fees in mutual funds, are known as “asset-based
distribution charges,” and sometimes called “Class
C” shares. These are fees that are taken
from all investor assets on a quarterly basis.
Which of the following must approve these fees
I. A majority of the non-affiliated board members
II. A majority of the outstanding shareholders
III. A majority of the fund’s board of directors
IV. A majority of the fund’s board of directors,
including a majority of the non-affiliated board members
a) I, III, IV
b) II, III
c) I, II, IV
d) II, IV
The correct answer is b.
To initiate 12b-1 fee charges in a mutual fund, there
must be a majority vote by the full board of directors
and a majority vote of the outstanding shares (shareholders
cast the votes--the shares vote). It is not necessary
to have a majority of the non-affiliated board members
approve the initiation of these fees. Side note:
to continue 12b-1 fees, the charter of the fund may
stipulate that either a majority vote of the board
or the shareholders is all that is required.