| | | | | | | | |
| Carole M. Laible*
(59) | | | Trustee Nominee; President (since 2017); and Treasurer (since 2024). | | | Portfolio Manager, Domini Sustainable Solutions Fund(since 2020), Domini International Opportunities Fund (since 2020), and Domini Impact Equity Fund (since 2018), CEO and Manager (since 2016), Member (since 2006), Domini Impact Investments LLC; Manager (since 2017), President and CEO (since 2002), Chief Financial Officer (since 1998), Secretary (since 1998), Treasurer (since 1998) and Registered Principal (since1998), DSIL Investment Services LLC; Manager (since 2016), Domini Holdings LLC (holding company); President (since 2017) and Treasurer (since 2024), Domini Investment Trust. | |
| Doug Lowe*
(67) | | | Assistant Secretary (since 2007) | | | Senior Call Center Manager (since 2019) and Senior Compliance Manager and Counsel (2006-2019), Domini Impact Investments LLC; Assistant Secretary (since 2007), Domini Investment Trust; Registered Operations Professional (since 2012), DSIL Investments Services LLC. | |
| Meaghan O’Rourke-Alexander*
(43) | | | Assistant Secretary (since 2007) | | | Senior Compliance Officer (since 2023) and Compliance Officer (2012-2023), Domini Impact Investments LLC; Assistant Secretary (since 2007), Domini Investment Trust. | |
| Maurizio Tallini*
(49) | | | Chief Compliance Officer (since 2005); Vice President (since 2007); and Chief Information Security Officer (since 2015) | | | Chief Compliance Officer (since 2005) Member (since 2007), and Chief Information Security Officer (since 2015), Domini Impact Investments LLC; Vice President (since 2007), Chief Compliance Officer (since 2005), and Chief Information Security Officer (since 2015) Domini Investment Trust; Chief Compliance Officer (since 2015), Registered Representative (since 2012), Registered Principal (since 2014), and, Chief Information Security Officer (since 2015), DSIL Investments Services LLC. | |
| | | | | | | | |
Election of the
nomineesNominees as Trustees of the
Funds will requireTrust requires the vote of a plurality of the outstanding voting securities of the Funds, taken together, present in person or represented by proxy at the meeting.
Election of the nominees as Trustees of the Master Funds will require the vote of a plurality of the outstanding voting securities of the Master Funds, taken together, present in person or represented by proxy at a meeting of the investors in the Master Funds.
The Board of Trustees unanimously recommends that you vote FOR election of the nominees as Trustees of the Funds and the Master Funds.
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| Proposal 2.
| To approve a new Management Agreement between the Domini Social Equity Trust and Domini Social Investments LLC.
|
Background
Shareholders of the Domini Social Equity Fund (the “Equity Fund”) are being asked to approve a new Management Agreement (the “New Management Agreement”) for the Domini Social Equity Trust (the “Master Equity Fund”).
The Equity Fund is a “feeder” fund within a structure known as a “master/feeder” mutual fund structure. Rather than invest directly in securities, the Equity Fund invests in a separate trust, or “master” trust, called the Domini Social Equity Trust (“the Master Equity Fund”) which acquires and manages a portfolio of securities and has the same investment objective as the Equity Fund. As an investor in the Master Equity Fund, the Equity Fund has been asked to approve the New Management Agreement. The Equity Fund is asking you to instruct it as to how to vote on this matter.
The Master Equity Fund currently seeks to provide its investors, including the Equity Fund, with a long-term total return that matches the performance of the Domini 400 Social IndexSM (the “Index”)1 an index made up of the stocks of 400 companies selected using social and environmental standards. The Master Equity Fund seeks to achieve this objective by investing in the securities of the companies included in the Index in approximately the same proportion as they are found in the Index.
1/ Domini 400 Social Index is a service mark of KLD Research & Analytics, Inc (“KLD”) and is used under license. KLD is the owner of the Domini 400 Social Index but is not the manager of the Equity Fund or the Master Equity Fund.
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Because the Master Equity Fund currently uses a passive investment strategy, management cannot shift its portfolio concentration from one industry to another or from one stock to another, to enhance performance.
Domini, the manager of the Master Equity Fund, believes that shareholders would be better served by an active investment strategy.An active investment strategy would provide management with the flexibility to adjust the portfolio as market conditions change. The Fund will continue to seek to provide shareholders with long-term total return (see below for additional discussion of the proposed investment strategy).
At a meeting held on April 28, 2006, Domini recommended, and the Board approved, a change in the investment strategy of the Master Equity Fund from a passive to an active investment strategy. Related to the change to an active investment strategy, the Board also approved a change to the investment objective of each of the Equity Fund and the Master Equity Fund. Although the investment objective of long term total return will not change, each of the Equity Fund and the Master Equity Fund will no longer have the objective of long term total return that matches the Index.
| Domini’s review of the long-term track record of the Master Equity Fund demonstrates that social and environmental analysis has led to strong individual stock selection.
Domini believes that social and environmental standards help to identify companies that are led by forward-looking management teams, with positive corporate cultures, and that these companies make better long-term investments.
Domini believes an active investment strategy will improve the Fund’s ability to capitalize on this stock selection advantage.
|
In connection with the new investment objective and the change to an active investment strategy, Domini recommended,and the Board approved, the termination of SSgA Funds Management, Inc. (‘SSgA”), the current submanager of the Master Equity Fund, and the appointment of Wellington Management as the submanager of the
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Master Equity Fund, as fully discussed in Proposal 3 below. The Board’s approval of the new investment objective and strategy and the termination of the SSgA submanagement agreement is subject to shareholder approval of the New Management Agreement and the Submanagement Agreement with Wellington Management (as discussed in Proposal 3).
Actively managed funds tend to be more expensive to manage than passively managed funds. Domini has determined that, based on the fee schedule proposed by Wellington Management and the other expenses Domini expects to incur in changing to an active investment strategy, it is necessary for Domini to propose an increase in its management fee. Domini believes that the new strategy it is proposing will result in enhanced financial returns to shareholders and that the proposed expenses are fair and reasonable.Shareholders are being asked to approve the New Management Agreement due to this proposed increase in fees (See below for a more complete discussion of the proposed increase in fees).
Domini, a Massachusetts limited liability company, 536 Broadway, 7th Floor, New York, New York 10012, currently manages the assets of the Master Equity Fund pursuant to a Management Agreement dated as of October 22, 1997 (the “Existing Management Agreement”). The Existing Management Agreement was last approved by the Board of Trustees on April 28, 2006 when the Trustees approved its continuation for an additional twelve month period. The Existing Management Agreement was most recently submitted to a vote of investors in the Master Equity Fund, including the Equity Fund, on October 21, 1997 in connection with its initial approval.
Change in Investment Strategy to Active Management
Domini believes that an active investment strategy will allow the Master Equity Fund to more effectively capitalize on the use of social and environmental standards to select investments. Domini’s review of the long-term track record of the Master Equity Fund demonstrates that social and environmental analysis has led to strong individual stock selection. Domini believes that social and environmental standards help to identify companies that are led by forward-looking management teams, with positive corporate cultures, and that these companies make better long-term investments. A
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passive investment strategy, however, limits the Fund’s ability to capitalize on this stock selection advantage, because it requires that the Fund invest in all of the stocks in the Index, in exactly the same proportion as the Index.
Domini and Wellington Management have developed a strategy that is designed to combine the strength of Domini’s social and environmental standards with Wellington Management’s quantitative analysis.
Subject to Domini’s social and environmental standards, Wellington Management will seek to add value using a diversified quantitative stock selection approach, while managing risk through portfolio construction. Wellington Management will seek to invest in stocks it believes are undervalued by the market and whose technical and fundamental momentum attributes are attractive. This strategy is more fully described in Proposal 3 below. Domini believes that this new approach will generate positive financial returns to shareholders, while remaining consistent with the Equity Fund’s unwavering commitment to socially responsible investing.
Increase in Fees Paid to Domini
Actively managed funds tend to be more expensive to manage than passively managed funds. Because of the increase in submanagement fees proposed by Wellington Management and the additional expenses that Domini expects to incur in connection with the social and environmental analysis it will perform for the Fund, Domini has determined it is necessary to increase the management fees it charges to the Master Equity Fund.
If the investors in the Master Equity Fund approve the New Management Agreement and the Submanagement Agreement with Wellington Management is approved, Domini will be entitled to receive fees of 0.30% of the first $2 billion of net assets managed, 0.29% of the next $1 billion of net assets managed and 0.28% of net assets managed in excess of $3 billion for providing investment advisory services to the Master Equity Fund. Under the Existing Management Agreement, Domini is entitled to receive fees of 0.20% of the first $2 billion of net assets managed, 0.19% of the next $500 million of net assets managed and 0.18% of net assets managed in excess of $2.5 billion for providing
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investment advisory services to the Master Equity Fund. Because the Equity Fund is one of four investors in the Master Equity Fund, its shareholders will bear a portion of the increase in the management fees.
