Sent: Wednesday, March 17, 2004 10:04 AM
Subject: File No. S7-06-04: Comments on SEC's Feb. 11 proposed
rule amendment for mutual funds

VIA Email rule-comments@sec.gov

March 17, 2004

Jonathan G. Katz

Secretary

Securities and Exchange Commission

450 Fifth Street, NW

Washington, DC 20549-0609

RE: Comments on SEC's Feb. 11 proposed rule amendment for mutual
funds

Dear Secretary Katz:

I'm writing to comment on the Commission's February 11 vote to
adopt enhanced mutual fund expense and portfolio disclosure and
proposal to prohibit brokerage commissions to finance
distribution.

I am a former Executive Director of the Consumer Product Safety
Commission and Co-Founder of RestoreTheTrust.com, the first
grassroots campaign website solely dedicated to representing
individual investors. The www.RestoreTheTrust.com website was
launched in July 2002 at the height of the accounting scandals.
Thanks in part to 55,000 email letters from RestoreTheTrust.com
investors in support the Sarbanes accounting reform bill,
Congress passed and President Bush signed this much needed
legislation into law.

In January, RestoreTheTrust.com launched a new campaign on behalf
of investors to help clean up the recent scandals in the mutual
fund industry that are pilfering billions in profits from 95
million investors, half of all U.S. households.
RestoreTheTrust.com has setup an email program for investors at
www.RestoreTheTrust.com, so they can send letters to comment on
the SEC's proposed rule amendment posted in the Federal Register
by the April 12 deadline.

We concur with the January 27 Senate Government Affairs Committee
testimony by the Consumer Federation of America Legislative
Director Travis Plunkett: ".that the mutual fund market lacks
three key characteristics needed to effectively discipline costs:
transparent disclosure, meaningful price competition, and, absent
those two characteristics, regulatory policing of the worst
abuses."

We applaud the Commission for its proposal to amend rule 12b-1
under the
Investment Company Act of 1940 that would prohibit mutual funds
from
directing commissions from their portfolio brokerage transactions
to broker-

dealers to compensate them for distributing fund shares.  We
oppose any watering
down of this prohibition because of the huge positive impact it
could have on tens
of million of mutual fund investors.
As your agency discovered, nearly 50 percent of mutual fund
transactions that are
conducted between broker-dealers and retail investors and 14 of
15 Wall Street
brokerages the Commission recently investigated had received cash
from funds,
and that 10 of the 15 had received revenue-sharing payments in
the form of
commissions for trading stocks for the funds' portfolios.  SEC
attorney Edward
Siedle has estimated that nearly 75 percent of the fund
industry's $6 billion in
trading commissions pays for distribution via these arrangements.

As the CFA noted in its Senate testimony: "This abusive approach
to mutual fund
sales harms some investors directly - by channeling them into
funds with higher
costs and poorer performance than they might otherwise have
purchased. The
long-term costs of a poor selection can be measured in the added
thousands or
tens of thousands of dollars that might have been earned from a
lower cost, higher
quality fund.. if funds got out of the business of competing to
be sold, and
brokers' compensation came directly from the investor and did not
depend on
which fund they sold, then brokers might begin to compete on the
basis of the
quality of their recommendations, and funds might have to compete
accordingly,
by offering a quality product and good service at a reasonable
price."

You also sought additional comment on the need for additional
changes to rule
12b-1, which the SEC adopted temporarily in 1980 so funds short
of assets could
use shareholder assets instead for certain marketing expenses. We
concur with
CFA's testimony that: "While fund companies often reduce
management fees as
fund assets hit certain benchmarks, they have clearly not fully
passed along the
economies of scale that have come with a rapidly growing asset
base."  For these
reasons, Rule 12b-1 should be repealed.

The Commission also adopted amendments that require mutual funds
to disclose
expense in shareholder reports associated with an investment of
$1,000.  The
reality is that no one reads shareholder reports pre-sale, which
means this
proposal will do nothing to introduce meaningful price
competition into the
mutual fund marketplace.  Dollar amount cost disclosure is good,
but applying it
to a hypothetical $1,000 account means the amount will look quite
small.

We join the CFA, Fund Democracy, Inc., U.S. Public Interest
Research Group,
Consumers Union and Consumer Action in strongly supporting
individualized
dollar cost disclosures that should be provided in the quarterly
or annual account
statements that show the shareholder's account balance and
transaction activity.
Putting cost information in dollar amounts side-by-side with
information on the
fund's gains or losses for the year is the key to helping
investors to put those costs
into perspective.

Sincerely yours,

Pamela Gilbert

Co-Founder

cc: The Honorable William Donaldson