From: Art Molloy [artm@capitalgrowthinc.com]
Sent: Tuesday, April 20, 2004 2:23 PM
To: rule-comments@sec.gov
Subject: File No. S7-11-04 

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC  20549-0609. 

Dear Sir,

I am opposed to the imposition of a government mandated redemption fee.  
The responsibility of imposing a redemption fee should rest on the shoulders 
of the fund’s fiduciaries.  There should be limits as to the maximum fees 
allowed by law.  Whether those fees are imposed should be up to the individual 
fund trustees.  There are mutual fund companies which have designed their 
mutual funds to accept large and frequent investments and withdrawals.  The 
mandated redemption fee will interfere with their business plan, mutual fund 
industry innovation, and will destroy some of the investment choices available 
to the public today.  

There have been instances when I have made trading errors on behalf of my 
clients, resulting in the need to redeem shares that were recently purchased.  
While there are no intentions on my part to have my clients participate in 
short-term trading of mutual funds, under the proposed rule, they will be 
subject to a 2% penalty for any future errors.  Ultimately, I will be 
responsible for reimbursement of the redemption fee.  If there is no “SEC 
mandated” redemption fee, then I can work with the fund company to waive a 
“company-imposed” redemption fee when errors occur.  If the proposed rule 
takes effect, my costs will increase, and I will be forced to RAISE my 
overall fees to my clients (some 400 individual accounts).  

When everything is considered, I believe your proposal to force a mandated 
redemption fee will have the opposite effect of the one intended.  You will 
be driving up the cost of investment services for the consumer.  You will 
stifle innovation and competition (Rydex Funds, Potomac Funds, Pro Funds, 
etc.).  Creating rules that will eliminate abuse without harming the innocent 
are the only rules that should be considered.

 

Art Molloy, CFP, CFA
President
Capital Growth, Inc.