As filed with the Securities and Exchange Commission on September 27, 1996
Registration Nos. 33-29180, 811-5823
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 8
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 10
DOMINI SOCIAL EQUITY FUND
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 617-423-0800
Philip W. Coolidge, Esq.
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has registered an indefinite number of its shares of beneficial
interest (without par value) pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant will file the Notice required by Rule 24f-2 on or
about September 30, 1996 for Registrant's fiscal year ended July 31, 1996.
Domini Social Index Portfolio has also executed this registration statement.
DSI201A.EDG
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EXPLANATORY NOTE
The Amendment to the Registrant's Registration Statement is being filed
pursuant to Rule 485(a) under the 1933 Act in order to add disclosure to the
prospectus and statement of additional information relating to (i) a change in
the administrator and distributor of the Registrant and (ii)changes in
certain annual operating expenses of the Registrant's series.
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DOMINI SOCIAL EQUITY FUND
CROSS REFERENCE SHEET
(As required by Rule 495)
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Item Number Statement of Additional
Form N-1A, Part A Prospectus Caption Information Caption
1 Front Cover Page *
2 Expense Summary *
3 Financial Highlights; *
Performance Information
4 Front Cover Page; Investment *
Objective and Policies
5 The Fund; Management; *
Adviser, Manager, Administrator;
Service Organizations, Transfer Agent
and Custodian; Back Cover Page;
Other Information Concerning Shares
of the Fund-Expenses
5A Not Applicable
6 Other Information Concerning Shares *
of the Fund-Description of Shares,
Voting Rights and Liabilities;
Service Organizations, Transfer Agent
and Custodian; Other Information
Concerning Shares of the Fund-Dividends
and Capital Gain Distributions;
Tax Matters
7 Purchases and Redemptions of Shares; *
Purchases; Other Information Concerning
Shares of the Fund, Net Asset Value,
Distribution Plan and Agreement; Service
Organizations, Transfer Agent and Custodian;
8 Purchases and Redemptions of Shares- *
Redemptions
9 Not Applicable *
Item Number Statement of Additional
Form N-1A, Part B Prospectus Caption Information Caption
10 * Front Cover Page
11 * Front Cover Page
12 * The Fund
13 Investment Objectives and Investment Objectives,
Policies Policies and Restrictions
14 * Management of the Fund
and Portfolio-Trustees,
Officers
15 * Management of the Fund
and Portfolio-Trustees,
Officers
16 Other Information Concerning Management of the Fund
Shares of the Fund-Expenses and the Portfolio-
Administrator
Management of the Fund- Management of the Fund
Administrator and the Portfolio-
Administrator
Purchases and Redemptions of Management of the Fund and
Shares-Distribution Plan the Portfolio-
and Agreement Distributor
Service Organizations, Transfer Management of the Fund and
Agent and Custodian- Portfolio-Administrative
Transfer Agent and Custodian; Services Plan; Transfer
Back Cover Page Agent, Custodian and
Service Organizations;
Independent Auditors;
Back Cover Page
* Management of the Fund
and the Portfolio-
Distributor
17 * Investment Objectives,
Policies and
Restrictions-Security
Transactions
18 Other Information Concerning Description of Shares-
Shares of the Fund- Voting Rights and
Description of Shares, Liabilities
Voting Rights and Liabilities
19 Purchases and Redemptions of Not Applicable
Shares
Other Information Concerning Determination of Net Asset
Shares of the Fund-Net Value
Asset Value; Purchases and
Redemptions of Shares
20 Tax Matters Taxation
21 * Management of the Fund
and the Portfolio-
Distributor
* Management of the Fund
and the Portfolio-
Distributor
* Not Applicable
22 * Performance Information
23 * Financial Statements
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Form N-1A, Part C
Information required to be included in Part C is set forth under the
appropriately numbered item in Part C of this registration statement.
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PROSPECTUS
November 29, 1996
DOMINI SOCIAL EQUITY FUND
The investment objective of the Domini Social Equity Fund (the "Fund") is to
provide its shareholders with long-term total return which corresponds to the
total return performance of the Domini Social IndexSM, an index comprised of
stocks selected according to social criteria. The Fund seeks to achieve its
investment objective by investing all of its investable assets in the Domini
Social Index Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Fund. The
Portfolio invests in the common stocks included in the Domini Social IndexSM.
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TABLE OF CONTENTS PAGE
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The Fund................................................................................. 2
Expense Summary.......................................................................... 3
Financial Highlights..................................................................... 5
Performance Information.................................................................. 6
Investment Objective and Policies........................................................ 6
Management............................................................................... 12
Purchases and Redemptions of Shares...................................................... 14
Tax Matters.............................................................................. 17
Other Information Concerning Shares of the Fund.......................................... 18
Service Organizations, Transfer Agent and Custodian...................................... 22
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The investment adviser of the Portfolio is Kinder, Lydenberg, Domini & Co.,
Inc. The investment manager of the Portfolio is Mellon Equity Associates. The
administrator of the Fund and the Portfolio is Federated Services Company. The
distributor of the Fund is Edgewood Services, Inc. INVESTMENTS IN THE FUND ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. SHARES OF THE FUND ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY BANK, AND THE SHARES ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL,
STATE OR OTHER GOVERNMENTAL AGENCY.
"DominiSM" and "Domini Social IndexSM" are service marks of Kinder,
Lydenberg, Domini & Co., Inc.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor ought to know before investing. The Fund has filed
with the Securities and Exchange Commission a Statement of Additional
Information, dated November 29, 1996, as amended from time to time, which
contains more detailed information about the Fund and is incorporated into this
Prospectus by reference. An investor may obtain a copy of the Statement of
Additional Information without charge by contacting the Distributor (see back
cover for address and phone number).
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIO OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE PORTFOLIO. THE FUND INVESTS IN THE
PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE-REGISTERED
TRADEMARK- INVESTMENT FUND STRUCTURE. "HUB AND SPOKE-REGISTERED TRADEMARK-" IS A
REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC. SEE "SPECIAL
INFORMATION CONCERNING THE HUB AND SPOKE-REGISTERED TRADEMARK- STRUCTURE"
HEREIN.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
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THE FUND
Domini Social Equity Fund (the "Fund") is a no-load, diversified, open-end
management investment company which was organized as a business trust under the
laws of the Commonwealth of Massachusetts on June 7, 1989. Although shares of
the Fund are sold without a sales load, Edgewood Services, Inc. ("Edgewood") may
receive a distribution fee from the Fund pursuant to a Distribution Plan adopted
in accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund offers to buy back (redeem) its shares from
its shareholders at any time at net asset value.
Shares of the Fund are sold continuously by Edgewood, the Fund's distributor
(the "Distributor"). The minimum initial investment is $1,000, except that the
minimum initial investment for an Individual Retirement Account ("IRA") is $250.
An investor should obtain from the Distributor, and should read in conjunction
with this prospectus, the materials describing the procedures under which Fund
shares may be purchased and redeemed. See "Purchases and Redemptions of Shares"
herein.
Proceeds from the sale of shares of the Fund are invested in the Portfolio
which then purchases securities in accordance with its investment objective and
policies. Kinder, Lydenberg, Domini & Co., Inc. ("KLD") is the Portfolio's
investment adviser (the "Adviser"). Mellon Equity Associates ("Mellon Equity")
is the Portfolio's investment manager (the "Manager"). Federated Services
Company ("Federated"), the administrator of the Fund (the "Administrator") and
of the Portfolio (the "Portfolio Administrator"), supervises the overall
administration of the Fund and of the Portfolio. The Boards of Trustees of the
Fund and of the Portfolio provide broad supervision over the affairs of the Fund
and of the Portfolio, respectively. The Trustees who are not "interested
persons" of the Fund as defined in the 1940 Act (the "Independent Trustees"),
are separate and independent from the Independent Trustees of the Portfolio. For
further information about the Trustees of the Fund and the Portfolio, see
"Management of the Fund and the Portfolio" in the Statement of Additional
Information. A majority of the Fund's Trustees are not affiliated with the
Adviser.
The Adviser determines the composition of the Domini Social Index (which
determines the composition of the Portfolio's securities). The following persons
are primarily responsible for the development and maintenance of the Domini
Social Index: Steven D. Lydenberg, Director of Research, KLD, since 1990; and
Peter D. Kinder, President, KLD, since 1988. The Manager manages the investments
of the Portfolio from day to day in accordance with the Portfolio's investment
objective and policies.
The Fund is obligated to pay a fee to the Administrator at an annual rate
equal to 0.20% of the Fund's average daily net assets, and the Fund may pay a
fee to the Distributor up to an annual rate equal to 0.25% of the Fund's average
daily net assets, in each case for the Fund's then-current fiscal year. The
Portfolio is obligated to pay a fee to the Adviser at an annual rate equal to
0.025% of the Portfolio's average daily net assets and a fee to the Portfolio
Administrator at an annual rate equal to 0.025% of the Portfolio's average daily
net assets, in each case for the Portfolio's then-current fiscal year. The
Portfolio is obligated to pay a fee to the Manager at an annual rate equal to
0.10% of the Portfolio's average daily net assets for its then-current fiscal
year. See "Management -- Manager" herein for more detailed information on the
fees of the Manager. The Fund and the Portfolio must also pay all of their
respective other expenses.
2
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EXPENSE SUMMARY
The following table provides (i) a summary of expenses relating to purchases
and sales of shares of the Fund, and the aggregate annual operating expenses for
the Fund and the Portfolio, as a percentage of average net assets of the Fund,
and (ii) an example illustrating the dollar cost of such expenses on a $1,000
investment in the Fund.
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SHAREHOLDER TRANSACTION EXPENSES...................................... 0%
ANNUAL OPERATING EXPENSES:
Advisory and Management Fees...................................... 0.125%
12b-1 Fees........................................................ 0.250%
Other Expenses
-- Administrative Services Fees................................. 0.225%
-- Other Expenses............................................... 0.380%
---------
Total Operating Expenses.......................................... 0.980%
---------
---------
EXAMPLE:
A shareholder of the Fund would pay the following expenses on a
$1,000 investment in the Fund, assuming (1) 5% annual return and
(2) redemption at the end of:
1 year......................................................... $ 10
3 years........................................................ $ 31
5 years........................................................ $ 54
10 years........................................................ $ 120
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The expense information in the expense table provided above has been
restated to reflect fees currently in effect. The purpose of the expense table
is to help investors understand the various costs and expenses that a
shareholder will bear directly or indirectly. Pursuant to expense payment
arrangements between Signature Broker-Dealer Services, Inc. ("Signature") and
each of the Fund and the Portfolio, Signature pays all of the operating expenses
of the Fund and the Portfolio, including the advisory, management, 12b-1 and
administrative services fees. Under these arrangements, Signature receives
expense payment fees (i) from the Fund at an annual rate equal to 0.78% of the
Fund's average daily net assets for its then-current fiscal year, and (ii) from
the Portfolio at an annual rate equal to 0.20% of the Portfolio's average daily
net assets for its then-current fiscal year. As a result, the aggregate annual
operating expenses (including amortization of organization expenses) of the Fund
and the Portfolio will not exceed 0.98% of the average daily net assets of the
Fund. All of the advisory, management and administrative services fees shown
above are paid through the expense payment arrangements. During any period, the
amounts paid to Signature under the expense payment arrangements may be greater
or less than amounts actually paid by Signature under the arrangements during
that period. After the expense payment arrangements terminate on December 31,
1999, the dollar-based expenses of the Fund and the Portfolio will each be paid
directly. For more information with respect to the expenses of the Fund and the
Portfolio, see "Management" herein.
The Fund may pay a distribution fee at an annual rate of up to 0.25% of the
Fund's average daily net assets in reimbursement of, or in anticipation of,
expenses incurred by the Distributor in connection with
3
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the sale of shares of the Fund. Long-term shareholders may pay more than the
economic equivalent of the maximum distribution charges permitted by the
National Association of Securities Dealers, Inc. The Fund may pay fees to
Service Organizations (as defined below) in amounts up to an annual rate of
0.25% of the daily net asset value of shares of the Fund owned by shareholders
with whom the Service Organization has a servicing relationship. The Fund does
not currently intend to enter into agreements with and pay fees to Service
Organizations, but it may do so in the future. See "Other Information Concerning
Shares of the Fund -- Distribution Plan and Agreement" and "Service
Organizations, Transfer Agent and Custodian" herein.
THE "EXAMPLE" SET FORTH ABOVE IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE FUND. ACTUAL EXPENSES AND
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund's Trustees believe that the aggregate per share expenses of the
Fund and the Portfolio will be less than or approximately equal to the expenses
which the Fund would incur if it retained the services of an investment adviser
and an investment manager and invested directly in the types of securities being
held by the Portfolio. See "Other Information Concerning Shares of the Fund --
Expenses" herein for further discussion of Fund and Portfolio expenses.
4
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FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated
periods have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, whose reports thereon appear in the Statement of Additional
Information. This information should be read in conjunction with the financial
statements included in the Statement of Additional Information.
The Fund's Annual Report includes a discussion of those factors, strategies
and techniques that materially affected the Fund's performance during the fiscal
year ended July 31, 1996, as well as certain related information. A copy of the
Annual Report will be made available without charge upon request.
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FOR THE FISCAL YEARS ENDED JULY 31 FOR THE PERIOD
--------------------------------------------------------------------------- AUGUST 10, 1990
1996 1995 1994 1993 1992 TO JULY 31, 1991
-------------- -------------- ------------- ------------- ------------- -----------------
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Net Asset Value, beginning of
period.......................... $ 14.85 $ 12.13 $ 12.00 $ 11.06 $ 9.95 $ 10.00
-------------- -------------- ------------- ------------- ------------- --------
Income from investment
operations:
Net investment income.......... 0.158 0.172 0.175 0.137 0.117 0.018
Net realized and unrealized
gain (loss) on investments.... 1.932 2.825 0.178 0.968 1.106 (0.068)
-------------- -------------- ------------- ------------- ------------- --------
Total from investment
operations...................... 2.090 2.997 0.353 1.105 1.223 (0.050)
-------------- -------------- ------------- ------------- ------------- --------
Less distributions and dividends:
Dividends to shareholders from
net investment income......... (0.158)(a) (0.195)(b) (0.150)(b) (0.150) (0.113) --
Distributions to shareholders
from net realized gain........ (0.082)(a) (0.082)(b) (0.073)(b) (0.015) -- --
-------------- -------------- ------------- ------------- ------------- --------
Total distributions.............. (0.240 ) (0.277 ) (0.223 ) (0.165 ) (0.113 ) --
-------------- -------------- ------------- ------------- ------------- --------
Net asset value, end of period... $ 16.70 $ 14.85 $ 12.13 $ 12.00 $ 11.06 $ 9.95
-------------- -------------- ------------- ------------- ------------- --------
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Ratios/supplemental data:
Total return................... 14.11% 25.10% 2.90% 10.00% 12.30% (0.50)%
Net assets, end of period (in
000's)........................ $ 80,915 $ 54,638 $ 31,369 $ 17,229 $7,174 $1,740
Ratio of expenses to average
net assets(c)................. 0.98% 0.90% 0.75% 0.75% 0.75% 0.75% (c)
Ratio of net investment income
to average net assets(c)...... 1.01% 1.38% 1.67% 1.41% 1.53% 1.49% (c)
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(a) Had the expense payment agreement not been in place the ratio of expenses to
average net assets and the ratio of net investment income to average net
assets for the year ended July 31, 1996, would have been 1.07% and 0.92%,
respectively.
