Oct. 26--An increase in commission expenses contributed to a 25 percent drop in third-quarter net income for Pre-Paid Legal Services Inc., the company reported Monday.

The company said it earned $10.8 million, or 99 cents a diluted share, compared with $14.4 million, or $1.23 a share, in the same quarter last year.

Ada-based Pre-Paid provides legal-service plans to customers across the United States and Canada through a network of independent provider law firms. Earlier this month, the company was ranked No. 66 on Forbes magazine's list of 200 Best Small Companies.

Pre-Paid noted that for the first nine months of the year its net income dropped 4 percent to $43.7 million, or $3.95 a share, compared with $45.4 million, or $3.77 a share, in the first three quarters of last year.

Also during the first nine months, Pre-Paid has returned $14.8 million to shareholders through the repurchase of 451,486 shares of common stock, at an average per share price of $32.84. Since April 1999, the company has returned $422 million to shareholders through the purchase of 14.2 million shares and $17.1 million in dividends.

At the end of September, the company had $41.8 million of debt outstanding and $73.5 million in cash and cash equivalents and unpledged investments.

Earlier this month, Pre-Paid received a subpoena from the Securities and Exchange Commission to produce a variety of documentation, including those pertaining to the stock repurchase program it has had since April 1999.

Other documents requested include those pertaining to the company's Affirmative

Defense Response System program and other marketing practices; membership statistical information; segment reporting; a contingency disclosure to the Federal Trade Commission; and other operational practices.

Pre-Paid previously said the investigation is a fact-finding inquiry and does not mean that the SEC has reached any conclusions.

Also in its quarterly report, Pre-Paid said third-quarter membership fees fell to $105.4 million from $109.3 million for the same quarter last year.

Revenue from associate services rose to $7.6 million from $6.2 million in the same period a year ago.

Commissions to associates rose $3 million from the same time a year ago and totaled $36.7 million in the third quarter.

General and administrative expenses rose to $12.6 million from $12.5 million from the same period a year ago, but were down from $12.9 million in the second quarter. This drop from the second quarter included decreases in legal fees, employee costs and consulting fees, which were partially offset by increases in postage and bank service charges, the company reported.

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