Caretakers of account books for mutual funds

If a mutual fund manages an investor's money, who manages a mutual fund's money? A custodian. No, not a janitor, though keeping the books tidy on billion of dollars worth of mutual fund assets is a full-time job. Probably the biggest of the custodians is State Street Bank & Trust Company of Boston. The bank's "custody and shareholder services division" has responsibility for about 30 percent of the more than $100 billion in assets held by the entire mutual fund industry.

From a modern, sprawling building nestled on flat land among several other modern, sprawling buildings in an area of recent development southeast of Boston , State Street's money managers take care of finances for such mutual fund giants as T. Rowe Price, Scudder, Merrill Lynch, Bache Halsey Stuart Shields, and Massacusetts Financial Services. The latter fund, in fact, was State Street's first customer, starting with Mass Financial's Massachusetts Investors Trust in 1925.

Custodian services could easily be called a growth business. Since 1973 State Street's share of assets has grown from $12 billion to just under $30 billion. And its list of mutual fund portfolios has nearly doubled from 92 to about 180. At the same time it has added 45 pension and endowment funds.

The basic function of a custodian, explained John G. Houlihan, a State Street vice-president, is to keep the money in the mutual fund's account, make it available when the fund asks for it, and keep a record of all transactions.

"A fund might call," Mr. Houlihan said, "and say they want to buy some equities. We let them know how much money they have in their account and then pay for the stock." Conversely, he added, when a fund sells some investments, the custodian takes the money and deposits it in the account.

The custodian also has to keep records of a fund's purchases, how much it paid for them, their value when sold, profits or losses, a daily updating of the contents of a fund's account, as well as tax records.

To keep track of the approximately 220 mutual funds, pension funds, and endowments that are State Street clients, the bank has built up a massive "paper factory," with several long rows of desks, each occupied by either a clerk, accountant, telephone ordertaker, secretary, or supervisor.

In this large building, the formation of desks occupies a major portion of an entire floor. Attached to many of the supporting posts are signs listing the various funds that a particular section of desks and their occupants are responsible for. At these desks the people spend their days keeping track of thousand of transactions and updating account records for State Street's mutual fund clients.

Beyond the custodial chores performed for the fund and endowments, Mr. Houlihan said, the bank also deals with many of the funds' customers directly, in a task called "shareholder accounting." At State Street this function is carried out by an organization called Boston Financial Data Services. BFDS is co-owned by State Street Bank Corporation and DST Inc., of Kansas City. DST provides the computer services for Boston Financial Data Services.

Here, again, there are numerous rows of desks with people to directly serve customers. Many funds have a toll-free telephone number customers may use to ask questions about their particular fund, increase or decrease their investment , switch money from one type of fund to another (from a money fund to a stock fund, for instance), or inquire about current yield. When a custome calls a mutual fund that is a BFDS client -- whether it is located in Boston, New York, Philadelphia, Los Angeles, or wherever -- the call does not go to that city and is not answered by an employee of that fund, but comes here to be handled by BFDS and one of its employees.

The BFDS clerks handle over 40,000 calls a month, said Joseph A. Recomendes, a BFDS vice-president.

Many of the people answering the telephones here are sitting in front of television-like visual display terminals attached to keyboards. Using these terminlas, a BFDS clerk can instantly give the customer the requested information or, using the keyboard, make the requested changes. The computer in Kansas City then tells a printer in Boston to turn out a statement that is mailed to the customer. The statement provides a written record of the transaction and provides a bill, if necessary.

Lately, Mr. Recomendes said, BFDS has been "very busy" meeting the Jan. 31 deadline for sending out income tax statements to fund shareholders.

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