Subject: File No. 4-590
From: robert klepa, Esquire
Affiliation: Instructor, UCLA Extension

October 5, 2009

My feedback is on securities lending. I am strongly against allowing mutual fund companies to lend out my shares to third parties in exchange for collateral and profit for them.

I own shares in a mutual fund run by a large mutual fund company and have been informed by the company that it lends out shares from this fund. The company has not yet told me how much collateral they receive in return (105% is required), where they store the collateral (CD's if money or their own account if shares), how big a fee they charge for this transaction, and how much profit if any is guarenteed to the fund from this action (note: the company indicates that my fund made some profits on these transactions last year). I do not believe this practice should be allowed for the following reasons:

First, if the shares are not returned by the borrower and the collateral is not worth enough to cover the cost of the shares, I am apparently on the hook for the loss. The mutual fund's guidelines do not speak to this and they have not told me their policy so I am greatly concerned that I would be on the hook for this loss as a shareholder. As I did not buy the mutual fund with this risk in mind and it was not clearly explained in the prospectus (I never saw it), it should not forced upon me

Second, there is no guarentee of profit to anyone from these transactions except for the mutual fund company through its fees. If I am running the risk of losses from this transaction and I have not agreed to run this risk, I should have a guarenteed return or the practice should stop. Since the fee amount is not spelled out in the company's prospectus for my fund and the risk or cost of these transactions are not provided in advance to the investor, they should not be allowed

Third, this activity ties up shares and therefore funds that might be required to redeem my ownership interest in the mutual fund. I would hope the fund company would bring in funds or shares from other sources to redeem my shares if I require it, but nothing is mentioned about this in the prospectus, so I am apparently at risk of having my redemption request delayed or denied if there is a problem with a share loan. For this reason as well, this practice should be banned.

In short, this practice does not seem to provide any certain benefit to me as a mutual fund investor and only creates a risk that I have not agreed to bear or have been adequately informed about in advance. It is certainly not a practice that is required for the company to make money, as other reputable mutual fund companies do not use it. Accordingly, I would ask that you prevent mutual fund companies from lending out shares owned in part by individual investors who invest in a company's mutual fund.