Investors buy and redeem fund shares either directly or indirectly through the fund’s principal underwriter, also known as its distributor. As is the case for a fund’s advisory contract, a fund’s agreement with its principal underwriter must be annually reviewed and reapproved by a majority of the fund’s board, including a majority of the independent directors. The principal underwriter is generally not directly involved in selling fund shares, but, instead, establishes relationships on behalf of the fund with intermediaries that will sell the shares. These intermediaries include broker-dealers, banks, fund supermarkets, insurance companies, registered investment advisers, retirement plan service providers, and others. In addition to providing distribution services, intermediaries may provide shareholder services, increasingly through sub-accounting systems as part of an “omnibus” account model.
A fund cannot engage directly or indirectly in financing any activity that is primarily intended to result in the sale of its shares unless it has adopted a written plan—approved by the board, including a majority of its independent directors—and the payments are made pursuant to the plan. Fund directors have several obligations in connection with payments made under this Rule 12b-1 plan, named for a rule under the Investment Company Act of 1940.
IDC’s memos inform directors about important regulatory, legislative, and judicial developments. IDC also comments on proposals that could affect board responsibilities or shareholder interests. See below for recent comment letters and memos on selected topics.