Despite increased scrutiny into mutual fund fees, the number of closed funds still charging 12b-1 fees to investors has increased since the summer, according to data released Tuesday by Standard & Poor’s.

Money Management Executive reported on a similar 12b-1 study S&P released in August (see " S&P 12b-1 Fee Report Irritates Industry," MME 8/18/03 ).

As of Dec 8, S&P listed 605 funds as being closed to new investments out of a database of more than 15,000 domestic mutual funds. Of those, more than 25%, or 153 funds with a total of 274 share classes, charge an average 12b-1 fee of 0.64%. Ninety-four of those charge 1% of the fund’s net assets, the maximum allowed by the SEC.

12b-1 fees are taken from a fund’s assets to cover distribution and shareholder servicing expenses. Distribution expenses include advertising and compensating those who sell the funds’ shares. However, some critics claim that once a fund is closed, it no longer needs to market the fund. These fees have come under increased scrutiny as of late as regulators have started examining mutual funds more closely.

In August, S&P released a report indicating 139 funds with a total of 232 share classes were charging an average 12b-1 fee of .62%, as of the end of July. Seventy-four of those were charging the 1%-max. The report was met with heavy criticism from many in the fund industry back.

A spokesman for S&P said the increase in the number of closed funds charging 12b-1 fees is likely due, in part, to the increased number of funds closing as of late. With 196, equity funds represented the highest percentage of closed funds still charging an average of 0.65%. Fixed income came in second, with 24 funds charging an average of 0.54%.

Among the firms listed as charging the fees for closed funds, IDEX Management Inc., ING Investments and Columbia Management Group all offered numerous funds charging the maximum 1% allowed.

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