<PAGE>
Prospectus
December 1, 2000
[GRAPHIC]
Domini Social Equity Fund(SM)
Domini Social Bond Fund(SM)
Domini [GRAPHIC]
----------------
SOCIAL INVESTMENTS(R)
The Way You Invest Matters(SM)
As with all mutual funds, the Securities and Exchange Commission has not judged
whether this fund is a good investment or whether the information in this
prospectus is truthful and complete. Anyone who indicates otherwise is
committing a crime.
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Table of Contents
<TABLE>
<S> <C>
Overview.................................................................. 2
The Funds at a Glance
Domini Social Equity Fund
Investment Objective.................................................... 4
Primary Investment Strategy............................................. 4
Primary Risks........................................................... 4
Past Performance........................................................ 5
Fund Fees and Expenses.................................................. 6
Domini Social Bond Fund
Investment Objective.................................................... 8
Primary Investment Strategy............................................. 8
Primary Risks........................................................... 8
Past Performance........................................................ 9
Fund Fees and Expenses.................................................. 10
More Information on Primary Risks........................................ 12
More About the Funds
Socially Responsible Investing........................................... 15
Domini Social Equity Fund
About Index Investing................................................... 15
Answers to basic questions about how index funds work, how index funds
differ from actively managed funds, and an overview of the advantages
they offer.
What is the Domini 400 Social Index/SM/?................................ 17
Information about the nation's first socially and environmentally
screened index and how it was created and is maintained.
Domini Social Bond Fund
About Bond Fund Investing............................................... 21
More information on the Domini Social Bond Fund's investments and
investment techniques.
The Social Impact of the Domini Social Bond Fund........................ 25
Information about how the Domini Social Bond Fund invests to promote
community development.
Additional Investment Strategies & Risk Information....................... 26
Who Manages the Funds?.................................................... 29
The Funds' Distribution Plan.............................................. 30
Shareholder Manual........................................................ A-1
Information about buying and selling shares, distributions, and the tax
consequences of an investment in a Fund.
Financial Highlights...................................................... B-1
</TABLE>
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<PAGE>
Overview
Overview
The Funds offered in this prospectus provide ways to pursue your investment
goals while being consistent with principles of social and environmental re-
sponsibility. Each Fund's investments are subject to multiple, broad-based so-
cial screens designed to meet the needs of most socially responsible investors.
The Domini Funds
The Domini Social Equity Fund seeks long-term total return by investing in the
stocks of companies that are included in the Domini 400 Social Index/SM/. You
may want to invest in the Domini Social Equity Fund if you are seeking long-term
growth and an efficient way to invest in a broad cross-section of the U.S. stock
market and can accept the risks of investing in the stock market.
The Domini Social Bond Fund seeks a high level of current income and total re-
turn by investing in bonds and other debt instruments. You may want to invest
in the Domini Social Bond Fund if you are seeking current income and long-term
appreciation from a diversified portfolio of bonds and other debt instruments
and can accept the risks that are associated with investments in these markets.
Each Fund should be considered a long-term investment and is not appropriate
for short-term trading purposes. Each Fund can be used in both regular and tax-
deferred accounts, such as IRAs.
Socially Responsible Investing
The Domini Social Equity Fund and the Domini Social Bond Fund are both "so-
cially and environmentally screened", meaning that they seek to invest in com-
panies and other issuers that meet the following criteria:
. The Funds avoid securities and obligations of issuers that manufacture to-
bacco products or alcoholic beverages, derive any revenues from gambling enter-
prises or have an ownership share in, or operate, nuclear power plants. The
Funds also avoid investment in major military contractors.
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<PAGE>
Overview
. The Funds seek to hold the securities and obligations of good corporate citi-
zens, demonstrated by positive relations with their communities and their em-
ployees, by their environmental record, and by the quality and safety of their
products.
Please see pages 18-19 for more information regarding the Funds' social and en-
vironmental policies.
Why Reading this Prospectus is Important
This prospectus explains the objective, risks, and strategies of the Domini
Social Equity Fund and the Domini Social Bond Fund. Reading the prospectus will
help you to decide whether a Fund is the right investment for you. Mutual
funds:
. are not FDIC-insured
. have no bank guarantees
. may lose value
Because you could lose money by investing in these Funds, we suggest that you
read this prospectus carefully, and keep it for future reference.
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<PAGE>
The Funds at a Glance
The Funds at a Glance
Domini Social Equity Fund
Investment Objective
The Domini Social Equity Fund seeks to provide its shareholders with long-term
total return that matches the performance of the Domini 400 Social Index, an
index made up of the stocks of 400 companies selected using social and environ-
mental criteria. The Index is composed primarily of large-capitalization U.S.
companies.
Primary Investment Strategy
The Domini Social Equity Fund seeks to match the composition of the Index as
closely as possible.The Fund typically invests in all 400 stocks included in
the Domini 400 Social Index, in approximately the same proportion as they are
found in the Index.This is known as a full replication strategy. The Fund fol-
lows this strategy by investing in the Domini Social Index Portfolio, another
fund with the same investment objective.
Although you cannot invest directly in an index, an index mutual fund provides
you the opportunity to invest in a portfolio that tracks an index.
For information about the Domini 400 Social Index's/SM/ social screens, please
refer to page 18.
Primary Risks
The Domini Social Equity Fund's total return, like the stock market in general,
will fluctuate widely. An investor can lose money over short or long periods of
time. Also, it is possible that returns from the large-cap stocks in which the
Fund invests will underperform relative to other asset classes or the overall
stock market.
The Fund may be adversely affected because it will continue to invest in the
Domini 400 Social Index, regardless of how the Index is performing.
The Fund's portfolio is subject to strict social and environmental screens. Be-
cause of these screens, Fund management may pass up opportunities to buy cer-
tain securities when it is otherwise advantageous to do so, or may sell certain
securities for social or environmental reasons when it is otherwise disadvanta-
geous to do so.
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<PAGE>
The Funds at a Glance
Past Performance
The bar chart and table below provide an indication of the risk of investing in
the Domini Social Equity Fund by illustrating how returns have varied from one
year to the next and by showing how the Fund's average annual total returns
compare with those of the Standard & Poor's 500 Index (S&P 500), a broad-based
index. Please note that this information represents past performance, and is
not necessarily an indication of how the Fund will perform in the future.
Total Return for Years Ended December 31
This bar chart shows how the Domini Social Equity Fund's performance has varied
over the last eight calendar years.
[BAR CHART]
1992 1993 1994 1995 1996 1997 1998 1999
---------------------------------------------------------------
12.10% 6.54% -0.36% 35.17% 21.84% 36.02% 32.99% 22.63%
Best quarter covered by the bar chart above: 24.62% (quarter ended 12/31/98)
Worst quarter covered by the bar chart above: -9.83% (quarter ended 9/30/98)
Year-to-date performance as of September 30, 2000: -7.52%
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<PAGE>
The Funds at a Glance
Average Annual Total Return as of 12/31/99
The table below shows the Domini Social Equity Fund's average annual total re-
turns in comparison to the S&P 500.
Since
1 Year 5 Years Inception
(6/3/91)
----------------------------------------------------------------------
Domini Social 22.63% 29.58% 19.79%
Equity Fund
S&P 500 21.04% 28.56% 19.43%
Fund Fees and Expenses
The table below describes the fees and expenses that you would pay if you buy
and hold shares of the Domini Social Equity Fund.*
<TABLE>
<S> <C> <C>
Shareholder Fees (fees paid directly by you)
Sales Charge (Load) Imposed on Purchases: None
Deferred Sales Charge (Load): None
Redemption Fees
Redemptions by Check: None
Redemptions by Bank Wire: $10**
Exchange Fees: None
Annual Fund Operating Expenses
(expenses deducted from the Fund's assets)
Management Fees: 0.20%
Distribution (12b-1) Fees: 0.25%
Other Expenses
Administrative Services and Sponsorship Fee: 0.50%
Other Expenses: 0.09% 0.59%
-----
Total Annual Fund Operating Expenses: 1.04%
Fee Waiver:+ 0.09%
-----
Net Expenses: 0.95%
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</TABLE>
* The table reflects the expenses of the Domini Social Equity Fund and the Do-
mini Social Index Portfolio, the underlying portfolio in which that Fund in-
vests.
** You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds by wire, there is a $10 wire service fee. For additional
information, please refer to the Shareholder Manual, page A-1.
+ For the period from November 30, 2000 to November 30, 2001, Domini Social In-
vestments LLC has contractually agreed to waive certain fees and/or reimburse
certain expenses, including management fees, so that the Fund's expenses will
not exceed, on a per annum basis, 0.95% of its average daily net assets.
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<PAGE>
The Funds at a Glance
Example
The following example is intended to help you compare the cost of investing in
the Domini Social Equity Fund with the cost of investing in other mutual funds.
It illustrates the hypothetical expenses that you would incur if you invest
$10,000 in the Fund for the time periods indicated and then sell all of your
shares at the end of each period. This example assumes that the Fund provides a
return of 5% a year, all dividends and distributions are reinvested, operating
expenses remain constant for the time period indicated and the fee waiver re-
flected in the fee table above is in effect for the one-year time period.
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------
$97 $328 $578 $1295
This example should not be considered to represent actual expenses or perfor-
mance from the past or the future. Actual future expenses may be higher or
lower than those shown.
Quick Guide to Important Information
Minimum Initial Investment: $1,000 ($250 for IRAs or
UGMA/UTMA accounts)($500 with Automatic Investment Plan)
Investment Adviser: Domini Social Investments LLC
Inception Date: June 3, 1991
Net Assets as of September 30, 2000: $1,441,818,607
Available for IRAs
Dividends: Distributed semi-annually, usually in June and December
Capital Gains: Distributed annually, usually in December
Newspaper Listing: Domini Social Inv-Soc Equity
Ticker Symbol: DSEFX
Cusip Number: 257132100
Website: www.domini.com
Shareholder Services: 1-800-762-6814
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<PAGE>
The Funds at a Glance
Domini Social Bond Fund
Investment Objective
The Domini Social Bond Fund seeks to provide its shareholders with a high level
of current income and total return by investing in bonds and other debt instru-
ments that meet the Fund's social and environmental criteria.
Primary Investment Strategy
The Domini Social Bond Fund invests at least 85% of its assets in investment-
grade-fixed-income debt instruments, including government and corporate bonds,
mortgage-backed and asset-backed securities, and in U.S. dollar-denominated
bonds issued by non-U.S. entities. The Fund normally maintains an average ef-
fective maturity of between 2 and 10 years. All investments meet the Fund's en-
vironmental and social criteria.
The Fund also invests a portion of its assets (up to 10% percent) in debt in-
struments that directly support community development by promoting business
creation, housing development and the economic and social development of urban
and rural communities. Some of these investments are in unrated or lower-rated
securities that carry a higher degree of risk than the Fund's investment-grade
securities.
The Fund does not currently intend to invest in direct obligations of the U.S.
government. The Fund will not invest more than 10% of its assets in below in-
vestment-grade securities.
For information about the Domini Social Bond Fund's social impact, please refer
to page 25.
