etc. Just like a horse race but getting reliable information concerning any company does not come to the average individual investor until it is old information, he does not have the time or information services available on a basis he can afford.

As a vehicle of investment for the individual average American the mutual fund has proven beyond doubt as one of the safest, most convenient, inflation fighter and program of accumulation of capital that is available. Now as in many things we attempt to knock success. We penalize something that proven itself, mainly on a basis of cost. When we buy a gallon of gas-we do not say "let's see 22¢ for gas 10¢ for taxes and 5¢ for the company.

The same with buying a loaf of bread we do not expect the grocery store to say 85% for the bread 15% for me. If we buy a new car we are not told how much of a percentage goes to the dealer. When we buy life insurance we do not say how come I can buy insurance for $6.00 or $30.00 a $1,000 but I have nothing for two years where does the money go? Mutual funds is one of the few areas where the cost is very carefully regulated and must be explained to the customer. When we take a loan from the bank we do not even have it explained what percentage we are actually paying for the loan.

We know that a person can buy mutual funds with no load but does even a small percentage of the American people know this?

I have seven children who I feel I should provide a college education. I know that I can do so now because of my investing in mutual funds. I have time to accumulate it, however I wish someone had approached me when I was 21 rather than 34 for I lost 13 years of valuable time. After graduation from college I was very interested in investing but did not feel that I could gamble with the few dollars in stocks as I had no available sources of information. I then started my program. I did not have $10,000-I had $40-I now have $10,000. If, as I see it the fund industry has a complete ruling against the contractual program, the average small investor in America will be the one who will be hurt. The one who can least afford it. The reason being that the salesman would not be able to afford to talk to the individual who can save $20 or $25 per month. If an individual can save $25 and the salesman is going to receive 75¢ for his efforts he can hardly use his time in explaining, discussing and setting up a program for this individual. He would have to spend his time with the individual who can invest $10,000. Therefore the majority of the American people would be eliminated by default. With it the American dream of ownership of America, and the best opportunity of combating the rising cost of living for that individual. The investor who has a contractual plan is taking a much less risk than the individual who places a lump sum of $10,000 into anything. He has the advantage of dollar cost averaging working for him because he is investing $20 or $25 per month over a period of time.

I do not say there is not room for improvement of the regulations, any industry that is successful is always looking for methods of improvement. Let us find some of those which as a result do not eliminate the bulk of American people. The so called "little man" which is the backbone of this wonderful country. I am sure you would be interested in my feelings and viewpoint. I am Director of Physical Education at Stockbridge Valley Central School, Mayor of the Village of Munnsville. I am also a licensed life insurance agent as well as registered with the NASD.

Thank you very much for your valuable time. I know that you will certainly do an excellent job in studying the recommendations now before the committee. Sincerely,

GLENN STEVENS, Mayor.

USES DARTS TO PICK OUT STOCKS

WASHINGTON (AP).—If you're aiming to make a fortune in the stock market, you might do well to practice your aim on a dart board first.

This word comes from economist Paul Samuelson of the Massachusetts Institute of Technology and Sen. Thomas J. McIntyre, D-N.H.

Samuelson, in discussing the management fees charged by mutual investment funds, has said the performance of those funds is no more lucrative for the buyer than a stock portfolio selected by random through the process of throwing darts at a list of stocks pinned on a dart board.

McIntyre told the Senate Banking and Currency Committee he tried the Samuelson theory, using figures instead of his cash, and it works.

The Senator tacked a stock list to the dart board, took 10 paces and hurled the darts. On the basis of the 10 stocks he hit, and assuming a $10,000 investment, equally divided among them, the stock value over the past 10 years would have increased to $25,300, MacIntyre said. He added that a $10,000 investment in the average capital growth mutual fund would have increased to slightly under $25,000 during the past 10 years.

The Senate committee is looking into the fees charged by mutual funds.

WASHINGTON MUTUAL INVESTORS FUND,
Washington, D.C., June 16, 1967.

Hon. WALLACE F. BENNETT,

Senate Banking and Currency Committee,
Senate Office Building, Washington, D.C.

DEAR SENATOR BENNETT: Mr. James M. Johnston, our President and Chairman of our Board of Directors, is recovering from surgery and has requested me to reply to your letter of May 23, 1967, inviting his views with respect to the Security and Exchange Commission's mutual fund recommendations contained in S-1659.

Mr. Johnston has authorized me to record with you the following statement: "I have had my own firm actively engaged in the general securities and investment banking business since 1920. During this period I have been in continuous contact with all types of securities dealers in various sections of the country. My firm, Johnston, Lemon & Co., founded Washington Mutual Investors Fund in 1952. I have served as President and Board Chairman of the Fund since its formation. Therefore, I reflect the viewpoint of the securities dealer as well as fund management.

"It is my considered judgment that the proposals of the Commission will have the drastic effect predicted by the National Association of Securities Dealers. For many years, earnings from the sale of mutual fund shares have been the principal source of income for hundreds of relatively small securities firms. In addition to distributing mutual fund shares, these local firms contribute importantly to the liquidity of the stocks and bonds of relatively small local corporations by creating a local market for them. Such firms also perform an important function in raising capital for the smaller local corporations through participation in the public offering of their securities. However, the margin of profit on local issues and the number and frequency of local public offerings are not sufficient to sustain these dealers in the face of rising operating costs.

