Subject: File No. S7-09-04
From: John Dunphy

March 24, 2004

As a registered representative, I feel it is also important to look at some of the advantages of 12b-1 fees, in particular the C shares. Many people feel that an asset based compensation plan for their financial advisor will help reduce conflicts of interest, as well as keep the advisor interested in continually watching their client portfolios. Most of my clients are retirees and their biggest concern is that their advisor is interested in watching their account not just at time of sale of the mutual funds, but on an ongoing basis.

Many publications state that an ethical advisor will set up a fee based account. In many cases this is a wrap account were by the advisor charges the client 1 annually, and the advisor will then recommend a series of mutual funds without loads or individual stocks. This fee based arangement is set up to reduce conflicts of interest. The advisors compensation is directly tied to the performance of the account. Since the advisor is charging a flat fee of 1, the only way the advisor can make more money income from the client is to invest the account in such a way that it will grow. On the other hand, if the client account value begins to decline the advisors compenstion declines. If the client fires the advisor, the advisors compensation ceases immediately. A transactional based compenstion plan for a financial advisor does not remove this conflict of interest. If the advisor is paid the bulk of their income at point of sale, then isnt it possible that some advisors may want to churn client accounts to continually receive income? Furthermore, if the bulk of their income is received at point of sale, then the advisor has to spend most of his/her time looking for the next sale. Who then is watching their client accounts?

If the average no load expense ratio is approximately 1/year, and the advisor charges another 1/year as a fee, then total portfolio costs are approximately 2. The average expense ratio of my client C share portfolios is 1.65 this is including the 1 compenstion our firm receives to manage their account. We make out going calls to our clients to arrange meetings to review their accounts a few times a year. We do this to make sure the account is still invested properly based on their needs and tolerance for risk. Our services dont stop there. Our clients call us will all kinds of financial questions ranging from investment recommendations in their employers 401-k plans, credit advise, mortgage advise, etc. I am more concerned in keeping my existing clients happy with the advise that I offer, more so than, the prospects of a new client. My job is to continually add value to the relationship I have with my clients, if my clients do not perceive any value in my advice, they transfer their account and my income stops.

12b-1 fees are important to advisors of A, B, C shares of mutual funds. It is the compensation the advisor receives after point of sale to watch and maintain client accounts. Without this ongoing advisory fee, I feel you would then see and environment which promotes churning of client assets to generate income. By completely eliminating 12b-1 fees could create a whole bunch of problems that may ultimately have a negative impact on clients.

I agree there should be better disclosure of fees, but why should it stop at just 12b-1 fees? Full disclosure should be just that.... FULL DISCLOSURE. This would include every mutual fund load as well as no-load everywhere, including 401-k plans. Many people feel the cost of their 401k is paid by the employer, not the expense ratio of the assets in the plan. If we want everybody to be informed, then we must disclose every expense, everywhere.

The 12b-1 fee has evolved from a method that was designed to lower overall costs of the mutual fund, to a method which creates and incentive for advisors to watch and maintain their client accounts. My recommendations is to break this 12b-1 fee into is componates, so clients can see in a prospectus what portion is for marketing/distribution cost and what portion is compensating their advisor for ongoing service. This way investors can see total cost of the investment as well as what is paid to the advisor at time of sale as well as the ongoing fee they receive to service the account.

We live in a free marketplace. If I choose to change the oil on my own car, I can, so why should it be different with mutual funds. If an investor would like to manage their own money, they can. There are many excellent choices ex Vanguard, T. Rowe, etc. However, some investors are not willing or able to manage the money themselves, these are my clients. By eliminating 12b-1 fees will have a negative impact on these types of investors.

My advise to my clients was most valuable a year ago when he market was near its lows. Many of my clients wanted to sell their investments and park it in cash. After many difficult meetings and alot of client education, most of them stayed the course. This helped many of them recover account value considerably. If these people would have cashed out at market bottom, the account values would have been smaller, thereby, possibly increasing their dependance on social security or government programs.

Many investors have lost money in good performing investments because they would pull their money out at the wrong period of time. Our job as advisors is to help clients make rational decisions, not emotional decisions.

Respectfully,

John Dunphy