<PAGE>
[DSIL LOGO]/SM/ This is filed pursuant to Rule 497 (c).
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SOCIAL INVESTMENTS/SM/ File Nos. 333-14449 and 811-07599
Domini Institutional Social Equity Fund/SM/
Prospectus
December 1, 1999
The Responsible Index Fund/SM/
Investing for Good/SM/
As with all mutual funds, the Securities and Exchange Commission has not judged
whether this fund is a good investment or whether the information in this
prospectus is truthful and complete. Anyone who indicates otherwise is
committing a federal crime.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
The Fund at a Glance
<S> <C>
Investment Objective......................................................... 3
Primary Investment Strategy and
Overview of the Social Screens Used by the Index ............................ 3
Primary Risks ............................................................... 4
Past Performance of the Fund ................................................ 5
Fund Fees and Expenses....................................................... 6
Structure ................................................................... 7
More About the Fund
About Index Investing........................................................ 8
Answers to basic questions about how index funds work, how index funds
differ from actively managed funds, and an overview of the advantages they
offer.
What is the Domini 400 Social Index/sm/?.................................... 10
Information about the nation's first socially screened index, how it was
created and is maintained, and further details about the Fund's socially
responsible investment criteria.
Is the Fund an Appropriate Investment for Me? .............................. 14
Additional Investment Strategies & Risk Information ........................ 15
Who Manages the Fund? ...................................................... 17
Shareholder Manual ...........................................................A-1
Information about buying and selling shares, distributions, and the tax
consequences of an investment in the Fund.
Financial Highlights .........................................................B-1
</TABLE>
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Why Reading this Prospectus is Important
This prospectus explains the objective, risks, and strategies of the Domini
Institutional Social Equity Fund. Reading the prospectus will help you to
decide whether the Fund is the right investment for you.
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
Because you could lose money by investing in this Fund, we suggest that you
read this prospectus carefully, and keep it for future reference.
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<PAGE>
The Fund at a Glance
Investment Objective
The Fund seeks to provide its shareholders with long-term total return that
matches the performance of the Domini 400 Social Index, an index made up of the
stocks of 400 companies selected using social and environmental criteria. The
Index is composed primarily of large-capitalization U.S. companies.
Primary Investment Strategy
The Fund seeks to match the composition of the Index as closely as possible. The
Fund typically invests in all 400 stocks included in the Domini 400 Social
Index, in approximately the same proportion as they are found in the Index. This
is known as a full replication strategy.
Although you cannot invest directly in an index, an index mutual fund provides
you the opportunity to invest in a portfolio that tracks an index.
Overview of the Social Screens Used by the Index:
o The Index avoids companies that manufacture tobacco products or alcoholic
beverages, companies that derive any revenues from gambling enterprises, major
military contractors and companies that have an ownership share in, or operate,
nuclear power plants.
o The Index seeks to hold the stocks of good corporate citizens, demonstrated by
positive relations with their communities and their employees, by their
environmental record, and by the quality and safety of their products.
For more information about the Domini 400 Social Index and its social screens,
please refer to page 10.
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<PAGE>
The Fund at a Glance
Primary Risks
o Market Risk. The Fund seeks to remain fully invested in the stock market
during all market conditions. Therefore, the value of your investment, like
stock prices generally, may fluctuate widely. You could lose money. Stock
markets tend to move in unpredictable cycles, with periods of rising prices and
periods of falling prices. The value of your investment will vary from day to
day due to changing market conditions, or conditions relating to specific
companies.
o Style Risk. The Fund primarily invests in the stocks of large-capitalization
companies. Large-capitalization stocks tend to go through cycles where they do
better, or worse, than the stock market in general. The performance of your
investment will generally follow these broad market trends. Because the Domini
400 Social Index is weighted by market capitalization, a few large companies
represent a relatively large percentage of the Index. Should the value of one or
more of these stocks decline significantly, it could negatively affect the
Fund's performance.
The Fund only invests in companies that meet its criteria for socially
responsible investing. Because of this restriction, the investments that the
Fund's portfolio managers may choose from may be more limited than those of a
fund that is not restricted to investing in companies that meet the fund's
social criteria.
o Indexing. The Fund will continue to invest in the Domini 400 Social Index,
regardless of how the Index is performing. It will not shift its concentration
from one industry to another, or from stocks to bonds or cash, in order to
defend against a falling or stagnant stock market. If the Index is heavily
weighted in a single industry or sector, the Fund will be heavily invested in
that industry or sector, and as a result can be affected more positively or
negatively by developments in those industries than would be another investment
company whose investments are not restricted to the securities in the Index.
Also, the Fund's ability to match the performance of the Index may be affected
by a number of factors, including Fund operating expenses and transaction costs,
inflows and outflows of cash from the Fund and imperfect correlation between the
Fund's holdings and those in the Index.
There can be no guarantee that the Fund will be able to achieve its investment
objective. The investment objective of the Fund may be changed without the
approval of the Fund's shareholders, although management currently has no
intention to do so.
Additional risk information is provided in the More About the Fund section at
page 8, and is available in the Statement of Additional Information.
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<PAGE>
The Fund at a Glance
Past Performance of the Fund
The bar chart and table below provide an indication of the risk of investing in
the Fund by illustrating how returns have varied from one year to the next and
by showing how the Fund's average annual total returns compare with those of the
Standard & Poor's 500 Index, a broad-based index. Please note that this
information represents past performance, and is not necessarily an indication
of how the Fund will perform in the future.
Total Return for Years Ended December 31
This bar chart shows how the Fund's performance has varied over the last two
calendar years.
[CHART APPEARS HERE]
1997 1998
---- ----
37.31% 33.98%
Best quarter covered by the bar chart above: 24.86%
(quarter ended 12/31/98)
Worst quarter covered by the bar chart above: -9.65%
(quarter ended 9/30/98)
Year-to-date performance as of 9/30/99: 4.94%
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<PAGE>
The Fund at a Glance
Average Annual Total Return as of 12/31/98
The table below shows the Fund's average annual total returns in comparison to
the S&P 500.
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Since
1 Year Inception
(5/30/96)
- ----------------------------------------------------------------------------
Domini Institutional Social 33.98% 32.50%
Equity Fund
- ----------------------------------------------------------------------------
S&P 500 28.58% 28.76%
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Fund Fees and Expenses
The table below describes the fees and expenses that you would
pay if you buy and hold shares of the Fund.*
Shareholder Fees (fees paid directly by you)
Sales Charge (Load) Imposed on Purchases: None
Deferred Sales Charge (Load): None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
Annual Fund Operating Expenses
(expenses deducted from the Fund's assets)
Management Fees: 0.20%
Distribution (12b-1) Fees: None
Other Expenses
Administrative Services and Sponsorship Fee: 0.25%
Other Expenses: 0.11%
Total Annual Fund Operating Expenses: 0.56%
Fee Waiver**: 0.26%
------
Net Expenses: 0.30%
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* The table reflects the expenses of the Fund and the Domini Social Index
Portfolio, the underlying portfolio in which the Fund invests.
** For the period from November 30, 1999 to November 30, 2000, Domini Social
Investments LLC has contractually agreed to waive certain fees and/or reimburse
certain expenses, including management fees, so that the Fund's expenses will
not exceed, on a per annum basis, 0.30% of its average daily net assets.
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<PAGE>
The Fund at a Glance
Example
The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur if you invest $10,000 in the Fund for
the time periods indicated and then sell all of your shares at the end of each
period. This example assumes that the Fund provides a return of 5% a year, all
dividends and distributions are reinvested and that operating expenses remain
constant for the time period indicated.
----------------------------------------------
1 Year 3 Years 5 Years 10 Years
----------------------------------------------
$31 $153 $287 $677
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This example should not be considered to represent actual expenses or
performance from the past or the future. Actual future expenses may be higher or
lower than those shown.
Structure
The Fund invests its assets in the Domini Social Index Portfolio. The Portfolio
has the same investment objective as the Fund and invests in securities using
the strategies described in this prospectus.
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Quick Guide to Important Information
Minimum Initial Investment: $2,000,000
Investment Adviser: Domini Social Investments LLC
Inception Date: May 30, 1996
Dividends: Distributed Quarterly, in March, June, September
and December
Capital Gains: Distributed Annually, in December
Newspaper Listing: DomISocial
Ticker Symbol: DIEQX
Cusip Number: 257131102
Website: www.domini.com
Shareholder Services: 1-800-582-6757
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<PAGE>
More About the Fund
About Index Investing
What is an index?
An index is an unmanaged group of stocks selected to measure the behavior of the
market, or some portion of it. The Standard & Poor's 500 Index, for example, is
an index of 500 companies selected to track the performance of the broad market
of large-cap U.S. companies. Investors use indexes as benchmarks to measure how
their investments are performing in comparison to the market as a whole.
The Domini 400 Social Index attempts to track the performance of the broad
market of primarily large-cap U.S. companies that the typical socially
responsible investor would consider an appropriate investment. The Domini 400
Social Index was created to serve as a benchmark for socially and
environmentally conscious investors
What is the difference between an index fund and an actively managed fund?
The Fund uses a passive investment strategy. This means that the Fund purchases,
holds and sells stocks based on the composition of the Domini 400 Social Index,
rather than on a manager's judgment as to the direction of the market or the
merits of any particular stock.
Unlike index funds, actively managed funds are generally managed to achieve the
highest possible return within certain parameters. These funds are managed by
stock-pickers who buy and sell stocks based on their opinion of the financial
outlook of the stock. Because index funds use a passive strategy, changes in
management generally have less impact on fund performance.
Index funds provide investors with an opportunity to invest in a portfolio that
is specially designed to match the performance of a particular index. Rather
than relying on the skills of a particular mutual fund manager, index fund
investors purchase, in a sense, a cross-section of the market. Their performance
should therefore reflect the segment of the market that their fund is designed
to track.
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<PAGE>
More About the Fund
What are some of the advantages of index investing?
Index investing has become quite popular because it offers investors a
convenient, relatively low-cost and tax-efficient way to obtain exposure to a
broad spectrum of the stock market. Here are some other advantages:
o Diversification. Because indexes such as the Domini 400 Social Index seek to
measure the performance of the broad market, they invest in a large number of
companies representing a diverse mix of industries. This structure can help
reduce volatility as compared to funds that may invest in a smaller number of
companies, or focus on a particular industry.
o Benchmark Comparability. All stock mutual funds measure their performance in
relation to a particular market benchmark. Index funds typically match the
performance of their particular benchmarks more closely than comparable
actively managed funds.
o Tax Efficiency. Turnover rate refers to the volume of buying and selling of
stocks by a fund. The turnover rate of index funds tends to be much lower than
the average actively managed mutual fund. Depending on your particular tax
situation, a low turnover rate may produce fewer taxable capital gains.
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Compare Turnover Rates
The average annual turnover rate for all domestic
stock funds is 111%.*
The annual turnover rate for the Domini Institutional Social
Equity Fund is 8%.** (There is no guarantee that this turnover
will not be higher in the future.)
A 100% turnover rate would occur if a fund sold and replaced
securities valued at 100% of its net assets within a one-year
period.
* As of 9/30/99; taken from Morningstar PrincipiaPro.
**For the period from 8/1/98 to 7/31/99.
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<PAGE>
More About the Fund
Socially Responsible
Investing
Corporations have both positive and negative effects on society and the natural
environment. Socially responsible investing is an investment strategy designed
to take these effects into account.
Social investors use social and environmental factors to make their investment
decisions. They believe that this helps to encourage greater corporate
responsibility, and may also help to identify companies that are good long-term
investments because enlightened management may be better able to meet the
future needs of society and the environment.
