Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| 12B-1
Fees |
What It Is:
A 12B-1 fee is a fee assessed by a mutual fund to its shareholders. The fees
cover the fund’s marketing expenses and are named after the section of the
Investment Company Act of 1940 that makes them legal.
How It Works/Example:
There are generally two kinds of expenses covered by 12B-1 fees: distribution
expenses and shareholder service expenses. Distribution expenses are the costs
of marketing and selling fund shares, including advertising, printing and
mailing of prospectuses and literature, and compensation for brokers and others
who sell shares. Shareholder service expenses are the costs of employing people
to respond to investor queries. It is important to note that 12B-1 fees do not
always cover shareholder service expenses. Some funds pay these expenses
directly out of their fund’s assets. Other funds may also cover some
custodial, legal, accounting, transfer agent, or other administrative expenses
with their 12B-1 fees.
Mutual finds must disclose their 12B-1 fees in a fee table labeled
“Shareholder Fees” in their prospectuses. Mutual funds must also disclose
the expenses these fees cover in the “Annual Fund Operating Expenses”
section of their prospectuses.
As with any investment costs, small fee differences can create large differences
in returns over time. For example, let’s assume you invest $1,000 in the XYZ
Company mutual fund, which returns 10% every year and has annual 12B-1 fees of
1%. After 10 years, you would have $23,457. However, if the fund’s 12B-1 fees
were only 0.10%, you would have $25,679 after 10 years--over $2,000 more.
Although it is important to compare 12B-1 fees among funds, it is also important
to be aware of other fund fees and a fund’s total expense ratio. This is
because some mutual funds may compensate for very small 12B-1 fees by charging
high management, redemption, or other fees.
For more information on how fund fees can affect returns on specific
investments, visit the SEC’s Mutual Fund Cost Calculator at:
http://www.sec.gov/investor/tools/mfcc/mfcc-int.htm
Morningstar, The New York Times, and other online and print publications also
provide fund expense information.
Why It Matters:
Fees and expenses vary from fund to fund, and a 12B-1 fee is just one of many
fees a mutual fund may charge. A mutual fund typically pays its expenses either
directly from the fund’s assets or by collecting fees from shareholders, as is
the case with 12B-1 fees.
The SEC generally does not limit 12B-1 fees, but the National Association of
Securities Dealers (NASD) limits them to 0.75% of a fund’s average net assets
per year. Within this, the NASD limits shareholder service fees to 0.25% of a
fund’s average net assets per year.
Of all the types of mutual fund fees, 12B-1 fees are perhaps the most
controversial. Some argue that 12B-1 fees are appropriate because marketing a
mutual fund could increase its asset size, which would lower costs by spreading
them out among more investors. Investors who avoid funds with 12B-1 fees often
argue that advertising distracts management and is ineffective because it does
not directly increase the fund’s returns. They also note that the funds
collect 12B-1 fees no matter how well it or the market performs.
It is important to note that 12B-1 fees are not part of the fee structure that
determines whether a fund is classified as a no-load fund or a load fund. The
NASD permits a mutual fund to call itself a no-load fund if the combined amount
of the fund’s 12B-1 fees and separate shareholder service fees is less than
0.25% of the fund’s average annual net assets. This makes reading the
prospectus even more important. In some cases, investors may actually get better
returns from a load fund if a similar no-load fund’s 12B-1 fees are
significantly higher.
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