<PAGE>
Domini
---------------------
SOCIAL INVESTMENTS(R)
Domini Institutional Social Equity Fund/SM/
Prospectus
December 1, 2000
The Way You Invest Matters/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 pro-
spectus is truthful and complete. Anyone who indicates otherwise is committing
a federal crime.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
The Fund at a Glance
Investment Objective..................................................... 2
Primary Investment Strategy and
Overview of the Social Screens Used by the Index.................. 2
Primary Risks............................................................ 3
Past Performance of the Fund............................................. 4
Fund Fees and Expenses................................................... 5
Structure................................................................ 6
More About the Fund
About Index Investing.................................................... 7
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 Indexsm?................................... 9
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?............................ 13
Additional Investment Strategies & Risk Information...................... 14
Who Manages the Fund?.................................................... 16
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>
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:
. are not FDIC-insured
. have no bank guarantees
. 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.
- 1 -
<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 IndexSM, 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:
. 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.
. 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 IndexSM and its social
screens, please refer to page 10.
- 2 -
<PAGE>
The Fund at a Glance
Primary Risks
. 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.
. 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's portfolio is subject to strict social and environmental screens.
Because of these screens, Fund management may pass up opportunities to buy
certain securities when it is otherwise advantageous to do so, or may sell
certain securities for social or environmental reasons when it is otherwise
disadvantageous to do so.
. 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 7, 14, and in the Statement of Additional Information.
- 3 -
<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 (S&P 500), 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 three
calendar years.
[BAR GRAPH]
1997 1998 1999
37.31% 33.98% 23.51%
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 9/30/00: -
7.16%
- 4 -
<PAGE>
The Fund at a Glance
Average Annual Total Return as of 12/31/99
The table below shows the Fund's average annual total
returns in comparison to the S&P 500.
<TABLE>
<CAPTION>
Since
1 Year Inception
(5/30/96)
-------------------------------------------
<S> <C> <C>
Domini Institutional 23.51% 29.93%
Social Equity Fund
-------------------------------------------
S&P 500 21.04% 26.56%
</TABLE>
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.*
<TABLE>
<S> <C>
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: 0.06%
-----
Total Annual Fund Operating Expenses: 0.51%
Fee Waiver**: 0.21%
-----
Net Expenses: 0.30%
-----------------------------------------------------------
</TABLE>
* 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, 2000 to November 30, 2001, 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.
- 5 -
<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.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
$31 $142 $264 $620
</TABLE>
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.
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: Dom Soc Inv-Instit
Soc Equity
Ticker Symbol: DIEQX
Cusip Number: 257131102
Website: www.domini.com
Shareholder Services: 1-800-582-6757
- 6 -
<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.
- 7 -
<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:
. 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.
. 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.
. 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.
Compare Turnover Rates
The average annual turnover rate for all
domestic stock funds is 63%.*
The annual turnover rate for the Domini
Institutional Social Equity Fund is 9%.**
(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 9/30/00; taken from Morningstar
PrincipiaPro.
**For the period from 8/1/99 to 7/31/00.
- 8 -
<PAGE>
More About the Fund
What is the Domini 400
Social Index/SM/?
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.
Socially Responsible Investing
Socially responsible investors factor social and environmental criteria into
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. In addition, in the
course of seeking financial gain for themselves, they look for opportunities
to use their investments to improve the lives of others.
Typically, social investors avoid companies that manufacture products, or em-
ploy practices, that they believe have harmful effects on society or the nat-
ural environment. 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, in addition to screening our investments, we
work with companies to improve their social and environmental performance and
file shareholder resolutions on these issues when necessary. In addition, we
vote company proxies in a manner that is consistent with our social screening
criteria, and publicly disclose our votes.
- 9 -
<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:
. Tobacco and Alcohol - firms that manufacture tobacco products or alcoholic
beverages;
. Gambling - firms that receive identifiable revenues from gambling
enterprises;
. Nuclear Power - firms that have an ownership share in, or operate nuclear
power plants; and
. 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:
. 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;
. 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;
- 10 -
<PAGE>
More About the Fund
. 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;
. Corporate Citizenship - a company's record with regard to its charitable
activities and its community relations in general; and
. 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 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.
- 11 -
<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.
- 12 -
<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:
. Endowments,
. Foundations,
. Religious organizations, and
. 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.
- 13 -
<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.
- 14 -
<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.
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.
- 15 -
<PAGE>
More About the Fund
Who Manages the Fund?
Portfolio Adviser:
Domini Social Investments LLC (DSIL), 536 Broadway, 7th Floor, New York, NY
10012, has been managing money since November 1997 and currently manages more
than $2.0 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.