Typically, social investors avoid companies that manufacture products, or
employ practices, that they believe have harmful effects on society. They seek
to invest in companies with positive qualities, such as a proactive
environmental record, or positive employee relations. This process is called
"social screening."
At Domini Social Investments we work with companies to improve their social and
environmental performance. We vote company proxies in a manner that is
consistent with our social screening criteria, and file shareholder resolutions
on important social and environmental issues.
What is the Domini 400 Social Index?
The Domini 400 Social Index (DSI 400) is the nation's first socially screened
index. It was created and launched in May 1990 by the social research firm of
Kinder, Lydenberg, Domini & Co., Inc. (KLD) in order to serve as a benchmark for
social investors, and to determine how social screens affect financial
performance. KLD is an affiliate of Domini Social Investments. The Domini
Institutional Social Equity Fund was launched in 1996 to give institutional
investors an opportunity to invest in the Index.
The Index is maintained by KLD. It is composed of the common stocks of 400
companies that meet the social criteria described below.
What are Social Screens?
All investment decisions use some type of "screen." Screens are guidelines that
define which securities will be included in a portfolio, and which will be
excluded. In addition to basic financial screens relating to financial solvency,
industry and sector diversification, and market capitalization, the stocks in
the Domini 400 Social Index are selected using two basic types of social
screens: exclusionary and qualitative.
KLD uses exclusionary social screens to avoid certain industries such as tobacco
and alcohol, and qualitative social screens to select companies based on their
performance in a number of areas, such as diversity and the environment.
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<PAGE>
More About the Fund
How was the Domini 400 Social Index constructed?
To construct the Domini 400 Social Index, KLD first applied to the S&P 500 a
number of traditional social screens. Roughly half of the S&P 500 companies
qualified for the Index in this initial screening process. Approximately 150
non-S&P 500 companies were then added with two goals in mind. One goal was to
obtain a broad representation of industries, so that the Index would more
accurately reflect the composition of the broad market. Another goal was to
identify companies that are particularly strong models of corporate behavior.
KLD maintains an extensive database of corporate accountability information on
more than 1,000 publicly traded companies and bases its decisions on research
into the factors described below.
Exclusionary Screens
KLD seeks to exclude the following types of companies from the Index:
o Tobacco and Alcohol - firms that manufacture tobacco products or alcoholic
beverages;
o Gambling - firms that receive identifiable revenues from gambling
enterprises;
o Nuclear Power - firms that have an ownership share in, or operate nuclear
power plants; and
o Weapons - firms that receive more than 2% of their gross revenues from the
sale of military weapons.
Qualitative Screens
KLD considers the following criteria when evaluating companies for possible
inclusion in the Index:
o Environmental Performance - a company's record with regard to fines or
penalties, waste disposal, toxic emissions, efforts in waste reduction and
emissions reduction, recycling, and environmentally beneficial fuels, products
and services;
o Employee Relations - a company's record with regard to labor matters,
workplace safety, employee benefit programs, and meaningful participation in
company profits either through stock purchase or profit sharing plans;
- 11 -
<PAGE>
More About the Fund
o Diversity - a company's record with regard to the hiring and promotion of
women and minorities, particularly to management positions and the board of
directors, including a company's record with respect to the availability of
benefit programs that address work/family concerns, innovative hiring programs
for the disabled and progressive policies toward gays and lesbians;
o Corporate Citizenship - a company's record with regard to its charitable
activities and its community relations in general; and
o Product-Related Issues - a company's record with regard to product safety,
marketing practices, and commitment to quality.
From time to time, KLD may, at its discretion, choose to apply additional
criteria, or to modify the application of the criteria listed above, without
consulting shareholders.
How are the Fund's largest holdings selected?
Like the S&P 500, the DSI 400 is "market capitalization-weighted." Market
capitalization is a measure of the value of a publicly traded company. It is
calculated by multiplying the total number of outstanding shares of company
stock by the price per share.
The Domini Institutional Social Equity Fund's portfolio is also market
capitalization-weighted. For example, assume that the total market value of
Company A's shares is twice the total market value of Company B's shares. The
Fund's portfolio is structured so that its holdings of Company A's shares will
be twice the value of its holding of Company B's shares. The Fund's top ten
holdings therefore are simply the ten companies with the highest market value in
the Index.
Because it seeks to duplicate the Index as closely as possible, the Fund will
attempt to have a correlation between the weightings of the stocks it holds in
its 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.
How is the Domini 400 Social Index maintained?
To keep turnover low and to more accurately reflect the performance of the
market, the Index is maintained using a "buy and hold" strategy. Generally
speaking, this means that companies that are in the Index stay in the Index for
a long time. A company will not be removed because its stock has not been
performing well, unless in KLD's opinion the company is no longer financially
viable. Sometimes a company is removed from the Index because it has been
acquired by another company.
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<PAGE>
More About the Fund
Sometimes a company may split into two companies, and only one of the surviving
companies is selected to stay in the Index (because the Index is maintained to
consist of exactly 400 companies at all times).
A company may also be removed from the Index because its social profile has
deteriorated, or due to its inadequate response to a significant controversy.
When a company is removed from the Index, it is replaced with another company.
In the selection process, among other factors, KLD considers the size of the
company, the industry it is in, and its social profile.
Are there companies I won't like in the Domini 400 Social Index?
The screens for the Index are designed to reflect those most widely used by
social investors. Therefore, you may find that some companies in the Index do
not reflect your social or environmental standards. You may wish to review a
list of companies in the Fund's portfolio to decide if they meet your personal
standards. The complete list is available in the Fund's annual and semi-annual
reports. To obtain copies of these reports, free of charge, call 1-800-762-6814.
No company is a perfect model of corporate responsibility. Each year, the Fund
uses its voice as a shareholder to encourage companies to improve their social
and environmental records by voting proxies, writing letters, engaging
management in dialogue and filing shareholder resolutions.
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<PAGE>
More About the Fund
Is the Fund an Appropriate Investment for Me?
Accounts in the Fund may only be established by or for the benefit of entities
which have been approved by the distributor and which fall within the following
categories:
o Endowments,
o Foundations,
o Religious organizations, and
o Other not-for-profit entities.
The Fund may change this policy at any time.
If you are seeking long-term growth, and are looking for an efficient way to
invest in the broad U.S. stock market, the Fund may be appropriate for you.
Please note that although the Fund's portfolio holds a broad cross-section of
the U.S. stock market, it should not be considered a balanced investment program
because it only holds stocks. In addition, the Fund should be considered a
long-term investment and is not appropriate for short-term trading purposes.
If you depend on your investments for current income, or would find it a
financial hardship to wait out periods of stock market volatility, the Fund may
not be appropriate for you.
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<PAGE>
More About the Fund
Additional Investment Strategies &
Risk Information
Investment Structure:
The Fund invests its assets in the Domini Social Index Portfolio. The Portfolio
has the same investment objective as the Fund and invests in securities using
the strategies described in this prospectus. The Fund may withdraw its
investment from the Portfolio at any time if the Board of Trustees of the Fund
determines that it is in the best interests of the Fund to do so. The Board of
Trustees would then consider what action might be taken, including investing all
of the Fund's assets in another similarly structured portfolio having the same
investment objective as the Fund, or hiring an investment adviser to manage the
Fund's assets. There is currently no intention to change the Fund's investment
structure. References to the Fund in this prospectus include the Portfolio,
unless the context requires otherwise.
Cash Reserves:
Although the Fund seeks to be fully invested in the stock market at all times,
it keeps a small percentage of its assets in cash, or cash equivalents. These
reserves provide the Fund with flexibility to meet redemptions and expenses, and
to readjust its portfolio holdings. The Fund may hold these cash reserves
uninvested or may invest them in high quality, short-term debt securities issued
by agencies or instrumentalities of the United States Government, bankers'
acceptances, commercial paper, certificates of deposit, bank deposits or
repurchase agreements. The issuers of these securities must satisfy certain
social criteria.
Securities Lending:
Consistent with applicable regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Securities and Exchange
Commission, the Fund may make loans of its securities to member banks of the
Federal Reserve System and to broker-dealers. These loans would be required to
be secured continuously by collateral consisting of securities, cash or cash
equivalents maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The Fund would have the right to
terminate a loan and obtain the securities loaned at any time on three days
notice.
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<PAGE>
More About the Fund
During the existence of a loan, the Fund 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 Fund 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.
Year 2000:
Some software programs and computer systems are not able to recognize the Year
2000. The Fund could be harmed if the computer systems used by the Fund or its
service providers are not programmed to accurately process information on or
after January 1, 2000. The Fund and its service providers have been diligently
working to resolve any potential Year 2000 problems. While these efforts are
likely to be successful, the failure to implement any necessary changes could
harm the Fund. The Fund also could be harmed if companies in the Fund's
portfolio do not solve their Year 2000 problems, if it costs those companies
large amounts of money to do so, or if the general market is affected by the
Year 2000 transition.
The Fund is not required to use every investment technique or strategy listed in
this prospectus or in the Statement of Additional Information.
For Additional Information about the Fund's investment strategies and risks, the
Fund's Statement of Additional Information is available, free of charge, from
Domini Social Investments.
- 16 -
<PAGE>
More About the Fund
Who Manages the Fund?
Portfolio Adviser:
Domini Social Investments LLC (DSIL), 11 West 25th Street, 7th Floor, New York,
NY 10010, has been managing money since November of 1997 and currently manages
more than $1.5 billion dollars in assets for individual and institutional
investors who are working to create positive change in society by using social
and environmental criteria in their investment decisions. DSIL is the
Portfolio's manager and provides the Portfolio with investment supervisory
services, overall operational support and administrative services. In addition,
DSIL is the sponsor of the Fund and provides the Fund with the administrative
personnel and services necessary to operate the Fund. After March 1, 2000 DSIL's
new address will be 536 Broadway, 7th floor, New York, NY 10012.
Social Research & Index Maintenance:
Kinder, Lydenberg, Domini & Co., Inc. (KLD), an affiliate of DSIL, determines
the composition of the Domini 400 Social Index. The following persons are
primarily responsible for the development and maintenance of the Domini 400
Social Index: Amy L. Domini, CFA, a Managing Principal of DSIL and Founder of
KLD (since 1988), Steven D. Lydenberg, CFA, Director of Research, KLD (since
1990), and Peter D. Kinder, JD, President, KLD (since 1988).
Portfolio Investment Submanager:
Mellon Equity Associates, LLP, with its main offices at 500 Grant Street,
Pittsburgh, PA 15258, provides investment submanagement services to the
Portfolio pursuant to a Submanagement Agreement with DSIL. A team of portfolio
managers at Mellon Equity implements the daily transactions necessary to
maintain the proper correlation between the Fund's portfolio and the Domini 400
Social Index. They do not determine the composition of the Index.
For the services DSIL and Mellon Equity provided to the Fund and the Portfolio
during the fiscal year ended July 31, 1999, they received a total of 0.19% of
the average daily net assets of the Fund, after waivers.
- 17 -
<PAGE>
Shareholder Manual
This section provides you with information on how to buy and sell shares of the
Fund, how Fund shares are valued, and the tax consequences of an investment in
the Fund.
