It takes money to make money, the adage goes, and this is no less true for the mutual fund industry. The sale of B shares requires up-front capital to compensate brokers, and at the same time generates an asset-based income stream that varies according to the fortunes of the market. To ease both of these pressures, fund companies have securitized 12b-1 fees, basically selling off that future income for a set period of time, in exchange for an up-front lump sum.

However, recent stock market performance has dramatically changed the landscape of B share financing, and up to 20% of outstanding bonds may be under water, said Bill Henson, managing director at Putnam Lovell NBF of New York, formerly a big name in 12b-1 financing.

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