PROSPECTUS
November 7, 1996
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
The investment objective of the Domini Institutional Social Equity
Fund (the "Fund") is to provide its shareholders with long-term total return
which corresponds to the total return performance of the Domini Social IndexSM,
an index comprised of stocks selected according to social criteria. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in the Domini Social Index Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Fund. The Portfolio invests in the common stocks included in the Domini
Social IndexSM.
TABLE OF CONTENTS PAGE
The Fund........................................................ 3
Expense Summary................................................. 4
Performance Information......................................... 5
Investment Objective and Policies............................... 6
Management...................................................... 13
Purchases and Redemptions of Shares............................. 16
Tax Matters..................................................... 18
Other Information Concerning Shares of the Fund................. 19
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The investment adviser and sponsor of the Portfolio is Kinder,
Lydenberg, Domini & Co., Inc. The investment manager of the Portfolio is Mellon
Equity Associates. The administrator and distributor (the "Distributor") of the
Fund and the Portfolio is Signature Broker-Dealer Services, Inc. ("Signature").
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY BANK, AND THE SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER FEDERAL, STATE OR OTHER GOVERNMENTAL AGENCY.
"DominiSM" and "Domini Social IndexSM" are service marks of Kinder,
Lydenberg, Domini & Co., Inc.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor ought to know before investing. The Fund has filed
with the Securities and Exchange Commission a Statement of Additional
Information, dated November 7, 1996 as amended from time to time, which contains
more detailed information about the Fund and is incorporated into this
Prospectus by reference. An investor may obtain a copy of the Statement of
Additional Information without charge by contacting the Distributor (see back
cover for address and phone number).
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIO OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE PORTFOLIO. THE FUND INVESTS IN THE
PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R)
MASTER-FEEDER INVESTMENT FUND STRUCTURE. "HUB AND SPOKE(R)" IS A REGISTERED
SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC. SEE "SPECIAL INFORMATION
CONCERNING THE HUB AND SPOKE(R) MASTER-FEEDER INVESTMENT FUND STRUCTURE" HEREIN.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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THE FUND
Domini Institutional Social Equity Fund (the "Fund") is a no-load,
diversified, open-end management investment company. The Fund is a series of
shares of beneficial interest of Domini Institutional Trust (the "Trust"), a
business trust organized under the laws of the Commonwealth of Massachusetts
(commonly known as a "Massachusetts business trust") on April 1, 1996.
Shares of the Fund are sold continuously by Signature, the Fund's
distributor (the "Distributor"). The minimum initial investment is $2,000,000.
An investor should obtain from the Distributor, and should read in conjunction
with this prospectus, the materials describing the procedures under which Fund
shares may be purchased and redeemed. See "Purchases and Redemptions of Shares"
herein.
Proceeds from the sale of shares of the Fund are invested in the
Portfolio which then purchases securities in accordance with its investment
objective and policies. Kinder, Lydenberg, Domini & Co., Inc. ("KLD") is the
Portfolio's investment adviser (the "Adviser") and is the sponsor of the Fund
("Sponsor") and of the Portfolio ("Portfolio Sponsor"). Mellon Equity Associates
("Mellon Equity") is the Portfolio's investment manager (the "Manager").
Signature is the administrator of the Fund (the "Administrator") and of the
Portfolio (the "Portfolio Administrator"). The Boards of Trustees of the Fund
and of the Portfolio provide broad supervision over the affairs of the Fund and
of the Portfolio, respectively. The Trustees who are not "interested persons" of
the Fund as defined in the Investment Company Act of 1940, as amended (the "1940
Act") (the "Independent Trustees"), are the same as the Independent Trustees of
the Portfolio. A majority of the Fund's Trustees are not affiliated with the
Adviser. For further information about the Trustees of the Fund and the
Portfolio, see "Management of the Fund and the Portfolio" in the Statement of
Additional Information.
The Adviser determines the composition of the Domini Social Index (which
determines the composition of the Portfolio's securities). The following persons
are primarily responsible for the development and maintenance of the Domini
Social Index: Steven D. Lydenberg, Director of Research, KLD, since 1990; and
Peter D. Kinder, President, KLD, since 1988. The Manager manages the investments
of the Portfolio from day to day in accordance with the Portfolio's investment
objective and policies. See "Management" herein for more detailed information
on the management of the Fund and the Portfolio.
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EXPENSE SUMMARY
The following table provides (i) a summary of estimated expenses
relating to purchases and sales of shares of the Fund, and the estimated
aggregate annual operating expenses for the Fund and the Portfolio, as a
percentage of average net assets of the Fund, and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES....................................... None
ANNUAL OPERATING EXPENSES:
Advisory and Management Fees...................................... 0.125%
12b-1 Fees........................................................ None
Other Expenses
- Sponsorship and Administrative Services Fees................. 0.095%
- Other Expense Payment Fees................................... 0.080%
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Total Operating Expenses......................................... 0.300%
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EXAMPLE:
A shareholder of the Fund would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) redemption
at the end of:
1 year......................................................... $3
3 years....................................................... $10
The expense information in the expense table provided above has been
restated to reflect fees currently in effect. The purpose of the expense table
provided above is to help investors understand the various costs and expenses
that a shareholder will bear directly or indirectly. Pursuant to the Sponsorship
Agreements between each of the Trust and the Portfolio, and KLD, KLD pays all of
the ordinary operating expenses of the Fund and the Portfolio, except
sponsorship fees, and excluding brokerage fees and commissions, interest, taxes
and other extraordinary expenses. KLD has entered into expense payment
arrangements with Signature pursuant to which Signature provides these expense
payment services to the Fund and the Portfolio. As a result, the aggregate
annual ordinary operating expenses of the Fund and the Portfolio will be 0.300%
of the average daily net assets of the Fund. All of the advisory and management
fees shown above are paid through the expense payment arrangements. During any
period, the amounts paid to Signature under the expense payment arrangements may
be greater or less than amounts actually paid by Signature under the
arrangements during that period. The expense payment arrangements terminate on
December 31, 1999 unless terminated earlier by mutual agreement of the parties
thereto, and thereafter, the dollar-based expenses of the Fund and the Portfolio
will each be paid directly. For more information with respect to the expenses of
the Fund and the Portfolio, see "Management" herein.
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The Trust's Trustees believe that the aggregate per share expenses of the
Fund and the Portfolio will be less than or approximately equal to the expenses
which the Fund would incur if it retained the services of an investment adviser
and an investment manager and invested directly in the types of securities being
held by the Portfolio. See "Other Information Concerning Shares of the Fund -
Expenses" herein for further discussion of Fund and Portfolio expenses.
THE "EXAMPLE" SET FORTH ABOVE IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE FUND. ACTUAL
EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
PERFORMANCE INFORMATION
Performance information concerning the Fund may from time to time be used
in advertisements, shareholder reports or other communications to shareholders.
The Trust may provide period and average annualized "total rates of return" with
respect to the Fund. The "total rate of return" of the Fund refers to the change
in the value of an investment in a Fund over a stated period based on any change
in net asset value per share and includes the value of any shares purchasable
with any dividends or capital gains distributions declared during such period.
Period total rates of return may be annualized. An annualized total rate of
return is a compounded total rate of return which assumes that the period total
rate of return is generated over a 52-week period, and that all dividends and
capital gains distributions are reinvested. An annualized total rate of return
will be slightly higher than a period total rate of return if the period is
shorter than one year, because of the effect of compounding.
Historical total return information for any period or portion thereof
prior to the establishment of the Fund will be that of the Portfolio, adjusted
to assume that all charges, expenses and fees of the Fund and the Portfolio
which are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretation. The table that follows sets forth average
annual toral return information for the periods indicated:
7/31/96 9/30/96
1 Year: 14.87% 19.94%
5 Years: 13.26% 15.11%
Commencement of
Operations*
to date: 12.69% 14.05%
*Domini Social Index Portfolio commenced operations on June 3, 1991.
The Trust may provide "yield" quotations with respect to the Fund. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a 30-day or one-month period (which period shall be stated in any
advertisement or communications with a shareholder). This income is then
"annualized", that is, the amount of income generated by the investment over the
period is assumed to be generated over a 52-week period and is shown as a
percentage of investment. A "yield" quotation, unlike a total rate of return
quotation, does not reflect changes in net asset value.
From time to time the Trust may also quote fund rankings from various
sources, such as Lipper Analytical Services, Inc., and may compare its
performance to that of the Domini Social Index and various other unmanaged
securities indices, such as the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500") and the Dow Jones Industrial Average. "Standard &
Poor(R)", "S&P(R)" and "Standard & Poor's 500(R)" are trademarks of Standard &
Poor's Corporation.
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See the Statement of Additional Information for further information
concerning the calculation of yield and any total rate of return quotations.
Since the Fund's yield and total rate of return quotations are based on
historical earnings and since such yield and rates of return fluctuate over the
time, such quotations should not be considered as an indication or
representation of the future performance of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE - The investment objective of the Fund is to provide
its shareholders with long-term total return (reflecting both dividend and price
performance of the Fund) which corresponds to the total return performance of
the Domini Social Index (sometimes referred to herein as the "Index"). There
can, of course, be no assurance that the Fund will achieve its investment
objective. The investment objective of the Fund may be changed without approval
by the Fund's shareholders.
INVESTMENT POLICIES - The Trust seeks to achieve the investment objective
of the Fund by investing all of the Fund's investable assets in the Portfolio,
which has the same investment objective as the Fund. The Portfolio seeks to
achieve its investment objective by investing in the common stocks comprising
the Domini Social Index. The Portfolio will approximate the weightings of
securities held by the Portfolio to the weightings of the stocks in the Index,
except as described below, and will seek a correlation between the weightings of
securities held by the Portfolio and the weightings of the stocks in the Index
of 0.95 or better. A figure of 1.0 would indicate a perfect correlation. As of
September 30, 1996, the correlation between the weightings of securities held by
the Portfolio and the weightings of the stocks in the Index was 0.95. To the
extent practicable, the Portfolio will attempt to be fully invested. The ability
of the Fund to duplicate the performance of the Domini Social Index by investing
in the Portfolio will depend to some extent on the size and timing of cash flows
into and out of the Fund and the Portfolio as well as the Fund's and the
Portfolio's expenses. Adjustments in the securities holdings of the Portfolio to
accommodate cash flows will track the Domini Social Index to the extent
practicable, but this will result in brokerage expenses.
SOCIAL CRITERIA - The Domini Social Index was developed and is currently
maintained by the Adviser. The Domini Social Index is a common stock index
comprised of the stocks of approximately 400 companies which meet certain social
criteria. The weightings of the stocks compromising the Domini Social Index are
based upon market capitalization. The criteria used in developing and
maintaining the Domini Social Index involve the
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subjective judgment of the Adviser. The Adviser, based on available data, seeks
to exclude the following types of companies: firms that derive more than 2% of
their gross revenues from the sale of military weapons; firms that derive any
revenue from the manufacture of tobacco products or alcoholic beverages; firms
that derive any revenue from gambling enterprises; and firms that have an
ownership share in, or operate, nuclear power plants,or participate in business
related to the nuclear fuel cycle. The Adviser also considers criteria such as
corporate citizenship, employee relations, environmental performance, and
product-related issues when evaluating stocks for the inclusion in the Domini
Social Index. The corporate citizenship criteria include a company's record with
regard to its philanthropic activities and its community relations in general.
The employee relations criteria include a company's record with regard to labor
matters, workplace safety, equal employment opportunity, employee benefit
programs, and meaningful participation in company profits either through stock
purchase or profit sharing plans. The environmental performance criteria include
a company's record with regard to fines or penalties, waste disposal, toxic
emissions, efforts in waste reduction and emissions reduction, recycling, and
environmentally beneficial fuels, products and services. The product-related
criteria include a company's record with regard to product safety, marketing
practices and commitment to quality.
