• SEC Proposes New Regulatory Framework Governing Mutual Fund Distribution Fees to Replace Rule 12b-1
  • September 2, 2010 | Author: David J. Baum
  • Law Firm: Alston & Bird LLP - Washington Office
  • On July 21, 2010, the Securities and Exchange Commission (SEC) voted unanimously to propose new rule and rule and form amendments under the Investment Company Act of 1940 (the “1940 Act”), the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”), each as amended, regarding the regulation of distribution fees paid by registered open-end management investment companies, or mutual funds (the “Proposal”). The Proposal would replace Rule 12b-1 under the Investment Company Act in its entirety with a new regulatory framework that would impose limits on the promotional costs that funds would be permitted to bear and the cumulative sales charges that investors would pay, and would require clearer disclosure about all sales charges in fund prospectuses, annual and semi-annual reports to shareholders, and in investor confirmation statements. Among other things, the Proposal would break out the types of fees currently paid under Rule 12b-1 into two new categories: marketing and service fees and ongoing asset-based sales charges. The Proposal is intended to achieve the following objectives: