DSI250A.edg
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996
FILE NO. 811-07599
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2
DOMINI INSTITUTIONAL TRUST
(Exact Name of Registrant as Specified in Charter)
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 617-423-0800
THOMAS M. LENZ
SIGNATURE BROKER-DEALER SERVICES, INC.
6 ST. JAMES AVENUE
BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
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EXPLANATORY NOTE
This Registration Statement has been filed by Domini Institutional
Trust (the "Registrant") pursuant to Section 8(b) of the Investment Company Act
of 1940, as amended. However, shares of beneficial interest of Domini
Institutional Social Equity Fund (the "Fund"), the sole active series of the
Registrant, are not being registered under the Securities Act of 1933 (the
"1933 Act") since such shares will be issued by the Registrant solely in
private placement transactions which do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. Shares of the Fund may only be
purchased by "accredited investors," as that term is defined in Rule 501(a) of
Regulation D under the Securities Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any shares
of beneficial interest of the Fund.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
Item 4. General Description of Registrant.
See "Investment Objective and Policies" in the Private Placement
Memorandum which is attached hereto.
Item 5. Management of the Fund.
See "Summary of Expenses," "Management" and "Service Organizations,
Transfer Agent and Custodian" in the Private Placement Memorandum attached
hereto.
Item 6. Capital Stock and Other Securities.
See "Other Information Concerning Shares of the Funds" and "Tax
Matters" in the Private Placement Memorandum attached hereto.
Item 7. Purchase of Securities Being Offered.
See "Purchases and Redemptions of Shares" in the Private Placement
Memorandum attached hereto.
Item 8. Redemption or Repurchase.
See "Purchases and Redemptions of Shares" in the Private Placement
Memorandum attached hereto.
Item 9. Pending Legal Proceedings.
Not applicable.
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Memorandum No. __
Issued To: _____________________
Dated May 22, 1996
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
6 St. James Avenue
Boston, Massachusetts 02116
SHARES OF BENEFICIAL INTEREST
THE OFFERING OF SHARES OF BENEFICIAL INTEREST (PAR VALUE $0.01 PER SHARE)
("SHARES") IN DOMINI INSTITUTIONAL SOCIAL EQUITY FUND (THE "FUND") WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
SHARES WILL BE OFFERED FOR INVESTMENT ONLY TO QUALIFYING RECIPIENTS OF THIS
PRIVATE PLACEMENT MEMORANDUM PURSUANT TO THE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY SECTION 4(2) THEREOF. THE FUND IS
A SERIES OF DOMINI INSTITUTIONAL TRUST (THE "TRUST"), A MANAGEMENT INVESTMENT
COMPANY REGISTERED AS AN OPEN-END COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE "1940 ACT"). AS AN OPEN-END COMPANY, THE TRUST WILL
PROMPTLY REDEEM SHARES OF THE FUND TENDERED FOR REDEMPTION UPON RECEIPT OF A
REDEMPTION REQUEST IN GOOD ORDER, SUBJECT TO CERTAIN RESTRICTIONS DESCRIBED IN
THIS PRIVATE PLACEMENT MEMORANDUM. NO RESALE OF SHARES MAY BE MADE UNLESS THE
SHARES ARE SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
THIS PRIVATE PLACEMENT MEMORANDUM HAS BEEN PREPARED ON A CONFIDENTIAL
BASIS SOLELY FOR THE INFORMATION OF THE RECIPIENT AND MAY NOT BE REPRODUCED,
PROVIDED TO OTHERS OR USED FOR ANY OTHER PURPOSE. PROSPECTIVE INVESTORS ARE NOT
TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL, BUSINESS OR TAX ADVICE.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ADVISERS AS TO LEGAL, TAX AND
RELATED MATTERS CONCERNING AN INVESTMENT IN THE TRUST.
NO PERSON HAS BEEN AUTHORIZED TO MAKE REPRESENTATIONS OR GIVE ANY
INFORMATION WITH RESPECT TO THE SHARES, EXCEPT THE INFORMATION CONTAINED HEREIN
OR IN THE TRUST'S REGISTRATION STATEMENT FILED UNDER THE 1940 ACT.
INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY MEET CERTAIN
FINANCIAL REQUIREMENTS AND THAT THEY ARE FAMILIAR WITH AND UNDERSTAND THE TERMS,
RISKS AND MERITS OF AN INVESTMENT IN THE TRUST.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD, EXCEPT TO THE TRUST OR AS PERMITTED
UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
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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. "DominiSM" and
"Domini Social IndexSM" are service marks of Kinder, Lydenberg, Domini & Co.,
Inc. ("KLD"). 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.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIO OF SECURITIES, 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. THE INVESTMENT
PERFORMANCE OF THE FUND WILL CORRESPOND DIRECTLY TO THE INVESTMENT PERFORMANCE
OF 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" Master-Feeder Structure
herein. The Portfolio invests in the common stocks included in the Domini Social
Index.
The investment adviser of the Portfolio (the "Adviser") is KLD. 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 investment manager (the "Manager") of
the Portfolio is Mellon Equity Associates ("Mellon Equity"). The Manager manages
the investments of the Portfolio from day to day in accordance with the
Portfolio's investment objective and policies.
Shares of the Fund are issued solely in private placement transactions
which do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act. Shares of the Fund may only be purchased by an "accredited
investor", as that term is defined in Rule 501(a) of Regulation D under the
Securities Act. See "Purchases and Redemptions of Shares."
The minimum initial investment amount is $2,000,000. The Trust offers
to buy back (redeem) shares of the Fund from its shareholders at any time at net
asset value. Shares of the Fund are sold continuously by Signature Broker-Dealer
Services, Inc. ("Signature"), the Trust's exclusive private placement agent (the
"Placement Agent"). Signature also serves as the administrator of the Trust (the
"Administrator") and of the Portfolio (the "Portfolio Administrator"), and in
such capacities supervises the overall administration of the Trust and of the
Portfolio, respectively. The Boards of Trustees of the Trust and of the
Portfolio provide broad supervision over the affairs of the Trust and of the
Portfolio, respectively. For further information about the Trustees of the Trust
and the Portfolio, see "Management" herein and in Part B of the current
registration statement filed by the Trust with respect to the Fund (the
"Registration Statement"). A majority of the Trust's Trustees are not affiliated
with the Adviser.
The Fund is obligated to pay a fee to the Administrator at an annual
rate equal to 0.15% of the Fund's average daily net assets for the Fund's
then-current fiscal year. The Portfolio is obligated to pay a fee to the
Portfolio Administrator at an annual rate equal to 0.05% of the Portfolio's
average daily net assets, a fee to the Adviser at an annual rate equal to 0.05%
of the Portfolio's average daily net assets, and a fee to the Manager equal on
an annual basis to 0.20% of the Portfolio's average daily net assets, in each
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case for the Portfolio's then-current fiscal year. The Fund and the Portfolio
must also pay all of their respective other expenses. See "Management" herein
and in Part B of the Trust's Registration Statement for more detailed
information on the fees and other expenses of the Fund and the Portfolio.
TABLE OF CONTENTS
PAGE
SUMMARY OF EXPENSES........................................................ 1
INVESTMENT OBJECTIVE AND POLICIES.......................................... 1
MANAGEMENT................................................................. 7
PURCHASES AND REDEMPTIONS OF SHARES........................................ 9
TAX MATTERS................................................................ 12
OTHER INFORMATION CONCERNING SHARES OF THE FUND............................ 13
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SUMMARY OF EXPENSES
The following table provides a summary of expenses relating to
purchases and sales of shares of the Fund, and the aggregate annual operating
expenses for the Fund and the Portfolio, as a percentage of average net assets
of the Fund.
SHAREHOLDER TRANSACTION EXPENSES None
ANNUAL OPERATING EXPENSES
Advisory and Management Fees 0.25%
Other Expenses:
- Administrative Services Fees 0.20%
- Expense Payment Fees 0.07%
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Total Operating Expenses 0.52%
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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 expense payment arrangements between Signature and
each of the Trust and the Portfolio, Signature pays all of the operating
expenses of the Fund and the Portfolio, including the advisory, management and
administrative services fees. Under these arrangements, Signature receives
expense payment fees for all operating expenses (i) from the Fund at an annual
rate equal to 0.02% of the Fund's average daily net assets for its then-current
fiscal year, and (ii) from the Portfolio at an annual rate equal to 0.50% of the
Portfolio's average daily net assets for its then-current fiscal year. As a
result, the aggregate annual operating expenses (including amortization of
organization expenses) of the Fund and the Portfolio will not exceed 0.52% of
the average daily net assets of the Fund. All of the advisory, management and
administrative services fees shown above are paid through the expense payment
arrangements. After the expense payment arrangements terminate on December 31,
1999, 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.