Social Research & Index Maintenance:
Kinder, Lydenberg, Domini & Co., Inc. (KLD) determines the composition of the
Domini 400 Social Index.
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, 2000, they received a total of 0.20% of
the average daily net assets of the Fund.
- 16 -
<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
<TABLE>
<S> <C>
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
</TABLE>
For more information on:
. investing in the Fund,
. your account,
. the Fund's daily share price, and
. 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.
Quick Reference
Nasdaq Symbol: DIEQX
Newspaper Listing: Dom Soc Inv-Instit Soc
Equity
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.
- 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 discre-
tion, 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 AccountSM. 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.
The Domini Money Market AccountSM
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
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:
. specify the dollar amount or number of shares to be sold, the fund name
and the account number; and
. be signed in exactly the same way the account is registered by all regis-
tered owners or authorized signers.
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:
. The Fund name and
your account
number.
. The amount of the
transaction (in
dollars or
shares).
. Signatures of all
owners exactly as
registered on the
account (for
requests by
mail).
. Signature
guarantees, if
required (see
page A-5).
. Any supporting
legal
documentation
that may be
required.
- 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:
. Sales (redemptions) exceeding $50,000;
. Written sales requests, regardless of amount, made within 30 days following
any changes in account registration; and
. 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:
. banks;
. savings institutions;
. credit unions;
. broker-dealers; and
. 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:
. during any period in which the New York Stock Exchange is closed or in which
trading is restricted; or
. if the Securities and Exchange Commission determines that an emergency ex-
ists.
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: Dom Soc Inv-
Instit Soc Equity.
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 and Capital Gains
The Fund pays to its shareholders substantially all of its net income in the
form of dividends. Dividends from net income, if any, 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. If you are otherwise subject
to federal income taxes, 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 designated by the Fund as capital gain dividends are taxable as long-
term capital gains. 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.
Dividends
Paid Quarterly
Capital Gains
Paid Annually
- 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 re-
quired 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 vio-
late IRS requirements.
Rights Reserved by the Fund
The Fund and its agents reserve the following rights:
. To waive or lower investment minimums;
. To accept initial purchases by telephone or mailgram;
. To refuse any purchase or exchange order;
. To cancel any purchase or exchange order (including, but not limited to, or-
ders deemed to result in excessive trading, market timing, fraud, or 5% own-
ership) 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;
. To implement policies designed to prevent excessive trading;
. To freeze any account and suspend account services when notice has been re-
ceived of a dispute between the registered or beneficial account owners or
there is reason to believe a fraudulent transaction may occur;
. To otherwise modify the conditions of purchase and any services at any time;
and
. 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 indicated periods. Certain information reflects
financial results for a single Fund share. The total returns in the table rep-
resent 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 derived from information audited by KPMG LLP, whose re-
port, along with the Fund's financial statements, is included in the annual re-
port, which is available upon request.
<TABLE>
<CAPTION>
Year Year Year Year
Ended Ended ended ended For the period
July 31, July 31, July 31, July 31, May 30, 1996(/1/) to
2000 1999 1998 1997 July 31, 1996
-------- -------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
For a share outstanding for
the Period:
Net asset value, beginning
of period................. $ 21.50 $ 17.87 $ 14.71 $ 9.60 $ 10.00
-------- -------- -------- ------- -------
Income (loss) from
investment operations:
Net investment income..... 0.12 0.14 0.15 0.13 0.02
Net realized and
unrealized gain (loss)
on investments........... 1.79 3.95 3.17 5.11 (0.41)
-------- -------- -------- ------- -------
Total income (loss) from
investment operations.. 1.91 4.09 3.32 5.24 (0.39)
-------- -------- -------- ------- -------
Less distributions and
dividends:
Dividends to shareholders
from net investment
income................... (0.12) (0.14) (0.13) (0.13) (0.01)
Distributions to
shareholders from net
realized gains........... (0.14) (0.32) (0.03) (0.00)(/2/) --
-------- -------- -------- ------- -------
Total distributions and
dividends.............. (0.26) (0.46) (0.16) (0.13) (0.01)
-------- -------- -------- ------- -------
Net asset value, end of
period.................... $ 23.15 $ 21.50 $ 17.87 $ 14.71 $ 9.60
======== ======== ======== ======= =======
Total return............... 8.85% 23.12% 22.74% 54.01% (3.9)%
Portfolio Turnover*........ 9% 8% 5% 1% 5%(/6/)
Ratios/supplemental data:
Net assets, end of period
(000's omitted).......... $463,043 $219,393 $116,321 $74,257 $17,972
Ratio of net investment
income to average net
assets................... 0.60%(/3/) 0.75%(/3/)(/4/) 0.96%(/3/)(/4/) 1.25%(/5/) 1.42%(/5/)(/6/)
Ratio of expenses to
average
net assets............... 0.30%(/3/) 0.30%(/3/)(/4/) 0.30%(/3/)(/4/) 0.37%(/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 its fees and reimbursed expenses, the ratios of net
investment income and expenses to average net assets would have been 0.65% and
0.61%, respectively for the year ended July 31, 1998, and 0.48% and 0.56%, re-
spectively for the year ended July 31, 1999 and 0.39% and 0.51%, respectively,
for the year ended July 31, 2000.
