Subject: File No. S7-06-04
From: W. Thomas Boulter

April 12, 2004

VIA Electronic and First Class Mail

April 12, 2004

Jonathan G. Katz, Secretary,
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Re: Comments on Proposed Rules 15c2-2 Confirmation Disclosures for Open End Funds, UITs and 529 Plan Securities and 15c2-3 Point of sale Disclosures for Open End Funds, UITs and 529 Plan Securities
under the Exchange Act File No. S7-06-04

Dear Mr. Katz:

We welcome the opportunity to comment on proposed Rules 15 c2-2 and 15c2-3 under the Exchange Act. Jefferson Pilot Securities Corporation is a fully disclosed introducing broker-dealer with approximately 2,500 registered representatives conducting business in all 50 states and 5 territories. Our registered representatives distribute equities, debt securities, mutual funds, variable life insurance and variable annuities and advisory products through our corporate advisor. The proposed rules will have a direct impact on the business that we conduct as the covered securities constitute a large percentage of our total annual sales.

We applaud and commend the Commission for taking steps to promote transparency of distribution costs of the covered securities, and the disclosure of any possible conflicts of interest created by distribution related compensation practices. The investing public has a right to access such information readily and in an easily understood format. Building the publics trust and understanding of the securities business is of paramount importance in todays climate.

We believe that customers are already provided with, and have access to, an immense amount of distribution cost information and that any additional disclosures should be incorporated into the product prospectuses or confirmations. We also strongly believe that variable annuities and variable universal life products, by their nature and the way that they are distributed, do not raise the issues which prompted the Commission to require the increased disclosure contemplated by the proposed rules.

Point of Sale disclosure under the proposed rule is not needed in light of information already disclosed in the prospectus and/or in the confirmation

Prospectuses, which are required to be given to a customer prior to trade settlement, already provide customers with sufficient cost information and are the preferred vehicle for disclosure. We also believe that the confirmation process is better suited for dissemination of information due to the efficiencies achieved through automation, which benefit both broker-dealers and consumers.

The costs to customers of purchasing covered securities are already disclosed. Full disclosure about the out-of-pocket costs a customer will incur as a result of purchasing a covered security is essential in the relationship between a broker-dealer and its customer. Existing requirements under Rule 10b-10 and prospectus disclosure requirements provide full disclosure of those costs already. All other distribution-related costs paid, directly or indirectly, by a mutual fund complex are reflected in each funds bottom line performance. Fund performance is easy to understand and easy to access. Repeated disclosure of the costs and expenses of the funds and their advisors will not add anything significant to investors knowledge of the products that they are purchasing, but will result in added expenses to them through increased brokerage costs.

We believe that the most important information upon which investors base their buying decisions on are the investment objectives of the mutual fund, the risks of investing in that fund, the operating expense ratio OER of the fund and the historical performance of the fund. Historically, the mutual fund prospectus has been the document with that critical information. The proposed point of sale rule would require a highlighted disclosure of compensation and expense information which we believe may be useful to know but is not critical to the investing decision. The high cost of providing this information outweighs any benefit that will be enjoyed by investors.

The two Proposals are duplicative and will lead to information overload that could result in investor confusion. By requiring duplicative point of sale disclosure customers may discount the important information contained in the prospectus. Human nature is such that customers may focus their attention on the information presented in the short point of sale document and ignore more important the information contained in the lengthier prospectus. We believe that a more effective way to disclose required information on distribution costs and conflicts of interest would be to enhance existing prospectus and confirmation requirements, which are automated whereas the point of sale disclosure is labor intensive. We also believe that any Point of Sale disclosure should be qualitative rather than quantitative due to the logistical difficulties and added expense of providing exact calculated costs at the Point of Sale.

The distribution of mutual funds and variable products via check and app. pose logistical problems and impose significant costs relative to information disclosure as contemplated by the proposed rules

Many broker dealers allow customers the option of conducting securities transactions through a brokerage account or directly with product issuers check and app.. Under the check and app. platform, product sponsors provide the confirmations required under rule 10b-10 directly to the customer resulting in a cost savings to the broker dealer. The product sponsors are not privy to the compensation arrangements between the broker dealers and their representatives. In order to comply with the proposed confirmation and point of sale disclosure requirements broker-dealers will have to tie their back office systems to the multiple funds that it sells. Jefferson Pilot Securities offers approximately 12,000 mutual funds posing a tremendous systems challenge. Implementation of the back office tie-ins with product issuers will be expensive and ultimately passed through to the investing public.

Disclosure should come from product issuers

Disclosure of distribution costs is fundamentally the obligation of the mutual fund complex since it controls all of these costs and the myriad of ways in which those costs are incurred. Disclosure in the prospectus identifies those costs, the funds historical performance and other cost data, simply and accurately and also reports the effects of those costs on fund performance. The data gathering, administrative and disclosure burdens and related liability for data errors is being unfairly transferred to the brokerage industry. A predicate underlying the basis for the proposals is that more detailed disclosure will force the industry to lower costs, and that lower costs will result in better investment performance. Of course, it is the mutual fund industry that controls those costs and there are many more variables affecting investment performance. We agree with the Commission that implementation of the proposed rules will be extraordinarily expensive to the investment industry, but also believe that the Commission may have underestimated those costs. Prospectus disclosure would be a more cost effective way to address the issues that the Commission is concerned with, and ultimately lower the costs that will be borne by the investing public.