Table of Contents
How to Open an Account ................................................. A-2
How to Buy Shares ...................................................... A-2
How to Sell Shares...................................................... A-4
How the Price of Your Shares is Determined.............................. A-7
How can I find out the Fund's NAV?.................................. A-7
How do you determine what price I will get when I buy shares?....... A-7
How do you determine what price I will get when I sell shares? ..... A-7
How is the value of securities held by the Fund determined?......... A-8
Fund Statements and Reports ............................................ A-9
Dividends and Capital Gains ............................................ A-10
Taxes................................................................... A-10
Rights Reserved by the Fund ............................................ A-11
For more information on:
o investing in the Fund,
o your account,
o the Fund's daily share price, and
o socially responsible investing,
Call our Shareholder Information Line toll-free at 1-800-762-6814. Shareholder
representatives are available to take your call weekdays, from 9-5PM, Eastern
Time. You may obtain the share price of the Fund 24 hours a day, 7 days a week
by using our automated system.
Visit our web site at www.domini.com.
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Quick Reference
Nasdaq Symbol: DIEQX
Newspaper Listing: DomISocial
Account Statements are mailed quarterly.
Trade Confirmations are sent after purchases and redemptions.
Annual and Semi-Annual Reports will be mailed in late September
and March, respectively.
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- A-1 -
<PAGE>
Shareholder Manual
How to Open an Account
1. Read this prospectus (and please keep it for future reference).
2. Decide how much you want to invest.
The minimum initial investment is $2,000,000. The Fund, in its sole
discretion, may permit purchases for lesser amounts.
3. You can choose one of several different payment methods to make your initial
investment. Please review the options listed under "How to Buy Shares", and
follow the simple instructions we've provided. Be sure to completely fill out
and sign the Account Application.
If at any time you need assistance, please call us at 1-800-762-6814, weekdays
from 9-5PM, Eastern Time.
How to Buy Shares
By Check
Mail the completed Account Application and your check to:
Domini Funds
P.O. Box 60494
King of Prussia, PA 19406-0494
For subsequent investments, fill out the investment form that came with your
trade confirmation or account statement or send a note with your account number
and Fund name. Always be sure to include your account number on your check. If
you need additional forms, please call 1-800-762-6814.
Your checks must be in U.S. dollars drawn on a U.S. bank and be made
payable to "Domini Funds."
------------------------------------------------------
IMPORTANT: For our mutual protection, Domini
cannot accept checks made payable to third parties.
------------------------------------------------------
- A-2 -
<PAGE>
Shareholder Manual
By Bank Wire
To establish wire privileges on an existing account, or for additional
information about the service, please call the Fund's transfer agent at
1-800-762-6814.
Wire your investment to:
Bank: Boston Safe Deposit Bank
ABA: 011001234
Acct Name: Domini Funds
Acct #: 043370
FBO: Fund Name, and Your Account Name and Number
at Domini Funds
For new accounts, please call 1-800-762-6814 to obtain an account number before
wiring funds.
By Transfer
For information on transferring assets from another mutual fund family, please
call 1-800-762-6814.
How to Exchange Shares
You may exchange all or a portion of your shares into any other available Domini
Funds or the Domini Money Market Account/SM. You may request an exchange by
calling 1-800-762-6814, or in writing. All written requests must be signed by
all owners.
For information on transferring assets from another mutual fund family, please
call 1-800-762-6814 or visit www.domini.com to obtain the necessary forms.
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The Domini Money Market Account/SM/
The Domini Money Market Account (DMMA) offered through South Shore
Bank is an FDIC-insured (up to $300,000) interest-bearing account with
direct community development benefits. You may open and maintain a
DMMA at no charge, and take advantage of free check-writing (with a
$500 minimum per check), and easy transfers by telephone to and from
your Domini Institutional Social Equity Fund account. A DMMA
investment is subject to certain terms and conditions. Call
1-800-762-6814 for more information.
The rate of return for the Domini Money Market Account will vary. The
Domini Institutional Social Equity Fund is not affiliated with any
bank and is not insured by the FDIC.
-----------------------------------------------------------------------
- A-3 -
<PAGE>
Shareholder Manual
What is "Good Order"?
Purchase and sale requests must be in "good order" to be accepted by the Fund.
To be in "good order" a request must include:
o The Fund name and your account number.
o The amount of the transaction (in dollars or shares).
o Signatures of all owners exactly as registered on the account (for requests
by mail).
o Signature guarantees, if required (see page A-5).
o Any supporting legal documentation that may be required.
How to Sell Shares
You are free to sell all or part of your Fund shares at any time during New York
Stock Exchange trading hours (generally weekdays from 9AM - 4PM Eastern
Time).The Fund will send the proceeds from the sale to you or a third party that
you have designated (this may require a Signature Guarantee - see page A-5).
Transactions are processed at the next determined share price after Domini
receives your sale request in good order.
--------------------------------------------
IMPORTANT: Once a redemption order is
placed, the transaction cannot be canceled.
--------------------------------------------
You may sell (redeem) your shares in the Fund in the following ways:
In Writing
Mail written redemption requests to:
Domini Funds
P.O. Box 60494
King of Prussia, PA 19406-0494
For overnight deliveries, please use the following address:
Domini Funds
c/o First Data Investor Services Group
211 South Gulph Road
King of Prussia, PA 19406
Letters requesting redemptions must:
o specify the dollar amount or number of shares to be sold, the fund name and
the account number; and
o be signed in exactly the same way the account is registered by all
registered owners or authorized signers.
- A-4 -
<PAGE>
Shareholder Manual
Your redemption request may require a signature guarantee. Please see below for
details.
By Telephone
To sell shares by telephone, call the Fund's transfer agent at 1-800-762-6814.
If you wish to receive your redemption by wire and have not already established
wire privileges on your account, you must submit wire redemption requests in
writing along with a Signature Guarantee (see below).
Please consider sending a written request to sell shares if you cannot reach the
Fund's transfer agent by telephone.
Neither the Fund, nor its transfer agent or its distributor will be liable for
any loss, liability, cost or expense for acting on telephone instructions
believed to be genuine. The Fund will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Please contact the
Fund's transfer agent if you wish to suspend telephone redemption privileges.
By Wire
To establish wire redemption privileges on a new account, fill out the
appropriate area on the application, and attach a voided check.
If you have not already established wire redemption privileges on your account
you must submit wire redemption requests in writing along with a Signature
Guarantee (see below).
Additional Information on Selling Shares
Signature Guarantees
You are required to obtain a Signature Guarantee from an Eligible Guarantor for
any:
o Sales (redemptions) exceeding $50,000;
o Written sales requests, regardless of amount, made within 30 days following
any changes in account registration; and
o Redemptions made to a third party or to an address other than the address
for which the account is registered (unless already established on your
account).
- A-5 -
<PAGE>
Shareholder Manual
Eligible Guarantors may include:
o banks;
o savings institutions;
o credit unions;
o broker-dealers; and
o other guarantors acceptable to the Fund and its transfer agent.
The Fund and its transfer agent cannot accept guarantees from notaries public or
organizations that do not provide reimbursement in the case of fraud. The Fund
or its transfer agent may, at its option, request further documentation prior to
accepting requests for redemptions.
Unusual Circumstances
The Fund reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In the event that the Fund suspends
telephone redemption privileges, or if you have difficulty getting through on
the phone, you will still be able to redeem your shares through the other
methods listed above.
The Fund may stop selling its shares or postpone payment:
o during any period in which the New York Stock Exchange is closed or in
which trading is restricted; or
o if the Securities and Exchange Commission determines that an emergency
exists.
Large Redemptions
It is important that you call the Fund's transfer agent before you redeem a
large dollar amount. We must consider the interests of all fund shareholders and
so reserve the right to delay delivery of your redemption proceeds - up to seven
days - if the amount will disrupt the Fund's operation or performance.
The Fund reserves the right to pay part or all of the redemption proceeds in
kind, i.e., in securities, rather than cash. If payment is made in kind, you may
incur brokerage commissions if you elect to sell the securities for cash.
In an effort to protect the Fund from the possible adverse effects of a
substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of the Fund, except upon approval of the Fund's management.
- A-6 -
<PAGE>
Shareholder Manual
How the Price of Your Shares is Determined
The Fund determines its share price (or "NAV", net asset value per share) at the
close of the New York Stock Exchange, normally 4PM Eastern Time, on each day the
Exchange is open for trading. This calculation is made by deducting the amount
of the Fund's liabilities (debts) from the value of its assets, and dividing the
difference by the number of outstanding shares of the Fund.
--------------------------------------------------------------------
Total Assets - Total Liabilities
Net Asset Value (NAV) = -----------------------------------
Number of Shares Outstanding
--------------------------------------------------------------------
To calculate the value of your investment, simply multiply the NAV by the number
of shares of the Fund you own.
How can I find out the Fund's NAV?
By Phone: You may obtain the Fund's NAV 24 hours a day, by calling 1-800-762-
6814 from a touch-tone phone and accessing our automated system. You may speak
with a shareholder representative weekdays from 9-5PM, Eastern Time.
Newspaper Listings: This information is also listed in the mutual fund listings
of most major newspapers. The Fund is most commonly listed as: DomISocial.
Quarterly Statements: You will also receive this information quarterly, in your
account statement.
How do you determine what price I will get when I buy shares?
If your order is received by the Fund's transfer agent by 4:00 PM Eastern Time
in good order, you will receive the NAV determined at the end of that day. See
"What is 'Good Order'?" on page A-4 of this prospectus.
The Fund may stop offering its shares for sale at any time and may reject any
order for the purchase of its shares.
How do you determine what price I will get when I sell shares?
When you sell shares you will receive the next share price that is calculated
after your sale request is received by the Fund's transfer agent in good order.
See "What is `Good Order'?" on page A-4 of this prospectus. Please note that the
Fund will not accept redemption requests after 4PM, and will not hold trades for
the following day.
- A-7 -
<PAGE>
Shareholder Manual
The Fund will normally pay for the shares on the next day the New York Stock
Exchange is open for trading, but in any event within seven days. The Fund will
delay payment for at least seven business days if your checks in payment for the
purchase of the shares you wish to sell have not yet cleared (this may take up
to 15 days). The Fund may pay by check or, if you have completed the appropriate
box on the Account Application, by wire transfer.
How is the value of securities held by the Fund determined?
Securities held by the Fund are normally valued as follows:
Equity securities: Each security that is primarily traded on an exchange or on
the Nasdaq Stock Market is valued at the last sale price on such exchange or on
the Nasdaq.
Each security for which there were no sales during the day and each unlisted
security not reported on the Nasdaq system is valued at the last quoted bid
price, or at fair value as determined in good faith by or at the direction of
the Board of Trustees.
Short-term obligations (remaining maturities of less than sixty days): Each
short-term obligation is valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees.
Portfolio securities for which there are no such quotations or valuations: Each
other portfolio security is valued at fair value as determined in good faith by
or at the direction of the Board of Trustees.
- A-8 -
<PAGE>
Shareholder Manual
Fund Statements and Reports
Confirmation Statements:
Statements confirming the trade date and the amount of your transaction are sent
each time you buy, sell, or exchange shares. Always verify your transactions by
reviewing your confirmation statement carefully for accuracy. Please report any
discrepancies to our Shareholder Services department at 1-800-762-6814 promptly.
Fund Financial Reports:
The Fund's annual report is mailed in September, and the Fund's semi-annual
report is mailed in March. These reports include information about the Fund's
performance, as well as a complete listing of the Fund's holdings.
Tax Statements:
Each year we will send you a statement reporting the previous year's dividend
and capital gains distributions and proceeds from the sale of shares, as
required by the Internal Revenue Service. These are generally mailed in January.
