The rule sets forth a number of requirements relating to the adoption and renewal of 12b-1 plans.
The rule also requires that each 12b-1 plan and any related agreements contain certain terms.
8 /PRNewswire/ -- The North American Securities Administrators Association (NASAA) will broadcast its public "NASAA Listens" Forum on Rule 12b-1 Plans
live over the Internet on Monday, September 13, 2004, from 12:30 p.
Investment companies with enhanced 12b-1 plans to recognize a liability, with a corresponding charge to expenses, for excess costs.
Investment companies with board-contingent plans to recognize a liability for excess costs, computed in the same way as for an enhanced 12b-1 plan, when the company's board commits to pay such costs.
By 1986, the number of funds featuring 12b-1 plans had ballooned to nearly 600, and average fees had risen from "a token" 0.
Spurring adoption of Rule 12b-1 plans during its early years was a development not anticipated by either the SEC or the industry (110) when the rule was adopted: use of 12b-1 fees in connection with fund classes featuring so-called "contingent deferred sales charges," often called "CDSCs" or "CDSLs," (111) used to market load funds.
While funds with 12b-1 plans
do, in fact, grow faster than funds without them, shareholders are not obtaining benefits in the form of lower average expenses or lower flow volatility.
Over the years, the SEC turned a blind eye to various means used by the fund industry to evade the 12b-1 principle requirement: fund assets may be used to pay for distribution only if embodied in 12b-1 plans
approved by fund board after a finding of likely benefit to the fund and its shareholders.
A fundamental factor to be considered in connection with all Rule 12b-1 plans
is whether the distribution method under consideration provides for a reasonable financing alternative under the facts and circumstances of the particular fund and the type of investor to which the plan is directed.
No lawsuit attacking 12b-1 plans
has succeeded, and, as discussed above, suits contesting Class B share sales (funded with 12b-1 fees) on fraud or suitability grounds have not met much success.
The rule has given us a fund marketplace where we find deceptive selling of Class B shares, deceptive competition with the no-loads, fund brokerage fees fattened to provide soft-dollar and shelf space payoffs, advisory fees fattened to provide revenue-sharing sales push for selling brokers, and adoption of 12b-1 plans
in the face of precious little evidence that fund shareholders, on balance, benefit from the pay-outs.