We are officially in the midst of the dog days of summer. And while that phrase may conjure images of lazy yawns on a front porch and the smell of sunscreen and dried-up lawns, the Securities and Exchange Commission is as busy as ever.

Riding the current of a flurry of regulatory activity, the SEC, on July 21, voted unanimously to propose a set of rules that would place new limits on the use of 12b-1 distribution fee provisions under the Investment Company Act of 1940.

The SEC intends to apply the proposed changes to funds in variable annuity separate accounts as well as mutual funds.

Is what we’ve got here a failure to communicate? Some think so, but financial professionals are wary to chalk the proposed rule changes up to a full disclosure debate.

“I have no problem with full disclosure and neither due any of my colleagues, disclosure of the use of funds is contained in all mutual fund companies prospectuses.” Said a financial professional who wished to speak off the record.

The issue seems to be the evolution of the use of 12b-1 fees. Initially the fees were to be used to pay for broker dealers and fund promotional and marketing activities. But the utilization of the fees began to be used to compensate fund intermediaries for sales instead of supplementing promotional costs.

The SEC’s suggested changes would limit sales charges and call for more robust disclosure rules. In its proposal, the SEC would like to demarcate two current uses of the fees, the asset based sales charge fees and the marketing and service fees. Limits would be put on both of these.

The proposal encourages funds to continue their practice of giving investors alternatives to paying sales charges. Some of these include paying charges at the time of purchase, redemption, or paying a continuing fee. However, fund managers would have to retain the ongoing asset– based sales charges that individual investors pay the highest fee charged by the fund for shares that have no ongoing sales charges.

SEC officials received a comment in 2007 advocating the suspension of 12b-1 fees for variable life and variable annuity products. But a financial professional who wished to speak off the record contended that no matter what happens, standard mutual funds and variable annuity subaccounts will not be treated differently

“Some folks at the SEC would like to wrap the cloak of consumer protection and full disclosure around this issue” a professional said. “When what actually took place was a slow and organic evolution of the use of these funds that the SEC was aware of the whole time.”

Comments on this issue are to due to the SEC by Nov. 5th 2010.