Administration April 8, 2003

S&P: Closed Funds Still Slapping on 12b-1 Fees

August 4, 2003 (PLANSPONSOR.com) - Standard & Poor's funds research reported that domestic mutual funds currently closed to new investments are continuing to charge a 12b-1 fee to investors even though there is no longer a need to market the fund.

Reported by

Fred Schneyer

According to a news release, Standard & Poor’s found that as of last month, 139 funds with a total of 232 share classes are charging an average 12b-1 fee of .62% to investors with 74 of the funds charging the US Securities Exchange Commission’s (SEC) enforced maximum rate of 1% of the fund’s net assets annually.

As of last month, the average closed equity fund charged its investors a .65% 12b-1 fee. International equity funds based in the US (39) have been charging an average fee of .61%. Fixed income funds (29) and money market funds (6) round out the group of 12b-1 chargers, imposing average 12b-1 fees of .48% and .52% respectively.

Standard & Poor’s research found that the top five fund management companies, determined by the total number of funds under its management still charging a 12b-1 fee on funds closed to new investments, are some of the biggest names in the industry with the number of closed funds still charging the fee:

Idex Mutual Funds (53)
INVESCO Funds Group (23)
ING Investments (19)
Dreyfus Corporation (16)
General Electric Investment Corporation (12).

The 12b-1 fees are fees paid by a mutual fund out of the fund’s assets to cover distribution expenses and shareholder service expenses. According to the SEC definition on 12b-1 fees, distribution fees include fees paid for marketing and selling fund shares, such as compensating brokers and others who sell fund shares, and paying for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. Under NASD rules, 12b-1 fees that are used to pay marketing and distribution expenses (as opposed to shareholder service expenses) cannot exceed 0.75% of a fund’s average net assets per year.

“We spoke with a random sampling of fund companies imposing a 12b-1 fee on their closed fund and found that most consider the 12b-1 a necessary fee to charge since the fund remained open to existing investors,” Phil Edwards, Standard & Poor’s Managing Director of Funds Research, said in a statement. “Standard & Poor’s feels this is an insufficient explanation, especially in an environment dominated by single digit returns.”

A full list of the 232 mutual funds closed to new investments that still charge a 12b-1 fee is at www.standardandpoors.com .