Variable insurance products should not be included in the proposals

Variable universal life insurance and variable annuities due to their underlying insurance contract and securities components are regulated both by the states insurance departments and by the SEC. Under all states insurance laws customers are provided a 10 to 30 day free look period after delivery of the insurance contract. This allows the customer to return the contract and receive a refund of any premiums paid within the mandated free look period. Variable contracts typically provide the customer with a choice of multiple sub-accounts to invest the contract cash values. The sub-accounts may or not be proprietary or non-proprietary. Broker-dealers may be affiliated or non-affiliated with the insurance company that sponsors the variable product.

The point of sale disclosure requirement would be unduly burdensome on broker-dealers and probably impossible to comply with in a number of situations, due to the requirement that asset based service or sales fees paid out of fund assets be disclosed in relation to the particular transaction. In a variable fund with multiple sub-account fund choices, the asset based sales or service fees paid to the product sponsor will vary depending upon the particular fund. Unlike a mutual fund where there would be one asset-based fee, a variable product may have 10-15 or more different funds paying different fees. It will be very difficult to disclose an accurate estimate of asset based fees to be paid by the customer who invests their cash value in multiple sub-accounts with differing asset based fee ratios. All of these fees are disclosed in the prospectus thus making the point of sale disclosure unnecessary. The Commissions proposed point of sale form itself questions the utility of this disclosure in its explanation and definitions section where it points out that the amount of any asset based fee is generally not predictable as the fees fluctuate with the NAV over time. Should the Commission believe that there is a need for more disclosure of these fees, then requiring a standard blended asset based fee disclosure in the prospectus would be appropriate.

The point of sale proposal is vague as to whether it would apply after the initial sale of the policy to subsequent transactions in variable product sub-accounts. The confirmation proposal would seem to require enhanced confirmation disclosures for subsequent transfers within the variable product sub-accounts after the initial purchase. Subsequent transactions such as premium paid to keep a policy in-force or reallocation among the sub-accounts do not present conflict of interest or cost transparency issues that the proposals are targeting and therefore should at a minimum be exempted from the proposed rules.

The proposed industry range comparisons for sales charges, revenue sharing payments and portfolio brokerage commissions may not be useful to the customer.

The Commission proposes that confirmations for covered securities contain industry range comparisons for sales charges, revenue sharing and portfolio brokerage commissions. The disclosures are to be expressed in relation to the median and 95-percentile range. The average investor may have trouble understanding the significance of the ranges or be able to place them in a usable context. For variable products the asset based charge ranges would be difficult to break out due to the multiple portfolios that most insurance products make available.

Rescission of customer orders is not an appropriate remedy and an unnecessary change to the way mutual funds are sold

We do not believe that failure to provide the point of sale disclosure should result in rescission of the transaction. Failure to provide information that is not critical to an investors decision to buy should not result in a potential market loss by the broker dealer. Broker-dealers would not be able to protect themselves against this risk due to the requirement that they obtain best execution. As noted above, variable insurance products by state law carry a free-look period. Insurance companies generally protect themselves against investment risk by not investing premium monies until the free-look period has passed. Under the proposed rules broker dealers and mutual fund companies would not have the same protection from investment gain/loss. State free-look laws are predicated upon allowing an insured a reasonable time to examine the terms of the insurance contract before making a final decision to be bound by its terms. The same type of danger does not inure when a mutual fund is purchased. The transaction is straightforward and full disclosure of the terms of the relationship is embodied in the fund prospectus.

Allowing customers to rescind mutual fund transactions under the proposed rule would change the way funds and broker dealers have been doing business for the better part of the last 75 years. Should the Commission deem it necessary to require the distribution of a point of sale disclosure to customers, then failure to comply should simply result in a violation of a sales practice requirement with resulting consequences consistent with current rules.

Need for Transition period
Finally, should the Commission adopt the proposed rules in whole or modified in light of comments received, an 18 month transition period will be necessary in order to implement the substantial systems and sales practice changes that will be required. We believe that the impact of the proposed rules is akin to those imposed by the recently adopted amendments to the broker dealer books and records rules. A similar transition period would thus be required. A shorter transition period will be hurried and costly. A longer transition period will allow for an orderly and cost efficient implementation.

While Jefferson Pilot Securities Corporation understands the issues and concerns that the Commission is trying to address through these two proposals, we believe that the proposals are overreaching in their attempt to increase investor awareness. Implementation of these two proposals will have several results to the securities industry. First, the high costs to implement the proposals will more then likely be passed on to the investor. Second, the investor will be inundated with information and paperwork, from which, it is very likely they will be confused and gain no useful knowledge. The 1 billion cost to the industry and consumers for implementation of the proposals does not outweigh the benefits to the investing public that the increased disclosures will provide. The Commission should take the existing prospectus requirements and require that any cost or conflict of interest information be conveyed in a simple and easily understood format. This can be done in a cost effective manner and provide the investment industry with a uniform manner to convey important investment information.


W. Thomas Boulter
Vice President, Chief Compliance Officer
Jefferson Pilot Securities Corporation

cc: David Booth, President