November 18, 2003
Dear
Fellow Shareholder:
If
you’ve been reading the business pages in recent weeks, you’re already aware of
the scandals involving market timing and late trading that have erupted at a
number of mutual fund companies. We are writing to assure you that Domini is
not involved in these practices and has strong policies and procedures in place
to help ensure that your investment is not affected by them.
This
letter has two purposes.
·
First,
to give you the information you need as a mutual fund investor to understand
the issues surrounding market timing and late trading
·
Second, to describe the steps Domini has taken to guard against these practices
What Is Market Timing?
“Market
timing” refers to the rapid buying and selling of shares in an effort to profit
from short-term movements in the stock or bond markets. Although market timing
by an investor is not illegal, it drives up portfolio trading costs that are
borne by all investors in the fund and creates “dilution” costs (the costs associated
with one investor cashing out a quick profit based on the discrepancy between
the fund’s net asset value and shifting security prices). For that reason, many
mutual funds charge fees or take other actions to discourage market timers.
What Is Late Trading?
Unlike individual stocks, mutual funds are priced once a day, after the
close of the stock market. “Late trading” is the practice of entering or
confirming trades after the close of trading for the day. This makes it
possible for investors to use information received after the close of the
markets to make trading decisions and still be assured of receiving the day’s
closing price for the trade. Late
trading is illegal.
Late
trading should not be confused with certain permissible and common practices
that allow intermediaries, such as retirement plan administrators, to receive
trades from investors made before the close of trading for the day and to
transmit them to mutual funds after the close of trading. This provides the
intermediary with sufficient time to process such trades. This practice is not
considered to be late trading, and is not illegal.
How Is Domini
Acting to Avoid These Practices?
The
Domini Funds are committed to keeping market timers out of our Funds and to
preventing illegal late trading. We have policies in place to prohibit late
trading, and to prevent and detect market timing. These are some of the
specific steps we take:
·
Each
day we review transactions in excess of specific limits in order to monitor
unusual activity.
·
If
a large purchase and sale are made within 90 days, we contact the investor to
determine the purpose of the trade. If we suspect market timing, we cancel the
transaction if possible and close the account and/or broker number to prevent
any future activity.
·
In
order to deter market timers, beginning on December 1, 2003, we will charge an
early redemption fee of 2% on sales of shares that are made within 90 days of a
purchase. (Redemptions of shares held in 401(k) plans or shares acquired
through reinvestment of dividends or distributions will not be subject to the
redemption fee.)
·
Our
transfer agent, PFPC, processes current-day trades using a call relationship
manager (CRM) system. At the cut-off time for the day’s trades, the CRM system
automatically changes to the next day so that trades received after that time
receive the next business day’s price.
·
Each
year we seek assurances from broker-dealers and other intermediaries that they
are following all relevant rules and regulations as well as internal policies and
procedures regarding the timely handling of mutual fund orders.
How Can I Find Out More?
For a more detailed summary of
our policies on these practices, please see Domini's Policies and Procedures to Deter Market
Timing and Late Trading.
Your trust
is important to us. If after reviewing the information in this letter and on
our website, you have any further questions about our policies on market timing
and late trading, please call our
shareholder representatives at 1-800-582-6757 (Monday through Friday, 9 am to 5
pm Eastern Time) or send me an email at amy@domini.com.
Sincerely
yours,
Amy L.
Domini
Founder and CEO
.
Consult the
Funds’ prospectus for more information about the Funds’ market timing policies
and redemption fees. Please obtain the Funds’ most current prospectus,
containing further information about investment objectives, risks, fees and
expenses by calling 1-800-762-6814, or online at www.domini.com. DSIL Investment Services LLC,
Distributor (DSILD). 11/03
Past
performance is no guarantee of future results. The Adviser waived certain fees during
the period and the Fund's average annual total return would have been lower had
these not been waived. Total return figures are historical and include changes
in share price and reinvestment of dividends and capital gains. Returns quoted
above represent actual mutual fund performance after all expenses. The Domini
Social Bond Fund is not insured and is subject to market risks. Investment
return, principal value, and yield of an investment will fluctuate. You may
lose money.
Although
the Domini Funds are no-load, certain fees and expenses apply to a continued
investment and are described in the prospectus. Some of the Domini Social Bond
Fund's community development investments may be unrated and carry greater
credit risks than its other investments. The composition of the Fund's
portfolio is subject to change. The Lehman Brothers Intermediate Aggregate
Index is an unmanaged index of intermediate duration fixed-income securities.
You cannot invest directly in an Index.
The
Domini 400 Social IndexSM is an index. You cannot invest directly in
an Index. Domini 400 Social IndexSM
is a service mark of KLD Research & Analytics, Inc. (formerly
Kinder, Lydenberg, Domini & Co., Inc.) ("KLD"), which is used
under license. KLD is the owner of the Domini 400 Social IndexSM
(the "Index"). KLD determines the composition of the Index but is not
the manager of the Domini Social Index Portfolio, the Domini Social Equity
Fund, or the Domini Institutional Social Equity Fund.