"I have no doubt that adoption of the SEC proposals would force hundreds of the small local firms out of business and many medium size regional firms may be forced to merge with the larger New York firms concentrating on national issues. As a result, I believe the markets for thousands of local issues would be seriously impaired and dealer service to a large segment of small investors would substantially be reduced. Obviously, such results would not be in the public interest.” Mr. Johnston requested me to express his appreciation for the opportunity you have afforded him to present his views for the record. Sincerely,

BERNARD J. NEES, Executive Vice President.

ANAHEIM, CALIF., August 30, 1967.

Hon. JOHN SPARKMAN,

Chairman, Committee on Banking and Currency,
Senate Office Building, Washington, D.C.

DEAR SENATOR SPARKMAN: Thank you for your letter of July 7, concerning S. 1659.

I am enclosing a copy of my letter to Senator Murphy. I will be most grateful if you will include it as a part of the official record of the hearings which began on July 31.

I apologize for my delay in answering, but I have been incapacitated since July 3, as a result of an operation.

DEAR SENATOR MURPHY: I have been advised that this is the wrong way to get a message across, but I have to go where my faith in people tells me, so I am writing to you at an unusual expense and sending copies to others. I just don't know who the right people are.

It seems very strange to have such a fuss on the wrong end of the line. There has to be more than meets the eye here. It is just too cock-eyed to make sense. Anyone who takes the time to check the results in comparison to amount paid in commissions, expenses and other pertinent factors, has to conclude that Mutual Funds have done a good job. Even the SEC said this before clouding the issue. You must be very busy, but I hope you will have a chance to make a few simple comparisons someday soon and make your views known to the rest of the Congress or wherever you think it would be effective.

Senator Murphy, I am on both sides of the fence. It's an ideal situation where you can really work for your client. If I push one to the exclusion (or Imbalance) of the other, the consumer is hurt. Just think of the thousands of insurance agents that tell their clients or prospects (in essence) they have the only way to fly. Frankly, I am suspicious of people who advise this, especially when they get a 100% minimum commission as opposed to a maximum of 4%. I am of the belief that 96% (difference) is a big enough margin to influence many people. I have at least a bushel (literally) full of material that will clearly show up this crazy situation. I am talking about official company publications, official industry publications and official trade publications.

When I look back on the two years I spent (1964-66) selling life insurance for a very large company, I can only hang my head in shame. My only excuse is ignorance of the facts. When you asked really intelligent questions on behalf of the client, the answers just were not there. My only salvation is that I also did what I was brainwashed to do to others. (not do as I say) I think all insurance agents should be required to personally carry and produce their own certified programs to their clients and prospects. It seems only fair they should practice what they preach to others. The daily theme was (always) "go get that premium dollar". Not once, I repeat, NOT ONCE, did I hear honest supplication on behalf of a client. Not once did I ever see an honest comparison with other methods of accumulating money over 10-20-30-35-40 years. I did see many comparisons showing only comparisons among life insurance companies. Yes, you guessed right, somehow or other, that particular company always seemed to show up somewhat favorably. I am keeping one such comparison for posterity (although not intended for the general public; how's that for full disclosure?) It even contains a quotation by Patrick Henry. How's that for free enterprise? Gives a real old American feeling while taking your dollar. I think "a fool and his gold is soon parted" is more apropos. Check the Wall Street Journal, dated 3/1/67. took a market loss of nearly $100 million in common stocks" (during 1966). I can verify that the policyholders (the owners) have not been advised. My wife is an owner of a policy in that company and she hasn't received one iota of notification. I don't have the heart to tell her and besides, I guess the SEC feels $100 million is only a minor matter not worth mentioning. I wonder if this is another one of those "guarantees" we hear so much on TV and radio? (We don't hear anything about the 90% front and load!) How does this compare with a diversified common stock fund? Oh well, easy come, easy go!

66

There is a very disturbing factor about insurance companies and their reluctance to make full disclosure. They have gone to lots of trouble to avoid following the SEC rules on investments. They have gone to the Supreme Court several times to escape the investment rules. It is to the SECS credit that they insist on all following the rules. (i.e. variable annuities, which are about the same as a balanced fund) A very big item does escape control and that is the

corporate and other bonds fluctuate in price almost daily, but the actual market value is not shown on the insurance company financial statements. In plain English, this ain't the true worth! They are called artificial convention figures. I understand there was a bear market in bonds last year, so that $100 million mentioned earlier could really be a very minor item after all!

I claim that Congress should take back the responsibility that it gave away about 1945.

Thank you, sir, for your courtesy. Perhaps I have jumped around a bit but am sure you understand what I am at least trying to say.

Sincerely yours,

RANDALL M. YOUNG.

P.S.-It is quite obvious this letter is reversed from the generally accepted method. You might say it's another case of the tail wagging the dog. This is exactly the proposed legislation on Mutual Funds by the S.E.C.

