[Federal Register Volume 77, Number 59 (Tuesday, March 27, 2012)]
[Notices]
[Pages 18277-18280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-7282]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29984; 812-13971]
Domini Social Investment Trust and Domini Social Investments LLC;
Notice of Application
March 21, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act and rule 18f-2 under the Act, as well as from certain
disclosure requirements.
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Summary of Application: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements without
shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: Domini Social Investment Trust (the ``Trust'') and Domini
Social Investments LLC (the ``Adviser'') (collectively,
``Applicants'').
DATES: Filing Dates: The application was filed October 26, 2011, and
amended on March 15, 2012.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the
[[Page 18278]]
Commission's Secretary and serving applicants with a copy of the
request, personally or by mail. Hearing requests should be received by
the Commission by 5:30 p.m. on April 16, 2012, and should be
accompanied by proof of service on the applicants, in the form of an
affidavit or, for lawyers, a certificate of service. Hearing requests
should state the nature of the writer's interest, the reason for the
request, and the issues contested. Persons who wish to be notified of a
hearing may request notification by writing to the Commission's
Secretary.
ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants:
Megan L. Dunphy, Domini Social Investments LLC, 532 Broadway, 9th
Floor, New York, NY 10012-3939.
FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel,
at (202) 551-6990, or Jennifer L. Sawin, Branch Chief, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust, a Massachusetts business trust, is registered under
the Act as an open-end management investment company and currently
offers three series of shares (each a ``Series''), each with its own
distinct investment objectives, policies and restrictions.\1\ The
Adviser is, and any future Adviser will be, registered as an investment
adviser under the Investment Advisers Act of 1940 (``Advisers Act'').
The Adviser serves as the investment adviser to each Series pursuant to
an investment advisory agreement with the Trust (each an ``Investment
Advisory Agreement'' and collectively, the ``Investment Advisory
Agreements'').\2\ Each Investment Advisory Agreement was approved or
will be approved by the board of trustees of the Trust (the ``Board''),
including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act, of the Trust, the
Subadvised Fund, or the Adviser (``Independent Trustees'') and by the
shareholders of the relevant Subadvised Fund in the manner required by
sections 15(a) and 15(c) of the Act and rule 18f-2 under the Act.\3\
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\1\ Applicants also request relief with respect to any future
series of the Trust and to any other existing or future registered
open-end management investment company or series thereof that: (a)
Is advised by the Adviser or any entity controlling, controlled by,
or under common control with the Adviser or its successors (included
in the term ``Adviser''); (b) uses the manager of managers structure
described in the application (``Manager of Managers Structure'');
and (c) complies with the terms and conditions of this application
(together with the current Series, each a ``Subadvised Fund'' and
collectively, the ``Subadvised Funds''). The only existing
registered open-end management investment company that currently
intends to rely on the requested order is named as an Applicant.
Each Series that is or currently intends to be a Subadvised Fund,
and each Subadviser (as defined below) that currently intends to
rely on the requested order, is identified in this application. For
purposes of the requested order, ``successor'' is limited to an
entity that results from a reorganization into another jurisdiction
or a change in the type of business organization. If the name of any
Subadvised Fund contains the name of a Subadviser, the name of the
Adviser that serves as the primary adviser to the Subadvised Fund
will precede the name of the Subadviser.
\2\ Each future investment advisory agreement between an Adviser
and a Subadvised Fund is also included in the term ``Investment
Advisory Agreement''.
\3\ The term ``Board'' also includes the board of trustees or
directors of a future Subadvised Fund.
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2. Under the terms of each Investment Advisory Agreement, the
Adviser, subject to the oversight of the Board, furnishes a continuous
investment program for each Subadvised Fund. The Adviser periodically
reviews investment policies and strategies of each Subadvised Fund and
based on the need of a particular Subadvised Fund may recommend changes
to the investment policies and strategies of the Subadvised Fund for
consideration by its Board. For its services to each Subadvised Fund,
the Adviser receives an investment advisory fee from that Subadvised
Fund as specified in the applicable Investment Advisory Agreement based
on that Subadvised Fund's average daily net assets. The terms of the
Investment Advisory Agreements also permit the Adviser, subject to the
approval of the relevant Board, including a majority of the Independent
Trustees, and the shareholders of the applicable Subadvised Funds (if
required by applicable law), to delegate portfolio management
responsibilities of all or a portion of the assets of the Subadvised
Fund to one or more subadvisers (``Subadvisers''). The Adviser has
entered into subadvisory agreements (``Subadvisory Agreements'') with
two Subadvisers to serve as Subadvisers to the Series.\4\ Each
Subadviser is, and any future Subadviser will be, an investment adviser
as defined in section 2(a)(20) of the Act as well as registered with
the Commission as an ``investment adviser'' under the Advisers Act. The
Adviser evaluates, allocates assets to and oversees the Subadvisers,
and makes recommendations about their hiring, termination and
replacement to the Board, at all times subject to the authority of the
Board. The Adviser currently compensates each Subadviser out of the
advisory fees paid to the Adviser under the relevant Investment
Advisory Agreement; in the future, Subadvised Funds may directly pay
advisory fees to the Subadvisers.
