DTCC's Networking Service for Fund Industry Enhanced to Support Greater Transparency of Breakpoints; Move Follows Regulatory Recommendations by Joint NASD/Industry Task Force.

NEW YORK -- The Depository Trust & Clearing Corporation (DTCC) announced today that it has launched Networking for Direct Accounts to help the mutual fund industry achieve greater operational transparency and to support regulatory recommendations surrounding breakpoints.

In its July 2003 report, the Joint NASD/Industry Task Force recommended that Networking, as well as NSCC's Fund/SERV(R) and Mutual Fund Profile Service, be used to help solve the overall breakpoint problem. Its Recommendation L, in particular, suggested that Networking could assist in providing "the broker/dealer firm with information on holdings carried away from the broker/dealer but for which that firm is the broker/dealer of record." These services are provided by DTCC's National Securities Clearing Corporation (NSCC) subsidiary.

"The lack of information at the distributor level has made it difficult to accurately calculate breakpoints on these accounts," said Ann Bergin, managing director, Mutual Fund Services for DTCC. "We've been able to enhance the functionality of our Networking service so that fund companies can use this system to provide distributors with additional information that will allow them to better comply with regulatory requirements. As a result, a customer's direct accounts can be linked with their other fund accounts, and full breakpoints can be applied."

Direct accounts are fund accounts held in an investor's name at a fund company. Frequently, investors also use a broker/dealer or other distributor for additional fund investments. If the distributor -- called the "broker of record" -- is not aware of the customer's direct accounts with the fund company, those investments will not be reflected on his or her books and records.

"DTCC expects that customers will begin using the new service over the next few months, once they complete modifications to their systems to fully leverage this new tool," Bergin commented.

A special subcommittee of an Investment Company Institute task force worked with NSCC to identify all the information on direct accounts that fund companies need to provide distributors, as well as to map out the record layout changes required so that Networking can accept this new information.

How Networking Works for Direct Accounts

Since its introduction in 1988, Networking has been considered the industry standard for exchanging mutual fund customer account-level information between fund companies and distributor firms. Because it is a centralized and standardized service, this information appears identically on the records of both sides of fund transactions.

In "regular" Networking, a distributor firm establishes its accounts on the books of the fund company; and the firm handles many of the reporting responsibilities for the account. With direct accounts, the fund company maintains and controls these accounts and passes along to the distributor firm information needed to comply with recordkeeping requirements.

By changing Networking's format to accept fund account numbers in lieu of brokers' account numbers (BINs) and Rights of Accumulation (ROA) numbers, which are assigned when a group of accounts is combined, distributor firms can now receive:

--Fund conversion files - that establish direct accounts held at the fund, including changes to branch and rep, name and address, as well as social security and Rights of Accumulation numbers.

--Activity files - that include changes in share balances.

--Position files - for the closing balance of each direct account as of a specific date.

--Dividend processing - that include dividend and capital gain information and associated closing share balances; reinvested share quantity, and any withholding information.

Background:

DTCC's Breakpoint Work Began in 2004

Throughout 2004 and continuing into 2005, DTCC pursued an aggressive series of breakpoint-related initiatives, including:

--Breakpoint Compliance Solution(SM), a streamlined, automated, one-time full-data upload of security information for funds.

--A central database for breakpoint linkage rules within Mutual Fund Profile Service.

--A dictionary of common definitional standards related to the terms associated with breakpoints.

--Enhancements to Fund/SERV in the form of new codes and indicators, enabling fund companies to transmit and receive information necessary to identify and apply proper breakpoints on transactions, and requiring sales loads paid on transactions to be stated in percentage terms.

Service definitions

Fund/SERV(R) is the industry standard for processing and settling a broad range of investment funds, and linking fund companies with their distributor partners.

Mutual Fund Profile Service provides a standardized, centralized and automated solution for communicating nontransactional information to and from fund companies and their distributors. It acts as a conduit and repository, enabling users to exchange information on daily mutual fund prices and dividend rates; breakpoint and other security-related data; firm and fund member contacts and capabilities, and projected and actual periodic distribution declarations.

About DTCC

Through its subsidiaries, DTCC provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and over-the-counter derivatives. DTCC's depository also provides custody and asset servicing for more than two million securities issues from the United States and 100 other countries and territories. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC has operating facilities in multiple locations in the United States and overseas. For more information on DTCC, visit www.dtcc.com.