April 15, 1999

Mr. Jonathan G. Katz, Secretary

Securities and Exchange Commission

Mail Stop 0609

450 Fifth Street, NW

Washington, D.C. 20549-0609

RE: FILE No. S7-8-99

Operational Capabilities of Transfer Agents

And Year 2000 Compliance

Release No. 34-41142

DST Systems, Inc. ("DST"), which is registered as a transfer agent with the U. S. Securities and Exchange Commission (the "Commission"), appreciates the opportunity to submit the following comments with respect to Release No. 34-41142 (the "Release"). In the Release, the Commission proposes and requests comments on Rules 17Ad-20 and 17Ad-21T concerning transfer agent operational capabilities and Year 2000 compliance. We apologize for submitting these comments three days late, but request that they be received and considered.

DST serves as the named transfer agent (or sub-agent of the named transfer agent) for approximately 40 management company complexes which sponsor approximately 1017 CUSIPs having approximately 2.8 million securityholder accounts. Additionally, DST provides remote access to its proprietary mutual fund recordkeeping and accounting system, the TA2000™ System, to approximately 180 registered transfer agents or mutual fund complexes (including those for which DST affiliates provide full transfer agent services), servicing approximately 5819 CUSIPs having approximately 47.2 million securityholder accounts. Further, DST also provides remote access to its securities transfer processing system (the "STS System") to approximately 10 transfer agents, serving 1000 corporate issuers, unit investment trusts and closed-end, registered investment companies having approximately 5 million securityholder accounts.

DST strongly supports the efforts of the Commission "to assure the prompt and accurate transfer and processing of securities, the maintenance of master securityholder files, and the production and retention of required records" [the "Requirements"] through the promulgation of a requirement that registered transfer agents maintain a prescribed standard of operational capability, presuming an ability to accept and process, in a timely and accurate manner, information and data containing four digit years irrespective of century. Notwithstanding that support and the fact that we do not believe that DST is likely to ever have difficulties complying with the requirements of Rules 17Ad-20 and 17Ad-21T as proposed, DST believes that Rules 17Ad-20 and 17Ad-21T, as proposed, are insufficiently precise, too harsh and too unforgiving in their application and, if not amended, would occasion more harm than good to the investing public. Our specific concerns are as follows:

1) Definition of "Operational Capability:

Rule 17Ad-20, as proposed, defines "operational capability" as that which is necessary to assure the Requirements. Such a general listing of activities without the enunciation of specific standards compares unfavorably with the specific requirements set forth in such operationally-based rules as 17Ad-2 (transfer ninety percent of all routine items received during a month within three business days), 17Ad-5 (specific time frames within which a registered transfer agent must respond to specified correspondence items), 17Ad-10 (items must be promptly and accurately posted to the master securityholder files within specified days of receipt; record differences must be posted to subsidiary files until resolved; co-transfer agents must dispatch or mail daily transfer journals to the recordkeeping transfer agent within specified time frames; and physical overissuances must be must be recorded, tracked and, if necessary, bought in within specified timeframes); 17Ad-11 (the reporting of buy-ins in excess of specified amounts for specified levels of issuer capitalization must be reported to the issuer and the Commission within specified timeframes); 17Ad-15 (transfer agents must have written standards for the acceptance of and accept signature guarantees from categories of entities defined as "eligible guarantor institutions" and must have written procedures concerning such acceptance to assure different categories of eligible guarantor institutions are not treated differently); 17Ad-17 (transfer agent’s are given specific obligations to search for lost securityholders, including specified timeframes for searches and specified numbers of searches to be made); and 17Ad-18 (requiring non-bank transfer agents to file a detailed report answering specific questions concerning the status of their Year 2000 Readiness). The greater specificity of the foregoing rules means that the affected transfer agents are better aware of what is expected of them and the Commission is better able to enforce compliance with the rules because non-compliance can be objectively demonstrated by an examination of the records which other rules require be maintained to demonstrate compliance or non-compliance.

A comparison of the foregoing rules to proposed Rule 17Ad-20 demonstrates our concern. The absence of parameters, benchmarks and timeframes leaves the affected transfer agent unable to gauge when difficulties may cross over into a situation requiring cessation of all business activities. For example: Has a transfer agent failed to assure the Requirements if its website, through which eligible shareholders or brokers may actually enter certain categories of transactions, is down or otherwise unavailable (and other means of communicating with the transfer agent are functioning)? Has a transfer agent failed to assure the Requirements if its Interactive Voice Response (IVR) System, which enables shareholders and/or brokers to perform certain transactions using touch-tone telephones, is down or unavailable (and other means of communicating with the transfer agent are functioning)? Has a transfer agent failed to assure the Requirements if there is a major weather-related event, or some other cause beyond the transfer’s reasonable ability to control or compensate for, which event significantly impairs its ability to function for some period of time (for example, by limiting the ability of employees to get to work)? Does it matter if the inability to assure the Requirements is temporary or if the extent of the problem is unknown? Does it matter if the reason for the inability is beyond the transfer agent’s reasonable ability to influence, to control or to prepare or compensate for? Does it matter if only one element of a transfer’s ability to assure the Requirements is impaired, but all other elements are unaffected (such as the website or telephones are out but mail is still being delivered and the transfer agent’s computer systems are functioning normally)?

A reasonable detailing of the functions which constitute or are deemed to be necessary to be operational in order to assure the Requirements, a linking of that detail to the rules already in place, and a consideration of how little or long a disruption is acceptable before cessation of activities is required and whether the fault or lack of fault of the transfer agent in the occurrence of the situation is relevant would provide guidance in most, if not all, of these situations. This is especially true for those transfer agents who do not have the redundancy and excess capacity which DST and its major competitors possess.