(b) Reflects a voluntary waiver of fees by the Administrator and Adviser. Due to
limitations set forth in the Expense Payment Agreement, had the
Administrator and Advisor not waived their fees, the ratios of net
investment income and expenses to average net assets as stated would not
have changed for the periods ended July 31, 1993, 1992 and 1991. For the
years ended July 31, 1995 and 1994 the ratios of net investment income and
expenses to average net assets would have been 1.75% and 0.53% and 2.00% and
0.42% respectively.
(c) Annualized.
5
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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 period and average annualized "total rates of return" with
respect to the Fund. The "total rate of return" of the Fund refers to the change
in the value of an investment in a Fund over a stated period based on any change
in net asset value per share and includes the value of any shares purchasable
with any dividends or capital gains distributions declared during such period.
Period total rates of return may be annualized. An annualized total rate of
return is a compounded total rate of return which assumes that the period total
rate of return is generated over a 52-week period, and that all dividends and
capital gains distributions are reinvested. An annualized total rate of return
will be slightly higher than a period total rate of return if the period is
shorter than one year, because of the effect of compounding.
The Fund may provide "yield" quotations with respect to the Fund. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a 30-day or one-month period (which period shall be stated in any
advertisement or communications with a shareholder). This income is then
"annualized", that is, the amount of income generated by the investment over the
period is assumed to be generated over a 52-week period and is shown as a
percentage of investment. A "yield" quotation, unlike a total rate of return
quotation, does not reflect changes in net asset value.
From time to time the Fund may also quote fund rankings from various
sources, such as Lipper Analytical Services, Inc., and may compare its
performance to that of the Domini Social Index and various other unmanaged
securities indices, such as the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500") and the Dow Jones Industrial Average. "Standard &
Poor-Registered Trademark-", "S&P-Registered Trademark-" and "Standard & Poor's
500-Registered Trademark-" are trademarks of Standard & Poor's Corporation.
See the Statement of Additional Information for further information
concerning the calculation of yield and any total rate of return quotations.
Since the Fund's yield and total rate of return quotations are based on
historical earnings and since such yield and rates of return fluctuate over the
time, such quotations should not be considered as an indication or
representation of the future performance of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The investment objective of the Fund is to provide
its shareholders with long-term total return (reflecting both dividend and price
performance of the Fund) which corresponds to the total return performance of
the Domini Social Index (sometimes referred to herein as the "Index"). There
can, of course, be no assurance that the Fund will achieve its investment
objective. The investment objective of the Fund may be changed without approval
by the Fund's shareholders.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, which has the same
investment objective as the Fund. The Portfolio seeks to achieve its investment
objective by investing in the common stocks comprising the Domini Social Index.
The Portfolio will approximate the weightings of securities held by the
Portfolio to the weightings of the stocks in the Index, except as described
below, and will seek a correlation between the weightings of securities held by
the Portfolio and the weightings of the stocks in the Index of 0.95 or better. A
figure of 1.0 would indicate a perfect correlation. As of September 30, 1996,
the correlation between the weightings of securities held by the Portfolio and
the weightings of the stocks in the Index
6
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was 0.99. To the extent practicable, the Portfolio will attempt to be fully
invested. The ability of the Fund to duplicate the performance of the Domini
Social Index by investing in the Portfolio will depend to some extent on the
size and timing of cash flows into and out of the Fund and the Portfolio as well
as the Fund's and the Portfolio's expenses. Adjustments in the securities
holdings of the Portfolio to accommodate cash flows will track the Domini Social
Index to the extent practicable, but this will result in brokerage expenses.
SOCIAL CRITERIA -- The Domini Social Index was developed and is currently
maintained by the Adviser. The Index is a common stock index comprised of the
stocks of approximately 400 companies which meet certain social criteria. The
weightings of the stocks compromising the Index are based upon market
capitalization. The criteria used in developing and maintaining the Domini
Social Index involve the subjective judgment of the Adviser. The Adviser, based
on available data, seeks to exclude the following types of companies: firms that
derive more than 2% of their gross revenues from the sale of military weapons;
firms that derive any revenues from the manufacture of tobacco products or
alcoholic beverages; firms that derive any revenues from gambling enterprises;
and firms that have an ownership share in, or operate, nuclear power plants, or
participate in businesses related to the nuclear fuel cycle. The Adviser also
considers criteria such as corporate citizenship, employee relations,
environmental performance, and product-related issues when evaluating stocks for
inclusion in the Index. The corporate citizenship criteria include a company's
record with regard to its philanthropic activities and its community relations
in general. The employee relations criteria include a company's record with
regard to labor matters, workplace safety, equal employment opportunity,
employee benefit programs, and meaningful participation in company profits
either through stock purchase or profit sharing plans. The environmental
performance criteria include a company's record with regard to fines or
penalties, waste disposal, toxic emissions, efforts in waste reduction and
emissions reduction, recycling, and environmentally beneficial fuels, products
and services. The product-related criteria include a company's record with
regard to product safety, marketing practices, and commitment to quality.
The Adviser intends to vote proxies of companies included in the Portfolio
consistent with the social criteria used in developing and maintaining the
Index.
INDEX MANAGEMENT -- The Portfolio is not managed in the traditional
investment sense, since changes in the composition of its securities holdings
are made in order to track the changes in the composition of securities included
in the Index. Moreover, inclusion of a stock in the Domini Social Index does not
imply an opinion by the Adviser as to the merits of that specific stock as an
investment. However, the Adviser believes that enterprises which exhibit a
social awareness, based on the criteria described above, should be better
prepared to meet future societal needs for goods and services and may also be
less likely to incur certain legal liabilities that may be incurred when a
product or service is determined to be harmful, and that such enterprises should
over the longer term be able to provide a positive return to investors.
7
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In selecting stocks for inclusion in the Index:
1. The Adviser evaluated, in accordance with the social criteria
described above, each of the companies the stocks of which comprise the S&P
500. If a company whose stock was included in the S&P 500 met the Adviser's
social criteria and met the Adviser's further criteria for industry
diversification, financial solvency, market capitalization, and minimal
portfolio turnover, it was included in the Domini Social Index. As of July
31, 1996, of the 500 companies whose stocks comprised the S&P 500,
approximately 50% were included in the Index.
2. The remaining stocks comprising the Domini Social Index (I.E., those
which are not included in the S&P 500) were selected based upon the
Adviser's evaluation of the social criteria described above, as well as upon
the Adviser's criteria for industry diversification, financial solvency,
market capitalization, and minimal portfolio turnover. Because of the social
criteria applied in the selection of stocks comprising the Domini Social
Index, industry sector weighting in the Domini Social Index may vary
materially from the industry weightings in other stock indices, including
the S&P 500, and certain industry sectors will be excluded altogether.
The component stocks of the S&P 500 are chosen by Standard & Poor's
Corporation ("S&P") solely with the aim of achieving a distribution by broad
industry groupings that approximates the distribution of these groupings in the
New York Stock Exchange common stock population, taken as the assumed model for
the composition of the total market. Construction of the S&P 500 by S&P proceeds
from industry groups to the whole. Since some industries are characterized by
companies of relatively small stock capitalization, the S&P 500 does not
comprise the 500 largest companies listed on the New York Stock Exchange. Not
all stocks included in the S&P 500 are listed on the New York Stock Exchange.
However, the total market value of the S&P 500 as of July 31, 1996 represented
76% of the aggregate market value of common stocks traded on the New York Stock
Exchange.
Inclusion of a stock in the S&P 500 Index in no way implies an opinion by
S&P as to its attractiveness as an investment, nor is S&P a sponsor of or
otherwise affiliated with the Fund or the Portfolio.
Some of the stocks included in the Domini Social IndexSM may be stocks of
foreign issuers (provided that the stocks are traded in the United States in the
form of American Depositary Receipts or similar instruments the market for which
is denominated in United States dollars). Securities of foreign issuers may
represent a greater degree of risk (I.E., as a result of exchange rate
fluctuation, tax provisions, war or expropriation) than do securities of
domestic issuers.
The weightings of stocks in the Domini Social Index are based on each
stock's relative total market capitalization, (I.E., market price per share
times the number of shares outstanding). Because of this weighting, as of July
31, 1996 approximately 40% of the Domini Social Index was comprised of the 20
largest companies in that Index.
The Adviser may exclude from the Domini Social Index stocks issued by
companies which are in bankruptcy or whose bankruptcy the Adviser believes may
be imminent.
The Portfolio intends to readjust its securities holdings periodically such
that those holdings will correspond, to the extent reasonably practicable, to
the Domini Social Index both in terms of composition and weighting. The timing
and extent of adjustments in the holdings of the Portfolio, and the extent of
the correlation of the holdings of the Portfolio with the Domini Social Index,
will reflect the Manager's judgment as to the appropriate balance between the
goal of correlating the holdings of the Portfolio with
8
<PAGE>
the composition of the Index, and the goals of minimizing transaction costs and
keeping sufficient reserves available for anticipated redemptions of shares. To
the extent practicable, the Portfolio will seek a correlation between the
weightings of securities held by the Portfolio to the weightings of the
securities in the Index of 0.95 or better. Subject to the goal of achieving a
0.95 or better correlation between the weightings of the securities held by the
Portfolio and the weightings of the securities in the Index, the Manager may
slightly overweight and/or underweight certain holdings of the Portfolio
compared to the Index in an effort to enhance the performance of the Portfolio
to help offset the expenses of the Portfolio and the Fund and the effect of the
size and timing of cash flows into and out of the Portfolio and the Fund. There
can be no assurances, of course, that such portfolio enhancement strategies will
be successful, and the performance of the Portfolio may as a result be worse
than if such strategies were not undertaken. The Board of Trustees of the
Portfolio will receive and review, at least quarterly, a report prepared by the
Manager comparing the performance of the Fund and the Portfolio with that of the
Index, and comparing the composition and weighting of the Portfolio's holdings
with those of the Index, and will consider what action, if any, should be taken
in the event of a significant variation between the performance of the Fund or
the Portfolio, as the case may be, and that of the Index, or between the
composition and weighting of the Portfolio's securities holdings with those of
the stocks comprising the Index. If the correlation between the weightings of
securities held by the Portfolio and the weightings of the stocks in the Index
falls below 0.95, the Board of Trustees will review with the Manager methods for
increasing such correlation, such as through adjustments in securities holdings
of the Portfolio.
The Portfolio may invest cash reserves in short-term debt securities (I.E.,
securities having a remaining maturity of one year or less) issued by agencies
or instrumentalities of the United States Government, bankers' acceptances,
commercial paper or certificates of deposit, provided that the issuer satisfies
the Adviser's social criteria. The Portfolio does not currently intend to invest
in direct obligations of the United States Government. Short-term debt
securities purchased by the Portfolio will be rated at least Prime-1 by Moody's
Investors Service, Inc. or A-1+ or A-1 by S&P or, if not rated, determined to be
of comparable quality by the Portfolio's Board of Trustees. The Portfolio's
policy is to hold its assets in such securities pending readjustment of its
portfolio holdings of stocks comprising the Domini Social Index and in order to
meet anticipated redemption requests. Such investments are not intended to be
used for defensive purposes in periods of anticipated market decline.
Frequent changes in the Portfolio's holdings may result from the policy of
attempting to correlate the Portfolio's securities holdings with the composition
of the Index, and the frequency of such changes will increase as the rate and
volume of purchases and redemptions of shares of the Portfolio increases. The
annual portfolio turnover rates of the Portfolio for the fiscal years ended July
31, 1995 and July 31, 1996 were 6% and 5%, respectively.
The Portfolio's primary consideration in placing securities transactions
with broker-dealers for execution is to obtain, and maintain the availability
of, execution at the most favorable prices and in the most effective manner
possible. Neither the Portfolio nor the Fund will engage in brokerage
transactions with the Adviser, the Manager or the Administrator or any of their
respective affiliates or any affiliate of the Fund or the Portfolio. For further
discussion regarding securities trading by the Portfolio, see the Statement of
Additional Information.
Consistent with applicable regulatory policies, including those of the Board
of Governors of the Federal Reserve System and the Securities and Exchange
Commission, the Portfolio may make loans of its securities to member banks of
the Federal Reserve System and to broker-dealers. Such loans would
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be required to be secured continuously by collateral consisting of securities,
cash or cash equivalents maintained on a current basis at an amount at least
equal to the market value of the securities loaned. The Portfolio would have the
right to call a loan and obtain the securities loaned at any time on three days'
notice. During the existence of a loan, the Portfolio would continue to collect
the equivalent of the dividends paid by the issuer on the securities loaned and
would also receive interest on investment of cash collateral. The Portfolio may
pay finder's and other fees in connection with securities loans. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral.
Although it has no current intention to do so, the Portfolio may make short
sales of securities or maintain a short position, if at all times when a short
position is open the Portfolio owns an equal amount of such securities, or
securities convertible into such securities.
SPECIAL INFORMATION CONCERNING THE HUB AND SPOKE-REGISTERED TRADEMARK- MASTER
FEEDER INVESTMENT FUND STRUCTURE
The Fund and the Portfolio are utilizing certain proprietary rights,
know-how and financial services referred to as the Hub and Spoke Master Feeder
Investment Fund Structure from Signature Financial Group, Inc. ("Signature
Financial"). Hub and Spoke is a registered service mark of Signature Financial.
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. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from the Administrator at [ ]. The Hub and Spoke investment fund
structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
The investment objective of the Fund may be changed without the approval of
the Fund's shareholders, but not without written notice thereof to shareholders
thirty days prior to implementing the change. If there were a change in the
Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then-current financial
positions and needs. The investment objective of the Portfolio may also be
changed without the approval of the investors in the Portfolio, but not without
written notice thereof to the investors in the Portfolio (and notice by the Fund
to its shareholders) 30 days prior to implementing the change. There can, of
course, be no assurance that the investment objective of either the Fund or the
Portfolio will be achieved. See "Investment Restrictions" in the Statement of
Additional Information for a description of the fundamental policies of the Fund
and of the Portfolio that cannot be changed without approval by the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Fund or the Portfolio, respectively. Except as stated otherwise, all
investment guidelines, policies and restrictions described herein and in the
Statement of Additional Information are non-fundamental.
