Reasonable Dumping Plan
October 15, 2001
Earlier this year, The AmSouth Funds, the proprietary fund family of AmSouth Bank of Birmingham, Ala., erased the 12b-1 plan on several of the funds it inherited when it purchased First American Bancorp. in October, 1999, said Jim Underwood, a senior VP with AmSouth. Several of the First American Funds, with a collective $3 billion in assets, had 12b-1 plans, but AmSouth's own fund group lacked such fees. The decision was made to end the 12b-1 program when the funds were brought into the AmSouth family, Underwood said.
In July, 2000, Thurlow Capital Management opted to remove the 25 basis point 12b-1 fee which the $3 million Thurlow Growth Fund levied. According to publicly filed documents, the advisor ended the 12b-1 program as a concession to shareholders who had approved a new management contract for the fund raising the annual management fee from 1.25% to 1.90%.
In the case of the Yacktman Fund, the reason the fund's 12b-1 plan was terminated was much more technical and unusual.
In 1998, Don Yacktman, president of Yacktman Asset Management of Chicago, waged a fierce proxy battle with the fund's independent directors over the fund's investment strategy. In the end, the fund's incumbent independent directors were ousted and shareholders approved the installation of a new slate of directors.
The regulations governing 12b-1 plans, however, require that, for a fund to maintain its 12b-1 plan, its independent directors must be the only ones to nominate any new independent directors, explained Yacktman Funds attorney Rick Teigen, with Foley & Lardner in Milwaukee. Since the exiting independent directors had not nominated the replacement independent directors, the fund's 12b-1 plan automatically terminated. "Yacktman could have gone back and asked shareholders to approve an identical 12b-1 plan, but Yacktman decided it really didn't want the plan," Teigen said.