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.
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.
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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 March 31, 1996, the correlation between the
weightings of securities held by the Portfolio and the weightings of the stocks
in the Index was 0.99. 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 is a common stock index
developed and maintained by the Adviser comprised of the common stocks of
approximately 400 companies which meet certain social criteria. The weightings
of the stocks comprising the Index are based upon market capitalization. The
criteria used in developing and maintaining the Domini Social Index involve
subjective judgment by the Adviser. The Adviser seeks to exclude companies
which, based on data available to the Adviser, derive more than 2% of their
gross revenues from the sale of military weapons; derive any revenues from the
manufacture of tobacco products or alcoholic beverages; derive any revenues from
gambling enterprises; or own directly or operate nuclear power plants or
participate in businesses related to the nuclear fuel cycle. In evaluating
stocks for inclusion in the Index, the Adviser considers criteria such as a
company's environmental performance, particularly in taking positive initiatives
in environmental matters; its employee relations; its corporate citizenship; and
the quality of a company's products and its attitudes with regard to consumer
issues. Environmental performance includes a company's record on waste disposal,
toxic emissions, fines or penalties, and efforts in waste and emissions
reductions, recycling, and the use of environmentally beneficial fuels.
Corporate citizenship includes a company's record on philanthropic activities
and its interaction with the communities it affects. Employee relations includes
a company's record with regard to labor matters, its commitment to work place
safety and to equal employment opportunity (reflected, for example, in the
number of women and minorities in executive positions), the breadth, quality and
innovation of its employee benefit programs, and its commitment to provide
employees with a meaningful participation in company profits either through
stock purchase or profit sharing plans.
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
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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 March 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 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 March 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 March
31, 1996 approximately 39% 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 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. Subject to the goal of achieving a
0.95 or better correlation between the
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weightings of the securities held by the Portfolio and the weightings of the
securities in the Index, the Manager may slightly overweight and/or underweight
certain holdings of the Portfolio compared to the Index in an effort to enhance
the performance of the Portfolio to help offset the expenses of the Portfolio
and the Fund and the effect of the size and timing of cash flows into and out of
the Portfolio and the Fund. There can be no assurances, of course, that such
portfolio enhancement strategies will be successful, and the performance of the
Portfolio may as a result be worse than if such strategies were not undertaken.
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.
Frequent changes in the Portfolio's holdings may result from the policy
of attempting to correlate the Portfolio's securities holdings with the
composition of the Index, and the frequency of such changes will increase as the
rate and volume of purchases and redemptions of shares of the Portfolio
increases. The annual portfolio turnover rates of the Portfolio for the fiscal
years ended July 31, 1994 and July 31, 1995 were 8% and 6%, respectively.
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 or the Administrator 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 Part B
of the Registration Statement.
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 and 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 five 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.
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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
STRUCTURE - The Trust and the Portfolio are utilizing certain proprietary
rights, know-how and financial services referred to as the Hub and Spoke(R)
master-feeder investment structure from Signature Financial Group, Inc., of
which the Administrator is a wholly owned subsidiary. "Hub and Spoke(R)" 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 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 Part B of
the Registration Statement 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 Part B
of the Registration Statement 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
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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 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 Part B of the Registration Statement.
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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.
Part B of the Trust's Registration Statement 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
Part B of the Registration Statement 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 and administration services are described herein
under "Management - Adviser, - Manager 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 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 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 LEE 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 0.05% of the Portfolio's average daily net assets, on an
annualized basis for the Portfolio's then-current fiscal year.
Amy Lee Domini is a principal executive officer of KLD. Ms. Domini is a
Chartered Financial Analyst and has been in the investment field for twenty
years. She has co-authored three books on social investing, ETHICAL INVESTING
(Addison-Wesley, 1986), INVESTING FOR GOOD (Herbert Collins, 1993) and THE
SOCIAL INVESTMENT ALMANAC (Henry Holt Reference Books, 1992), and is currently a
trustee of Loring, Wolcott & Coolidge, a firm of private trustees. Ms. Domini
serves on the Governing Board of the Interfaith Center on Corporate
Responsibility and is a former member of the Board of the National Association
of Community Development Loan Funds. She is a member of both the Committee on
Trust Funds and the Church Pension Fund at the Episcopal Church (USA). Ms.
Domini has worked to promote both shareholder activism and community development
investing which, in combination with the integration of social criteria into
investment decisions, in her view serve to encourage the business community to
accept more responsibility for its impact on society.
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Peter D. Kinder, president of KLD, received his training as a lawyer
and has practiced in both the public and private sectors with a particular
emphasis on administrative law. He co-authored LAW AND BUSINESS (McGraw-Hill,
1990 [3d ed.]), ETHICAL INVESTING (Addison-Wesley, 1986), INVESTING FOR GOOD
(Herbert Collins, 1993) and THE SOCIAL INVESTMENT ALMANAC (Henry Holt Reference
Books, 1992). As a member of the Board of the Social Investment Forum, Mr.
Kinder participated in the Forum's CERES Project which developed the Valdez
Principles proposing environmental standards to be adopted by U.S.
corporations.
Steven D. Lydenberg, Director of Research of KLD, has been active in
social research for nineteen years. For twelve years he served the Council on
Economic Priorities, ultimately as Director of Corporate Accountability
Research. From 1987 to 1989, Mr. Lydenberg was an investment associate with
Franklin Research and Development, where he edited Franklin's newsletter,
INVESTING FOR A BETTER WORLD. Mr. Lydenberg has authored numerous publications
on issues of corporate social responsibility, including RATING AMERICA'S
CORPORATE CONSCIENCE (Addison-Wesley, 1986), as well as co-authored THE SOCIAL
INVESTMENT ALMANAC (Henry Holt Reference Books, 1992) and INVESTING FOR GOOD
(Herbert Collins, 1993).
He is a Chartered Financial Analyst.
"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.
Under the Management Agreement, the Portfolio pays Mellon Equity an
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 such assets up to $50 million, 0.30% of such assets between $50 million
and $100 million, 0.20% of such assets between $100 million and $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 September 30, 1995, the Manager had approximately $7.6 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.
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<PAGE>
ADMINISTRATOR
Pursuant to Administrative Services Agreements, Signature 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, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Trust or the Portfolio; the preparation and filing of all documents required for
compliance by the Trust or the Portfolio with applicable laws and regulations;
and arranging for the maintenance of books and records of the Trust and the
Portfolio. Signature provides persons satisfactory to the Board of Trustees of
the Trust 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 Trust or
the Portfolio, may be directors, officers or employees of Signature or its
affiliates. For these services and facilities, Signature receives fees computed
and paid monthly from the Fund at an annual rate equal to 0.15% of the average
daily net assets of the Fund, and from the Portfolio at an annual rate equal to
0.05% of the average daily net assets of the Portfolio, in each case on an
annualized basis for the Fund's or the Portfolio's then-current fiscal year.
Pursuant to a Sub-Administrative Services Agreement between Signature
and KLD, KLD serves as Sub-Administrator of the Trust. In such capacity, KLD
performs certain administrative services requested by the Administrator,
including assisting personnel of the Administrator in answering questions from
the general public, the media and investors in the Fund regarding the securities
holdings of the Portfolio. For these services, KLD receives from the
Administrator such compensation as they may agree on from time to time.
PURCHASES AND REDEMPTIONS OF SHARES
Shares of the Fund are issued solely in private placement transactions
which do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act. Shares of the Fund may only be purchased by an "accredited
investor," as that term is defined in Rule 501(a) of Regulation D under the
Securities Act to include the following categories of persons:
(1) Any bank as defined in section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in section
2(13) of the Securities Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that Act; any Small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors;
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<PAGE>
(2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer
of the securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Sec. 230.506(b)(2)(ii); or
(8) Any entity in which all of the equity owners are accredited
investors.
PURCHASES
Shares of the Fund may be purchased directly from the Placement Agent
at the net asset value next determined after an order for shares is received in
good order and accepted by the Trust, provided such order is received and
accepted prior to the close of the New York Stock Exchange 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.
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 must complete, sign
and return to the Placement Agent the Subscription Agreement and appropriate
Investor Questionnaire accompanying this Private Placement Memorandum to 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
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c/o Fundamental Shareholder Services, Inc.
Attention: Rosalba Procopio
90 Washington Street
New York, New York 10006
(212) 635-5000
The Subscription Agreement contains certain representations and
warranties by the investor. A Subscription Agreement executed by an investor
will be binding, unless rejected by the Fund. The Trust will not accept any
investments until the Subscription Agreement and appropriate Investor
Questionnaire have been received and accepted by the Trust. Checks should be
made payable in U.S. dollars to "Domini Institutional Social Equity Fund."
