Subject: File No. S7-09-04
From: Thomas L. Hudson

May 5, 2004

As you know, most security reps are paid for their services thru commissions or ongoing fees from mutual fund companies or directly from clients. There is never any set time allotment for an investor or shareholder when discussing their investment objectives or their investments. Its not a cookie cutter approach that you spend 15 minutes, one hour, or three hours with a customer to educate, review, or listen to their objectives or desires as they try to plan their future.
It seems to me that shareholders receive an economical benefit when 12b-1 fees are paid. For an inexpensive cost they are able to receive professional services on an ongoing basis. This is especially attractive to individuals who have limited assets, as they receive professional attention to their problems, questions, or education of the financial industry. If security representatives are unable to receive 12b-1 fees, they would have to either charge their customers fees to review their investments, or attempt to sell them new products in order to be compensated for their time. Some representatives may be pressed by their broker dealers to become more productive with their time in order to meet quotas or overhead. Hopefully, the customer would not continually receive advice to try another mutual fund if the results of their current fund had a bad performance year.
In conclusion, the customer and the representative have mutual interests that benefit both sides with the current setup of the 12b-1 fees. It encourages ongoing relationships with both parties that ultimately is better than a transaction based atmosphere.