ATTENTION: MANAGING PARTNER/OFFICER, OPERATIONS PARTNER/OFFICER, MANAGER P&S DEPARTMENT, MANAGER DATA PROCESSING DEPARTMENT

On Wednesday, June 27, 2001, the National Securities Clearing Corporation (NSCC) began receiving and distributing domestic index share customized standard baskets, and the first customized standard basket was processed on October 11, 2001. These products are customized versions of the current standard exchange traded funds (ETFs) processed by NSCC’s domestic index share system. As needed, the enhanced system allows each ETF to have multiple custom baskets in addition to the standard basket. These custom baskets accommodate broker/dealers that can not trade their own stock, which may be part of one of the standard baskets, and provide additional customization based on the needs of the marketplace.

1. New Custom Portfolio Composition File

To accommodate the customized standard baskets, a new custom portfolio composition file (AutoRoute Product 02260415) and a new custom portfolio composition report (AutoRoute Product 02260414) are now available. The format of the custom file is similar to the standard file, with the addition of the NSCC-assigned instruction CUSIP for the custom product. Since standard baskets have only one NSCC-assigned instruction CUSIP for each trading CUSIP, the current output files contain only the standard trading CUSIP per basket. For the custom baskets, the NSCC-assigned instruction CUSIP is included so the receiver of the file can identify which custom basket is contained within the file.

A complete record layout is available on NSCC’s file format Website http://formats.nscc.com. Similar to the Standard Portfolio Composition File, the Custom Portfolio Composition File contains multiple custom portfolios, when applicable. Distribution of the Custom Portfolio Composition File is limited to those broker/dealers designated by the respective index receipt agents (Transfer Agent/Custodian) for each custom product.

There is no change to the current Portfolio Composition File and Report (AutoRoute Products 02260294 and 02260293, respectively).

2. Custom Create and Redeem Process

There are no new AutoRoute Products for custom creation and redemption instructions. The Index Receipt Detail Report contains data recording the creation and redemption instructions for all index share products processed by the system. All transactions relating to custom creations and redemptions are included in the current output files and reports, AutoRoute Product 02262292 and AutoRoute Product 02260291, respectively.

Section A: This section lists the custom creation/redemption information on a unit basis.

1. Creation and Redemption Instructions. The custom index creation and redemption instructions are reported and netted by trade date into a "net index share" unit before bursting into the underlying component stocks. The report indicates the NSCC assigned CUSIP and symbol for the pertinent custom product.
   
2. Total Cash Amount: The Total Cash Amount may be different from the estimated cash amount reported on the previous day’s corresponding Custom Portfolio Composition File. The enhanced index share process enables cash substitution for index components. A separate cash component is provided for each custom index share product.
   
3. Total Debit/Credit: This figure is the net money to be settled and is the sum of the total cash amount and the transaction fee, which is set by the index shares product’s respective Trustee or Transfer Agent. Currently, the net amount for all index share transactions is displayed on the clearing participant’s Final Settlement Statement (print image report - AutoRoute Product 02130058) with the unique identifier "Code 54 – Index Receipt Money Settlement."

For all custom index share products, the net amount to be settled is displayed on the Final Settlement Statement with a new identifier:

"Code 55 - Customized Standard Baskets" is used only for customized standard baskets while "Code 54 – Standard Baskets" continues to be used for standard baskets only.

1. Net Index Share Instructions Burst into Components. The custom index share’s net unit position are "burst" into their component stocks for proper settlement. The total shares settled for each component will be determined by the share quantity of the component on their respective Custom Portfolio Composition File multiplied by the net unit position.
2. Issuance of Index Shares. In exchange for the component shares, the standard index product will be created or redeemed in blocks of the standard quantity of shares. The total contract value of the standard index product created/redeemed will equal the aggregate of the value of the number of proportionate shares in the custom portfolio (after netting) as multiplied by the trade date’s closing price, plus the cash amount.

1. Authorized Participants

In order to create and redeem standard and customized baskets, a NSCC participant must enter into a standardized authorized participant agreement with the Transfer Agent/Custodian and Distributor. Participants, who currently are authorized participants for the standard index share products and are interested in the customized baskets, should contact the respective Transfer Agent/Custodian and Distributor for more information.

Please refer to the following table for Transfer Agent/Custodians contact information for creating and redeeming standard custom index products:

Transfer Agent/ Custodian	Contact Information	Standard Basket Product Line
The Bank of New York	914-773-5918	Nasdaq 100 Shares and MidCap SPDRs
Barclays Global Investors (Distributor)	415-402-4630	iShares
The Chase Manhattan Bank	718-242-9811	VIPERS
State Street Bank and Trust Company	SPDR & DIAMONDS: 800-545-4189 Select Sector SPDRs 877-222-3639 streetTRACKS 877-879-2924	SPDRs, DIAMONDS, Select Sector SPDRs and streetTRACKS

The Transfer Agent/Custodian must advise the NSCC of all authorized participants prior to NSCC accepting any standard or custom creation and redemption instructions on their behalf.


2. Participant Testing

Since there are some differences between the processing of the standard and customized standard baskets, Participants are strongly encouraged to test the new Custom Portfolio File and create process with the Trustee or Transfer Agent/Custodians.

NSCC has pre-formatted custom test files and reports for participants to receive a sample of the new output available for the custom index share system. These include both a standard and an associated custom pre-formatted portfolio composition file/report, and a pre-formatted instruction detail file/report containing standard and custom data on the same output. Although these files/reports have limited data, they are structured to give an example of the type of output expected for a standard basket with two associated custom baskets.

Participants who plan to test the custom index share process with any of the Trustee or Transfer Agents/Custodians must be setup in NSCC’s test facility, the Participant Service Environment (PSE), to receive output via AutoRoute. Participants should contact their respective Trustee or Transfer Agents/Custodians to arrange testing.

Participants interested in receiving the pre-formatted test output and/or participant test output, should contact NSCC’s Participant Test Group (PTG) at (212)-855-5630 and ask to be setup for the appropriate files/reports as follows:

 

INDEX SHARE PRODUCTS

STANDARD & CUSTOM AUTOROUTE PRODUCTS

File/Report	Pre-Formatted	Participant Test	Production
Portfolio Composition File print (Standard)	02990293	02980293	02260293
Portfolio Composition File MRO (Standard)	02990294	02980294	02260294
Portfolio Composition File print (Custom)	02990414	02980414	02260414 -- NEW
Portfolio Composition File MRO (Custom)	02990415	02980415	02260415 -- NEW
Instruction Detail Report	02990291	02980291	02260291
Instruction Detail MRO	02992292	02982292	02262292



3. New Production AutoRoute Output

Participants interested in receiving the new custom portfolio composition file and/or report should contact their Relationship Manager and ask to be setup to receive these products. Refer to previous table for AutoRoute Product numbers. Please note: Participants must test before they can receive output in the production environment.

If you have any questions regarding NSCC’s procedures for clearing and settling standard and custom index share products, please contact your Relationship Manager or call (212) 855-4155. If you have additional questions, please call the undersigned at (212) 855-5699 or Vincent Mc Devitt at (212) 855-5694.

Elena Staloff
Director, Product Marketing and Development