Shares may also be purchased by wire transfer of funds. To obtain wire transfer
instructions, please contact Karen Pratt at (617) 547-7479. The Trust reserves
the right to reject any subscriptions, in whole or in part. For further
information on how to purchase shares of the Fund, an investor should contact
Ms. Pratt.
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 prior to the close of the
Fund Business Day. 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
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 a
member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific
Stock Exchange or by a commercial bank (not a savings bank) which is a member of
the Federal Deposit Insurance Corporation. In some cases the Fund may require
the furnishing of additional documents.
An investor may redeem shares in any amount by written or telephonic
request. Redemptions may be paid by the Fund by check or by wire transfer.
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.
Attention: Rosalba Procopio
90 Washington Street
New York, New York 10006
(212) 635-5000
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<PAGE>
The Trust, Transfer Agent and Placement Agent 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
Placement Agent. The Trust, Transfer Agent and Placement Agent 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
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 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.
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,
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<PAGE>
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 Placement Agent prior to the
close of the Fund Business Day on 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. At the close of each such Fund
Business Day, 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 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 semi-annually (in the months of June 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.
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<PAGE>
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.
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 affiliated with the Administrator or the Adviser; 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 all fees under its Administrative
Services Plan; expenses of distributing and redeeming shares and servicing
shareholder accounts; expenses of preparing, printing and mailing private
placement memoranda, 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 (if
applicable) and qualification of shares of the Fund and the preparation,
printing and mailing of private placement memoranda 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 administrative
fees payable to the Portfolio Administrator.
Pursuant to expense payment arrangements between Signature and each of
the Trust with respect to the Fund (effective April 8, 1996) and the Portfolio
(effective January 1, 1995), Signature has agreed to pay all of the operating
expenses of the Fund and the Portfolio. The arrangements will terminate on
December 31, 1999 unless sooner terminated by mutual agreement of the parties.
Under these arrangements Signature receives expense payment fees computed and
paid monthly (i) from the Fund, at an annual rate equal to 0.02% of the Fund's
average daily net assets for its then-current fiscal year, and (ii) from the
Portfolio, at an annual rate equal to 0.50% of the Portfolio's average daily net
assets for its then-current fiscal year. See "Management of the Trust and the
Portfolio" in Part B of the Registration Statement for more information
regarding expense payment arrangements.
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<PAGE>
EXCLUSIVE PLACEMENT AGENT AGREEMENT
Signature, as the Placement Agent, acts as agent of the Fund in
connection with the offering of shares of the Fund pursuant to an Exclusive
Private Placement Agreement with the Trust. Signature, as the Placement Agent,
also acts as the principal underwriter of shares of the Fund and bears the
expenses related to the compensation of personnel necessary to provide such
services and all costs of travel, office expenses (including rent and overhead)
and equipment.
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 with placement fees or shareholder servicing fees.
Prior to offering another class of shares, the Trust would either issue a new
private placement memorandum and a corresponding Part B to its Registration
Statement or amend this Private Placement Memorandum and its corresponding Part
B 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 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.
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<PAGE>
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.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the
"Administrative Plan") which provides that the Trust may obtain the services of
an administrator, a transfer agent and a custodian and may enter into agreements
providing for the payment of fees for such services. See "Management -
Administrator" above and "Transfer Agent and Custodian" below. The Portfolio has
also adopted an Administrative Services Plan which provides that the Portfolio
may obtain the services of an administrator, a transfer agent and a custodian,
and may enter into agreements providing for the payment of fees for such
services.
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 shares of the Portfolio.
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.
-----------
Part B of the Trust's Registration Statement 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) determination of the net asset
16
<PAGE>
value of shares of the Fund, and (vi) the audited financial statements of the
Portfolio at July 31, 1995 and unaudited financial statements of the Portfolio
at January 31, 1996.
DSI241D
17
<PAGE>
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
6 St. James Avenue
Boston, Massachusetts 02116
PART B
May 22, 1996
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
PAGE
General Information and History.................................... 1
Investment Objective and Policies.................................. 1
Management of the Trust and the Portfolio.......................... 7
Control Persons and Principal Holders of Securities................ 9
Investment Advisory, Management and Other Services................. 10
Portfolio Transactions and Brokerage Commissions................... 13
Capital Stock and Other Securities................................. 15
Purchase, Redemption and Pricing of Securities..................... 16
Tax Status......................................................... 17
Underwriters....................................................... 19
Calculations of Performance Data................................... 19
Financial Statements............................................... 19
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. 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 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 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
1
<PAGE>
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, 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 Private Placement Memorandum 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 "Securities
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 five 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.
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.
2
<PAGE>
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.
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 investment
policies discussed above, including those concerning security transactions.
INVESTMENT RESTRICTIONS
The Trust 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 Part B 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,
3
<PAGE>
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 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 (i) 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 (ii) 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;
(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 Securities 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 Securities Act if the Board of Trustees determines that a liquid
4
<PAGE>
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
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
5
<PAGE>
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 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 Securities 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 Securities 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 Fund's 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,
6
<PAGE>
(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 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. 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 Private Placement Memorandum 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).
ITEM 14. 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 Lee Domini* -- Chair and Trustee of the Trust and the Portfolio;
Officer of Kinder, Lydenberg, Domini & Co., Inc.; Trustee, Loring, Wolcott &
Coolidge (since 1987).
Philip W. Coolidge* -- President and 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
7
<PAGE>
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 expected to be paid to
the Trustees for the fiscal year ending July 31, 1996 is set forth below. The
Trustees may hold various other directorships unrelated to the Trust or
Portfolio.
<TABLE>
<CAPTION>
Total
Compensation
Aggregate from the
Compensation Trust
from the and the
Trust Portfolio
<S> <C> <C>
Amy Lee Domini*, Chair and Trustee None None
Philip E. Coolidge*, President and None None
Trustee
Allen M. Mayes, Trustee $200 $1,400
Timothy Smith, Trustee $200 $1,400
Frederick C. Williamson, Trustee $200 $1,400
</TABLE>
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;
Officer 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).
8
<PAGE>
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); Audit Manager, Price
Waterhouse (prior to 1983).
Thomas M. Lenz -- Secretary of the Trust and the Portfolio; Vice
President and Associate General Counsel, Signature Financial Group, Inc. (since
November, 1989); Assistant Secretary, Signature Broker-Dealer Services, Inc.
(since February, 1991).
Andres E. Saldana -- Assistant Secretary of the Trust and the Portfolio;
Legal Counsel and Assistant Secretary, Signature Financial Group, Inc. (since
November, 1992); Assistant Secretary, Signature Broker-Dealer Services, Inc.
(since September, 1993); Attorney, Ropes & Gray (September, 1990 to November,
1992).
Daniel E. Shea -- Assistant Treasurer of the Trust and the Portfolio;
Assistant Manager of Fund Administration, Signature Financial Group, Inc., since
November 1993; Supervisor and Senior Technical Advisor, Putnam Investments,
since prior to 1990.
Messrs. Coolidge, Elder, Lenz, Saldana and Shea also hold similar
positions for other investment companies for which Signature or an affiliate
serves as the principal underwriter.
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 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.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of May 10, 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, there were no shareholders of record of the Fund.
ITEM 16. INVESTMENT ADVISORY, MANAGEMENT AND OTHER SERVICES.
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
9
<PAGE>
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 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 Advisory 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 shareholders of the Trust 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 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 Private Placement Memorandum contains a description of fees
payable to the Adviser for services under the Advisory Agreement. For the fiscal
years ended July 31, 1993, 1994 and 1995, the Adviser voluntarily waived all of
its advisory fees.
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
Trust 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 shareholders of the Trust 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 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.
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The Fund's Private Placement Memorandum 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, 1993, the Former Manager voluntarily waived all of its management fees. 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.
ADMINISTRATOR
Pursuant to Administrative Services Agreements, Signature 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, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Trust or the Portfolio; the preparation 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 Trust and the
Portfolio. The Administrator provides persons satisfactory to the Board of
Trustees of the Trust 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
Trust or the Portfolio, may be directors, officers or employees of the
Administrator or its affiliates.
Pursuant to a Sub-Administrative Services Agreement between Signature
and KLD, KLD serves as Sub-Administrator of the Trust. In such capacity, KLD
performs certain administrative services requested by the Administrator,
including assisting personnel of the Administrator in answering questions from
the general public, the media and investors in the Trust regarding the
securities holdings of the Portfolio. For these services, KLD receives from the
Administrator such compensation as they may agree on from time to time.
The Fund's Private Placement Memorandum contains a description of the
fees payable to the Administrator by the Fund or payable to Signature, as the
administrator of the Portfolio (the "Portfolio Administrator") by the Portfolio,
as the case may be, under the Administrative Services Agreements. For the fiscal
years ended July 31, 1993, 1994 and 1995, the Portfolio Administrator
voluntarily waived all of its administrative services fees from the Portfolio.