Primary Risks
The market prices of the bonds and other debt instruments in which the Domini
Social Bond Fund invests may fluctuate. In addition, the credit quality of the
issuers of these debt instruments may change. Each of these factors may ad-
versely affect the Fund's performance. An investor can lose money over short or
long periods of time.
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<PAGE>
The Funds at a Glance
In general, the value of bonds and other debt instruments go down when interest
rates go up. Because falling interest rates also may lead to a higher level of
prepayments of some debt instruments, the Fund may be adversely affected if it
has to reinvest that money at a lower prevailing interest rate. On the other
hand, rising interest rates may cause debt instruments to be repaid later than
expected, forcing the Fund to endure the relatively low interest rates on these
instruments and extending the average maturity of certain debt instruments.
The Fund's portfolio is subject to strict social and environmental screens. Be-
cause of these screens, Fund management may pass up opportunities to buy cer-
tain securities when it is otherwise advantageous to do so, or may sell certain
securities for social or environmental reasons when it is otherwise disadvanta-
geous to do so.
Past Performance
The Domini Social Bond Fund, having commenced operations on June 1, 2000, does
not have annual returns for a full calendar year. Therefore, a bar chart and
table that illustrate how the returns of the Fund have varied from one year to
the next and showing how the Fund's average annual total returns compare with
those of a broad-based index are not provided.
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<PAGE>
The Funds at a Glance
Fund Fees and Expenses
The table below describes the fees and expenses that you would pay if you buy
and hold shares of the Domini Social Bond Fund.*
<TABLE>
<S> <C> <C>
Shareholder Fees (fees paid directly by you)
Sales Charge (Load) Imposed on Purchases: None
Deferred Sales Charge (Load): None
Redemption Fees
Redemptions by Check: None
Redemptions by Bank Wire: $10**
Exchange Fees: None
Annual Fund Operating Expenses
(expenses deducted from the Fund's assets)
Management Fees: 0.40%
Distribution (12b-1) Fees: 0.25%
Other Expenses
Administrative Services Fee: 0.25%
Other Expenses: 2.34% 2.59%
-----
Total Annual Fund Operating Expenses: 3.24%
Fee Waiver:+ 2.29%
-----
Net Expenses: 0.95%
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</TABLE>
* Because the Domini Social Bond Fund is newly-created, expenses are estimated
for the fiscal year ending July 31, 2001.
** You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds by wire, there is a $10 wire service fee. For additional
information, please refer to the Shareholder Manual, page A-1.
+ For the period ending November 30, 2001, Domini Social Investments LLC has
contractually agreed to waive certain fees and/or reimburse certain expenses,
including management fees, so that the Fund's expenses will not exceed, on a
per annum basis, 0.95% of its average daily net assets.
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<PAGE>
The Funds at a Glance
Example
The following example is intended to help you compare the cost of investing in
the Domini Social Bond Fund with the cost of investing in other mutual funds.
It illustrates the hypothetical expenses that you would incur if you invest
$10,000 in the Fund for the time periods indicated and then sell all of your
shares at the end of each period. This example assumes that the Fund provides a
return of 5% a year, all dividends and distributions are reinvested, that oper-
ating expenses remain constant for the time period indicated and that the fee
waiver reflected in the fee table above is in effect for the one-year time pe-
riod.
1 Year 3 Years
------------------------------
$97 $783
This example should not be considered to represent actual expenses or perfor-
mance from the past or the future. Actual future expenses may be higher or
lower than those shown.
Quick Guide to Important Information
Minimum Initial Investment: $1,000 ($250 for IRAs or
UGMA/UTMA accounts)($500 with Automatic Investment Plan)
Investment Adviser: Domini Social Investments LLC
Commencement of Operations: June 1, 2000
Available for IRAs
Dividends: Distributed monthly
Capital Gains: Distributed annually, usually in December
Newspaper Listing: Domini Soc Inv-Soc Bond
Ticker Symbol: DSBFX
Cusip Number: 257132209
Website: www.domini.com
Shareholder Services: 1-800-762-6814
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<PAGE>
The Funds at a Glance
More Information on Primary Risks
There can be no guarantee that either Fund will be able to achieve its invest-
ment objective. The investment objectives of the Funds may be changed without
the approval of the Funds' shareholders, although management currently has no
intention to do so. Both the Domini Social Equity Fund and the Domini Social
Bond Fund are subject to the risks described below.
. Market Risk. The market prices of the securities owned by either of the Funds
may go up and down. Therefore, the value of your investment will vary from day
to day and may fluctuate widely. This is particularly true for the Domini So-
cial Equity Fund because it seeks to remain fully invested in the stock market
during all market conditions and equity securities generally have greater price
volatility than debt securities. You could lose money by investing in either
fund.
An investment in either Fund is not a bank deposit and is not insured or guar-
anteed. In addition, each Fund is subject to additional specific risks, de-
scribed below.
The primary risks of investing in the Domini Social Equity Fund include:
. Large-Capitalization Companies. The Fund primarily invests in the stocks of
large-capitalization companies. Large-capitalization stocks tend to go through
cycles where they do better, or worse, than the stock market in general. The
performance of your investment will generally follow these broad market trends.
Because the Domini 400 Social Index is weighted by market capitalization, a few
large companies represent a relatively large percentage of the Index. Should
the value of one or more of these stocks decline significantly, it could nega-
tively affect the Fund's performance.
. Indexing. The Fund will continue to invest in the Domini 400 Social Index,
regardless of how the Index is performing. It will not shift its concentration
from one industry to another, or from stocks to bonds or cash, in order to de-
fend against a falling or stagnant stock market. If the Index is heavily
weighted in a single industry or sector, the Fund will be heavily invested in
that industry or sector, and as a result can be affected more positively or
negatively by developments in those industries than would be another mutual
fund whose investments are not restricted to the securities in the Index.
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<PAGE>
The Funds at a Glance
Also, the Fund's ability to match the performance of the Index may be affected
by a number of factors, including Fund operating expenses and transaction
costs, inflows and outflows of cash from the Fund and imperfect correlation be-
tween the Fund's holdings and those in the Index.
The primary risks of investing in the Domini Social Bond Fund include:
. Interest Rate Risk. In general, the value of bonds go down when interest
rates go up. The value of bond funds tend to follow the same pattern. Falling
interest rates, on the other hand, could cause the Fund's income to decline.
Securities with longer maturities tend to be more sensitive to changes in in-
terest rates, usually making them more volatile than securities with shorter
maturities. Under normal market conditions, the Domini Social Bond Fund's aver-
age effective maturity is from 2 to 10 years. Prepayments of the debt instru-
ments held by the Domini Social Bond Fund may cause its average effective matu-
rity to differ from its normal range. This deviation is not a violation of in-
vestment policy.
. Credit Risk. One factor affecting the price of debt instruments is how
creditworthy the issuers of these instruments are perceived to be. This percep-
tion is often reflected in credit ratings. The Fund could lose money if the is-
suer or a guarantor of a bond or other debt instrument does not make timely
principal and/or interest payments, or otherwise does not honor its obliga-
tions. In addition, the performance of the Fund may be negatively affected for
a number of reasons that directly relate to the issuer, such as management per-
formance, financial leverage and reduced demand for the issuer's goods or serv-
ices.
Understanding Bond Fund Risk: Average Maturity
Unlike an individual bond, which reaches maturity and is repaid, a bond fund
has no fixed maturity date. Instead, it maintains an average "rolling" maturity
by selling aging bonds and buying newer ones. The "average maturity" of a bond
fund is the average length of time until each bond held by a fund reaches
maturity and is repaid.
The average "effective" maturity of a bond fund differs from actual average
maturity, which may be longer. The average effective maturity is based on the
portfolio manager's expectation of prepayments and the call provisions of
certain securities. Using effective maturity rather than calculating average
maturity allows the portfolio manager greater flexibility which could also
result in more volatility.
In general, a bond fund with a longer average effective maturity will usually
experience greater volatility than a fund with a shorter average effective
maturity.
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<PAGE>
The Funds at a Glance
Debt instruments with lower ratings tend to be more volatile than those with
higher ratings. Lower-rated or unrated securities may also be hard to value ac-
curately or sell at a fair price. At least 85% of the Domini Social Bond Fund's
portfolio will be comprised of investment-grade fixed-income debt instruments.
The Fund will devote a portion of its assets to community development invest-
ments. A portion of these investments will be unrated and illiquid. These in-
vestments may be riskier than investment-grade securities.
. Prepayment and Extension Risk. When interest rates go down, the issuers of
some debt instruments may prepay the principal due on these instruments. This
can reduce the returns of the Fund because it may have to reinvest that money
at the lower prevailing interest rates. On the other hand, rising interest
rates may cause debt instruments to be repaid later than expected, forcing the
Fund to endure the relatively low interest rates on these instruments. This
also extends the average maturity of certain debt instruments, making them more
sensitive to changes in interest rates and the Fund's net asset value more vol-
atile. Because the Domini Social Bond Fund invests in mortgage-backed securi-
ties, it is particularly sensitive to this type of risk.
Understanding Bond Fund Risk: Credit Ratings
Investment grade debt instruments are those rated "Aaa", "Aa", "A" or "Baa" by
Moody's Investors Service, Inc. or "AAA", "AA", "A" or "BBB" by Standard &
Poor's and those that the Fund's portfolio managers believe to be of comparable
quality.
If the credit quality of a security declines after the Domini Social Bond Fund
buys it, the Fund's portfolio managers will decide whether the Fund should
continue to hold or should sell the security.
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<PAGE>
More About the Funds
More About the Funds
Socially Responsible Investing
Socially responsible investors factor social and environmental criteria into
their investment decisions. They believe that this helps to encourage greater
corporate responsibility, and may also help to identify companies that are good
long-term investments because enlightened management may be better able to meet
the future needs of society and the environment. In addition, in the course of
seeking financial gain for themselves, they look for opportunities to use their
investments to improve the lives of others.
Typically, social investors avoid companies that manufacture products, or em-
ploy practices, that they believe have harmful effects on society or the natu-
ral environment. They seek to invest in issuers with positive qualities, such
as a proactive environmental record, or positive employee relations. This proc-
ess is called "social screening."
At Domini Social Investments, in addition to screening our investments, we work
with companies to improve their social and environmental performance and file
shareholder resolutions on these issues when necessary. In addition, we vote
company proxies in a manner that is consistent with our social screening crite-
ria, and publicly disclose our votes. The Domini Social Bond Fund uses a por-
tion of its assets to promote community development.
Domini Social Equity Fund
About Index Investing
What is an index?
An index is an unmanaged group of stocks selected to measure the behavior of
the market, or some portion of it. The S&P 500, for example, is an index of 500
companies selected to track the performance of the broad market of large-cap
U.S. companies. Investors use indexes as benchmarks to measure how their in-
vestments are performing in comparison to the market as a whole.
The Domini 400 Social Index attempts to track the performance of a broad repre-
sentation of primarily large-cap U.S. companies in which the typical socially
responsible investor would consider appropriate to
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<PAGE>
More About the Funds
invest. The Domini 400 Social Index was created to serve as a benchmark for so-
cially and environmentally conscious investors.
What is the difference between an index fund and an actively managed fund?
The Domini Social Equity Fund uses a passive investment strategy. This means
that the Fund purchases, holds and sells stocks based on the composition of the
Domini 400 Social Index, rather than on a manager's judgment as to the direc-
tion of the market or the merits of any particular stock.
