Subject: File No. 4-500
From: Mark Palamaras, CFP, President
Affiliation: Potomac Fund Management, Inc.

May 9, 2005

The S.E.C. should strongly discourage the use of redemption fees. The real criminals were the fund companies allowing executives and preferred customers to trade mutual funds while not offering this same freedom to individual investors. Redemption fees are only penalizing individual investors. As a financial planner and investment advisor I see investors paying enormous amounts of fees in recent years as the need to move monies around for retirement and spending purposes occurs. Studies have shown that the drag on performance of mutual funds is less than .4% a year while investors are paying 2%, why does the charge need to be so high. This is a windfall for fund companies, a great new revenue source. Additionally fund companies do not provide a method for investors to easily determine which shares are subject to redemption fees. Most investors have no clue that they are paying these fees. Mutual funds were originally established to create liquidity and this actually is counter productive to that concept.

I strongly discourage the use of redemption fees. There are better ways, for example fair value pricing. However if redemptions fees are allowed:

ANY redemption fee should:

Be used only when there is a demonstrated abuse of the funds exchange privileges as clearly stated in the respective fund's prospectus.

Be related to reasonable and actual costs incurred (not 2%).

Be based on FIFO (first in, first out) not LIFO (last in, first out) accounting of purchases.

Have hardship withdrawal provisions.

Have provisions for paying third-party advisors without incurring a redemption fee.

Have provisions for errors being corrected without incurring a redemption fee.

Have a de-minimus withdrawal provisions.

Furthermore if a fund imposes a redemption fee they should not bee allowed to ban any investors from such fund that are willing to pay the redemption fee. Large investment companies and other international companies get plenty of perks, would someone please help the individual investor.

Mark Palamaras, CFP
Potomac Fund Management, Inc.
President
1-888-POTOMAC (768-6622)
www.potomacfund.com
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