The Administrative Services Agreement with the Trust provides that
Signature may render administrative services to others. The Administrative
Services Agreement with the Trust also provides that neither the 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 Trust, 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 Administrative Services Agreement.
The Administrative Services Agreement with the Portfolio provides that
Signature may render administrative services to others. The Administrative
Services Agreement with the Portfolio terminates automatically if it is assigned
and may be terminated without penalty by majority vote of the shareholders of
the Trust and of the other investors in the Portfolio (with the vote of each
being in proportion to the amount of their investment) or by either party on not
more than 60 days' nor less than 30 days' written notice. The Administrative
Services Agreement with the Portfolio also provides that neither Signature, as
the Portfolio's Administrator, nor its personnel shall be liable for any error
of judgment or mistake
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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 Administrative Services
Agreement.
ADMINISTRATIVE SERVICES PLANS; TRANSFER AGENT,
CUSTODIAN AND SERVICE ORGANIZATIONS
The Trust has adopted an Administrative Services Plan (the
"Administrative Plan") which provides that the Trust may obtain the services of
an administrator, one or more service organizations, a transfer agent and a
custodian, and may enter into agreements providing for the payment of fees for
such services. The Administrative Plan will continue in effect indefinitely if
such continuance is specifically approved at least annually by a vote of both a
majority of the Trust's Trustees and a majority of the Trust's Trustees who are
not "interested persons" of the Trust and who have no direct or indirect
financial interest in the operation of the Administrative Plan or in any
agreement related to such Plan ("Qualified Trustees"). The Administrative Plan
requires that the Trust shall provide to the Trust's Board of Trustees and the
Trust's Board of Trustees shall review, at least quarterly, a written report of
the amounts expended (and the purposes therefor) under the Administrative Plan.
The Administrative Plan may be terminated at any time by a vote of a majority of
the Trust's Qualified Trustees or with respect to the Fund by a majority vote of
the shareholders of the Fund. The Administrative Plan may not be materially
amended without a vote of the majority of both the Trust's Trustees and the
Trust's Qualified Trustees.
The Trust has entered into a Transfer Agency Agreement with Fundamental
Shareholder Services, Inc. ("FSSI") pursuant to which FSSI acts as the transfer
agent for the Trust. The Trust has entered into a Custodian Agreement with
Investors Bank & Trust Company ("IBT") pursuant to which IBT acts as custodian
for the Trust. The Portfolio has entered into a Transfer Agency Agreement with
IBT pursuant to which IBT acts as transfer agent for the Portfolio. The
Portfolio has entered into a Custodian Agreement with IBT pursuant to which IBT
acts as custodian for the Portfolio. For additional information, see "Transfer
Agent and Custodian" in the Private Placement Memorandum.
The Portfolio has also adopted an Administrative Services Plan (the
"Portfolio Administrative Plan") which provides that the Portfolio may obtain
the services of an administrator, a transfer agent and a custodian, and may
enter into agreements providing for the payment of fees for such services. The
Portfolio Administrative Plan will continue in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
majority of the Portfolio's Trustees and a majority of the Portfolio's Trustees
who are not "interested persons" of the Portfolio and who have no direct or
indirect financial interest in the operation of the Portfolio Administrative
Plan or in any agreement related to such Plan ("Qualified Trustees"). The
Portfolio Administrative Plan requires that the Portfolio shall provide to the
Portfolio's Board of Trustees and the Portfolio's Board of Trustees shall
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Portfolio Administrative Plan. The Portfolio
Administrative Plan may be terminated at any time by a vote of a majority of the
Portfolio's Qualified Trustees or by a majority of the outstanding voting
securities of the Portfolio. The Portfolio Administrative Plan may not be
amended to increase materially the amount of permitted expenses thereunder
without the approval of a majority of the outstanding voting securities of the
Portfolio and may not be materially amended in any case without a vote of the
majority of both the Portfolio's Trustees and the Portfolio's Qualified
Trustees.
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EXPENSES
Pursuant to expense payment arrangements between Signature and each of
the Trust with respect to the Fund (effective April 8, 1996) and the Portfolio
(effective January 1, 1995), Signature has agreed to pay all of the operating
expenses of the Fund and the Portfolio. The arrangements will terminate on
December 31, 1999 unless sooner terminated by mutual agreement of the parties.
Under these arrangements, Signature receives expense payment fees computed and
paid monthly (i) from the Fund, at an annual rate equal to 0.02% of the Fund's
average daily net assets for its then-current fiscal year, and (ii) from the
Portfolio, at an annual rate equal to 0.50% of the Portfolio's average daily net
assets for its then-current fiscal year.
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.
ITEM 17. 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 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
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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
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, 1993, 1994 and 1995, the Portfolio paid brokerage
commissions of $8,000, $13,000 and $15,222, 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
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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.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
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, or series. Each share of each series represents an
equal proportionate interest in that series with each other share of that
series.
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 Part B and in the Private Placement Memorandum.
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
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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 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.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF 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 Part B, 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 Private Placement
Memorandum.
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 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
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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 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.
ITEM 20. TAX STATUS.
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.
Under interpretations of the Internal Revenue Service, (i) the
Portfolio will be treated for federal income tax purposes as a partnership and
(ii) for purposes of determining whether the Fund satisfies the income and
diversification requirements to maintain its status as a regulated investment
company, the
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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
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 (i) 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, (ii) 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 (iii) loss will be recognized
if the distribution is in liquidation of that entire
18
<PAGE>
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.
ITEM 21. UNDERWRITERS.
The Trust has entered into an Exclusive Placement Agent Agreement with
Signature as Placement Agent. Under the Exclusive Placement Agent Agreement, the
Placement Agent acts as the agent of the Trust in connection with the offering
of shares of the Fund. Signature receives no compensation as Placement Agent of
the Trust.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The current financial statements of the Portfolio are hereby
incorporated herein by reference from the annual and semi-annual reports of the
Portfolio as filed with the U.S. Securities and Exchange Commission pursuant to
Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. A copy of each such
report will be provided, without charge, to each person receiving this Part B.
DSI231B
19
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
COMMON STOCKS -- 97.9%
APPAREL -- 0.9%
Brown Group Inc............ 400 $ 9,950
Hartmarx Corp*............. 600 3,675
Lands' End Inc............. 800 12,300
Liz Claiborne, Inc......... 2,000 45,750
Nike Inc. (Class B)........ 1,900 171,713
Oshkosh B' Gosh, Inc....... 300 5,100
Phillips-Van Heusen
Corp...................... 600 9,450
Reebok International
Ltd....................... 2,200 78,925
Russell Corp............... 1,000 28,250
Stride Rite Corp........... 1,200 13,350
VF Corp.................... 1,600 88,400
-----------
466,863
-----------
COMMERCIAL PRODUCTS & SERVICES -- 1.9%
Autodesk Inc............... 1,200 54,300
Cintas Corp................ 1,200 45,000
Deluxe Corp................ 2,000 64,250
Donnelley, R.R. & Sons
Co........................ 3,900 145,762
Harland (J.H.) Co.......... 900 19,912
HON Industries Inc......... 800 21,800
Kelly Services (Class A)... 975 26,568
Miller, (Herman) Inc....... 800 19,200
Moore Corp., Ltd........... 2,400 52,800
National Service
Industries, Inc........... 1,300 38,350
New England Business
Service Inc............... 300 6,412
Pitney Bowes Inc........... 3,800 152,475
Standard Register Co. ..... 700 14,962
Wallace Computer Services,
Inc....................... 500 29,188
Xerox Corp................. 2,700 321,634
-----------
1,012,613
-----------
CONSTRUCTION -- 0.3%
Centex Corp................ 900 25,200
Fleetwood Enterprises
Inc....................... 1,300 26,813
Graco Inc.................. 200 5,800
Kaufman & Broad Home
Corp...................... 800 11,500
Rouse Co................... 1,200 25,200
Sherwin-Williams Co. ...... 2,200 80,300
TJ International Inc....... 400 8,350
-----------
183,163
-----------
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
CONSUMER PRODUCTS & SERVICES -- 0.2%
Avery Dennison Corp........ 1,400 $ 56,175
C C H Inc.................. 700 14,875
ISCO Inc. ................. 200 2,050
Tennant Co................. 200 5,000
Zurn Industries Inc........ 200 4,375
-----------
82,475
-----------
ENERGY -- 4.0%
Amoco Corp................. 12,600 847,350
Anadarko Petroleum Corp.... 1,600 68,000
Apache Corp................ 1,900 52,013
Atlantic Richfield Co...... 4,100 472,525
Consolidated Natural Gas
Co. ...................... 2,400 90,000
ENERGEN Corp............... 300 6,600
Enron Corp................. 6,550 227,612
Helmerich & Payne Inc...... 600 17,250
Louisiana Land &
Exploration Co. .......... 900 35,775
Oryx Energy Co.*........... 2,600 37,375
Pennzoil Co. .............. 1,300 60,938
Rowan Companies Inc.*...... 1,800 13,050
Santa Fe Energy Resources
Inc.*..................... 2,500 23,438
Sun Company................ 3,000 88,125
Williams Companies Inc.
