1. Mutual Funds Update  Presented by Delta Data  Burton Keller, Senior Vice President of Product Development

2. Short Term Redemption Fees and SEC Rule 22c-2

3. STR Fees and SEC Rule 22c-2 n Market timing - How did we get where we are? n STR fee issues in banks n Rule 22c-2 – SEC’s answer to market timing n The two major components of Rule 22c-2 n Fee Uniformity – are we there yet? n Written agreements – provisions / applicability n Data reporting requirement of Rule 22c-2 n The new DTCC Standardized Reporting Service n Open Issues

4. How did we get here? Market timing – 2003 to 2005 n Fall of 2003 – Spitzer uncovers mutual fund abuses, including market timing n March 2004 – original proposed SEC 22c-2 rule required mandatory redemption fees and weekly reporting requirements for omnibus accounts n March 2005 - 400 comment letters later, the SEC released final Rule 22c-2 n Between 2003 and 2005, funds voluntarily started imposing short term redemption fees n Today, 35 of the 50 largest fund families impose STR fees on some of their funds

5. STR Fee Issues common to banks. n Omnibus accounts place burden of share aging and calculation of fees on the bank whereas with fully disclosed accounts, shares can be aged and STR fees calculated by the fund n Most funds require FIFO share-lot accounting and many trust systems only support a single share-lot method – high cost, average cost, etc. n Most trust trades are dollar certain – share-lot aging performed at confirmation time – requires settling gross with the fund n Calculation and remittance of STR fees comes later.

6. STR Fee Issues EB/401K Recordkeeper Advantage Over Bank Trusts n Trades are not sent until trades have been extended and share amounts are known n Many recordkeeping systems can now age participant level trades and calc STR fees n As of Sept 19, 2005 DTCC supports sending of trades with STR fee information, allowing funds to deduct the applicable fees and settle net with the intermediary

7. SEC Answer to Market Timing “Rule 22c-2” n Effective date is May 23, 2005 n Compliance date is October 16, 2006 n Indications from the SEC is that the compliance date will not be extended n There may be further technical amendments concerning fee uniformity issues n The conflict between 22c-2 and the shareholder communication rules of 14a-13, 14b-1, 14b-2 and 14c-1 should be resolved

8. SEC Rule 22c-2 Key Components n Mutual fund’s board must either approve a redemption fee or determine that imposition of a redemption fee is not necessary or appropriate n Each fund is required to enter into a written agreement with its financial intermediaries, providing the fund access to information about transactions by fund shareholders

9. STR Fee Uniformity Included in Rule 22c-2 n Not a lot of guidance from the rule – SEC has requested comments on fee uniformity n For Certain: n 2% maximum on fees n Minimum 7 calendar day holding period n Fairly Sure: n FIFO share lot aging required n De minimis and hardship waivers allowed n SEC will not mandate a uniform holding period

10. Agreements with Intermediaries Two primary provisions n Funds allowed to request information from intermediaries about the identity of shareholders and their transactions in fund shares n The intermediary must agree to execute the funds instructions to restrict or prohibit further purchases by a specific shareholder

11. n All open-end mutual funds – even those that do not impose STR fees n Intermediaries that trade in omnibus accounts including DC plans n Intermediaries that trade long-title/fully disclosed but use bank/nominee ID number instead of the actual TIN n Does not apply to money market funds or funds that affirmatively permit short term trading as disclosed in the prospectus Agreements with Intermediaries Applicability

12. Data Reporting Requirements Rule 22c-2 n Funds may request the underlying trades and taxpayer IDs in any omnibus account for a specified period of time n Some funds have indicated they will request a daily feed of underlying trade transactions on certain omnibus accounts n Intermediaries are to provide the trade details and taxpayer IDs promptly upon request by the fund

13. Standardized Data Reporting DTCC Service n Standardized data format and centralized portal is needed to facilitate the transmission of millions of trade details from thousands of intermediaries n The ICI and DTCC formed a working group, consisting of both BTAC and BDAC committee members to develop the standardized format and best practices n The finalized formats are expected to be released by DTCC January 2006

14. Standardized Data Reporting Features of DTCC Service n DTCC will support the centralized remitting and receiving of detail trade transactions, similar to how Fund/SERV works for trading n Format allows for requesting/submitting transactions for a specified date range n Format also allows for requesting/submitting recurring daily transaction activity n Format supports submitting summary level data on initial request on super omnibus accts n Includes provision to allow an intermediary to reject an unreasonable request from a fund

15. Standardized Data Reporting Features of DTCC Service n Unique control numbers supplied with both requests and submissions for tracking and matching requests with submissions n Formats allow an intermediary to use an agent for firm for processing requests from funds and corresponding submissions through DTCC n Funds may request trade details related to a specific Fund/SERV trade by referencing the control number on the original trade

16. Standardized Data Reporting Features of DTCC Service n Funds may include a dollar amount threshold n Funds may restrict the request to a specific transaction source – such as participant directed, plan directed, or rep directed n Funds may optionally restrict trades to just buys, just sells or just exchange buys or sells n Format includes an indicator to notify the fund that the trades being submitted are a full response or a partial response to their request

17. SEC Rule 22c-2 Open Items n Model contract language is currently being developed by the ICI and SIA n DTCC is considering allowing Data Service Only (DSO) members to utilize the SDR services n Guidance is needed from the SEC on determination of the level at which written agreements will be required when you have a chain of intermediaries

18. SEC Rule 22c-2 Open Items n SEC technical amendments on fee uniformity items such as – FIFO aging, hardship and de minimis waivers n SEC guidance on privacy issue conflicts between existing SEC rules and ERISA rules n The SDR formats should be finalized and published by January 2006

19. Like it or Not – Here it Comes Compliance date is October 16, 2005 355 days left ! Thanks for your attention Burton Keller Delta Data Software www.deltadatasoft.com