Subject: File No. S7-11-04
From: Sally Miller

From: Sally Miller []
Sent: Tuesday, October 12, 2004 2:14 PM
Subject: Redemption Fees

Dear Bob:

Thanks for taking my call the other day. As I mentioned to you, I am getting quite a few calls from bank trust departments expressing frustration regarding the lack of uniformity in the redemption fee area. A recent survey indicates that many mutual funds are assessing redemption fees of anywhere from .5% to 2% on turnarounds of 5 business days to 360 days. It is not uncommon for trust departments to handle transactions for over 200 funds on a daily basis. With each fund having the ability to set its own fee and holding period, banks are experiencing a tremendous burden for monitoring fund transactions. Further, many transactions that one would not think of as market timing are being impacted, including automated portfolio rebalancings that occur on quarterly basis, exchanges within a plan's investment menu, or changes brought on by the plan sponsor's decision to change investment options. Some funds are imposing redemption fees on a ll distributions, including those associated with plan loan transactions, termination distributions and hardship withdrawals.

As we discussed, imposing redemption fees raises other ancillary but important issues as well. Does the assessment of a redemption fee impact APR disclosures under Regulation Z when a participant borrows from plan assets? How will qualified domestic relations orders be handled where the court has directed that fund assets be redeemed?

Bankers and their service providers are unsure of what systems need to be built in order to police market timing. Should systems set some acceptable threshold for screening or should systems be tailored to each fund's redemption fee requirements? Clearly some guidance from the SEC would be most welcome. I would reiterate the banking industry's desire for uniformity in this area.

If you think it would be helpful to meet with trust bankers by phone or in person to discuss some of these issues, please contact me.

Thank you in advance for your prompt attention to this matter.

Sincerely yours,



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