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Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility exists as well for traditionally structured funds which have large
or institutional investors.) Also, funds with a greater pro rata ownership in
the Portfolio could have effective voting control of the operations of the
Portfolio. Subject to exceptions that are not inconsistent with applicable rules
or policies of the Securities and Exchange Commission, whenever the Fund is
requested to vote on matters pertaining to the Portfolio, the Fund 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 Fund in the same proportion as the Fund shareholders who do,
in fact, vote. Certain changes in the Portfolio's investment objective, policies
or restrictions may require the Fund to withdraw its interest in the Portfolio.
Any such withdrawal could result in a distribution "in kind" of portfolio
securities (as opposed to a cash distribution from the Portfolio). If securities
are distributed, the Fund could incur brokerage, tax or other charges in
converting the securities to cash. In addition, the distribution in kind may
result in a less diversified portfolio of investments or adversely affect the
liquidity of the Fund. Notwithstanding the above, there are other means for
meeting shareholder redemption requests, such as borrowing.
The 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. Upon any such withdrawal, the Board of Trustees would consider
what action might be taken, including the investment of all the assets of the
Fund in another pooled investment entity having the same investment objective as
the Fund or the retention of an investment adviser to manage the Fund's assets
in accordance with the investment policies described above with respect to the
Portfolio. In the event the Trustees of the Fund were unable to find a
substitute investment company in which to invest the Fund's assets and were
unable to secure directly the services of an investment adviser and investment
manager, the Trustees will seek to determine the best course of action.
For more information about the Portfolio's policies, management and expenses
see "Investment Objective and Policies," "Management," and "Other Information
Concerning Shares of the Fund -- Expenses." For information about the
Portfolio's investment restrictions see the Statement of Additional Information.
------------------------
As a matter of fundamental policy, the Fund will invest all of its
investable assets (either directly or through the Portfolio) in one or more of:
(i) stocks comprising an index of securities selected applying social criteria,
which initially will be the Domini Social Index, (ii) short-term debt securities
of issuers which meet social criteria, (iii) cash, and (iv) options on equity
securities. This fundamental policy cannot be changed without the approval of
the holders of a majority of the Fund's shares (which, as used in this
Prospectus, means the lesser of (a) more than 50% of the outstanding shares of
the Fund, or (b) 67% or more of the outstanding shares of the Fund present at a
meeting at which holders of more than 50% of the Fund's outstanding shares are
represented in person or by proxy). Except for this fundamental policy, investor
approval is not required to change the Fund's or the Portfolio's investment
objective or any of the investment policies described above.
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The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Portfolio's and the Fund's investment policies. Certain of the
investment restrictions listed in the Statement of Additional Information may
not be changed by the Portfolio without the approval of the Fund and the other
investors in the Portfolio or by the Fund without the approval of the
shareholders of the Fund. If a percentage or rating restriction on investment or
utilization of assets is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
Portfolio's total assets or the value of the Portfolio's securities or a later
change in the rating of a security held by the Portfolio will not be considered
a violation of policy.
Expenses of the Portfolio with respect to investment advisory services,
investment management services and administration services are described herein
under "Management -- Adviser, -- Manager
and -- Administrator," respectively.
MANAGEMENT
The Boards of Trustees of the Fund and the Portfolio provide broad
supervision over the affairs of the Fund and the Portfolio, respectively. The
Fund has retained the services of Federated as administrator, but has not
retained the services of an investment adviser or investment manager since the
Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
Federated as administrator, KLD as investment adviser, and Mellon Equity as
investment manager.
ADVISER
KLD provides advice to the Portfolio pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The services provided by the Adviser
consist of determining the stocks to be included in the Index and evaluating, in
accordance with the Adviser's social criteria, debt securities which may be
purchased by the Portfolio. For its services under the Advisory Agreement, the
Adviser receives from the Portfolio a fee accrued daily and paid monthly at an
annual rate equal to 0.025% of the Portfolio's average daily net assets, on an
annualized basis for the Portfolio's then-current fiscal year. Prior to October
4, 1996, the Adviser received from the Portfolio a fee accrued daily and paid
monthly at an annual rate equal to 0.05% of the Portfolio's average daily net
assets, on an annualized basis for the Portfolio's then-current fiscal year.
Amy Lee Domini is a principal executive officer of KLD. Ms. Domini is a
Chartered Financial Analyst and has been in the investment field for twenty
years. She has co-authored three books on social investing, ETHICAL INVESTING
(Addison-Wesley, 1986), INVESTING FOR GOOD (Herbert Collins, 1993) and THE
SOCIAL INVESTMENT ALMANAC (Henry Holt Reference Books, 1992), and is currently a
trustee of Loring, Wolcott & Coolidge, a firm of private trustees. Ms. Domini
serves on the Governing Board of the Interfaith Center on Corporate
Responsibility and is a former member of the Board of the National Association
of Community Development Loan Funds. She is a member of both the Committee on
Trust Funds and the Church Pension Fund at the Episcopal Church (USA). Ms.
Domini has worked to promote both shareholder activism and community development
investing which, in combination with the integration of social criteria into
investment decisions, in her view serve to encourage the business community to
accept more responsibility for its impact on society.
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Peter D. Kinder, president of KLD, received his training as a lawyer and has
practiced in both the public and private sectors with a particular emphasis on
administrative law. He co-authored LAW AND BUSINESS (McGraw-Hill, 1990 [ 3d
ed.]), ETHICAL INVESTING (Addison-Wesley, 1986), INVESTING FOR GOOD (Herbert
Collins, 1993) and THE SOCIAL INVESTMENT ALMANAC (Henry Holt Reference Books,
1992). As a member of the Board of the Social Investment Forum, Mr. Kinder
participated in the Forum's CERES Project which developed the Valdez Principles
proposing environmental standards to be adopted by U.S. corporations.
Steven D. Lydenberg, Director of Research of KLD, has been active in social
research for nineteen years. For twelve years he served the Council on Economic
Priorities, ultimately as Director of Corporate Accountability Research. From
1987 to 1989, Mr. Lydenberg was an investment associate with Franklin Research
and Development, where he edited Franklin's newsletter, INVESTING FOR A BETTER
WORLD. Mr. Lydenberg has authored numerous publications on issues of corporate
social responsibility, including RATING AMERICA'S CORPORATE CONSCIENCE
(Addison-Wesley, 1986), as well as co-authored THE SOCIAL INVESTMENT ALMANAC
(Henry Holt Reference Books, 1992) and INVESTING FOR GOOD (Herbert Collins,
1993). He is a Chartered Financial Analyst.
"DominiSM" and "Domini Social IndexSM" are service marks of KLD. Pursuant to
agreements with the Fund and the Portfolio, the Portfolio will be required to
discontinue use of such service marks if KLD ceases to be the investment adviser
of the Portfolio, and the Fund will be required to discontinue the use of such
service marks if either KLD ceases to be the investment adviser of the Portfolio
or the Fund ceases to invest all of its assets in the Portfolio.
MANAGER
Mellon Equity manages the Portfolio on a day-to-day basis pursuant to an
Investment Management Agreement (the "Management Agreement"). Mellon Equity does
not determine the composition of the Domini Social Index.
Under the Management Agreement, the Portfolio pays Mellon Equity an
investment management fee equal on an annual basis to 0.10% of the average daily
net assets of the Portfolio. Prior to October 4, 1996, the Portfolio paid Mellon
Equity an investment management fee equal on an annual basis to the following
percentages of the Portfolio's average daily net assets for its then-current
fiscal year: 0.10% of assets up to $50 million; 0.30% of assets between $50
million and $100 million; 0.20% of assets between $100 million and $500 million;
and 0.15% of assets over $500 million.
Mellon Equity is a Pennsylvania business trust whose beneficial owners are
Mellon Bank N.A. and MMIP, Inc. Mellon Equity has been registered as an
investment adviser under the Investment Advisers Act of 1940 since 1986. Prior
to 1987, the Manager was part of the Equity Management Group of Mellon Bank
Corporation's Trust and Investment Department, which has managed pension assets
since 1947. As of June 30, 1996, the Manager had approximately $9.8 billion in
assets under management.
Mellon Equity believes that performance of investment management services
for the Portfolio will not violate the Glass-Steagall Act or other applicable
banking laws or regulations. However, future statutory or regulatory changes, as
well as future judicial or administrative decisions and interpretations of
present and future statutes and regulations, could prevent Mellon Equity from
continuing to perform such services for the Portfolio. If Mellon Equity were
prohibited from acting as investment manager to the
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Portfolio, it is expected that the Trustees would recommend to shareholders
approval of a new investment management agreement with another qualified
investment manager selected by the Trustees, or that the Trustees would
recommend other appropriate action.
ADMINISTRATOR
Pursuant to Administrative Services Agreements, Federated provides the Fund
and the Portfolio with general office facilities and supervises the overall
administration of the Fund and the Portfolio, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Fund or the Portfolio; the preparation and filing of all documents required for
compliance by the Fund or the Portfolio with applicable laws and regulations;
and arranging for the maintenance of books and records of the Fund and the
Portfolio. Federated provides persons satisfactory to the Board of Trustees of
the Fund or the Portfolio to serve as officers of the Fund or the Portfolio.
Such officers, as well as certain other employees and Trustees of the Fund or
the Portfolio, may be directors, officers or employees of Federated or its
affiliates. For these services and facilities, Federated receives fees computed
and paid monthly from the Fund at an annual rate equal to 0.20% of the average
daily net assets of the Fund, and from the Portfolio at an annual rate equal to
0.025% of the average daily net assets of the Portfolio, in each case for the
Fund's or the Portfolio's then-current fiscal year. Federated is a wholly-owned
subsidiary of Federated Investors.
Prior to October 14, 1996, Signature served as administrator of the Fund and
the Portfolio. For its services, Signature received fees computed daily and paid
monthly from the Fund at an annual rate equal to 0.15% of the average daily net
assets of the Fund, and from the Portfolio at an annual rate equal to 0.05% of
the average daily net assets of the Portfolio, in each case for the Fund's or
the Portfolio's then-current fiscal year.
Pursuant to a Sub-Administrative Services Agreement between Signature and
KLD, KLD serves as Sub-Administrator of the Fund. In such capacity, KLD performs
certain administrative services requested by the Administrator, including
assisting personnel of the Administrator in answering questions from the general
public, the media and investors in the Fund regarding the securities holdings of
the Portfolio. For these services, KLD receives from the Administrator such
compensation as they may agree on from time to time.
PURCHASES AND REDEMPTIONS OF SHARES
PURCHASES
Shares of the Fund may be purchased without a sales load at the net asset
value next determined after an order for shares is received and accepted by the
Fund provided such order is received and accepted prior to the close of the New
York Stock Exchange on any day the New York Stock Exchange is open for trading
(a "Fund Business Day"). The minimum initial investment in the Fund is $1,000,
except that the minimum initial investment for an IRA is $250. There is no
minimum on additional investments.
The Fund reserves the right to cease offering its shares for sale at any
time or to reject any order for the purchase of its shares.
For each shareholder of record, the Fund establishes an open account to
which all shares purchased are credited together with any dividends and capital
gains distributions which are paid in
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additional shares. See "Other Information Concerning Shares of the Fund --
Dividends and Capital Gains Distributions". Although most shareholders elect not
to receive share certificates, certificates for full shares can be obtained on
specific written request to the Fund. No certificates are issued for fractional
shares.
Shares may be purchased directly from the Distributor or through Service
Organizations (see "Service Organizations" below) by clients of those Service
Organizations. If an investor purchases shares through a Service Organization,
the Service Organization must promptly transmit such order to the Fund so that
the order receives the net asset value next determined following receipt of the
order. Service Organizations may impose minimum customer account and other
requirements in addition to those imposed by the Fund. Investors wishing to
purchase shares through a Service Organization should contact that organization
directly for appropriate instructions. Other investors may purchase Fund shares
in the manner described below.
Investors desiring to purchase shares of the Fund by mail should complete an
Account Application and mail the Application and a check (in U.S. dollars),
payable to "Domini Social Equity Fund," to the Fund at the following address:
Domini Social Equity Fund
P.O. Box 117
New York, New York 10274-0117
An investor desiring to purchase shares by a wire transfer of funds should
request its bank to transmit immediately available funds. The information
transmitted with the funds must include the investor's name and address and a
statement indicating whether a new account is being established by such wire
transfer or whether such wire transfer is being made by a shareholder with an
account with the Fund. If the initial purchase by an investor is by a wire
transfer of funds, an account number will be assigned to such investor and an
Account Application must subsequently be completed and mailed to the Fund. For
purchases by wire transfer, please call Fundamental Shareholder Services, Inc.,
the Fund's transfer agent (the "Transfer Agent"), at 1-800-782-4165 to obtain
wire transfer instructions.
Investors making purchases through a Service Organization should be aware
that it is the responsibility of the Service Organization to transmit orders for
purchases of shares by its customers to the Transfer Agent and to deliver
required funds on a timely basis, in accordance with the procedures stated
above.
For further information on how to purchase shares of the Fund, an investor
should contact the Distributor (see back cover for address and phone number).
AUTOMATIC INVESTMENT PLAN
The Fund offers a plan for regularly investing specified dollar amounts
($25.00 minimum in monthly, quarterly, semi-annual or annual intervals) in the
Fund. If an Automatic Investment Plan is selected, subsequent investments will
be automatic and will continue until such time as the Fund and the investor's
bank are notified to discontinue further investments. Due to the varying
procedures to prepare, process and to forward the bank withdrawal information to
the Fund, there may be a delay between the time of the bank withdrawal and the
time the money reaches the Fund. The investment in the Fund will be made at the
public offering price per share determined on the day that both the check and
bank
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withdrawal data are received in the form required by the Fund. Further
information about the plan and form may be obtained from the Transfer Agent or
the Distributor at the telephone numbers listed on the back cover of the
prospectus.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund may be used as a funding medium for an Individual
Retirement Account ("IRA"). An Internal Revenue Service-approved IRA plan is
available from the Distributor naming Investors Bank & Trust Company as
custodian. The minimum initial investment for an IRA is $250; the minimum
subsequent investment is $100. IRAs are available to individuals who receive
compensation or earned income and their spouses whether or not they are active
participants in a tax-qualified or Government-approved retirement plan. An IRA
contribution by an individual who participates, or whose spouse participates, in
a tax-qualified or Government-approved retirement plan may not be deductible
depending upon various factors, including the individual's income. Individuals
also may establish an IRA to receive a "rollover" contribution of distributions
from another IRA or a qualified plan. Tax advice should be obtained before
planning a rollover.