The Adviser intends to vote proxies of companies included in the
Portfolio consistent with the social criteria used in developing and maintaining
the Index.
INDEX MANAGEMENT - The Portfolio is not managed in the traditional
investment sense, since changes in the composition of its securities holdings
are made in order to track the changes in the composition of securities included
in the Index. Moreover, inclusion of a stock in the Domini Social Index does not
imply an opinion by the Adviser as to the merits of that specific stock as an
investment. However, the Adviser believes that enterprises which exhibit a
social awareness, based on the criteria described above, should be better
prepared to meet future societal needs for goods and services and may also be
less likely to incur certain legal liabilities that may be incurred when a
product or service is determined to be harmful, and that such enterprises should
over the longer term be able to provide a positive return to investors.
In selecting stocks for inclusion in the Index:
1. The Adviser evaluated, in accordance with the social criteria
described above, each of the companies the stocks of which comprise the S&P 500.
If a company whose stock was included in the S&P 500 met the Adviser's social
criteria and met the Adviser's further criteria for industry diversification,
financial solvency, market capitalization, and minimal portfolio turnover, it
was included in the Domini Social Index. As of July 31, 1996, of the 500
companies whose stocks comprised the S&P 500, approximately 50% were included in
the Index.
2. The remaining stocks comprising the Domini Social Index (I.E., those
which are not included in the S&P 500) were selected based upon the Adviser's
evaluation of the
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social criteria described above, as well as upon the Adviser's criteria for
industry diversification, financial solvency, market capitalization, and minimal
portfolio turnover. Because of the social criteria applied in the selection of
stocks comprising the Domini Social Index, industry sector weighting in the
Domini Social Index may vary materially from the industry weightings in other
stock indices, including the S&P 500, and certain industry sectors will be
excluded altogether.
The component stocks of the S&P 500 are chosen by Standard & Poor's
Corporation ("S&P") solely with the aim of achieving a distribution by broad
industry groupings that approximates the distribution of these groupings in the
New York Stock Exchange common stock population, taken as the assumed model for
the composition of the total market. Construction of the S&P 500 by S&P proceeds
from industry groups to the whole. Since some industries are characterized by
companies of relatively small stock capitalization, the S&P 500 does not
comprise the 500 largest companies listed on the New York Stock Exchange. Not
all stocks included in the S&P 500 are listed on the New York Stock Exchange.
However, the total market value of the S&P 500 as of July 31, 1996 represented
79% of the aggregate market value of common stocks traded on the New York Stock
Exchange.
Inclusion of a stock in the S&P 500 Index in no way implies an opinion by
S&P as to its attractiveness as an investment, nor is S&P a sponsor of or
otherwise affiliated with the Fund or the Portfolio.
Some of the stocks included in the Domini Social Index may be stocks of
foreign issuers (provided that the stocks are traded in the United States in the
form of American Depositary Receipts or similar instruments the market for which
is denominated in United States dollars). Securities of foreign issuers may
represent a greater degree of risk (I.E., as a result of exchange rate
fluctuation, tax provisions, war or expropriation) than do securities of
domestic issuers.
The weightings of stocks in the Domini Social Index are based on each
stock's relative total market capitalization, (I.E., market price per share
times the number of shares outstanding). Because of this weighting, as of July
31, 1996 approximately 40% of the Domini Social Index was comprised of the 20
largest companies in that Index.
The Adviser may exclude from the Domini Social Index stocks issued by
companies which are in bankruptcy or whose bankruptcy the Adviser believes may
be imminent.
The Portfolio intends to readjust its securities holdings periodically
such that those holdings will correspond, to the extent reasonably practicable,
to the Domini Social Index both in terms of composition and weighting. The
timing and extent of adjustments in the holdings of the Portfolio, and the
extent of the correlation of the holdings of the Portfolio with the Domini
Social Index, will reflect the Manager's judgment as to the appropriate balance
between the goal of correlating the holdings of the Portfolio with the
composition
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of the Index, and the goals of minimizing transaction costs and keeping
sufficient reserves available for anticipated redemptions of shares. To the
extent practicable, the Portfolio will seek a correlation between the weightings
of securities held by the Portfolio to the weightings of the securities in the
Index of 0.95 or better. The Board of Trustees of the Portfolio will receive and
review, at least quarterly, a report prepared by the Manager comparing the
performance of the Fund and the Portfolio with that of the Index, and comparing
the composition and weighting of the Portfolio's holdings with those of the
Index, and will consider what action, if any, should be taken in the event of a
significant variation between the performance of the Fund or the Portfolio, as
the case may be, and that of the Index, or between the composition and weighting
of the Portfolio's securities holdings with those of the stocks comprising the
Index. If the correlation between the weightings of securities held by the
Portfolio and the weightings of the stocks in the Index falls below 0.95, the
Board of Trustees will review with the Manager methods for increasing such
correlation, such as through adjustments in securities holdings of the
Portfolio.
The Portfolio may invest cash reserves in short-term debt securities
(I.E., securities having a remaining maturity of one year or less) issued by
agencies or instrumentalities of the United States Government, bankers'
acceptances, commercial paper or certificates of deposit, provided that the
issuer satisfies the Adviser's social criteria. The Portfolio does not currently
intend to invest in direct obligations of the United States Government. Short-
term debt securities purchased by the Portfolio will be rated at least Prime-1
by Moody's Investors Service, Inc. or A-1+ or A-1 by S&P or, if not rated,
determined to be of comparable quality by the Portfolio's Board of Trustees. The
Portfolio's policy is to hold its assets in such securities pending readjustment
of its portfolio holdings of stocks comprising the Domini Social Index and in
order to meet anticipated redemption requests. Such investments are not intended
to be used for defensive purposes in periods of anticipated market decline.
The annual portfolio turnover rates of the Portfolio for the fiscal
years ended July 31, 1995 and July 31, 1996 were 6% and 5%, respectively.
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The Portfolio's primary consideration in placing securities transactions
with broker-dealers for execution is to obtain, and maintain the availability
of, execution at the most favorable prices and in the most effective manner
possible. Neither the Portfolio nor the Fund will engage in brokerage
transactions with the Adviser, the Manager, the Sponsor or any of their
respective affiliates or any affiliate of the Fund or the Portfolio. For further
discussion regarding securities trading by the Portfolio, see the Statement of
Additional Information.
Consistent with applicable regulatory policies, including those of the
Board of Governors of the Federal Reserve System and the Securities and Exchange
Commission, the Portfolio may make loans of its securities to member banks of
the Federal Reserve System and to broker-dealers. Such loans would be required
to be secured continuously by collateral consisting of securities, cash or cash
equivalents maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The Portfolio would have the right to
call a loan and obtain the securities loaned at any time on three days' notice.
During the existence of a loan, the Portfolio would continue to collect the
equivalent of the dividends paid by the issuer on the securities loaned and
would also receive interest on investment of cash collateral. The Portfolio may
pay finder's and other fees in connection with securities loans. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral.
Although it has no current intention to do so, the Portfolio may make
short sales of securities or maintain a short position, if at all times when a
short position is open the Portfolio owns an equal amount of such securities, or
securities convertible into such securities.
SPECIAL INFORMATION CONCERNING THE HUB AND SPOKE(R) MASTER-FEEDER
INVESTMENT FUND STRUCTURE - The Trust and the Portfolio are utilizing certain
proprietary rights, know-how and financial services referred to as the Hub and
Spoke master-feeder investment fund structure from Signature Financial Group,
Inc. of which sthe Administrator is a wholly-owned subsidiary. Hub and
Spoke is a registered service mark of Signature Financial Group, Inc.
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Trust seeks to achieve the investment objective of the
Fund by investing all of the Fund's investable assets in the Portfolio, a
separate registered investment company with the same investment objective as the
Fund. In addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions as
the Fund and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from the
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Administrator at (617) 423-0800. The Hub and Spoke investment fund structure
has been developed relatively recently, so shareholders should carefully
consider this investment approach.
The investment objective of the Fund may be changed without the approval
of the Fund's shareholders, but not without written notice thereof to
shareholders thirty days prior to implementing the change. If there were a
change in the Fund's investment objective, shareholders should consider whether
the Fund remains an appropriate investment in light of their then-current
financial positions and needs. The investment objective of the Portfolio may
also be changed without the approval of the investors in the Portfolio, but not
without written notice thereof to the investors in the Portfolio (and notice by
the Fund to its shareholders) 30 days prior to implementing the change. There
can, of course, be no assurance that the investment objective of either the Fund
or the Portfolio will be achieved. See "Investment Restrictions" in the
Statement of Additional Information for a description of the fundamental
policies of the Fund and of the Portfolio that cannot be changed without
approval by the holders of a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the Fund or the Portfolio, respectively. Except as
stated otherwise, all investment guidelines, policies and restrictions described
herein and in the Statement of Additional Information are non-fundamental.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
(However, this possibility exists as well for traditionally structured funds
which have large or institutional investors.) Also, funds with a greater pro
rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Subject to exceptions that are not inconsistent
with applicable rules or policies of the Securities and Exchange Commission,
whenever the Trust is requested to vote on matters pertaining to the Portfolio,
the Trust will hold a meeting of shareholders of the Fund and will cast all of
its votes in the same proportion as the votes of the Fund's shareholders. Fund
shareholders who do not vote will not affect the Trust's votes at the Portfolio
meeting. The percentage of the Trust's votes representing Fund shareholders not
voting will be voted by the Trustees of the Trust in the same proportion as the
Fund shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objective, policies or restrictions may require the Fund to withdraw
its interest in the Portfolio. Any such withdrawal could result in a
distribution "in kind" of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, the Fund could
incur brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
The Trust may withdraw the Fund's investment from the Portfolio at any
time, if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do
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so. Upon any such withdrawal, the Board of Trustees would consider what action
might be taken, including the investment of all the assets of the Fund in
another pooled investment entity having the same investment objective as the
Fund or the retention of an investment adviser to manage the Fund's assets in
accordance with the investment policies described above with respect to the
Portfolio. In the event the Trustees of the Trust were unable to find a
substitute investment company in which to invest the Fund's assets and were
unable to secure directly the services of an investment adviser and investment
manager, the Trustees will seek to determine the best course of action.
For more information about the Portfolio's policies, management and
expenses see "Investment Objective and Policies," "Management," and "Other
Information Concerning Shares of the Fund - Expenses." For information about the
Portfolio's investment restrictions see the Statement of Additional Information.
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As a matter of fundamental policy, the Trust will invest all of the
investable assets of the Fund (either directly or through the Portfolio) in one
or more of: (i) stocks comprising an index of securities selected applying
social criteria, which initially will be the Domini Social Index, (ii)
short-term debt securities of issuers which meet social criteria, (iii) cash,
and (iv) options on equity securities. This fundamental policy cannot be changed
without the approval of the holders of a majority of the Fund's shares (which,
as used in this Prospectus, means the lesser of (a) more than 50% of the
outstanding shares of the Fund, or (b) 67% or more of the outstanding shares of
the Fund present at a meeting at which holders of more than 50% of the Fund's
outstanding shares are represented in person or by proxy). Except for this
fundamental policy, investor approval is not required to change the Fund's or
the Portfolio's investment objective or any of the investment policies described
above.