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\4\ The Adviser has entered into Subadvisory Agreements with (i)
Wellington Management Company LLP as a subadviser to manage the
Domini Social Equity Fund and Domini International Social Equity
Fund; and (ii) Seix Investment Advisors LLC as a subadviser to
manage the Domini Social Bond Fund. Neither of the existing
subadvisers is affiliated with the Adviser.
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3. Applicants request an order to permit the Adviser, subject to
Board approval, to select certain Subadvisers to manage all or a
portion of the assets of a Subadvised Fund pursuant to a Sub-Advisory
Agreement and materially amend Sub-Advisory Agreements without
obtaining shareholder approval. The requested relief will not extend to
any Subadviser that is an affiliated person, as defined in section
2(a)(3) of the Act, of the Trust or a Subadvised Fund or the Adviser,
other than by reason of serving as a Subadviser to Subadvised Funds
(``Affiliated Subadviser'').
4. Applicants also request an order exempting the Subadvised Funds
from certain disclosure provisions described below that may require the
Applicants to disclose fees paid to each Subadviser by the Adviser or a
Subadvised Fund. Applicants seek an order to permit each Subadvised
Fund to disclose (as a dollar amount and a percentage of each
Subadvised Fund's net assets) only: (a) the aggregate fees paid to the
Adviser and any Affiliated Subadvisers; and (b) the aggregate fees paid
to Subadvisers other than Affiliated Subadvisers (collectively, the
``Aggregate Fee Disclosure''). A Subadvised Fund that employs an
Affiliated Subadviser will provide separate disclosure of any fees paid
to the Affiliated Subadviser.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except pursuant to a written contract that has been
approved by the vote of a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act provides that each series or class
of stock in a series
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investment company affected by a matter must approve that matter if the
Act requires shareholder approval.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 19(a)(3) of Form N-1A requires disclosure of
the method and amount of the investment adviser's compensation.
3. Rule 20a-1 under the Act requires proxies solicited with respect
to an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``Exchange Act''). Items 22(c)(1)(ii),
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together,
require a proxy statement for a shareholder meeting at which the
advisory contract will be voted upon to include the ``rate of
compensation of the investment adviser,'' the ``aggregate amount of the
investment adviser's fees,'' a description of the ``terms of the
contract to be acted upon,'' and, if a change in the advisory fee is
proposed, the existing and proposed fees and the difference between the
two fees.
4. Regulation S-X sets forth the requirements for financial
statements required to be included as part of a registered investment
company's registration statement and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require
a registered investment company to include in its financial statement
information about the investment advisory fees.
5. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or any class or classes of
persons, securities, or transactions from any provisions of the Act, or
from any rule thereunder, if such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors
and the purposes fairly intended by the policy and provisions of the
Act. Applicants state that the requested relief meets this standard for
the reasons discussed below.
6. Applicants assert that the shareholders expect the Adviser,
subject to the review and approval of the Board, to select the
Subadvisers who are best suited to achieve the Subadvised Fund's
investment objective. Applicants assert that, from the perspective of
the shareholder, the role of the Subadviser is substantially equivalent
to the role of the individual portfolio managers employed by an
investment adviser to a traditional investment company. Applicants
state that requiring shareholder approval of each Subadvisory Agreement
would impose unnecessary delays and expenses on the Subadvised Funds
and may preclude the Subadvised Funds from acting promptly when the
Adviser and Board consider it appropriate to hire Subadvisers or amend
Subadvisory Agreements. Applicants note that the Investment Advisory
Agreements and any Subadvisory Agreement with an Affiliated Subadviser
(if any) will continue to be subject to the shareholder approval
requirements of section 15(a) of the Act and rule 18f-2 under the Act.
7. If new Subadvisers are hired, the Subadvised Funds will inform
shareholders of the hiring of a new Subadviser pursuant to the
following procedures (``Modified Notice and Access Procedures''): (a)
Within 90 days after a new Subadviser is hired for any Subadvised Fund,
that Subadvised Fund will send its shareholders either a Multi-manager
Notice or a Multi-manager Notice and Multi-manager Information
Statement; \5\ and (b) the Subadvised Fund will make the Multi-manager
Information Statement available on the Web site identified in the
Multi-manager Notice no later than when the Multi-manager Notice (or
Multi-manager Notice and Multi-manager Information Statement) is first
sent to shareholders, and will maintain it on that Web site for at
least 90 days. In the circumstances described in this Application, a
proxy solicitation to approve the appointment of new Subadvisers
provides no more meaningful information to shareholders than the
proposed Multi-manager Information Statement. Moreover, as indicated
above, the applicable Board would comply with the requirements of
Sections 15(a) and 15(c) of the 1940 Act before entering into or
amending Sub-Advisory Agreements.