Pursuant to a Sponsorship Agreement with respect to the Equity Fund, Domini provides the Equity Fund with oversight, administrative, and management services. Domini’s fee for administrative and sponsorship services with respect to the Equity Fund is currently 0.50% of the average daily net assets of each class of the Fund. Domini is currently waiving sponsorship fees such that the Equity Fund is currently paying 0.42% of the average daily net assets of each class of the Fund. For the fiscal year ended July 31, 2005, the Equity Fund incurred $4,950,221 in sponsorship fees (after fee waivers and expense reimbursements). Domini will continue to provide these services to the Equity Fund if the New Management Agreement and the Submanagement Agreement with Wellington Management are approved. If the New Management Agreement and the Submanagement Agreement with Wellington Management are approved, the Equity Fund will, as of November 30, 2006, pay sponsorship fees to Domini in the amount of 0.45% of the first $2 billion of net assets of each class of the Fund, 0.44% of the next $1 billion of net assets of each class of the Fund, and 0.43% of net assets of each class of the Fund in excess of $3 billion.
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Actual ManagementFeepaid by theMaster EquityFund for the fiscal year ended July 31, 2005* | Estimated Amount theMaster Equity Fund would have Paid if the Proposed Management Fee under the New Management Agreement had been in Effect | Percentage Increase |
$3,165,651 | $4,748,476 | 50% |
| | |
| | |
Equity Fund’s Portion of the Actual ManagementFeePaidfor the fiscal year ended July 31, 2005* | EstimatedEquity FundPortion of the Proposed Management Fee if the New Management Agreement had been in Effect | Percentage Increase |
$2,357,248 | $3,535,872 | 50% |
| | |
| | |
Actual Sponsorship Fee paid by theEquity Fund for the fiscal year ended July 31, 2005* | Estimated Amount theEquity Fund would have Paid if the Proposed Sponsorship Fee under the New Sponsorship Agreement had been in Effect | Percentage Increase |
$4,950,221 | $5,303,808 | 7% |
| | |
| | |
Total Management and Sponsorship Fees Paid by theEquity Fund for the fiscal year ended July 31, 2005* | Estimated Total Management and Sponsorship Fees theEquity Fundwould have Paid if the New Agreements had been in effect | Percentage Increase |
$7,307,469 | $8,839,680 | 21% |
| | *After giving effect to fees waived. | |
| | | | | |
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Contractual Expense Cap for the
Domini Social Equity Fund
The proposed increase in the management fees paid by the Master Equity Fund will be borne by investors in the Master Equity Fund, including the Equity Fund and its shareholders. However, if the New Management Agreement and the Submanagement Agreement with Wellington Management are approved, Domini will contractually agree to:
(1) lower the sponsorship fees payable by each class of shares of the Equity Fund from 0.50% of net assets to 0.45% of the first $2 billion of net assets, 0.44% of the next $1 billion of net assets, and 0.43% of net assets in excess of $3 billion; and
(2) cap the total expenses payable by each class of shares of the Equity Fund to the total expense ratios listed below for the fiscal year ending November 30, 2007, subject to annual renewal.
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Effect of the Increase in Management Fees
To assist shareholders of the Equity Fund in understanding the effect of the proposed increase in management fees on the expense of investing in shares of the Equity Fund, the following table summarizes the expenses incurred by the Equity Fund for the fiscal year ended July 31, 2005 and also restates these expenses to show what the expenses would have been had the proposed fees been in effect during the same period.*
| Investor Shares | Class R Shares |
| Current | Proposed | Current | Proposed |
Shareholder Fees | | | | |
(fees paid directly by you) | | | | |
Sales Charge (Load) Imposed on Purchases | None | None | None | None |
Deferred Sales Charge (Load) | None | None | None | None |
Redemption Fee*** (as a percentage of amount redeemed, if applicable) | 2.00%** | 2.00%** | 2.00%** | 2.00%** |
Exchange Fee | None | None | None | None |
| | | | |
Annual Fund Operating Expenses | | | | |
(expenses deducted from the Fund’s assets) | | | | |
Management Fees | 0.20% | 0.30% | 0.20% | 0.30% |
Distribution (12b-1) Fees | 0.25% | 0.25% | None | None |
Other Expenses | | | | |
Administrative Services and Sponsorship Fee | 0.50% | 0.45% | 0.50% | 0.45% |
Other Expenses | 0.18% | 0.19% | 0.04% | 0.14% |
Total Annual Fund Operating Expenses | 1.13% | 1.19% | 0.74% | 0.89% |
Fee Waiver | (0.18)+% | (0.04)%‡ | (0.11)+% | (0.04)%‡ |
Net Expenses | 0.95% | 1.15% | 0.63% | 0.85% |
* The table and the following example reflect the aggregate expenses of the Equity Fund and the Master Equity Fund.
** In order to discourage use of the Equity Fund for market timing, an early redemption fee is charged on sales or exchanges of shares made less than 60 days after settlement of purchase or acquisition through exchange, with certain exceptions.
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*** If you wish to receive your redemption proceeds by bank wire, there is a $10 wire service fee. For additional information, please refer to the Funds’ shareholder manual.
+Until November 30, 2006, Domini has contractually agreed to waive certain fees and/or reimburse certain expenses, including management fees, so that the Equity Fund’s expenses, net of waivers and reimbursements, will not exceed, on a per annum basis, 0.95% of the average daily net assets representing Investor shares and 0.63% of the average daily net assets representing Class R shares, absent an earlier modification by the Board of Trustees.
‡ If the proposed new Management Agreement is approved and becomes effective, Domini has contractually agreed to to waive certain fees and/or reimburse certain expenses at least until November 30, 2007, including management fees, so that the Equity Fund’s expenses, net of waivers and reimbursements, will not exceed, on a per annum basis, 1.15% of the average daily net assets representing Investor shares and 0.85% of the average daily net assets representing Class R shares, absent an earlier modification by the Board of Trustees.
The example below is intended to help you compare the cost of investing in each class of shares of the Equity Fund with the costs of investing in those classes after giving effect to the proposed increase in fees. It illustrates the hypothetical expenses that you would incur if you invest $10,000 in the Equity Fund for the time periods indicated and then sell all of your shares at the end of each period. This example assumes that the Fund provides a return of 5% a year, all dividends and distributions are reinvested, operating expenses remain the same for the time period indicated, and the fee waiver reflected in the fee table is in effect for the one-year time period. Although your actual costs may be higher or lower, based on these assumptions your costs would be as follows:
Share Class | 1 Year | 3 Years | 5 Years | 10 Years |
Investor shares | | | | |
Current | $97* | $341 | $605 | $1,359 |
Proposed | $117* | $374 | $650 | $1,440 |
Class R Shares | | | | |
Current | $64* | $226 | $401 | $908 |
Proposed | $87* | $280 | $489 | $1,092 |
*For redemptions less than 60 days after settlement of purchase or acquisition through exchange, the cost of investing could be up to $325
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higher for the Investor shares and $295 higher for the R Shares, due to the early redemption fee. For additional information, please refer to your shareholder manual.
This example should not be considered to represent actual expenses or performance for the past or the future. Actual future expenses may be higher or lower than those shown.
If the New Management Agreement and the Submanagement Agreement with Wellington Management are approved, the expenses you will incur as a shareholder of the Equity Fund will increase. However, Domini believes that the new strategy it is proposing will result in enhanced financial returns to shareholders and that the proposed expenses are fair and reasonable.
Terms of the New Management Agreement
Other than the proposed increase in management fees, the New Management Agreement is the same as the Existing Management Agreement. A description of the terms of the Existing Management Agreement and the New Management Agreement (collectively, the “Management Agreements”) follows.
Please refer toExhibit Battached to this proxy statement for the complete New Management Agreement. The description of the New Management Agreement in this proxy statement is qualified in its entirety by the provisions of the New Management Agreement attached asExhibitB.
The New Management Agreement provides that Domini shall manage the assets of the Master Equity Fund and provide certain administrative services to the Master Equity Fund. Domini will have authority to determine from time to time what securities are purchased, sold or exchanged, and what portion of assets of the Master Equity Fund is held uninvested. Domini will also perform such administrative and management tasks for the Master Equity Fund as may from time to time be reasonably requested, including:
(a) maintaining office facilities and furnishing clerical services necessary for maintaining the organization of the
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Master Equity Fund and for performing administrative and management functions;
(b) supervising the overall administration of the Master Equity Fund, including negotiation of contracts and fees with, and monitoring of performance and billings of, the transfer agent, shareholder servicing agents, custodian, and other independent contractors or agents of the Master Equity Fund;
(c) overseeing (with the advice of the counsel to the Master Equity Fund) the preparation of and, if applicable, the filing of all documents required for compliance by the Master Equity Fund with applicable laws and regulations, including registration statements, prospectuses and statements of additional information, semi-annual and annual reports to shareholders, proxy statements, and tax returns;
(d) preparing agendas and supporting documents for, and minutes of meetings of, the Trustees, committees of the Trustees, and shareholders;
(e) arranging for maintenance of the books and records of the Master Equity Fund;
(f) maintaining telephone coverage to respond to investor and shareholder inquiries; and
(g) answering questions from the general public, the media, and investors in the Master Equity Fund regarding the securities holdings of the Master Equity Fund, limits on investment, and the Master Equity Fund’s proxy voting and shareholder activism policies and practices.
Domini provides persons satisfactory to the Board of Trustees of the Master Equity Fund to serve as officers of the Master Equity Fund. Such officers, as well as certain other employees and Trustees of the Master Equity Fund, may be directors, officers, or employees of Domini or its affiliates. Domini furnishes at its own expense all facilities and personnel necessary in connection with providing these services.
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The New Management Agreement provides that Domini may render services to others. Domini may employ, at its own expense, or may request that the Master Equity Fund, employ (subject to the requirements of the 1940 Act) one or more subadvisers or submanagers, subject to Domini’s supervision. The Management Agreement is terminable without penalty on not more than 60 days’ nor less than 30 days’ written notice by the Master Equity Fund, when authorized either by majority vote of the outstanding voting securities of the Master Equity Fund (with the vote of each investor in the Master Equity Fund being in proportion to the amount of its investment), or by a vote of a majority of the Board of Trustees of the Master Equity Fund, or by Domini, and will automatically terminate in the event of its assignment. The New Management Agreement provides that neither Domini nor its personnel shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in its services to the Master Equity Fund, except for willful misfeasance, bad faith, or gross negligence or reckless disregard of its or their obligations and duties under the New Management Agreement.
If the New Management Agreement is approved by the vote of the holders of a “majority of the outstanding voting securities” (as defined under the heading “Vote Required” below) of the Master Equity Fund and the Submanagement Agreement with Wellington Management is approved as provided in Proposal 3, the New Management Agreement will become effective on November 30, 2006 and continue in effect until November 30, 2008, and thereafter will continue in effect if such continuance is specifically approved at least annually by the Board of Trustees or by a majority of the outstanding voting securities of the Master Equity Fund at a meeting called for the purpose of voting on the New Management Agreement (with the vote of each investor in the Master Equity Fund being in proportion to the amount of its investment), and, in either case, by a majority of the Trustees who are not parties to the New Management Agreement or interested persons of any such party at a meeting called for the purpose of voting on the New Management Agreement.
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Information Regarding Domini
Domini Social Investments LLC (“Domini”) is a Massachusetts limited liability company with principal offices at 536 Broadway, 7th floor, New York, New York 10012. Amy Domini is the Manager of Domini. Each of Ms. Domini and Domini Holdings Corporation, LLC holds more than ten percent of the outstanding units of Domini. Ms. Domini is the Manager of Domini Holdings, LLC.
Domini Social Investments LLC currently serves as the manager of the Master Equity Fund. Domini has been managing money since November 1997. As of September 30, 2005, Domini managed more than $1.8 billion in assets for investors who are working to create positive change in society by using social and environmental standards in their investment decisions. Domini provides the Domini Funds with investment supervisory services, overall operational support, and administrative services.
Management and Governance.Listed below are the names, positions and principal occupations of the officers of Domini as of March 31, 2006. The principal business address of all of the officers is at the offices of Domini, 536 Broadway, 7th floor, New York, New York 10012. Each officer of Domini is also a Trustee or officer of the Domini Funds, as noted below:
Name
| Capacity with Domini
| Capacity with the Domini Funds
| Other Principal Occupation
|
Amy L. Domini
| Chief Executive Officer
| Chair, Trustee and President of the Domini Funds
| Private Trustee, Loring, Wolcott & Coolidge Office (fiduciary); Manager, DSIL Investment Services, LLC (broker-dealer); Manager, Domini Holdings LLC (holding company)
|
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Carole M. Laible
| President and Chief Operating Officer
| Treasurer of the Domini Funds
| President, CEO, Chief Compliance Officer, Chief Financial Officer, Secretary, and Treasurer, DSIL Investment Services LLC (broker- dealer)
|
Steven D. Lydenberg
| Chief Investment Officer
| Vice President of the Domini Funds
| N/A
|
Maurizio Tallini
| Chief Compliance Officer
| Chief Compliance Officer of the Domini Funds
| N/A
|
Information Regarding Other Funds Managed by Domini with a Similar Investment Objective to the Domini Social Equity Trust
In addition to serving as manager of the Domini Social Equity Trust, Domini serves as the manager of the Domini European Social Equity Fund (the “European Equity Fund”), the Domini European Social Equity Portfolio (the “European Equity Portfolio”) and the Domini European Social Equity Trust (the “Master European Fund”), the underlying fund in which each of the European Equity Fund and the European Equity Portfolio invests. Each of the European Equity Fund, the European Equity Portfolio and Master European Fund has a similar investment objective as the Master Equity Fund. The following table contains information about assets and compensation paid by the European Equity Fund* and the European Equity Portfolio** as of June 1, 2006.
Fund | Net Assets Managed by Domini | Annual Rate of Compensation Received by Domini as a Percentage of Average Daily Net Assets |
European Equity Fund* | $48,256,667.87 | 1.00% |
European Equity Portfolio** | $372,142.55 | 1.00% |
* The fees reflect the aggregate fees of the European Equity Fund and the Master European Fund, the underlying fund in which the European Equity Fund invests. Domini’s fee for advisory services to the Master European
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Fund is 0.75% of the average daily net assets of the Master European Fund. Domini’s fee for services to the European Equity Fund is 1.00% of the average daily net assets of the European Equity Fundminus the aggregate management fee allocated to the European Equity Fund by the Master European Fund. Currently, Domini is reducing its fee to the extent necessary to keep the aggregate operating expenses of the European Equity Fund (including the European Equity Fund’s share of the Master European Fund’s expenses but excluding brokerage fees and commissions, interest, taxes and extraordinary expenses), net of waivers and reimbursements, at no greater than 1.60% of the average daily net assets of the shares of the European Equity Fund.
** The fees reflect the aggregate fees of the European Equity Portfolio and the Master European Fund, the underlying fund in which the European Equity Portfolio invests. Domini’s fee for advisory services to the Master European Fund is 0.75% of the average daily net assets of the Master European Fund. Domini’s fee for services to the European Equity Portfolio is 1.00% of the average daily net assets of the European Equity Portfoliominus the aggregate management fee allocated to the European Equity Portfolio by the Master European Fund. Currently, Domini is reducing its fee to the extent necessary to keep the aggregate operating expenses of the European Equity Portfolio (including the European Equity Portfolio’s share of the Master European Fund’s expenses but excluding brokerage fees and commissions, interest, taxes and extraordinary expenses), net of waivers and reimbursements, at no greater than 1.60% of the average daily net assets of the shares of the European Equity Portfolio.
Other Services Provided to the Domini Social Equity Fund
and the Domini Social Equity Trust
Pursuant to a Sponsorship Agreement with respect to the Equity Fund, Domini provides the Equity Fund with oversight, administrative, and management services. Domini’s fee for administrative and sponsorship services with respect to the Equity Fund is currently 0.50% of the average daily net assets of each class of the Fund. For the fiscal year ended July 31, 2005, the Equity Fund accrued $6,696,885 in Sponsorship fees. Domini waived fees totaling $1,764,664. Domini will continue to provide these services to the Equity Fund if the New Management Agreement and the Submanagement Agreement with Wellington Management are approved. If the New Management Agreement and the Submanagement Agreement with Wellington Management are approved, the Equity Fund will, as of November 30, 2006, pay
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sponsorship fees to Domini in the amount of 0.45% of the first $2 billion of net assets of each class of the Fund, 0.44% of the next $1 billion of net assets of each class of the Fund, and 0.43% of net assets of each class of the Fund in excess of $3 billion.
DSIL Investment Services LLC, a wholly owned subsidiary of Domini, is the distributor of the Equity Fund’s shares. The Equity Fund has adopted a Rule 12b-1 plan with respect to its Investor shares that allows the Fund to pay its distributor on an annual basis for the sale and distribution of the Investor shares and for services provided to shareholders. These annual distribution and service fees may equal up to 0.25% of the average daily net assets of the Equity Fund’s Investor shares. For the fiscal year ended July 31, 2005, Investor shares of the Equity Fund accrued $3,228,455 in distribution fees. The distributor waived fees totaling $625,621. The Equity Fund does not pay any distribution and service fees with respect to the Class R shares. DSIL Investment Services LLC also serves as the placement agent for the Master Equity Fund. The Master Equity Fund does not pay any fees to DSIL Investment Services LLC for acting as placement agent. DSIL Investment Services LLC will continue to provide these services to the Equity Fund and the Master Equity Fund if the New Management Agreement and the Submanagement Agreement with Wellington Management are approved.
Portfolio Transactions and Tax Implications
For the fiscal year ended July 31, 2005, brokerage transactions were not placed with any person affiliated with the Master Equity Fund, the Equity Fund, Domini, Wellington Management, SSgA, DSIL Investment Services LLC, PFPC Inc. (the Funds’ transfer agent) or Investors Bank & Trust Company (the Funds’ custodian).
The transition from a passive to an active strategy will require the sale of many stocks currently held by the Master Equity Fund. These sales could result in capital gain distributions to Fund shareholders. Management will attempt to efficiently manage any tax implications in connection with the transition of the Master Equity Fund’s portfolio of securities. It is expected that the portfolio transition period, under normal market conditions, would be approximately 60 days. Because the new strategy is
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proposed to go into effect on or about November 30, 2006, any resulting tax impact on shareholders would occur over two calendar years (rather than one) if the portfolio is transitioned over 60 days, as expected.