- A-9 -
<PAGE>
Shareholder Manual
Dividends
Paid Quarterly
Capital Gains
Paid Annually
Dividends and Capital Gains
The Fund pays to its shareholders substantially all of its net income in the
form of dividends. Dividends from net income are typically paid quarterly
(usually in March, June, September and December). Any capital gains are
distributed annually in December.
You may elect to receive dividends and capital gains either by check or in
additional shares. Unless you choose to receive your dividends by check, all
dividends will be reinvested in additional shares. In either case, these
distributions are taxable to you.
Taxes
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation and the status of your
account under state and local laws.
Taxability of Dividends:
Each year the Fund will mail you a report of your dividends for the prior year
and how they are treated for federal tax purposes. You will normally have to pay
federal income taxes on the dividends you receive from the Fund, whether you
take the dividends in cash or reinvest them in additional shares.
Dividends from the Fund's short-term capital gains are taxable as ordinary
income. Distributions from the Fund's long-term capital gains are taxable at a
lower capital gains rate. Other dividends are generally taxable as ordinary
income. Some dividends paid in January may be taxable to you as if they had been
paid the previous December.
- A-10 -
<PAGE>
Shareholder Manual
Buying a Dividend:
Dividends paid by the Fund will reduce the Fund's net asset value per share. As
a result, if you buy shares just before the Fund pays a dividend, you may pay
the full price for the shares and then effectively receive a portion of the
purchase price back as a dividend for which you may need to pay tax.
Taxability of Transactions:
Anytime you sell or exchange shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares you sell or
exchange, you may have a gain or a loss on the transaction. You are responsible
for any tax liabilities generated by your transactions.
----------------------------------------------------------------------------
IMPORTANT: By law, the Fund must withhold 31% of your taxable
distributions and any redemption proceeds if you do not provide your
correct taxpayer identification number, or certify that it is correct, or
if the IRS instructs the Fund to do so. The Fund may also be required to
withhold if you fail to certify that you are not otherwise subject to 31%
backup withholding for failing to report income to the IRS, or otherwise
violate IRS requirements.
----------------------------------------------------------------------------
Rights Reserved by the Fund
The Fund and its agents reserve the following rights:
o To waive or lower investment minimums;
o To accept initial purchases by telephone or mailgram;
o To refuse any purchase or exchange order;
o To cancel any purchase or exchange order (including, but not limited to,
orders deemed to result in excessive trading, market timing, fraud, or 5%
ownership) upon notice to the shareholder within five business days of the
transaction or prior to the time the shareholder receives confirmation of
the transaction, whichever is sooner;
o To implement policies designed to prevent excessive trading;
o To freeze any account and suspend account services when notice has been
received of a dispute between the registered or beneficial account owners
or there is reason to believe a fraudulent transaction may occur;
o To otherwise modify the conditions of purchase and any services at any
time; and
o To act on instructions believed to be genuine.
These actions will be taken when, in the sole discretion of management, they are
deemed to be in the best interests of the Fund.
- A-11 -
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the Fund's
financial performance for the periods. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by KPMG Peat Marwick LLP, whose report, along with the Fund's
financial statements, is included in the annual report, which is available upon
request.
<TABLE>
<CAPTION>
Year Year Year For the period
ended ended ended May 30, 1996/(1)/ to
July 31, 1999 July 31, 1998 July 31, 1997 July 31, 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
For a share outstanding for the Period:
Net asset value, beginning of
period ........................... $ 17.87 $ 14.71 $ 9.60 $ 10.00
------- ------- ------ -------
Income (loss) from investment operations:
Net investment income .......... 0.14 0.15 0.13 0.02
Net realized and unrealized
gain (loss) on
investments .................. 3.85 3.17 5.11 (0.41)
------- ------- ------ -------
Total income (loss)
from investment
operations ............... 4.09 9.32 5.24 (0.38)
------- ------- ------ -------
Less distributions and dividends:
Dividends to shareholders
from net investment
income ....................... (0.14) (0.13) (0.13) (0.01)
Distributions to
shareholders from net
realized gains................ (0.32) (0.08) (0.00)/(2)/ --
------- ------- ------ -------
Total distributions and
dividends ................ (0.46) (0.15) (0.13) (0.01)
------- ------- ------ -------
Net asset value, end of period ..... $ 21.50 $ 17.87 $ 14.71 $ 9.60
======= ======= ====== =======
Total return ....................... 29.12% 22.74% 54.01% (3.9)%
Portfolio Turnover*................. 8% 5% 1% 5%/(6)/
Ratios/supplemental data:
Net assets, end of period
(000's omitted) ................ $219,393 $116,321 $71,267 $17,972
Ratio of net investment
income to average net
assets ......................... 0.75%/(3)(4)(5)/ 0.95%/(3)(4)/ 1.25%/(5)/ 1.42%/(5)(6)/
Ratio of expenses to average
net assets ..................... 0.80%/(3)(4)(5)/ 0.80%/(3)(4)/ 0.99%/(5) 0.52%/(5)(6)/
</TABLE>
- ---------------------------
* The Portfolio turnover rates reflect the rate of portfolio activity of the
Domini Social Index Portfolio, the underlying portfolio through which the Fund
invests.
(1) Commencement of operations.
(2) Distribution was less than $0.005.
(3) Reflects a waiver of fees and expenses paid by Domini Social Investments,
LLC, the Sponsor, due to limitations set forth in the Sponsorship Agreement. Had
the Sponsor not waived their fees and reimbursed expenses, the ratios of net
investment income and expenses to average net assets for the year ended July 31,
1998 would have been 0.65% and 0.51%, respectively, and 0.45% and 0.58%, and
respectively for the year ended July 31, 1999.
(4) Reflects a waiver of fees by Domini Social Investments, LLC, the manager of
the Domini Social Index Portfolio. Had the Manager not waived their fees, the
ratio of net investment income and expenses to average net assets for the year
ended July 31, 1998 would have been 0.65% and 0.62%, respectively, and 0.47% and
0.57%, respectively for the year ended July 31, 1999.
(5) Total expenses include expenses paid by Signature Financial Group, the prior
Administrator, or Kinder, Lydenberg, Domini & Co., the prior Adviser in excess
of expense payment and sponsor fees. Had these expenses not been paid by the
Signature Financial Group and Kinder, Lydenberg, Domini & Co. the ratios of net
investment income and expenses to average net assets for the periods ended July
31, 1997 and 1996 would have been 0.99% and 0.86%, and 1.15% and 0.97%,
respectively.
(6) Annualized.
- B-1 -
<PAGE>
NOTES
<PAGE>
For Additional Information
Annual and Semi-Annual Reports
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. These reports include a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year, as well as a
complete listing of the Fund's holdings. They are available by mail from Domini
Social Investments, or on our website, www.domini.com.
Statement of Additional Information
The Fund's Statement of Additional Information contains more detailed
information about the Fund and its management and operations. The Statement of
Additional Information is incorporated by reference into this prospectus and is
legally part of it. Available by mail from Domini Social Investments.
Proxy Voting Guidelines & Social Screening Criteria
Published annually, describing how we will vote our proxies and containing
information about the social screens used to maintain the Domini 400 Social
Index. Also contains a description of our shareholder activism program.
Available by mail from Domini Social Investments, or on our website,
www.domini.com.
Contact Domini
To make inquiries about the Fund or obtain copies of any of the above, free of
charge, call 1-800-762-6814.
Domini Social Investments
P.O. Box 60494
King of Prussia, PA 19406-0494
Web Site: To learn more about the Fund or about socially
responsible investing, visit us online at www.domini.com.
Securities and Exchange Commission
Information about the Fund (including the Statement of Additional Information)
is available at the Commission's website, www.sec.gov. Copies may be obtained
upon payment of a duplicating fee by electronic request at the following e-mail
address: [email protected], or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.You may also visit the Commission's
Public Reference Room in Washington, D.C. For more information about the Public
Reference Room you may call the Commission at 1-202-942-8090.
File No. 811-07599
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
<TABLE>
TABLE OF CONTENTS PAGE
<C> <S> <C>
1. The Fund 2
2. Investment Objective; Information Concerning Investment
Structure; Investment Policies and Restrictions 2
3. Performance Information 10
4. Determination of Net Asset Value; Valuation of Portfolio
Securities 11
5. Management of the Fund and the Portfolio 12
6. Independent Auditors 20
7. Taxation 21
8. Portfolio Transactions and Brokerage Commissions 22
9. Description of Shares, Voting Rights and Liabilities 24
10. Financial Statements 26
</TABLE>
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Fund's
Prospectus dated December 1, 1999, as amended from time to time. This
Statement of Additional Information should be read in conjunction with the
Prospectus. This Statement of Additional Information incorporates by reference
the financial statements described on page 26 hereof. These financial
statements can be found in the Fund's Annual Report to Shareholders. An
investor may obtain copies of the Fund's Prospectus and Annual Report without
charge by contacting DSIL Investment Services LLC, the Fund's distributor, at
(800) 762-6814.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus and should be read only in conjunction
with such prospectus.
<PAGE>
-2-
1. THE FUND
The Domini Institutional Social Equity Fund (the "Fund") is a no-load,
diversified, open-end management investment company. The Fund is a series of
shares of beneficial interest of Domini Institutional Trust (the "Trust"), which
was organized as a business trust under the laws of the Commonwealth of
Massachusetts on April 1, 1996 and commenced operations on May 30, 1996. The
Trust offers to buy back (redeem) shares of the Fund from its shareholders at
any time at net asset value. References in this Statement of Additional
Information to the "Prospectus" are to the current Prospectus of the Fund, as
amended or supplemented from time to time.
Domini Social Investments LLC ("DSIL"), the Fund's sponsor (the "Sponsor"),
supervises the overall administration of the Fund. The Board of Trustees
provides broad supervision over the affairs of the Fund. Shares of the Fund are
continuously sold by DSIL Investment Services LLC, the Fund's distributor (the
"Distributor"). The minimum initial investment is $2,000,000. An investor
should obtain from the Distributor, and should read in conjunction with the
Prospectus, the materials describing the procedures under which Fund shares may
be purchased and redeemed.
The Fund seeks to achieve its investment objective by investing all its
assets in the Domini Social Index Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Fund. DSIL is the Portfolio's investment manager (the "Manager"). Mellon
Equity Associates ("Mellon Equity") is the Portfolio's investment submanager
(the "Submanager"). The Submanager manages the investments of the Portfolio
from day to day in accordance with the Portfolio's investment objective and
policies. Kinder, Lydenberg, Domini & Co., Inc. ("KLD") determines the
composition of the Domini 400 Social Index /SM/ (the "Domini Social Index").
"Domini 400," "Domini Social Index," "Domini 400 Social Index" and "investing
for good" are service marks of KLD which are licensed to DSIL with the consent
of Amy L. Domini (with regard to the word "Domini"). Pursuant to agreements
among KLD, DSIL, Amy L. Domini, and each of the Trust and the Portfolio, the
Trust and the Portfolio may be required to discontinue use of one or more of
these service marks if (i) DSIL ceases to be the Manager of the Portfolio, (ii)
Ms. Domini or DSIL withdraws her or its consent to the use of the word "Domini,"
or (iii) the license agreement between KLD and DSIL is terminated.
2. INVESTMENT OBJECTIVE;
INFORMATION CONCERNING INVESTMENT STRUCTURE;
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide its shareholders with
long-term total return which matches the performance of the Domini Social Index.
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 is a change in the
Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their 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.
<PAGE>
-3-
INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment objective by
investing all of its 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. Investors in the Fund should be aware
that differences in sales commissions and operating expenses 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 Manager at 212-352-9200.
