Report of the Mutual Fund Directors Forum on practical guidance for directors under Rule 12b-1, published May 8, 2007.

Best Practices and Practical Guidance for Directors Under Rule 12b-1

I.          Introduction

Over 25 years ago, the Securities and Exchange Commission ("Commission" or "SEC") reversed a long-held position and adopted Rule 12b-1 to permit, under certain circumstances, mutual funds to use fund assets to pay for the distribution of fund shares.  The rule, among other things, requires fund boards to approve annually the plans that govern distribution payments.  In adopting Rule 12b-1, the Commission contemplated that the plans would be used by a fund for limited periods of time and, in that context, provided directors with guidance on what factors they should consider in reviewing and approving 12b-1 plans.  Accordingly, the guidance that was given was largely limited to situations where a fund was facing net redemptions or other temporary difficulty.

In fact, 12b-1 plans have been rarely used for that purpose.  Instead, they have achieved widespread popularity because...