(The)..................... 2,800 103,600
-----------
2,143,651
-----------
FINANCIAL -- 10.6%
Ahmanson (H.F.) & Co....... 3,000 67,125
American Express Co. ...... 12,700 488,950
Banc One Corporation....... 10,223 324,587
Bank of Boston Corp........ 2,850 123,619
BankAmerica Corp........... 9,600 518,400
Bankers Trust (N.Y.)
Corp...................... 2,000 129,000
Barnett Banks Inc.......... 2,500 138,750
Beneficial Corp............ 1,400 66,325
Block (H. & R.), Inc....... 2,800 105,000
Cincinnati Financial
Corp...................... 1,305 70,470
CoreStates Financial
Corp...................... 3,700 135,050
Dime Bancorp Inc.*......... 2,600 27,625
Edwards (A.G.), Inc........ 1,525 37,362
Federal National Mortgage
Association............... 6,900 646,013
Fifth Third Bancorp........ 1,700 96,900
</TABLE>
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
FINANCIAL -- CONTINUED
<S> <C> <C>
First Chicago Corp......... 2,300 $ 139,725
First Fed Financial
Corp.*.................... 200 3,000
First Fidelity
Bancorporation............ 2,050 129,150
Golden West Financial
Corp...................... 1,500 70,125
Great Western Financial
Corp...................... 3,600 76,950
Household International
Inc....................... 2,500 131,250
Mellon Bank Corp........... 3,750 150,469
Merrill Lynch & Co.,
Inc....................... 4,550 252,525
Morgan (J.P.) & Co.,
Inc....................... 4,700 343,687
NBD Bancorp Inc............ 4,100 139,400
Norwest Corp............... 8,400 237,300
PNC Bank Corp.............. 5,800 142,825
Piper Jaffray Inc.......... 300 5,063
ReliaStar Financial
Corp...................... 900 34,312
Shawmut National Corp...... 3,350 103,431
Student Loan Marketing
Association............... 1,950 105,056
SunTrust Banks, Inc........ 3,000 181,125
Transamerica Corp.......... 1,750 108,281
Value Line Inc............. 300 8,925
Vermont Financial Services
Corp...................... 100 2,750
Wachovia Corp.............. 4,400 167,750
Wells Fargo & Co........... 1,250 227,969
Wesco Financial Corp....... 150 19,350
-----------
5,755,594
-----------
FOOD & BEVERAGES -- 10.2%
Archer-Daniels-Midland
Co........................ 13,425 221,512
Ben & Jerry's (Class A)*... 100 1,400
CPC International Inc...... 3,800 234,650
Campbell Soup Co........... 6,450 301,537
Coca-Cola Company.......... 32,400 2,134,350
Fleming Cos., Inc.......... 1,200 31,650
General Mills, Inc......... 4,150 216,837
Heinz (H.J.) Company....... 6,200 268,926
Hershey Foods Corp......... 2,300 132,537
Kellogg Co................. 5,600 402,501
PepsiCo, Inc............... 20,200 946,833
Quaker Oats Co............. 3,500 121,625
Ralston Purina Group....... 2,550 136,425
Smucker (J.M.) Co. (Class
A)........................ 1,000 21,875
Super Valu Inc............. 1,900 58,425
Sysco Corp................. 4,700 146,288
TCBY Enterprises, Inc...... 500 2,938
Tootsie Roll Industries,
Inc....................... 618 22,254
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
FOOD & BEVERAGES -- CONTINUED
Wrigley, (Wm.) Jr. Co...... 3,000 $ 133,500
-----------
5,536,063
-----------
HEALTHCARE -- 8.0%
Acuson Corp.*.............. 1,000 11,500
Allergan Inc............... 1,700 51,425
Alza Corp.*................ 2,400 61,800
Angelica Corp.............. 300 7,575
Apogee Enterprises, Inc.... 300 5,194
Becton Dickinson &
Company................... 1,800 105,975
Bergen Brunswig Corp.
(Class A)................. 945 20,436
Biomet Inc.*............... 2,900 44,225
Community Psychiatric
Centers*.................. 1,000 12,750
Forest Laboratories,
Inc.*..................... 1,250 55,468
Humana Inc.*............... 4,000 77,500
Johnson & Johnson.......... 16,500 1,183,867
Manor Care Inc............. 1,550 50,181
Medtronic Inc.............. 2,900 237,800
Merck & Co., Inc........... 31,600 1,631,350
Mylan Laboratories Inc..... 2,200 66,275
Schering-Plough Corp....... 9,600 446,400
St. Jude Medical Inc....... 1,100 60,225
Stryker Corp............... 1,200 52,500
Sunrise Medical Inc.*...... 600 16,425
United American
Healthcare*............... 200 3,550
US Health Care Inc......... 4,300 135,988
-----------
4,338,409
-----------
HOUSEHOLD GOODS -- 4.8%
Alberto Culver Co. (Class
B)........................ 700 21,175
Avon Products, Inc......... 1,700 115,600
Bassett Furniture
Industries, Inc........... 300 7,500
Church & Dwight Co.,
Inc....................... 400 8,400
Clorox Co.................. 1,400 91,875
Colgate-Palmolive Co....... 3,700 259,000
Handleman Co............... 700 7,262
Harman International
Industries, Inc. ......... 600 23,625
Hasbro Inc................. 2,150 66,919
Leggett & Platt Inc........ 1,050 48,694
Mattel, Inc................ 5,669 160,149
Maytag Corp................ 2,900 47,488
Newell Co.................. 4,200 106,575
</TABLE>
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
HOUSEHOLD GOODS -- CONTINUED
<S> <C> <C>
Oneida, Ltd................ 200 $ 3,000
Procter & Gamble Co. ...... 17,600 1,212,200
Rubbermaid Inc............. 4,100 121,975
Shaw Industries............ 3,400 57,375
Snap-On Tools Corp......... 1,000 41,750
Springs Industries, Inc.
(Class A)................. 600 23,550
Stanhome, Inc.............. 400 12,850
Stanley Works (The)........ 1,200 47,550
Thomas Industries.......... 200 3,525
Whirlpool Corp............. 1,900 109,725
Zenith Electronics
Corp.*.................... 1,600 14,000
-----------
2,611,762
-----------
INSURANCE -- 6.0%
Aetna Life & Casualty
Co........................ 2,900 179,438
Alexander & Alexander
Services Inc. ............ 1,100 25,300
Allstate Corp.............. 1 20
American General Corp...... 5,200 189,150
American International
Group, Inc................ 12,100 907,541
Chubb Corp................. 2,200 184,800
CIGNA Corp................. 1,900 153,188
GEICO Corp................. 1,700 94,775
General Re Corp............ 2,100 278,513
Hartford Steam Boiler...... 600 26,700
Jefferson-Pilot Corp....... 1,300 72,637
Lincoln National Corp...... 2,400 98,700
Marsh & McLennan Companies,
Inc....................... 1,900 150,100
Providian Corp............. 2,500 89,688
SAFECO Corp................ 1,600 93,600
St. Paul Companies......... 2,100 102,375
Torchmark Corp............. 1,800 69,300
Travelers Corp............. 8,209 388,859
UNUM Corp.................. 1,900 91,912
USF&G Corp................. 2,600 42,900
USLIFECorp................. 500 20,875
-----------
3,260,371
-----------
MANUFACTURING -- 1.6%
Applied Materials, Inc.*... 2,300 237,800
Briggs & Stratton Corp..... 800 26,700
Cincinnati Milacron Inc.... 900 28,125
Clarcor Inc................ 300 6,937
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
MANUFACTURING -- CONTINUED
Dionex Corp.*.............. 200 9,625
Fastenal Co................ 1,200 $ 40,200
Goulds Pumps, Inc.......... 600 13,200
Hunt Manufacturing Co...... 400 5,600
Illinois Tool Works Inc.... 2,850 168,150
James River Corp. of
Virginia.................. 2,000 66,750
Lawson Products, Inc. ..... 300 8,063
Millipore Corp............. 1,200 41,400
Modine Manufacturing Co.... 800 25,000
Nordson Corp............... 500 27,875
Thermo Electron Corp....... 2,250 96,188
Watts Industries Inc.