Unlike index funds, actively managed funds are generally managed to achieve the
highest possible return within certain parameters. These funds are managed by
stock-pickers who buy and sell stocks based on their opinion of the financial
outlook of the stock. Because index funds use a passive strategy, changes in
management generally have less impact on fund performance.
Index funds provide investors with an opportunity to invest in a portfolio that
is specially designed to match the performance of a particular index. Rather
than relying on the skills of a particular mutual fund manager, index fund in-
vestors purchase, in a sense, a cross-section of the market. Their performance
should therefore reflect the segment of the market that their fund is designed
to track.
What are some of the advantages of index investing?
Index investing has become quite popular because it offers investors a conve-
nient, relatively low-cost and tax-efficient way to obtain exposure to a broad
spectrum of the stock market. Here are some other advantages:
. Diversification. Indexes such as the Domini 400 Social Index invest in a
large number of companies representing a diverse mix of industries. This struc-
ture can help reduce volatility as compared to funds that may invest in a
smaller number of companies, or focus on a particular industry.
. Benchmark Comparability. Index funds typically match the performance of their
particular benchmarks more closely than comparable actively managed funds. The
Domini Social Equity Fund seeks to match the performance of the Domini 400 So-
cial Index.
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<PAGE>
More About the Funds
. Tax Efficiency. Turnover rate refers to the volume of buying and selling of
stocks by a fund. The turnover rate of index funds tends to be much lower than
the average actively managed mutual fund. Depending on your particular tax sit-
uation, a low turnover rate may produce fewer taxable capital gains.
Compare Turnover Rates
The average annual turnover rate for all domestic stock funds is 63%.*
The annual turnover rate for the Domini Social Equity Fund was 9%.** (There is
no guarantee that this turnover will not be higher in the future.)
A 100% turnover rate would occur if a fund sold and replaced securities valued
at 100% of its net assets within a one-year period.
* As of 09/30/00; taken from Morningstar PrincipiaPro.
**For the period from 08/01/99 to 07/31/00.
What is the Domini 400 Social Index/SM/?
The Domini 400 Social Index (DSI 400) is the nation's first socially and envi-
ronmentally screened index. It was created and launched in May 1990 by the so-
cial research firm of Kinder, Lydenberg, Domini & Co., Inc. ("KLD") in order to
serve as a benchmark for social investors, and to determine how social screens
affect financial performance. KLD is an affiliate of Domini Social Investments.
The Domini Social Equity Fund was launched in 1991 to give investors an oppor-
tunity to invest in a portfolio based on the Index. The Index is maintained by
KLD. It is composed of the common stocks of 400 companies that meet the social
criteria described below.
How was the Domini 400 Social Index constructed?
To construct the Index, KLD first applied to the S&P 500 a number of tradi-
tional social screens. Roughly half of the S&P 500 companies qualified for the
Index in this initial screening process. Approximately 150 non-S&P 500 compa-
nies were then added with two goals in mind. One goal was to obtain a broad
representation of industries, so that the Index would more accurately reflect
the market available to the socially responsible investor. Another goal was to
identify companies that are particularly strong models of corporate behavior.
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<PAGE>
More About the Funds
KLD maintains an extensive database of corporate accountability information on
more than 1,000 publicly traded companies and bases its decisions on research
into the following factors:
Exclusionary Screens
KLD seeks to exclude the following types of companies from the Index:
. Tobacco and Alcohol - companies that manufacture tobacco products or alco-
holic beverages;
. Gambling - companies that receive identifiable revenues from gambling enter-
prises;
. Nuclear Power - companies that have an ownership share in, or operate, nu-
clear power plants; and
. Weapons - companies that receive more than 2% of their gross revenues from
the sale of military weapons.
Qualitative Screens
KLD considers the following criteria when evaluating companies for possible in-
clusion in the Index and may exclude companies based on poor performance in
these areas:
. Environmental Performance - the company's record with regard to fines or pen-
alties, waste disposal, toxic emissions, efforts in waste reduction and
emissions reduction, recycling, and environmentally beneficial fuels, products
and services;
. Employee Relations - the company's record with regard to labor matters,
workplace safety, employee benefit programs, and meaningful participation in
profits either through stock purchase or profit-sharing plans;
. Diversity - the company's record with regard to the hiring and promotion of
women and minorities, particularly to management positions and the board of di-
rectors, including the company's record with respect to the
What are Social Screens?
All investment decisions use some type of "screen." Screens are guidelines that
define which securities will be included in a portfolio, and which will be
excluded. In addition to basic financial screens relating to financial
solvency, industry and sector diversification, and market capitalization, the
stocks in the DSI 400 are selected using two basic types of social screens:
exclusionary and qualitative.
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<PAGE>
More About the Funds
availability of benefit programs that address work/family concerns, innovative
hiring programs for the disabled and progressive policies toward gays and les-
bians;
. Citizenship - the company's record with regard to its charitable activities
and its community relations in general; and
. Product-Related Issues - the company's record with regard to product safety,
marketing practices, and commitment to quality.
From time to time, KLD may, at its discretion, choose to apply additional cri-
teria, or to modify the application of the criteria listed above, to the Index.
As a result, companies may be dropped from or added to the Index. This will im-
pact the types of investments held by the Domini Social Equity Fund because it
seeks to invest in the securities of the companies that are included in the In-
dex. The social criteria listed in this prospectus may be modified and addi-
tional social criteria may be imposed at any time without approval of share-
holders.
How are the Domini Social Equity Fund's largest holdings selected?
Like the S&P 500, the DSI 400 is "market capitalization-weighted." Market capi-
talization is a measure of the value of a publicly traded company. It is calcu-
lated by multiplying the total number of outstanding shares of company stock by
the price per share.
The Domini Social Equity Fund's portfolio is also market capitalization-weight-
ed. For example, assume that the total market value of Company A's shares is
twice the total market value of Company B's shares. The Fund's portfolio is
structured so that its holdings of Company A's shares will be about twice the
value of its holdings of Company B's shares. The Fund's top ten holdings there-
fore are simply the ten companies with the highest market value in the Index.
Because it seeks to duplicate the Index as closely as possible, the Fund will
attempt to have a correlation between the weightings of the stocks it holds in
its portfolio and the weightings of the stocks in the Index of 0.95 or better.
A figure of 1.0 would indicate a perfect correlation.
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<PAGE>
More About the Funds
How is the Domini 400 Social Index maintained?
To keep turnover low and to more accurately reflect the performance of the mar-
ket, the Index is maintained using a "buy and hold" strategy. Generally speak-
ing, this means that companies that are in the Index stay in the Index for a
long time. A company will not be removed because its stock has not been per-
forming well, unless in KLD's opinion the company is no longer financially via-
ble. Sometimes a company is removed from the Index because it has been acquired
by another company. Sometimes a company may split into two companies, and only
one of the surviving companies is selected to stay in the Index (because the
Index is maintained to consist of exactly 400 companies at all times).
A company may also be removed from the Index because its social profile has de-
teriorated, or due to its inadequate response to a significant controversy.
When a company is removed from the Index, it is replaced with another company.
In the selection process, among other factors, KLD considers the size of the
company, the industry it is in, and its social profile.
Are there companies I won't like in the Domini 400 Social Index?
The screens for the Index are designed to reflect those most widely used by so-
cial investors. Therefore, you may find that some companies in the Index do not
reflect your social or environmental standards. You may wish to review a list
of the companies in the Domini Social Equity Fund's portfolio to decide if they
meet your personal standards. The complete list is available in the Fund's an-
nual and semi-annual reports. To obtain copies of these reports free of charge,
call 1-800-762-6814.
No company is a perfect model of corporate or social responsibility. Each year,
the Domini Social Equity Fund uses its voice as a shareholder to encourage com-
panies to improve their social and environmental records by voting proxies,
writing letters, engaging management in dialogue and filing shareholder resolu-
tions.
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<PAGE>
More About the Funds
Domini Social Bond Fund
About Bond Fund Investing
What is a bond?
Essentially, a bond is an IOU issued by a corporation or a government entity.
When you purchase a bond, you are lending the issuer a specified amount of
money (the principal) for a specified period of time (the term). In exchange,
the issuer usually pays regular interest and, when the term is up and the bond
matures, the issuer repays the principal amount.
Many investors purchase bonds because the interest income paid tends to be
higher than money market funds, certificates of deposit or bank accounts. In-
vestors also use bonds to help diversify their portfolio because, although
bonds and bond funds are subject to market fluctuations, they don't always move
in the same direction or to the same degree as stocks.
What advantages do bond funds offer?
Bond funds are a convenient way to invest in bonds and other debt instruments
because they allow you to invest in a professionally managed pool of bonds and
debt instruments. Bond funds offer all of the familiar conveniences of stock
mutual funds, such as:
. Liquidity. See pages A-4 to A-8 for information on how to buy and sell
shares.
. Reinvestment of Dividends. If you do not depend upon your investment for reg-
ular income, you may choose to reinvest your dividends.
. Low Minimum Investment. Purchasing an individual bond can be expensive be-
cause of the brokerage commissions you may be required to pay and the size of
the bond you may be required to purchase. You can invest in the Domini Social
Bond Fund for $1,000. If you open your account as an IRA or an UGMA/UTMA, the
minimum is $250, and if you choose to use our automatic investment plan, the
minimum is $500.
. Diversification. A bond fund invests in a large number of bonds and other
debt instruments. Although bond funds do not provide any
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<PAGE>
More About the Funds
guarantees, investing in a large number of bonds and other debt instruments al-
lows you to spread certain risks (such as credit risk) among more than one is-
suer.
What types of bonds and other debt instruments will the Fund typically hold?
The Domini Social Bond Fund typically invests at least 85% of its assets in in-
vestment-grade-fixed-income debt instruments. The Fund can buy many types of
debt instruments including, without limitation, corporate bonds, bonds issued
by U.S. government agencies or instrumentalities, and mortgage- and asset-
backed securities. The Fund may also invest in the debt instruments of, and de-
posit cash with, community development banks. All of the Fund's holdings must
pass the Fund's social and environmental screens.
The following describes the most common types of bonds and other debt instru-
ments the Fund will hold (for a discussion of the risks associated with these
types of securities, refer to pages 8 and 13-14):
. Securities of U.S. Government Agencies and Instrumentalities include U.S.
government agency bonds, which represent loans by investors to a wide variety
of governmental agencies and instrumentalities, and other obligations of U.S.
government agencies and instrumentalities. The Domini Social Bond Fund will
generally hold bonds issued by those government-related organizations involved
in housing, farming and education.
The Fund may purchase debt obligations of Federal Home Loan Banks, which have
the right to borrow an amount limited to a specific line of credit from the
U.S. Treasury and the obligations of other U.S. government instrumentalities.
Please keep in mind that some securities issued by U.S. government agencies and
instrumentalities may not be backed by the full faith and credit of the U.S.
government. The Fund does not currently intend to invest in direct obligations
of the U.S. government such as U.S. Treasury bills, notes and bonds.
. State and Municipal Bonds represent loans to a state or municipal government,
or one of their agencies or instrumentalities.
