February 5, 2004 Jonathan G. Katz, Secretary File No. S7-27-03 Dear Secretary Katz: Pax World Management Corp. is a registered investment company managing $1.3 billion through four mutual funds and a private account division. Beginning with our inception 32 years ago, all of our assets are invested using social as well as financial criteria. We appreciate the opportunity to comment on the proposed amendments to mutual fund pricing. Intentional late day trading to take advantage of price discrepancies between international markets or specific securities is clearly an illegal practice that is harmful to all investors. However, we believe the proposal that mutual fund trades be delivered to the fund, the fund's transfer agent, or a registered securities clearing agency by 4:00 p.m., would be harmful to the majority of investors. We have seen statistics that some 70-80% of mutual fund trades are placed through an intermediary. Although many of these trades are for retirement accounts where same-day execution is not a critical factor in the trade, a large number of them do not fall into that category. It is unfair to only force some (mostly retail) investors to place trades several hours before the market closes, particularly on volatile market days. In addition, we often see investors wishing to place a trade on a specific date (for example, those with a scheduled home closing, the fund's ex-dividend date, or IRA contributions on April 15), and a hard cutoff would create hardship for these investors. We are aware of an alternate proposal that supports next-day pricing for all mutual funds. Rather than solving the late-day trading problem, next-day pricing would create a whole new set of abuses, as unethical traders would undoubtedly seek to take advantage of the lag time between the announcement of corporate news and mutual funds' delayed pricing. The current system of forward pricing under rule 22c-1 is fair and equitable; it merely needs the loopholes closed and greater accountability on the part of 1) the intermediaries who are placing after-hours trades, and 2) the mutual funds that accept them. To that end, we support the Commission's proposal that each fund have a Chief Compliance Officer that reports directly to the independent members of the board of directors. The compliance officer would be charged with ensuring that fund personnel are not involved in improper trading schemes. This will increase accountability on the part of the mutual funds. In order to trade on the NSCC Fund/SERV system, intermediaries sign a contract that states all trades are received prior to the close of trading. What is needed is better enforcement of the existing rules, and we believe an indelible time-stamp is part of the solution. We support time-stamping of all trades in a manner that cannot be altered or discarded once the trade is entered into the trading system. This will create a clear paper trail, and all intermediaries that are permitted to submit after-hours trades should undergo an annual third-party audit to ensure trades are properly placed. With an indelible time-stamp, all omnibus transactions can be traced to the individual trades. If the aggregate of the orders placed prior to the close of trading does not equal the sum of the omnibus trade, it will send up a red flag for the auditors. An additional control mechanism would be the attachment of an identification number to each trade when it initially enters the system. As the trade makes its way through the maze of intermediaries, the identification number would follow it and be traceable. We would also suggest that the Chief Compliance Officer have access to the paper trail and periodically examine the omnibus account trades to ensure that late trades are not being commingled with legal trades. Of course, there are times when errors occur. In the event that a trade must be altered or cancelled, it should require the signature of a principal of the firm. Doing so will help to increase the accountability of the intermediaries, and will also complete the paper trail that shows the disposition of each and every trade that enters the system. It is our belief that time-stamping of all trades, the attachment of a control number to all trades, periodic audits by the funds' Chief Compliance Officer, annual third-party audits of intermediaries submitting after-hours trades, and requiring the signature of a principal to amend or cancel a trade will help to eliminate illegal late-day trading. Thank you for the opportunity to present our views on File No. S7-27-03. If you have any questions, we would pleased to answer them. Sincerely, Laurence A. Shadek Thomas W. Grant |