Factors Considered by the Board of Trustees
At a meeting held on April 28, 2006, the Board of Trustees considered the approval of the New Management Agreement. In advance of the meeting, the Independent Trustees submitted to Domini a written request for information in connection with their consideration of the New Management Agreement. The Trustees received, reviewed and considered, among other things:
(i) a report based on information provided by Strategic Insight that compared both the current and proposed fees and expenses of each of the Master Equity Fund and the Equity Fund (before and after giving effect to current and proposed fee waivers) to those of various peer groups including, without limitation, peer groups of socially responsible funds, actively managed U.S. equity funds, and U.S. equity index funds;
(ii) a report from Domini regarding the proposed investment strategies and techniques for the Master Equity Fund, including Domini’s rationale for changing the investment objective and strategies of the Master Equity Fund and the Equity Fund, and a discussion of the risks of the proposed strategy;
(iii) a report from Domini that compared the performance of the Domini 400 Social Index to the performance of the S&P 500 Index (the benchmark of the Master Equity Fund) over various periods and that included an attribution analysis that showed the impact of the Domini 400 Social Index being underweighted in certain industries and sectors relative to the S&P 500; and
(iv) reports from and presentations by Domini that described (a) the nature, extent and quality of the services proposed to be provided by Domini to each of the Master Equity Fund and the Equity Fund in connection with the implementation of the new investment strategy, (b) the fees and other amounts
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proposed to be paid to Domini under the New Management Agreement, including information as to the fees charged and services provided to other clients, (c) certain information about Domini’s compliance program and procedures and any regulatory issues, (d) brokerage practices, including soft dollar practices, and (e) Domini’s proxy voting policies and procedures.
The Trustees, including all of the Independent Trustees, concluded that Domini had the capabilities, resources, and personnel necessary to manage the Master Equity Fund and implement the new investment strategy and that Domini had the capabilities, resources, and personnel necessary to continue to manage and provide administrative services to the Equity Fund. The Board further concluded that, based on the services to be provided by Domini to the Master Equity Fund pursuant to the New Management Agreement, the fees paid by similar funds and taking into account the agreed-upon fee waivers and such other matters as the Trustees considered relevant in the exercise of their reasonable judgment, the compensation proposed to be paid to Domini under the New Management Agreement is fair and reasonable.
In reaching their determination to approve the New Management Agreement, the Trustees considered a variety of factors they believed relevant and balanced a number of considerations. In their deliberations, the Trustees did not identify any particular information or factor that was all-important or controlling. The primary factors and the conclusions are described below.
Nature, Quality, and Extent of Services Provided
The Trustees considered that the New Managment Agreement was the same as the Existing Management Agreement except for the increase in fees payable to Domini. The Trustees considered that, pursuant to the New Management Agreement, Domini, subject to the direction of the Board, will continue to be responsible for providing advice and guidance with respect to the Master Equity Fund and for managing the investment of the assets of the Master Equity Fund, which it will do by engaging with, and overseeing the activities of, Wellington Management. It was noted
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that Domini will apply its social and environmental standards to a universe of securities provided by Wellington Management and that Wellington Management will provide the day-to-day portfolio management of the Master Equity Fund, including making purchases and sales of securities consistent with its investment objective and policies, including Domini’s social and environmental standards.
The Trustees considered the scope of the services to be provided by Domini under the New Management Agreement and the quality of services provided by Domini to the other Domini Funds. They considered the professional experience, tenure, and qualifications of the portfolio management teams proposed for the Master Equity Fund and the other senior personnel at Domini. They also considered Domini’s capabilities and experience in the development and application of social and environmental investment standards and its reputation and leadership in the socially responsible investment community. They noted that the senior members of Domini's research team had years of experience in the development and application of social and environmental investment standards. In addition, they considered Domini’s compliance policies and procedures and compliance record.
The Trustees noted that Domini will also continue to administer the Master Equity Fund ‘s business and other affairs pursuant to the New Management Agreement. It was noted that, among other things, Domini will continue to provide the Master Equity Fund with office space, administrative services and personnel as are necessary for operations. The Trustees considered the quality of the administrative services Domini had provided to the Master Equity Fund in the past, as well as the quality of adminsitrative services Domini provided to the other Domini Funds, including Domini’s role in coordinating the activities of service providers. They noted that they were satisfied with the quality of the advisory and administrative services provided by Domini to the Master Equity Fund and the other Domini Funds, particularly Domini's oversight of submanagers and development and application of social and environmental investment standards.
Based on the foregoing, the Trustees concluded that they were satisfied with the nature, quality and extent of services to be
- 44 -
provided by Domini to the Master Equity Fund under the New Management Agreement.
Performance Information
The Trustees considered the performance of the Equity Fund compared to its benchmark, the S&P 500 Index, and noted that the annualized total return of the Equity Fund had lagged annualized total return of the S&P 500 Index for the 1, 3, 5 and 10 year periods ending March 31, 2006 and since the Fund’s inception. The Trustees considered information provided to them that showed that stock selection had generally helped the performance of the Fund compared to the S&P 500 Index over most time periods but that the underweight versus the S&P 500 Index of certain industries and sectors had hurt the Fund’s performance compared to the benchmark. The Trustees noted that, as an index fund that invests in the securities of the companies in the Domini 400 Social Index, the Master Equity Fund does not buy and sell securities based on market conditions or an evaluation by management of particular securities. They considered how the passive investment strategy used by the Master Equity Fund had impacted the performance of the Master Equity Fund.
Fees and Other Expenses
The Trustees considered the increased management fees to be paid by the Master Equity Fund to Domini under the New Management Agreement.
The Trustees noted that Domini (and not the Master Equity Fund) will pay Wellington Management from its advisory fee for the Master Equity Fund. The Trustees also considered information that showed the net increase in fees that Domini would receive (after taking into account that Domini would pay the submanagement fees and that Domini had proposed to reimburse or waive fees for the Equity Fund and the other feeder funds) and the expenses that Domini expected to incur in connection with providing the social and environmental screening for the Master Equity Fund. The Trustees compared the level of the Master Equity Fund’s advisory and administrative fees to the comparative fees of the peer groups described above, as well as the expected
- 45 -
total expense ratio of the Equity Fund compared to those peers. In addition, the Trustees also reviewed the management fees that Domini charges its other fund clients with investment objectives similar to the investment objective of the Master Equity Fund and noted that the fees charged to such other clients were higher than the fees proposed to be charged to the Master Equity Fund and the portion of the proposed management fee and sponsorship fee to be paid by the Equity Fund.
The Trustees also reviewed the fees under the Existing Management Agreement and considered that the current total expense ratio for the Equity Fund exceeded the peer group average total expense ratio for U.S. equity index funds even after giving effect to the waiver by Domini of certain fees and expenses. The Trustees considered the reasons that the total expense ratio of the Fund exceeded that of the U.S. equity index funds peer group and noted that, given the license, submanagement and other fees paid or reimbursed by Domini, a reduction of fees was not likely to be a feasible alternative.
The Trustees then considered that, based on the information provided by Strategic Insight, the proposed new management fee for the Master Equity Fund was lower than the average management fees of various peer groups. Because the average management fees for the peer groups included fees for administrative services, the Trustees also compared the proposed management and sponsorship fees payable by the Equity Fund to the average management fees of the various peer groups. The Board considered that the sum of the Equity Fund's portion of the proposed management fee and its sponsorship fee was about equal to or less than those average management fees. The Trustees also considered that the expected total expense ratio of the Equity Fund, for both the Investor shares and the R shares, after giving effect to the New Management Agreement, would be lower than the average of the total expense ratios of its most relevant peer group.
Costs of Services Provided and Profitability
The Trustees reviewed information provided to them by Domini concerning the costs borne by and profitability of Domini with respect to its advisory and administrative relationship with
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the Equity Fund for the 2005 calendar year, along with a description of the methodology used by Domini in preparing the profitability information. They also reviewed information provided to them by Domini that showed the net dollar increase in fees that Domini expected to receive under the New Management Agreement and reviewed the increased expenses that Domini expected to incur in providing services under the New Management Agreement.
Based on the foregoing, the Trustees concluded that they were satisfied that Domini's expected level of profitability with respect to the New Management Agreement was reasonable in view of the nature, quality and extent of services to be provided.
Other Benefits
The Trustees considered the other benefits that Domini and its affiliates received and could be expected to receive from their relationship with the Master Equity Fund.
The Trustees reviewed the character and amount of payments that will continue to be received by Domini and its affiliates, other than with respect to the management arrangements, in connection with its relationship to the Master Equity Fund. They considered that DSIL Investment Services, LLC, a subsidiary of Domini, will continue to receive 12b-1 fees from the Equity Fund and will retain those fees in certain circumstances. In addition, the Trustees considered the intangible benefits that would continue to accrue to Domini and its affiliates by virtue of their relationship with the Master Equity Fund and the Equity Fund and how implementation of the new strategy would likely increase those benefits.
The Trustees concluded that the benefits expected to be received by Domini and its affiliates, as outlined above, were reasonable in the context of the relationship between Domini and the Master Equity Fund and the Equity Fund and supported the approval of the Management Agreement.
Economies of Scale
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The Trustees also considered whether economies of scale would be realized by Domini as the Master Equity Fund and the Equity Fund got larger and the extent to which economies of scale were reflected in the proposed new fee schedules. The Trustees noted that breakpoints were being proposed for both the New Management Agreement and the sponsorship agreements for the Equity Fund, and also considered the fee waivers proposed by Domini. They concluded that, given these breakpoints, the shareholders would share in the economies of scale as each of the Master Equity Fund and the Equity Fund got larger and that this was a positive factor in support of approval of the Management Agreement.
