Rule 12B-1 in Practice. (The Mutual Fund Distribution Expense Mess‪)‬

A. The Early Days Immediately following Rule 12b-1's promulgation, the rule was used infrequently. (102) 12b-1 fees were low, typically 0.25% or less, and payments were commonly used to pay such distribution expenses as advertising costs or sales literature mailings. (103) These results were "consistent with the SEC's expectations in adopting the rule." (104) Then the pace of adoption began to pick up and the landscape changed radically. By 1986, the number of funds featuring 12b-1 plans had ballooned to nearly 600, and average fees had risen from "a token" 0.25% to, in some cases, more than 1% annually. (105) During 1987, 390 more funds adopted 12b-1 plans, triple the number of adoptions three years earlier. (106) What began life as a measure calculated to address specific problems facing individual funds, (107) evolved from a targeted, limited response into a large, enduring, and controversial expense fixture within the industry. (108)