Annual Report 2016
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Letter from the President

Dear Fellow Shareholders,

The year ending July 31, 2016 saw an improving economy here in the United States, and with the improving situation, the nation began an important dialogue about fair wages. Responsible investors have long held that a functioning economy is dependent upon rising wages. Higher incomes lead to greater discretionary spending, which is essential to our economy, making up roughly three quarters of our well-being, as measured by gross domestic product (GDP).

The point is an important one and deserves some consideration. The rich, it is argued, spend more than anyone else. But the rich spend their money very differently than the poor. A dollar spent on a lovely new diamond trinket does not go as far as a dollar spent on a low-cost bandana, though both are decorative. There are two reasons for this. The first is units sold. One trinket made by one company and sold through one intermediary does not loosen the economic power that 1,000 bandanas sold by 35 companies through 70 distributers to 300 stores does. Multiple-unit production generates additional costs, which benefits additional people by providing additional jobs. The second reason is that, in fact, the rich do not spend every penny they earn. The rich buy what they want and save the excess. The poor have some savings, but often are hard pressed by immediate needs, from dentist visits to back-to-school clothing. Because discretionary spending on these everyday needs drives the economy, it makes the most sense to distribute additional income to those who have not yet met those needs. Every additional dollar distributed to the poor, therefore, arguably contributes more to economic growth than the same dollar distributed to the rich.

From the date of its inception in 1938 through 1968, the federal minimum wage level grew with the economy. Since then, Congress has been far more reluctant to raise the minimum wage to keep up with the cost of living. The result is that on a constant dollar basis, minimum wage earners are making 25 percent less than they were in 1968. This state of affairs is an economic drag on taxpayers, as minimum wage workers must turn to subsidized healthcare, housing and food to meet the basic needs of their families. For this reason, it is today argued that corporations that rely on minimum wage workforces are sucking the funding away from schools, public safety, infrastructure and other needed services. Meanwhile, their top executives receive outsized (and economically inefficient) pay packages.

Responsible investors have long understood that more individuals with discretionary income leads to more spending on a broad range of goods and services and faster economic growth. We use fairness in labor relations, pay equity, workplace conditions and income security as some of the standards by which we select which companies to invest in. We have joined in dialogues with corporate management and with policy makers on these very points.

This year, we dedicate our annual report to the various issues surrounding compensation and the workforce. We discuss specific initiatives certain companies have undertaken and steps we, as your representatives, have taken to raise issues.

Thank you for your investment with us and for your support of responsible investing. The way we invest matters.

Very truly yours,

Amy Domini