From: []
Sent: Tuesday, April 27, 2004 3:27 PM
Subject: S7-11-04:

Comment on proposed 2% redemption fees:

I have invested in mutual funds for over 20 years. During that time I have seen many things come, and go, and change. A perfect example would be the Fidelity Select Portfolios. They first began with four then grew to over 30. During this time fees and exchange restrictions varied from: 1. An Initial 2% load on the original purchase 2. No fees and no limits on exchanges. 3. Limits on exchanges to 5 per month and 1% of assets 4. Redemption fees of 3/4% within 30 days. This is a classic example of a fund changing its exchange and pricing structure to attract or repel customers at will.

The SEC, who owns no mutual funds, somehow thinks it can set it self up as a policeman to impose its own policies on most all funds so that both the funds and shareholders end up frustrated. Mutual funds are not public highways. Temporarily reducing the speed limit to 55 is something the government can do, but in the end is only a trendy response to a problem rather than a cure.

Mutual funds are already capable of choosing 1. Who they want for customers 2. What trading prices or restrictions they want to impose. 3. What is long term and short term. 4. They are aware they have DIFFERENT KINDS of funds. For the SEC to make legislation stipulating that all traffic is to be policed as "truck and trailers" is making an assumption that such a law will fix all highways while only a few have chuck holes. If the funds WANTED to enact such rules, they could have done so at any time. Putnam already has.

SUGGESTION: Do not legislate any new rules. Do legislate that the funds be required to clearly disclose, in advance, and subject to change, EXACTLY what their exchange policies and fees are for each upcoming 12 month period. These disclosures would be required to be all inclusive, and not subject to later interpretation. For example: 1. We will allow 12 exchanges out of any non money market fund, per account, during any calendar year. 2. Any single exchange into or out of a fund will be limited to 1% of the funds net asset value. 3. These particular funds (B, F, P, whatever) will be subject to a 1% redemption fee if the money is withdrawn within 30 calendar days.

In this way any fund can state exactly what they want, and any shareholders, both existing and potential, are free to leave or invest as they choose. There are no excuses about protecting or hurting anybody as everybody knows the rules. If the SEC makes the rules they are taking away the choices of the investors as well as the mutual funds.

In my opinion more regulation is generally a mistake, whether it be mutual funds or airlines. There has been a history of DEREGULATION of COMMISSIONS AND FEES that were previously regulated. This regulation benefited a handful of people but NOT the investor nor traveler. Even after deregulation there will remain problems and changes that need to be addressed. However, letting the investors (customers) and the service providers (brokers, mutual funds, airlines) work with each other to find a good fit is far better than arbitrary rules that date back to regulated commission rates.

There is also many variations of a "worst case" scenario that the proposed rules also ignore. That is when bad things happen and people feel the need to panic, in contrast to being greedy. As it stands people can pretty much buy and sell what they want when they want. When they screw up they can get out a mirror and blame themselves (or anyone else should they lack character.). If the SEC puts arbitrary rules and prices on purchases and sales of mutual funds I guarantee you will find A LOT people who will say they "wanted" to do something on day 2 or day 22 but instead felt they had to wait until day 6 or 32 because of some arbitrary SEC price charging rule. If you let people (re)act when they want to you will get sharp price movements that may be painful. If you restrict people from acting in any way, that is where the eventual market crashes come from. Imagine if after 911 anybody did not sell on day 1 fearing some exchange or redemption fee. Or worse, and more truthful, what if someone did not sell the week BEFORE 911 (as I did) because the market looked very tenuous. Either way, you would have had the SEC imposing an artificial fee that dissuaded asset movement. Either way you would have had SOME money that did not move BECAUSE of the artificial charges. If you do not give people choices and options as to the terms of investing their money and instead force existing fund shareholders to a new set of x% restrictions, then you will be putting everyone at additional risk instead of leaving people alone to look after their own money.

John Gentis
Fort Lauderdale, Fl 34242