The Statement of Additional Information filed with the Securities and
Exchange Commission includes a discussion of other investment policies and a
listing of specific investment restrictions which govern the Portfolio's and the
Fund's investment policies. Certain of the investment restrictions listed in the
Statement of Additional Information may not be changed by the Portfolio without
the approval of the shareholders of the Fund and the other investors in the
Portfolio or by the Trust without the approval of the shareholders of the Fund.
If a percentage or rating restriction on investment or utilization of assets is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the Portfolio's total assets or
the value of the Portfolio's securities or a later change in the rating of a
security held by the Portfolio will not be considered a violation of policy.
Expenses of the Portfolio with respect to investment advisory services,
investment management services, sponsorship services are described herein under
"Management - Adviser, - Manager, - Sponsor and - Administrator," respectively.
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MANAGEMENT
The Boards of Trustees of the Trust and the Portfolio provide broad
supervision over the affairs of the Trust and the Portfolio, respectively. The
Trust has retained the services of KLD as sponsor and Signature as
administrator, but has not retained the services of an investment adviser or
investment manager since the Trust seeks to achieve the investment objective of
the Fund by investing all of the Fund's investable assets in the Portfolio. The
Portfolio has retained the services of KLD as sponsor, Signature as
administrator, KLD as investment adviser, and Mellon Equity as investment
manager.
TRUSTEES
The Trustees of the Trust and the Portfolio are listed below.
AMY L. DOMINI -- Officer of Kinder, Lydenberg, Domini & Co., Inc.;
Trustee, Loring, Wolcott & Coolidge (since 1987).
PHILIP W. COOLIDGE -- Chairman, Chief Executive Officer and President,
Signature Financial Group, Inc. (since 1988) and Signature Broker-Dealer
Services, Inc. (since 1989).
ALLEN M. MAYES -- Senior Associate General Secretary of the General
Board of Pensions of the United Methodist Church (since 1982).
TIMOTHY SMITH -- Executive Director of the Interfaith Center on
Corporate Responsibility (since 1974).
FREDERICK C. WILLIAMSON -- Chairman, Rhode Island Historical
Preservation and Heritage Commission (since 1995).
ADVISER
KLD provides advice to the Portfolio pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The services provided by the Adviser
consist of determining the stocks to be included in the Index and evaluating, in
accordance with the Adviser's social criteria, debt securities which may be
purchased by the Portfolio. For its services under the Advisory Agreement, the
Adviser receives from the Portfolio a fee accrued daily and paid monthly at an
annual rate equal to 0.025% of the Portfolio's average daily net assets, on an
annualized basis for the Portfolio's then-current fiscal year. Prior to October
4, 1996, the Adviser received from the Portfolio a fee accrued daily, and paid
monthly at an annual rate equal to 0.05% of the Portfolio's average daily net
assets, on an annualized basis for the Portfolio's then-current fiscal year.
"DominiSM" and "Domini Social IndexSM" are service marks of Kinder,
Lydenberg, Domini & Co., Inc. Pursuant to agreements with the Trust and the
Portfolio, the Portfolio will be required to discontinue use of such service
marks if KLD ceases to be the investment adviser of the Portfolio, and the Trust
will be required to discontinue the use of such service marks if either KLD
ceases to be the investment adviser of the Portfolio or the Trust ceases to
invest all of the Fund's investable assets in the Portfolio.
MANAGER
Mellon Equity manages the Portfolio on a day-to-day basis pursuant to an
Investment Management Agreement (the "Management Agreement"). Mellon Equity does
not determine the composition of the Domini Social Index.
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Under the Management Agreement, the Portfolio pays Mellon Equity an
investment management fee equal on an annual basis to 0.10% of the Portfolio's
average daily net assets for its then-current fiscal year. Prior to October 4,
1996, the Portfolio paid Mellon Equity and investment management fee equal on an
annual basis to the following percentages of the Portfolio's average daily net
assets for its then-current fiscal year: 0.10% of assets up to $50 million;
0.30% of assets between $50 million and $100 million; 0.20% of assets between
$100 million and $500 million; and 0.15% of assets over $500 million.
Mellon Equity is a Pennsylvania business trust whose beneficial owners
are Mellon Bank, N.A. and MMIP, Inc. Mellon Equity has been registered as an
investment adviser under the Investment Advisers Act of 1940 since 1986. Prior
to 1987, the Manager was part of the Equity Management Group of Mellon Bank
Corporation's Trust and Investment Department, which has managed pension assets
since 1947. As of June 30, 1996, the Manager had approximately $9.8 billion in
assets under management.
Mellon Equity believes that its performance of investment management
services for the Portfolio will not violate the Glass-Steagall Act or other
applicable banking laws or regulations. However, future statutory or regulatory
changes, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent
Mellon Equity from continuing to perform such services for the Portfolio. If
Mellon Equity were prohibited from acting as investment manager to the
Portfolio, it is expected that the Trustees would recommend to shareholders
approval of a new investment management agreement with another qualified
investment manager selected by the Trustees, or that the Trustees would
recommend other appropriate action.
SPONSOR
Pursuant to Sponsorship Agreements, dated November 6, 1996, KLD pays the
ordinary operating expenses of the Fund and the Portfolio (other than brokerage
fees and commissions, interest, taxes and extraordinary expenses) and provides
the Fund and the Portfolio with the administrative personnel and services
necessary to operate the Fund and the Portfolio. In addition to general
administrative services, such services include answering questionss from the
general public, the media and investors in the Fund regarding the composition of
the Domini Social Index and the securities holdings of the Portfolio. For these
services and facilities, KLD receives fees computed and paid montly from the
Fund at an annual rate equal to 0.10% of the average daily net assets of the
Fund, and from the Portfolio at an annual rate equal to 0.20% of the average
daily net assets of the Portfolio, in each case for the Fund's or the
Portfolio's then-current fiscal year.
ADMINISTRATOR
Pursuant to Administrative Services Agreements between Signature and KLD,
KLD has engaged Signature to provide certain administrative services to the
Trust and the Portfolio. In such capacity, Signature performs certain
administrative services requested by the Sponsor. For these services, since
November 6, 1996, the Sponsor pays to Signature a fee computed daily and paid
monthly at an annual rate equal to 0.045% of the average daily net assets of the
Fund, and a fee at an annual rate equal to 0.025% of the average daily net
assets of the Portfolio, in each case for the Fund's or the Portfolio's
then-current fiscal year. From October 4, 1996 to November 6, 1996, Signature
received fees computed daily and paid monthly from the Fund at an annual rate
equal to 0.070% of the average daily net assets of the Fund and from the
Portfolio at an annual rate equal to 0.025% of the average daily net assets of
the Portfolio, in each case for the Fund's or the Portfolio's then-current
fiscal year. Prior to October 4, 1996, Signature waived its administrative
services fees from the Fund and the Portfolio. Signature is a wholly-owned
subsidiary of Signature Financial Group, Inc.
DISTRIBUTOR
Signature is the principal distributor for the shares of the Fund for
which services it receives no fee.
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<PAGE>
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency Agreement with Fundamental
Shareholder Services, Inc. ("FSSI"), pursuant to which FSSI acts as Transfer
Agent for the Trust. The Transfer Agent maintains an account for each
shareholder of the Fund, performs other transfer agency functions and acts as
dividend disbursing agent for the Fund. Pursuant to Custodian Agreements,
Investors Bank & Trust Company ("IBT") acts as the custodian of the Trust's
assets (I.E., cash and the Fund's interest in the Portfolio) and as the
custodian of the Portfolio's assets (the "Custodian"). The Custodian's
responsibilities include safeguarding and controlling the Portfolio's cash and
securities, handling the receipt and delivery of securities, determining income
and collecting interest on the Portfolio's investments, maintaining books of
original entry for portfolio and fund accounting and other required books and
accounts, and calculating the daily net asset value of the Portfolio and the
daily net asset value of shares of the Fund. Securities held by the Portfolio
may be deposited into certain securities depositaries. The Custodian does not
determine the investment policies of the Portfolio or decide which securities
the Portfolio will buy or sell. The Portfolio may, however, invest in securities
of the Custodian and may deal with the Custodian as principal in securities
transactions. IBT also serves as transfer agent for the Portfolio. For their
services, FSSI and IBT will receive such compensation as may from time to time
be agreed upon by each of them and the Fund or the Portfolio.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
Shares of the Fund may be purchased directly from the Distributor
without a sales load at the net asset value next determined after an order for
shares is received in good order and accepted by the Trust on any day the New
York Stock Exchange is open for trading (a "Fund Business Day"). The minimum
initial investment in the Fund is $2,000,000. The Fund in its sole discretion
may permit purchases for lesser amounts. The Fund reserves the right to cease
offering its shares for sale at any time or to reject any order for the purchase
of its shares.
For each shareholder of record, the Fund establishes an open account to
which all shares purchased are credited together with any dividends and capital
gains distributions which are paid in additional shares. See "Other Information
Concerning Shares of the Fund - Dividends and Capital Gains Distributions". No
share certificates will be issued.
Investors desiring to purchase shares of the Fund by mail should
complete an Account Application and mail the Application and a check (in U.S.
dollars), payable to "Domini Institutional Social Equity Fund," to the Fund at
the following address:
Domini Institutional Social Equity Fund
P.O. Box 117
New York, New York 10274-0117
For overnight deliveries, please use the following address:
Domini Institutional Social Equity Fund
c/o Fundamental Shareholder Services, Inc.
90 Washington Street
New York, New York 10006
(212) 635-5000
An investor desiring to purchase shares by a wire transfer of funds
should request its bank to transmit immediately available funds. The information
transmitted with the funds must include the investor's name and address and a
statement indicating whether a new account is being established by such wire
transfer or whether such wire transfer is being made by a shareholder with an
account with the Fund. If the initial purchase by an investor is by a wire
transfer of funds, an account number will be assigned to such investor and an
Account Application must subsequently be completed and mailed to the Fund. For
purchases by wire transfer, please call Fundamental Shareholder Services, Inc.,
the Fund's
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<PAGE>
transfer agent (the "Transfer Agent"), at 1-800-782-4165 to obtain wire transfer
instructions.
Shares of the Fund may be purchased by exchanging securities acceptable
to the Trust for shares of the Fund. The Trust will not accept a security in
exchange for Fund shares unless (a) the security is consistent with the
investment objectives and policies of the Fund and the Portfolio, and (b) the
security is deemed acceptable by the Manager. Securities offered in exchange
for shares of the Fund will be valued in accordance with the usual valuation
procedure for the Fund. See "Net Asset Value".
For further information on how to purchase shares of the Fund, an
investor should contact the Distributor (see back cover for address and phone
number).
REDEMPTIONS
A shareholder may redeem all or any portion of the shares in its account
at any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to the Fund. Redemptions will
therefore be effected on the same day the redemption order is received by the
Fund provided such order is received and accepted on a Fund Business Day prior
to the time at which the net asset value of the Fund is determined. The proceeds
of a redemption will be paid by the Fund in federal funds normally on the next
Fund Business Day, but in any event within seven days if all checks in payment
for the purchase of shares to be redeemed have been cleared by the Fund (which
may take up to 15 days). Redemptions may be paid by the Fund by check or by
wire transfer if the appropriate box on the Account Application has been
completed. Instructions for wire redemptions are set forth in the Account
Application.
Redemptions may be made by letter to the Fund
specifying the dollar amount or number of shares to be redeemed and the account
number. The letter must be signed in exactly the same way the account is
registered and the signatures must be guaranteed by an eligible signature
guarantor. In some cases the Fund may require the furnishing of additional
documents.
Written requests should be mailed to the Fund at the following
address:
Domini Institutional Social Equity Fund
P.O. Box 117
New York, New York 10274-0117
For overnight deliveries, please use the following address:
Domini Institutional Social Equity Fund
c/o Fundamental Shareholder Services, Inc.
