Report of the Mutual Fund Task Force: Mutual Fund Distribution

NASD formed the Mutual Fund Task Force (“Task Force”) to consider issues relating to soft dollars, mutual fund portfolio transaction costs and distribution arrangements. The Task Force was established after discussions between the Securities and Exchange Commission (“SEC”) and NASD staffs, to provide guidance to the SEC as it considers these issues.

The Task Force is comprised of senior industry executives who represent broker-dealers and mutual fund management companies, as well as representatives from the academic and legal communities. The Task Force divided its work into two phases. In the first phase, it considered mutual fund portfolio transaction costs, particularly “soft dollar” services and disclosure. On November 11, 2004, the Task Force submitted its Report on these issues to the SEC.

Immediately following the submission of its Phase One Report, the Task Force commenced its work on Phase Two, which covered distribution arrangements, including fees paid pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“1940 Act”) and revenue sharing. This Report presents the results of the Task Force’s deliberations on these issues.