Subject: File No. S7-06-04
From: Claude Y Paquin, Esq.

February 19, 2004

The word processing software used by the SEC to reproduce my comments seems to remove all parentheses, apostrophes, quotations marks and dollar signs, so please be aware that I have had to modify these comments to adapt to this quirky software.


After examining the proposed forms, I am persuaded that, point 1, smart people dont need them, and, point 2, dumb people will not read them or understand them. Thus I would scrap them.

If people would stop and carefully read and understand everything they sign, commerce as we know it would grind to a halt. Most likely, the sales people charged with handing out the forms would simply tell the client, Take this home and read it some time. The more people have to read, the less likely they are to read it, and we are all overwhelmed by all this reading material. Much of it is either repetitive or without value, designed more for the protection of the seller than that of the buyer investor. The salesman will typically say, Sign here, and he never says, Please read this carefully while I go get some coffee and if you agree sign here. It is just, Sign here. So you either trust the salesman or you do not, and the SEC ought perhaps to concentrate its efforts on making sure the sales people are trustworthy. After a while, full disclosure is transformed into a huge haystack of meaningless drivel from which the consumer investor is supposed to extract the occasional needle or nugget of useful information. That is hypocritical.


The proposed forms on mutual funds with back-end loads, and those who would use these forms, would violate SEC Rule 10b-5, subpar. 2, the pertinent part of which is this: It shall be unlawful ... to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. End of quote. The omission of any statement explaining how mutual funds with back-end loads methodically and continuously drain the account through fees that exceed those of no-load funds is misleading.

The forms shown as Attachments 2 and 3, for instance, state, If you sell these shares in six years, you will pay USD 80.

A true statement to replace that could read as follows: The selling fund will take at least USD 480 out of your account as a sales charge. It plans to take the USD 480 through small daily charges against your account over a period of six years, and though the value of your account will reflect these charges you will not see these charges in your account statements. During the first six years, the true value of your account will never be what is shown in your statement because, if you cash in your account, and to make up for the future small daily charges it was counting on getting, the fund will deduct USD 480 if you sell your shares within one year, USD 400 if you sell them within two years, USD 320 if you sell them within three years, USD 240 if you sell them within four years, USD 160 if you sell them within five years, and USD 80 if you sell them within six years.


The approach of the Commission is all wrong. Load funds are inherently deceptive, as they create or foster the illusion that an investors money is all invested in a fund. The investor should be asked up front to write two checks, one for the fund which then operates as a virtual no-load fund, and another for the salesman. Everything else is smoke and mirrors. And you know it.