(4) Reflects a waiver of fees by Domini Social Investments, LLC, the manager of
the Domini Social Index Portfolio. Had the Manager not waived its fees, the ra-
tio of net investment income and expenses to average net assets for the year
ended July 31, 1998 would have been 0.66% 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 0.93% and 0.65%, and 1.15% and 0.97%,
respectively.
(6) Annualized.
- B-1 -
<PAGE>
Kinder, Lydenberg, Domini & Co., Inc. ("KLD") is the owner of the Domini 400
Social Index/SM/ (the "Domini Social Index"). KLD determines the composition of
the Domini Social Index but is not the manager of the Domini Social Index
Portfolio, the Domini Social Equity Fund, or the Domini Institutional Social
Equity Fund.
Domini 400/SM/, Domini Social Index/SM/, Domini 400 Social Index/SM/ and
Investing for Good/SM/ are service marks of Kinder, Lydenberg, Domini & Co.,
Inc. which are used under license.
Domini Social Investments/SM/, Domini Institutional Social Equity Fund/SM/,
Domini Money Market Account/SM/, The Responsible Index Fund/SM/, The Way You
Invest Matters/SM/, and domini.com/SM/ are registered service marks of Domini
Social Investments LLC.
<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 discus-
sion of the market conditions and investment strategies that significantly af-
fected the Fund's performance during its last fiscal year, as well as a com-
plete 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 informa-
tion about the Fund and its management and operations.The Statement of Addi-
tional Information is incorporated by reference into this prospectus and is le-
gally part of it. It is available by mail from Domini Social Investments.
Proxy Voting Guidelines & Social Screening Criteria
Published annually, this booklet describes how we will vote our proxies and
contains information about the social screens used to maintain the Domini 400
Social Index.The booklet also contains a description of our shareholder activ-
ism program. It is 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, or write to:
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. 811-7599
<PAGE>
File Nos. 333-14449 and 811-07599
Rule 497(c)
STATEMENT OF ADDITIONAL INFORMATION
December 1, 2000
DOMINI INSTITUTIONAL SOCIAL EQUITY FUND
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<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, 2000, 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, LLP ("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"). KLD is the
owner of the Domini Social Index but is not the manager of the Fund or the
Portfolio. 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
<PAGE>
-3-
course, be no assurance that the investment objective of either the Fund or the
Portfolio will be achieved.
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 212-217-1100.
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 (the "SEC"),
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 are 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
<PAGE>
-4-
the retention of an investment adviser to manage the Fund's assets in accordance
with the investment policies described above with respect to the Portfolio. In
the event the Trustees of the Trust were unable to find a substitute investment
company in which to invest the Fund's assets and were unable to secure directly
the services of an investment 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 interests in the
Portfolio. 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
<PAGE>
-5-
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 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, 2000, 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 July 31,
2000 approximately 37% and 55% 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 July 31, 2000 represented approximately 68% 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
<PAGE>
-6-
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.
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.
<PAGE>
-7-
The purchase of an option on an equity security provides the holder with
the right, but not the obligation, to purchase the underlying security, in the
case of a call option, or to sell the underlying security, in the case of a put
option, for a fixed price at any time up to a stated expiration date. The
holder is required to pay a non-refundable premium, which represents the
purchase price of the option. The holder of an option can lose the entire
amount of the premium, plus related transaction costs, but not more. Upon
exercise of the option, the holder is required to pay the purchase price of the
underlying security in the case of a call option, or deliver the security in
return for the purchase price in the case of a put option.
Prior to exercise or expiration, an option position may be terminated only
by entering into a closing purchase or sale transaction. This requires a
secondary market on the exchange on which the position was originally
established. While the Portfolio would establish an option position only if
there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular option contract at
any specific time. In that event, it may not be possible to close out a position
held by the Portfolio, and the Portfolio could be required to purchase or sell
the instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. The inability to close out option
positions also could have an adverse impact on the Portfolio's ability
effectively to hedge its portfolio.