2) The penalty imposed by Rule 17Ad-20 is unworkable as stated:

A transfer agent who concludes that, for whatever reason, it is unable to assure the Requirements is compelled under the rule as proposed to immediately cease to perform transfer agent functions. Given the reality that DST usually requires a minimum of six (6) to twelve (12) months to convert the records of a mutual fund complex of average size from another system to DST’s TA2000 System and ninety (90) days to convert the records of a medium-sized corporate stock transfer agent (or corporate issuer, if DST serviced corporate issuers directly) and that the maximum time frame could significantly exceed the previously-stated time frames if the conversion required a substantial amount of new programming, it is apparent that, if the transfer agent of an issuer or issuers of any size were to cease activity immediately, it could, and very likely would, be many months before transfer of the securities of such transfer agent’s clients could resume. Such an occurrence would, therefore, cause the investing public to be unable to obtain transfer of securities issued by the clients of such transfer agent and a suspension of a mutual fund client’s shareholders’ right of redemption contrary to Rule 22(e), adopted under the Investment Company Act of 1940.

Instead, DST believes that the remedy for a failure to maintain operational capability must allow enough time for the orderly and safe conversion of the accounts serviced by the transfer agent before the transfer agent is compelled to cease performing transfer agent functions. To the extent the Commission is concerned as to the effects of continued activity by a transfer agent which admittedly is not equipped to fulfill the responsibilities which it has assumed, the Commission might consider imposing a graduated stepping up of operational capability failures and penalties, a period during which a transfer agent would have an opportunity to correct its failure and a provision for a more orderly process to convert all such transfer agent’s clients to other transfer agents. Interim steps toward the ultimate penalty of cessation of all activity could, among other possible measures, include a requirement of reports to the Commission and the appropriate regulatory authority, if it is not the Commission, reports to issuer and transfer agent clients, reports to SRO’s and clearing agencies and limitations or a prohibition on accepting new business. In any event, the chosen remedy must provide for and permit enough time to effectuate an orderly conversion of accounts before the offending transfer agent is compelled to cease performing transfer agent functions.

DST believes that the definition of a "material Year 2000 problem" should exclude from its coverage a mis-identification of a date which does not result from an inadequacy of the transfer agent’s system for securityholder recordkeeping and accounting. Thus, many transfer agents have, at the request of their clients, added routines to their Year 2000 compliant systems to enable the transfer agent to accept from third parties dates which do not use four (4) digits to set forth the year. One approach typically used in the industry is to "window" two digits dates, for example using a pivot year of "50". Thus, two digit dates less than "50" would be treated as twenty-first century dates ("33" would become "2033"), while dates greater than "49" would be treated as twentieth century dates ("85" would become "1985").

Given this good-faith attempt on the part of most of the industry to minimize adverse effects on the investing public from the inadequacies of a few participants, the Rule as adopted should make it clear that the Rule applies only where the date received contains a four digit year, since otherwise the transfer agent would be penalized for a deficiency in an external system over which it had no control. Further, the Rule should state that, in order for a transfer agent’s system to have a "material Year 2000 problem", the failure to identify a date correctly should be required to be a systemic, and not an isolated, failure and to cause the transfer agent to be unable to process transfers and update its records within the Commission-mandated timeframes applicable to the affected function.

2) Cessation of transfer agent activity:

Rule 17Ad-21T states that a transfer agent which, at any time on or after August 31, 1999, has a "material Year 2000 problem" does not have operational capability within the meaning of Rule 17Ad-20 and must, therefore, immediately cease performing transfer agent functions. Unfortunately, DST, the largest provider of securityholder recordkeeping and accounting system services to open-end investment companies and their transfer agents and a participant in the largest corporate stock transfer provider, will not be able to convert any issuer from any transfer agent experiencing a material Year 2000 problem or a failure of operational capability within the four month period remaining between September 1, 1999, and December 31, 1999 because sufficient time would not remain in order to adequately plan and test such a conversion. In fact, except for conversions already scheduled, DST would not convert any investment company complex of any significant size prior to the expiration of this temporary rule and does not believe that any other of the major transfer agents is likely to do so either. In these circumstances, while requiring entities with potential material Year 2000 problems to identify themselves, to cease accepting any new business, to accept financial responsibility for losses occasioned by their failure and to use their best efforts to come into compliance or to minimize the consequences of non-compliance (or even to commence efforts to arrange an orderly transfer of their business as soon as reasonably practicable) are eminently practicable and appropriate, requiring an immediate cessation of transfer agent activity would be more harmful to public investors and the securities markets than any harm such transfer agent’s material Year 2000 problems are likely to cause.

3) Backup of Files:

DST believes that the backup of daily work on a regular basis is a necessary and appropriate requirement and that the requirement set forth in subsection (f) of this rule should become a general, not a temporary, rule applicable to all transfer agents (including bank transfer agents). We do, however, question whether the Rule as proposed correctly identifies the records to be backed-up and whether the mandated retention period should be five days.

The Rule employs the term "database". This would include significantly more records than those required for a successful conversion. Perhaps the records required to be backed up should be limited to securityholder records required to be maintained under applicable Commission rules and which are necessary for a conversion of the securityholder records to a successor transfer agent.

Secondly, while DST and most large transfer agents already maintain the required records for far longer than five days, DST doubts that all transfer agents do so and five days are unnecessarily long for a conversion utilizing current records. On the assumption that business is continuing throughout, even if today’s records were damaged by some problem, they are probably insufficiently damaged to warrant going to old files, compared with the damage of not using current records, many of which are correct. The requirement of five days retention of records in a prescribed format appears likely to be onerous without being useful.

Very truly yours,

Jules Moskowitz

Vice President and Counsel

JM/bjh