   effectual monopoly). A Conrail-Norfolk Southern combination will
   preserve (and possibly enhance) two carrier service in these and
   many other areas, allowing shippers a choice for rail service.
o  Conrail customers will obtain better access to the Southeast and
   improved single system coverage in the East. Also, Conrail
   customers will benefit from a combination with Norfolk Southern,
   widely acclaimed as the safest, most efficient and best managed
   railroad.
o  In addition to competitive pricing resulting from volume
   efficiencies, Norfolk Southern-Conrail will provide a level of
   service that only a broad network can provide. We will be able to
   undertake more initiatives such as our recent vehicle distribution
   agreement with Ford. We will be able to improve intermodal service
   between the Northeast and Southeast, making our intermodal network
   more competitive with alternative truck services.