REDEMPTIONS
A shareholder may redeem all or any portion of the shares in its account at
any time at the net asset value next determined after a redemption request in
proper form is furnished by the shareholder to the Fund. Redemptions will
therefore be effected on the same day the redemption order is received by the
Fund provided such order is received and accepted on a Fund Business Day prior
to the time at which the net asset value of the Fund is determined. The proceeds
of a redemption will be paid by the Fund in federal funds normally on the next
Fund Business Day, but in any event within seven days if all checks in payment
for the purchase of shares to be redeemed have been cleared by the Fund (which
may take up to 15 days). Redemptions may be made by letter to the Fund
specifying the dollar amount or number of shares to be redeemed and the account
number. The letter must be signed in exactly the same way the account is
registered and the signatures must be guaranteed by an eligible guarantor
institution In some cases the Fund may require the furnishing of additional
documents.
An investor may redeem shares in any amount by written or telephonic
request. Written requests should be mailed to the Fund at the following address:
Domini Social Equity Fund
P.O. Box 117
New York, New York 10274-0117
An investor may redeem shares by wire or telephone if the appropriate box on
the Account Application has been completed. Redemptions may be paid by the Fund
by check or by wire transfer. Instructions for wire redemptions are set forth in
the Account Application. If shares to be redeemed are held in certificate form,
the certificates must be mailed to the Fund at the address noted above. Do not
sign the certificates and, for protection, use registered mail.
The Fund, Transfer Agent and Distributor reserve the right to refuse wire or
telephone redemptions. Procedures for redeeming shares by wire or telephone may
be modified or terminated at any time by the Fund or the Distributor. The Fund,
Transfer Agent and Distributor will not be liable for any loss, liability, cost
or expense for acting upon telephone instructions believed to be genuine.
Accordingly, shareholders will bear the risk of loss. The Fund will employ
reasonable procedures to confirm that instructions
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<PAGE>
communicated by telephone are genuine, including, without limitation, recording
telephone instructions and/or requiring the caller to provide some form of
personal identification. Failure to employ reasonable procedures may make the
Fund liable for any losses due to unauthorized or fraudulent telephone
instructions. The following information must be supplied by the shareholder or
broker at the time a request for a telephone redemption is made: (1) the
shareholder's account number; (2) the shareholder's social security number; and
(3) the name and account number of the shareholder's designated securities
dealer or bank.
A Service Organization may request a wire redemption provided a Wire
Authorization Form is on file with the Fund. The proceeds of a wire redemption
will be sent to an account with a Service Organization designated on the
appropriate form. The Fund reserves the right to restrict or terminate wire
redemption privileges. Proceeds of wire redemptions will be transferred within
seven days after receipt of the request.
The value of shares redeemed may be more or less than the shareholder's
cost, depending on the Fund's performance during the period the shareholder
owned its shares. Redemptions of shares are taxable events on which the
shareholder may recognize a gain or a loss.
The right of any shareholder to receive payment with respect to any
redemption may be suspended or the payment of the redemption proceeds postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on such Exchange is restricted, or, to the
extent otherwise permitted by the 1940 Act, if an emergency exists.
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns shares of the Fund with an aggregate value of
$10,000 or more may establish a Systematic Withdrawal Plan under which he or she
redeems at net asset value the number of full and fractional shares which will
produce the monthly, quarterly, semi-annual or annual payments specified
(minimum $50.00 per payment). Depending on the amounts withdrawn, systematic
withdrawals may deplete the investor's principal. Investors contemplating
participation in this Plan should consult their tax advisers. No additional
charge to the shareholder is made for this service.
TAX MATTERS
Each year the Fund intends to qualify and elect to be treated as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Provided the Fund meets all income, distribution and
diversification requirements of the Code, and distributes all of its net
investment income and realized capital gains to shareholders in accordance with
the timing requirements imposed by the Code, the Fund will not be required to
pay any federal income or excise taxes. The Portfolio will also not be required
to pay any federal income or excise taxes. However, shareholders of the Fund
normally will have to pay federal income taxes, and any state or local taxes, on
the dividends and any realized net capital gains distributions they receive from
the Fund. After the end of each calendar year, each shareholder receives
information for tax purposes on the dividends and any capital gains
distributions received during that calendar year including the portion taxable
as ordinary income, the portion taxable as long-term capital gains, the portion,
if any, representing a return of capital (which generally is free of current
taxes but results in a basis reduction), the amount, if any, of federal income
tax withheld, and the amount of any dividends eligible for the
dividends-received deduction for corporations.
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Dividends and distributions to shareholders will be treated in the same
manner for federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund. Distributions of net capital gains (I.E., the
excess of net long-term capital gains over net short-term capital losses) will
cause any short-term capital loss realized on the disposition by a Fund's
shareholder of Fund shares held for six or fewer months to be recharacterized,
to the extent of those distributions, as long-term capital loss. Under the
back-up withholding rules of the Code, certain shareholders may be subject to
31% withholding of federal income tax on distributions and payments made by the
Fund. Generally, shareholders are subject to back-up withholding if they have
not provided the Fund with a correct taxpayer identification number and certain
other certifications.
The Fund is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as it qualifies as a regulated investment company under
the Code.
The foregoing discussion is intended for general information only. A
prospective shareholder should consult with its own tax advisor as to the tax
consequences of an investment in the Fund including the status of distributions
from the Fund under applicable state or local law.
OTHER INFORMATION CONCERNING SHARES OF THE FUND
NET ASSET VALUE
The Fund determines the net asset value of each of its shares on each Fund
Business Day. This determination is made once during each such day as of the
close of regular trading on the New York Stock Exchange by deducting the amount
of the Fund's liabilities from the value of its assets and dividing the
difference by the number of shares of the Fund outstanding. A share's net asset
value is effective for orders received by the Distributor on a Fund Business Day
prior to the time at which such net asset value is determined.
Since the Fund will invest all of its assets in the Portfolio, the value of
the Fund's assets will be equal to the value of its beneficial interest in the
Portfolio. The net asset value of the Portfolio is determined as of the close of
regular trading on the New York Stock Exchange on each Fund Business Day, by
deducting the amount of the Portfolio's liabilities from the value of its
assets. The value of the Fund's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio. (See "Description of Shares,
Voting Rights and Liabilities" below.)
Equity securities held by the Portfolio are valued at the last sale price on
the exchange on which they are primarily traded or on the NASDAQ system for
unlisted national market issues, or at the last quoted bid price for securities
in which there were no sales during the day or for unlisted securities not
reported on the NASDAQ system. If the Portfolio purchases option contracts, such
option contracts which are traded on commodities or securities exchanges are
normally valued at the settlement price on the exchange on which they are
traded. Short-term obligations with remaining maturities of less than sixty days
are valued at amortized cost, which constitutes fair value as determined by the
Board of Trustees of the Portfolio. Portfolio securities (other than short-term
obligations with remaining maturities of less than sixty days) for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Portfolio's Board of Trustees.
18
<PAGE>
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Substantially all of the Fund's net income from dividends and interest is
paid to the Fund's shareholders semi-annually (in the months of June and
December) as a dividend. For this purpose, the Fund's "net income from dividends
and interest" consists of all income from dividends and interest accrued on the
assets of the Fund (I.E., the Fund's share of the Portfolio's net income from
dividends and interest), less all actual and accrued expenses of the Fund
determined in accordance with generally accepted accounting principles.
The Fund also declares a long-term capital gains distribution to its
shareholders on an annual basis, usually in December, if the Fund's share of the
Portfolio's profits during the year from the sale of securities held for longer
than the applicable long-term capital gains holding period exceeds the Fund's
share of the Portfolio's losses during such year from the sale of securities
together with the Fund's share of the Portfolio's net capital losses carried
forward from prior years (to the extent not used to offset short-term capital
gains). The Fund's share of the Portfolio's net short-term capital gains
realized during each fiscal year will also be distributed at that time.
The Fund will also make additional distributions to its shareholders to the
extent necessary to avoid application of the 4% nondeductible excise tax created
by the Tax Reform Act of 1986 on certain undistributed income and net capital
gains of mutual funds.
A shareholder of the Fund may elect to receive dividends and capital gains
distributions in either cash or additional shares. Unless otherwise specified in
writing by a shareholder, all dividends and capital gains distributions will be
reinvested in additional shares.
EXPENSES
The Fund and the Portfolio each are responsible for all of their respective
expenses, including the compensation of their respective Trustees who are not
affiliated with the Administrator or the Adviser; governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable to
the Fund or the Portfolio; fees and expenses of independent auditors, of legal
counsel and of any transfer agent, custodian, registrar or dividend disbursing
agent of the Fund or the Portfolio; insurance premiums; and expenses of
calculating the net asset value of the Portfolio and of shares of the Fund.
The Fund will also pay all expenses of distributing and redeeming shares and
servicing shareholder accounts; expenses of preparing, printing and mailing
prospectuses, reports, notices, proxy statements and reports to shareholders and
to governmental offices and commissions; expenses of shareholder meetings; and
expenses relating to the issuance, registration and qualification of shares of
the Fund and the preparation, printing and mailing of prospectuses for such
purposes.
The Portfolio will also pay the expenses connected with the execution,
recording and settlement of security transactions; fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors; and the advisory fees payable to
the Adviser under the Advisory Agreement, the management fees payable to the
Manager under the Management Agreement and the administrative fees payable to
the Portfolio Administrator.
19
<PAGE>
Pursuant to expense payment arrangements between Signature and each of the
Fund and the Portfolio effective January 1, 1995, Signature has agreed to pay
all of the operating expenses of the Fund and the Portfolio. The arrangements
will terminate on December 31, 1999 unless sooner terminated by mutual agreement
of the parties. Under these arrangements Signature receives expense payment fees
computed and paid monthly (i) from the Fund, at an annual rate equal to 0.78% of
the Fund's average daily net assets for its then-current fiscal year, and (ii)
from the Portfolio, at an annual rate equal to 0.20% of the Portfolio's average
daily net assets for its then-current fiscal year. See "Management of the Fund
and the Portfolio" in the Statement of Additional Information for more
information regarding expense payment arrangements.
DISTRIBUTION PLAN AND AGREEMENT
The Trustees of the Fund have adopted a Distribution Plan (the "Distribution
Plan") in accordance with Rule 12b-1 under the 1940 Act after having concluded
that there is a reasonable likelihood that the Distribution Plan will benefit
the Fund and its shareholders. As contemplated by the Distribution Plan,
Edgewood, as the Distributor, acts as agent of the Fund in connection with the
offering of shares of the Fund pursuant to a Distribution Agreement. Edgewood,
as 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.
Edgewood is a wholly-owned subsidiary of Federated Investors.
Under the Distribution Plan, Edgewood may receive a fee from the Fund at an
annual rate not to exceed 0.25% of the Fund's average daily net assets in
anticipation of, or as reimbursement for, costs and expenses incurred in
connection with the sale of shares of the Fund, such as payments to broker-
dealers who advise shareholders regarding the purchase, sale or retention of
shares of the Fund, payments to employees of Edgewood, advertising expenses and
the expenses of printing and distributing prospectuses and reports used for
sales purposes, expenses of preparing and printing sales literature and other
distribution-related expenses. Edgewood will provide to the Trustees of the Fund
a quarterly written report of amounts expended by it under the Distribution Plan
and the purposes for which such expenditures were made.
No payments under the Distribution Plan are made to the Service
Organizations.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par value)
and to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in the Fund.
Each share represents an equal proportionate interest in the Fund with each
other share. Shares have no pre-emptive or conversion rights. Shares when issued
are fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held. The Fund is not required to hold
annual meetings of shareholders but the Fund will hold special meetings of
shareholders when in the judgment of the Trustees it is necessary or desirable
to submit matters for a shareholder vote. Upon liquidation of the Fund,
shareholders would be entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders. Shareholders have under certain
circumstances the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have under certain circumstances the right to
remove one or more Trustees without a meeting.
20
<PAGE>
The Fund reserves the right to create and issue any number of series of
shares, in which case the shares of each series would participate equally in the
earnings, dividends and assets of the particular series (except for differences
among any classes of shares of any series). Currently, the Fund has only one
series of shares, all of which are of the same class. The Fund may establish
additional classes of any series of shares. For example, the Fund may offer
another class of shares that has lower annual distribution fees or shareholder
servicing fees. Prior to offering another class of shares, the Fund would either
issue a new prospectus and statement of additional information or amend this
Prospectus and the Statement of Additional Information to reflect such issuance.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the 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 Fund's Trustees believe that neither the Fund
nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio. In addition, whenever the Fund is requested to vote
on a fundamental policy of the Portfolio, the Fund will hold a meeting of its
shareholders and will cast its vote as instructed by its shareholders.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each Fund Business Day. At the close of each such
Fund Business Day, the value of each investor's beneficial interest in the
Portfolio will be determined by multiplying the net asset value of the Portfolio
by the percentage, effective for that day, which represents that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions or
withdrawals, which are to be effected as of the close of business on that day,
will then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be re-computed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in the Portfolio effected as of the close of business
on such day, and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the close of business on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of business on the
following Fund Business Day.
21
<PAGE>
SERVICE ORGANIZATIONS, TRANSFER AGENT AND CUSTODIAN
SERVICE ORGANIZATIONS
The Fund may also contract with various banks, trust companies (other than
Mellon Equity), broker-dealers (other than Edgewood) or other financial
organizations (collectively, "Service Organizations") to provide administrative
services for the Fund, such as maintaining shareholder accounts and records. The
Fund may pay fees to Service Organizations (which may vary depending upon the
services provided) in amounts up to an annual rate of 0.25% of the daily net
asset value of the shares of the Fund owned by shareholders with whom the
Service Organization has a servicing relationship.
Some Service Organizations may impose additional or different conditions on
their clients such as requiring their clients to invest more than the minimum
initial investment specified by the Fund or charging a direct fee for servicing.
If imposed, these fees would be in addition to any amounts which might be paid
to the Service Organization by the Fund. Each Service Organization has agreed to
transmit to its clients a schedule of any such fees. Shareholders using Service
Organizations are urged to consult them regarding any such fees or conditions.