90 Washington Street
New York, New York 10006
(212) 635-5000
An investor may also redeem shares by telephone (by calling
1-800-782-4165) if the appropriate box on the Account Application has been
completed. The Trust, Transfer Agent and Distributor will not be liable for any
loss, liability, cost or expense for acting upon telephone instructions believed
to be genuine. Accordingly, shareholders will bear the
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<PAGE>
risk of loss. The Trust will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including, without
limitation, recording telephone instructions and/or requiring the caller to
provide some form of personal identification. Failure to employ reasonable
procedures may make the Fund liable for any losses due to unauthorized or
fraudulent telephone instructions. The following information must be supplied by
the shareholder or broker at the time a request for a telephone redemption is
made: (1) the shareholder's account number; (2) the shareholder's social
security number; and (3) the name and account number of the shareholder's
designated securities dealer or bank.
The Trust, Transfer Agent and Distributor reserve the right to refuse
wire or telephone redemptions. Procedures for redeeming shares by wire or
telephone may be modified or terminated at any time by the Trust or the
Distributor. The Trust reserves the right to restrict or terminate wire
redemption privileges. Proceeds of wire redemptions will be transferred within
seven days after receipt of the request.
The value of shares redeemed may be more or less than the shareholder's
cost, depending on the Fund's performance during the period the shareholder
owned its shares. Redemptions of shares are taxable events on which the
shareholder may recognize a gain or a loss.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted, or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
TAX MATTERS
Each year the Fund intends to qualify and elect to be treated as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Provided the Fund meets all income, distribution and
diversification requirements of the Code, and distributes all of its net
investment income and realized capital gains to shareholders in accordance with
the timing requirements imposed by the Code, the Fund will not be required to
pay any federal income or excise taxes. The Portfolio will also not be required
to pay any federal income or excise taxes. However, shareholders of the Fund
normally will have to pay federal income taxes, and any state or local taxes, on
the dividends and any capital gains distributions they receive from the Fund.
After the end of each calendar year, each shareholder receives information for
tax purposes on the dividends and any capital gains distributions received
during that calendar year including the portion taxable as ordinary income, the
portion taxable as long-term capital gains, the portion, if any, representing a
return of capital (which generally is free of current taxes but results in a
basis reduction), the amount, if any, of federal income tax withheld, and the
amount of any dividends eligible for the dividends-received deduction for
corporations.
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<PAGE>
Dividends and distributions to shareholders will be treated in the same
manner for federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund. Distributions of net capital gains (I.E., the
excess of net long-term capital gains over net short-term capital losses) will
cause any short-term capital loss realized on the disposition by a Fund's
shareholder of Fund shares held for six or fewer months to be recharacterized,
to the extent of those distributions, as long-term capital loss.
Under the back-up withholding rules of the Code, certain shareholders
may be subject to 31% withholding of federal income tax on distributions and
payments made by the Fund. Generally, shareholders are subject to back-up
withholding if they have not provided the Fund with a correct taxpayer
identification number and certain other certifications.
The Trust is organized as a Massachusetts business trust and, under
current law, the Fund is not liable for any income or franchise tax in the
Commonwealth of Massachusetts as long as the Fund qualifies as a regulated
investment company under the Code.
The foregoing discussion is intended for general information only. A
prospective shareholder should consult with its own tax advisor as to the tax
consequences of an investment in the Fund, including the status of distributions
from the Fund under applicable state or local law.
OTHER INFORMATION CONCERNING SHARES OF THE FUND
NET ASSET VALUE
The Trust determines the net asset value of each of the Fund's shares on
each Fund Business Day. This determination is made once during each such day as
of the close of regular trading on the New York Stock Exchange by deducting the
amount of the Fund's liabilities from the value of its assets and dividing the
difference by the number of shares of the Fund outstanding. A share's net asset
value is effective for orders received by the Distributor on a Fund Business Day
prior to the time at which such net asset value is determined.
Since the Trust will invest all of the Fund's investable assets in the
Portfolio, the value of the Fund's investable assets will be equal to the value
of its beneficial interest in the Portfolio. The net asset value of the
Portfolio is determined as of the close of regular trading on the New York Stock
Exchange on each Fund Business Day, by deducting the amount of the Portfolio's
liabilities from the value of its assets. The value of the Fund's beneficial
interest in the Portfolio will be determined by multiplying the net asset value
of the Portfolio by the percentage, effective for that day, which represents the
Fund's share of the aggregate beneficial interests in the Portfolio. (See
"Description of Shares, Voting Rights and Liabilities" below.)
Equity securities held by the Portfolio are valued at the last sale
price on the exchange on which they are primarily traded or on the NASDAQ system
for unlisted
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<PAGE>
national market issues, or at the last quoted bid price for securities in which
there were no sales during the day or for unlisted securities not reported on
the NASDAQ system. If the Portfolio purchases option contracts, such option
contracts which are traded on commodities or securities exchanges are normally
valued at the settlement price on the exchange on which they are traded.
Short-term obligations with remaining maturities of less than sixty days are
valued at amortized cost, which constitutes fair value as determined by the
Board of Trustees of the Portfolio. Portfolio securities (other than short-term
obligations with remaining maturities of less than sixty days) for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Portfolio's Board of Trustees.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Substantially all of the Fund's net income from dividends and interest
is paid to the Fund's shareholders quarterly (in the months of March, June,
September and December) as a dividend. For this purpose, the Fund's "net income
from dividends and interest" consists of all income from dividends and interest
accrued on the assets of the Fund (I.E., the Fund's share of the Portfolio's net
income from dividends and interest), less all actual and accrued expenses of the
Fund determined in accordance with generally accepted accounting principles.
The Fund also declares a long-term capital gains distribution to its
shareholders on an annual basis, usually in December, if the Fund's share of the
Portfolio's profits during the year from the sale of securities held for longer
than the applicable long-term capital gains holding period exceeds the Fund's
share of the Portfolio's losses during such year from the sale of securities
together with the Fund's share of the Portfolio's net capital losses carried
forward from prior years (to the extent not used to offset short-term capital
gains). The Fund's share of the Portfolio's net short-term capital gains
realized during each fiscal year will also be distributed at that time.
The Fund will also make additional distributions to its shareholders to
the extent necessary to avoid application of the 4% nondeductible excise tax
created by the Tax Reform Act of 1986 on certain undistributed income and net
capital gains of mutual funds.
A shareholder of the Fund may elect to receive dividends and capital
gains distributions in either cash or additional shares. Unless otherwise
specified in writing by a shareholder, all dividends and capital gains
distributions will be reinvested in additional shares.
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<PAGE>
EXPENSES
The Fund and the Portfolio each are responsible for all of their
respective expenses, including the compensation of their respective Trustees who
are not interested persons of the Fund or the Portfolio; governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute
allocable to the Fund or the Portfolio; fees and expenses of independent
auditors, of legal counsel and of any transfer agent, custodian, registrar or
dividend disbursing agent of the Fund or the Portfolio; insurance premiums; and
expenses of calculating the net asset value of the Portfolio and of shares of
the Fund.
The Fund is also responsible for expenses of distributing and redeeming
shares and servicing shareholder accounts; expenses of preparing, printing and
mailing prospectuses, reports, notices, proxy statements and reports to
shareholders and to governmental offices and commissions; expenses of
shareholder meetings; and expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing of
prospectuses for such purposes.
The Portfolio is also responsible for the expenses connected with the
execution, recording and settlement of security transactions; fees and expenses
of the Portfolio's custodian for all services to the Portfolio, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
offices and commissions; expenses of meetings of investors; and the advisory
fees payable to the Adviser under the Advisory Agreement, the management fees
payable to the Manager under the Management Agreement and the sponsorship
fees payable to the Portfolio Sponsor.
Pursuant to the Sponsorship Agreements between KLD and each of the Trust
with respect to the Fund and the Portfolio (effective November 6, 1996), KLD has
agreed to pay all of the ordinary operating expenses of the Fund and the
Portfolio, except sponsorship fees and excluding brokerage commissions,
interest, taxes and extraordinary expenses. KLD has entered into expense payment
arrangements with Signature pursuant to which Signature provides the expense
payment services mentioned above. Under these arrangements Signature receives
expenses payment fees from KLD computed and paid monthly (i) at an annual rate
equal to 0.030% of the Fund's average daily net assets for its then-current
fiscal year, and (ii) at an annual rate equal to 0.175% of the Portfolio's
average daily net assetss for its then-current fiscal year. The arrangements
will terminate on December 31, 1999 unless sooner terminated by mutual agreement
of the parties. Prior to November 6, 1996 Signature participated in expense
payment arrangements directly with the Trust and the Portfolio. See "Management
of the Trust and the Portfolio" in the Statement of Additional Information for
more information regarding expense payment arrangements.
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<PAGE>
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest (par value
$0.01 per share) and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Fund. Each share represents an equal proportionate interest in the Fund
with each other share. Shares have no preemptive or conversion rights. Shares
when issued are fully paid and nonassessable, except as set forth below.
Shareholders are entitled to one vote for each share held. The Trust is not
required to hold annual meetings of shareholders of the Fund but the Trust will
hold special meetings of shareholders of the Fund when in the judgment of the
Trustees it is necessary or desirable to submit matters for a shareholder vote.
Upon liquidation of the Fund, shareholders would be entitled to share pro rata
in the net assets of the Fund available for distribution to shareholders.
Shareholders have under certain circumstances the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Trustees. Shareholders also have under
certain circumstances the right to remove one or more Trustees without a
meeting.
The Trust reserves the right to create and issue any number of series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series (except for differences
among any classes of shares of any series). Currently, the Trust has only one
series of shares, all of which are of the same class. The Trust may establish
additional classes of any series of shares. For example, the Fund may offer
another class of shares that has lower annual distribution fees or shareholder
servicing fees. Prior to offering another class of shares, the Trust would
either issue a new prospectus and statement of additional information or amend
this Prospectus and the Statement of Additional Information to reflect such
issuance.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio, in which all of the investable assets of the Fund are
invested, is organized as a trust under the laws of the State of New York. The
Portfolio's Declaration of Trust provides that the Trust and other entities
investing in the Portfolio (I.E., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of the Trust incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trust's Trustees believe that neither the Fund
nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio. In addition, whenever
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<PAGE>
the Trust is requested to vote on a fundamental policy of the Portfolio, the
Trust will hold a meeting of the Fund's shareholders and will cast its vote as
instructed by its shareholders.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each Fund Business Day. At the close of each
such Fund Business Day, the value of each investor's beneficial interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, effective for that day, which represents that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions or
withdrawals, which are to be effected as of the close of business on that day,
will then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in the Portfolio effected as of the close of business
on such day, and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the close of business on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of business on the
following Fund Business Day.
The Statement of Additional Information filed with the Securities and
Exchange Commission contains more detailed information about the Trust and the
Portfolio, including information related to (i) investment policies and
restrictions of the Fund and the Portfolio, (ii) the Trustees, officers,
investment adviser, investment manager and administrator of the Trust and the
Portfolio, (iii) portfolio transactions, (iv) the Fund's shares, including
rights and liabilities of shareholders, (v) additional performance information,
including the method used to calculate yield and total rate of return quotations
of the Fund, (vi) determination of the net asset value of shares of the Fund,
and (vii) the audited financial statements of the Fund and the Portfolio at July
31, 1996.