. Corporate Bonds are IOUs issued by businesses that want to borrow money for
some business purpose. As with other types of
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<PAGE>
More About the Funds
bonds, the issuer promises to repay the principal on a specific date and to
make interest payments in the meantime. The amount of interest offered depends
on market conditions and also on the financial health of the corporation issu-
ing the bonds. For example, a company whose credit rating is weak will have to
offer a higher interest rate to obtain buyers for its bonds. The Fund expects
to invest primarily in investment grade corporate bonds, which are corporate
bonds rated in one of the four highest rating categories by independent bond
rating agencies and those that the Fund's portfolio managers believe to be of
comparable quality.
Although the Fund may invest in corporate bonds issued by corporations that are
not included in the Domini 400 Social Index, all of the Fund's corporate bond
holdings must pass the same social and environmental screens used in connection
with the Index (see pages 18-19 for more information).
. Mortgage-Backed and Asset-Backed Securities represent interests in underlying
pools of mortgages or consumer or commercial loans -- most often home loans or
credit card, automobile or trade receivables. Unlike ordinary bonds, which gen-
erally pay a fixed rate of interest at regular intervals and then pay principal
upon maturity, mortgage-backed securities pay both interest and principal as
part of their regular payments. Because the mortgages and loans underlying the
securities can be prepaid at any time by homeowners or consumer or corporate
borrowers, mortgage-backed securities and asset-backed securities are particu-
larly sensitive to prepayment risk, discussed earlier (page 14) in this pro-
spectus.
Mortgage-backed securities are issued by a number of governmental and quasi-
governmental agencies, including the Government National Mortgage Association
(GNMA or "Ginnie Mae"), Freddie Mac (formerly the Federal Home Loan Mortgage
Corporation) and Fannie Mae (formerly the Federal National Mortgage Associa-
Because the Domini Social Bond Fund may invest extensively in mortgage-backed
and asset-backed securities, the prepayment risk of the Fund may be higher than
that for a bond fund that does not invest in these types of securities. See
page 14 for more information.
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<PAGE>
More About the Funds
tion). Ginnie Maes are guaranteed by the full faith and credit of the U.S. gov-
ernment as to the timely payment of principal and interest. Freddie Macs and
Fannie Maes are backed by their respective issuer only. Of course, your invest-
ment in the Domini Social Bond Fund is not insured. The Fund may also invest to
a lesser extent in conventional mortgage securities, which are packaged by pri-
vate entities and are not guaranteed by the U.S. government.
. Community Development. The Fund will invest in mortgages, loans and pools of
loans issued by community development banks and financial institutions and by
community loan funds. These investments are targeted to underinvested areas,
low- to moderate-income individuals, and small businesses. These investments
may be lower-rated or unrated and may subject the Fund to more credit risk than
other types of debt instruments. Some of these investments may also be illiquid
and the Fund may not be able to sell them at an advantageous time or price. Up
to 10% of the Fund's assets may be placed in these investments.
The Fund may also invest in deposits of, loans to, and loans and pools of loans
issued by community development financial institutions, community loan funds
and similar institutions. These investments may not be insured by the FDIC.
. International dollar-denominated bonds (or Yankee bonds) are bonds denomi-
nated in U.S. dollars issued by foreign governments and companies. Because the
bond's value is designated in dollars rather than the currency of the issuer's
country, the investor is not exposed to currency risk. To the extent that the
Fund owns bonds issued by foreign governments and companies, the Fund is sub-
ject to risks relating to political, social and economic developments abroad.
Please refer to page 26 for additional information about the types of bonds the
Domini Social Bond Fund may hold.
What will be the Fund's turnover rate?
The Domini Social Bond Fund is actively managed. Although the Fund's portfolio
managers attempt to minimize portfolio turnover, from time to time the Fund's
annual portfolio turnover rate may exceed 100%. The sale of securities may pro-
duce capital gains, which, when distributed, are taxable to investors. Active
trading may also increase the amount of commissions or mark-ups the Fund pays
to brokers or dealers when it buys and sells securities.
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<PAGE>
More About the Funds
The Social Impact of the
Domini Social Bond Fund
Although an equity fund such as the Domini Social Equity Fund can have an im-
pact on corporate behavior through its screening policies, proxy voting and by
filing shareholder resolutions, a socially responsible bond fund provides a
special opportunity to make a significant and immediate difference to people
and their communities.
The Domini Social Bond Fund seeks to play a positive role in the economic and
social development of communities by investing a portion (up to 10%) of its as-
sets in debt instruments and other investments that support and promote commu-
nity development. The Fund's submanager will draw upon its experience in making
productive community development investments to carefully select those finan-
cial institutions, funds and organizations that are making the greatest impact
in the areas of affordable housing, job creation, and economic development in
underserved communities. These investments may carry greater credit risks than
the Fund's other holdings.
The Fund's community investments are focused in two critical areas: affordable
housing and economic empowerment for low-to medium-income entrepreneurs through
the financing of small business loans. Examples of these types of investments
include loans and deposits purchased from Community Development Financial In-
stitutions and Community Loan Funds, and small business association (SBA) guar-
anteed portions of small business loans. The Fund may invest a portion of its
assets in below market-rate community development investments.
The Fund's Submanager
South Shore Bank, the Domini Social Bond Fund's submanager, is the nation's
largest and oldest community devel- opment bank, founded with the purpose of
serv- ing the financial needs of residents and businesses in traditionally
under- served urban areas.
Between 1974 and November 2000, the Bank loaned $600 mil- lion for local
rehabilita- tion and commercial development to approxi- mately 13,000 borrow-
ers. South Shore Bank currently has more than $950 million in assets and $62
million in capital.
The Bank's parent company, Shorebank Corporation, has founded a variety of
other for- profit and not-for-profit development enterprises in the U.S. and
abroad. Shorebank's investments-- which include loans to minority-owned busi-
nesses, housing loans in urban neighborhoods, and real estate develop- ment --
exceeded $100 million in 1999 and are on track to at least equal that amount
in 2000.
Shorebank is responsible for the creation, place- ment or retention of more
than 900 jobs and for the rehabilitation of over 2,300 units of multi-family
housing.
-25-
<PAGE>
Additional Information
Additional Investment
Strategies & Risk
Information
Additional permissible Domini Social Bond Fund investments include, but are not
limited to:
. Convertible Bonds. The Fund may invest in convertible bonds, which are bonds
that may be converted into stock. Convertible bonds are subject to the market
risk of stocks, and, like other bonds, are also subject to interest rate risk
and the credit risk of their issuers. Convertible bonds tend to offer lower
rates of interest than non- convertible bonds because the stock conversion fea-
ture represents increased potential for capital gains. Call provisions may al-
low the issuer to repay the debt before it matures. This may hurt the Fund's
performance because it may have to reinvest the money repaid at a lower rate.
. Zero Coupon Obligations. The Fund may invest in obligations that do not pay
current interest, known as "zero coupon" obligations. The prices of zero coupon
obligations tend to be more volatile than those of securities that offer regu-
lar payments of interest. This makes the Fund's net asset value more volatile.
In order to pay cash distributions representing income on zero coupon obliga-
tions, the Fund may have to sell other securities on unfavorable terms. These
sales may generate taxable gains for shareholders.
. Derivatives. The Fund may use derivatives (including futures and options),
which are financial contracts whose value depends on, or is derived from, the
value of an underlying asset, reference rate or index. The various derivatives
that the Fund may use are described in more detail in the Statement of Addi-
tional Information. The Fund may use derivatives to reduce exposure to certain
risks, such as interest rate risk. The Fund will not use derivatives for lever-
age. Suitable derivative transactions may not be available in all circumstanc-
es, and there can be no assurance that the Fund will use derivatives, even when
they may benefit the Fund.
-26-
<PAGE>
Additional Investment Strategies & Risk Information
Derivatives are subject to a number of risks described on pages 12 through 14
of this prospectus, such as market risk, interest rate risk and credit risk.
They also may be mispriced or improperly valued, and changes in the value of
derivatives may not correlate perfectly with the underlying asset, rate or in-
dex.
. Temporary Investments. The Fund may temporarily use a different investment
strategy for defensive purposes in response to market conditions, economic fac-
tors, or other occurrences. This may adversely affect the Fund's performance.
Investment Structure
The Domini Social Equity Fund invests its assets in the Domini Social Index
Portfolio, a registered investment company. The Portfolio has the same invest-
ment objective as the Domini Social Equity Fund and invests in securities using
the strategies described in this prospectus. The Domini Social Equity Fund may
withdraw its investment from the Portfolio at any time if the Board of Trustees
of the Domini Social Equity Fund determines that it is in the best interest of
the Fund to do so. The Board of Trustees would then consider what action might
be taken, including investing all of the Fund's assets in another similarly
structured portfolio having the same investment objective as the Fund, or hir-
ing an investment adviser to manage the Fund's assets. There is currently no
intention to change the Domini Social Equity Fund's investment structure. Ref-
erences to the Domini Social Equity Fund in this prospectus include the Portfo-
lio, unless the context requires otherwise.
The Domini Social Bond Fund invests directly in securities and does not invest
through an underlying Portfolio.
Cash Reserves
Although the Domini Social Equity Fund seeks to be fully invested at all times,
it keeps a small percentage of its assets in cash or cash equivalents. These
reserves provide the Fund with flexibility to meet redemptions and expenses,
and to readjust its portfolio holdings. The Fund may hold these cash reserves
uninvested or may invest them in high-quality, short-term debt securities is-
sued by agencies or instrumentalities of the U.S. government, bankers' accept-
ances, commercial paper, certificates of deposit, bank deposits or repurchase
agree-
-27-
<PAGE>
Additional Investment Strategies & Risk Information
ments. The issuers of these securities must satisfy certain social criteria.
The Domini Social Bond Fund will also invest a portion of its assets in quali-
ty, short-term debt securities issued by agencies or instrumentalities of the
U.S. government, bankers' acceptances, commercial paper, certificates of depos-
it, bank deposits and repurchase agreements. Some of the investments will be
with community development banks and financial institutions and may not be in-
sured by the FDIC. The issuers of these securities must satisfy certain social
criteria.
Securities Lending
Consistent with applicable regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Securities and Exchange Commis-
sion, each of the Domini Social Equity Fund and the Domini Social Bond Fund may
make loans of its securities to member banks of the Federal Reserve System and
to broker-dealers. These loans would be required to be secured continuously by
collateral consisting of securities, cash or cash equivalents maintained on a
current basis at an amount at least equal to the market value of the securities
loaned. A Fund would have the right to terminate a loan and obtain the securi-
ties loaned at any time on three days' notice. During the existence of a loan,
a Fund would continue to collect the equivalent of the dividends paid by the
issuer on the securities loaned and would also receive interest on investment
of cash collateral. A Fund may pay finder's and other fees in connection with
securities loans. Loans of securities involve a risk that the borrower may fail
to return the securities or may fail to provide additional collateral.
The Funds are not required to use every investment technique or strategy listed
in this prospectus or in the Statement of Additional Information.
For Additional Information about the Funds' investment strategies and risks,
the Funds' Statement of Additional Information is available, free of charge,
from Domini Social Investments.
-28-
<PAGE>
Who Manages the
Funds?
