SEC Proposes Changes to Structure for Mutual Fund Distribution Fees.

Summary

---

Securities and Exchange Commission

See the full content of this document

Extract

---

SEC Proposes Changes to Structure for Mutual Fund Distribution Fees.

The Securities and Exchange Commission ("SEC") on July 21, 2010 voted unanimously to propose a new rule and rule amendments that would replace rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"), changing the framework through which funds may use fund assets to pay for the costs of distribution.1 The SEC states that the proposals are designed to protect individual investors from paying disproportionate amounts of sales charges in certain share classes and to promote investor understanding of fees.

As discussed in greater detail below, the proposals would:

Rescind rule 12b-1;

Permit funds to deduct a fee of up to 0.25% annually from fund assets to pay for distribution activities (the "marketing and service fee");

Permit funds to deduct asset-based distribution fees in excess of the marketing and service fee, provided that the excess is treated as a sales charge subject to certain maximums (the "ongoing sales charge");

Eliminate the need for special board findings, a written plan, annual renewal or automatic termination provisions or the need to meet specified fund governance requirements;

Implement new disclosure requirements in transaction confirmations, registration statements and other fund disclosure documents designed to provide investors with additional transparency about the marketing and service fee, ongoing sales charges and other sales charges; and

Permit an alternative distribution model that would allow fund intermediaries to impose charges at negotiated rates in connection with sales of fund shares (the "account-level sales charge").

Rescission of Rule 12b-1

The Proposing Release provides an extensive discussion of the administrative history of rule 12b-1, including the SEC staff's current perspective on the purpose of rule 12b-1. The Proposing Release takes the position that many of the original assumptions underlying rule 12b-1 no longer reflect current market realiti...

See the full content of this document

---