From: Linda [linda@effectivewords.com] Sent: Friday, January 16, 2004 5:01 PM To: Rule-comments@sec.gov Subject: File No. S7-27-03 Linda B. Ferentchak 6681 Crestbrook Drive Morrison, CO 80465-2233 303-697-6160 January 16, 2003 RE: File No. S7-27-03 Mutual Fund Reform Legislation Dear Chairman Donaldson: Help, I am being taken to the cleaners by Charles Schwab and Co. in the name of mutual fund reform. I sold a gold fund position held at Schwab & Co. yesterday and my soon to be FORMER brokerage firm charged me a redemption fee for not having held the position 180 days! The fund did not charge the fee, Schwab did. Needless to say that redemption fee doesn't compensate any short-term investor but goes straight to Schwab's bottom line. This is abuse of investors! I hope you will take a stand for investors such as myself and stop this madness of making innocent investors pay for greedy money managers and fund executives. The whole mutual fund fiasco is already being used to milk investors with unjustifiable early redemption fees. If the SEC proposed hard close on fund transactions is approved we can count on being slapped around again by not being able to get current pricing on fund sales and purchases unless they are placed directly with the fund company. Doesn't it seem a bit odd that the fund companies are the ones that come out with all the goodies while investors who had nothing to do with the mess pay the price. Oh, I forgot. That's the way of the world. The problem as I understand it is mutual funds allowing large investors to trade (1) illegally after the market closed and/or (2) in violation of the mutual funds stated policies to prohibit short-term trading in the funds. The trades at issue were one- to three-day positions. They were made to take advantage of stale fund pricing., i.e. prices of mutual funds that did not reflect news since the market closed, particularly overseas markets. The fix is quite simple. Require fair value pricing. There is no reason in the world that mutual funds can't do that now. If they say they can't I would ask what they are trying to protect. Instead there is a widespread movement in the mutual fund industry today to put redemption fees on each individual fund. These aren't redemption fees for 5-day trades, but redemption fees for trades made within 90 and 180 days. This is far in excess of anything required to stop the abuses disclosed to date. At least with the mutual funds the fees are supposed to be rolled back into the fund to compensate longer-term investors whose positions might be hurt by a short-term trade. Of course, no one has demonstrated how a trade in 10, 20, much less 180 days costs a short-term investor. The real insult is that financial intermediaries are now getting into the picture and imposing redemption fees on mutual funds that don't have redemption fees. The only good thing I can see resulting from passage of legislature imposing redemption fees is that it will probably be the first nail in the coffin of the mutual fund industry. It will serve the greedy beggars right. There are a lot of alternatives to mutual funds that weren't around 5 years ago and there are going to be a lot more if legislation such as that passed earlier by the House is put into law. I sincerely doubt the average investor is going to be stupid enough to stay around after they are charged their first redemption fee for trying to protect their assets against declining fund values. In the meanwhile, this whole debacle will cost individuals such as myself whatever money the funds haven't already lost for us in the last three years. As for the SEC's stated purpose of creating a level playing field in the securities market, turning the 85% of investors who purchase or sell funds through a financial intermediary into a third class citizens by denying them current pricing with a 4 p.m. hard close seems a bit off target to me. A hard close on mutual fund transactions will most likely be the second nail in the coffin for the traditional fund industry I don't plan to accept two-day old pricing on a mutual fund purchase or sale, particularly not if it combined with the potential of a "short" term redemption fee, nor do I see why any other investor would, unless they are trapped in a retirement plan and have to trade through the intermediary. A hard close is going to be a tremendous boon for closed-end funds and exchange traded funds. If you are going to pass laws to prevent future abusive trading, please make certain those laws don't end up costing honest investors. I can guarantee you redemption fees will be used to milk investors and bolster corporate profits, not protect investors. A hard close is a simple solution, not the right one. The financial market is moving very rapidly toward a 24-hour global market. A hard close is just going to turn open-ended funds into dinosaurs a lot sooner. Is that really in the best interests of investors? Sincerely, Linda B. Ferentchak