Investment Manager
Domini Social Investments LLC (DSIL), 536 Broadway, 7th floor, New York, NY
10012, has been managing money since November of 1997 and currently manages
more than $2.0 billion dollars in assets for individual and institutional
investors who are working to create positive change in society by using social
and environmental criteria in their investment decisions. DSIL provides the
Funds and the Portfolio with investment supervisory services, overall
operational support and administrative services.
Social Research & Index Maintenance
Kinder, Lydenberg, Domini & Co., Inc. (KLD), determines the composition of the
Domini 400 Social Index.
Portfolio Investment Submanagers
Domini Social Equity Fund
Mellon Equity Associates, LLP, with its main offices at 500 Grant Street,
Pittsburgh, PA 15258, provides investment submanagement services to the Domini
Social Equity Fund pursuant to a Submanage-ment Agreement with DSIL. Mellon Eq-
uity implements the daily transactions necessary to maintain the proper corre-
lation between the Domini Social Equity Fund's portfolio and the Domini 400 So-
cial Index. They do not determine the composition of the Index.
For the services DSIL and Mellon Equity provided to the Domini Social Equity
Fund and the Portfolio during the fiscal year ended July 31, 2000, they re-
ceived a total of 0.65% of the average daily net assets of the Domini Social
Equity Fund, after waivers.
-29-
<PAGE>
Domini Social Bond Fund
South Shore Bank, with its main offices at 7054 S. Jeffery Blvd., Chicago, IL
60649, provides investment submanagement services to the Domini Social Bond
Fund pursuant to a Submanagement Agreement with DSIL. South Shore Bank is the
nation's oldest and largest community development bank, founded with the pur-
pose of serving the financial needs of residents and businesses in tradition-
ally underserved urban areas. David J. Oser, Senior Vice President, Investments
(since 1994), leads the team responsible for the management of the Domini So-
cial Bond Fund. Mr. Oser has been with South Shore Bank since 1976, where he
currently manages $450 million in assets for affiliates and institutional cli-
ents of the Bank. He also serves as Retirement Plan Trustee and Corporate Sec-
retary for the Bank. Mr. Oser holds a Master's degree from the University of
Chicago and a Bachelor's degree from Carleton College, Northfield, Minnesota.
DSIL and South Shore Bank may receive total investment advisory fees of 0.40%
of the average daily net assets of the Domini Social Bond Fund. Both DSIL and
South Shore Bank waived their entire fee for the period June 1, 2000 through
July 31, 2000.
The Funds' Distribution
Plan
DSIL Investment Services LLC, a wholly owned subsidiary of DSIL, is the dis-
tributor of each Fund's shares. Each Fund has adopted a Rule 12b-1 plan that
allows the Fund to pay its distributor up to 0.25% of the Fund's average daily
net assets, on an annual basis, for the sale and distribution of the Fund's
shares and for services provided to shareholders. Because this fee is paid out
of each Fund's assets on an ongoing basis, over time the fee will increase the
cost of your investment and may cost you more than paying other types of sales
charges. For more information about the Funds' distribution plan, see the ex-
pense tables, on pages 6 and 10 of this prospectus, and the Statement of Addi-
tional Information.
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<PAGE>
Shareholder Manual
Shareholder Manual
This section provides you with information on how to buy and sell shares of the
Funds, how Fund shares are valued, and the tax consequences of an investment in
a Fund.
Table of Contents
<TABLE>
<S> <C>
How to Open an Account................................................... A-2
Types of Accounts...................................................... A-2
How to Buy Shares........................................................ A-4
How to Exchange Shares................................................... A-6
How to Sell Shares....................................................... A-8
How the Price of Your Shares is Determined............................... A-13
How can I find out a Fund's NAV?....................................... A-13
How do you determine what price I will get when I buy shares?.......... A-13
How do you determine what price I will get when I sell shares?......... A-14
How is the value of securities held by the Funds determined?........... A-14
Fund Statements and Reports.............................................. A-15
Dividends and Capital Gains.............................................. A-16
Taxes.................................................................... A-16
Rights Reserved by the Funds............................................. A-18
</TABLE>
For more information on:
. investing in the Funds,
. your account,
. the Fund's daily share price, and
. socially responsible investing,
Call our Shareholder Information Line toll-free at 1-800-762-6814 or visit our
website at www.domini.com. Shareholder representatives are available to take
your call weekdays, from 9-5PM, Eastern Time.
You may make transactions, review account information and obtain the share
price of a Fund 24 hours a day, 7 days a week by using our automated telephone
system or visiting our website.
Quick Reference
Ticker Symbols:
Domini Social Equity Fund - DSEFX
Domini Social Bond Fund - DSBFX
Newspaper Listings:
Domini Social Equity Fund - Domini Soc Inv-Soc Equity
Domini Social Bond Fund - Domini Soc Inv-Soc Bond
Account Statements are mailed quarterly.
Trade Confirmations are sent after purchases (except Automatic Investment
Plan purchases) and redemptions.
Annual and Semi-Annual Reports will be mailed in late September and March,
respectively, and are available online at www.domini.com.
- A-1 -
<PAGE>
Shareholder Manual
How to Open an Account
1. Read this prospectus (and please keep it for future reference).
2. Review the available accounts listed below under "Types of Accounts" and de-
cide which account-type is appropriate for you.
3 Decide how much you want to invest.
The minimum initial investments in each Fund are:
. $1,000 for regular accounts ($500 if using our Automatic Investment
Plan)
. $250 for Retirement Accounts (Automatic Investment Plan also available)
. $250 for UGMA/UTMA Accounts (Automatic Investment Plan also available)
The minimums to buy additional shares of each Fund are:
. $50 for regular and Retirement Accounts
. $25 for Automatic Investment Plan Accounts
4. You can choose one of several different payment methods to make your initial
investment. Please review the options listed under "How to Buy Shares," and
follow the simple instructions we've provided. Be sure to completely fill
out and sign the Account Application.
If at any time you need assistance, please call us at 1-800-762-6814, weekdays
from 9-5PM, Eastern Time.
Types of Accounts
You may invest in the Funds through the following types of accounts:
Individual and Joint Accounts (Non-Retirement):
Invest as an individual or with one or more people. If you are opening a joint
account, joint tenancy with rights of survivorship will be assumed unless other
ownership is noted on your account application. You may also open an account to
invest assets held in an existing personal trust.
- A-2 -
<PAGE>
Shareholder Manual
Individual Retirement Accounts (IRAs):
You may open an account to fund a traditional IRA, Roth IRA or Education IRA.
. $10 Annual IRA account maintenance fee
. $10 IRA account termination fee
Call 1-800-762-6814 for more information and an IRA account application.
Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) Accounts:
You may open a UGMA/UTMA account for any child.
Employer-Sponsored Retirement Plans:
If offered by your employer, you may be able to open an account as part of an
employer-sponsored retirement plan, such as a 401(k) plan, 403(b) plan, SEP-IRA
or SIMPLE IRA. You may obtain 403(b) forms and information by calling 1-800-
762-6814. You may also contact your employer's plan administrator for further
information.
Automatic Investment Plan Accounts:
Automatically invest specified amounts in a Fund at monthly, quarterly, semi-
annual or annual intervals. Automatic investments will continue to be made un-
til you notify the Fund and your bank to discontinue further investments. This
service may be established for your account at any time. See below for more de-
tails, or call 1-800-762-6814.
For an Organization:
You may open an account for a trust, corporation, partnership, endowment, foun-
dation or other entity.
- A-3 -
<PAGE>
Shareholder Manual
How to Buy Shares
Via the Internet
Current shareholders may purchase new shares of any Fund you currently hold.
. Visit our website at www.domini.com.
. Click the "Account Access" button.
. Enter your Social Security number and Personal Identification Number (PIN)
in the appropriate fields. (To obtain a PIN, call 1-800-582-6757.)
. The "Account List" will provide you with an overview of your account and
transaction processing options.
. Online help is available for each screen.
In order to make purchases using this service, you will need ACH (Automatic
Clearing House) privileges set up on your account. Please call 1-800-582-6757
for more information.
By Phone
Current shareholders may purchase shares using our automated telephone account
access system.
. Dial 1-800-582-6757
. Select "1" for automated account access
. Select "1" again for account information
. Enter your account number followed by the pound sign (#)
. Enter your Personal Identification Number (PIN)
. Press "2" to process a transaction
. At any time you can press "8" to return to the previous menu or "9" to re-
turn to the main menu.
In order to make purchases using this service, you will need ACH (Automatic
Clearing House) privileges set up on your account. Please call 1-800-582-6757
for more information.
- A-4 -
<PAGE>
Shareholder Manual
By Check
Mail the completed Account Application and your check to:
Domini Funds
P.O. Box 60494
King of Prussia, PA 19406-0494
For subsequent investments, fill out the investment form that came with your
trade confirmation or account statement or send a note with your account number
and Fund name. Always be sure to include your account number on your check. If
you need additional forms, please call 1-800-762-6814.
Your checks must be in U.S. dollars drawn on a U.S. bank and be made payable to
"Domini Funds."
IMPORTANT: For our mutual protection, Domini cannot
accept checks made payable to third parties.
By Bank Wire
To establish wire privileges on an existing account, or for additional informa-
tion about the service, please call the Funds' transfer agent at 1-800-762-
6814.
Wire your investment to:
Bank: Boston Safe Deposit Bank
ABA: 011001234
Acct Name: Domini Funds
Acct #: 043370
FBO: Fund Name, and Your Account
Name and Number at Domini Funds
For new accounts, please call 1-800-762-6814 to obtain an account number before
wiring funds.
- A-5 -
<PAGE>
Shareholder Manual
Automatic Investment Plan
Our Automatic Investment Plan allows you to have specified amounts automati-
cally deducted from your bank account or Domini Money Market Account and in-
vested in a Fund in monthly, quarterly, semi-annual or annual intervals. Please
follow the instructions in the Account Application to establish this service
when you open your account. This service can be established for your account at
any time. Call the Funds' transfer agent at 1-800-582-6757 for more informa-
tion.
This service may take up to 4 weeks to begin. Also, due to the varying proce-
dures to prepare, process and forward the bank withdrawal information to the
Funds, there may be periodic delays between the time of the bank withdrawal and
the time your money reaches the appropriate Fund.
How to Exchange Shares
You may exchange all or a portion of your funds from any of your Domini hold-
ings into any other available Domini Fund or the Domini Money Market Account.
Via the Internet
. Visit our website at www.domini.com.
. Click the "Account Access" button.
. Enter your Social Security number and Personal Identification Number (PIN)
in the appropriate fields. (To obtain a PIN, call 1-800-582-6757.)
. The "Account List" will provide you an overview of your account and trans-
action processing options.
. Online help is available for each screen.
The Advantage of Dollar-Cost Averaging
One thing is certain: markets fluctuate. Even experienced investors often find
it impossible to accurately time a market, and to "sell high and buy low."
Dollar-cost averaging is an investment strategy designed to avoid the pitfalls
of market timing by investing equal amounts of money at regular intervals
(monthly, quarterly, and so on) over a long period of time.
The advantage of dollar-cost averaging is that an investor buys more shares at
lower prices, and fewer shares at higher prices. As a result, an investor ends
up paying an average price per share over a period of time.