Each exchange on which option contracts are traded has established a number
of limitations governing the maximum number of positions which may be held by a
trader, whether acting alone or in concert with others. The 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
<PAGE>
-8-
FUNDAMENTAL 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 "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
<PAGE>
-9-
its total assets (taken in each case at market value), or (b) through the use of
repurchase agreements or the purchase of short-term obligations and provided
that not more than 10% of its net assets will be invested in repurchase
agreements maturing in more than seven days; for additional related
restrictions, see paragraph (6) immediately following;
(6) invest in securities which are subject to legal or contractual
restrictions on resale (other than repurchase agreements maturing in not more
than seven days and other than securities which may be resold pursuant to Rule
144A under the 1933 Act if the Board of Trustees determines that a liquid market
exists for such securities) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days), except that the Fund may invest
all or any portion of its assets in the Portfolio;
(7) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts in the
ordinary course of business (the Fund and Portfolio reserve the freedom of
action to hold and to sell real estate acquired as a result of the ownership of
securities by the Fund or the Portfolio);
(8) make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund or the Portfolio, as
applicable, owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short, and unless not more than 5% of the Fund's or the Portfolio's, as
applicable, net assets (taken in each case at market value) is held as
collateral for such sales at any one time;
(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.
<PAGE>
-10-
NON-FUNDAMENTAL RESTRICTION: 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.
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. 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.
<PAGE>
-11-
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 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, 2000 8.85%
Five years ended July 31, 2000 23.91%
June 3, 1991 (Commencement of
Operations of the Portfolio) to
July 31, 2000 18.31%
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 as the S&P 500 and the Dow
Jones Industrial Average. "Standard & Poor"(TM), "S&P"(TM) and "Standard &
Poor's 500"(TM) are trademarks of McGraw Hill Companies.
4. DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES
<PAGE>
-12-
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. Options and futures contracts are normally valued
at the settlement price on the exchange on which they are traded. Short-term
obligations with remaining maturities of less than sixty days are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees of the Portfolio. Portfolio securities (other than short-term
obligations with remaining maturities of less than sixty days) for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Portfolio's Board of Trustees.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by the
Portfolio's Board of Trustees. While no single standard for determining fair
value exists, as a general rule, the current fair value of a security would
appear to be the amount which the Portfolio could expect to receive upon its
current sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the security, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
Interest income on short-term obligations held by the Portfolio is
determined on the basis of interest accrued less amortization of premium.
<PAGE>
-13-
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 536
Broadway, 7/th/ Floor, New York, New York 10012.
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 Investment
Trust; Manager of DSIL; Private Trustee, Loring, Wolcott & Coolidge; Trustee,
New England Quarterly (since 1998); 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. Trustee, Domini Social Investment Trust; Vice President, UNC Partners,
Inc. (since April 1990); Director and Treasurer, Boom Times, Inc. (1997-1999);
Director and Chair of Board of Directors, The Green Book, Inc. (1991 - 1996).
Her date of birth is July 11, 1948.
KIRSTEN S. MOY -- 151 North Michigan Avenue, Suite 1209, Chicago, Illinois
60601. Trustee, Domini Social Investment Trust; 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 Management (prior to October 1995).
Her date of birth is June 30, 1947.
<PAGE>
-14-
WILLIAM C. OSBORN -- 115 Buckminster Road, Brookline, Massachusetts 02445.
Trustee, Domini Social Investment Trust; Manager, Commons Capital Management
LLC; Consultant, Arete Corporation (prior to 1999); Manager, Venture Investment
Management Company LLC (prior to 1999); 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. Trustee, Domini Social
Investment Trust; Professor of Management and International Business, Florida
International University (since 1991); 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. Trustee,
Domini Social Investment Trust; 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). His date of birth is June 12, 1960.