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. This
possibility also exists 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 Fund
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 Fund's votes at the Portfolio meeting. The
percentage of the Fund's votes representing Fund shareholders not voting will be
voted by the Trustees of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Certain changes in the Portfolio's
investment objective, policies or restrictions may require the Fund to withdraw
its interest in the Portfolio. Any such withdrawal could result in a
distribution "in kind" of portfolio securities (as opposed to a cash
distribution) from the Portfolio. If securities are distributed, the Fund could
incur brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other potential means for meeting shareholder redemption
requests, such as borrowing.
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 manager
and an investment submanager and invested directly in the types of securities
being held by the Portfolio.
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
of the Trust 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
<PAGE>
-4-
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
manager and investment submanager, the Trustees will seek to determine the best
course of action.
INVESTMENT POLICIES
The following supplements the information concerning the Fund's and the
Portfolio's investment policies contained in the Prospectus and should only be
read in conjunction therewith. References to the Portfolio include the Fund,
unless the context otherwise requires.
INDEX INVESTING: 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 Domini Social Index. Moreover, inclusion of a stock in the Domini Social
Index does not imply an opinion by KLD, the Manager or the Submanager as to the
merits of that specific stock as an investment. Because the Portfolio seeks to
track, rather than exceed the performance of a particular index, investors
should not expect to achieve the potentially greater results that could be
obtained by a fund that aggressively seeks growth. However, KLD and the Manager
believe that enterprises which exhibit a social awareness, based on the criteria
described in the Prospectus, 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.
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 Submanager's judgment as to the appropriate balance between the
goal of correlating the holdings of the Portfolio with the composition of the
Domini Social Index, and the goals of minimizing transaction costs and keeping
sufficient reserves available for anticipated redemptions of Fund shares. To
the extent practicable, the Portfolio will seek a correlation between the
weightings of securities held by the Portfolio and the weightings of the
securities in the Domini Social Index of 0.95 or better. A figure of 1.0 would
indicate a perfect correlation. 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.
The Board of Trustees will receive and review, at least quarterly, a report
prepared by the Submanager comparing the performance of the Fund and the
Portfolio with that of the Domini Social Index, and comparing the composition
and weighting of the Portfolio's holdings with those of the Domini Social 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 Domini Social Index, or between the composition
and weighting of the Portfolio's securities holdings with those of the stocks
comprising the Domini Social Index. If the correlation between the weightings
of securities held by the Portfolio and the weightings of the stocks in the
Domini Social Index or the correlation between the performance of the Fund,
before expenses, and the performance of the Domini Social Index falls below
0.95, the Board of Trustees will review with the Submanager methods for
increasing such correlation, such as through adjustments in
<PAGE>
-5-
securities holdings of the Portfolio.
In selecting stocks for inclusion in the Domini Social Index, KLD
evaluated, in accordance with the social criteria described in the Prospectus,
each of the companies the stocks of which comprise the Standard and Poor's 500
Composite Stock Price Index (the "S&P 500"). If a company whose stock was
included in the S&P 500 met KLD's social criteria and met KLD's further criteria
for industry diversification, financial solvency, market capitalization, and
minimal portfolio turnover, it was included in the Domini Social Index. As of
July 31, 1999, of the 500 companies whose stocks comprised the S&P 500,
approximately 58% were included in the Domini Social Index. The remaining
stocks comprising the Domini Social Index ( i.e., those which are not included
in the S&P 500) were selected based upon KLD's evaluation of the social criteria
described in the Prospectus, as well as upon KLD's criteria for industry
diversification, financial solvency, market capitalization, and minimal
portfolio turnover. A company which is not included in the S&P 500 may be
included in the Domini Social Index primarily in order to afford representation
to an industry sector which would otherwise be under-represented in the Domini
Social 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, and certain industry sectors will be excluded
altogether. KLD may exclude from the Domini Social Index stocks issued by
companies which are in bankruptcy or whose bankruptcy KLD believes may be
imminent. KLD may also remove from the Domini Social Index stocks issued by
companies which no longer meet its investment criteria.
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 August
31, 1999 approximately 34% and 51% of the Domini Social Index was comprised
of the 10 largest and 20 largest companies, respectively, in the Domini
Social Index.
The component stocks of the S&P 500 are chosen by Standard & Poor's Ratings
Group ("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 ("NYSE") 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 NYSE. Not all stocks
included in the S&P 500 are listed on the NYSE. However, the total market value
of the S&P 500 as of October 28, 1999 represented approximately 72.32% of the
aggregate market value of common stocks traded on the NYSE. Inclusion of a
stock in the S&P 500 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.
CONCENTRATION: 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 Domini Social 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.
<PAGE>
-6-
FOREIGN ISSUERS: 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. With respect to stocks of foreign issuers, 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.
RULE 144A SECURITIES: Although the Portfolio does not have any current
intention to do so, the Portfolio may invest in securities which may be resold
pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act").
LOANS OF SECURITIES: 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.
The Portfolio may lend its securities to the broker-dealers and financial
institutions, provided that (1) the loan is secured continuously by collateral,
consisting of securities, cash or cash equivalents, which is marked to the
market daily to ensure that each loan is fully collateralized at all times; (2)
the Portfolio may at any time call the loan and obtain the return of the
securities loaned within three business days; (3) the Portfolio will receive any
interest or dividends paid on the securities loaned; and (4) the aggregate
market value of securities loaned will not at any time exceed 30% of the total
assets of the Portfolio.
The Portfolio will earn income for lending its securities either in the
form of fees received from the borrower of the securities or in connection with
the investment of cash collateral in short-term money market instruments. Loans
of securities involve a risk that the borrower may fail to return the securities
or may fail to provide additional collateral.
In connection with lending securities, the Portfolio may pay reasonable
finders, administrative and custodial fees. No such fees will be paid to any
person if it or any of its affiliates is affiliated with the Portfolio, the
Manager or the Submanager.
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
<PAGE>
-7-
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 Manager does not
believe that these trading and position limits would have an adverse impact on
the possible use of hedging strategies by the Portfolio.
SHORT SALES: 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.
CASH RESERVES: 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, certificates of deposit, bank deposits
or repurchase agreements, provided that the issuer satisfies certain social
criteria. The Portfolio does not currently intend to invest in direct
obligations of the United States Government. Short-term debt securities
purchased by the Portfolio will be rated at least Prime-1 by Moody's Investors
Service, Inc. or A-1+ or A-1 by S&P or, if not rated, determined to be of
comparable quality by the Portfolio's Board of Trustees. The Portfolio's policy
is to hold its assets in such securities pending readjustment of its portfolio
holdings of stocks comprising the Domini Social Index and in order to meet
anticipated redemption requests. Such investments are not intended to be used
for defensive purposes in periods of anticipated market decline.
-------------------------
The approval of the Fund and of the other investors in the Portfolio is not
required to change the investment objective or any of the non-fundamental
investment policies discussed above, including those concerning security
transactions.
INVESTMENT RESTRICTIONS
The Fund and the Portfolio have each adopted the following policies which
may not be changed without approval by holders of a "majority of the outstanding
voting securities" of the Fund or the Portfolio, respectively, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund or the Portfolio,
respectively, present at a meeting, if the holders of more than 50% of the
outstanding
<PAGE>
-8-
"voting securities" of the Fund or the Portfolio, respectively, are present or
represented by proxy, or (ii) more than 50% of the outstanding "voting
securities" of the Fund or the Portfolio, respectively. The term "voting
securities" as used in this paragraph has the same meaning as in the Investment
Company Act of 1940, as amended (the "1940 Act").
Except as described below, whenever the Trust is requested to vote on a
change in the investment restrictions of the Portfolio, the Trust will hold a
meeting of the shareholders of the Fund and will cast its vote proportionately
as instructed by the Fund's shareholders. However, subject to applicable
statutory and regulatory requirements, the Trust would not request a vote of
shareholders of the Fund with respect to (a) any proposal relating to the
Portfolio, which proposal, if made with respect to the Fund, would not require
the vote of the shareholders of the Fund, or (b) any proposal with respect to
the Portfolio that is identical in all material respects to a proposal that has
previously been approved by shareholders of the Fund. Any proposal submitted to
holders in the Portfolio, and that is not required to be voted on by
shareholders of the Fund, would nevertheless be voted on by the Trustees of the
Trust.
Neither the Fund nor the Portfolio may:
(1) borrow money, except that as a temporary measure for extraordinary or
emergency purposes either the Fund or the Portfolio may borrow an amount not to
exceed 1/3 of the current value of the net assets of the Fund or the Portfolio,
respectively, including the amount borrowed (moreover, neither the Fund nor the
Portfolio may purchase any securities at any time at which borrowings exceed 5%
of the total assets of the Fund or the Portfolio, respectively, taken in each
case at market value) (it is intended that the Portfolio would borrow money only
from banks and only to accommodate requests for the withdrawal of all or a
portion of a beneficial interest in the Portfolio while effecting an orderly
liquidation of securities);
(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 1933 Act in selling a security;
(5) make loans to other persons except (a) through the lending of
securities held by either the Fund or the Portfolio and provided that any such
loans not exceed 30% of its total assets (taken in each case at market value),
or (b) through the use of repurchase agreements or the purchase of short-term
obligations and provided that not more than 10% of its net assets will be
invested in repurchase agreements maturing in more than seven days; for
additional related restrictions, see paragraph (6) immediately following;
(6) invest in securities which are subject to legal or contractual
restrictions on resale (other than repurchase agreements maturing in not more
than seven days and other than securities which may be resold pursuant to Rule
144A under the 1933 Act if the Board of
<PAGE>
-9-
Trustees determines that a liquid market exists for such securities) if, as a
result thereof, more than 10% of its net assets (taken at market value) would be
so invested (including repurchase agreements maturing in more than seven days),
except that the Fund may invest all or any portion of its assets in the
Portfolio;
(7) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts in the
ordinary course of business (the Fund and Portfolio reserve the freedom of
action to hold and to sell real estate acquired as a result of the ownership of
securities by the Fund or the Portfolio);
(8) make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund or the Portfolio, as
applicable, owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short, and unless not more than 5% of the Fund's or the Portfolio's, as
applicable, net assets (taken in each case at market value) is held as
collateral for such sales at any one time;
(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.
In addition, 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 outstanding
voting securities of the Fund.
NON-FUNDAMENTAL RESTRICTIONS: In order to comply with certain federal
statutes and regulatory policies, neither the Fund nor the Portfolio will as a
matter of operating policy:
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.
<PAGE>
-10-
This restriction is not fundamental and may be changed with respect to the
Fund by the Fund without approval by the Fund's shareholders or with respect to
the Portfolio by the Portfolio without the approval of the Fund or its other
investors. While the Fund expects to reject any order that is not an exempt
transaction under the relevant state securities laws, the Fund will comply with
the state securities laws and regulations of all states in which it is
registered.
PERCENTAGE RESTRICTIONS: If a percentage restriction or rating restriction
on investment or utilization of assets set forth above or referred to in the
Prospectus is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the securities held by the Fund or the Portfolio or a later change in the rating
of a security held by the Fund or the Portfolio will not be considered a
violation of policy; provided that if at any time the ratio of borrowings of the
Fund or the Portfolio to the net asset value of the Fund or the Portfolio,
respectively, exceeds the ratio permitted by Section 18(f) of the 1940 Act, the
Fund or the Portfolio as the case may be, will take the corrective action
required by Section 18(f).
3. PERFORMANCE INFORMATION
Performance information concerning the Fund may from time to time be used
in advertisements, shareholder reports or other communications to shareholders.
