Common use of Soft Dollars Clause in Contracts

Soft Dollars. Soft dollars are credits or other perks brokerages offer in return for a certain level of business. Federal Statute provides a “safe harbor” for using “soft dollars” to purchase research and brokerage products offered by brokerages, whether used for the Client or other Accounts; it does not protect nor preclude other uses of “soft dollars.” Brokerages offer many related services that can be paid for with “soft dollars.” The brokerage may charge higher commissions than a purely transactional provider. However, using many of the incentive products and services provided by a brokerage can save the Investment Management Company significant cash outlays and absolute costs. The conflicts come into play in that there can be multiple beneficiaries to the incentive products and services, one of which may or may not be the Client, depending on the products and services chosen by the Investment Management Company. Some of the conflicts that may arise: (a) To the extent that the Investment Management Company may have to or choose to select one client over another for a particular transaction; (b) To the extent a brokerage firm provides to the Investment Management Company, services, equipment and the like for which either would normally pay cash out-of-pocket; (c) To meet the level of business required to qualify for certain broker-provided services to be provided the Investment Management Company, the Investment Management Company may engage the Client’s Account in more transactions than it would otherwise; (d) To acquire certain broker-provided services beneficial to only one of the Investment Management Company’s clients, the Investment Management Company may agree to a price for services higher than would otherwise be considered in executing a transaction; and (e) To the extent the Investment Management Company desire to execute transactions limiting the participation of restricted persons, certain clients may be at a disadvantage. As noted in this provision, standards and practices in the investment industry are such that brokerage firms frequently provide ancillary services to their customers, particularly in return for executing a high volume of transaction business through their brokerage firm. These brokerage firms often charge higher prices (as opposed to firms only charging transaction costs), but the services they are able to provide, such as high quality research (due to economies of scale), could easily be more costly if purchased individually on the open market. All of these facts alone and together pose potential conflicts of interest for the Investment Management Company and the Client. However, in signing this Agreement, the Client recognizes these potential conflicts of interest do exist and that this Agreement provides no remedies or recourse if the Client or the Investment Management Company should succumb to one or more of these conflicts in a manner that adversely affects the performance of the Clients investing activities. (Please note: In the Investment Management Company’s assessments, the compensation the Investment Management Company pays to brokerages is reasonable and competitive with rates charged by other brokers and service providers for services of similar quality.) Although there is potential for conflicts of interest to arise, the Investment Management Company is committed to and believes that it allocates transactions and opportunities among its Client’s accounts in a manner as equitable as possible, considering each Account’s objectives, programs, limitations and capital available for investment. The Investment Management Company particularly notes that Accounts with similar objectives often have different investment portfolios. Therefore, given the structure of the various agreements, current rules, regulations and laws applicable to certain entities, the fact that the Investment Management Company is an investment professional engaged in the business of providing investing services to several clients, and the current standards and procedures in the financial community for brokerages, there exists potential for conflicts of interest.