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DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
6 St. James Avenue
Boston, MA 02116
PORTFOLIO INVESTMENT CUSTODIAN:
ADVISER AND SPONSOR: Investors Bank &
Kinder, Lydenberg, Trust Company
Domini & Co., Inc. 89 South Street
129 Mt. Auburn Street Boston, MA 02111
Cambridge, MA 02138
(617) 547-7479
AUDITORS:
PORTFOLIO INVESTMENT KPMG Peat Marwick
MANAGER: LLP
Mellon Equity 99 High Street
Associates Boston, MA 02110
500 Grant Street
Suite 3700 LEGAL COUNSEL:
Pittsburgh, PA Bingham, Dana &
15258-0001 Gould LLP
150 Federal Street
ADMINISTRATOR AND Boston, MA 02110
DISTRIBUTOR:
TRANSFER AGENT:
Signature Broker-Dealer Fundamental
Service, Inc. Shareholder
6 St. James Avenue Services, Inc.
Boston, MA 02116 90 Washington Street
(800) 762-6814 New York, NY 10006
(800) 782-4165
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
- ----------------------
PROSPECTUS
- ----------------------
November 7, 1996
Investing for GoodSM
Printed on Recycled Paper
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 7, 1996
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
Table of Contents Page
1. The Fund................................................................ 2
2. Investment Objective, Policies and Restrictions......................... 2
3. Performance Information................................................. 9
4. Determination of Net Asset Value; Valuation of Portfolio Securities.....10
5. Management of the Fund and the Portfolio................................11
6. Independent Auditors....................................................21
7. Taxation................................................................21
8. Portfolio Transactions and Brokerage Commissions........................23
9. Description of Shares, Voting Rights and Liabilities....................25
10. Financial Statements...................................................27
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
6 St. James Avenue, Boston, Massachusetts 02116
(800) 762-6814
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Fund's Prospectus dated November 7, 1996, as amended from time to time. This
Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
contacting Signature Broker-Dealer Services, Inc., the Fund's distributor, at
(800) 762-6814.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus and should be read only in conjunction
with such prospectus.
<PAGE>
1. THE FUND
The Domini Institutional Social Equity Fund (the "Fund") is a no-load,
diversified, open-end management investment company. The Fund is a series of
shares of beneficial interest of Domini Institutional Trust (the "Trust"), which
was organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 1, 1996. The Trust offers to buy back (redeem) shares of
the Fund from its shareholders at any time at net asset value. References in
this Statement of Additional Information to the "Prospectus" are to the current
Prospectus of the Fund, as amended or supplemented from time to time.
Kinder, Lydenberg, Domini & Co., Inc. ("KLD"), the Fund's Sponsor,
supervises the overall administration of the Fund. Signature Broker-Dealer
Services, Inc. ("Signature"), the Fund's administrator (the "Administrator"),
provides certain administrative services to the Fund. The Board of Trustees
provides broad supervision over the affairs of the Fund. Shares of the Fund are
continuously sold by Signature, the Fund's distributor (the "Distributor"). The
minimum initial investment is amount is $2,000,000. An investor should obtain
from the Distributor, and should read in conjunction with the Prospectus, the
materials describing the procedures under which Fund shares may be purchased and
redeemed.
The Trust seeks to achieve the investment objective of the Fund by
investing all of the Fund's investable assets in the Domini Social Index
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. KLD is the Portfolio's
investment adviser (the "Adviser"). Mellon Equity Associates ("Mellon Equity")
is the Portfolio's investment manager (the "Manager"). The Adviser determines
the composition of the Domini Social IndexSM. The Manager manages the
investments of the Portfolio from day to day in accordance with the Portfolio's
investment objective and policies. "DominiSM" and "Domini Social IndexSM" are
service marks of Kinder, Lydenberg, Domini & Co., Inc.
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide its shareholders with
long-term total return (reflecting both dividend and price performance of the
Fund) which corresponds to the performance of the Domini Social Index (sometimes
referred to herein as the "Index"). There can, of course, be no assurance that
the Fund will achieve its investment objective. The investment objective of the
Fund may be changed without approval by the Fund's shareholders.
INVESTMENT POLICIES
The Trust seeks to achieve the investment objective of the Fund by
investing all of the Fund's investable assets in the Portfolio, which has the
same investment objective as the Fund. The Trust may withdraw the Fund's
investment in the Portfolio at any time if the Board of Trustees of the Trust
determines that it is in the best interests of the Fund to do so. Upon any such
withdrawal, the Board of Trustees would consider what action might be taken,
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including the investment of all the investable assets of the Fund in another
pooled investment entity having the same investment objective as the Fund, or
the retaining of an investment adviser to manage the Fund's assets in accordance
with the investment policies described below with respect to the Portfolio. The
approval of the Fund's shareholders would not be required to change any of the
Fund's investment policies.
The following supplements the information concerning the Portfolio's
investment policies contained in the Prospectus and should only be read in
conjunction therewith.
A company which is not included in the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500") may be included in the Domini Social Index
primarily in order to afford representation to an industrial sector which would
otherwise be under-represented in the Index. Because of the social criteria
applied in the selection of stocks comprising the Domini Social Index, industry
sector weighting in the Domini Social Index may vary materially from the
industry weightings in other stock indices, including the S&P 500.
The Portfolio does not purchase securities which the Portfolio believes,
at the time of purchase, will be subject to exchange controls or foreign
withholding taxes; however, there can be no assurance that such laws may not
become applicable to certain of the Portfolio's investments. In the event
unforeseen exchange controls or foreign withholding taxes are imposed with
respect to any of the Portfolio's investments, the effect may be to reduce the
income received by the Portfolio on such investments.
Although neither the Fund nor the Portfolio has any current intention to
do so, the Fund and the Portfolio may invest in securities which may be resold
pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act").
It is a fundamental policy of the Portfolio and the Fund that neither
the Portfolio nor the Fund may invest more than 25% of the total assets of the
Portfolio or the Fund, respectively, in any one industry, although the Fund will
invest all of its assets in the Portfolio, and the Portfolio may and would
invest more than 25% of its assets in an industry if stocks in that industry
were to comprise more than 25% of the Domini Social Index. Based on the current
composition of the Index, this is considered highly unlikely. If the Portfolio
were to concentrate its investments in a single industry, the Portfolio and the
Fund would be more susceptible to any single economic, political or regulatory
occurrence than would be another investment company which was not so
concentrated.
LOANS OF SECURITIES: The Portfolio may lend its securities to brokers,
dealers and financial institutions, provided that (1) the loan is secured
continuously by collateral, consisting of U.S. Government securities or cash or
letters of credit, which is marked to the market daily to ensure that each loan
is fully collateralized at all times; (2) the Portfolio may at any time call the
loan and obtain the return of the securities loaned within three business days;
(3) the Portfolio will receive any interest or dividends paid on the securities
loaned; and (4) the aggregate market value of securities loaned will not at any
time exceed 30% of the total assets of the Portfolio.
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The Portfolio will earn income for lending its securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. Loans of securities involve a risk that the borrower may fail to
return the securities or may fail to provide additional collateral.
In connection with lending securities, the Portfolio may pay reasonable
finders, administrative and custodial fees. No such fees will be paid to any
person if it or any of its affiliates is affiliated with the Portfolio, the
Adviser or the Manager.
Although the Portfolio reserves the right to lend its securities, it has
no current intention of doing so in the foreseeable future.
RISK FACTORS INVOLVED IN OPTION CONTRACTS: Although it has no current
intention to do so, the Portfolio may in the future enter into certain
transactions in stock options for the purpose of hedging against possible
increases in the value of securities which are expected to be purchased by the
Portfolio or possible declines in the value of securities which are expected to
be sold by the Portfolio. Generally, the Portfolio would only enter into such
transactions on a short-term basis pending readjustment of its holdings of
underlying stocks.
The purchase of an option on an equity security provides the holder with
the right, but not the obligation, to purchase the underlying security, in the
case of a call option, or to sell the underlying security, in the case of a put
option, for a fixed price at any time up to a stated expiration date. The holder
is required to pay a non-refundable premium, which represents the purchase price
of the option. The holder of an option can lose the entire amount of the
premium, plus related transaction costs, but not more. Upon exercise of the
option, the holder is required to pay the purchase price of the underlying
security in the case of a call option, or deliver the security in return for the
purchase price in the case of a put option.
Prior to exercise or expiration, an option position may be terminated
only by entering into a closing purchase or sale transaction. This requires a
secondary market on the exchange on which the position was originally
established. While the Portfolio would establish an option position only if
there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular option contract at
any specific time. In that event, it may not be possible to close out a position
held by the Portfolio, and the Portfolio could be required to purchase or sell
the instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. The inability to close out option
positions also could have an adverse impact on the Portfolio's ability
effectively to hedge its portfolio.
Each exchange on which option contracts are traded has established a
number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Adviser
does not believe that these trading and position limits would have an adverse
impact on the possible use of hedging strategies by the Portfolio.
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The approval of the Fund and of the other investors in the Portfolio is
not required to change the investment objective or any of the non-fundamental
investment policies discussed above, including those concerning security
transactions.
INVESTMENT RESTRICTIONS
The Fund and the Portfolio have each adopted the following policies
which may not be changed without approval by holders of a "majority of the
outstanding shares" of the Fund or the Portfolio, respectively, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund or the Portfolio,
respectively, present at a meeting, if the holders of more than 50% of the
outstanding "voting securities" of the Fund or the Portfolio, respectively, are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities" of the Fund or the Portfolio, respectively. The term "voting
securities" as used in this paragraph has the same meaning as in the Investment
Company Act of 1940, as amended (the "1940 Act").
Except as described below, whenever the Trust is requested to vote on a
change in the investment restrictions of the Portfolio, the Trust will hold a
meeting of the shareholders of the Fund and will cast its vote proportionately
as instructed by the Fund's shareholders. However, subject to applicable
statutory and regulatory requirements, the Trust would not request a vote of
shareholders of the Fund with respect to (a) any proposal relating to the
Portfolio, which proposal, if made with respect to the Fund, would not require
the vote of the shareholders of the Fund, or (b) any proposal with respect to
the Portfolio that is identical in all material respects to a proposal that has
previously been approved by shareholders of the Fund. Any proposal submitted to
holders in the Portfolio, and that is not required to be voted on by
shareholders of the Fund, would nevertheless be voted on by the Trustees of the
Trust.
