April 3, 1998

Mr. Jonathan G. Katz


Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

RE: File No. S7-8-98

Proposed Rule: Year 2000 Readiness Reports

to be Made by Transfer Agents

Dear Mr. Katz:

On behalf of Federated Services Company, (with two registered transfer agents representing over $120 billion in assets and over one million accounts), I am pleased to respond on proposed temporary Rule 17Ad-18 under the Securities Exchange Act of 1934 regarding Year 2000 (Y2K) readiness and reporting thereof. As a general matter, Federated agrees with the spirit of the proposed Rule and the concern of both the Commission and Congress of the downside risk of an unprepared transfer agent on its issuers and the financial community.

In reviewing the proposed Rule, however, several areas were of concern to Federated and we believe will be of concern to our industry peers. First, we question whether the additional regulations and their expense - that each transfer agent will incur - will generate greater preparedness and compliance or greater distraction and misdirected focus from the heart of the matter.

Second, industry-wide testing, implementation and contingency planning are described as a benefit for the Commission in dealing with non-SROs, and in coordination with SROs (page 6 under the heading, "II. Proposed Temporary Rules"). However, to date, there is no leader, standards, or benchmarks in industry-wide testing for transfer agents.

The use of vendors is paramount to mutual fund transfer agents. For the vast majority of fund complexes or their transfer agents, the norm is not to have an internal system to run shareholder record-keeping applications; rather, the majority of complexes/transfer agents use a vendor-supplied system. The majority of vendors have not been willing, to-date, to provide Y2K compliance certifications. The footnotes on page 9 regarding vendors and their Y2K compliance is unclear, with respect to the transfer agents’ responsibilities beyond communication and contingency planning. It is inappropriate to impose requirements on the transfer agent, when there is no requirement - legal or otherwise - for the vendor to provide the certification. Moreover, to comply with the proposed Rule regarding contingency planning (page 9, footnote 11) would be misleading, since no transfer agent can "ensure the success of critical systems if interfaces fail or unexpected problems are experienced with operating systems and infrastructure software."

Mr. Jonathan G. Katz

April 3, 1998

Page 2

Independent auditor attestations are also of great concern to Federated. We have had discussions with a number of major independent public accounting firms, who have not agreed to provide such attestations. Our concern with the proposed Rule is our future ability to locate a firm who: 1) will have an adequate supply of technical auditors with competency in Y2K necessary to provide valid attestations; and, 2) will be willing - at a reasonable price - to accept the inherent liability built into the attestation requirements.

Within the attestations, several of the requirements provide for board of directors’ actions, including approval of Y2K plans and responsibility for plan execution. It is our opinion that a senior management officer should be sufficient in meeting these requirements and for reporting such Y2K plans to the board.

Because our firm, like most fund complexes, includes a distributor organized as a broker-dealer, and a registered investment advisor to manage portfolio assets, we could be inundated with Y2K reporting and attestations if all of the different proposed regulations became required. The costs of compliance would be prohibitive and pull focus from readiness itself. At a minimum, consolidated reporting of related registered entities should be permitted representing Y2K readiness across the entire complex. Alternatively for transfer agents, a temporary page could be added to the annual Form TA-2 filing which is due by August 31. This page could discuss, as proposed, the areas indicated in the Initial and Follow-up Reports.

Finally, we object to reports made under proposed temporary Rule 17Ad-18 be of public record. Access of the proposed reports could cause unnecessary alarm to a reader who is not knowledgeable of the inner-workings of the transfer agent business.

If you have any questions about these matters, please do not hesitate to call me at (412) 288-4832.


Melinda T. Schmidt

Vice President and

Director of Compliance