The Fund does not currently intend to enter into agreements with and pay
fees to Service Organizations, but it may do so in the future.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There is currently no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank Service Organization from
continuing to perform all or a part of its servicing activities. If a bank were
prohibited from so acting, its shareholder clients would be permitted to remain
shareholders of the Fund and alternative means for continuing the servicing of
such shareholders would be sought. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
TRANSFER AGENT AND CUSTODIAN
The Fund has entered into a Transfer Agency Agreement with Fundamental
Shareholder Services, Inc. ("FSSI"), pursuant to which FSSI acts as 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. Pursuant to Custodian Agreements, Investors Bank
& Trust Company ("IBT") acts as the custodian of the Fund's assets (I.E., cash
and the Fund's interest in the Portfolio) and as the custodian of the
Portfolio's assets (the "Custodian"). The Custodian's responsibilities include
safeguarding and controlling the Portfolio's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Portfolio's investments, maintaining books of original entry for
portfolio and fund accounting and other required books and accounts, and
calculating the daily net asset value of the Portfolio and the daily net asset
value of shares of the Fund. Securities held by the Portfolio may be deposited
into certain securities depositaries. The Custodian does not determine the
investment policies of the Portfolio or decide which securities the Portfolio
will buy or sell. The Portfolio may, however, invest in securities of the
Custodian and may deal with the
22
<PAGE>
Custodian as principal in securities transactions. IBT also serves as transfer
agent for the Portfolio. For their services, FSSI and IBT will receive such
compensation as may from time to time be agreed upon by each of them and the
Fund or the Portfolio.
------------------------
The Fund's Statement of Additional Information contains more detailed
information about the Fund and the Portfolio, including information related to
(i) investment policies and restrictions of the Fund and the Portfolio, (ii) the
Trustees, officers, investment adviser, investment manager and administrator of
the Fund and the Portfolio, (iii) portfolio transactions, (iv) the Fund's
shares, including rights and liabilities of shareholders, (v) additional
performance information, including the method used to calculate yield and total
rate of return quotations of the Fund, (vi) determination of the net asset value
of shares of the Fund, and (vii) the audited financial statements of the Fund
and the Portfolio at July 31, 1996.
23
<PAGE>
DOMINI SOCIAL EQUITY FUND
6 St. James Avenue
Boston, MA 02116
<TABLE>
<S> <C> <C>
PORTFOLIO INVESTMENT CUSTODIAN:
ADVISER: Investors Bank &
Kinder, Lydenberg, Trust Company
Domini & Co., Inc. 89 South Street
129 Mt. Auburn Street Boston, MA 02111
Cambridge, MA 02138
(617) 547-7479 AUDITORS:
KPMG Peat Marwick LLP
PORTFOLIO INVESTMENT 99 High Street
MANAGER: Boston, MA 02110
Mellon Equity
Associates LEGAL COUNSEL:
500 Grant Street Bingham, Dana & Gould LLP
Suite 3700 150 Federal Street
Pittsburgh, PA Boston, MA 02110
15258-0001 TRANSFER AGENT:
ADMINISTRATOR: Fundamental Shareholder
Federated Services Services, Inc.
Company 90 Washington Street
Federated Investors New York, NY 10006
Tower (800) 782-4165
Pittsburgh, PA
15222-3779
DISTRIBUTOR:
Edgewood Services,
Inc.
Federated Investors
Tower
Pittsburgh, PA
15222-3779
</TABLE>
- --------------------------------------------------------
DOMINI SOCIAL EQUITY FUND
PROSPECTUS
---------------------------------------
November 29, 1996
INVESTING FOR GOOD SM
M PRINTED ON RECYCLED PAPER
<PAGE>
DSI195B
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 29, 1996
DOMINI SOCIAL EQUITY FUND
Table of Contents
Page
1. The Fund............................................................... 2
2. Investment Objective, Policies and Restrictions........................ 2
3. Performance Information................................................ 9
4. Determination of Net Asset Value; Valuation of Portfolio Securities .. 10
5. Management of the Fund and the Portfolio ............................. 11
6. Independent Auditors.................................................. 21
7. Taxation...............................................................21
8. Portfolio Transactions and Brokerage Commissions.......................23
9. Description of Shares, Voting Rights and Liabilities...................25
10. Financial Statements..................................................27
DOMINI SOCIAL EQUITY FUND
[ADDRESS]
(800) 762-6814
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Fund's Prospectus dated November 29, 1996, as amended from time to time. This
Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
contacting Edgewood Services, Inc., the Fund's distributor, at (800) 762-6814.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus and should be read only in conjunction
with such prospectus.
2
<PAGE>
1. THE FUND
Domini Social Equity Fund (the "Fund") is a no-load diversified
open-end management investment company which was organized as a business trust
under the laws of the Commonwealth of Massachusetts on June 7, 1989. The Fund
offers to buy back (redeem) its shares 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.
Federated Services Company ("Federated"), the Fund's administrator (the
"Administrator"), 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 Edgewood Services, Inc. ("Edgewood"), the
Fund's distributor (the "Distributor"). The minimum initial investment is
$1,000, except that the minimum initial investment for an Individual Retirement
Account is $250. 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. Kinder, Lydenberg, Domini & Co., Inc. ("KLD") is the Portfolio's
investment adviser (the "Adviser"). Mellon Equity Associates ("Mellon Equity")
is the Portfolio's investment manager (the "Manager"). The Adviser determines
the composition of the Domini Social IndexSM. The Manager manages the
investments of the Portfolio from day to day in accordance with the Portfolio's
investment objective and policies. "DominiSM" and "Domini Social IndexSM" are
service marks of Kinder, Lydenberg, Domini & Co., Inc.
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide its shareholders
with long-term total return (reflecting both dividend and price performance of
the Fund) which corresponds to the performance of the Domini Social Index
(sometimes referred to herein as the "Index"). There can, of course, be no
assurance that the Fund will achieve its investment objective. The investment
objective of the Fund may be changed without approval by the Fund's
shareholders.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by
3
<PAGE>
investing all its assets in the Portfolio, which has the same investment
objective as the Fund. The Fund may withdraw its investment in 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. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
investable assets of the Fund in another pooled investment entity having the
same investment objective as the Fund, or the retaining of an investment adviser
to manage the Fund's assets in accordance with the investment policies described
below with respect to the Portfolio. The approval of the Fund's shareholders
would not be required to change any of the Fund's investment policies.
The following supplements the information concerning the Portfolio's
investment policies contained in the Prospectus and should only be read in
conjunction therewith.
A company which is not included in the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500") may be included in the Domini Social Index
primarily in order to afford representation to an industrial sector which would
otherwise be under-represented in the Index. Because of the social criteria
applied in the selection of stocks comprising the Domini Social Index, industry
sector weighting in the Domini Social Index may vary materially from the
industry weightings in other stock indices, including the S&P 500.
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.
Although neither the Fund nor the Portfolio has any current intention
to do so, the Fund and the Portfolio may invest in securities which may be
resold pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act").
It is a fundamental policy of the Portfolio and the Fund that neither
the Portfolio nor the Fund may invest more than 25% of the total assets of the
Portfolio or the Fund, respectively, in any one industry, although the Fund will
invest all of its assets in the Portfolio, and the Portfolio may and would
invest more than 25% of its assets in an industry if stocks in that industry
were to comprise more than 25% of the Domini Social Index. Based on the current
composition of the Index, this is considered highly unlikely. If the Portfolio
were to concentrate its investments in a single industry, the Portfolio and the
Fund would be more susceptible to any single economic, political or
4
<PAGE>
regulatory occurrence than would be another investment company
which was not so concentrated.
LOANS OF SECURITIES: The Portfolio may lend its securities to brokers,
dealers and financial institutions, provided that (1) the loan is secured
continuously by collateral, consisting of U.S. Government securities or cash or
letters of credit, which is marked to the market daily to ensure that each loan
is fully collateralized at all times; (2) the Portfolio may at any time call the
loan and obtain the return of the securities loaned within three business days;
(3) the Portfolio will receive any interest or dividends paid on the securities
loaned; and (4) the aggregate market value of securities loaned will not at any
time exceed 30% of the total assets of the Portfolio.
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
Adviser or the Manager.
Although the Portfolio reserves the right to lend its securities, it
has no current intention of doing so in the foreseeable future.
RISK FACTORS INVOLVED IN OPTION CONTRACTS: Although it has no current
intention to do so, the Portfolio may in the future enter into certain
transactions in stock options for the purpose of hedging against possible
increases in the value of securities which are expected to be purchased by the
Portfolio or possible declines in the value of securities which are expected to
be sold by the Portfolio. Generally, the Portfolio would only enter into such
transactions on a short-term basis pending readjustment of its holdings of
underlying stocks.
The purchase of an option on an equity security provides the holder
with the right, but not the obligation, to purchase the underlying security, in
the case of a call option, or to sell the underlying security, in the case of a
put option, for a fixed price at any time up to a stated expiration date. The
holder is required to pay a non-refundable premium, which represents the
purchase price of the option. The holder of an option can lose the entire amount
of the premium, plus related transaction costs, but not more. Upon exercise of
the option, the holder is required to pay the purchase price of the underlying
security in the case of a call option, or deliver the security in return for the
purchase price in the case of a put option.
5
<PAGE>
Prior to exercise or expiration, an option position may be terminated
only by entering into a closing purchase or sale transaction. This requires a
secondary market on the exchange on which the position was originally
established. While the Portfolio would establish an option position only if
there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular option contract at
any specific time. In that event, it may not be possible to close out a position
held by the Portfolio, and the Portfolio could be required to purchase or sell
the instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. The inability to close out option
positions also could have an adverse impact on the Portfolio's ability
effectively to hedge its portfolio.
Each exchange on which option contracts are traded has established a
number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Adviser
does not believe that these trading and position limits would have an adverse
impact on the possible use of hedging strategies by the Portfolio.
The approval of the Fund and of the other investors in the Portfolio is
not required to change the investment objective or any of the investment
policies discussed above, including those concerning security transactions.
INVESTMENT RESTRICTIONS
The Fund and the Portfolio have each adopted the following policies
which may not be changed without approval by holders of a "majority of the
outstanding shares" of the Fund or the Portfolio, respectively, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund or the Portfolio,
respectively, present at a meeting, if the holders of more than 50% of the
outstanding "voting securities" of the Fund or the Portfolio, respectively, are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities" of the Fund or the Portfolio, respectively. The term "voting
securities" as used in this paragraph has the same meaning as in the Investment
Company Act of 1940, as amended (the "1940 Act").
Except as described below, whenever the Fund is requested to vote on a
change in the investment restrictions of the Portfolio, the Fund will hold a
meeting of its shareholders and will cast its vote proportionately as instructed
by its shareholders. However, subject to applicable statutory and regulatory
requirements, the Fund would not request a vote of its shareholders 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
6
<PAGE>
(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 Fund.
Neither the Fund nor the Portfolio may:
(1) borrow money, except that as a temporary measure for extraordinary
or emergency purposes either the Fund or the Portfolio may borrow an amount not
to exceed 1/3 of the current value of the net assets of the Fund or the
Portfolio, respectively, including the amount borrowed (moreover, neither the
Fund nor the Portfolio may purchase any securities at any time at which
borrowings exceed 5% of the total assets of the Fund or the Portfolio,
respectively, taken in each case at market value) (it is intended that the
Portfolio would borrow money only from banks and only to accommodate requests
for the withdrawal of all or a portion of a beneficial interest in the Portfolio
while effecting an orderly liquidation of securities); for additional related
restrictions, see clause (i) under the caption "Non-Fundamental State and
Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on margin,
except that either the Fund or the Portfolio may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of securities and
except that either the Fund or the Portfolio may make deposits of initial
deposit and variation margin in connection with the purchase, ownership, holding
or sale of options;
(3) write any put or call option or any combination thereof, provided
that this shall not prevent (i) the purchase, ownership, holding or sale of
warrants where the grantor of the warrants is the issuer of the underlying
securities, or (ii) the purchase, ownership, holding or sale of options on
securities;
(4) underwrite securities issued by other persons, except that the Fund
may invest all or any portion of its assets in the Portfolio and except insofar
as either the Fund or the Portfolio may technically be deemed an underwriter
under the 1933 Act in selling a security;
(5) make loans to other persons except (a) through the lending of
securities held by either the Fund or the Portfolio and provided that any such
loans not exceed 30% of its total assets (taken in each case at market value),
or (b) through the use of repurchase agreements or the purchase of short-term
obligations and provided that not more than 10% of its net assets will be
invested in repurchase agreements maturing in more than seven days; for
additional related restrictions, see paragraph (6) immediately following;
(6) invest in securities which are subject to legal or
7
<PAGE>
contractual restrictions on resale (other than repurchase agreements maturing in
not more than seven days and other than securities which may be resold pursuant
to Rule 144A under the 1933 Act if the Board of Trustees determines that a
liquid market exists for such securities) if, as a result thereof, more than 10%
of its net assets (taken at market value) would be so invested (including
repurchase agreements maturing in more than seven days), except that the Fund
may invest all or any portion of its assets in the Portfolio;
(7) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Fund and Portfolio reserve the freedom of
action to hold and to sell real estate acquired as a result of the ownership of
securities by the Fund or the Portfolio);
(8) make short sales of securities or maintain a short position, unless
at all times when a short position is open the Fund or the Portfolio, as
applicable, owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short, and unless not more than 5% of the Fund's or the Portfolio's, as
applicable, net assets (taken in each case at market value) is held as
collateral for such sales at any one time (it is the present intention of the
Portfolio and the Fund to make such sales only for the purpose of deferring
realization of gain or loss for federal income tax purposes);
(9) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating paragraph (1) above;
(10) as to 75% of its assets, purchase securities of any issuer if such
purchase at the time thereof would cause more than 5% of the Portfolio's or the
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.