The key to dollar-cost averaging is to stick with it for the long term, through
periods of rising and falling markets. Of course, no strategy can guarantee a
profit, or protect your investment from losses. Strictly adhering to a long-
term dollar-cost averaging strategy, however, is a good way to avoid the
mistake of investing all of your money when the market is high.
To facilitate dollar-cost averaging you may purchase Fund shares at regular
intervals through the Funds' Automatic Investment Plan.
- A-6 -
<PAGE>
Shareholder Manual
By Telephone
You may exchange shares using our automated telephone account access system.
. Dial 1-800-582-6757
. Select "1" for automated account access
. Select "1" again for account information
. Enter your account number followed by the pound sign (#)
. Enter your Personal Identification Number (PIN)
. Press "2" to process a transaction
. At any time you can press "8" to return to the previous menu or "9" to re-
turn to the main menu.
OR
You may exchange shares using our customer service department.
. Dial 1-800-582-6757
. Select "2" to speak to a shareholder service representative
In Writing
Send a written request signed by the owner to:
Domini Funds
PO Box 60494
King of Prussia, PA 19406-0494
For information on transferring assets from another mutual fund family, please
call 1-800-762-6814 or visit www.domini.com to obtain the necessary forms.
The Domini Money Market Account(SM)
The Domini Money Market Account (DMMA) offered through South
Shore Bank is an FDIC-insured (up to certain limits) interest-
bearing account with direct community development benefits. You
may open and maintain a DMMA at no charge, and take advantage
of free check-writing (with a $500 minimum per check), and easy
transfers by telephone to and from your Domini Social Equity Fund
or Domini Social Bond Fund account. A DMMA investment is subject
to certain terms and conditions. Please call 1-800-762-6814 for
more information. The rate of return for the Domini Money Market
Account will vary. The Domini Social Equity Fund and Domini Social
Bond Fund are not insured by the FDIC.
- A-7 -
<PAGE>
Shareholder Manual
How to Sell Shares
You are free to sell all or part of your Fund shares at any time during New
York Stock Exchange trading hours (generally weekdays from 9AM - 4PM Eastern
Time). The appropriate Fund will send the proceeds from the sale to you or a
third party that you have designated (this may require a Signature Guarantee)
(see page A-11).
Transactions are processed at the next determined share price after Domini re-
ceives your sale request in good order.
You may sell (redeem) your shares in the Funds in the following ways:
Via the Internet
. Visit our website at www.domini.com.
. Click the "Account Access" button.
. Enter your Social Security number and Personal Identification Number
(PIN) in the appropriate fields. (To obtain a PIN, call 1-800-582-6757.)
. The "Account List" will provide you an overview of your account and
transaction processing options.
. Online help is available for each screen.
In order to make an ACH redemption using this service, you will need ACH
(Automatic Clearing House) privileges set up on you account. Please call
1-800-582-6757 for more information.
What is "Good Order"?
Purchase and sale requests must be in "good order" to be accepted by a Fund. To
be in "good order" a request must include:
. The Fund name and your account number.
. The amount of the transaction (in dollars or shares).
. Signatures of all owners exactly as registered on the account (for requests
by mail).
. Signature guarantees, if required (see page A-11).
. Any supporting legal documentation that may be required.
-A-8-
<PAGE>
Shareholder Manual
By Automated Telephone Access
.Dial 1-800-582-6757
.Select "1" for automated account access
.Select "1" again for account information
.Enter your account number followed by the pound sign (#)
.Enter you Personal Identification Number (PIN)
.Press "2" to process a transaction
. At any time you can press "8" to return to the previous menu or "9" to
return to the main menu.
In order to make a redemption using this service, you will need ACH (Automatic
Clearing House) privileges set up on you account. Please call 1-800-582-6757
for more information.
In Writing
Mail written redemption requests to:
Domini Funds
P.O. Box 60494
King of Prussia, PA 19406-0494
For overnight deliveries, please use the following address:
Domini Funds
c/o PFPC, Inc.
211 South Gulph Road
King of Prussia, PA 19406
Letters requesting redemptions must:
. specify the dollar amount or number of shares to be sold, the fund name
and the account number; and
. be signed in exactly the same way the account is registered by all regis-
tered owners or authorized signers.
Your redemption request may require a signature guarantee. Please refer to page
A-11 for details.
-A-9-
<PAGE>
Shareholder Manual
By Telephone
To sell shares by telephone, call the Funds' transfer agent at 1-800-582-6757.
If you wish to receive your redemption by wire and have not already established
wire privileges on your account, you must submit wire redemption requests in
writing along with a Signature Guarantee (see page A-11).
Please consider sending a written request to sell shares if you cannot reach
the Funds' transfer agent by telephone.
Neither the Funds, nor their transfer agent or their distributor will be liable
for any loss, liability, cost or expense for acting on telephone instructions
believed to be genuine. The Funds will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Please contact the
Funds' transfer agent if you wish to suspend telephone redemption privileges.
By Wire
To establish wire redemption privileges on a new account, fill out the appro-
priate area on the application, and attach a voided check.
If you have not already established wire redemption privileges on your account
you must submit wire redemption requests in writing along with a Signature
Guarantee (see page A-12).
. $10 wire transfer fee (deducted directly from sale proceeds)
. $1,000 minimum wire amount
The wire transfer fee and minimum wire amount may be waived for certain insti-
tutions at the manager's discretion.
Systematic Withdrawal Plan
Call our Shareholder Information Line at 1-800-762-6814 for information.
If you own shares of a Fund with an aggregate value of $10,000 or more you may
establish a Systematic Withdrawal Plan under which shares will be sold, at net
asset value, in the amount and for the periods specified (minimum $100.00 per
payment).
There is no additional charge to participate in the Systematic Withdrawal Plan.
-A-10-
<PAGE>
Shareholder Manual
Additional Information on
Selling Shares
Signature Guarantees
You are required to obtain a Signature Guarantee from an Eligible Guarantor for
any:
. Sales (redemptions) exceeding $50,000;
. Written sales requests, regardless of amount, made within 30 days follow-
ing any changes in account registration; and
. Redemptions made to a third party or to an address other than the address
for which the account is registered (unless already established on your
account).
Eligible Guarantors may include:
. banks;
. savings institutions;
. credit unions;
. broker-dealers; and
. other guarantors acceptable to the Funds and their transfer agent.
The Funds and their transfer agent cannot accept guarantees from notaries pub-
lic or organizations that do not provide reimbursement in the case of fraud.
The Funds or their transfer agent may, at their option, request further docu-
mentation prior to accepting requests for redemptions.
Unusual Circumstances
Each Fund reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In the event that a Fund suspends tele-
phone redemption privileges, or if you have difficulty getting through on the
phone, you will still be able to redeem your shares through the other methods
listed above.
Each Fund may stop selling its shares or postpone payment:
. during any period in which the New York Stock Exchange is closed or in
which trading is restricted; or
-A-11-
<PAGE>
Shareholder Manual
. if the Securities and Exchange Commission determines that an emergency ex-
ists.
Large Redemptions
It is important that you call the Funds' transfer agent before you redeem a
large dollar amount. We must consider the interests of all fund shareholders
and so reserve the right to delay delivery of your redemption proceeds -- to
seven days -- the amount will disrupt a Fund's operation or performance.
Each Fund reserves the right to pay part or all of the redemption proceeds in
kind, i.e., in securities, rather than cash. If payment is made in kind, you
may incur brokerage commissions if you elect to sell the securities for cash.
In an effort to protect the Funds from the possible adverse effects of a sub-
stantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the out-
standing shares of a Fund, except upon approval of DSIL.
-A-12-
<PAGE>
Shareholder Manual
How the Price of Your Shares is
Determined
Each Fund determines its share price (or "NAV", net asset value per share) at
the close of regular trading on the New York Stock Exchange, normally 4PM
Eastern Time, on each day the Exchange is open for trading. This calculation is
made by deducting the amount of the Fund's liabilities (debts) from the value
of its assets, and dividing the difference by the number of outstanding shares
of that Fund.
Total Assets - Total Liabilities
Net Asset Value (NAV) = -----------------------------------
Number of Shares Outstanding
To calculate the value of your investment, simply multiply the NAV by the num-
ber of shares of the Fund you own.
How can I find out a Fund's NAV?
By Phone: You may obtain a Fund's NAV 24 hours a day, by calling 1-800-762-6814
from a touch-tone phone and accessing our automated system. You may speak with
a shareholder representative weekdays from 9-5PM, Eastern Time.
Newspaper Listings: This information is also listed in the mutual fund listings
of most major newspapers. The Domini Social Equity Fund is most commonly listed
as: Dom Soc Inv -- Soc Equity. The Dom Social Bond Fund is most commonly listed
as: Domini Soc Inv -- Soc Bond.
Quarterly Statements: You will also receive this information quarterly, in your
account statement.
How do you determine what price I will get when I buy shares?
If your order is received by the Funds' transfer agent by 4:00 PM Eastern Time
in good order, you will receive the NAV determined at the end of that day. See
"What is "Good Order'?" on page A-8 of this prospectus.
Each Fund may stop offering its shares for sale at any time and may reject any
order for the purchase of its shares.
-A-13-
<PAGE>
Shareholder Manual
How do you determine what price I will get when I sell shares?
When you sell shares you will receive the next share price that is calculated
after your sale request is received by the Funds' transfer agent in good order.
See "What is "Good Order'?" on page A-8 of this prospectus. Please note that
the Funds will not accept redemption requests (other than by automated tele-
phone access or via the internet) after 4PM, and will not hold trades for the
following day. The appropriate Fund will normally pay for the shares on the
next day the New York Stock Exchange is open for trading, but in any event
within seven days. A Fund may delay payment if your checks in payment for the
purchase of the shares you wish to sell have not yet cleared (this may take up
to 15 days). Each Fund may pay by check or, if you have completed the appropri-
ate box on the Account Application, by wire transfer.
Access to automated phone access and internet processing and your account may
be limited during periods of peak demand, market volatility, systems upgrades,
maintenance or other reasons.
How is the value of securities held by the Funds determined?
Each Fund typically uses market prices to value securities. However, when a
market price is not available, or when a Fund has reason to believe that the
price does not represent market realities, the Fund may value securities in-
stead by using methods approved by the Fund's Board of Trustees. In such a
case, the Fund's value for a security may be different from quoted market val-
ues.
To the extent that a Fund invests in securities that are traded primarily in
foreign markets, the value of those securities may change at a time when you
are not able to buy or sell Fund shares. This will happen when foreign markets
are open on days when the Fund does not price its shares.
Each short-term obligation (with a remaining maturity of less than sixty days)
is valued at amortized cost, which constitutes fair value as determined by the
Board of Trustees.
-A-14-
<PAGE>
Shareholder Manual
Fund Statements and Reports
Householding:
To keep the Funds' costs as low as possible, and to conserve paper usage, where
practical, we attempt to eliminate duplicate mailings to the same address. When
we find that two or more Fund shareholders have the same last name and address,
rather than send a separate report to each shareholder, we will send just one
report to that address. If your household is receiving separate mailings that
you feel are unnecessary, or if you want us to send separate statements, notify
our Shareholder Services department at 1-800-762-6814.