(Class A)................. 1,000 23,250
Wellman Inc................ 1,000 26,875
-----------
851,738
-----------
MEDIA -- 7.6%
BET Holdings Inc. (Class
B)*....................... 400 7,100
CBS, Inc................... 1,600 124,200
Capital Cities/ABC, Inc.... 3,900 455,325
Comcast Corp. (Class A).... 5,900 119,475
Disney (Walt) Company
(The)..................... 13,300 779,716
Dow Jones & Co. Inc........ 2,600 92,300
Frontier Corp.............. 2,300 61,813
Gannett Co., Inc........... 3,700 202,575
King World Productions
Inc.*..................... 900 37,688
Knight-Ridder Inc.......... 1,250 70,312
Lee Enterprises Inc........ 500 18,875
McGraw-Hill Inc............ 1,300 99,937
Media General Inc. (Class
A)........................ 600 20,400
Meredith Corp.............. 600 17,250
New York Times Co. (The)
(Class A)................. 2,500 63,750
Nynex Corp................. 10,800 445,500
SBC Communications......... 15,500 745,937
Scholastic Inc.*........... 500 32,875
Tele-Communications, Inc.
(Class A)*................ 16,400 410,000
Times Mirror Co. (Class
A)........................ 3,100 89,125
Turner Broadcasting System
Inc. (Class A)............ 2,200 47,850
Viacom, Inc.*.............. 1,800 91,575
Washington Post Co. (The)
(Class B)................. 300 81,300
-----------
4,114,878
-----------
</TABLE>
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
MISCELLANEOUS -- 2.0%
<S> <C> <C>
Alco Standard Corp......... 1,350 $ 109,856
Allwaste, Inc.*............ 1,200 6,750
American Greetings Corp.
(Class A)................. 2,050 62,013
Avnet, Inc................. 1,000 52,000
Bemis Co., Inc............. 1,400 39,725
CPI Corp................... 400 8,700
Cross, A.T. Co. (Class
A)........................ 500 7,875
DeVRY INC.*................ 400 9,100
Fedders Corp............... 750 5,063
Fuller (H.B.) Co........... 500 17,625
General Signal Corp........ 1,250 46,094
Groundwater Technology,
Inc.*..................... 200 2,650
Harcourt General Inc....... 1,900 85,500
Hillenbrand Industries
Inc....................... 1,700 50,575
Ionics Inc.*............... 400 15,250
Jostens Inc................ 1,400 31,850
KENETECH Corp.*............ 900 10,800
Marriott International
Inc....................... 3,100 112,375
National Education
Corp.*.................... 600 3,225
Omnicom Group, Inc......... 1,000 60,375
Polaroid Corporation....... 1,150 49,306
Premier Industrial Corp.... 2,350 58,162
Sealed Air Corp.*.......... 500 25,375
Service Corp.
International............. 2,350 80,194
Sonoco Products Co......... 2,205 56,228
Toro Co. (The)............. 300 8,587
Whitman Corp............... 2,600 50,700
-----------
1,065,953
-----------
RESOURCE DEVELOPMENT -- 3.2%
Air Products & Chemicals,
Inc....................... 2,900 162,400
Aluminum Co. of America.... 4,600 261,625
ARCO Chemical Co........... 2,450 117,600
Battle Mountain Gold
Co. ...................... 1,800 17,100
Betz Laboratories, Inc..... 700 31,588
Cabot Corp................. 1,200 67,650
Calgon Carbon Corp......... 1,200 14,250
Consolidated Papers Inc.... 1,100 65,313
Cyprus Amax Minerals Co. .. 2,600 72,475
Echo Bay Mines Ltd......... 3,000 27,562
Inland Steel Industries
Inc....................... 1,200 34,500
Mead Corp.................. 1,400 82,425
Morton International
Inc....................... 3,900 117,000
Nalco Chemical Co.......... 1,650 58,781
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
RESOURCE DEVELOPMENT -- CONTINUED
Nucor Corp................. 2,300 $ 123,625
Praxair Inc. .............. 3,700 103,600
Scott Paper Company........ 3,800 174,325
Sigma-Aldrich
Corporation............... 1,300 65,325
Westvaco Corp.............. 1,800 81,450
Worthington Industries,
Inc....................... 2,250 46,969
-----------
1,725,563
-----------
RETAIL -- 11.6%
Albertson's, Inc........... 6,400 190,400
American Stores Co......... 3,800 111,625
Bob Evans Farms, Inc....... 1,200 23,400
Charming Shoppes Inc. ..... 2,000 9,750
Circuit City Stores Inc.... 2,500 92,813
Claire's Stores Inc. ...... 500 10,000
Dayton-Hudson Corp. ....... 1,800 136,125
Dillard Department
Stores.................... 2,900 89,900
Dollar General Corp. ...... 1,656 55,898
Egghead Inc.*.............. 300 3,938
Gap, Inc. (The)............ 3,800 132,525
Giant Food Inc. (Class
A)........................ 1,400 42,700
Gibson Greetings Inc....... 500 7,375
Great Atlantic & Pacific
Tea Co., Inc.............. 1,200 33,450
Hannaford Brothers Co...... 1,300 34,938
Hechinger Co. (Class A).... 800 5,300
Home Depot, Inc. (The)..... 12,033 528,030
Huffy Corp................. 300 3,750
International Dairy Queen,
Inc. (Class A)*........... 600 12,600
K-Mart Corp................ 11,400 179,550
Kroger Company*............ 2,800 87,150
Lillian Vernon Corp........ 200 3,700
Limited, Inc. (The)........ 8,950 183,475
Longs Drug Stores, Inc..... 500 18,312
Lowe's Companies, Inc...... 4,000 147,500
Luby's Cafeterias, Inc..... 500 9,875
May Department Stores Co... 6,300 273,263
McDonald's Corp............ 17,800 687,608
Melville Corp.............. 2,650 95,400
Mercantile Stores Co.,
Inc....................... 1,000 46,625
Morrison Restaurants
Inc....................... 750 17,531
Nordstrom Inc.............. 2,100 84,525
Penney, J.C. Co., Inc...... 5,950 287,831
Pep Boys - Manny, Moe &
Jack...................... 1,450 40,781
Petrie Stores Corp. ....... 1,200 8,400
</TABLE>
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
RETAIL -- CONTINUED
<S> <C> <C>
Price/Costco Inc.*......... 4,765 $ 85,472
Ryan's Family Steak Houses,
Inc.*..................... 1,300 9,100
Sears Roebuck & Co......... 9,900 322,987
Skyline Corp............... 200 3,350
Specs Music Inc.*.......... 200 700
TJX Companies Inc. (The)... 2,000 29,250
Tandy Corp................. 1,900 112,813
Toys 'R' Us, Inc.*......... 6,950 194,600
Wal-Mart Stores, Inc....... 58,800 1,565,550
Walgreen Co................ 3,200 165,600
Whole Foods Market*........ 300 4,575
Woolworth (F.W.) Co........ 3,500 54,688
-----------
6,244,728
-----------
TECHNOLOGIES -- 14.9%
Advanced Micro Devices,
Inc.*..................... 2,650 86,456
Amdahl Corp.*.............. 3,000 29,813
American Power Conversion
Corp.*.................... 2,400 45,000
Analog Devices, Inc.*...... 1,850 67,062
Apple Computer, Inc........ 3,200 144,000
Automatic Data Processing,
Inc....................... 3,700 236,800
Baldor Electric Co......... 400 13,050
Borland International,
Inc.*..................... 600 7,500
Cisco Systems, Inc.*....... 7,000 390,250
Compaq Computer Corp.*..... 6,700 340,025
Computer Assoc.
