From: Dr. Gary J. Harloff [harloff@sbcglobal.net] Sent: Tuesday, March 09, 2004 12:16 PM To: rule-comments@sec.gov Subject: File No. S7-11-04 I am opposed to this legislation on several grounds. This legislation is all about fixing illegal after hours trading (viz. Canary Capital), shoring up the ineptness of fund families in fair market pricing of international funds, and about raising additional fees when there is now an outcry to lower mutual fund fees. The mutual fund families's trading costs are now considerably lower than several years ago due to technology and lowering specialists profit arbitrage on the exchanges. But this legislation does not specifically address after hours illegal trading, nor does it address international overnight arbitrage, nor does it address costs to the funds for any level of trading. Instead it addresses how fund families can make additional money from trading. There is no justification for the 2 percent amount or even for the 5 day hold time. Nor does this legislation address the vast nonuniformity in redemption fees that exist today. This legislation is about pitting the growing fee-only registered investment advisor against the sales oriented broker-dealers. 1) There are no free market arguments that provide for different standings of "short-term" shareholders from "long-term" shareholder. All are shareholders and whether one is short-term or long-term is a matter of choice by the investor. Why should one class of shareholder reimburse another class? This should be a market issue and not a legislative issue. To wit, several Delbar studies show that the average investor receives only 1/3 the SP500 return. Should the fund families reimburse the average investor for the difference of 2/3 of the SP500 returns? 2) There are many different redemption fees today charged by the fund families. Some charge a redemption fee is sold in few days, some 30 days, some 60 days, some 6 months, some 1year, and some even 5 years. And some redemption fees are small like 0.25%, some .50%, and some 2%. Thus there is no uniformity today and this legislation will do nothing to bring uniformity of the existing longer than 5 day redemption fees. 3) There are no actual studies that quantify the net actual trading costs of the mutual fund industry due to 5 day, 30 day, or any time period. Obviously each funds trading costs are different in America. Thus it is improper for the SEC to artificially impose arbitrary fees to cover illusive net costs to the funds. Indeed there are some funds that encourage trading and impose no restrictions. Due to net inflows and outflows on any given day there may be no actual cost to the funds. Yet this net cost is not even considered. The funds encourage new money and if a free economic system how can they discourage money outflow when shareholders require it? 4) The funds have been required, for several years, to provide fair market prices needed for stale international fund pricing. The SEC response here is to propose a 2% redemption fees on all funds (not only international funds) to cover up for the fund families inability to provide fair market pricing in the case of international funds. This legislation does nothing to bring the funds into compliance with fair market pricing of international funds. 5) This legislation is really against the fee-for-service businesses of fee-only registered investment advisors and is pro the sales oriented broker-dealers who embrace the buy-and-hold strategy. The broker-dealer (and fund companies who use them to sell their funds) embrace the idea that market timing doesn't work, to keep their clients from complaning about the typical fund sales charge of 5-8% that the broker reps charge when selling loaded funds to clients. These broker-dealer companies and reps spend 95% of their time selling and have a lot to lose if clients begin to embrace market timing concepts. Sincerely, Dr. Gary J. Harloff, Ph.D. Harloff Inc. 26106 Tallwood Drive North Olmsted, Oh 44070 440-734-7275