Neither the Fund nor the Portfolio may:
(1) borrow money, except that as a temporary measure for extraordinary
or emergency purposes either the Fund or the Portfolio may borrow an amount not
to exceed 1/3 of the current value of the net assets of the Fund or the
Portfolio, respectively, including the amount borrowed (moreover, neither the
Fund nor the Portfolio may purchase any securities at any time at which
borrowings exceed 5% of the total assets of the Fund or the Portfolio,
respectively, taken in each case at market value) (it is intended that the
Portfolio would borrow money only from banks and only to accommodate requests
for the withdrawal of all or a portion of a beneficial interest in the Portfolio
while effecting an orderly liquidation of securities); for additional related
restrictions, see clause (i) under the caption "Non-Fundamental State and
Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on margin,
except that either the Fund or the Portfolio may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of securities and
except that either the Fund or the Portfolio may make deposits of initial
deposit and variation margin in connection with the purchase, ownership, holding
or sale of options;
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<PAGE>
(3) write any put or call option or any combination thereof, provided
that this shall not prevent (i) the purchase, ownership, holding or sale of
warrants where the grantor of the warrants is the issuer of the underlying
securities, or (ii) the purchase, ownership, holding or sale of options on
securities;
(4) underwrite securities issued by other persons, except that the Fund
may invest all or any portion of its assets in the Portfolio and except insofar
as either the Fund or the Portfolio may technically be deemed an underwriter
under the 1933 Act in selling a security;
(5) make loans to other persons except (a) through the lending of
securities held by either the Fund or the Portfolio and provided that any such
loans not exceed 30% of its total assets (taken in each case at market value),
or (b) through the use of repurchase agreements or the purchase of short-term
obligations and provided that not more than 10% of its net assets will be
invested in repurchase agreements maturing in more than seven days; for
additional related restrictions, see paragraph (6) immediately following;
(6) invest in securities which are subject to legal or contractual
restrictions on resale (other than repurchase agreements maturing in not more
than seven days and other than securities which may be resold pursuant to Rule
144A under the 1933 Act if the Board of Trustees determines that a liquid market
exists for such securities) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days), except that the Fund may invest
all or any portion of its assets in the Portfolio;
(7) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Fund and Portfolio reserve the freedom of
action to hold and to sell real estate acquired as a result of the ownership of
securities by the Fund or the Portfolio);
(8) make short sales of securities or maintain a short position, unless
at all times when a short position is open the Fund or the Portfolio, as
applicable, owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short, and unless not more than 5% of the Fund's or the Portfolio's, as
applicable, net assets (taken in each case at market value) is held as
collateral for such sales at any one time (it is the present intention of the
Portfolio and the Fund to make such sales only for the purpose of deferring
realization of gain or loss for federal income tax purposes);
(9) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating paragraph (1) above;
(10) as to 75% of its assets, purchase securities of any issuer if such
purchase at the time thereof would cause more than 5% of the Portfolio's or the
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Fund's, as applicable, assets (taken at market value) to be invested in the
securities of such issuer (other than securities or obligations issued or
guaranteed by the United States or any agency or instrumentality of the United
States), except that for purposes of this restriction the issuer of an option
shall not be deemed to be the issuer of the security or securities underlying
such contract and except that the Fund may invest all or any portion of its
assets in the Portfolio; or
(11) invest more than 25% of its assets in any one industry unless the
stocks in a single industry were to comprise more than 25% of the Domini Social
Index, in which case the Portfolio or the Fund, as applicable, will invest more
than 25% of its assets in that industry, and except that the Fund may invest all
of its assets in the Portfolio.
NON-FUNDAMENTAL STATE AND FEDERAL RESTRICTIONS: In order to comply with
certain state and federal statutes and regulatory policies, neither the Fund nor
the Portfolio will as a matter of operating policy:
(i) borrow money for any purpose in excess of 10% of the total assets of the
Fund or the Portfolio, respectively (taken in each case at cost) (moreover,
neither the Fund nor the Portfolio will purchase any securities at any time at
which borrowings exceed 5% of its total assets (taken at market value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the net
assets of the Fund or the Portfolio, respectively (taken in each case at market
value), provided that collateral arrangements with respect to options, including
deposits of initial deposit and variation margin, are not considered a pledge of
assets for purposes of this restriction,
(iii) sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain securities,
without payment of further consideration, equivalent in kind and amount to the
securities sold, and provided that if such right is conditional the sale is made
upon the same conditions,
(iv) invest for the purpose of exercising control or management, except that all
of the assets of the Fund may be invested in the Portfolio,
(v) purchase securities issued by any registered investment company, except that
the Fund may invest all its assets in the Portfolio and except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that (except for the Fund's investment in
the Portfolio) the Fund and the Portfolio will not purchase the securities of
any registered investment company if such purchase at the time thereof would
cause more than 10% of the total assets of the Fund or the Portfolio,
respectively (taken at the greater of cost or market value) to be invested in
the securities of such issuers or would cause more than 3% of the outstanding
voting securities of any such issuer to be held by the Fund or the Portfolio,
respectively; and provided, further, that (except for the Fund's investment in
the Portfolio) the
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Fund and the Portfolio shall not purchase securities issued by any open-end
investment company,
(vi) invest more than 10% of the net assets of the Fund or the Portfolio,
respectively (taken at the greater of cost or market value), in securities
(excluding Rule 144A securities) that are restricted as to resale under the 1933
Act,
(vii) invest more than 15% of the net assets of the Fund or the Portfolio,
respectively (taken at the greater of cost or market value), (a) in securities
that are restricted as to resale by the 1933 Act (including Rule 144A
securities), and (b) in securities that are issued by issuers which (including
the period of operation of any predecessor company or unconditional guarantor of
such issuer) have been in operation less than three years, provided, however,
that no more than 5% of the net assets of the Fund or the Portfolio,
respectively, are invested in securities issued by issuers which (including
predecessors) have been in operation less than three years,
(viii) purchase puts, calls, straddles, spreads and any combination thereof if
the value of its aggregate investment in such securities will exceed 5% of the
Funds or the Portfolio's total assets at the time of such purchase,
(ix) purchase securities of any issuer if such purchase at the time thereof
would cause it to hold more than 10% of any class of securities of such issuer,
for which purposes all indebtedness of an issuer shall be deemed a single class
and all preferred stock of an issuer shall be deemed a single class, except that
option contracts shall not be subject to this restriction, and except that the
Fund may invest all or any portion of its assets in the Portfolio,
(x) purchase or retain any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund or
the Portfolio, as the case may be, or is an officer or director of the Adviser
or the Manager, if after the purchase of the securities of such issuer by the
Fund or the Portfolio, as the case may be, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value, except that the Fund may
invest all or any portion of its assets in the Portfolio,
(xi) invest more than 5% of the Fund's or the Portfolio's net assets in warrants
(valued at the lower of cost or market), but not more than 2% of the Fund's or
the Portfolio's net assets may be invested in warrants not listed on the New
York Stock Exchange Inc. ("NYSE") or the American Stock Exchange, or
(xii) make short sales of securities or maintain a short position, unless at all
times when a short position is open, the Fund or the Portfolio owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
and equal in amount to the securities sold short, and unless not more than 10%
of the Fund's or the Portfolio's, respectively, net assets (taken at market
value) is represented by such securities, or securities convertible into or
exchangeable
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for such securities, at any one time (neither the Fund nor the Portfolio has any
current intention to engage in short selling).
Restrictions (i) through (xii) are not fundamental and may be changed
with respect to the Fund by the Fund without approval by the Fund's shareholders
or with respect to the Portfolio by the Portfolio without the approval of the
Fund or its other investors. While the Fund expects to reject any order that is
not an exempt transaction under the relevant state securities laws, the Fund
will comply with the state securities laws and regulations of all states in
which it is registered. The Portfolio will comply with the applicable investment
limitations found in the state securities laws and regulations of all states in
which the Fund is registered.
PERCENTAGE RESTRICTIONS: If a percentage restriction or rating restriction
on investment or utilization of assets set forth above or referred to in the
Prospectus is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the securities held by the Fund or the Portfolio or a later change in the rating
of a security held by the Fund or the Portfolio will not be considered a
violation of policy; provided that if at any time the ratio of borrowings of the
Fund or the Portfolio to the net asset value of the Fund or the Portfolio,
respectively, exceeds the ratio permitted by Section 18(f) of the 1940 Act, the
Fund or the Portfolio as the case may be, will take the corrective action
required by Section 18(f).
3. PERFORMANCE INFORMATION
The Trust will calculate the Fund's total rate of return for any period by
(a) dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains declared during such period with
respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share (i.e., net asset value) on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation will be calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result.
Any current "yield" quotation of the Fund shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a thirty calendar day period and shall be calculated by (a) raising to
the sixth power the sum of 1 plus the quotient obtained by dividing the Fund's
net investment income earned during the period by the product of the average
daily number of shares outstanding during the period that were entitled to
receive dividends and the maximum offering price per share on the last day of
the period, (b) subtracting 1 from the result, and (c) multiplying the result by
2.
Total rate of return and yield information with respect to the Domini
Social Index will be computed in the same fashion as set forth above with
respect to the Fund, except that for purposes of this computation an investment
will be assumed to have been made in a portfolio consisting of all of the stocks
comprising the
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Domini Social Index weighted in accordance with the weightings of the stocks
comprising the Index. Performance information with respect to the Domini Social
Index will not take into account brokerage commission and other transaction
costs which will be incurred by the Portfolio.
Historical performance information for any period or portion thereof prior
to the establishment of the Fund will be that of the Portfolio, adjusted to
assume that all charges, expenses and fees of the Fund and the Portfolio which
are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations.
4. DETERMINATION OF NET ASSET VALUE; VALUATION OF PORTFOLIO SECURITIES
The net asset value of each share of the Fund is determined each day on
which the NYSE is open for trading ("Fund Business Day"). (As of the date of
this Statement of Additional Information, the NYSE is open for trading every
weekday except for the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day). This determination of net asset value of shares of the Fund is
made once during each such day as of the close of the NYSE by dividing the value
of the Fund's net assets (i.e., the value of its investment in the Portfolio and
any other assets less its liabilities, including expenses payable or accrued) by
the number of shares outstanding at the time the determination is made.
Purchases and redemptions will be effected at the time of determination of net
asset value next following the receipt of any purchase or redemption order
deemed to be in good order. See "Purchases and Redemptions of Shares" in the
Prospectus.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same day as the Fund determines its net
asset value per share. The net asset value of the Fund's investment in the
Portfolio is equal to the Fund's pro rata share of the total investment of the
Fund and of other investors in the Portfolio less the Fund's pro rata share of
the Portfolio's liabilities. Equity securities held by the Portfolio are valued
at the last sale price on the exchange on which they are primarily traded or on
the NASDAQ system for unlisted national market issues, or at the last quoted bid
price for securities in which there were no sales during the day or for unlisted
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securities not reported on the NASDAQ system. If the Portfolio purchases option
contracts, such option contracts which are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Short-term obligations with remaining maturities of less than
sixty days are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees of the Portfolio. Portfolio securities
(other than short-term obligations with remaining maturities of less than sixty
days) for which there are no such quotations or valuations are valued at fair
value as determined in good faith by or at the direction of the Portfolio's
Board of Trustees.
A determination of value used in calculating net asset value must be a
fair value determination made in good faith utilizing procedures approved by the
Portfolio's Board of Trustees. While no single standard for determining fair
value exists, as a general rule, the current fair value of a security would
appear to be the amount which the Portfolio could expect to receive upon its
current sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the security, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
Interest income on short-term obligations held by the Portfolio is
determined on the basis of interest accrued less amortization of premium.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each Fund Business Day. At the close of each
such business day, the value of each investor's interest in the Portfolio will
be determined by multiplying the net asset value of the Portfolio by the
percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio effective for that day. Any additions or withdrawals,
which are to be effected as of the close of business on that day, will then be
effected. The investor's percentage of the aggregate beneficial interests in the
Portfolio will then be re-computed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of the close of business on such day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the investor's investment
in the Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
the net additions to or withdrawals from the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be
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applied to determine the value of the investor's interest in the Portfolio as of
the close of business on the following Fund Business Day.
5. MANAGEMENT OF THE TRUST AND THE PORTFOLIO
The Trustees and officers of the Trust and the Portfolio and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Each Trustee and officer of the Trust
also serves the Portfolio in the same capacity. Asterisks indicate those
Trustees and officers who are "interested persons" (as defined in the 1940 Act)
of the Trust. Unless otherwise indicated below, the address of each Trustee and
officer is 6 St. James Avenue, Boston, Massachusetts 02116.
TRUSTEES
Amy L. Domini* -- Chair, President and Trustee of the Trust and the
Portfolio; Officer of Kinder, Lydenberg, Domini & Co., Inc.; Trustee, Loring,
Wolcott & Coolidge (since 1987).
Philip W. Coolidge* -- Trustee of the Trust and the Portfolio;
Chairman, Chief Executive Officer and President, Signature Financial Group, Inc.
