From: Cliff Montgomery [cliff@thetaresearch.com]
Sent: Friday, May 07, 2004 12:08 PM
To: rule-comments@sec.gov
Cc: saafti@mindspring.com
Subject: File No. S7-11-04

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC  20549-0609

I would like to express my concern regarding the proposed mandatory 2%
redemption fee outlined in File No. S7-11-04.  I am in agreement with, and
fully support, the SEC's mission to ensure promotion of the best interests
of investors and to protect the integrity of the securities markets.
However, it is quite clear to me that the proposal for a mandatory 2%
redemption fee for mutual fund shares runs in direct opposition to this
stated mission.

First, allow me to make clear the fact that I do not disagree with allowing
mutual funds to impose these fees voluntarily.  However, this is a tool
currently available to mutual funds which have had problems in the past with
the type of trading which does indeed harm long-term investors.  This policy
should be governed by the fund itself, rather than by government imperative.
The wheel need not be reinvented here to compensate longer-term investors at
the cost of the shorter-term investors' best interests, based on "costs" to
longer-term investors which have not been proven to exist.  Should a fund
believe these costs to be an issue for its shareholders, the tools are
already available to deal with it.

It is also clear to me that there are problems with stale pricing in
international mutual fund pricing which can be dealt with through policies
of fair value pricing.  This has been proven by researchers studying the
problem to be the most appropriate way to deal with the problem of
international arbitrage resulting from stale pricing.

Understanding that mutual funds currently have the option to impose
redemption fees on the order of those being proposed as mandatory, and that
90% of mutual funds do not currently impose fees on this scale, should be an
indication to the SEC of the fact that the vast majority of mutual funds
have determined the effect of short-term trading to be negligible enough to
their shareholders as to not necessitate handling the problems in the manner
proposed under File No. S7-11-04.

Our firm has been tracking the performance of over 250 money managers
employing "active" strategies to managing assets in over 450 investment
models since 1999, primarily in mutual fund families established to
accomodate "short-term" trading.  Several track records in our database span
the entirety of the recent bear market.  If our research has shown us one
thing, it is that money managers employing active strategies have managed
risk for their clients in a way that they could not have were mandatory 2%
redemption fees imposed on their trading.  Indeed, the very investors the
SEC seeks to protect would foreseeably be the victims of such policy, and
the risk left unmanaged due to overly-restrictive trading policies would
lead to financial goals not being met, as countless investors would have to
push back retirement, or perhaps leave retirement, to achieve their
financial objectives and dreams.  This has been the case with several
investors already, and this has occurred in the ABSENCE of such
overly-restrictive redemption fee policy.

I urge you not to impose a mandatory 2% redemption fee on the mutual fund
industry, as the objective of such policy would NOT be accomplished.
Indeed, an opposite outcome would be realized as investors and their
advisors would be deprived of the tools necessary to manage the type of risk
that was experienced by investors throughout the bear market declines of
2000-2003.

Thank you for your consideration on this matter.

Sincerely,

Clifford Montgomery
Theta Investment Research, LLC
518 Kimberton Rd., #404
Phoenixville, PA 19460
(610) 495-0180
cliff@thetaresearch.com