International Inc......... 4,100 300,837
Cooper Industries Inc. .... 2,900 108,388
DSC Communications Corp.*.. 3,050 163,937
Digital Equipment Corp.*... 3,800 145,825
Grainger, (W.W.) Inc. ..... 1,300 76,213
Hewlett-Packard Co......... 13,100 1,020,163
Hubbell Inc. (Class B)..... 830 48,762
Intel Corp................. 21,300 1,384,563
International Business
Machines Inc.............. 15,000 1,633,125
MCI Communications Corp.... 17,200 412,800
Micron Technology, Inc..... 5,300 331,229
Novell Inc.*............... 9,300 168,562
Perkin-Elmer Corp.......... 1,100 37,262
Quarterdeck Corp.*......... 400 5,875
Raychem Corp............... 1,200 45,600
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
TECHNOLOGIES -- CONTINUED
Shared Medical Systems
Corp...................... 600 $ 24,975
Solectron Corp.*........... 1,200 43,650
Sprint Corp................ 8,900 304,825
Stratus Computer Inc.*..... 700 18,200
Sun Microsystems Inc.*..... 2,400 115,500
Tandem Computers Inc.*..... 2,900 38,063
Tektronix, Inc............. 850 40,906
Tellabs, Inc.*............. 2,300 102,350
Thomas & Betts Corp........ 500 33,813
Xilinx Inc.*............... 600 71,925
-----------
8,037,304
-----------
TRANSPORTATION -- 2.5%
AMR Corp.*................. 2,000 150,000
Airborne Freight Corp...... 400 8,550
Alaska Air Group, Inc.*.... 300 5,775
CSX Corp................... 2,700 226,463
Conrail Inc................ 2,100 129,675
Consolidated Freightways,
Inc....................... 1,100 26,263
Delta Air Lines, Inc....... 1,300 103,025
Federal Express Corp.*..... 1,450 97,875
GATX Corp.................. 600 30,225
Norfolk Southern Corp...... 3,400 246,925
Roadway Services........... 1,100 55,550
Ryder System, Inc.......... 1,950 48,506
Santa Fe Pacific Corp...... 2,656 75,696
Southwest Airlines Inc..... 3,800 109,250
UAL Corp.*................. 350 52,281
Yellow Corp................ 600 9,075
-----------
1,375,134
-----------
UTILITIES -- 7.0%
American Water Works Co.,
Inc....................... 900 27,563
Ameritech Corp............. 14,100 682,087
Atlanta Gas & Light Co. ... 700 24,500
Bell Atlantic Corp......... 11,200 641,200
BellSouth Corp............. 12,700 860,425
Brooklyn Union Gas Company
(The)..................... 1,250 30,469
California Energy Co.,
Inc.*..................... 1,200 22,950
Citizens Utilities Co.
(Class A)*................ 5,695 64,074
Connecticut Energy Corp.... 200 3,900
Eastern Enterprises........ 500 15,125
</TABLE>
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
UTILITIES -- CONTINUED
<S> <C> <C>
El Paso Natural Gas Co..... 1,000 $ 25,375
Equitable Resources Inc.... 800 22,200
Idaho Power Co............. 1,000 24,250
LG & E Energy Corp......... 900 34,762
MCN Corp. ................. 1,700 32,300
NICOR Inc. ................ 1,200 30,450
Noram Energy Corp.......... 3,400 23,375
Northwestern Public Service
Co. ...................... 200 5,200
Oklahoma Gas & Electric
Co........................ 1,000 34,000
ONEOK Inc.................. 700 16,275
Pacific Enterprises........ 2,200 53,075
Pacific Telesis Group...... 10,800 305,100
Peoples Energy Corp........ 900 23,625
Potomac Electric Power
Co........................ 2,800 58,100
Public Service Co. of
Colorado.................. 1,600 50,600
Southern New England
Telecom................... 1550 53,087
Telephone & Data Systems... 1,500 58,125
US West Inc................ 11,900 510,213
Washington Gas Light Co.... 1,200 21,900
-----------
3,754,305
-----------
VEHICLE COMPONENTS -- 0.6%
Cooper Tire & Rubber Co.... 2,150 55,363
Cummins Engine Co., Inc.... 1,150 48,300
Dana Corp.................. 2,600 76,700
Federal-Mogul Corp. ....... 800 17,100
Genuine Parts.............. 3,200 120,800
SPX Corp................... 200 2,875
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
VEHICLE COMPONENTS -- CONTINUED
Smith, A.O................. 400 $ 10,900
Spartan Motors Inc.*....... 300 3,038
Worldway Corp.*............ 200 2,175
-----------
337,251
-----------
Total Common Stocks (Cost
$43,200,668)....................... 52,897,818
-----------
PREFERRED STOCK -- 0.6%
FEDERAL SPONSORED CREDIT -- 0.6%
Federal Home Loan Mortgage
Corp...................... 4,600 301,300
-----------
Total Preferred Stock (Cost
239,422)........................... 301,300
-----------
TOTAL INVESTMENTS -- 98.5%
(COST, $43,440,090)(A)................. 53,199,118
OTHER ASSETS, LESS LIABILITIES --
1.5%................................... 803,670
-----------
NET ASSETS -- 100.0%.................... $54,002,788
-----------
-----------
</TABLE>
- ------------
*Non-income producing security.
(a)The aggregate cost for federal income tax purposes is $43,453,725, the
aggregate gross unrealized appreciation is $10,474,465, and the aggregate
gross unrealized depreciation is $729,072, resulting in net unrealized
appreciation of $9,745,393.
See Notes to Financial Statements
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (Cost $43,440,090) (Note 1).......................... $53,199,118
Cash...................................................................... 813,520
Dividends receivable...................................................... 99,082
Deferred organization expenses (Note 1)................................... 8,657
-----------
Total Assets.......................................................... 54,120,377
-----------
LIABILITIES:
Expenses payable (Note 2)................................................. 21,045
Payable for securities purchased.......................................... 96,544
-----------
Total Liabilities..................................................... 117,589
-----------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS...................... $54,002,788
-----------
-----------
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $54,002,788
-----------
-----------
</TABLE>
See Notes to Financial Statements
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................................. $ 902,936
EXPENSES (NOTES 1 AND 2):
Investment management fee...................................... $ 39,589
Investment advisory fee........................................ 19,795
Administration fee............................................. 19,795
Expense reimbursement fee...................................... 118,532
Amortization of organization expenses.......................... 10,359
----------
Total Expenses............................................. 208,070
Less: Waiver of expenses....................................... (39,590)
----------
Net Expenses........................................................... 168,480
----------
NET INVESTMENT INCOME.......................................................... 734,456
NET REALIZED GAIN ON INVESTMENTS (NOTE 3):
Proceeds from sales............................................ 2,483,407
Cost of securities sold........................................ 2,077,980
----------
Net realized gain on investments....................................... 405,427
NET UNREALIZED APPRECIATION OF INVESTMENTS:
Beginning of year.............................................. 1,029,594
End of year.................................................... 9,759,028
----------
Net change in unrealized appreciation.................................. 8,729,434
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $9,869,317
----------
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31,1995 JULY 31, 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income....................................................... $ 734,456 $ 545,816
Net realized gain on investments............................................ 405,427 207,560
Net change in unrealized appreciation....................................... 8,729,434 (216,317)
-------------- --------------
Net Increase in Net Assets Resulting from Operations.................... 9,869,317 537,059
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Additions................................................................... 14,888,452 14,967,462
Reductions.................................................................. (2,076,641) (1,377,702)
-------------- --------------
Net increase in Net Assets from Transactions in Investors'
Beneficial Interests................................................... 12,811,811 13,589,760
-------------- --------------
Total Increase in Net Assets........................................ 22,681,128 14,126,819
NET ASSETS:
Beginning of year........................................................... 31,321,660 17,194,841
-------------- --------------
End of year................................................................. $ 54,002,788 $ 31,321,660
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
FOR THE PERIOD
AUGUST 10,
YEAR ENDED 1990***
---------------------------------------------------------- TO JULY 31,
JULY 31, 1995 JULY 31, 1994 JULY 31, 1993 JULY 31, 1992 1991
------------- ------------- ------------- ------------- ---------------
FINANCIAL HIGHLIGHTS:
<S> <C> <C> <C> <C> <C>
Net investment
income to average
net assets*........ 1.85% 2.13% 1.88% 1.99% 1.85%**
Expenses to average
net assets*........ 0.43% 0.29% 0.29% 0.29% 0.29%**
Portfolio turnover
rate............... 6% 8% 4% 3% --
</TABLE>
- --------------------------------------------------------------------------------
*Reflects a voluntary waiver of fees by the Administrator and Adviser. Due to
the limitations set forth in the expense payment arrangements, had the
Administrator and Adviser not waived their fees, the ratios of net investment
income and expenses to average net assets as stated would not have changed
for the periods ended July 31, 1993, 1992 and 1991. For the years ended July
31, 1995 and 1994, the ratios of net investment income and expenses to
average net assets would have been 1.75% and 0.53% and 2.00% and 0.42%,
respectively. (See Note 2.)
**Annualized.
***Commencement of operations.
See Notes to Financial Statements
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES. Domini Social Index Portfolio (the
"Portfolio") is registered under the Investment Company Act of 1940 (the "Act")
as a no-load, diversified, open-end management investment company which was
organized as a trust under the laws of the State of New York on June 7, 1989.
The Portfolio intends to correlate its investment portfolio as closely as is
practicable with the Domini Social Index (the "Index"), which is a common stock
index developed and maintained by Kinder, Lydenberg, Domini & Co., Inc. ("KLD"),
the Portfolio's Adviser. The Declaration of Trust permits the Trustees to issue
an unlimited number of beneficial interests in the Portfolio. The Portfolio
commenced operations upon effectiveness on August 10, 1990 and began investment
operations on June 3, 1991. The following is a summary of the significant
accounting policies of the Portfolio:
A. VALUATION OF INVESTMENTS. The Portfolio values securities at the last
reported sale price, or at the last reported bid price if no sales are reported.