(since 1988) and Signature Broker-Dealer Services, Inc. (since 1989).
Allen M. Mayes -- 7985 Willow Creek Drive, Beaumont, Texas 77707; Trustee
of the Trust and the Portfolio; Senior Associate General Secretary of the
General Board of Pensions of the United Methodist Church (since 1982); Member of
the Board of Directors of Investor Responsibility Research Center (since 1989);
Member of Board of Trustees of Wiley College (since 1969).
Timothy Smith -- Interfaith Center for Corporate Responsibility, 475
Riverside Drive, New York, New York 10115; Trustee of the Trust and the
Portfolio; Executive Director of the Interfaith Center on Corporate
Responsibility (since 1974).
Frederick C. Williamson -- 5 Roger Williams Green, Providence, Rhode
Island 02904; Trustee of the Trust and the Portfolio; Chairman, Rhode Island
Historical Preservation and Heritage Commission (since 1995); Rhode Island State
Historic Preservation Officer (since 1969); Trustee, National Park Trust (since
1992); Trustee, National Parks and Conservation Association (since 1986);
President Emeritus, National Conference of State Historic Preservation Officers;
Trustee Emeritus, National Trust for Historic Preservation; Treasurer and Past
Chairman, Rhode Island Black Heritage Society.
Each Trustee is paid an annual fee as follows for serving as Trustee of
the Trust and the Portfolio and is reimbursed for expenses incurred in
connection with service as a Trustee. The compensation paid to the Trustees for
the fiscal year ended July 31, 1996 is set forth below. The Trustees may hold
various other directorships unrelated to the Trust or Portfolio.
Total
Compensation
Aggregate from the
Compensation Trust
from the and the
Trust Portfolio
Amy L. Domini*, Chair, None None
President and Trustee
Philip W. Coolidge*, Trustee None None
Allen M. Mayes, Trustee $200 $1,400
Timothy Smith, Trustee $200 $1,400
Frederick C. Williamson, $200 $1,400
Trustee
OFFICERS
In addition to Mr. Coolidge, the following persons serve as officers of
the Trust or the Portfolio:
Peter D. Kinder -- Vice President of the Trust and the Portfolio;
President of Kinder, Lydenberg, Domini & Co., Inc. (since March, 1988).
Steven D. Lydenberg -- Vice President of the Trust and the Portfolio;
Director of Research of Kinder, Lydenberg, Domini & Co., Inc. (since January,
1990).
Karen C. Pratt -- Vice President of the Trust; Chief Operating Officer
and Director of Institutional Marketing, Kinder, Lydenberg, Domini & Co., Inc.
(since October, 1994); Director of Institutional Marketing, Off Wall Street
Consulting Group, Inc. (1995); General Partner, Falcon Partners Management, L.P.
(May, 1992 to March, 1994) (hedge funds).
John R. Elder -- Treasurer of the Trust and the Portfolio; Vice
President, Signature Financial Group, Inc. (since April, 1995); Treasurer,
Phoenix Family of Mutual Funds (prior to April, 1995).
Any conflict of interest between the Trust and the Portfolio will be
resolved by the Trustees in accordance with their fiduciary obligations and in
accordance with the 1940 Act. The Trust's Declaration of Trust provides that it
will indemnify its Trustees and officers (the "Indemnified Parties") against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Trust, unless, as to liability
to the Trust or Fund shareholders, it is finally adjudicated that the
Indemnified Parties engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any
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other matter it is finally adjudicated that the Indemnified Parties did not act
in good faith in the reasonable belief that their actions were in the best
interests of the Trust. In case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such Indemnified
Parties have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
As of October 16, 1996, all Trustees and officers of the Trust and the
Portfolio as a group owned less than 1% of the Fund's outstanding shares. As of
the same date, the following shareholders of record owned 5% or more of the
outstanding shares of the Fund: Home Missioners of America Restricted Fund,
25.15%; Home Missioners of America Endowment Fund, 12.82%; and, J.S. Noyes
Foundation, Inc., 58.31%. The Fund has no knowledge of any other owners of
record or beneficial owners of 5% or more of the outstanding shares of the Fund.
Shareholders owning 25% or more of the outstanding shares of the Fund may take
actions without the approval of any other investor in the Fund.
ADVISER AND MANAGER
KLD provides advice to the Portfolio pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The services provided by the Adviser
consist of determination of the stocks to be included in the Index and
evaluating, in accordance with the Adviser's social criteria, debt securities
which may be purchased by the Portfolio. The Adviser furnishes at its own
expense all facilities and personnel necessary in connection with providing
these services. The Advisory Agreement will continue in effect if such
continuance is specifically approved at least annually by the Portfolio's Board
of Trustees or by a majority of the outstanding voting securities of the
Portfolio at a meeting called for the purpose of voting on the Advisory
Agreement (with the vote of each investor in the Portfolio being in proportion
to the amount of its investment), and, in either case, by a majority of the
Portfolio's Trustees who are not parties to the Advisory
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Agreement or interested persons of any such party at a meeting called for the
purpose of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others and may permit other investment companies in addition to the Portfolio
and the Trust to use the name "DominiSM" or "Domini Social IndexSM" in their
names. Pursuant to agreements with the Trust and the Portfolio, if KLD ceases to
be the investment adviser of the Portfolio, the Portfolio will be required to
discontinue the use of such service marks, and if either KLD ceases to be the
investment adviser of the Portfolio or the Trust ceases to invest all of the
Fund's assets in the Portfolio, the Trust will be required to discontinue the
use of such service marks. The Advisory Agreement is terminable without penalty
on not more than 60 days' nor less than 30 days' written notice by the Portfolio
when authorized either by majority vote of the Fund and of the other investors
in the Portfolio (with the vote of each investor in the Portfolio being in
proportion to the amount of its investment) or by a vote of a majority of its
Board of Trustees, or by the Adviser, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Adviser 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 Portfolio, except for wilful misfeasance, bad faith or
gross negligence or reckless disregard of its or their obligations and duties
under the Advisory Agreement.
The Fund's Prospectus contains a description of fees payable to the
Adviser for services under the Advisory Agreement. For the fiscal years ended
July 31, 1994 and 1995, the Adviser voluntarily waived all of its advisory fees.
For the fiscal year ended July 31, 1996, the Portfolio incurred $38,150 in
advisory fees to the Adviser.
Mellon Equity manages the assets of the Portfolio pursuant to an
Investment Management Agreement (the "Management Agreement"). The Manager
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio. The Management Agreement will continue in effect
if such continuance is specifically approved at least annually by the
Portfolio's Board of Trustees or by a majority vote of the shareholders of the
Fund and of the other investors in the Portfolio at a meeting called for the
purpose of voting on the Management Agreement (with the vote of each being in
proportion to the amount of their investment), and, in either case, by a
majority of the Portfolio's Trustees who are not parties to the Management
Agreement or interested persons of any such party at a meeting called for the
purpose of voting on the Management Agreement.
The Management Agreement provides that the Manager may render services
to others. The Management Agreement is terminable without penalty upon not more
than 60 days' nor less than 30 days' written notice by the Portfolio when
authorized either by majority vote of the Fund and of the other investors in the
Portfolio (with the vote of each being in proportion to the amount of their
investment) or by a vote of the majority of its Board of Trustees, or by the
Manager, and will automatically terminate in the event of its assignment. The
Management Agreement provides that neither the Manager nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out
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of any investment or for any act or omission in its services to the Portfolio,
except for wilful misfeasance, bad faith or gross negligence or reckless
disregard for its or their obligations and duties under the Management
Agreement.
The Fund's Prospectus contains a description of fees payable to the
Manager for services under the Management Agreement. Prior to November 21, 1994,
State Street Bank and Trust Company (the "Former Manager") served as investment
manager to the Portfolio. For the fiscal year ended July 31, 1994, the Portfolio
incurred $16,986 in management fees to the Former Manager. For the period August
1, 1994 through November 20, 1994, the Portfolio incurred $10,180 in management
fees to the Former Manager. For the period November 21, 1994 through July 31,
1995, the Portfolio incurred $29,409 in management fees to the Manager. For the
fiscal year ended July 31, 1996, the Portfolio incurred $128,901 in management
fees to the Manager.
SPONSOR
Pursuant to Sponsorship Agreements, dated November 6, 1996, KLD pays the
ordinary operating expenses of the Fund and the Portfolio (other than brokerage
fees and commissions, interest, taxes and extraordinary expenses)and provides
the Trust and the Portfolio with general office facilities and supervises the
overall administration of the Trust and the Portfolio, including, among other
responsibilities, answering questions from the general public, the media and
investors in the Fund regarding securities holdings of the Portfolio,
negotiating contracts and fees with, and monitoring performance and billings of,
the independent contractors and agents of the Trust or the Portfolio; preparing
and filing of all documents required for compliance by the Trust and the
Portfolio with applicable laws and regulations; and arranging for the
maintenance of books and records of the Fund and the Portfolio. The
Sponsor provides persons satisfactory to the Board of Trustees of the Fund
or the Portfolio to serve as officers of the Trust or the Portfolio. Such
officers, as well as certain other employees and Trustees of the Fund or the
Portfolio, may be directors, officers or employees of the Sponsor or its
affiliates.
The Fund's Prospectus contains a description of the fees payable to the
Sponsor under the Sponsorship Agreements. The Sponsorship Agreements with the
Trust and the Portfolio provide that KLD may render administrative services to
others. The Sponsorship Agreements with the Trust and the Portfolio also provide
that neither the Sponsor nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration or
management of the Trust or the Portfolio, as the case may be, except for wilful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and duties
under the Trust's respective Sponsorship Agreement.
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The Sponsor has agreed to reimburse the Trust for the operating expenses
of the Fund (exclusive of interest, taxes, brokerage, and extraordinary
expenses) which in any year exceed the limits prescribed by any state in which
the Trust's shares are qualified for sale. The Trust may elect not to qualify
the Fund's shares for sale in every state. The Trust believes that currently the
most restrictive expense ratio limitation imposed by any state is 2.5% of the
first $30 million of the Fund's average net assets for its then-current fiscal
year, 2% of the next $70 million of such assets, and 1.5% of such assets in
excess of $100 million. For the purpose of this obligation to reimburse
expenses, the Fund's annual expenses are estimated and accrued daily, and any
appropriate estimated payments will be made by the Sponsor. Subject to the
obligation of the Sponsor to reimburse the Trust for its excess expenses as
described above, the Trust has, under its Sponsorship Agreement, confirmed its
obligation for payment of all the Fund's other expenses. See "Other Information
Concerning Shares of the Fund -- Expenses" in the Fund's Prospectus.
The Sponsorship Agreements with the Trust and the Portfolio may be
terminated without penalty by either party on not more than 60 days' written
notice except with respect to the expense payment obligations which terminate on
December 31, 1999, unless sooner terminated by the mutual agreement of KLD and
Signature. The Sponsorship Agreement with the Portfolio also provides that
neither KLD, as the Portfolio's Administrator, nor its personnel shall be liable
for any error of judgment or mistake of law or for any act or omission in the
administration or management of the Portfolio, except for wilful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
Portfolio's Sponsorship Agreement.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement between Signature and
KLD, Signature serves as Administrator of the Trust. In such capacity,
Signature performs certain administrative services requested by the Sponsor.
Signature is a wholly-owned subsidiary of Signature Financial Group, Inc.
For the period May 30, 1996 (commencement of operations) to July 31,
1996 and the fiscal years ended July 31, 1994 and 1995, Signature voluntarily
waived all of its administrative services fees from the Fund. For the fiscal
years ended July 31, 1994 and 1995, Signature voluntarily waived all of its
administrative services fees from the Portfolio. For the fiscal year ended July
31, 1996, the Portfolio incurred $38,150 in administrative fees.