8
<PAGE>
NON-FUNDAMENTAL STATE AND FEDERAL RESTRICTIONS: In order to comply with
certain state and federal statutes and regulatory policies, neither the Fund nor
the Portfolio will as a matter of operating policy:
(i) borrow money for any purpose in excess of 10% of the total assets of the
Fund or the Portfolio, respectively (taken in each case at cost) (moreover,
neither the Fund nor the Portfolio will purchase any securities at any time at
which borrowings exceed 5% of its total assets (taken at market value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the net
assets of the Fund or the Portfolio, respectively (taken in each case at market
value), provided that collateral arrangements with respect to options, including
deposits of initial deposit and variation margin, are not considered a pledge of
assets for purposes of this restriction,
(iii) sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain securities,
without payment of further consideration, equivalent in kind and amount to the
securities sold, and provided that if such right is conditional the sale is made
upon the same conditions,
(iv) invest for the purpose of exercising control or management, except that all
of the assets of the Fund may be invested in the Portfolio,
(v) purchase securities issued by any registered investment company, except that
the Fund may invest all its assets in the Portfolio and except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that (except for the Fund's investment in
the Portfolio) the Fund and the Portfolio will not purchase the securities of
any registered investment company if such purchase at the time thereof would
cause more than 10% of the total assets of the Fund or the Portfolio,
respectively (taken at the greater of cost or market value) to be invested in
the securities of such issuers or would cause more than 3% of the outstanding
voting securities of any such issuer to be held by the Fund or the Portfolio,
respectively; and provided, further, that (except for the Fund's investment in
the Portfolio) the Fund and the Portfolio shall not purchase securities issued
by any open-end investment company,
(vi) invest more than 10% of the net assets of the Fund or the Portfolio,
respectively (taken at the greater of cost or market value), in securities
(excluding Rule 144A securities) that are restricted as to resale under the 1933
Act,
9
<PAGE>
(vii) invest more than 15% of the net assets of the Fund or the Portfolio,
respectively (taken at the greater of cost or market value), (a) in securities
that are restricted as to resale by the 1933 Act (including Rule 144A
securities), and (b) in securities that are issued by issuers which (including
the period of operation of any predecessor company or unconditional guarantor of
such issuer) have been in operation less than three years, provided, however,
that no more than 5% of the net assets of the Fund or the Portfolio,
respectively, are invested in securities issued by issuers which (including
predecessors) have been in operation less than three years,
(viii) purchase puts, calls, straddles, spreads and any combination thereof if
the value of its aggregate investment in such securities will exceed 5% of the
Funds or the Portfolio's total assets at the time of such purchase,
(ix) purchase securities of any issuer if such purchase at the time thereof
would cause it to hold more than 10% of any class of securities of such issuer,
for which purposes all indebtedness of an issuer shall be deemed a single class
and all preferred stock of an issuer shall be deemed a single class, except that
option contracts shall not be subject to this restriction, and except that the
Fund may invest all or any portion of its assets in the Portfolio,
(x) purchase or retain any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund or
the Portfolio, as the case may be, or is an officer or director of the Adviser
or the Manager, if after the purchase of the securities of such issuer by the
Fund or the Portfolio, as the case may be, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all taken
at market value, of such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value, except that the Fund may
invest all or any portion of its assets in the Portfolio,
(xi) invest more than 5% of the Fund's or the Portfolio's net assets in warrants
(valued at the lower of cost or market), but not more than 2% of the Fund's or
the Portfolio's net assets may be invested in warrants not listed on the New
York Stock Exchange Inc. ("NYSE") or the American Stock Exchange, or
(xii) make short sales of securities or maintain a short position, unless at all
times when a short position is open, the Fund or the Portfolio owns an equal
amount of such securities or securities convertible into or exchangeable,
without payment of any further consideration, for securities of the same issue
and equal in amount to the securities sold short, and unless not more than 10%
of the Fund's or the Portfolio's, respectively, net assets (taken at market
value) is represented by such securities,
10
<PAGE>
or securities convertible into or exchangeable for such securities, at any one
time (neither the Fund nor the Portfolio has any current intention to engage in
short selling).
Restrictions (i) through (xii) are not fundamental and may be changed
with respect to the Fund by the Fund without approval by the Fund's shareholders
or with respect to the Portfolio by the Portfolio without the approval of the
Fund or its other investors. The Fund will comply with the state securities laws
and regulations of all states in which it is registered. The Portfolio will
comply with the applicable investment limitations found in the state securities
laws and regulations of all states in which the Fund is registered.
PERCENTAGE RESTRICTIONS: If a percentage restriction or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the securities held by the Fund or the Portfolio or a later change in
the rating of a security held by the Fund or the Portfolio will not be
considered a violation of policy; provided that if at any time the ratio of
borrowings of the Fund or the Portfolio to the net asset value of the Fund or
the Portfolio, respectively, exceeds the ratio permitted by Section 18(f) of the
1940 Act, the Fund or the Portfolio as the case may be, will take the corrective
action required by Section 18(f).
3. PERFORMANCE INFORMATION
The Fund will calculate its total rate of return for any period by (a)
dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains declared during such period with
respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share (i.e., net asset value) on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation will be calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result.
Any current "yield" quotation of the Fund shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a thirty calendar day period and shall be calculated by (a) raising to
the sixth power the sum of 1 plus the quotient obtained by dividing the Fund's
net investment income earned during the period by the product of the average
daily number of shares outstanding during the period that were entitled to
receive dividends and the maximum offering price per share on the last day of
the period, (b) subtracting 1 from
11
<PAGE>
the result, and (c) multiplying the result by 2.
The Fund's total rate of return for the fiscal year ended July 31, 1996
was [ ]%. The Fund's annualized total rate of return for the 5-year period July
31, 1991 through July 31, 1996 was [ ]%. The Fund's annualized total rate of
return for the period June 3, 1991 (commencement of investment in the Portfolio)
through July 31, 1996 was [ ]%. Total rate of return and yield information with
respect to the Domini Social Index will be computed in the same fashion as set
forth above with respect to the Fund, except that for purposes of this
computation an investment will be assumed to have been made in a portfolio
consisting of all of the stocks comprising the Domini Social Index weighted in
accordance with the weightings of the stocks comprising the Index. Performance
information with respect to the Domini Social Index will not take into account
brokerage commission and other transaction costs which will be incurred by the
Portfolio.
4. DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES
The net asset value of each share of the Fund is determined each day on
which the NYSE is open for trading ("Fund Business Day"). (As of the date of
this Statement of Additional Information, the NYSE is open for trading every
weekday except for the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day). This determination of net asset value of shares of the Fund is
made once during each such day as of the close of the NYSE by dividing the value
of the Fund's net assets (i.e., the value of its investment in the Portfolio and
any other assets less its liabilities, including expenses payable or accrued) by
the number of shares outstanding at the time the determination is made.
Purchases and redemptions will be effected at the time of determination of net
asset value next following the receipt of any purchase or redemption order
deemed to be in good order. See "Purchases and Redemptions of Shares" in the
Prospectus.
The value of the Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same day as the Fund
determines its net asset value per share. The net asset value of the Fund's
investment in the Portfolio is equal to the Fund's pro rata share of the total
investment of the Fund and of other investors in the Portfolio less the Fund's
pro rata share of the Portfolio's liabilities. Equity securities held by the
Portfolio are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities in which there were no sales during
the day or for unlisted securities not reported on
12
<PAGE>
the NASDAQ system. If the Portfolio purchases option contracts, such option
contracts which are traded on commodities or securities exchanges are normally
valued at the settlement price on the exchange on which they are traded.
Short-term obligations with remaining maturities of less than sixty days are
valued at amortized cost, which constitutes fair value as determined by the
Board of Trustees of the Portfolio. Portfolio securities (other than short-term
obligations with remaining maturities of less than sixty days) for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Portfolio's Board of Trustees.
A determination of value used in calculating net asset value must be a
fair value determination made in good faith utilizing procedures approved by the
Portfolio's Board of Trustees. While no single standard for determining fair
value exists, as a general rule, the current fair value of a security would
appear to be the amount which the Portfolio could expect to receive upon its
current sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the security, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
Interest income on short-term obligations held by the Portfolio is
determined on the basis of interest accrued less amortization of premium.
5. MANAGEMENT OF THE FUND AND THE PORTFOLIO
The Trustees and officers of the Fund 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 Fund. Unless otherwise indicated below, the address of each Trustee and
officer is 6 St. James Avenue, Boston, Massachusetts 02116.
<PAGE>
TRUSTEES OF THE FUND
AMY LEE DOMINI* -- Chair, President and Trustee of the Fund; Trustee of the
Portfolio; Officer of Kinder, Lydenberg, Domini & Co., Inc.; Trustee, Loring,
Wolcott & Coolidge (since 1987).
PHILIP W. COOLIDGE* -- Trustee of the Fund; Chairman, Chief Executive Officer
and President, Signature Financial Group, Inc. (since December, 1988) and
Signature Broker-Dealer Services, Inc. (since April, 1989).
WILLIAM C. OSBORN -- 115 Buckminster Road, Brookline, Massachusetts 02146;
Trustee of the Fund; President, Environmental Packaging Technologies (since
1990); Vice President, BMW Technologies, Inc. (from 1986 to 1990); Director,
Logos Corporation (from 1988 to 1990); Director, Gold Hill Computers (from 1989
to 1990).
KAREN PAUL -- 4050 Park Avenue, Miami, Florida 33133; Trustee of the Fund;
Professor of Business Environment, Florida International University (since
August, 1991); Associate Professor of Management, Rochester Institute of
Technology (from 1980 to 1991); Peace Fellow, Bunting Institute (from 1987 to
1988).
EMILY WATTS CARD -- 2730 Wilshire Boulevard, Suite 618, Santa Monica, California
90403; Trustee of the Fund; Attorney (since 1989); President, The Card Group,
Inc.; Director, Women in Film; Director, Investor's Circle; Director, Newcomb
College Alumnae Board; Director, University of Southern California Think Tank
Board.
TRUSTEES OF THE PORTFOLIO
AMY LEE DOMINI* -- Chair, President and Trustee of the Portfolio; Officer of
Kinder, Lydenberg, Domini & Co., Inc.; Trustee, Loring, Wolcott & Coolidge
(since 1987).
PHILIP W. COOLIDGE* -- Trustee of the Portfolio; Chairman, Chief Executive
Officer and President, Signature Financial Group, Inc. (since December, 1988)
and Signature Broker-Dealer Services, Inc. (since April, 1989).
ALLEN M. MAYES -- 7985 Willow Creek Drive, Beaumont, Texas 77707; Trustee of the
Portfolio; Senior Associate General Secretary of the General Board of Pensions
of the United Methodist Church (since May, 1982); Member of the Board of
Directors of Investor Responsibility Research Center (since January, 1989);
Member of Board of Trustees of Wiley College (since November, 1969).
TIMOTHY SMITH -- Interfaith Center for Corporate Responsibility, 475 Riverside
Drive, New York, New York 10115; Trustee of the Portfolio; Executive Director of
the Interfaith Center on Corporate Responsibility (since 1974).
FREDERICK C. WILLIAMSON -- 5 Roger Williams Green, Providence, Rhode Island
02904; Trustee of the Portfolio; Chairman, Rhode Island State Historic
Preservation and Heritage Commission (since 1995); Rhode Island State Historic
Preservation Officer (since 1969); Trustee, National Park Trust, (since April
1992); Trustee, National Parks and Conservation Association (since 1986);
Chairman, Governor's Advisory Committee on Home Heating; Corporation Board,
Harvard Community Health Plan; President Emeritus, National Conference of State
Historic Preservation Officers; Trustee Emeritus, National Trust for Historic
Preservation; Treasurer and Past Chairman, R.I. Black Heritage Society.
<PAGE>
Each Trustee is paid an annual fee as follows for serving as Trustee of
the Fund and/or Portfolio and is reimbursed for expenses incurred in connection
with service as a Trustee. The compensation paid to the Trustees for the fiscal
year ended July 31, 1996 is set forth below. The Trustees may hold various other
directorships unrelated to the Fund or Portfolio.
<TABLE>
FUND TRUSTEES
<S> <C> <C> <C> <C>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
AGGREGATE ACCRUED AS FROM THE
COMPENSATION PART OF FUND
FROM THE FUND ANNUAL BENEFITS AND THE
FUND EXPENSES UPON RETIREMENT PORTFOLIO
Amy Lee Domini*, Chair and Trustee None None None None
Philip None None None None
E. Coolidge*, President and Trustee
William C. $1,200 None None $1,200
Osborn, Trustee
Karen Paul, Trustee $1,200 None $1,200
None
Emily Watts Card, Trustee $1,200 None None $1,200
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO TRUSTEES
<S> <C> <C> <C> <C>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
AGGREGATE ACCRUED AS FROM THE
COMPENSATION PART OF FUND
FROM THE FUND ANNUAL BENEFITS AND THE
FUND EXPENSES UPON RETIREMENT PORTFOLIO
Amy L. Domini*, Chair and Trustee None None None None
Philip W. Coolidge*, None None None None
President and Trustee
Allen M. Mayes, Trustee $1,200 None None $1,200
Timothy Smith, Trustee $1,200 None $1,200
None
Frederick C. Williamson, Trustee $1,200 None None $1,200
</TABLE>
OFFICERS
PETER D. KINDER -- Vice President of the Fund and the Portfolio;
Officer of Kinder, Lydenberg, Domini & Co., Inc. (since March,
1988).
STEVEN D. LYDENBERG -- Vice President of the Fund and the
Portfolio; Director of Research of Kinder, Lydenberg, Domini &
Co., Inc. (since January, 1990).
16
<PAGE>
Messrs. [] and [] and Mss. [] and [] also hold similar positions for other
investment companies for which Edgewood or an affiliate serves as the principal
underwriter. Each officer of the Fund holds the same position with the
Portfolio.
The Trustees who are not "interested persons" (the "Disinterested
Trustees") of the Fund as defined by the 1940 Act are separate from the
Disinterested Trustees of the Portfolio. Any conflict of interest between the
Fund and the Portfolio will be resolved by the Trustees of the Fund and the
Portfolio in accordance with their fiduciary obligations and in accordance with
the 1940 Act.
As of September 20, 1996 all Trustees and officers of the Fund and the
Portfolio as a group owned less than 1% of the Fund's outstanding shares
including shares owned by Edgewood. As of the same date, the following
shareholders of record owned 5% or more of the outstanding shares of the Fund:
Charles Schwab & Co., Inc. (as a nominee on behalf
17
<PAGE>
of its customers), 1,684,437.106 shares (32.64%) (the Fund has no knowledge as
to the beneficial ownership of these shares). The Fund has no knowledge of any
other owners of record or beneficial owners of 5% or more of the outstanding
shares of the Fund. Shareholders owning 25% or more of the outstanding shares of
the Fund may take actions without the approval of any other investor in the
Fund.
Any conflict of interest between the Fund and the Portfolio will be
resolved by the Trustees in accordance with their fiduciary obligations and in
accordance with the 1940 Act. The Fund'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 Fund, unless, as to liability
to the Fund or its 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 Fund.
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.