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\5\ A ``Multi-manager Notice'' will be modeled on a Notice of
Internet Availability as defined in rule 14a-16 under the Exchange
Act, and specifically will, among other things: (a) Summarize the
relevant information regarding the new Subadviser; (b) inform
shareholders that the Multi-manager Information Statement is
available on a Web site; (c) provide the Web site address; (d) state
the time period during which the Multi-manager Information Statement
will remain available on that Web site; (e) provide instructions for
accessing and printing the Multi-manager Information Statement; and
(f) instruct the shareholder that a paper or email copy of the
Multi-manager Information Statement may be obtained, without charge,
by contacting the Subadvised Funds.
A ``Multi-manager Information Statement'' will meet the
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule
14A under the Exchange Act for an information statement, except as
modified by the requested order to permit Aggregate Fee Disclosure.
Multi-manager Information Statements will be filed electronically
with the Commission via the EDGAR system.
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8. Applicants assert that the requested disclosure relief would
benefit shareholders of the Subadvised Funds because it would improve
the Adviser's ability to negotiate the fees paid to Subadvisers.
Applicants state that the Adviser may be able to negotiate rates that
are below a Subadviser's ``posted'' amounts if the Adviser is not
required to disclose the Subadvisers' fees to the public. Applicants
submit that the requested relief will also encourage Subadvisers to
negotiate lower subadvisory fees with the Adviser if the lower fees are
not required to be made public.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Subadvised Fund may rely on the order requested herein,
the operation of the Subadvised Fund in the manner described in the
Application will be approved by a majority of the Subadvised Fund's
outstanding voting securities as defined in the Act or, in the case of
a Subadvised Fund whose public shareholders purchase shares on the
basis of a prospectus containing the disclosure contemplated by
condition 2 below, by the initial shareholder before such Subadvised
Fund's shares are offered to the public.
2. The prospectus for each Subadvised Fund will disclose the
existence, substance, and effect of any order granted pursuant to the
Application. In addition, each Subadvised Fund will hold itself out to
the public as employing the Manager of Managers Structure. The
prospectus will prominently disclose that the Adviser has the ultimate
responsibility, subject to oversight by the Board, to oversee the
Subadvisers and recommend their hiring, termination, and replacement.
3. Subadvised Funds will inform shareholders of the hiring of a new
Subadviser within 90 days after the hiring of the new Subadviser
pursuant to the Modified Notice and Access Procedures.
4. The Adviser will not enter into a Subadvisory Agreement with any
Affiliated Subadviser without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Subadvised Fund.
5. At all times, at least a majority of the Board will be
Independent Trustees, and the nomination of new or additional
Independent Trustees will be placed within the discretion of the then-
existing Independent Trustees.
6. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Trustees. The
selection of such counsel will be within the
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discretion of the then-existing Independent Trustees.
7. Whenever a Subadviser change is proposed for a Subadvised Fund
with an Affiliated Subadviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board minutes, that the change is in the best interests of the
Subadvised Fund and its shareholders, and does not involve a conflict
of interest from which the Adviser or the Affiliated Subadviser derives
an inappropriate advantage.
8. Whenever a Subadviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
profitability of the Adviser.
9. Each Adviser will provide the Board, no less frequently than
quarterly, with information about the profitability of the Adviser on a
per Subadvised Fund basis. The information will reflect the impact on
profitability of the hiring or termination of any Subadviser during the
applicable quarter.
10. The Adviser will provide general management services to each
Subadvised Fund, including overall supervisory responsibility for the
general management and investment of the Subadvised Fund's assets and,
subject to review and approval of the Board, will: (i) Set the
Subadvised Fund's overall investment strategies; (ii) evaluate, select,
and recommend Subadvisers to manage all or a portion of the Subadvised
Fund's assets; (iii) allocate and, when appropriate, reallocate the
Subadvised Fund's assets among Subadvisers; (iv) monitor and evaluate
the Subadvisers' performance; and (v) implement procedures reasonably
designed to ensure that Subadvisers comply with the Subadvised Fund's
investment objective, policies and restrictions.
11. No Trustee or officer of the Trust or of a Subadvised Fund or
director or officer of the Adviser, will own directly or indirectly
(other than through a pooled investment vehicle that is not controlled
by such person) any interest in a Subadviser except for (i) ownership
of interests in the Adviser or any entity that controls, is controlled
by or is under common control with the Adviser; or (ii) ownership of
less than 1% of the outstanding securities of any class of equity or
debt of any publicly traded company that is either a Subadviser or an
entity that controls, is controlled by or is under common control with
a Subadviser.
12. Each Subadvised Fund will disclose in its registration
statement the Aggregate Fee Disclosure.
13. In the event the Commission adopts a rule under the Act
providing substantially similar relief to that in the order requested
in the Application, the requested order will expire on the effective
date of that rule.
14. For Subadvised Funds that pay fees to a Subadviser directly
from fund assets, any changes to a Subadvisory Agreement that would
result in an increase in the total management and advisory fees payable
by a Subadvised Fund will be required to be approved by the
shareholders of the Subadvised Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-7282 Filed 3-26-12; 8:45 am]
BILLING CODE 8011-01-P