Conclusion
Based upon its review, the Board of Trustees concluded the following:
The terms of the New Management Agreement are reasonable, fair, and in the best interests of the Master Equity Fund and its investors, including the Equity Fund
and
The fees provided in the New Management Agreement are fair and reasonable in light of the usual and customary charges made for services of the same nature and quality.
Accordingly, the Board of Trustees unanimously approved the New Management Agreement and voted to recommend that shareholders vote in favor of the New Management Agreement. If the New Management Agreement is approved by the investors in the Master Equity Fund and the Submanagement Agreement with Wellington Management is approved as provided in Proposal 3, the New Management Agreement will go into effect on November 30, 2006.
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Vote Required
Approval of the New Management Agreement will require the approval of “a majority of the outstanding voting securities” (as defined in the 1940 Act) of the Master Equity Fund, which means the affirmative vote by the lesser of (a) 67% or more of the shares of the Master Equity Fund present at the meeting, if more than 50% of the outstanding shares of the Master Equity Fund are represented at that meeting in person or by proxy or (b) more than 50% of the outstanding shares of the Master Equity Fund.
The New Management Agreement will not go into effect unless the Submanagement Agreement with Wellington Management described in Proposal 3 is also approved by the investors in the Master Equity Fund. In the event that the New Management Agreement or the Submanagement Agreement with Wellington Management do not receive the requisite approvals, Domini will continue to serve as the Master Equity Fund’s manager under the Existing Management Agreement, and Domini will either continue its relationship with SSgA, negotiate a new submanagement agreement with a different investment advisory organization, or make other appropriate arrangements, in either event subject to approval in accordance with the 1940 Act.
The Board of Trustees unanimously recommends that you vote FOR the
approval of the New Management Agreement.- 49 -
| Proposal 3.
| To approve a Submanagement Agreement for the Domini Social Equity Trust between Wellington Management Company, LLP and Domini Social Investments LLC.
|
As discussed in Proposal 2, Domini recommended, and the Board of Trustees approved, a change in the investment strategy of the Master Equity Fund from a passive to an active investment strategy and corresponding changes in each of the Equity Fund’s and the Master Equity Fund’s investment objective.
In connection with these changes, the Board of Trustees has authorized Domini to enter into a new Submanagement Agreement (the “New Submanagement Agreement”) with Wellington Management, subject to shareholder approval. In accordance with the requirements of the 1940 Act, the New Submanagement
| Domini will maintain exclusive control over the application of its social and environmental standards to the Fund’s portfolio.
As of April 30, 2006, Wellington Management managed approximately $550 billion in assets. Wellington Management is the submanager of the Domini European Social Equity Fund.
The Board of Trustees carefully reviewed Wellington Management’s capabilities and track record and unanimously approved its selection. Domini and the Board believe that Wellington Management will be able to provide the Fund with strong, long-term service.
|
Agreement must be approved by the investors in the Master Equity Fund, including the Equity Fund. As a shareholder of the Equity Fund, the Equity Fund is asking you how to vote on this matter. If this proposal and the New Management Agreement are approved, the New Submanagement Agreement with Wellington Management will go into effect on November 30, 2006.
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Change in Investment Strategy to Active Management
Domini and Wellington Management have developed a strategy that is designed to combine the strength of Domini’s social and environmental standards with Wellington Management’s quantitative analysis. Domini believes that this new approach will generate positive financial returns to shareholders, while remaining consistent with the Master Equity Fund’s unwavering commitment to socially responsible investing.
As submanager for the Master Equity Fund, Wellington Management will employ an active management strategy seeking to provide shareholders with long-term total return by invesing primarily in stocks of U.S. companies that Domini has determined meet the Fund’s social and environmental standards.
Subject to Domini’s social and enviromental standards, Wellington Management will seek to add value using a diversified quantitative stock selection approach, while managing risk through portfolio construction. Using a proprietary quantitative model, Wellington Management will rank securities according to value and momentum characteristics and will seek to invest in those stocks that it believes are undervalued by the market and whose fundamental and technical momentum attributes are attractive. Wellington Management will also use optimization techniques designed to reduce industry and sector biases.
Domini will maintain exclusive control over the application of its social and environmental standards to the Master Equity Fund’s portfolio.
The Board of Trustees carefully reviewed Wellington Management’s capabilities and track record and unanimously approved its selection. Domini and the Board believe that Wellington Management will be able to provide the Master Equity Fund with strong, long-term service.
In connection with the change to an active investment strategy, the Board of Trustees has voted to terminate the Submanagement Agreement, dated as of May 1, 2001 (the “Existing
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Submanagement Agreement”), between Domini and SSgA Funds Management, Inc., (“SSgA”), subject to shareholder approval of the New Submanagement Agreement and the New Management Agreement. SSgA has served as the submanager of the Master Equity Fund since May 1, 2001. State Street Global Advisers, an affiliate of SSgA, served as the submanager of the Master Equity Fund from January 1, 2001 through April 30, 2001. SSgA is a subsidiary of State Street Corporation (“State Street”), a publicly held bank holding company, whose primary operating subsidiary is State Street Bank and Trust Company, a Massachusetts bank. SSgA is located at Two International Place, Boston, Massachusetts 02110. State Street’s principal address is 225 Franklin Street, Boston, Massachusetts 02110. The Existing Submanagement Agreement was last approved by the Board on April 28, 2006. The Existing Submanagement Agreement was approved by the investors in the Master Equity Fund on May 14, 2001 in connection with the replacement of State Street Global Advisers by SSgA due to a corporate restructuring.
Information Regarding Wellington Management
Wellington Management is a Massachusetts limited liability partnership with principal offices at 75 State Street, Boston, Massachusetts 02109. Wellington Management has provided investment advisory services for over 70 years. As of April 30, 2006, Wellington Management had approximately $550 billion in assets under management, and as of March 31, 2006, had approximately $24.2 billion in assets under management that were subject to social or environmental standards. Wellington Management is the submanager of the Domini European Social Equity Trust.
Management and Governance. Listed below are the names, positions, and principal occupations of the members of the Executive Committee and the principal executive officers of Wellington Management as of March 31, 2006. The principal business address of all members of the Executive Committee and all principal executive officers is at the offices of Wellington Management, 75 State Street, Boston, Massachusetts 02109.
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Name
| Position with Wellington Management LLP
| Other Principal Occupation
|
Nicholas C. Adams
| Senior Vice President, Partner and Executive Committee Member
| N/A
|
Paul Braverman
| Senior Vice President, Partner and Chief Financial Officer
| N/A
|
Cynthia M. Clarke
| Senior Vice President, Partner and General Counsel
| N/A
|
Laurie A. Gabriel
| Senior Vice President, Managing Partner and Executive Committee Member
| N/A
|
Paul J. Hamel
| Senior Vice President, Partner and Executive Committee Member
| N/A
|
James P. Hoffmann
| Senior Vice President, Partner and Executive Committee Member
| N/A
|
Selwyn J. Notelovitz
| Vice President and Chief Compliance Officer
| N/A
|
Saul J. Pannell
| Senior Vice President, Partner and Executive Committee Member
| N/A
|
Thomas L. Pappas
| Senior Vice President, Partner and Executive Committee Member
| N/A
|
Phillip H. Perelmuter
| Senior Vice President, Partner and Executive Committee Member
| N/A
|
John R. Ryan
| Senior Vice President, Managing Partner and Executive Committee Member
| N/A
|
Perry M. Traquina
| President, CEO, Managing Partner, and Executive Committee Member
| N/A
|
No officer or Trustee of the Domini Funds currently is an officer or employee of Wellington Management, or a member of Wellington Management’s Executive Committee. No officer or Trustee of the Domini Funds has any other material direct or indirect interest in the proposal to approve the New Submanagement Agreement or in Wellington Management, or any other person controlling, controlled
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by, or under common control with Wellington Management. Since August 1, 2005, none of the officers or Trustees of the Domini Funds has had any material interest, direct or indirect, in any material transactions, or in any material proposed transactions, to which Wellington Management was or is to be a party.
Wellington Management acts as the investment subadviser for certain other mutual funds that have a similar investment objective to the Master Equity Fund as listed onExhibit C attached hereto. Information concerning the net assets of those mutual funds and the fees paid to Wellington Management for its services to those mutual funds is also provided onExhibitC. All information contained in this Proxy Statement about Wellington Management has been provided by Wellington Management.
Comparison of the New Submanagement Agreement and the Existing Submanagement Agreement
The terms and conditions of the New Submanagement Agreement, and their differences from the terms of the Existing Submanagement Agreement, are discussed below. Please refer toExhibit D attached to this proxy statement for the complete New Submanagement Agreement. The description of the New Submanagement Agreement in this proxy statement is qualified in its entirety by the provisions of the New Submanagement Agreement attached asExhibitD.
Under the New Submanagement Agreement, as under the Existing Submanagement Agreement, the submanager will furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Master Equity Fund shall be held uninvested, subject always to the provisions of the 1940 Act and to the investment objectives, policies, procedures, and restrictions imposed by the Master Equity Fund’s then current Registration Statement under the 1940 Act and the Declaration of Trust and By-Laws of the Domini Social Trust. Wellington Management shall furnish at its own expense all necessary services, facilities and personnel in connection with its responsibilities.
