Soft Dollars

Disclosure ­ Soft Dollars

Trillium Asset Management Corporation (”Trillium”) uses soft dollars for only limited research purposes. We believe that the use of soft dollars in this manner is of benefit to our clients. For purposes of clarification, the Securities and Exchange Commission defines “soft dollars” on its web site as follows:

The Commission has defined soft dollar practices as arrangements under which products or services other than execution of securities transactions are obtained by an adviser from or through a broker-dealer in exchange for the direction by the adviser of client brokerage transactions to the broker-dealer.

In 1975, responding to anti-competitive practices, Congress enacted a law which provided that an investment manager could be in breach of its fiduciary duty to its client if it caused the client to pay anything more than the lowest commission rate available.

At that time, in adopting Section 28(e) of the Securities Exchange Act Congress also provided “that a person who exercises investment discretion with respect to an account shall not be deemed to have acted unlawfully or to have breached a fiduciary duty solely by reason of his having caused the account to pay more than the lowest available commission if such person determines in good faith that the amount of the commission is reasonable in relation to the value of the brokerage and research services provided.”

Section 28(e) is the so-called soft dollar “Safe Harbor”. A manager would be outside of the “Safe Harbor” if it used soft dollars to obtain products or services other than brokerage or research. While it is not illegal to use soft dollars outside of the Safe Harbor, the SEC has indicated that “An investment adviser that proposes to use client commissions outside of the safe harbor, for example to acquire products or services other than brokerage or research, would need to carefully consider its obligations pursuant to its fiduciary duties to its clients, and under the antifraud provisions of the federal securities laws.”

At Trillium, we use soft dollars within the terms of the Safe Harbor. We carefully monitor our clients’ brokerage commissions each week for best execution, including cost and timeliness. We limit our use of soft dollars so as to exclude anything that is not directly helpful in analyzing investments for our clients. We have never used and will never use our client trades to purchase items other than direct research.

At this time, Trillium does not support a move to eliminate the use of soft dollars to procure research that benefits clients. In our opinion, such a move would cause hardship. Some industry experts feel that if managers are forced to create this research internally, it is likely that client fees will increase. If managers must create the research in-house or pay for the research with hard dollars, the volume and overall quality of available information may also be lowered. The smaller the firm, the more this pain will be felt. The barriers to entry in our field are certain to be raised even further.

However, we do enthusiastically support limiting the use of soft dollars to the Safe Harbor. If regulators change the rules on soft dollars, Trillium will comply promptly.