ADVISER AND MANAGER
KLD provides advice to the Portfolio pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The services provided by the Adviser
consist of determination of the stocks to be included in the Index and
evaluating, in accordance with the Adviser's social criteria, debt securities
which may be purchased by the Portfolio. The Adviser furnishes at its own
expense all facilities and personnel necessary in connection with providing
these services. The Advisory Agreement will continue in effect if such
continuance is specifically approved at least annually by the Portfolio's Board
of Trustees or by a majority of the outstanding voting securities in the
Portfolio at a meeting called for the purpose of voting on the Advisory
Agreement (with the vote of each investor in the Portfolio being in proportion
to the amount of their investment), and, in either case, by a majority of the
Portfolio's Trustees who are not parties to the Advisory Agreement or interested
persons of any such party at a meeting called for the purpose of voting on the
Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others and may permit other investment companies in
18
<PAGE>
addition to the Portfolio and the Fund to use the name "DominiSM" or "Domini
Social IndexSM" in their names. Pursuant to agreements with the Fund and the
Portfolio, if KLD ceases to be the investment adviser of the Portfolio, the
Portfolio will be required to discontinue the use of such service marks, and if
either KLD ceases to be the investment adviser of the Portfolio or the Fund
ceases to invest all of its assets in the Portfolio, the Fund will be required
to discontinue the use of such service marks. The Advisory Agreement is
terminable without penalty on not more than 60 days' nor less than 30 days'
written notice by the Portfolio when authorized either by majority vote of the
Fund and of the other investors in the Portfolio (with the vote of each being in
proportion to the amount of their investment) or by a vote of a majority of its
Board of Trustees, or by the Adviser, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in its services to the Portfolio, except for wilful misfeasance, bad faith or
gross negligence or reckless disregard of its or their obligations and duties
under the Advisory Agreement.
The Fund's Prospectus contains a description of fees payable to the
Adviser for services under the Advisory Agreement. For the fiscal years ended
July 31, 1994 and 1995, the Adviser voluntarily waived all of its advisory fees.
For the fiscal year ended July 31, 1996, the Portfolio incurred $38,150 in
advisory fees to the Adviser.
Mellon Equity manages the assets of the Portfolio pursuant to an
Investment Management Agreement (the "Management Agreement"). The Manager
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio. The Management Agreement will continue in effect
if such continuance is specifically approved at least annually by the
Portfolio's Board of Trustees or by a majority vote of the Fund and of the other
investors in the Portfolio at a meeting called for the purpose of voting on the
Management Agreement (with the vote of each being in proportion to the amount of
their investment), and, in either case, by a majority of the Portfolio's
Trustees who are not parties to the Management Agreement or interested persons
of any such party at a meeting called for the purpose of voting on the
Management Agreement.
The Management Agreement provides that the Manager may render services
to others. The Management Agreement is terminable without penalty upon not more
than 60 days' nor less than 30 days' written notice by the Portfolio when
authorized either by majority vote of the Fund and of the other investors in the
Portfolio (with the vote of each being in proportion to the amount of their
investment) or by a vote of the majority of its
19
<PAGE>
Board of Trustees, or by the Manager, and will automatically terminate in the
event of its assignment. The Management Agreement provides that neither the
Manager nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in its services to the Portfolio, except for wilful misfeasance, bad faith or
gross negligence or reckless disregard for its or their obligations and duties
under the Management Agreement.
The Fund's Prospectus contains a description of fees payable to the
Manager for services under the Management Agreement. Prior to November 21, 1994,
State Street Bank and Trust Company (the "Former Manager") served as investment
manager to the Portfolio. For the fiscal year ended July 31, 1994, the Portfolio
incurred $16,986 in management fees to the Former Manager. For the period August
1, 1994 through November 20, 1994, the Portfolio incurred $10,180 in management
fees to the Former Manager. For the period November 21, 1994 through July 31,
1995, the Portfolio incurred $29,409 in management fees to the Manager. For the
fiscal year ended July 31, 1996, the Portfolio incurred $128,901 in management
fees to the Manager.
ADMINISTRATOR
Pursuant to Administrative Services Agreements, Federated provides the
Fund and the Portfolio with general office facilities and supervises the overall
administration of the Fund and the Portfolio, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Fund or the Portfolio; the preparation and filing of all documents required for
compliance by the Fund and the Portfolio with applicable laws and regulations;
and arranging for the maintenance of books and records of the Fund and the
Portfolio. The Administrator provides persons satisfactory to the Board of
Trustees of the Fund or the Portfolio to serve as officers of the Fund or the
Portfolio. Such officers, as well as certain other employees and Trustees of the
Fund or the Portfolio, may be directors, officers or employees of the
Administrator or its affiliates.
Pursuant to a Sub-Administrative Services Agreement between Federated
and KLD, KLD serves as Sub-Administrator of the Fund. In such capacity, KLD
performs certain administrative services requested by the Administrator,
including assisting personnel of the Administrator in answering questions from
the general public, the media and investors in the Fund regarding the securities
holdings of the Portfolio. For these services, KLD receives from the
Administrator such compensation as they may agree on from time to time.
20
<PAGE>
The Fund's Prospectus contains a description of the fees payable to
Federated by the Fund, as Administrator of the Fund, or payable to Federated, as
the administrator of the Portfolio (the "Portfolio Administrator") by the
Portfolio, as the case may be, under the Administrative Services Agreements. For
the fiscal years ended July 31, 1994 and 1995, the Administrator voluntarily
waived all of its administrative services fees from the Fund. For the same
periods, the Portfolio Administrator voluntarily waived all of its
administrative services fees from the Portfolio. For the fiscal year ended July
31, 1996, the Fund and the Portfolio incurred $[] and $38,150, respectively in
administrative fees.
The Administrative Services Agreement with the Fund provides that
Federated may render administrative services to others. The Administrative
Services Agreement with the Fund also provides that neither the Administrator
nor its personnel shall be liable for any error of judgment or mistake of law or
for any act or omission in the administration or management of the Fund, 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 Fund's Administrative Services Agreement.
[The Administrator has agreed to reimburse the Fund for its operating
expenses (exclusive of interest, taxes, brokerage, and extraordinary expenses)
which in any year exceed the limits prescribed by any state in which the Fund's
shares are qualified for sale. The Fund may elect not to qualify its shares for
sale in every state. The Fund believes that currently the most restrictive
expense ratio limitation imposed by any state is 2.5% of the first $30 million
of the Fund's average net assets for its then-current fiscal year, 2% of the
next $70 million of such assets, and 1.5% of such assets in excess of $100
million. For the purpose of this obligation to reimburse expenses, the Fund's
annual expenses are estimated and accrued daily, and any appropriate estimated
payments will be made by the Administrator. Subject to the obligation of the
Administrator to reimburse the Fund for its excess expenses as described above,
the Fund has, under its Administrative Services Agreement, confirmed its
obligation for payment of all its other expenses. See "Other Information
Concerning Shares of the Fund -- Expenses" in the Fund's Prospectus.]
The Administrative Services Agreement with the Portfolio provides that
Federated may render administrative services to others. The Administrative
Services Agreement with the Portfolio may be terminated without penalty by by
either party on not less than 60 days' written notice. The Administrative
Services Agreement with the
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Portfolio also provides that neither Federated, as the Portfolio's
Administrator, nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Portfolio, except for wilful misfeasance, bad faith or gross negligence in
the performance of its or their duties or by reason of reckless disregard of its
or their obligations and duties under the Portfolio's Administrative Services
Agreement.
Federated is a wholly-owned subsidiary of Federated Investors.
DISTRIBUTOR
The Fund has adopted a Distribution Plan which provides that the Fund
may pay the Distributor a fee not to exceed 0.25% per annum of the Fund's
average daily net assets in anticipation of, or as reimbursement for, expenses
incurred in connection with the sale of shares of the Fund, such as payments to
broker-dealers who advise shareholders regarding the purchase, sale or retention
of shares of the Fund, payments to employees of the Distributor, advertising
expenses and the expenses of printing and distributing prospectuses and reports
used for sales purposes, expenses of preparing and printing sales literature and
other distribution-related expenses. For the fiscal years ended July 31, 1994 ,
1995 and 1996, the Fund accrued $59,717 , $36,641 and $[], respectively, in
distribution fees. No payments under the Distribution Plan will be made to
Service Organizations.
The Distribution Plan will continue in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
majority of the Fund's Trustees and a majority of the Fund's Trustees who are
not "interested persons of the Fund" and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in any agreement
related to such Plan ("Qualified Trustees"). The Distributor will provide to the
Trustees of the Fund a quarterly written report of amounts expended by it under
the Distribution Plan and the purposes for which such expenditures were made.
The Distribution Plan further provides that the selection and nomination of the
Fund's Qualified Trustees shall be committed to the discretion of the
disinterested Trustees of the Fund. The Distribution Plan may be terminated at
any time by a vote of a majority of the Fund's Qualified Trustees or by a vote
of the shareholders of the Fund. The Distribution Plan may not be materially
amended without a vote of the majority of both the Fund's Trustees and the
Fund's Qualified Trustees. The Distributor will preserve copies of any plan,
agreement or report made pursuant to the Distribution Plan for a period of not
less
22
<PAGE>
than six (6) years from the date of the Distribution Plan, and for the first two
(2) years the Distributor will preserve such copies in an easily accessible
place.
The Fund has entered into a Distribution Agreement with the
Distributor. Under the Distribution Agreement, the Distributor acts as the agent
of the Fund in connection with the offering of
shares of the Fund.
TRANSFER AGENT,
CUSTODIAN AND SERVICE ORGANIZATIONS
The Fund has entered into a Transfer Agency Agreement with Fundamental
Shareholder Services, Inc. ("FSSI") pursuant to which FSSI acts as the transfer
agent for the Fund. The Fund has entered into a Custodian Agreement with
Investors Bank & Trust Company ("IBT") 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 has entered into a Custodian Agreement with IBT pursuant to which IBT
acts as custodian for the Portfolio. For additional information, see "Transfer
Agent and Custodian" in the Prospectus.
The Fund may from time to time enter into agreements with various
banks, trust companies (other than Mellon Equity), broker-dealers (other than
Edgewood) or other
23
<PAGE>
financial organizations to provide administrative services for the Fund, such as
maintaining shareholder accounts and records. For the fiscal years ended July
31, 1994 , 1995 and 1996 , the Fund did not accrue any service organization fees
[CONFIRM] . For additional information, see "Service Organizations, Transfer
Agent and Custodian--Service Organizations" in the Prospectus.
EXPENSES
Pursuant to expense payment arrangements between Signature
Broker-Dealer Services, Inc. ("Signature") and each of the Fund and the
Portfolio effective January 1, 1995, Signature has agreed to pay all of the
operating expenses of the Fund and the Portfolio. The arrangements will
terminate on December 31, 1999 unless sooner terminated by mutual agreement of
the parties. Under these arrangements, Signature receives expense payment fees
computed and paid monthly (i) from the Fund, at an annual rate equal to 0.78% of
the Fund's average daily net assets for its then-current fiscal year, and (ii)
from the Portfolio, at an annual rate equal to 0.20% of the Portfolio's average
daily net assets for its then-current fiscal year. Prior to January 1, 1995, the
Fund and the Portfolio each had entered into expense reimbursement agreements
(the "Prior Agreements") with Signature pursuant to which the aggregate annual
operating expenses
24
<PAGE>
(including amortization of an organization expenses) of the Fund and the
Portfolio would not exceed 0.98% of the Fund's average daily net assets for its
then-current fiscal year. Under the Prior Agreements, Signature agreed to pay
the expenses of the Fund and the Portfolio (except for fees payable under each
of the Administrative Services Agreements, the Distribution Agreement, the
Management Agreement, the Advisory Agreement and expenses related to the
organization of the Fund and the Portfolio) until April 30, 2000, all subject to
reimbursement by the Fund or the Portfolio, as the case may be.
6. INDEPENDENT AUDITORS
KPMG Peat Marwick LLP are the independent auditors for the Fund and for
the Portfolio, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
7. TAXATION
Each year the Fund intends to qualify and elect to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements (applied through the Fund's proportionate
interest in the Portfolio) as to the nature of the Fund's gross income, the
amount of Fund distributions and the composition and holding period of the
Fund's portfolio assets. Because the Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Fund will be required to pay any federal income or excise taxes. If the Fund
should fail to qualify as a "regulated investment company" in any year, the Fund
would incur a regular corporate federal income tax upon its taxable income and
Fund distributions would generally be taxable as ordinary dividend income to the
shareholders. As long as it qualifies as a "regulated investment company" under
the Code, the Fund will not be required to pay Massachusetts income or excise
taxes.
Under interpretations of the Internal Revenue Service, (1) the
Portfolio will be treated for federal income tax purposes as a partnership and
(2) for purposes of determining whether the Fund satisfies the income and
diversification requirements to maintain its status as a regulated investment
company, the Fund, as an investor in the Portfolio, will be deemed to own a
proportionate share of the Portfolio's assets and will be deemed to be entitled
to the Portfolio's income or loss attributable to that share. The Portfolio has
advised the Fund that it intends to conduct its operations so as to enable its
investors, including the Fund, to satisfy those requirements.
Shareholders of the Fund normally will have to pay federal
25
<PAGE>
income taxes and any state or local income taxes on the dividends and capital
gain distributions they receive from the Fund. Dividends from ordinary income
and any distributions from net short-term capital gains are taxable to
shareholders as ordinary income for federal income tax purposes, whether the
distributions are made in cash or in additional shares. A portion of the Fund's
ordinary income dividends (but none of the Fund's capital gains) is normally
eligible for the dividends received deduction for corporations if the recipient
otherwise qualifies for that deduction with respect to its holding of Fund
shares. Availability of the deduction for a particular corporate shareholder is
subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax and result in certain basis adjustments. Distributions
of net capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains for federal income tax
purposes without regard to the length of time the shareholders have held their
shares.
Amounts not distributed on a timely basis in accordance with the
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, the Fund must, and intends to,
distribute during each calendar year substantially all of its ordinary income
for that year and substantially all of its capital gain in excess of its capital
losses for that year, plus any undistributed ordinary income and capital gains
from previous years. Any Fund dividend that is declared in October, November, or
December of any calendar year, that is payable to shareholders of record in such
a month, and that is paid the following January will be treated as if received
by the shareholders on December 31 of the year in which the divided is declared.
The Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year.
Any Fund distribution will have the effect of reducing the per share
net asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of
shares of the Fund by a shareholder that holds such shares as a capital asset
will be treated as long-term capital gain or loss if the shares have been held
for more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gain made with respect to those shares. Any
loss realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
26
<PAGE>
The Fund anticipates that the Portfolio will be treated as a
partnership for federal income tax purposes. As such, the Portfolio is not
subject to federal income taxation. Instead, the Fund must take into account, in
computing its federal income tax liability, its share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether it has received any cash distributions from the Portfolio. Withdrawals
by the Fund from the Portfolio generally will not result in the Fund recognizing
any gain or loss for federal income tax purposes, except that (1) gain will be
recognized to the extent that any cash distributed exceeds the basis of the
Fund's interest in the Portfolio prior to the distribution, (2) income or gain
will be realized if the withdrawal is in liquidation of the Fund's entire
interest in the Portfolio and includes a disproportionate share of any
unrealized receivables held by the Portfolio, and (3) loss will be recognized if
the distribution is in liquidation of that entire interest and consists solely
of cash and/or unrealized receivables. The basis of the Fund's interest in the
Portfolio generally equals the amount of cash and the basis of any property that
the Fund invests in the Portfolio, increased by the Fund's share of income from
the Portfolio and decreased by the Fund's share of losses from the Portfolio and
the amount of any cash distributions and the basis of any property distributed
from the Portfolio.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. The investment by the Fund in the Portfolio does
not cause the Fund to be liable for any income or franchise tax in the State of
New York.
