MessageFrom: Peter Mauthe [Peter@spectrumfin.com] Sent: Thursday, February 05, 2004 10:48 AM To: rule-comments@sec.gov Subject: File No. S7-27-03 and File No. S7-26-03 February 5, 2004 Jonathan G. Katz, Secretary Securities & Exchange Commission 450 Fifth Street NW Washington, DC 20549-0609 Delivered via email: rule-comments@sec.gov Re: File No. S7-27-03 and File No. S7-26-03 Dear Mr. Katz, I am President of Spectrum Financial, Inc. which is a Registered Investment Adviser managing approximately $275 million for individuals and small organizations. I am writing to comment on two of the Commission's recently proposed rules pertaining to the mutual fund industry. We, like the Commission, are concerned about the recently revealed illegal late trading practices of some investors at some mutual funds. In order to address the issue of late trading, we believe that the best solution is the proposal for a modified hard four o'clock close with requirements that intermediary's time stamping process be independently audited. We have been managing portfolios of mutual funds for people since 1988. The majority of our clients have their accounts at intermediaries. Industry data suggests that 80-90% of all mutual fund investors invest in mutual funds using an intermediary. Each one of these investors who use intermediaries will be adversely affected by the proposed hard four o'clock close. The hard four o'clock close would relegate individuals who use intermediaries to second class investors who will be prevented from making any mutual fund transactions within 4-6 hours of the close of the markets. Also, like the Commission, we are concerned with abusive trading by some investors of some mutual funds. In order to address the issue of abusive trading, we believe the best solution is requiring mutual funds to clearly state in their prospectus specific purchase and redemption policies that define, for each fund, what they consider abusive purchase and redemption activity. Only in this way will both the fund and its investors have a clear understanding of what level of activity is and is not acceptable. And, only in this way will the fund have policies to enforce uniformly for all investors. It is currently within the ability of mutual funds to identify specific investors who violate stated prospectus policies and in doing so deny future access to the fund to those investors. Without clearly stated policies, the fund is not obligated to enforce any purchase or redemption limits and when they do, it is seldom uniformly applied to all investors. Respectfully, Peter B. Mauthe cc: Senator John Warner Senator George Allen Congressman Ed Schrock ___________________________________________ Making A Difference ___________________________________________ Peter B. Mauthe, President Spectrum Financial, Inc. 2940 N. Lynnhaven Road Suite 200 Virginia Beach, VA 23452 Phone (757) 463-7600 Fax 757-463-1232 E-mail peter@spectrumfin.com ___________________________________________________________________________________________________________________________________ This message contains confidential information and is intended only for the individual named. If you are not the named addressee, you should not disseminate, distribute, or copy this e-mail. Please notify the sender immediately by e-mail, if you have received this e-mail by mistake and delete this e-mail from your system. E-mail transmission cannot be guaranteed to be secure or error-free, because information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this message, which arise as a result of e-mail transmission. If verification is required, please request a hard-copy version.