Fund Democracy Insights

Resource Materials

September 2001

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The September 2001 issue of Fund Democracy Insights explores the politics and policies of 12b-1 fees. In a recent fee study, the SEC staff recommended minor changes to rule 12b-1. This issue discusses these and other 12b-1 reforms that the SEC will likely consider in the near future.

Table of Contents - September 2001

12b-1 Fees: Politics and Policy. . . . . . . . . . . . . . . . . . . . 1

Press v. Quick Sets the Stage for 12b-1 Reform. . . . . . 8

Second-Guessing 12b-1 Plans . . . . . . . . . . . . . . . . . . . . 11

Clinton's Secret Social Security Plan . . . . . . . . . . . . . . 14

Worth Reading on the Internet . . . . . . . . . . . . . . . . . . . 16

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Links to resource materials (.pdf files require Adobe Acrobat for viewing):

12b-1 Fees: Politics and Policy

• Report on Mutual Fund Fees and Expenses, Division of Investment Management, U.S. Securities and Exchange Commission (Dec. 2000)
• Rule 12b-1 under the Investment Company Act
• Letter from Congressman John Dingell to SEC Chairman Arthur Levitt (Jan. 10, 2001)
• Nicolaj Sigellkow, Expense Shifting: An Empirical Study of Agency Costs in the Mutual Fund Industry, Wharton School (Jan. 4, 1999) (finding that fund sponsors shift advertising and distribution expenses via 12b-1 fees onto fund shareholders)
• Articles on 12b-1 fees:
  • Index Fund Understanding, Motley Fool (not dated) (recommending that investors avoid funds that charge 12b-1 fees)
  • Larry Burkett, Interview with Sound Mind Investing (not dated) (questioning Consumer Reports recommendation that investors avoid funds that charge 12b-1 fees)
  • Ruth Simon, 8 Biggest Rip-Offs, money.com (not dated)
  • Robert Barker, Who Do You Think Those Mutual Fund Fees Fatten? Business Week (Apr. 30, 1999) (challenging claim the 12b-1 fees create economies of scale by increasing assets)
  • John Waggoner, Keep Fund Fees Down To Boost Return, USA Today (Sep. 22, 2000) (attributing increasing fund expenses to 12b-1 fees)
  • Mary Rowland, Fight Back Against Rising Mutual Fund Fees, moneycentral.msn (Mar. 29, 2000)

Press v. Quick Sets the Stage for 12b-1 Reform

• Rule 10b-10 under the Investment Company Act
• Donald Press v. Quick & Reilly, Inc., 218 F.3d 121 (July 10, 2000)
• Donald Press v. Quick & Reilly, Inc., 1997 U.S. Dist. LEXIS 11609 (Aug. 8, 1997)
• Donald Press v. Quick & Reilly, Inc., Brief of the Securities and Exchange Commission (Feb. 11, 2000)
• Securities Exchange Act Release No. 18988 (Aug. 20, 1982) (adopting rule 10b-10)
• Letter from Roger Blanc, Securities and Exchange Commission to Donald O’Connor, Investment Company Institute (Apr. 18, 1979)

Second-Guessing 12b-1 Plans

• Southeastern Growth Fund, Inc., SEC No-Action Letter (May 22, 1986)
• Investment Company Act Release No. 10862 (Sep. 7, 1979) (proposing rule 12b-1)

Clinton's Secret Social Security Plan

• Douglas W. Elmendor, Jeffrey B. Liebman, David W. Wilcox, Fiscal Policy and Social Security Policy in the 1990s (June 2001)

Worth Reading on the Internet

• Christian J. Mixter, Web-Based Inves tment Advisers And Commodity Trading Advisors, 34 Rev. Sec. Comm. Reg. 47 (Mar. 14, 2001) (noting tenuousness of impersonal advisory services part of Tokyo Joe case and unappreciated importance of the SEC's scalping and touting claims)
• Investment Company Act Release No. 25156 (Sep. 14, 2001) (granting temporary exemptions from in-person board meeting requirement and certain affiliated borrowing and lending arrangements)
• Susan E. K. Christoffersen, Fee Waivers in Money Market Mutual Funds, Wharton School (May 2000) (arguing that retail fund managers use fee waivers to strategically adjust net advisory fees to current realizations in performance and expected fund flows)
• William J. Bernstein, The Small-Growth Indexing Anomaly, Efficient Frontier (Summer 2001) (considering role of momentum in managed small growth funds' outperformance of their index counterparts)

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This page was last updated on Sep. 18, 2001.