Fund shareholders may be subject to state and local taxes on Fund
distributions to them. Shareholders are advised to consult with their tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund.
8. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Portfolio are
made by a portfolio manager who is an employee of the Manager and who is
appointed and supervised by its senior officers. Changes in the Portfolio's
investments are reviewed by its Board of Trustees. The portfolio manager of the
Portfolio may serve other clients of the Manager in a similar capacity.
The Portfolio's primary consideration in placing securities
transactions with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most effective
manner possible. The Manager attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Portfolio and other
clients
27
<PAGE>
of the Manager on the basis of their professional capability, the value and
quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Manager normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Manager on the tender of the
Portfolio's securities in so-called tender or exchange offers. Such soliciting
dealer fees are in effect recaptured for the Portfolio by the Manager. At
present no other recapture arrangements are in effect. Consistent with the
foregoing primary consideration, the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Portfolio may determine, the Manager may consider sales of shares of the
Fund and of securities of other investors in the Portfolio as a factor in the
selection of broker-dealers to execute the Portfolio's securities transactions.
Under the Management Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Manager may cause the Portfolio to pay a
broker-dealer acting on an agency basis which provides brokerage and research
services to the Manager or the Adviser an amount of commission for effecting a
securities transaction for the Portfolio in excess of the amount other
broker-dealers would have charged for the transaction if the Manager determines
in good faith that the greater commission is reasonable in relation to the value
of the brokerage and research services provided by the executing broker-dealer
viewed in terms of either a particular transaction or the Manager's or the
Adviser's overall responsibilities to the Portfolio or to its other clients. Not
all of such services are useful or of value in advising the Portfolio.
The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement. However, because of the
Portfolio's policy of investing in accordance with the Domini Social Index, the
Manager and the Adviser currently intend to make only a limited use of such
brokerage and research services.
Although commissions paid on every transaction will, in the judgment of
the Manager, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those
28
<PAGE>
which another broker might charge may be paid to broker-dealers who were
selected to execute transactions on behalf of the Portfolio and the Manager's or
the Adviser's other clients, in part for providing advice as to the availability
of securities or of purchasers or sellers of securities and services in
effecting securities transactions and performing functions incidental thereto
such as clearance and settlement. Certain broker-dealers may be willing to
furnish statistical, research and other factual information or services to the
Manager or the Adviser for no consideration other than brokerage or underwriting
commissions.
The Manager and the Adviser attempt to evaluate the quality of research
provided by brokers. The Manager and the Adviser sometimes use evaluations
resulting from this effort as a consideration in the selection of brokers to
execute portfolio transactions. However, neither the Manager nor the Adviser is
able to quantify the amount of commissions which are paid as a result of such
research because a substantial number of transactions are effected through
brokers which provide research but which are selected principally because of
their execution capabilities.
The fees that the Portfolio pays to the Manager and the Adviser will
not be reduced as a consequence of the Portfolio's receipt of brokerage and
research services. To the extent the Portfolio's securities transactions are
used to obtain brokerage and research services, the brokerage commissions paid
by the Portfolio will exceed those that might otherwise be paid for such
portfolio transactions and research, by an amount which cannot be presently
determined. Such services may be useful and of value to the Manager or the
Adviser in serving both the Portfolio and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients may be
useful to the Manager or the Adviser in carrying out its obligations to the
Portfolio. While such services are not expected to reduce the expenses of the
Manager or the Adviser, the Manager or the Adviser would, through use of the
services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its own staff. For the fiscal
years ended July 31, 1994 , 1995 and 1996, the Portfolio paid brokerage
commissions of $13,000 , $15,222 and $45,017.67, respectively.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Manager's or the Adviser's other
clients. Investment decisions for the Portfolio and for the Manager's or the
Adviser's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients
29
<PAGE>
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Portfolio is concerned. However, it is believed that the
ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund's Declaration of Trust permits the Fund's Board of Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
(without par value) and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Fund. Each share represents an equal proportionate interest in the Fund
with each other share. Upon liquidation or dissolution of the Fund, the Fund's
shareholders are entitled to share pro rata in the Fund's net assets available
for distribution to its shareholders. The Fund reserves the right to create and
issue a number of series of shares, in which case the shares of each series
would participate equally in the earnings, dividends and assets of the
particular series (except for any differences among classes of shares of a
series). Shares of each series would be entitled to vote separately to approve
advisory agreements or changes in investment policy, but shares of all series
may vote together in the election or selection of Trustees, principal
underwriters and accountants for the Fund. Upon liquidation or dissolution of
the Fund, the shareholders of each series would be entitled to share pro rata in
the net assets of their respective series available for distribution to
shareholders.
Shareholders are entitled to one vote for each share held. Shareholders
in the Fund do not have cumulative voting rights, and shareholders owning more
than 50% of the outstanding shares of the Fund may elect all of the Trustees of
the Fund if they choose to do so and in such event the other shareholders in the
Fund would not be able to elect any Trustee. The Fund is not required to hold
annual meetings of shareholders but the Fund will hold special meetings of
shareholders when in the judgment of the Fund's Trustees it is necessary or
desirable to submit matters for a shareholder vote. No material amendment may be
made to the Fund's Declaration of Trust without the affirmative vote of the
holders of a majority of its outstanding shares. Shares have no preference,
preemptive, conversion or similar rights. Shares, when issued, are fully paid
and non-assessable, except as set forth below. The Fund may enter into a merger
or consolidation, or sell all or substantially all of its assets, if approved by
the vote of the holders of two-thirds of its
30
<PAGE>
outstanding shares, except that if the Trustees of the Fund recommend such sale
of assets, the approval by vote of the holders of a majority of the Fund's
outstanding shares will be sufficient. The Fund may also be terminated upon
liquidation and distribution of its assets, if approved by the vote of the
holders of two-thirds of its outstanding shares. If not so terminated, the Fund
will continue indefinitely. Stock certificates are issued only upon the written
request of a shareholder.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations 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 that the Fund shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Fund, its shareholders, 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 Declaration of Trust further provides that obligations of the Fund
are not binding upon the Trustees individually but only upon the property of the
Fund and that the Trustees will not be liable for any action or failure to act,
but nothing in the Declaration of Fund protects a Trustee against any liability
to which he or she would otherwise be subject by reason of wilful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office.
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
31
<PAGE>
on such day, and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of the close of business on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of business on the
following Fund Business Day.
10. FINANCIAL STATEMENTS
The financial statements of the Fund and the Portfolio as of July 31,
1996 have been filed as part of the Fund's annual report with the Securities and
Exchange Commission pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder, are hereby incorporated herein by reference from such report, and
are included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, as experts in accounting and auditing. A copy of such
report will be provided, without charge, to each person receiving this Statement
of Additional Information.
DSI195B
32
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Financial Statements Included In Part A:
Financial Highlights
Financial Statements Included In Part B:
For the Registrant to be filed by amendment:
Statement of Assets and Liabilities at July 31, 1996
Statement of Operations at July 31, 1996
Statements of Changes in Net Assets for the fiscal years ended July 31, 1996 and
July 31, 1995
Financial Highlights
Notes to Financial Statements at July 31, 1996
Report of Independent Auditors
For Domini Social Index Portfolio to be filed by amendment:
Portfolio Investments at July 31, 1996
Statement of Assets and Liabilities at July 31, 1996
Statement of Operations at July 31, 1996
Statement of Changes in Net Assets for the fiscal years ended July 31, 1996 and
July 31, 1995
Financial Highlights
Notes to Financial Statements at July 31, 1996
Report of Independent Auditors
(b) Exhibits
1. Amended and Restated Declaration of Trust of the Registrant.5
2. By-Laws of the Registrant.5
4. Specimen of certificate representing ownership of the Registrant's
Shares of Beneficial Interest.3
6. Distribution Agreement between the Registrant and Edgewood
Services, Inc., as distributor.6
8. Custodian Agreement between the Registrant and Investors Bank & Trust
Company, as custodian.1
9(a) Form of Transfer Agency Agreement between the Registrant and
Fundamental Shareholder Services, Inc.5
9(b) Administrative Services Agreement between the Registrant and
Federated Administrative Services, as administrator.6
10. Not applicable.
11. Consent of KPMG Peat Marwick LLP, independent auditors for the
Registrant.6
13. Copies of investment representation letters from initial shareholders.1
15. Distribution Plan of the Registrant.1
16. Performance Calculations.2
17. Financial Data Schedule.6
18. Powers of Attorney.2,4
1 Incorporated by reference from Pre-Effective Amendment No. 2 to this
Registration Statement as filed with the Securities and Exchange Commission on
June 7, 1989.
2 Incorporated by reference from Post-Effective Amendment No. 1 to this
Registration Statement as filed with the Securities and Exchange Commission on
December 2, 1991.
3 Incorporated by reference from Post-Effective Amendment No. 2 to this
Registration Statement as filed with the Securities and Exchange Commission on
November 16, 1992.
4 Incorporated by reference from Post-Effective Amendment No. 4 to this
Registration Statement as filed with the Securities and Exchange Commission on
September 16, 1993.
5 Incorporated by reference from Post-Effective Amendment No. 7 to this
Registration Statement as filed with the Securities and Exchange Commission on
November 22, 1995.
6 To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Title of Class: Shares of Beneficial Interest (without par value).
Number of Record Holders as of (within 90 days of filing): [ ].
Item 27. Indemnification
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit herewith; (b) Section 4 of the
Distribution Agreement by and between the Registrant and Signature Broker-
Dealer Services, Inc., filed as an Exhibit herewith; and (c) the undertaking of
the Registrant regarding indemnification set forth in Item 32 below.
The Trustees and officers of the Registrant and the personnel of the
Registrant's administrator and distributor are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser
Not applicable.
Item 29. Principal Underwriters
(a) Edgewood Services, Inc. is the distributor for the shares of the
Registrant. Edgewood Services, Inc. also serves as the principal underwriter for
various other registered investment companies.
(b) The following are the directors and officers of Edgewood Services,
Inc. The principal business address of these individuals is Federated Investors
Tower, Pittsburgh, PA 15222-3779. Their respective position and offices with the
Registrant, if any, are also indicated.
NAME: POSITION.
James J. Dolan: Trustee and President.
Douglas L. Hein: Trustee.
R. Jeffrey Niss: Trustee and Senior Vice-President.
Frank E. Polefrone: Trustee.
Newton Heston III: Vice-President.
Ernest L. Linane: Assistant Vice-President.
S. Elliot Cohan: Secretary.
Charles H. Field: Assistant Secretary.
Jeannete Fisher-Garber: Assistant Secretary.
Kenneth W. Pegher, Jr.: Treasurer.
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or in
part, at the offices of the Registrant and at the following locations:
Name: Address:
Federated Administrative Services Federated Investors Tower
(administrator) Pittsburgh, PA 15222-3779
Edgewood Services, Inc. Clearing Operations
(distributor) P.O. Box 897
Pittsburgh, PA 15230
Investors Bank & Trust Company P.O. Box 1537
(custodian) Boston, MA 02205.
Fundamental Shareholder Services, Inc. 90 Washington Street
(transfer agent) New York, NY 10006.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) The Registrant's Declaration of Trust mandates indemnification by
the Registrant of its Trustees, officers and certain others under certain
conditions. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to Trustees,
officers and controlling persons of the Registrant, pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee of officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
of the Registrant in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether or not such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 (the "Act") as though such provisions of the Act
were applicable to the Registrant except that the request referred to in the
third full paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the Registrant, regardless
of the net asset value or value of shares held by such requesting shareholders.
(c) If the information called for by Item 5A of Form N-1A is contained
in the latest annual report to shareholders, the registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Boston, and Commonwealth of Massachusetts on the 27th day of
September, 1996.
DOMINI SOCIAL EQUITY FUND
By: /s/ PHILIP W. COOLIDGE
PHILIP W. COOLIDGE, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on September 27, 1996.
Signature, Title
/S/ PHILIP W. COOLIDGE
PHILIP W. COOLIDGE
President and Trustee
/S/ JOHN R. ELDER
JOHN R. ELDER
Treasurer, Principal Financial Officer and Principal Accounting Officer
EMILY WATTS CARD*
EMILY WATTS CARD
Trustee
AMY L. DOMINI*
AMY L. DOMINI
Trustee
KAREN PAUL*
KAREN PAUL
Trustee
WILLIAM C. OSBORN*
WILLIAM C. OSBORN
Trustee
*By /S/ PHILIP W. COOLIDGE
PHILIP W. COOLIDGE
*Pursuant to powers of attorney previously filed.
<PAGE>
SIGNATURES
Domini Social Index Portfolio has duly caused this Post-Effective
Amendment to the Registration Statement on Form N-1A (File No. 33-29180) of
Domini Social Equity Fund to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, and Commonwealth of
Massachusetts on the 27th day of September, 1996.
DOMINI SOCIAL INDEX PORTFOLIO
By: /S/ PHILIP W. COOLIDGE
PHILIP W. COOLIDGE, President
This Post-Effective Amendment to the Registration Statement on Form
N-1A (File No. 33-29180) of Domini Social Equity Fund has been signed below by
the following persons in the capacities indicated on September 27, 1996.
Signature, Title
/S/ PHILIP W. COOLIDGE
PHILIP W. COOLIDGE
President and Trustee of Domini Social Index Portfolio
/S/ JOHN R. ELDER
JOHN R. ELDER
Treasurer, Principal Financial Officer and Principal Accounting Officer of
Domini Social Index Portfolio
AMY L. DOMINI*
AMY L. DOMINI
Trustee of Domini Social Index Portfolio
ALLEN M. MAYES*
ALLEN M. MAYES
Trustee of Domini Social Index Portfolio
FREDERICK C. WILLIAMSON*
FREDERICK C. WILLIAMSON
Trustee of Domini Social Index Portfolio
TIMOTHY SMITH*
TIMOTHY SMITH
Trustee of Domini Social Index Portfolio
*By /S/ PHILIP W. COOLIDGE
PHILIP W. COOLIDGE
*Pursuant to powers of attorney previously filed.
