From: APow@bankofny.com
Sent: Friday, December 12, 2003 4:39 AM
To: rule-comments@sec.gov
Subject: RE: File No. S7-27-03

Dear Sirs

I submit the following comments in my individual capacity, not that of my 
employer: 

2  fundamental issues strike me about the way in which funds are governed 
and operated in the US: 

1) People have lost sight that collective investment schemes are designed 
for longer term investment horizons.  They were not designed as short term 
tradeable instruments but to provide the benefit of pooling and professional 
advice to investors not capable of achieving this on their own. 

2) There is little to no culpability for the operators/promoters of a 
collective investment scheme to act in the interests of all shareholders 
at all times and that the regulation and monitoring of this market is 
extremely loose. 

Elimination of short term market timing 

The US's geographic position in the world means that it is the last market 
to close.  Whilst the hard close suggested will prevent late trading, it 
does not in itself prevent short term market timing. One possible way to 
restrict this is to hold applications/ redemption received on or before the 
hard close cut off time (ie 4pm) over for the next days valuation.  This 
would diminish any opportunistic plays on a short term rise/fall in the value 
of the fund  by allowing market news to disseminate into security prices of 
stocks in out-of time-zone regions (ie reduce impact of stale prices).   

This does present an "out-of-market" situation for the investor, however 
given that such vehicles are designed for long term investment, a one day 
lag should not present undue concern.  Investors are not (should not be) 
invested in mutual funds for liquidity (except for cash funds).  They have 
the option of ETFs if they want a "tradeable" liquid security. A way of 
reducing the "out-of-market" situation could be to hold application monies 
in an overnight interest bearing trust account.   

I see this as being somewhat akin to investing through an IPO. 

Redemption Fees 

Whilst this does discourage, it would only be to the extent that the Timer's 
gain is less than the redemption fee.  For a long term shareholder, the 
placement of the Timer's $ on the way in is also a cost to the fund spread 
over all shareholders.  It would therefore be fair to consider whether an 
"application fee" or Front End load on those invested for a short period of 
time could be clawed back.   

Other discouraging market timer mechanisms 

Apply a (higher) Capital Gains Tax rate to mutual fund shares held for less 
than 12 months.  Again this supports the premise that mutual funds are longer 
term investments (ie 3-5years plus). 

Late Trading 

I would say the suggestions are fair and reasonable. 

Compliance Mechanisms 

I would suggest that the time is ripe to legislate a more rigorous form of 
self-compliance with specific accountability and repercussions.  This would 
place the responsibility of compliance on the sponsors of the product (not 
on the regulator who are there to interpret the law though issuance of 
compulsory policy and/or guidelines) with the backing of civil and criminal 
penalties. 

As an alternative to a board comprising a majority of independent directors, 
an alternative might be to institute a Compliance committee that is itself 
made up of a majority of suitably qualified independents.   

Either way the directors and/or members of the compliance committee should  
be liable as individuals from a criminal and civil liability perspective to 
ensure that the fund is operated in accordance with the fund's Compliance 
Plan.  The Compliance Plan would stipulate how the fund is to be managed 
and operated and describe the measures to be put in place to monitor the 
policies and procedures as well as provide training.  The overriding covenant 
(which may be legislated) should be to treat all shareholders equitably and 
fairly and ahead of the interests of all others, including the sponsor.  The 
Directors and/or the compliance committee would be directly accountable to 
the regulator for the adherence to this Compliance Plan.  The Compliance Plan 
and the adherence to it should be audited as part of the fund's annual audit.  
 I would thoroughly recommend that the SEC review this type of model by looking 
 at the way this is undertaken in Australia. 

Sincerely 

Alastair Pow
e. apow@bankofny.com