B. DIVIDEND INCOME. Dividend income is recorded on the ex-dividend date.
C. FEDERAL TAXES. The Portfolio's policy is to comply with the applicable
provisions of the Internal Revenue Code. Accordingly, no provision for Federal
taxes is necessary.
D. DEFERRED ORGANIZATION EXPENSE. Expenses incurred by the Portfolio in
connection with its organization are being amortized by the Portfolio on a
straight-line basis over a five-year period.
E. OTHER. Investment transactions are accounted for on the trade date.
Gains and losses are determined on the basis of identified cost.
2. TRANSACTIONS WITH AFFILIATES.
A. INVESTMENT ADVISORY FEES. The Portfolio has retained KLD as the
Investment Adviser of the Portfolio. The services provided by KLD consist of the
determination of the stocks to be included in the Index and evaluating, in
accordance with KLD's criteria, debt securities which may be purchased by the
Portfolio. For its services under the Investment Advisory Agreement, KLD
receives from the Portfolio a fee accrued daily at an annual rate equal to 0.05%
of the Portfolio's average daily net assets. For the year ended July 31, 1995,
KLD voluntarily waived all of its fees.
B. INVESTMENT MANAGEMENT FEES. For the period August 1, 1994 through
November 20, 1994, the Portfolio retained State Street Bank and Trust Company
("State Street") as the Investment Manager of the Portfolio. State Street did
not determine the composition of the Index. For its services under the prior
Management Agreement, State Street received from the Portfolio a fee accrued
daily at an annual rate equal to 0.10% of the Portfolio's average daily net
assets. For the period August 1, 1994 through November 20, 1994, the Portfolio
accrued and paid investment management fees of $10,180 to State Street.
On October 5, 1994, the Board of Trustees of the Portfolio voted to
terminate the investment management agreement between the Portfolio and State
Street. Termination was effective as of November 21, 1994, at which time Mellon
Equity Associates ("MEA") assumed responsibility for the management of the
Portfolio's assets. MEA does not determine the composition of the Index. Under
the new Management Agreement, the Portfolio pays MEA an 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. For the period November 21, 1994 through July 31, 1995, the Portfolio
accrued and paid investment management fees of $29,409 to MEA.
C. EXPENSE PAYMENT AGREEMENTS. Pursuant to expense payment arrangements
between Signature and each of the Fund and the Portfolio effective January 1,
1995, Signature has agreed to pay all of the operating expenses of the Fund and
the Portfolio, including the advisory and management fees of the Portfolio and
the administration fees of the Fund and the Portfolio. Under these arrangements,
Signature receives expense payment fees (i) from the Fund, at an annual rate
equal to 0.48% of the Fund's average daily net assets for its then-current
fiscal year, and (ii) from the Portfolio, at an annual rate equal to 0.50% of
the Portfolio's average daily net assets for its then-current fiscal year. As a
result, the aggregate annual operating expenses (including amortization of
organization expenses) of the Fund and the Portfolio will not exceed 0.98% of
the average daily net assets of the Fund. After the expense payment arrangements
terminate on December 31, 1999, the dollar-based expenses of the Fund and the
Portfolio will each be paid directly. Prior to January 1, 1995, the Fund and the
Portfolio each had entered into expense reimbursement agreements (the "Prior
Agreements") with Signature pursuant to which the aggregate annual operating
expenses (including amortization of an organization expenses) of the Fund and
the Portfolio would not exceed 0.98% of the Fund's average daily net assets for
its then-current fiscal year. Under the Prior Agreements, Signature agreed to
pay the expenses of the Fund and the Portfolio (except for fees payable under
each of the Administrative Services Agreements, the Distribution Agreement, the
Management Agreement, the Advisory Agreement and expenses related to the
organization of the Fund and the Portfolio) until April 30, 2000, all subject to
reimbursement by the Fund or the Portfolio, as the case may be. For the year
ended July 31, 1995, Signature incurred approximately $90,542 in expenses on
behalf of the Portfolio.
D. REIMBURSEMENT OF EXPENSES. The Administrator has agreed to pay certain
expenses of the Domini Social Equity Fund (the "Fund"), formerly the Domini
Social Index Trust, and the Portfolio subject to reimbursement. To accomplish
such reimbursement, the Administrator may either receive an expense
reimbursement fee from the Fund and the
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1995
- --------------------------------------------------------------------------------
Portfolio or may reimburse the Fund and the Portfolio directly for expenses
incurred such that after such reimbursement the aggregate expenses of the Fund
and the Portfolio will not exceed 0.98% of the average daily net assets of the
Fund. For the period August 1, 1994 through December 31, 1994, the aggregate
expenses of the Fund and the Portfolio were limited to 0.75% of the average
daily net assets of the Fund. The expense reimbursement fee agreement will
terminate on the earlier of April 30, 2000, or the date on which the cumulative
reimbursement fee equals the cumulative payments of such reimbursable expenses
made by the Administrator. For the year ended July 31, 1995, the Administrator
incurred approximately $90,542 in expenses on behalf of the Portfolio.
3. INVESTMENT TRANSACTIONS. Purchase and sales of investments, other than U.S.
Government securities and short-term obligations, aggregated $15,541,954 and
$2,483,407, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Trustees and Shareholders
Domini Social Index Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Domini Social Index Portfolio as
of July 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the four-year period then ended and for the period from August 10, 1990
(commencement of operations) to July 31, 1991. These financial statements and
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1995 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Domini Social Index Portfolio as of July 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended and financial highlights for each of the years in
the four-year period then ended and for the period from August 10, 1990 to July
31, 1991, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
August 25, 1995
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
The following financial statements are included in Part A:
Not applicable.
The following financial statements are included in Part B:
Domini Social Index Portfolio
Portfolio of Investments at July 31, 1995
Statement of Assets and Liabilities at July 31, 1995
Statement of Operations at July 31, 1995
Statement of Changes in Net Assets for the fiscal years ended July 31, 1995 and
July 31, 1994
Financial Highlights
Notes to Financial Statements at July 31, 1995
Report of Independent Auditors
The following financial statements are incorporated by reference into
Part B:
Domini Social Index Portfolio
Portfolio of Investments at January 31, 1996 (unaudited)
Statement of Assets and Liabilities at January 31, 1996 (unaudited)
Statement of Operations at January 31, 1996 (unaudited)
Statement of Changes in Net Assets for the year ended July 31, 1995 and for the
six months ended January 31, 1996 (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, January 31, 1996 (unaudited)
(b) Exhibits:
1. Declaration of Trust.*
2. By-Laws.*
8. Custody Agreement between the Registrant and Investors Bank &
Trust Company.*
9(a). Administrative Services Agreement between the Registrant and Signature
Broker-Dealer Services, Inc. ("Signature"), as administrator.*
9(b) Transfer Agency Agreement between the Registrant and Fundamental
Shareholder Services, Inc.*
9(c) Administrative Services Plan.*
15. Placement Plan.*
* Incorporated herein by reference from the Registrant's registration statement
on Form N-1A (File no. 811-07599) as filed with the U.S. Securities and Exchange
Commission (the "SEC") on April 18, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
(1) (2)
Title of Class Number of Record Holders
(par value $0.01 per share) (as of May 22, 1996)
Domini Institutional Social Equity Fund 0
Item 27. Indemnification.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an exhibit to the Registration Statement.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator are insured under an errors and omissions liability
insurance policy. The Registrant and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser.
Not Applicable.
Item 29. Principal Underwriters.
(a) Signature is the exclusive placement agent for the Registrant.
Signature and its affiliates serve as placement agent or distributor for
other registered investment companies.
(b) The information required by this Item 29 with respect to each
director or officer of Signature is hereby incorporated herein by reference from
Schedule A of Form BD (File No. 8- 41134) as filed by Signature with the SEC
pursuant to the Securities Exchange Act of 1934.
(c) Not Applicable.
Item 30. Location of Accounts and Records.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Name Address
Kinder, Lydenberg, Domini & Co., Inc. 127 Mt. Auburn Street
(subadministrator) Cambridge, MA 02138
Fundamental Shareholder Services, Inc. 90 Washington Street
(transfer agent) New York, NY 10006
Signature Broker-Dealer Services, Inc. 6 St. James Avenue
(administrator and exclusive Boston, MA 02116
placement agent)
Investors Bank & Trust Company 89 South Street
(custodian) Boston, MA 02111
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this registration statement on Form N-1A to be signed
on its behalf by the undersigned, thereto duly authorized in the City of Boston,
and Commonwealth of Massachusetts on the 22nd day of May, 1996.
DOMINI INSTITUTIONAL TRUST
By: /S/ PHILIP W. COOLIDGE
Philip W. Coolidge
President
DSI250B.EDG