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Like the Existing Submanagement Agreement, the New Submanagement Agreement provides that the submanager will not be liable for any error of judgment or mistake of law, for any loss arising out of any investment, or for any act or omission in the execution of securities transactions for the Master Equity Fund, except for willful misfeasance, bad faith, or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations under the New Submanagement Agreement.
If the New Management Agreement is approved as described under Proposal 2 and the New Submanagement Agreement is approved by the vote of the holders of a “majority of the outstanding voting securities” (as defined under the heading “Vote Required” below) of the Master Equity Fund, the New Submanagement Agreement will become effective on November 30, 2006 and continue in effect until November 30, 2008, and thereafter will continue in effect if such continuance is specifically approved at least annually by the Board of Trustees or by a majority of the outstanding voting securities of the Master Equity Fund at a meeting called for the purpose of voting on the New Submanagement Agreement (with the vote of each investor in the Master Equity Fund being in proportion to the amount of its investment), and, in either case, by a majority of the Trustees who are not parties to the New Submanagement Agreement or interested persons of any such party at a meeting called for the purpose of voting on the New Submanagement Agreement.
The New Submanagement Agreement may be terminated at any time, without the payment of any penalty, by the Board of Trustees, by the vote of a “majority of the outstanding voting securities” of the Master Equity Fund, including the Equity Fund, or by Domini, in each case on not more than 60 days’ nor less than 30 days’ written notice to the other party. The New Submanagement Agreement may also be terminated by Wellington Management on 90 days’ advance written notice to Domini and the Trustees. The New Submanagement Agreement will also terminate automatically in the event of its “assignment” (as defined in the 1940 Act).
The New Submanagement Agreement contains certain additional provisions not contained in the Existing Submanagement Agreement. The New Submanagement Agreement clarifies certain responsibilities of Domini and Wellington Management, including: (i)
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Domini shall assume responsibility for voting proxies of securities held by the Master Equity Fund; (ii) Domini shall screen the securities submitted to it by Wellington Management according to the social and environmental criteria developed for the Master Equity Fund, and notify Wellington Management of the results of each screening; and (iii) Wellington Management shall not purchase any securities for the Master Equity Fund that do not meet the social and environmental criteria applied by the Manager. The New Submanagement Agreement also clarifies that Wellington Management will not be responsible for filing class action proofs of claim on behalf of the Master Equity Fund.
The New Submanagement Agreement provides that Wellington Management may give advice or exercise investment responsibility with respect to other accounts which may differ from advice given or the timing or nature of action taken with respect to the Master Equity Fund, provided that Wellington Management acts in good faith and provided that it is Wellington Management’s policy to allocate investment opportunities to the Master Equity Fund over a period of time on a fair and equitable basis relative to such other accounts. In addition, under the New Submanagement Agreement, Wellington Management is authorized to engage its affiliates to provide Wellington Management with investment management or advisory and related services with respect to performance by Wellington Management of its obligations under the New Submanagement Agreement. Wellington Management will remain liable for the acts and omissions of any such affiliates.
Submanagement Fees
Under the Existing Submanagement Agreement, Domini (not the Master Equity Fund) pays SSgA for its services a fee computed and paid monthly at an annual rate equal to 0.02% of the first $1 billion of net assets managed, 0.01% of the next $1 billion of net assets managed, and 0.0075% of net assets managed in excess of $2 billion of the Master Equity Fund’s average daily net assets, but in no event shall the fees paid by Domini to SSgA be less than $300,000 per year.
If the investors of the Master Equity Fund approve the New Submanagement Agreement and the New Management Agreement is
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also approved, Domini will pay to Wellington Management an annual submanagement fee based on the following schedule:
| 0.30% of the first $250 million of net assets managed
| |
| 0.25% of the next $750 million of net assets managed
|
| 0.225% of net assets managed in excess of $1 billion
| |
| | | |
The following table demonstrates (1) the actual submanagement fees paid by Domini to SSgA for the fiscal year ended July 31, 2005; (2) the amount Domini would have paid to Wellington Management if the proposed submanagement fees under the New Submanagement Agreement had been in effect for that year; and (3) the difference between these amounts stated as a percentage:
(1) | (2) | (3) |
Submanagement Fees Paid to SSgA For the Year Ended July 31, 2005 | Proposed Submanagement Fees Paid For the Year Ended July 31, 2005 | Percentage Increase |
$300,000 | $3,900,000 | 1200% |
Domini, not the Funds, will pay submanagement feesto Wellington Management as the submanager of the Master Equity Fund. Because the fees payable under the New Submanagement Agreement are significantly higher than the fees that are payable under the Existing Submanagement Agreement, Domini has determined it is necessary to increase its management fee charged to the Master Equity Fund. Shareholders are being asked to approve the New Management Agreement in Proposal 2 above in order to approve this proposed increase in the management fee.
If the New Submanagement Agreement and the New Management Agreement are approved, Domini will contractually agree to waive fees and/or reimburse expenses, including its management fee until at least November 30, 2007 (subject to annual renewal) so that the Equity Fund’s expenses, net of waivers and reimbursements, will not exceed, on a per annum basis, 1.15% of the average daily net assets representing Investor shares, and 0.85% of the average daily net assets representing R shares, absent an earlier modification by the Board of Trustees.
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Factors Considered by the Board of Trustees
At a meeting held on April 28, 2006, the Board of Trustees considered the approval of the New Submanagement Agreement. In connection with their consideration of the New Submanagement Agreement, the Independent Trustees submitted to Wellington Management a written request for information in advance of the meeting. The Trustees received, reviewed and considered, among other things, reports from and presentations by Wellington Management that described, (a) the nature, extent and quality of the services proposed to be provided by Wellington Management to the Master Equity Fund, (b) the fees and other amounts proposed to be paid to Wellington Management under the New Submanagement Agreement, including information as to the fees charged and services provided to other Wellington Management subadvisory clients, (c) certain information regarding Wellington Management’s ownership structure, clients, and investment process, (d) certain information regarding Wellington Management’s performance in managing similar accounts, (e) certain information about Wellington Management’s compliance program and procedures and any regulatory issues, (f) brokerage practices, including soft dollar practices, and (g) Wellington Management’s code of ethics.
The Trustees, including all of the Independent Trustees, concluded that Wellington Management had the capabilities, resources, and personnel necessary to submanage the Master Equity Fund. The Board further concluded that, based on the services to be provided by Wellington Management to the Master Equity Fund pursuant to the New Submanagement Agreement, the fees paid by similar funds and taking into account the agreed-upon fee waivers and such other matters as the Trustees considered relevant in the exercise of their reasonable judgment, the compensation proposed to be paid to Wellington Management under the New Submanagement Agreement was fair and reasonable.
In reaching their determination to approve the New Submanagement Agreement, the Trustees considered a variety of factors they believed relevant and balanced a number of considerations. In their deliberations, the Trustees did not identify any particular information or factor that was all-important or
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controlling. The primary factors and the conclusions are described below.
Nature, Quality, and Extent of Services Provided
The Trustees noted that pursuant to the proposed New Management Agreement between the Master Equity Fund and Domini, Domini, subject to the direction of the Board, will continue to be responsible for providing advice and guidance with respect to the Master Equity Fund and for managing the investment of the assets of the Master Equity Fund, which it proposed to do by engaging with, and overseeing the activities of, Wellington Management. It was noted that Domini will apply its social standards to a universe of securities provided by Wellington Management and that Wellington Management will provide the day-to-day portfolio management of the Master Equity Fund, including making purchases and sales of securities consistent with the Master Equity Fund’s investment objective and policies and Domini’s social and environmental standards.
The Trustees considered the scope of the services to be provided by Wellington Management under the New Submanagement Agreement and the quality of services provided by Wellington Management to its existing clients, including the Master European Fund. The Trustees also reviewed the results of interviews with several of Wellington Management’s current clients, all of which were positive.
The Trustees then considered the professional experience, tenure, and qualifications of the portfolio management team proposed for the Master Equity Fund and the other senior personnel at Wellington Management. The Trustees noted that the senior portfolio manager who would be responsible for the management of the Master Equity Fund had over 9 years of experience in the investment management field, and that there was an experienced team of investment management professionals supporting the senior portfolio manager with an average of 15 years of experience. They also reviewed Wellington Management’s compliance policies and procedures and compliance record.
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The terms of the New Submanagement Agreement were also reviewed by the Trustees. The Trustees considered the differences between the Existing Submanagement Agreement and the New Submanagement Agreement and concluded that such changes were fair and reasonable.
Based on the foregoing, the Trustees concluded that they were satisfied with the nature, quality and extent of services to be provided by Wellington Management to the Master Equity Fund under the New Submanagement Agreement.
Performance Information
The Trustees reviewed information provided to them by Wellington Management regarding the performance of Wellington Management’s core U.S. intersection total composite, and model performance for the “core U.S. quantitative equity” strategy, the strategy that is proposed for the Master Equity Fund.
In particular, the Trustees reviewed the annualized total returns of the core U.S. intersection total composite for the 1, 3, 5 and 10 years ending December 31, 2005 and noted that those returns compared favorably to the returns of the S&P 500 Index, the benchmark for the Master Equity Fund, for the same periods.
