Subject: File No. S7-11-04
From: Darrell D Wiard

May 3, 2004

How about a real world example of the losses caused by the inability to exit an investment position. I have a variable annuity that offered unlimited daily exchanges when I purchased it. The ability to actively manage my money was key in my purchase. By limiting my losses I was able to make a profit during the bear market years. Now, however, this variable annuity has limited my exchanges by requiring a 2 week hold on any purchase. On April 12th, I purchased 3 equity positions from the money market 60 percent in 2 US focused mutual funds, and 40 percent in an intl fund. I purchased these positions anticipating good earnings. As we all now know, the earnings were good but the market dived due to fears about higher interest rates and probably geopolitical fears. I was locked in to my purchases by this arbitrary rule. I could not even sell the US based funds that do not suffer from any of the supposed ills you are trying to protect me from. From April 12 to April 30 I lost -9.05 percent and I am negative for the year now. In my 401k, where I still have the ability to do exchanges, I lost less than 1 by selling and I am up almost 10 percent for the year.
Every investor should have the ability to make their investment decisions as they see fit. Particularly, they shoud always have the ability to sell and reduce their risk. As I understand it from an investment seminar that was recently chaired by Eliot Spitzer, the ERISA statute that governs 401ks in section 404C requires that investors have the ability to manage investments commensurate with their risk. I would say that a 9 percent loss in a few weeks shows enough risk that it is unwarranted for you to put a mandatory hold on all mutual fund investors regardless of risk. That sounds irresponsible to me. I would think that you would want to protect investors, not increase their risk.