Report of the Mutual Fund Task Force: Soft Dollars and Portfolio Transaction Costs

NASD formed the Mutual Fund Task Force (“Task Force”) in May 2004 to consider ways to improve the transparency of 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 the issues raised in a concept release concerning mutual fund portfolio transaction costs and a rule proposal relating to mutual fund distribution arrangements.

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 has divided its work into two phases. In the first phase, it has considered mutual fund portfolio transaction costs, particularly “soft dollar” services and disclosure. The Task Force met on June 23 and August 2, 2004, to consider these issues.3 This Report sets forth the Task Force’s observations and recommendations concerning soft dollar services and portfolio transaction costs. In its second phase, the Task Force will focus on distribution arrangements, including fees paid pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“1940 Act”) and revenue sharing.