The Trustees also considered that the model investment performance of Wellington Management’s core U.S. quantitative equity strategy, which Wellington Management proposed to adapt for the Master Equity Fund, was consistent and reasonable in relation to the historic performance of the Master Equity Fund’s benchmark, the S&P 500 Index. The Trustees did, however, note the differences between the proposed investment objectives and strategies of the Master Equity Fund and the core U.S. quantitative equity strategy. In particular, the Board noted that the model performance data provided by Wellington Management did not factor in the application of Domini’s social and environmental screening process. The Trustees discussed the application of these screens with both Domini and Wellington Management. The Board noted that the proposed strategy for the Master Equity Fund is similar to the strategy currently used by Domini and Wellington Management for the Domini European Social Equity Fund and reviewed the performance of that fund as compared
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to its benchmark, considering in particular the positive impact of the social and environmental screens on performance. The Trustees considered the performance of both the composite and the model to be acceptable when compared to the benchmark of the Master Equity Fund.
Fees and Other Expenses
The Trustees then considered the submanagement fees to be paid by Domini to Wellington Management. The Trustees compared the investment submanagement fees proposed by Wellington Management with the fees charged by the current submanager of the Master Equity Fund. They noted that the fees proposed by Wellington Management were significantly higher than the fees currently being paid to the submanager of the Master Equity Fund and considered that the increase was reasonable given that Wellington Management would be using an active, rather than a passive, investment strategy. The Trustees also reviewed the submanagement fees that Wellington Management charges its other mutual fund clients, and noted that the submanagement fees Wellington Management receives with respect to its other mutual fund clients are within the general range of the submanagement fee it would receive with respect to the Master Equity Fund. The Trustees noted that Domini (and not the Master Equity Fund) will pay Wellington Management from its management fee and that they had reviewed the management fee and comparative fee information in connection with their consideration of the New Management Agreement.
The Trustees determined, based on the nature and quality of the services to be provided by Wellington Management, and in light of the preceding factors, that the fees proposed by Wellington Management were reasonable.
Costs of Services Provided and Profitability
The Trustees also reviewed the consolidated balance sheet for Wellington Management and its subsidiaries as of December 31, 2005. The Trustees did not, however, receive information regarding the estimated costs to Wellington Management of the services proposed to be provided by it to the Master Equity Fund or
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the estimated profits that may be realized by Wellington Management from its submanagement relationship with the Master Equity Fund. The Trustees considered that it would be difficult for Wellington Management to estimate such costs and profits given that Wellington Management had not yet provided submanagement services to the Master Equity Fund. The Trustees also noted that it would be appropriate to request and review such information when they considered the continuation of the New Submanagement Agreement.
Other Benefits
The Trustees considered the other benefits that Wellington Management and its affiliates could be expected to receive from their relationship with the Master Equity Fund. They noted in particular that none of Wellington Management or any of its affiliates would be providing any other services to the Master Equity Fund. The Trustees also considered the brokerage practices of Wellington Management. In addition, the Trustees considered the intangible benefits that may accrue to Wellington Management and its affiliates by virtue of their relationship with the Master Equity Fund.
The Trustees concluded that the benefits expected to be received by Wellington Management and its affiliates were reasonable in the context of the relationship between Wellington Management and the Master Equity Fund and supported the approval of the New Submanagement Agreement.
Economies of Scale
The Trustees also considered whether economies of scale would be realized by Wellington Management as the Master Equity Fund got larger and the extent to which economies of scale were reflected in the proposed fee schedule under the New Submanagement Agreement. The Trustees noted the breakpoints in fees that were proposed in the New Submanagement Agreement and concluded that the fee schedule as proposed would allow shareholders to share in economies of scale as the assets in the Master Equity Fund grew. The Trustees considered the inclusion of
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the breakpoint schedule to be a positive factor supporting the approval of the New Submanagement Agreement.
Conclusion
Based upon its review, the Board of Trustees concluded the following:
The terms of the New Submanagement Agreement are reasonable, fair, and in the best interests of the Master Equity Fund and its investors, including the Equity Fund
and
The fees provided in the New Submanagement Agreement are fair and reasonable in light of the usual and customary charges made for services of the same nature and quality.
Accordingly, the Board of Trustees unanimously approved the New Submanagement Agreement and voted to recommend that shareholders vote in favor of the New Submanagement Agreement at the meeting. If the New Submanagement Agreement is approved by the investors in the Master Equity Fund and the New Management Agreement is approved as provided in Proposal 2, the New Submanagement Agreement will go into effect on November 30, 2006.
Vote Required
Approval of the New Submanagement Agreement will require the approval of “a majority of the outstanding voting securities” (as defined in the 1940 Act) of the Master Equity Fund, which means the affirmative vote by the lesser of (a) 67% or more of the shares of the Master Equity Fund present at the meeting, if more than 50% of the outstanding shares of the Master Equity Fund are represented at that meeting in person or by proxy or (b) more than 50% of the outstanding shares of the Master Equity Fund.
The New Submanagement Agreement will not go into effect unless the New Management Agreement is also approved by the investors in the Master Equity Fund. In the event that the New Submanagement Agreement and the New Management Agreement do
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not receive the requisite approvals, Domini will either continue its relationship with SSgA, negotiate a new submanagement agreement with a different investment advisory organization, or make other appropriate arrangements, in either event subject to approval in accordance with the 1940 Act.
The Board of Trustees unanimously recommends that you vote FOR the approval of the New Submanagement Agreement.
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| Proposal 4.
| To authorize the Trustees to select and change submanagers and enter into submanagement agreements without obtaining the approval of the shareholders.
|
Proposal 4 is intended to facilitate the efficient supervision and management of the Funds and the Master Funds by Domini and the Trustees, and to give Domini and the Trustees flexibility in managing the Funds and the Master Funds in the future. Domini continuously monitors the performance of submanagers, and may, from time to time (but it is not anticipated frequently), recommend that the Board of Trustees replace one or more submanagers or appoint additional submanagers. This depends on Domini’s assessment of what combination of submanagers it believes will optimize the chances of each Fund and Master Fund of achieving its investment objective.
The 1940 Act requires that all contracts pursuant to which persons serve as investment advisers to mutual funds be approved by shareholders. This requirement applies also to the appointment of a new or replacement submanager. The SEC has previously granted exemptions from these shareholder vote requirements provided that certain conditions are satisfied. In addition, the SEC has proposed a new rule (the "Submanager Rule") under the 1940 Act that would permit the appointment of a new or replacement submanager without the approval of shareholders if certain conditions are satisfied. The Submanager Rule, if adopted as proposed, would eliminate the need for a fund to obtain an exemptive order permitting it to appoint or replace submanagers without shareholder approval.
If the Funds and the Master Funds were to obtain similar exemptive relief or the Submanager Rule under the 1940 Act is adopted as proposed and, in either case, this proposed Proposal 4 is approved, the Board of Trustees would be able, without further shareholder approval, to appoint or replace submanagerselection of each of the Funds and the Master Funds. TheNominees as Trustees would not, however, be able to replace Domini as investment manager without complying with the 1940 Act and applicable regulations governing shareholder approval of advisory contracts. None of the Funds or the Master Funds have yet applied for this exemptive relief, and there is no
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assurance that the Funds or the Master Funds would receive such relief. There is also no assurance that the Submanager Rule will be adopted.
Shareholder meetings entail substantial costs which could diminish the benefits of the current submanagement arrangements. These costs must be weighed against the benefits of shareholder scrutiny of proposed contracts with additional or replacement subadvisers. Even in the absence of shareholder approval, however, any proposal to add or replace submanagers would receive careful review.
First, Domini would assess the Fund’s or Master Fund’s needs and, if it believed additional or replacement submanagers could benefit the Fund or the Master Fund, as applicable, would search for available submanagers. Second, as in the process discussed in Proposal 3, any recommendations made by Domini would have to be approved by a majority of the Trustees, including a majority of the Independent Trustees. In selecting any new or replacement submanagers, the Trustees are required to determine that: (i) an investment management agreement with the submanager is reasonable, fair and in the best interests of a Fund and its shareholders or the Master Fund and its investors, as applicable, and (ii) the fees provided in the agreement are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality. Finally, any further appointments of additional or replacement submanagers would have to comply with any conditions contained in the SEC exemptive order, if such order is granted, or the conditions of the Submanager Rule, if such rule is adopted as proposed.
The Trustees believe that the proposed authority to select and change submanagers and enter into submanagement agreements without obtaining the approval of shareholders is in the best interests of the shareholders of each Fund and the investors in each Master Fund.
Vote Required
Approval of the proposed authority to select and change submanagers and enter into submanagement agreements without obtaining the approval of shareholders of a Fund will require the
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approval of “a majority of the outstanding voting securities” (as defined in the 1940 Act) of that Fund. This means the affirmative vote by the lesser of (a) 67% or more of the shares of the Fund present at the meeting, if more than 50% of the outstanding shares of the Fund are represented at the meeting in person or by proxy, or (b) more than 50% of the outstanding shares of the Fund.
