From: Debbie Castiglioni [dmcastig@cutter-co.com] Sent: Tuesday, April 06, 2004 7:10 PM To: rule-comments@sec.gov Subject: S7-06-04: Dear Mr. Katz: Thank you for the opportunity to comment on the proposed changes to the mutual fund disclosure rules. I am a co-owner of a small broker-dealer, which has been in business for the past 16 years. The impact that would evolve from this far reaching proposal would, in my view, be dramatically detrimental to the mutual fund industry, which in turn would significantly negatively impact the investing public. Providing additional clear and concise information to the public concerning fees, expenses and revenue sharing arrangements should be a goal for our industry to move towards. The SEC proposal, however, has so many complexities in the process of providing this data, the economics in my business would deter me from continuing to offer this product. My average profit margins along all business lines falls somewhere around 5%. The expense that every broker-dealer would incur to provide the initial and trade disclosure information, on a personalized basis, would be astronomical. Each client that wanted to purchase a fund would have to sign a written confirmation that they received proper disclosure, as I would not allow the firm exposure to rescission capabilities, based on the rule proposal as outlined. This could unnecessarily delay a purchase by days and cost an investor significantly in a rising market. As a primarily retail broker-dealer, we work almost exclusively with John Q Public. These are typically not the high net worth folks you read so much about. Instead, we are a traditional firm, serving traditional small investors. Our average mutual fund purchase is under $25,000. Assuming a full "A" share front-end load of 5%, the gross amount received by the firm would be $1,250. After compensating our typical broker, the firm will retain approximately $190. This gross amount is then used to pay our ordinary business expenses, and with whatever small dollars are left, we are actually hoping to make a profit. If as an introducing broker I am responsible for providing the specific fund expenses (amongst all the other proposed disclosures - most of which do not affect me) compared to average expense ratios relative to the purchase by my client, customized on each transaction, both at time of sale and by written confirmation after the sale, there will be no profit. It will be a fairly easy economic decision to move away from mutual funds to either ETF's (exchange traded funds), which are not very easily utilized for small investors - or utilizing no-load funds on a fee basis. I'm quite sure this is not what the SEC intends as a result of these proposals. When considered in tandem with the potential elimination of 12-b1 fees, the profit margins are reduced even further (possibly creating negative returns in these product categories). I have representatives that have worked with clients utilizing "C" shares for years - in an effort to put more of the client's money to work for them, while continuing to be compensated for their advice and time in conducting reviews. These same representatives will be the ones that are harmed by the significant reduction of their income, that in many cases took decades to build. Keep in mind, they were not paid 3, 4 and 5% upfront. It took them years to earn even what a typical "A" share purchase would have generated. I am already receiving information from mutual funds that are raising their minimum investments. I'm sure that, if these rule proposals are passed, that trend will continue, as the small account is the most expensive account to carry. We always prided ourselves in continuing to be willing to serve the small investors, unlike many brokerage firms that send them off to a call center or treat them like lesser citizens. Unfortunately, I do not feel that we will be able to continue to provide service to smaller clients if the disclosure regulations are passed. We are not a charity and have not filed for this status, however, that is what we would need to do in order to continue to serve the general public in the face of these new requirements. We are a "for profit" business. There is no other business or industry that is required to specify at point of sale the exact dollar amount of compensation that was made on the transaction. This is ludicrous. At a minimum, the disclosure should be stated as a percentage of the transaction. Even this, I believe, goes too far. The first impression a client will have is that the amount stated as commission on the disclosure document is what his or her broker made on the transaction. In many cases, the broker might actually receive 20% or 30% of the amount listed. The client will not know that without asking - and I'm sure most will not ask. It is not, and should not be viewed as, illegal that our industry actually makes money for the services we provide. It's a shame that the ultimate investor these rules are promulgated to help will actually do them the most harm. I hope that the Commission will continue to ponder ways to clarify the expenses and fees involved in these product areas without damaging the future of these products or the services currently available to small investors. I would be happy to participate in any focus group or other committee that may be formed to continue analyzing the best approach to help the public so they are less confused - while protecting the viability of the mutual fund industry. Thank you for the opportunity to comment and your time in considering my thoughts. Sincerely, Deborah Castiglioni CEO Cutter & Company, Inc. 636-537-8770 Reminder: E-mail sent through the Internet is not secure. 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