Confirmation Statements:
Statements confirming the trade date and the amount of your transaction are
sent each time you buy, sell, or exchange shares. Confirmation statements are
not sent for reinvested distributions or for purchases made through automatic
investment plans. Always verify your transactions by reviewing your confirma-
tion statement carefully for accuracy. Please report any discrepancies to our
Shareholder Services department at 1-800-762-6814 promptly.
Fund Financial Reports:
Each Fund's annual report is mailed in September, and each Fund's semi-annual
report is mailed in March. These reports include information about a Fund's
performance, as well as a complete listing of that Fund's holdings. You may
also view the Funds' most recent reports online at www.domini.com.
Tax Statements:
Each year we will send you a statement reporting the previous year's dividend
and capital gains distributions, proceeds from the sale of shares, and distri-
butions from IRAs or other retirement accounts as required by the Internal Rev-
enue Service. These are generally mailed in January.
-A-15-
<PAGE>
Shareholder Manual
Dividends and Capital Gains
Each Fund pays to its shareholders substantially all of its net income in the
form of dividends. Dividends from net income, if any, are typically paid by the
Domini Social Equity Fund semi-annually (usually in June and December) and by
the Domini Social Bond Fund monthly. Any capital gains are distributed annually
in December.
You may elect to receive dividends and capital gains either by check or in ad-
ditional shares. Unless you choose to receive your dividends by check, all div-
idends will be reinvested in additional shares. In either case, these distribu-
tions are taxable to you.
Taxes
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation and the status of your ac-
count under state and local laws.
Taxability of Dividends:
Each year the Funds will mail you a report of your dividends for the prior year
and how they are treated for federal tax purposes. You will normally have to
pay federal income taxes on the dividends you receive from the Funds, whether
you take the dividends in cash or reinvest them in additional shares. Dividends
designated by the Fund as capital gain dividends are taxable as long-term capi-
tal gains. Other dividends are generally taxable as ordinary income. Some divi-
dends paid in January may be taxable to you as if they had been paid the previ-
ous December.
Buying a Dividend:
Dividends paid by a Fund will reduce that Fund's net asset value per share. As
a result, if you buy shares just before a Fund pays a dividend, you may pay the
full price for the shares and then effectively receive a portion of the pur-
chase price back as a dividend on which you may need to pay tax.
-A-16-
<PAGE>
Shareholder Manual
Taxability of Transactions:
Any time you redeem, sell or exchange shares in a non-retirement account, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss on
the transaction. You are responsible for any tax liabilities generated by your
transactions.
IMPORTANT: By law, you must certify that the Social Security or
taxpayer identification number you provide the Fund is correct and that
you are not otherwise subject to 31% backup withholding for failing to
report income to the IRS. The Fund may be required to withhold (and pay
over to the IRS for your credit) 31% of certain distributions and
proceds it pays you if you fail to provide this information or otherwise
violate IRS regulations.
-A-17-
<PAGE>
Shareholder Manual
Rights Reserved by the Funds
Each Fund and its agents reserve the following rights:
. To waive or lower investment minimums;
. To accept initial purchases by telephone or mailgram;
. To refuse any purchase or exchange order;
. To cancel any purchase or exchange order (including, but not limited to,
orders deemed to result in excessive trading, market timing, fraud, or 5%
ownership) upon notice to the shareholder within five business days of the
transaction or prior to the time the shareholder receives confirmation of
the transaction, whichever is sooner;
. To implement policies designed to prevent excessive trading;
. To freeze any account and suspend account services when notice has been
received of a dispute between the registered or beneficial account owners
or there is reason to believe a fraudulent transaction may occur;
. To otherwise modify the conditions of purchase and any services at any
time;
. To act on instructions believed to be genuine; and
. To notify shareholders and redeem accounts (other than retirement and Au-
tomatic Investment Plan Accounts) with a value of less than $500.
These actions will be taken when, in the sole discretion of management, they
are deemed to be in the best interests of a Fund.
-A-18-
<PAGE>
Financial Highlights
Domini Social Equity Fund
The financial highlights table is intended to help you understand the Domini
Social Equity Fund's financial performance for the past 5 years. Certain infor-
mation reflects financial results for a single Fund share.The total returns in
the table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions).This information has been derived from information audited by
KPMG LLP, whose report, along with the Fund's financial statements, is included
in the annual report, which is available upon request.
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.... $37.21 $30.86 $25.43 $16.70 $14.85
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income............... (0.02) 0.02 0.01 0.11 0.16
Net realized and
unrealized gain on
investments.......... 3.06 6.81 5.48 8.85 1.93
------ ------ ------ ------ ------
Total income from
investment operations.. 3.04 6.83 5.49 8.96 2.09
------ ------ ------ ------ ------
Less distributions and
dividends:
Dividends to
shareholders from net
investment income.... -- + (0.03) (0.01) (0.11) (0.16)
Dividends to
shareholders from net
realized gain........ (0.27) (0.45) (0.05) (0.12) (0.08)
------ ------ ------ ------ ------
Total distributions..... (0.27) (0.48) (0.06) (0.23) (0.24)
------ ------ ------ ------ ------
Net asset value, end of
period................. $39.98 $37.21 $30.86 $25.43 $16.70
====== ====== ====== ====== ======
Ratios/supplemental data
Total return........... 8.16% 22.26% 21.58% 54.01% 14.11%
Portfolio turnover*.... 9% 8% 5% 1% 5%
Net assets, end of year
(in 000,000's)........ $1,471 $1,083 $ 502 $ 212 $ 81
Ratio of expenses to
average net assets.... 0.96%(/1/) 0.98%(/1/) 1.17%(/2/) 0.98%(/3/) 0.98%(/3/)
Ratio of net investment
income to average
net assets............ (0.05)%(/1/) 0.06%(/1/) 0.07%(/2/) 0.62%(/3/) 1.01%(/3/)
-------------------------------------------------------------------------------------------
</TABLE>
*The Portfolio turnover rates represent the rate of portfolio activity of the
Domini Social Index Portfolio, the underlying portfolio through which the Do-
mini Social Equity Fund invests.
(1) Reflects a waiver of expenses by Domini Social Investments LLC, the Manager
of the Domini Social Index Portfolio and Sponsor of the Fund. Had the Manager
not waived its fees, the ratios of expenses and net investment income/(loss) to
average net assets would have been 1.01% and (0.10%), respectively, for the
year ended July 31, 2000 and 0.99% and 0.05%, respectively, for the year ended
July 31, 1999.
(2)Reflects a non-recurring payment by the Fund to the Domini Social Equity
Fund's former administrator of $650,000 in connection with the termination of
the expense payment arrangements with the Fund's former administrator and other
such expenses incurred by the Fund in connection with the termination of such
arrangements. Had such non-recurring expenses not been included, expenses and
net investment income to average net assets would have been 0.98% and 0.27%,
respectively.
(3) Had the expense payment agreement not been in place the ratio of expenses
to average net assets for the years ended July 31, 1997 and 1996 would have
been 0.84% and 0.76%, respectively. Had the expense payment agreement not been
in place the ratio of net investment income to average net assets for the years
ended July 31, 1997 and 1996 would have been 1.07% and 0.92%, respectively.
+Amount represents less than $0.005 per share
- B-1 -
<PAGE>
Financial Highlights
Domini Social Bond Fund
The financial highlights table is intended to help you understand the Domini
Social Bond Fund's financial performance for the period June 1, 2000 (Commence-
ment of Operations) through July 31, 2000. Certain information reflects finan-
cial results for a single Fund share. The total return in the table represents
the rate that an investor would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This informa-
tion has been derived from information audited by KPMG LLP, whose report, along
with the Fund's financial statements is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
For the Period June 1,
2000* to July 31, 2000
----------------------
<S> <C>
For a share outstanding for the Period:
Net asset value, beginning of period................... $10.00
------
Income (loss) from investment operations:.............. 0.09
Net investment income................................
Net realized and unrealized gain (loss) on
investments......................................... 0.07
------
Total income (loss) from investment operations......... 0.16
------
Less dividends to shareholders from net investment
income................................................ (0.09)
------
Net asset value, end of period......................... $10.07
======
Total return........................................... 9.51%**
Portfolio Turnover..................................... 28%
Ratios/supplemental data:
Net assets, end of year (000's)...................... $4,111
Ratios of net investment income to average net
assets.............................................. 5.67%(1)**
Ratios of expenses to average net assets............. 0.93%(1)**
</TABLE>
---------
*Commencement of operations
(1) Reflects a waiver of fees and expenses paid by the Manager due to contrac-
tual fee waiver in effect. Had the Manager not waived their fees and reimbursed
expenses, the ratio of net investment income to average net assets and expenses
to average net assets would have been (0.18%) and 6.78%, respectively.
**Annualized
- B-2 -
<PAGE>
Kinder, Lydenberg, Domini & Co., Inc. ("KLD") is the owner of the Domini 400
Social Index/SM/ (the "Domini Social Index"). KLD determines the composition of
the Domini Social Index but is not the manager of the Domini Social Index Port-
folio, the Domini Social Equity Fund, or the Domini Institutional Social Equity
Fund.
Domini 400/SM/, Domini Social Index/SM/, Domini 400 Social Index/SM/ and
Investing for Good/SM/ are service marks of Kinder, Lydenberg, Domini & Co.,
Inc. which are used under license.
Domini Social Investments/SM/, Domini Institutional Social Equity Fund/SM/,
Domini Money Market Account/SM/, The Responsible Index Fund/SM/, The Way You
Invest Matters/SM/, and domini.com/SM/ are registered service marks of Domini
Social In-vestments LLC.
<PAGE>
For Additional Information
Annual and Semi-Annual Reports
Additional information about a Fund's investments is available in that Fund's
annual and semi-annual reports to shareholders. These reports include a discus-
sion of the market conditions and investment strategies that significantly af-
fected the Funds' performance during its last fiscal year, as well as a com-
plete listing of the Funds' holdings. They are available by mail from Domini
Social Investments, or on our website, www.domini.com.
Statement of Additional Information
The Funds' Statement of Additional Information contains more detailed informa-
tion about each Fund and its management and operations.The Statement of Addi-
tional Information is incorporated by reference into this prospectus and is le-
gally part of it. It is available by mail from Domini Social Investments.
Proxy Voting Guidelines & Social Screening Criteria
Published annually, this booklet describes how we will vote our proxies and
contains information about the social screens used to maintain the Domini 400
Social Index.The booklet also contains a description of our shareholder activ-
ism program. It is available by mail from Domini Social Investments, or on our
website, www.domini.com.
Contact Domini
To make inquiries about the Funds or obtain copies of any of the above, free of
charge, call 1-800-762-6814, or write to:
Domini Social Investments
P.O. Box 60494
King of Prussia, PA 19406-0494
Web Site: To learn more about the Funds or about socially responsible invest-
ing, visit us online at www.domini.com.
Securities and Exchange Commission
Information about the Funds (including the Statement of Additional Information)
is available at the Commission's website, www.sec.gov. Copies may be obtained
upon payment of a duplicating fee by electronic request at the following e-mail
address: [email protected], or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.You may also visit the Commission's
Public Reference Room in Washington, D.C. For more information about the Public
Reference Room you may call the Commission at 1-202-942-8090.
