Subject: File No. S7-15-10
From: Kevin J McCarthy, C.F.M.
Affiliation: Partner, Investment Advisory Firm

July 23, 2010

I am SOON beginning my 30th year in the business and converted most of my NEW clients with less than $150,000 of investable capital away from "A" shares in about 1997. Properly diversifying them into 10 to 17 different "A"share mutual funds creates crushing front end expenses. Hence "C" shares.
(Approximately eighty percent of my annual revenue comes from million dollar minimum balanced accounts of specific stocks and bonds I manage for a fee through our RIA. But I also serve smaller investors.
Ten percent annually comes from commissions on the sale and purchase of stocks and bonds. And perhaps 5 percent comes from C share fund purchases.)

I'm concerned for the new smaller investor who needs counsel and considered diversification at a reasonable price. The C share of a mutual fund with a 1% annual advisor related expense is a more appropriate way for this smaller investor to purchase and hold.

With C shares the customer gets:
a. the benefit of the advisor-assisted selection and retention and deselection process...
b. the advisor is more modestly compensated from the beginning and...
c. the customer has the ongoing more flexible option to choose to reduce or leave a fund without disproportionate cost after 12 months, or add their dollar commitment to the fund.

If the customer is pleased with the performance they can see and take satisfaction their advisor receives compensation directly correlated to the customer's current situation.

Are you getting C Share customers complaining to the heavens? I deeply doubt it. This looks more like Penny Wise and Pound Foolish. This C change might look arguably righteous in D.C. at first, but your SEC organization

(which has almost silently witnessed
a.two asset bubbles and their companion distortions, greed and institutional misjudgement of a colossal scale,
c.undetected fraud of remarkable proportions and
d. brought next to noone to the dock in the last ten years)

might/could/should go very carefully with its next steps.

Solve real problems, please.

I am fully aware of the arguments about fund pricing and expenses, but mutual funds are real worldcritters, not mathematical entities. We are both aware that (Real World) mutual fund managers do not endure with the portfolios they manage for a time, mutual fund companies and ownership are uneven and evolving (to say the least), asset management strategies and strategists do not endure as to their effectiveness, and customers' desires to utilize mutual funds themselves evolve.

Much of the arguments for this considered change are arithmetical calculations assuming in part the enduring integrity of funds and fund management organizations...a dangerous assumption.

Hence over recent decades the durations customers actually remain with a fund grow briefer, not longer, no matter how much we might argue for enduring the pain of market collapses imminent or recent. Would you prefer they sold and bought A shares every two or three years rather than left a C share fund without extraordinary expense?

Or is this current proposal perhaps a semantic game? If you wish to call the several elements of the annual "C"share x basis points a"commission", or x basis points "fee", be my guest.

But removing the smaller investor from the opportunity for counsel by removing a most agile, organically proportionate, and modest annual cost that retains that counsel appears in my experience and judgement MOST UNWISE for the customer.

In fact, I think you could consider just as righteously eliminating "A" shares. The argument from Real World experience makes them a dubiously priced product. The C share is the healthier and fairer model for the small client-counseled fund business.
The consequences of the considered change might/could be devastating to receiving counsel at a reasonable price.

Or are you eager to promote unmanaged indexes? If the need is for cheap, you might be shocked to see you started a run from funds to ETFs. That would be a charming turn of events, wouldn't it? The law of unintended consequences has not been suspended.

First, DO NO HARM. (And while you're reconsidering this proposal on the table, subpoena Bogle about prevaricating repeatedly on camera about the relative efficacy of his Index 500.)

I suppose that would be too much to ask.