From: Landis Steven [sdlandis@yahoo.com] Sent: Tuesday, March 16, 2004 11:49 AM To: rule-comments@sec.gov Subject: File No. S7-11-04 Sir or Madam: I am writing in regards to the proposed rule that calls for mandatory redemption fees on mutual funds. As an Investment Advisor, my clients tend to be representative of middle- and upper-middle income Americans. These are the people who the proposed rule intends to help. Rather, I contend, these are among the majority whom the proposed rule will, in fact, harm. There is no doubt that most, if not all, Americans who invest in mutual funds using the traditional "buy-and-hold" methodology were severely crippled, financially, during the 2000-2002 market fall. After more than 18 years of almost non-stop gains in the U.S. stock markets, investors had come to believe that their mutual fund investments could not fail...that their mutual fund managers could not AND WOULD NOT fail them. However, those three recent calamitous years proved the truth about mutual funds: In a broad, declining stock market MUTUAL FUND MANAGERS CANNOT PREVENT LOSSES AND THE LOSSES TO SMALL INVESTORS CAN BE CATASTROPHIC. Accounts that were managed by me and my fellow investment managers, did suffer losses. However, those losses, were pale in comparision. (In 2002, my most conservative U.S. equity program lost about 8.3%, outperforming the DJ30 by about 8%, the S&P500 by about 16%, and the NASDAQ by more than 30%! The losses that my clients avoided put money in their retirement accounts...money that most investors will never see again. In summary, I am opposed to mandatory redemption fees on mutual funds for the following reasons: 1) Mandatory redemption fees penalize investors for managing risk. In a study of the S&P 500 over the past 10 years, there have been 404 occurrences where an investor waiting five days to avoid a 2% redemption penalty would have experienced a greater than 2% loss. 46 occurrences would have resulted in losses from 5 to 10% while 5 of these instances would have resulted in a loss of greater than 10%. 2) Mandatory redemption fees will detrimentally impact millions of mutual fund investors who periodically reallocate their accounts as well as many retirees who receive periodic distributions from their retirement accounts. These are NOT the people who are responsible for the abusive trading in mutual funds. 3) Mandatory redemption fees will limit the ability of Investment Advisors to effectively manage client accounts. The result will be depriving investors of professional assistance that THEY NEED AND WANT. Periodic rebalancing of fund positions would have to be made on an account by account basis to avoid incurring a redemption fee in instances where the investors may have added or withdrawn funds recently. This will be prohibitively time consuming and costly for advisors to administer. 4) Most experts agree that better solutions to curb abusive short term trading are FAIR VALUE PRICING and clearly stated policies on purchase and redemption policies that are UNIFORMLY ENFORCED. 5) Mandatory fees should NOT be imposed by funds that do not have a problem with abusive trading. The SEC's proposal amounts to PRICE FIXING. Funds should have the discretion to decide whether or not investors should be penalized to remedy a problem that may not exist. 6) Redemption fees, in particular mandatory fees, should only be used to recoup ONLY ACTUAL COSTS INCURRED by the fund by abusive traders. Data referred to by the SEC in accounting for the costs of abusive trading on a portfolio were over a decade old. I urge to to consider the impact of this proposed ruling. Failure to consider the effects on all investors will result in another piece of poorly crafted, damaging legislation. Thanking you for your time and consideration. Steven D. Landis, CFP Landis Financial & Investment Services 7760 Olentangy River Road, Suite 100 Columbus, OH 43235 Tel. 614-436-8926 ===== "FINDING FINANCIAL SOLUTIONS" Steven D. Landis, CFP Landis Financial & Investment Services 7760 Olentangy River Road, Suite 100 Columbus, OH 43235 614-436-8926 Visit our website at www.StevenDLandis.com __________________________________ Do you Yahoo!? Yahoo! Mail - More reliable, more storage, less spam http://mail.yahoo.com