One fund that pioneered the use of spread loads financed by 12b-1 charges and CDSCs experienced asset growth from $109,000 to nearly $4 billion in a single year.
The emergence of CDSCs operating in tandem with 12b-1 fees completely transformed the economic relationship between the fund industry and the large brokerage firms; in the post-12b-1 world, mutual fund sales became a very big revenue item.
A second problem with using 12b-1 fees to finance CDSCs is that CDSC financing has next to nothing to do with the factors directors are encouraged to weigh in deciding whether to adopt or continue 12b-1 plans.
243) Investors are apt to stumble into CDSC purchases by assuming that they are in essence getting a form of no-load fund since the sales charge is hidden from view.
For one year, Citigroup must also provide a quarterly certification to NASD that it has reviewed all CDSC disability waivers granted, has verified that they were appropriately granted (or corrected those waivers that were not appropriately granted), and has retained required supporting documentation.
Those registered representatives, in most cases, misrepresented on Citigroup's electronic order entry system that their customers were entitled to CDSC waivers because they were disabled.
In 1998, the SEC proposed a rule aimed at creating detailed prospectus disclosure requirements for multiple class funds in order to help mutual fund investors understand the options presented by multi-class fund share offerings, particularly as to 12b-1 fees and CDSCs
While the investor holds the shares, the CDSC
normally declines and eventually is eliminated after a certain number of years.