The Fund may provide its period, annualized, and average annual "total rates of
return". The "total rate of return" refers to the change in the value of an
investment over a stated period based on any change in net asset value per share
and includes the value of any shares purchasable with any dividends or capital
gains declared during such period. Period total rates of return may be
"annualized". An average "annualized" total rate of return is a compounded
total rate of return which assumes that the period total rate of return is
generated over a 52-week period, and that all dividends and capital gains
distributions are reinvested. An annualized total rate or return will be
slightly higher than a period total rate of return if the period is shorter than
one year, because of the effect of compounding. Average annual total return
figures represent the average annual percentage change over the specified
period.
The Trust will calculate the Fund's total rate of return for any period by
(a) dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains declared during such period with
respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share (i.e., net asset value) on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate
of return quotation will be calculated by (x) adding 1 to the period total rate
of return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result.
Average annual total return is a measure of the Fund's performance over
time. It is determined by taking the Fund's performance over a given period and
expressing it as an average annual rate. The average annual total return
quotation is computed in accordance with a standardized method prescribed by SEC
rules. The average annual total return for a specific period is found by taking
a hypothetical $1,000 initial investment in Fund shares on the first day of the
period and computing the redeemable value of the investment at the end of the
period. The redeemable value is then divided by the initial investment, and its
quotient is taken to the Nth root (N representing the number of years in the
period) and is subtracted from the result, which is then expressed as a
percentage. The calculation
<PAGE>
-11-
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment date during the period.
Set forth below is average annual total return information for shares of
the Fund for the periods indicated, assuming that capital gains distributions,
if any, were reinvested. Historical performance information for any period or
portion thereof prior to the establishment of the Fund will be that of the
Portfolio, adjusted to assume that all charges, expenses and fees of the Fund
and the Portfolio which are presently in effect were deducted during such
periods, as permitted by applicable SEC staff interpretations.
Period Average Annual Total Return
- ------ ---------------------------
One year ended July 31, 1999 23.12%
Five years ended July 31, 1999 27.50%
June 3, 1991 (Commencement of
Operations of the Portfolio) to July
31, 1999 19.53%
Since the Fund's average annual total return quotations are based on
historical earnings and since rates of return fluctuate over time, these
quotations should not be considered as an indication or representation of the
future performance of the Fund.
Total rate of return information with respect to the Domini Social Index
will be computed in the same fashion as set forth above with respect to the
Fund, except that for purposes of this computation an investment will be assumed
to have been made in a portfolio consisting of all of the stocks comprising the
Domini Social Index weighted in accordance with the weightings of the stocks
comprising the Domini Social Index. Performance information with respect to the
Domini Social Index will not take into account brokerage commission and other
transaction costs which will be incurred by the Portfolio.
From time to time the Trust may also quote data and fund rankings from
various sources, such as Lipper Analytical Services, Inc., Morningstar, Inc.,
Wiesenberger, Money Magazine, The Wall Street Journal, Kiplinger's Personal
Finance Magazine, Smart Money Magazine, Business Week and The New York Times,
and may compare its performance to that of the Domini 400 Social Index/SM/ and
various other unmanaged securities indices, such
<PAGE>
-12-
as the S&P 500 and the Dow Jones Industrial Average. "Standard & Poor", "S&P"
and "Standard & Poor's 500" are trademarks of McGraw Hill Companies.
4. DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES
The net asset value of each share of the Fund is determined each day on
which the NYSE is open for trading ("Fund Business Day"). (As of the date of
this Statement of Additional Information, the NYSE is open for trading every
weekday except for the following holidays: New Year's Day, Martin Luther King,
Jr. 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 "Shareholder Manual" in the
Prospectus.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same day as the Fund determines its net
asset value per share. The net asset value of the Fund's investment in the
Portfolio is equal to the Fund's pro rata share of the total investment of the
Fund and of other investors in the Portfolio less the Fund's pro rata share of
the Portfolio's liabilities. Equity securities held by the Portfolio are valued
at the last sale price on the exchange on which they are primarily traded or on
the NASDAQ system for unlisted national market issues, or at the last quoted bid
price for securities in which there were no sales during the day or for unlisted
securities not reported on the NASDAQ system. If the Portfolio purchases option
contracts, such option contracts which are traded on commodities or securities
exchanges are normally valued at the settlement price on the exchange on which
they are traded. Short-term obligations with remaining maturities of less than
sixty days are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees of the Portfolio. Portfolio securities
(other than short-term obligations with remaining maturities of less than sixty
days) for which there are no such quotations or valuations are valued at fair
value as determined in good faith by or at the direction of the Portfolio's
Board of Trustees.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by the
Portfolio's Board of Trustees. While no single standard for determining fair
value exists, as a general rule, the current fair value of a security would
appear to be the amount which the Portfolio could expect to receive upon its
current sale. Some, but not necessarily all, of the general factors which may
be considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the security, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
<PAGE>
-13-
Interest income on short-term obligations held by the Portfolio is
determined on the basis of interest accrued less amortization of premium.
Shares may be purchased directly from the Distributor.
The Fund has authorized certain brokers to accept on its behalf purchase
and redemption orders and has authorized these brokers to designate
intermediates to accept such orders. The Fund will be deemed to have received
such an order when an authorized broker or its designee accepts the order.
Orders will be priced at the Fund's net asset value next computed after they are
accepted by an authorized broker or designee. Investors may be charged a fee if
they effect transactions in Fund shares through a broker or agent.
5. MANAGEMENT OF THE FUND AND THE PORTFOLIO
The management and affairs of the Trust and the Fund are supervised by the
Trust's Trustees under the laws of the Commonwealth of Massachusetts. The
management and affairs of the Portfolio are supervised by its Trustees under the
laws of the State of New York.
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. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust. Unless otherwise indicated below, the address of each officer is 11
West 25th Street, New York, New York 10010.
TRUSTEES OF THE TRUST AND THE PORTFOLIO
AMY L. DOMINI* -- 230 Congress Street, Boston, Massachusetts 02110; Chair,
President and Trustee of the Trust, Portfolio and Domini Social Equity Fund;
Managing Principal of DSIL; Officer of Kinder, Lydenberg, Domini & Co., Inc.;
Private Trustee, Loring, Wolcott & Coolidge; Trustee, New England Quarterly
(since 1998); Board Member, Social Investment Forum (since 1994); Trustee,
Episcopal Church Pension Fund; Former Member, Governing Board, Interfaith Center
on Corporate Responsibility; Former Trustee, National Association Community Loan
Funds; Former Board Member of National Community Capital Association (1987-
1990). Her date of birth is January 15, 1950.
JULIA ELIZABETH HARRIS -- 54 Burroughs Street, Jamaica Plain, Massachusetts
02130; Vice President, UNC Partners, Inc. (since April 1990); Director and
Treasurer, Boom Times, Inc. (since May 1997); Director and Chair of Board of
Directors, The Green Book, Inc. (October 1991 - June 1996); Trustee, Domini
Social Equity Fund. Her date of birth is July 11, 1948.
KIRSTEN S. MOY -- 151 North Michigan Avenue, Suite 1209, Chicago, Illinois
60601; Consultant, Project Director and Principal Researcher, Community
Development Innovation and Infrastructure Initiative (since December 1998);
CDFI Rating System Advisory Board Member, National Community Capital
Association (since 1999); Member, Community Economic Development Board of
Overseers, New Hampshire College (since November 1998); Advisory Group Member,
Shorebank Liquidity Project (since 1999); Consultant, Equitable Life Assurance
Society (since December 1998); Board Member, Free Associates Theatre Company
(since August 1999); Consultant, Social Investment Forum, Community Development
Project (June 1998-December 1998); Director, Community Development Financial
Institutions Fund, U.S. Department of the Treasury (October 1995 - October
1997); Senior Vice President and Portfolio Manager, Equitable Real Estate
Investment
<PAGE>
-14-
Management (prior to October 1995); Trustee, Domini Social Equity Fund. Her
date of birth is June 30, 1947.
WILLIAM C. OSBORN -- 115 Buckminster Road, Brookline, Massachusetts 02445;
Consultant, Arete Corporation; Manager, Venture Investment Management Company
LLC (prior to 1999); Trustee, Domini Social Equity Fund; Vice President and
General Manager, TravElectric Services Corp (prior to 1995); President,
Environmental Technologies (prior to 1993); Director, Evergreen Solar, Inc;
Director, Conservation Services Group; Director, Fingerlakes Aquaculture LLC;
Director, Surgical Sealants, Inc; Director, World Power Technologies, Inc. His
date of birth is July 7, 1944.
KAREN PAUL -- 4050 Park Avenue, Miami, Florida 33133; Associate Dean and
Professor of Business Environment, Florida International University (since
1991); Trustee, Domini Social Equity Fund; Partner, Trinity Industrial
Technology (since 1997); Executive Director, Center for Management in the
Americas (since 1997). Her date of birth is September 23, 1944.
GREGORY A. RATLIFF -- 1712 Carmen Avenue, Chicago, Illinois 60640; Director,
Access to Economic Opportunity, John D. and Catherine T. MacArthur Foundation
(since 1997); Associate Director, Program-Related Investments, John D. and
Catherine T. MacArthur Foundation (1993-1997); Trustee, Domini Social Equity
Fund. His date of birth is June 12, 1960.
TIMOTHY SMITH -- 475 Riverside Drive, Room 550, New York, New York 10115;
Executive Director, Interfaith Center on Corporate Responsibility (since 1971);
Trustee, Calvert New Africa Fund; Chair, Calvert Social Investment Fund Advisory
Council; Trustee, Domini Social Equity Fund. His date of birth is September 15,
1943.
FREDERICK C. WILLIAMSON, SR. -- Five Roger Williams Green, Providence, Rhode
Island 02904; Treasurer and Trustee, RIGHA (charitable foundation supporting
health care needs) since 1990; Chairman, Rhode Island Historical Preservation
and Heritage Commission (since 1995); Trustee, National Parks and Conservation
Association (1986-1997); Advisor, National Parks and Conservation Association
(since 1997); Trustee of the National Park Trust (since 1991); Trustee, Domini
Social Equity Fund. His date of birth is September 20, 1915.
Each of the Trustees who are not interested persons receives an annual
retainer for serving as a Trustee of the Trust, the Portfolio and the Domini
Social Equity Fund of $6,000, and in addition, receives $1,000 for attendance at
each joint meeting of the Boards of the Trust, the Portfolio and the Domini
Social Equity Fund (reduced to $500 in the event that a Trustee participates at
an in-person meeting by telephone). In addition, each Trustee receives
reimbursement for reasonable expenses incurred in attending meetings. The
compensation paid to the Trustees for the fiscal year ended July 31, 1999 is set
forth below. The Trustees may hold various other directorships unrelated to the
Trust or Portfolio.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits From The Trust,
Aggregate Accrued as Estimated Portfolio and
Compensation Part of Annual Benefits Domini
From The Trust Upon Social Equity Fund
Trust Expenses Retirement
<S> <C> <C> <C> <C>
Amy L. Domini, None None None None
</TABLE>
<PAGE>
-15-
<TABLE>
<S> <C> <C> <C> <C>
Chair, President
and Trustee
Julia Elizabeth $232 None None $1,160
Harris,
Trustee
Kirsten S. Moy, $232 None None $1,160
Trustee
William C. Osborn, $1,000 None None $6,000
Trustee
Karen Paul, $1,000 None None $6,000
Trustee
Gregory A. Ratliff, $232 None None $1,160
Trustee
Timothy Smith, $1,000 None None $6,000
Trustee
Frederick C. $1,000 None None $6,000
Williamson, Sr.,
Trustee
</TABLE>
OFFICERS
PETER D. KINDER* -- Vice President of the Trust and the Portfolio; President of
Kinder, Lydenberg, Domini & Co., Inc.; Member, Domini Social Investments LLC
(since 1997). His date of birth is September 28, 1946.
