Subject: File No. S7-09-04
From: Adam J Makkai

May 5, 2004

The 12b-1 fees assessed by mutual fund companies help shareholders and registered representatives in a number of ways and should not be eliminated. For shareholders, these fees provide incentive to broker/dealers and the various representatives to assist them with their financial goals and investment allocation after the initial sale has taken place. Regulatory authorities have made it clear that ongoing service to clients is a priority. Without the 12b-1 fees, shareholders would see their financial counselors compensated only as sales people. To expect a financial professional to monitor a financial plan or even reallocate investments without being compensated is unrealistic. It is important though. As the economic environment, as well as a clients goals and time horizons change, the reallocation process benefits investors as much as portfolio management, and maybe even more when considering index funds. For these services, shareholders would have to pay an additional fee. This would likely be more than the current 25 or so basis points 12b-1 fees usually entail, especially for smaller investors. Additionally, new products or commission features would inevitably arrive in the marketplace that pay representatives an ongoing trail. This would encourage switching of accounts to the new products. This will not benefit shareholders who not only want investments that make sense now, but want direction along the way.

Registered Representatives also benefit from the 12b-1 fee. It allows them the ability to serve their clients on a more professional basis by providing value added support and be compensated for the efforts. This also puts them on the same side of the investor financially. They will both benefit as the accounts grow. It only makes sense to align compensation with the actions you want to see from the securities industry. Without these fees, most representatives will have to focus all of their efforts on generating new clients, rather than providing some valuable services to existing ones.

Although reducing fees to shareholders is important and increases investment returns in the funds they own, It does not benefit them to eliminate representatives incentive to provide ongoing service. According to some, registered representatives as a whole are deemed undeserving of these ongoing commissions. Still, stopping them will certainly not improve the level of greatly needed service provided by financial professionals, who also benefit from the 12b-1 fees.