MessageFrom: Peter Mauthe [Peter@spectrumfin.com]
Sent: Monday, May 10, 2004 12:07 PM
To: rule-comments@sec.gov
Subject: Re: File No. S7-11-04

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Emailed to: rule-comments@sec.gov

Re: File No. S7-11-04

Gentlemen:

I am writing as the chief operating officer of a firm registered as an 
investment adviser since 1988, employing 14 individuals and managing 
approximately $300 million in mutual fund and variable annuity sub-accounts.  
I am also writing as a board member of the trade association known as SAAFTI 
(the “Society of Asset Allocators and Fund Timers, Inc.”) and as an investor 
in mutual funds.  

I am opposed to the proposed rule which would require a 2% redemption fee on 
mutual fund shares sold within five days of a purchase.  My opposition is 
based on the fact that mutual funds already have the ability to impose such 
fees when they identify that they have a problem with short term trading.  
Funds also already have the ability to deny purchases by abusive traders and 
they already have the ability to deliver in kind to those traders whose 
redemption disrupts a fund's operations.  Most importantly though, mutual 
funds not only have the right but the obligation to fair value price their 
portfolio holdings and it is this practice that will bring about the most 
significant reduction in short term trading of mutual funds.

The reason for this is that the majority of abusive short term trading of 
mutual funds is done by people who seek to capitalize on the stale prices of 
mutual fund shares that result when a portfolio is not fair value priced.  A 
2% redemption fee only raises the cost of short term trading, it does nothing 
to eliminate the underlying cause that makes some short term trading so 
profitable.

A mandatory redemption fee would require the 90% of mutual funds who do not 
presently impose a redemption fee to do so.  It seems odd that the SEC would 
want mutual funds that have presumably determined they have no short term 
abusive trading problem to impose a redemption fee that is targeted at a 
problem they do not have.  If made mandatory, such a redemption fee would 
almost certainly not be paid by the savvy abusive short term traders.  I 
believe it would most often be paid by many uninformed mutual fund investors.

I applaud the Security & Exchange Commission's efforts to get the mutual fund 
industry to control short term abusive trading of fund shares.  However, I 
suggest the SEC  increase the pressure on mutual funds to use the existing 
powers that they have rather than imposing a mandatory redemption fee that 
will do little, if anything, to control short term abusive trading of mutual 
funds.

 
Respectfully,

Peter B. Mauthe
2316 Mariners Mark Way
302
Virginia Beach, VA  23451
757-470-1994