STEVEN D. LYDENBERG* -- Vice President of the Trust and the Portfolio; Director
of Research of Kinder, Lydenberg, Domini & Co., Inc.; Member, Domini Social
Investments LLC (since 1997). His date of birth is October 21, 1945.
DAVID P. WIEDER* -- Vice President of the Trust and the Portfolio (since 1997);
Chief Executive Officer and Managing Principal, Domini Social Investments LLC
(since 1997); President of FSSI (since 1989); Vice-President of investment
companies within Fundamental Family of Funds (1989-1997); Vice-President of
Fundamental Portfolio Advisors (1991-1997). His date of birth is January 8,
1966.
SIGWARD M. MOSER* -- Vice President of the Trust and the Portfolio (since 1997);
President and Managing Principal, Domini Social Investments LLC (since 1997);
President of Communications House International, Inc.; Director of Financial
Communications Society. His date of birth is June 12, 1962.
CAROLE M. LAIBLE* -- Secretary and Treasurer of the Trust and the Portfolio
(since 1997); Financial Compliance Officer of Domini Social Investments LLC
(since 1997); Board of
<PAGE>
-16-
Governors, Daytop - NJ (since 1998); Financial Compliance Officer, FSSI (1994-
1997); Financial Compliance Officer and Secretary of investment companies within
Fundamental Family of Funds (1994-1997); General Service Manager, McGladrey &
Pullen LLP (certified public accountants) (prior to 1994). Her date of birth is
October 31, 1963.
As of November 22, 1999, all Trustees and officers of the Trust and
the Portfolio as a group owned less than 1% of the Fund's outstanding shares.
As of the same date, the following shareholders of record owned 5% or more of
the outstanding shares of the Fund: Wendel & Co, The Bank of New York, PO
Box 1066, Wall Street Station, New York, NY 10268 (999,097.137 shares, 9.14%),
Compton Foundation Inc. 545 Middlefield Road, Suite 178, Menlo Park, CA 94025
(1,220,205.495 shares, 11.17%), Fleet National Bank, c/o Loring, Wolcott &
Coolidge, PO Box 92800, Rochester, NY 14692 (599,079.456 shares, 5.48%),
American Baptist Foundation, PO Box 851, Valley Forge, PA 19482-0851
(548,852.842, 5.02%), Diocese of the Armenian Church, 630 Second Avenue, New
York, NY 10016 (670,091.919 shares, 6.13%), Ancilla Systems Incorporated, 100
South Lake Park Avenue, Hobart, IN 46342 (706,163.870 shares, 6.46%). The
Trust has no knowledge of any other owners of record or beneficial owners of 5%
or more of the outstanding shares of the Fund. Shareholders owning 25% or more
of the outstanding shares of the Fund may take actions without the approval of
any other investor in the Fund.
The Trustees who are not "interested persons" (the "Disinterested
Trustees") of the Trust as defined by the 1940 Act are the same as the
Disinterested Trustees of the Portfolio. 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.
MANAGER AND SUBMANAGER
DSIL provides advice to the Portfolio pursuant to a Management Agreement
(the "Management Agreement"). The services provided by the Manager consist of
furnishing continuously an investment program for the Portfolio. DSIL will have
authority to determine from time to time what securities are purchased, sold or
exchanged, and what portion of assets of the Portfolio is held uninvested. DSIL
will also perform such administrative and management tasks as may from time to
time be reasonably requested, including: (i) maintaining office facilities and
furnishing clerical services necessary for maintaining the organization of the
Portfolio and for performing administrative and management functions; (ii)
supervising the overall administration of the Portfolio, including negotiation
of contracts and fees with and monitoring of performance and billings of the
Portfolio's transfer agent, shareholder servicing agents, custodian and other
independent contractors or agents; (iii) overseeing (with the advice of
Portfolio's counsel) the preparation of and, if applicable, filing all documents
required for compliance by the Portfolio with
<PAGE>
-17-
applicable laws and regulations, including registration statements, prospectuses
and statements of additional information, semi-annual and annual reports to
shareholders, proxy statements and tax returns; (iv) preparing agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and shareholders; and (v) arranging for maintenance of the books and
records of the Portfolio. The Manager furnishes at its own expense all
facilities and personnel necessary in connection with providing these services.
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 of the outstanding voting securities of the Portfolio at a meeting
called for the purpose of voting on the Management Agreement (with the vote of
each investor in the Portfolio being in proportion to the amount of its
investment), and, in either case, by a majority of the Portfolio's Trustees who
are not parties to the 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. DSIL may employ, at its own expense, or may request that the Portfolio
employ (subject to the requirements of the 1940 Act) one or more subadvisers or
submanagers, subject to DSIL's supervision. The Management 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
outstanding voting securities in the Portfolio (with the vote of each investor
in the Portfolio being in proportion to the amount of its investment) or by a
vote of a majority of its Board of Trustees, or by the 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 of
its or their obligations and duties under the Management Agreement.
Under the Management Agreement between the Portfolio and DSIL, DSIL's fee
for advisory and administrative services to the Portfolio is 0.20% of the
average daily net assets of the Portfolio.
DSIL is a Massachusetts limited liability company with offices at 11 West
25th Street, 7th Floor, New York, New York 10010, and is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act"). The names of the principal owners of DSIL and their relationship to the
Trust follows: Amy L. Domini, Chair of the Board and President of the Trust, is
the Manager and principal executive officer and a co-owner of DSIL. Ms. Domini
is also Chief Executive Officer, Secretary, Treasurer and co-owner of KLD which
licenses the Domini Social Index to DSIL. Peter D. Kinder, Vice President of
the Trust, is a co-owner of DSIL. Mr. Kinder is also President and a co-owner
of KLD. Sigward M. Moser, Vice President of the Trust, is a co-owner of DSIL.
David P. Wieder, Vice President of the Trust is a co-owner of DSIL. Mr. Wieder
is also President and an owner of FSSI, a registered transfer agent which served
as the Trust's transfer agent until September 24, 1999.
Mellon Equity manages the assets of the Portfolio pursuant to an Investment
Submanagement Agreement (the "Submanagement Agreement"). The Submanager
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 Submanagement 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 outstanding voting
securities in the Portfolio at a meeting called for the purpose
<PAGE>
-18-
of voting on the Submanagement Agreement (with the vote of each being in
proportion to the amount of its investment), and, in either case, by a majority
of the Portfolio's Trustees who are not parties to the Submanagement Agreement
or interested persons of any such party at a meeting called for the purpose of
voting on the Submanagement Agreement.
The Submanagement Agreement provides that the Submanager may render
services to others. The Submanagement 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 outstanding voting
securities 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 with the consent of the Trustees and may be
terminated by the Submanager on not less than 90 days' written notice to the
Manager and the Trustees, and will automatically terminate in the event of its
assignment. The Submanagement Agreement provides that the Submanager shall not
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
Submanagement Agreement.
Under the Submanagement Agreement, DSIL pays Mellon Equity an investment
submanagement fee equal on an annual basis to 0.07% of the average daily
net assets of the Portfolio.
Effective January 1, 1998, Mellon Equity Associates was reorganized as a
Pennsylvania limited liability partnership. Pursuant to an Agreement and Plan of
Merger dated December 29,1997, (the "Merger Agreement"), Mellon Equity
Associates was merged into Mellon Equity Associates, LLP, a newly-formed
Pennsylvania limited liability partnership, with Mellon Equity Associates, LLP
being the surviving entity. Mellon Bank. N.A.("Mellon Bank") is the 99% limited
partner and MMIP, Inc. is the 1% general partner of Mellon Equity Associates,
LLP. In accordance with the provisions of the Merger Agreement, all property,
rights, privileges, franchises, patents, trademarks, licenses, registrations,
and other assets and interests of Mellon Equity Associates vested in Mellon
Equity Associates, LLP. By operation of law, the obligations and liabilities
of Mellon Equity Associates were assumed by Mellon Equity Associates, LLP.
Mellon Equity is a professional investment counseling firm that provides
investment management services to the equity and balanced pension, public fund,
and profit-sharing investment management markets,and is a registered investment
adviser under the Advisers Act. Mellon Bank's predecessor organization managed
domestic equity, tax-exempt and institutional pension accounts since 1947. The
address of Mellon Equity and each of the principal executive officers and
directors of Mellon Equity is 500 Grant Street, Suite 4200, Pittsburgh,
Pennsylvania 15258.
Prior to October 22, 1997, pursuant to an investment advisory agreement
(the "KLD Advisory Agreement"), KLD served as investment adviser to the
Portfolio and furnished continuously an investment program by determining the
stocks to be included in the Domini Social Index. Additionally, prior to
October 22, 1997, pursuant to a management agreement (the "Mellon Equity
Management Agreement"), Mellon Equity served as investment manager and managed
the assets of the Portfolio on a daily basis. Prior to October 22, 1997, the
Portfolio paid Mellon Equity an investment management fee equal on an annual
basis to 0.10% of the average daily net assets of the Portfolio. Prior to
October 22, 1997, pursuant to a sponsorship agreement (the "KLD Sponsorship
Agreement"), KLD furnished administrative services for the Portfolio. Prior to
October 22, 1997, pursuant to an administrative services agreement (the
"Signature Administration Agreement"), Signature Broker-Dealer Services, Inc.
served as the administrator of the Portfolio. Prior to October 22, 1997, the
aggregate investment management and administration fees under the prior
agreements with respect to the Portfolio were equal to 0.15% of the Portfolio's
average daily net assets for its then current fiscal year.
For the fiscal year end July 31, 1999, the Portfolio incurred approximately
$1,791,617 in management fees pursuant to the Management Agreement. For
the fiscal year end July 31, 1998, the Portfolio incurred approximately $701,774
in management fees
<PAGE>
-19-
pursuant to the Management Agreement, $17,385 in advisory fees pursuant to the
KLD Advisory Agreement, $17,385 in aggregate administration fees pursuant to the
Signature Administration Agreement and $86,354 in management fees pursuant to
the Mellon Equity Management Agreement. For the fiscal year ended July 31, 1997,
the Portfolio incurred $46,528 in advisory fees pursuant to the KLD Advisory
Agreement, $46,528 in administration fees pursuant to the KLD Sponsorship
Agreement, $156,868 in aggregate administration fees pursuant to the Signature
Administration Agreement, and $182,885 in management fees pursuant to the Mellon
Equity Management Agreement.
SPONSOR
Pursuant to a Sponsorship Agreement, DSIL provides the Fund with oversight,
administrative and management services. DSIL provides the Fund with general
office facilities and supervises the overall administration of the Fund,
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 Fund; the preparation and filing of all documents
required for compliance by the Fund with applicable laws and regulations,
including registration statements, prospectuses and statements of additional
information, semi-annual and annual reports to shareholders, proxy statements
and tax returns; preparing agendas and supporting documents for and minutes of
meetings of Trustees, committees of Trustees and shareholders; maintaining
telephone coverage to respond to shareholder inquiries; answering questions from
the general public, the media and investors in the Fund regarding the securities
holdings of the Portfolio, limits on investment and the Fund's proxy voting
philosophy and shareholder activism philosophy; and arranging for the
maintenance of books and records of the Fund. The Sponsor provides persons
satisfactory to the Board of Trustees of the Trust to serve as officers of the
Trust. Such officers, as well as certain other employees and Trustees of the
Trust, may be directors, officers or employees of the Sponsor or its affiliates.
