It was with great dismay that I read "Play Money," by Donna Sammons Carpenter (Financial Tactics, December 1984). It was terribly misleading and represented a disservice to your readers.

Any quality story educating readers would have fairly addressed the issue of risk/reward by reviewing the situation in detail. Even though Ms. Carpenter mentioned that Danis Industries Corp. lost $20,000 due to market conditions (through no fault of Mead Money Management Inc.), it was so deep into the story that it did not present a fair picture.

First of all, Danis Industries Corp. officials explained to Ms. Carpenter that they recognized the levels of risk involved in adjustable-rate preferred stock funds. While experiencing a $20,000 loss in capital over the period mentioned, the company's return on investment -- including the loss -- was a corporate taxable equivalent of approximately +7.5%. Furthermore, Danis, during another investment period, had a return of approximately 12% and continues to be a shareholder in the Corporate Cash Management Fund.

As of Mead Management's November monthly review, the Fund has paid a dividend which equaled 12.45% over the past 12 months, equaling a corporate taxable equivalent for a corporation in the 46% marginal tax rate of 21.46%. On a total return basis taking into account portfolio losses, the Corporate Cash Management Fund corporate taxable equivalent total return equaled 12.4%.

We at Mead Management know risk. We explain market movements to our prospective clients, and because of these concerns we hold only A-rated securities or better (as rated by Standard & Poor's Corp. and Moody's Investor Service) and we maintain a broad diversified portfolio of adjustable-rate preferred stocks.

Regretfully, INC. didn't fulfill its obligations in adequately illustrating the nature of adjustable-rate preferred stocks, including both rewards and risks.


INC. replies: It comes as no surprise that the manager of an adjustable-rate preferred stock fund would object to our conclusion that these funds are risky investments for small companies. We stand by our original statements. INC.'s readers are executives of small and medium-size companies. Their businesses have mean annual sales of $3 million to $4 million. So they can't, for the most part, afford to take risks with their idle corporate cash. We believe it is in our readers' best interest to steer them clear of any corporate investment in which the principal is not guaranteed.