By voting in favor of this Proposal 4, Equity Fund and European Equity Fund shareholders will be authorizing the Equity Fund or the European Equity Fund, as applicable, to vote at the meeting of the applicable Master Fund’s investors in favor of authorizing the Master Fund’s Trustees to select and change submanagers and enter into submanagement agreements without the approval of investors in that Master Fund. For each Master Fund, approval of the proposed authority to select and change submanagers and enter into submanagement agreements without obtaining the approval of the investors in that Master Fund will require the approval of “a majority of the outstanding voting securities” (as defined in the 1940 Act) of that Master Fund. This means the affirmative vote by the lesser of (a) 67% or more of the interests of the Master Fund present at the meeting, if more than 50% of the outstanding interests of the Master Fund are represented at the meeting in person or by proxy, or (b) more than 50% of the outstanding interests of the Master Fund.
The Board of Trustees unanimously recommends that you vote FOR authorizing the Trustees to select and change submanagers and enter into submanagement agreements without obtaining the approval of shareholders.
***
Management knows of no other business to be presented at the meeting. If any additional matters should be properly presented at the meeting or any adjournment or postponement thereof, it is intended that the enclosed proxy (if not limited to the contrary) will be voted in accordance with the judgment of the persons named in the enclosed form of proxy.
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PART 3.
| INFORMATION REGARDING VOTING AND THE SPECIAL MEETING.
|
Voting Process
| You can vote in any one of the following ways:
|
| 1
| Mail: Complete, sign and mail your proxy card using the enclosed postage-paid envelope.
|
| 2
| Phone: Call the toll-free number printed on your proxy card and follow the instructions.
|
| 3
| Online: Visit the website printed on your proxy card and follow the instructions.
|
| 4
| In person at the meeting.
|
Whichever method you choose to vote, please carefully read this proxy statement, which describes in detail the proposals upon which you are asked to vote.
| Your votes will be tabulated as follows:
|
Trust.The votes of the shareholders of the Funds will be tabulated together for Proposal 1.
Only votes of the shareholders of the Domini Social Equity Fund will be tabulated for Proposals 2 and 3;
The votes of the shareholders of each of the Domini Social Equity Fund, the Domini European Social Equity Fund and the Domini Social Bond Fund will be tabulated separately for Proposal 4.
If you return your proxy and fail to provide instructions as to how to vote your shares with respect to any proposal, your shares will be voted FOR that proposal.
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Record Date
The close of business on June 1, 2006, has been fixed as the Record Date for the determination of shareholders entitled to notice of and to vote at the meeting.
Quorum
Holders of a majority of the shares of each Fund outstanding on the Record Date constitute a quorum and must be present in person or represented by proxy at the meeting for purposes of voting on Proposals2, 3 and 4, as applicable. For purposes of voting on Proposal 1 (the election of Trustees), holders of a majority of the shares of the Funds (taken together) outstanding on the Record Date constitute a quorum and must be present in person or represented by proxy at the meeting. Your shares will be represented by proxy at the meeting if you vote by mail, by telephone, on the Internet, or in person.
If you vote, regardless of how you vote (“For,” “Against” (or, with respect to Proposal 1 only, “Withhold”), or “Abstain”), your shares will be counted for purposes of determining the presence of a quorum. In addition, broker “non-votes” (that is shares held by brokers or nominees as to which (a) instructions have not been received from the beneficial owner or other persons entitled to vote and (b) the broker or nominee does not have discretionary power to vote on a particular matter) will be counted for purposes of determining the presence of a quorum.
If you mark “Abstain” on your proxy card with respect to any proposal on which you are entitled to vote, your vote will have the effect of a “no” vote for purposes of obtaining the requisite approval of Proposals 2, 3 and 4, as applicable. Broker “non-votes” will also have the effect of a “no” vote for purposes of obtaining the requisite approval of Proposals 2, 3 and 4, as applicable. Abstentions and broker “non-votes” will have no effect on the outcome of the voting for Proposal 1 (the election of Trustees).
Revoking Your Proxy
You may revoke your proxy at any time prior to the meeting (or any adjournment or postponement thereof) by putting your revocation
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in writing, signing it, and either delivering it to the meeting or sending it to Carole M. Laible, Treasurer of the Domini Funds, 536 Broadway, 7th Floor, New York, New York 10012. You may also revoke your proxy by voting in person at the meeting.
Adjournments and Postponements
If sufficient votes in favor of any proposal are not received, the persons named as proxies may propose one or more adjournments or postponements of the meeting to permit further solicitation of proxies with respect to that proposal. An adjournment or postponement of the meeting will suspend the meeting to another time. Any adjournment will require the affirmative vote of a majority of those shares voted at the meeting. If you voted in favor of a proposal or failed to provide instructions as to how to vote your shares with respect to a proposal, the persons named as proxies will vote your shares in favor of the adjournment of the meeting with respect to that proposal. If you voted against or abstained from voting on a proposal, the persons named as proxies will vote your shares against any such adjournment. Any proposals for which sufficient favorable votes have been received by the time of the meeting may be acted upon and considered final regardless of whether the meeting is adjourned to permit the additional solicitation of proxies with respect to any other proposals.
Master/Feeder Voting Process
Domini Social Equity Fund.The Equity Fund invests substantially all of its assets in the Master Equity Fund. Investors in the Master Equity Fund will be asked to vote on the matters described under Proposals 1, 2, 3 and 4 at a meeting of the Master Equity Fund’s investors. The Equity Fund, as an investor in the Master Equity Fund, will vote its interest in the Master Equity Fund at that meeting. The Equity Fund will cast all of its votes with respect to each of Proposals 1, 2, 3 and 4 in the same proportion as the votes of the Equity Fund’s shareholders cast at the meeting on that Proposal. If you vote in favor of Proposals 1, 2, 3 and 4, you will be authorizing the Equity Fund to vote in favor of that Proposal at the meeting of the Master Equity Fund’s investors. The Equity Fund will cast its votes for which it receives no instructions in the same proportion as the votes for which it does, in fact, receive instructions.
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Domini European Social Equity Fund.The European Equity Fund invests substantially all of its assets in the Master European Fund. Investors in the Master European Fund will be asked to vote on the matters described under Proposals 1 and 4 at a meeting of the Master European Fund’s investors. The European Equity Fund, as an investor in the Master European Fund, will vote its interest in the Master European Fund at that meeting. The European Equity Fund will cast all of its votes with respect to each of Proposals 1 and 4 in the same proportion as the votes of the European Equity Fund’s shareholders cast at the meeting on that Proposal. If you vote in favor of Proposals 1 or 4, you will be authorizing the European Equity Fund to vote in favor of that Proposal at the meeting of the Master European Fund’s investors. The European Equity Fund will cast its votes for which it receives no instructions in the same proportion as the votes for which it does, in fact, receive instructions.
Proxy Solicitation Costs
The cost of soliciting proxies, including the fees of a proxy soliciting agent (which are expected to be approximately $250,000), will be borne by the Funds. In addition to solicitation by mail, proxies may be solicited by the Board of Trustees, officers, and regular employees and agents of the Funds without compensation. The Funds may reimburse brokerage firms and others for their expenses in forwarding proxy materials to the beneficial owners and soliciting them to execute the proxies.By voting as soon as you receive your proxy materials, you will help reduce the cost of additional solicitations.
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PART 4.
| INFORMATION REGARDING EACH FUND.
|
Outstanding Shares; Interests of Certain Persons
As of June 1, 2006, shares outstanding were as follows:
Name of Fund/Class
| Total Number ofShares Outstanding
| Number of Shares
Outstanding Per Class
|
Domini Social Equity Fund
| 41,322,138.889
| |
Investor Shares
| | 37,354,270.238
|
Class R Shares
| | 3,967,868.651
|
Domini European Social Equity Fund
| 3,894,410.131
| |
Domini Social Bond Fund
| 6,163,399.067
| |
As of June 1, 2006, to the best knowledge of the Funds, the following persons owned of record 5% or more of the outstanding shares of the Funds:
Name of Fund/Class | Shareowner | Number of Shares | Percent of Shares |
Domini Social Equity Fund | | | |
Investor Shares | Charles Schwab & Co. Inc., Reinvest Account | 5,351,770.503 | 14.33% |
| Manulife Financial | 3,360,185.338 | 9.00% |
| Fidelity Investments Inst. Operations Co. Inc. | 3,073,095.330 | 8.23% |
| National Financial Services Corp | 2,298,532.945 | 6.15% |
Class R Shares | Fidelity Invest Inst Operations Co., Inc | 2,016,566.141 | 50.82% |
| T Rowe Price Retirement Plan Services | 827,667.656 | 20.86% |
| Charles Schwab & Co Inc., Special Custody Account | 577,181.323 | 14.55% |
| Wells Fargo Bank NA | 383,734.821 | 9.67% |
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Name of Fund/Class | Shareowner | Number of Shares | Percent of Shares |
Domini European Social Equity Fund | | | |
| NFS LLC FEBO, Bank of America NA, Loring, Wolcott & Coolidge GLBL | 1,313,687.728 | 33.71% |
| Charles Schwab & Co, Inc. Reinvest Account | 511,102.229 | 13.12% |
Domini Social Bond Fund | | | |
| Charles Schwab and Co Inc., Special Custody Account | 1,759,370.168 | 28.57% |
| National Financial Services LLC | 461,903.957 | 7.50% |
Independent Registered Public Accounting Firm