DISTRIBUTOR
The Trust has entered into a Distribution Agreement with Signature.
Under the Distribution Agreement, the Distributor acts as the agent of the Trust
in connection with the offering of shares of the Fund. The Distributor receives
no additional compensation for its services under the Distribution Agreement.
Signature is a wholly-owned subsidiary of Signature Financial Group, Inc.
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EXPENSES
Pursuant to the Sponsorship Agreements between KLD and each of the Trust
with respect to the Fund and the Portfolio (effective November 6, 1996), KLD has
agreed to pay all of the ordinary operating expenses of the Fund and the
Portfolio, except the sponsorship fees and excluding brokerage fees and
commissions, interest, taxes and extraordinary expenses. The arrangements will
terminate on December 31, 1999 unless sooner terminated by mutual agreement of
the parties. KLD has entered into expense payment arrangements with Signature
pursuant to which Signature provides these expense payment services to the Fund
and the Portfolio. Under these arrangements, Signature receives expense payment
fees from KLD computed and paid monthly (i) at an annual rate equal to 0.030% of
the Fund's average daily net assets for its then-current fiscal year, and (ii)
at an annual rate equal to 0.175% of the Portfolio's average daily net assets
for its then-current fiscal year. See "Management of the Trust and the
Portfolio" in the Statement of Additional Information for more information
regarding expense payment arrangements.
6. INDEPENDENT AUDITORS
KPMG Peat Marwick LLP are the independent auditors for the Trust and for
the Portfolio, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
7. TAXATION
Each year the Fund intends to qualify and elect to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements (applied through the Fund's proportionate
interest in the Portfolio) as to the nature of the Fund's gross income, the
amount of Fund distributions and the composition and holding period of the
Fund's portfolio assets. Because the Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Fund will be required to pay any federal income or excise taxes. If the Fund
should fail to qualify as a "regulated investment company" in any year, the Fund
would incur a regular corporate federal income tax upon its taxable income and
Fund distributions would generally be taxable as ordinary dividend income to the
shareholders. As long as it qualifies as a "regulated investment company" under
the Code, the Fund will not be required to pay Massachusetts income or excise
taxes.
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Under interpretations of the Internal Revenue Service, (1) the Portfolio
will be treated for federal income tax purposes as a partnership and (2) for
purposes of determining whether the Fund satisfies the income and
diversification requirements to maintain its status as a regulated investment
company, the Fund, as an investor in the Portfolio, will be deemed to own a
proportionate share of the Portfolio's assets and will be deemed to be entitled
to the Portfolio's income or loss attributable to that share. The Portfolio has
advised the Fund that it intends to conduct its operations so as to enable its
investors, including the Fund, to satisfy those requirements.
Shareholders of the Fund normally will have to pay federal income taxes
and any state or local income taxes on the dividends and capital gain
distributions they receive from the Fund. Dividends from ordinary income and any
distributions from net short-term capital gains are taxable to shareholders as
ordinary income for federal income tax purposes, whether the distributions are
made in cash or in additional shares. A portion of the Fund's ordinary income
dividends (but none of the Fund's capital gains) is normally eligible for the
dividends received deduction for corporations if the recipient otherwise
qualifies for that deduction with respect to its holding of Fund shares.
Availability of the deduction for a particular corporate shareholder is subject
to certain limitations, and deducted amounts may be subject to the alternative
minimum tax and result in certain basis adjustments. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains for federal income tax
purposes without regard to the length of time the shareholders have held their
shares.
Amounts not distributed on a timely basis in accordance with the
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, the Fund must, and intends to,
distribute during each calendar year substantially all of its ordinary income
for that year and substantially all of its capital gain in excess of its capital
losses for that year, plus any undistributed ordinary income and capital gains
from previous years. Any Fund dividend that is declared in October, November, or
December of any calendar year, that is payable to shareholders of record in such
a month, and that is paid the following January will be treated as if received
by the shareholders on December 31 of the year in which the divided is declared.
The Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year.
Any Fund distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of
shares of the Fund by a shareholder that holds such shares as a capital asset
will be treated as long-term capital gain or loss if the shares have been held
for more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
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distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
The Trust anticipates that the Portfolio will be treated as a
partnership for federal income tax purposes. As such, the Portfolio is not
subject to federal income taxation. Instead, the Fund must take into account, in
computing its federal income tax liability, its share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether it has received any cash distributions from the Portfolio. Withdrawals
by the Fund from the Portfolio generally will not result in the Fund recognizing
any gain or loss for federal income tax purposes, except that (1) gain will be
recognized to the extent that any cash distributed exceeds the basis of the
Fund's interest in the Portfolio prior to the distribution, (2) income or gain
will be realized if the withdrawal is in liquidation of the Fund's entire
interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio, and (3) loss will be recognized if
the distribution is in liquidation of that entire interest and consists solely
of cash and/or unrealized receivables. The basis of the Fund's interest in the
Portfolio generally equals the amount of cash and the basis of any property that
the Fund invests in the Portfolio, increased by the Fund's share of income from
the Portfolio and decreased by the Fund's share of losses from the Portfolio and
the amount of any cash distributions and the basis of any property distributed
from the Portfolio.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. The investment by the Fund in the Portfolio does
not cause the Fund to be liable for any income or franchise tax in the State of
New York.
Fund shareholders may be subject to state and local taxes on Fund
distributions to them. Shareholders are advised to consult with their tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund.
8. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Portfolio are
made by a portfolio manager who is an employee of the Manager and who is
appointed and supervised by its senior officers. Changes in the Portfolio's
investments are reviewed by its Board of Trustees. The portfolio manager of the
Portfolio may serve other clients of the Manager in a similar capacity.
The Portfolio's primary consideration in placing securities transactions
with broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Manager attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Portfolio and other
clients of the Manager on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions
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are paid but the prices include a dealer's markup or markdown), the Manager
normally seeks to deal directly with the primary market makers, unless in its
opinion, best execution is available elsewhere. In the case of securities
purchased from underwriters, the cost of such securities generally includes a
fixed underwriting commission or concession. From time to time, soliciting
dealer fees are available to the Manager on the tender of the Portfolio's
securities in so-called tender or exchange offers. Such soliciting dealer fees
are in effect recaptured for the Portfolio by the Manager. At present no other
recapture arrangements are in effect. Consistent with the foregoing primary
consideration, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and such other policies as the Trustees of the
Portfolio may determine, the Manager may consider sales of shares of the Fund
and of securities of other investors in the Portfolio as a factor in the
selection of broker-dealers to execute the Portfolio's securities transactions.
Under the Management Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Manager may cause the Portfolio to pay a
broker-dealer acting on an agency basis which provides brokerage and research
services to the Manager or the Adviser an amount of commission for effecting a
securities transaction for the Portfolio in excess of the amount other
broker-dealers would have charged for the transaction if the Manager determines
in good faith that the greater commission is reasonable in relation to the value
of the brokerage and research services provided by the executing broker-dealer
viewed in terms of either a particular transaction or the Manager's or the
Adviser's overall responsibilities to the Portfolio or to its other clients. Not
all of such services are useful or of value in advising the Portfolio.
The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement. However, because of the
Portfolio's policy of investing in accordance with the Domini Social Index, the
Manager and the Adviser currently intend to make only a limited use of such
brokerage and research services.
Although commissions paid on every transaction will, in the judgment of
the Manager, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Portfolio and the Manager's or the Adviser's other clients, in part for
providing advice as to the availability of securities or of purchasers or
sellers of securities and services in effecting securities transactions and
performing functions incidental thereto such as clearance and settlement.
Certain broker-dealers may be willing to furnish statistical, research and other
factual information or services to the Manager or the Adviser for no
consideration other than brokerage or underwriting commissions.
The Manager and the Adviser attempt to evaluate the quality of research
provided by brokers. The Manager and the Adviser sometimes use evaluations
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resulting from this effort as a consideration in the selection of brokers to
execute portfolio transactions. However, neither the Manager nor the Adviser is
able to quantify the amount of commissions which are paid as a result of such
research because a substantial number of transactions are effected through
brokers which provide research but which are selected principally because of
their execution capabilities.
The fees that the Portfolio pays to the Manager and the Adviser will not
be reduced as a consequence of the Portfolio's receipt of brokerage and research
services. To the extent the Portfolio's securities transactions are used to
obtain brokerage and research services, the brokerage commissions paid by the
Portfolio will exceed those that might otherwise be paid for such portfolio
transactions and research, by an amount which cannot be presently determined.
Such services may be useful and of value to the Manager or the Adviser in
serving both the Portfolio and other clients and, conversely, such services
obtained by the placement of brokerage business of other clients may be useful
to the Manager or the Adviser in carrying out its obligations to the Portfolio.
While such services are not expected to reduce the expenses of the Manager or
the Adviser, the Manager or the Adviser would, through use of the services,
avoid the additional expenses which would be incurred if it should attempt to
develop comparable information through its own staff. For the fiscal years ended
July 31, 1994, 1995 and 1996, the Portfolio paid brokerage commissions of
$13,000, $15,222 and $45,017, respectively.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Manager's or the Adviser's other
clients. Investment decisions for the Portfolio and for the Manager's or the
Adviser's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the
Portfolio is concerned. However, it is believed that the ability of the
Portfolio to participate in volume transactions will produce better executions
for the Portfolio.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated as of April 1, 1996. Its authorized capital consists
of an unlimited number of shares of beneficial interest of $0.01 par value,
issued in separate series. Each share of each series represents an equal
proportionate interest in that series with each other share of that series.
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The assets of the Trust received for the issue or sale of the shares of
each fund and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. If a series were unable to meet its obligations, the
assets of all other series might be available to creditors for that purpose, in
which case the assets of such other series could be used to meet liabilities
which are not otherwise properly chargeable to them. Expenses with respect to
any two or more series are to be allocated in proportion to the asset value of
the respective series except where allocations of direct expenses can otherwise
be fairly made. The officers of the Trust, subject to the general supervision of
the Trustees, have the power to determine which liabilities are allocable to a
given series, or which are general or allocable to two or more series. In the
event of the dissolution or liquidation of the Trust or any series, the holders
of the shares of any series are entitled to receive as a class the value of the
underlying assets of such shares available for distribution to shareholders.
Shares of the Trust entitle their holder to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series, a Shareholder Servicing Agent may vote any shares as to which such
Shareholder Servicing Agent is the agent of record and which are not represented
in person or by proxy at the meeting, proportionately in accordance with the
votes cast by holders of all shares otherwise represented at the meeting in
person or by proxy as to which such Shareholder Servicing Agent is the agent of
record. Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for purposes of quorum requirements.
The Trustees of the Trust have the authority to designate additional
series and to designate the relative rights and preferences as between the
different series. There is presently one series so designated. All shares issued
and outstanding will be fully paid and nonassessable by the Trust, and
redeemable as described in this Statement of Additional Information and in the
Prospectus.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless, as
to liability to Trust or Fund shareholders, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Trust. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily
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available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Fund
and provides for indemnification and reimbursement of expenses out of Fund
property for any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides for the maintenance, by or on
behalf of the Trust and the Fund, of appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Fund and its shareholders and the Trust's Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the Fund
itself was unable to meet its obligations.
10. FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio as of July 31,
1996 have been filed with the Securities and Exchange Commission as part of the
Fund's annual report pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder, and are hereby incorporated herein by reference from such annual
report. A copy of such annual report will be provided, without charge, to each
person receiving this Statement of Additional Information.
DSI268D
23
