Subject: File No. S7-06-04
From: Edward J. Reynolds, Jr.

February 25, 2004

I recently learned the SEC is considering a mandatory 2 percent redemtion fee on mutual funds if held for less that 5 days. Well, I am sure that I fall into the small investor category and I am shocked at this proposal. I invest in ProFunds Mutual Funds which does not have trading restrictions. Usually, I do not change in a shorter time frame than five days, but sometimes I do. This redemtion fee whould be a penalty for me.
This 2 percent redemtion fee whould give all the mutual fund companies that have allowed late trading, by insiders, to more than make up for any fine they have paid for breaking the law. In effect the small investor whould pay the fines for all the mutual fund companies that have broken the law. What a windfall for the illegal activites of those mutual fund companies.
This proposal seems not designed to protect the small investor, but to increase the income for all the mutual fund companies. When you consider that insiders and highly knowlegeable investors will be able to get around this 2 percent redemtion fee by trading options, single stock futures, exchange traded funds, and untold other financial instruments that small investors like me do not have the expertise or time to trade.
Here is an example. Lets say after 20 years I have built up my savings to 100,000 dollars. With the current rules, in 3 days the market and my money could go down 10 percent and I would be down 10,000 dollars. If the 2 percent redemtion fee was a rule and I made a trade to a money market fund I would pay the mutual fund company 2000 dollars or a 20 percent increase in my loss. Was any mutual fund company fined 20 percent of 1 years profits per illegal trade they allowed? Where any mutual fund companies income for 20 years charged a fine of 2 percent?
If this is passed by the SEC the small investor is going to be hurt a little by a few companies that only received a relative slap on the wrist. The SEC potentially is going to hurt the small investor much more and enrich the very companies that broke the law. And those companies and the big investors will just use the loop holes available to avoid the 2 percent redemtion fee. DONT DO IT, PLEASE