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12b-1 Fees Said to be Used Primarily for Paying Broker/Dealers

Rule 12b-1 fees - permitted by the Securities and Exchange Commission for 20 years to help finance fund marketing and distribution efforts - have become a crucial method funds use to pay sales charges to broker/dealers, according to a recent study by the Investment Company Institute.

Funds used 63 percent of their 12b-1 fees to pay broker/dealers for distribution and related expenses, the ICI said in a report issued May 2. Funds used 32 percent of the fees to pay for administrative services that shareholders receive. Five percent of the fees went to pay for advertising and other sales promotion efforts, according to the ICI study.

The total amount of the payments was not disclosed in the two-page report. ICI officials familiar with the survey details were not immediately available for comment. The ICI report was based on responses from 95 mutual fund complexes that have at least one fund that charges a 12b-1 fee.