For these services and facilities, DSIL receives fees computed and paid
monthly from the Fund at an annual rate equal to 0.25% of the average daily net
assets of the Fund for the Fund's then-current fiscal year. Currently, DSIL is
reducing its fee to the extent necessary to keep the aggregate annual operating
expenses of the Fund (including the Fund's share of the Portfolio's expenses but
excluding brokerage fees and commissions, interest, taxes and other
extraordinary expenses) at no greater than 0.30% of the average daily net assets
of the Fund. For the fiscal year ended July 31, 1998, DSIL waived all of its
fees under the Sponsorship Agreement amounting to $94,624. For the fiscal year
ended July 31, 1999, DSIL waived all of its fees under the Sponsorship
Agreement amounting to $352,663.
Prior to October 22, 1997, Signature Broker-Dealer Services, Inc. served as
administrator. For the fiscal year ended July 31, 1997, the Fund incurred
$14,212 in administrative fees.
The Sponsorship Agreement with the Trust provides that DSIL may render
administrative services to others. The Sponsorship Agreement with the Trust
also provides that neither the Sponsor nor its personnel shall be liable for any
error of judgment or mistake of law or for any act or omission in the
administration or management of the Trust, 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
Sponsorship Agreement.
DISTRIBUTOR
<PAGE>
-20-
The Trust has entered into a Distribution Agreement with the Distributor.
Under the Distribution Agreement, the Distributor acts as the agent of the Trust
in connection with the offering of shares of the Fund and is obligated to use
its best efforts to find purchasers for shares of the Fund. The Distributor
receives no additional compensation for its services under the Distribution
Agreement. The Distributor acts as the principal underwriter of shares of the
Fund and bears the compensation of personnel necessary to provide such services
and all costs of travel, office expenses (including rent and overhead) and
equipment. Prior to August 15, 1999, Signature Broker-Dealer Services, Inc.
served as the distributor of the Fund.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency Agreement with First Data
Investor Services Group, Inc. ("First Data"), 4400 Computer Drive, Westborough,
MA 01581, pursuant to which First Data acts as the transfer agent for the Fund.
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.
The Trust has entered into a Custodian Agreement with Investors Bank &
Trust Company ("IBT"), 200 Clarendon Street, Boston, MA 02116, pursuant to which
IBT acts as custodian for the Fund. The Portfolio has entered into a Transfer
Agency Agreement with IBT pursuant to which IBT acts as transfer agent for the
Portfolio. The Portfolio also has entered into a Custodian Agreement with IBT
pursuant to which IBT acts as custodian for the Portfolio. The Custodian's
responsibilities include safeguarding and controlling the Portfolio's cash and
securities, handling the receipt and delivery of securities, determining income
and collecting interest on the Portfolio's investments, maintaining books of
original entry for portfolio and fund accounting and other required books and
accounts, and calculating the daily net asset value of the Portfolio and the
daily net asset value of shares of the Fund. Securities held by the Portfolio
may be deposited into certain securities depositaries. The Custodian does not
determine the investment policies of the Portfolio or decide which securities
the Portfolio will buy or sell. The Portfolio may, however, invest in
securities of the Custodian and may deal with the Custodian as principal in
securities transactions.
EXPENSES
The Fund and the Portfolio each are responsible for all of their respective
expenses, including the compensation of their respective Trustees who are not
interested persons of the Fund or the Portfolio; governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable to
the Fund or the Portfolio; fees and expenses of independent auditors, of legal
counsel and of any transfer agent, custodian, registrar or dividend disbursing
agent of the Fund or the Portfolio; insurance premiums; and expenses of
calculating the net asset value of the Portfolio and of shares of the Fund.
The Fund will also pay sponsorship fees payable to the Sponsor; all
expenses of distributing and redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
offices and commissions; expenses of shareholder meetings; and expenses relating
to the issuance, registration and qualification of shares of the Fund and the
preparation, printing and mailing of prospectuses for such purposes.
The Portfolio will also pay 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
<PAGE>
-21-
and commissions; expenses of meetings of investors; and the investment
management fees payable to the Manager.
6. INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, MA 02110, are the
independent auditors for the Trust and for the Portfolio, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the Securities and Exchange Commission.
7. TAXATION
TAXATION OF THE FUND AND THE PORTFOLIO
FEDERAL TAXES: The Fund has elected to be treated and intends to qualify
each year as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated investment
company, the Fund will not be subject to any federal income or excise taxes on
its net investment income and net realized capital gains that it distributes to
shareholders in accordance with the timing requirements imposed by the Code. 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 shareholders.
We anticipate 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.
FOREIGN TAXES: Although we do not expect the Fund will pay any federal
income or excise taxes, investment income received by the Fund from foreign
securities may be subject to foreign income taxes withheld at the source; we do
not expect to be able to pass through to shareholders foreign tax credits with
respect to such foreign taxes. The United States has entered into tax treaties
with many foreign countries that may entitle the Fund to a reduced rate of tax
or an exemption from tax on such income; the Fund intends to qualify for treaty
reduced rates where available. It is not possible, however, to determine the
Fund's effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested within various countries is not known.
STATE TAXES: The Trust is organized as a Massachusetts business trust. As
long as the Fund qualifies as a "regulated investment company" under the Code,
the Fund will not have to pay Massachusetts income or excise taxes. 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.
TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS: Shareholders of the Fund normally will have to
pay federal income taxes, and any state or local taxes, on the dividends and
other 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 paid in cash or
<PAGE>
-22-
reinvested in additional shares. Distributions of net capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses),
whether paid in cash or reinvested 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. 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.
DIVIDENDS-RECEIVED DEDUCTION: 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.
"BUYING A DIVIDEND": 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.
DISPOSITION OF SHARES: 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.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
FOREIGN SECURITIES: Special tax considerations apply with respect to
foreign investments of the Fund. Foreign exchange gains and losses realized by
the Fund will generally be treated as ordinary income and losses.
The foregoing should not be viewed as a comprehensive discussion of the
items referred to or as covering all provisions relevant to investors.
Dividends and distributions may also be subject to state or local taxes.
Shareholders should consult their own tax advisers for additional details on
their particular tax status. 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 of an
investment in the Fund.
8. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Portfolio are
made by portfolio managers who are employees of the Submanager and who are
appointed and supervised by its senior officers. Changes in the Portfolio's
investments are reviewed by its Board of Trustees. The portfolio managers of
the Portfolio may serve other clients of the Submanager in a similar capacity.
<PAGE>
-23-
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 Submanager attempts to achieve this result by selecting broker-
dealers to execute transactions on behalf of the Portfolio and other clients of
the Submanager 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 Submanager 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 Submanager 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
Submanager. At present no other recapture arrangements are in effect.
Consistent with the foregoing primary consideration, the Conduct Rules of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Portfolio may determine, the Submanager 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. Neither the Portfolio nor the Fund will engage in brokerage
transactions with the Manager, the Submanager or the Sponsor or any of their
respective affiliates or any affiliate of the Fund or the Portfolio.
Under the Submanagement Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Submanager may cause the Portfolio to pay a
broker-dealer acting on an agency basis which provides brokerage and research
services to the Submanager or the Manager 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 Submanager 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 Submanager's or the
Manager's overall responsibilities to the Portfolio or to its other clients.
Not all of such services are useful or of value in advising the Portfolio.
The term "brokerage and research services" includes advice as to the value
of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement. However, because of the
Portfolio's policy of investing in accordance with the Domini Social Index, the
Submanager and the Manager 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
Submanager, 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 Submanager's or the Manager'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 Submanager or the Manager for no
consideration other
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than brokerage or underwriting commissions.
The Submanager and the Manager attempt to evaluate the quality of research
provided by brokers. The Submanager and the Manager sometimes use evaluations
resulting from this effort as a consideration in the selection of brokers to
execute portfolio transactions. However, neither the Submanager nor the Manager
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 Submanager and the Manager 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 Submanager or the Manager 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 Submanager or the Manager in carrying out its obligations to the
Portfolio. While such services are not expected to reduce the expenses of the
Submanager or the Manager, the Submanager or the Manager 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, 1997, 1998 and 1999, the Portfolio paid brokerage
commissions of $101,639, $175,344 and $327,338 respectively.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Submanager's or the Manager's other
clients. Investment decisions for the Portfolio and for the Submanager's or the
Manager's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or
more clients are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed to be
equitable to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the
Portfolio is concerned. However, it is believed that the ability of the
Portfolio to participate in volume transactions will produce better executions
for the Portfolio.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust is a Massachusetts business trust established under a Declaration
of Trust dated as of April 1, 1996. Its authorized capital consists of an
unlimited number of shares of beneficial interest of $0.01 par value, issued in
separate series. Each share of each series represents an equal proportionate
interest in that series with each other share of that series.
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
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liabilities of the Trust. If a series were unable to meet its obligations, the
assets of all other series might be available to creditors for that purpose, in
which case the assets of such other series could be used to meet liabilities
which are not otherwise properly chargeable to them. Expenses with respect to
any two or more series are to be allocated in proportion to the asset value of
the respective series except where allocations of direct expenses can otherwise
be fairly made. The officers of the Trust, subject to the general supervision
of the Trustees, have the power to determine which liabilities are allocable to
a given series, or which are general or allocable to two or more series. In the
event of the dissolution or liquidation of the Trust or any series, the holders
of the shares of any series are entitled to receive as a class the value of the
underlying assets of such shares available for distribution to shareholders.
Shares of the Trust entitle their holder to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series, a Shareholder Servicing Agent may vote any shares as to which such
Shareholder Servicing Agent is the agent of record and which are not represented
in person or by proxy at the meeting, proportionately in accordance with the
votes cast by holders of all shares otherwise represented at the meeting in
person or by proxy as to which such Shareholder Servicing Agent is the agent of
record. Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for purposes of quorum requirements.
The Trustees of the Trust have the authority to designate additional series
and to designate the relative rights and preferences as between the different
series. There is presently one series so designated. All shares issued and
outstanding will be fully paid and nonassessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Prospectus.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless, as
to liability to Trust or Fund shareholders, it is finally adjudicated that they
engaged in 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 they did not act in good faith in the
reasonable belief that their actions were in the best interests of the Trust.
In the case of settlement, such indemnification will not be provided unless it
has been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
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 wilful 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
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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.
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 Fund 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 Fund 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.
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.
10. FINANCIAL STATEMENTS
The audited financial statements of the Fund and the Portfolio (Statement
of Assets and Liabilities at July 31, 1999, Statement of Operations for the year
ended July 31, 1999, Statement of Changes in Net Assets for each of the years in
the two-year period ended July 31, 1999, Financial Highlights for each of the
years in the five-year period ended July 31, 1999, Notes to Financial Statements
and Independent Auditors' Report), each of which is included in the Annual
Report to Shareholders of the Fund which has been filed with the Securities and
Exchange Commission pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder, are hereby incorporated by reference into this Statement of
Additional Information and have been so incorporated in reliance upon the
reports of KPMG Peat Marwick LLP, independent auditors, on behalf of the Fund
and the Portfolio.
Domini Social Investments/SM/, Domini Institutional Social Equity Fund/SM/,
Domini Money Market Account/SM/, The Responsible Index Fund/SM/ and
domini.com/SM/ are service marks of Domini Social Investments LLC.