There should be some hard questions put forward in all directions concerned in this matter and then let the axe fall where it may after the air is clear and the Consumer is clearly advised publicly of how he fares in all methods of accumulating money.

Mutual Funds are one of the purest forms of the American free enterprise system. It seems to me the public is buying them because they have to do something to protect their interest and value of their dollars. The fact that they have been very successful seems to disturb some quarters. To date, I have heard no outery from the Consumer. To the contrary more and more people are using this method of accumulating money. If we are really concerned with the Consumer, then how does this compare with the "breaks" he gets from other methods of savings and investments. I sell both mutual funds and life insurance, so let's just see what happens on a sale of both methods.

Mutual Funds

Amount of sale: $1,000.00 year.

Ordinary Life Insurance $1,000.00 year.

Agent's commission: $40.00 1st year (none $ 600.00 1st year.

I believe you can make comparisons with any other (Consumer) method of accumulating money and will find the mutual funds will show up very, very well. Someone should ask the question of this good or bad in comparison to what! Also, what does the record show the results to be. For example, is a method that shows a record of doubling the Consumer's dollar in 10 years better than a method of just breaking even in, say 20 years? There are many who would confuse us with the claim of "guarantees". The word "guarantee" is simply a substitute for "promise". I claim that a strong American free enterprise system with a little faith in our future is a much better guarantee than an ocean full of "promises".

Also, doesn't it seem strange that an industry that is already living within the guidelines established by Congress (even more so by self policing) is being asked to place itself in the hands of one or two individuals (SEC) to control as they see fit. This is a wild theory. "Price fixing" at its bureaucratic best. Whatever you do. keep the authority in the Congress. Congress thought the com

mission rates and expenses were O.K., in 1940. Again, isn't it strange that 27 years later, the SEC says "let's cut them in half". Tell me, do you think the SEC members would agree to cutting their salary in half? I will if they will! Also, ‣ isn't it strange that a highly regulated industry involving only 5 or 6% of the Consumers savings should cause so much concern about getting "too big" when much, much larger industries with no congressional guidelines are openly allowed to predict the future and openly permitted to portray a picture of absolute security. (Hogwash!) I am enclosing a paper from AIER showing the subtle flow of value from our dollar. I claim the SEC proposals are a step backward and are in direct opposition to the free enterprise system. When a system is clean, when it not only complies with the letter of Congress, but the spirit and attitude as well, it should be encouraged, not discouraged.

I think one big point has really been missed in all of this and that is the factor of good citizenship in which I feel you are very much interested.

It is my contention that ownership of a cross section of American industry creates more interest in what is going on in our country. Instead of looking to government for each little decision, each little dollar, each little permit to wipe our nose, we would have more alert people, relying on their own ability and their own decisions.

I have only been in the business about a year, but I wish you could see and talk to my clients. You would like them—not because they are clients, but simply because they are really good citizens. Generally, they are thinking people-concerned not only for their financial future, but the total future for yours and mine and the rest of the Country. They are Republicans and Democrats, male and female, professional, skilled and laborer, healthy and sick, young and old, but by and large, first class citizens.

You are invited at any time to come meet any of your choice. It would do your heart good. And, it is quite refreshing to work in a business where everything is open and above board. The Consumer gets all the information that the salesman has. You will understand just how good I feel working with such good people when you realize that I worked two years before that selling only life insurance. I regret that period in my life except for the knowledge gained. (How easy it is to fall prey to a continuous stream of misleading propaganda.)

By golly, if this is the type of people who buy mutual funds then I say, we ought to have more.

The rules are already there if anyone breaks them, throw the rascals out. That is the job of the S.E.C.-a referee so when and if a guy fouls, disqualify him. Make sure the rules apply to all industries chasing the same savings dollar. Also, let use be concerned with the travels of the other 95% of the savings dollar of the American Consumer Public.

Let everyone make full disclosure-the 95% as well as the 5%-and make it public to the fellow who pays the bill-the Consumer! Tell me, what other industry makes full disclosure?

While we are at it, I would like to ask a question. Of all the business schools in the U.S.A., of all the management firms in this country, how did the Wharton School come to be the one selected to make the special study on mutual funds? Maybe there is a good reason for it, but it seems mighty strange to me that a school noted for insurance teachings and a former Dean (the late Dr. Huebner) considered to be the father of "modern day" life insurance should be chosen to evaluate an industry that has helped the Consumer to participate in direct ownership at a loss of percentage of savings dollar held by the life insurance industry. Something just doesn't smell right here! I would encourage you to look into this matter.

Another question: Why is the Consumer charged such a high commission and front end sales lead for the grand privilege of establishing a 3% savings and investment account when he can do almost twice as good for no sales charge at all and have a third party guarantee which he does not have with an insurance company? You see, commissions are based on premiums and only a small portion of the premium is applied to actual insurance. How does this compare with mutual funds? Which is more, 100% or 4% (commissions)? Which has produced better results for the consumer-the loaner dollar or the owner dollar?

I charge the life insurance industry is deathly afraid of making full disclosure to the Consumer like the mutual funds do. You have heard a lot of advertising