FREDERICK C. WILLIAMSON, SR. -- Five Roger Williams Green, Providence, Rhode
Island 02904. Trustee, Domini Social Investment Trust; 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); President's Advisory
Board - Salve Regina University, Newport, RI (since 1999). 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 Investment Trust 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 Investment Trust (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, 2000 is
set forth below. The Trustees may hold various other directorships unrelated to
the Trust or Portfolio.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From the Trust,
Benefits Portfolio and
Aggregate Accrued as Estimated Domini
Compensation Part of Annual Benefits Social Investment
From the Trust Upon Trust
Trust Expenses Retirement
<S> <C> <C> <C> <C>
Amy L. Domini, None None None None
Chair, President
and Trustee
Julia Elizabeth $1,010 None None $9,500
</TABLE>
<PAGE>
-15-
<TABLE>
<S> <C> <C> <C> <C>
Harris,
Trustee
Kirsten S. Moy, $1,010 None None $9,500
Trustee
William C. Osborn, $1,010 None None $9,500
Trustee
Karen Paul, $1,010 None None $9,500
Trustee
Gregory A. Ratliff, $ 995 None None $9,000
Trustee
Timothy Smith, $1,010 None None $9,500
Trustee*
Frederick C. $1,010 None None $9,500
Williamson, Sr.,
Trustee
</TABLE>
________________________
*Mr. Smith resigned as a trustee of the Trust after July 31, 2000.
OFFICERS
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 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 October 31, 2000, 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
<PAGE>
-16-
Fund: MAC and Co, FBO Sisters of Charity Health Invest, PO Box 3198, Pittsburgh,
PA 15230 (4,642,600.549 shares, 20.98%), MAC and Co, FBO Sisters of Charity
Health Pension, PO Box 3398, Pittsburgh, PA 15230 (1,956,536.616, 8.84%),
Charles Schwab & Co, Attn: Mutual Funds, 101 Montgomery Street, San Francisco,
CA 94104-4122 (1,766,618.656 shares, 7.98%), Compton Foundation Inc. 545
Middlefield Road, Suite 178, Menlo Park, CA 94025 (1,298,566.710 shares, 5.87%).
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 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
<PAGE>
-17-
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 536
Broadway, 7th Floor, New York, New York 10012, 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.. 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, 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 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
<PAGE>
-18-
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 and
until November 15, 1999, Mellon Equity was paid investment management fees 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 years ended July 31, 2000 and 1999, the Portfolio incurred
approximately $3,257,616 and $1,791,617, respectively, 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 pursuant to the
Management Agreement, $17,385 in advisory fees pursuant to the KLD Advisory
Agreement, $17,385
<PAGE>
-19-
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. For the fiscal year ended July 31, 2000, the Fund paid
$142,412 in sponsorship fees under the Sponsorship Agreement.
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 PFPC Inc.
(formerly known as First Data Investor Services Group, Inc.), 4400 Computer
Drive, Westborough, MA 01581, pursuant to which PFPC 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
<PAGE>
-21-
settlement of security transactions; fees and expenses of the Portfolio's
custodian for all services to the Portfolio, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to governmental offices and commissions;
expenses of meetings of investors; and the investment management fees payable to
the Manager.
6. INDEPENDENT AUDITORS
KPMG 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 other items, without regard to whether it has
received any 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
<PAGE>
-22-
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 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. Moreover, the portion of
Fund dividends that is derived from investments in foreign corporations will not
qualify for such deduction.
"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
OPTIONS, ETC. The Fund's transactions in options will be subject to special
tax rules that may affect the amount, timing and character of Fund income and
distributions to shareholders. For example, certain positions held by the Fund
on the last business day of each taxable year will be marked to market (e.g.,
treated as if closed out) on that day, and any gain or loss associated with the
positions will be treated as 60% long-term and 40% short-term capital gain or
loss. Certain positions held by the Fund that substantially diminish its risk of
loss with respect to other positions in its portfolio may constitute
"straddles", and may be subject to special tax rules that would cause deferral
of fund losses, adjustments in the holding periods of fund securities, and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles that may alter the effects of these rules. The Fund intends
to limit its activities in options to the extent necessary to meet the
requirements of the Code.
FOREIGN SECURITIES: Special tax considerations apply with respect to
foreign investments of the Fund. Foreign exchange gains and losses realized by
the Fund will
<PAGE>
-23-
generally be treated as ordinary income and losses. Use of non-U.S. currencies
for non-hedging purposes may have to be limited in order to avoid a tax on the
Fund.
The foregoing is limited to a discussion of federal taxation. It 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.
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.
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
<PAGE>
-24-
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 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, 1999 and 2000, the Portfolio paid brokerage
commissions of $101,639, $175,344, $327,338 and $256,045, 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
<PAGE>
-25-
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
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,
<PAGE>
-26-
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 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
<PAGE>
-27-
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, 2000, Statement of Operations for the year
ended July 31, 2000, Statement of Changes in Net Assets for each of the years in
the two-year period ended July 31, 2000, Financial Highlights for each of the
years in the five-year period ended July 31, 2000, 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 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 Way You Invest Matters/SM/, The Responsible
Index Fund/SM/ and domini.com/SM/ are registered service marks of Domini Social
Investments LLC.