File No. 811-5823
<PAGE>
File Nos. 33-29180 and 811-05823
Rule 497(c)
STATEMENT OF ADDITIONAL INFORMATION
December 1, 2000
DOMINI SOCIAL EQUITY FUND
DOMINI SOCIAL BOND FUND
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
1. The Funds........................................................... 2
2. Investment Objectives; Information Concerning Investment
Structure; Investment Policies and Restrictions..................... 2
3. Performance Information............................................. 19
4. Determination of Net Asset Value; Valuation of Portfolio Securities;
Additional Purchase Information..................................... 21
5. Management of the Funds and the Portfolio........................... 23
6. Independent Auditors................................................ 32
7. Taxation............................................................ 32
8. Portfolio Transactions and Brokerage Commissions.................... 34
9. Description of Shares, Voting Rights and Liabilities................ 36
10. Financial Statements................................................ 38
11. Appendix - Rating Information....................................... A-1
</TABLE>
This Statement of Additional Information sets forth information which may
be of interest to investors but which is not necessarily included in the Funds'
Prospectus dated December 1, 2000, as amended from time to time. This Statement
of Additional Information should be read in conjunction with the Prospectus.
This Statement of Additional Information incorporates by reference the financial
statements described on page 38 hereof. These financial statements can be found
in the Funds' Annual Report to Shareholders. An investor may obtain copies of
the Funds' Prospectus and Annual Report without charge by contacting DSIL
Investment Services LLC, the Funds' distributor, at (800) 762-6814.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus and should be read only in conjunction
with such prospectus.
<PAGE>
-2-
1. THE FUNDS
The Domini Social Equity Fund and the Domini Social Bond Fund (collectively
with the Domini Social Equity Fund, the "Funds") are each no-load, diversified
open-end management investment companies. Each Fund is a series of shares of
beneficial interest of Domini Social Investment Trust (the "Trust"), which was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on June 7, 1989 and commenced operations on June 3, 1991. Prior
to January 20, 2000 the name of the Trust was "Domini Social Equity Fund."
Each 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 Funds, as
amended or supplemented from time to time.
Domini Social Investments LLC ("DSIL"), the Domini Social Bond Fund's
investment manager (the "Bond Fund Manager") and administrator and the Domini
Social Equity Fund's sponsor (the "Sponsor"), supervises the overall
administration of the Domini Social Equity Fund and provides investment advisory
and administrative services to the Domini Social Bond Fund. South Shore Bank
("South Shore") is the Domini Social Bond Fund's investment submanager (the
"Bond Fund Submanager"). South Shore manages the investments of the Domini
Social Bond Fund from day to day in accordance with that Fund's investment
objective and policies. The Board of Trustees provides broad supervision over
the affairs of each Fund. Shares of each Fund are continuously sold by DSIL
Investment Services LLC, the Funds' distributor (the "Distributor"). 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 Domini Social Equity 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 Domini Social Equity Fund. DSIL is the Portfolio's investment
manager (the "Portfolio Manager"). Mellon Equity Associates, LLP ("Mellon
Equity") is the Portfolio's investment submanager (the "Portfolio Submanager").
Mellon Equity manages the investments of the Portfolio from day to day in
accordance with the Portfolio's investment objective and policies. Kinder,
Lydenberg, Domini & Co., Inc. ("KLD") determines the composition of the Domini
400 Social Index SM (the "Domini Social Index"). "Domini 400," "Domini Social
Index," "Domini 400 Social Index" and "investing for good" are service marks of
KLD which are licensed to DSIL with the consent of Amy L. Domini (with regard to
the word "Domini"). KLD is the owner of the Domini Social Index but is not the
manager of the Domini Social Equity Fund or the Portfolio. Pursuant to
agreements among KLD, DSIL, Amy L. Domini, and each of the Domini Social Equity
Fund and the Portfolio, the Domini Social Equity Fund and the Portfolio may be
required to discontinue use of one or more of these service marks if (i) DSIL
ceases to be the Portfolio Manager, (ii) Ms. Domini or DSIL withdraws her or its
consent to the use of the word "Domini," or (iii) the license agreement between
KLD and DSIL is terminated.
2. INVESTMENT OBJECTIVES;
INFORMATION CONCERNING INVESTMENT STRUCTURE;
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective of the Domini Social Equity Fund is to provide its
shareholders with long-term total return which matches the performance of the
Domini Social Index.
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The investment objective of the Domini Social Bond Fund is to provide its
shareholders with a high level of current income and total return by investing
in bonds and other debt instruments that meet the Fund's social and
environmental criteria.
The investment objective of either Fund may be changed without the approval
of that Fund's shareholders, but not without written notice thereof to
shareholders thirty days prior to implementing the change. If there is a change
in a Fund's investment objective, shareholders of that Fund should consider
whether the Fund remains an appropriate investment in light of their financial
positions and needs. The investment objective of the Portfolio may also be
changed without the approval of the investors in the Portfolio, but not without
written notice thereof to the investors in the Portfolio (and notice by the
Domini Social Equity 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 Funds or the Portfolio will be achieved.
INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Domini Social Equity 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 Domini Social Equity Fund. In addition to selling a beneficial interest to
the Domini Social Equity 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 Domini Social Equity 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 Domini Social Equity Fund due to
variations in sales commissions and other operating expenses. Investors in the
Domini Social Equity Fund should be aware that differences in sales commissions
and operating expenses may result in differences in returns experienced by
investors in the different funds that invest in the Portfolio. Such differences
in returns are also present in other mutual fund structures. Information
concerning other holders of interests in the Portfolio is available from the
Portfolio Manager at 212-217-1100.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk. This
possibility also exists for traditionally structured funds which have large or
institutional investors. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Subject to exceptions that are not inconsistent with applicable
rules or policies of the Securities and Exchange Commission (the "SEC"),
whenever the Domini Social Equity Fund is requested to vote on matters
pertaining to the Portfolio, the Domini Social Equity Fund will hold a meeting
of shareholders of the Domini Social Equity Fund and will cast all of its votes
in the same proportion as the votes of the Domini Social Equity Fund's
shareholders. Fund shareholders who do not vote will not affect the Domini
Social Equity Fund's votes at the Portfolio meeting. The percentage of the
Domini Social Equity Fund's votes representing Fund shareholders not voting will
be voted by the Trustees of the Domini Social Equity Fund in the same proportion
as the Domini Social Equity Fund shareholders who do, in fact, vote. Certain
changes in the Portfolio's investment objective, policies or restrictions may
require the Domini Social Equity 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 Domini Social Equity 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 Domini Social Equity Fund.
Notwithstanding the above, there are other potential means for
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meeting shareholder redemption requests, such as borrowing.
The Domini Social Equity Fund's Trustees believe that the aggregate per
share expenses of the Domini Social Equity Fund and the Portfolio are less than
or approximately equal to the expenses which the Domini Social Equity Fund would
incur if it retained the services of an investment manager and an investment
submanager and invested directly in the types of securities being held by the
Portfolio.
The Domini Social Equity Fund may withdraw its investment from the
Portfolio at any time if the Board of Trustees of the Domini Social Equity Fund
determines that it is in the best interests of the Domini Social Equity Fund to
do so. Upon any such withdrawal, the Board of Trustees of the Domini Social
Equity Fund would consider what action might be taken, including the investment
of all the assets of the Domini Social Equity Fund in another pooled investment
entity having the same investment objective as the Domini Social Equity Fund or
the retention of an investment adviser to manage the Domini Social Equity Fund's
assets in accordance with the investment policies described above with respect
to the Portfolio. In the event the Trustees of the Domini Social Equity Fund
were unable to find a substitute investment company in which to invest the
Domini Social Equity Fund's assets and were unable to secure directly the
services of an investment manager and investment submanager, the Trustees would
seek to determine the best course of action.
The Domini Social Bond Fund invests directly in securities and does not
invest through a Portfolio.
INVESTMENT POLICIES
The following supplements the information concerning the Funds' and the
Portfolio's investment policies contained in the Prospectus and should only be
read in conjunction therewith. References to the Portfolio include the Domini
Social Equity Fund, and references to the Domini Social Equity Fund include the
Portfolio, unless in either case the context otherwise requires.
Domini Social Equity Fund
INDEX INVESTING: The Portfolio is not managed in the traditional
investment sense, since changes in the composition of its securities holdings
are made in order to track the changes in the composition of securities included
in the Domini Social Index. Moreover, inclusion of a stock in the Domini Social
Index does not imply an opinion by KLD, the Portfolio Manager or the Portfolio
Submanager as to the merits of that specific stock as an investment. Because the
Portfolio seeks to track, rather than exceed, the performance of a particular
index, investors should not expect to achieve the potentially greater results
that could be obtained by a fund that aggressively seeks growth. However, KLD
and the Portfolio Manager believe that enterprises which exhibit a social
awareness, based on the criteria described in the Prospectus, should be better
prepared to meet future societal needs for goods and services and may also be
less likely to incur certain legal liabilities that may be incurred when a
product or service is determined to be harmful, and that such enterprises should
over the longer term be able to provide a positive return to investors.
The Portfolio intends to readjust its securities holdings periodically such
that those holdings will correspond, to the extent reasonably practicable, to
the Domini Social Index both in terms of composition and weighting. The timing
and extent of adjustments in the holdings of the Portfolio, and the extent of
the correlation of the holdings of the Portfolio with the Domini Social Index,
will reflect the Portfolio Submanager's judgment as to the appropriate balance
between the goal of correlating the holdings of the Portfolio with the
composition of the Domini Social Index, and the goals of minimizing transaction
costs and keeping sufficient reserves
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available for anticipated redemptions of interests in the Portfolio. To the
extent practicable, the Portfolio will seek a correlation between the weightings
of securities held by the Portfolio and the weightings of the securities in the
Domini Social Index of 0.95 or better. A figure of 1.0 would indicate a perfect
correlation. To the extent practicable, the Portfolio will attempt to be fully
invested. The ability of the Domini Social Equity 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 Domini
Social Equity Fund and the Portfolio as well as the Domini Social Equity Fund's
and the Portfolio's expenses.
The Board of Trustees will receive and review, at least quarterly, a report
prepared by the Portfolio Submanager comparing the performance of the Domini
Social Equity Fund and the Portfolio with that of the Domini Social Index, and
comparing the composition and weighting of the Portfolio's holdings with those
of the Domini Social Index, and will consider what action, if any, should be
taken in the event of a significant variation between the performance of the
Domini Social Equity Fund or the Portfolio, as the case may be, and that of the
Domini Social Index, or between the composition and weighting of the Portfolio's
securities holdings with those of the stocks comprising the Domini Social Index.
If the correlation between the weightings of securities held by the Portfolio
and the weightings of the stocks in the Domini Social Index or the correlation
between the performance of the Domini Social Equity Fund, before expenses, and
the performance of the Domini Social Index falls below 0.95, the Board of
Trustees will review with the Portfolio Submanager methods for increasing such
correlation, such as through adjustments in securities holdings of the
Portfolio.
In selecting stocks for inclusion in the Domini Social Index, KLD
evaluated, in accordance with the social criteria described in the Prospectus,
each of the companies the stocks of which comprise the Standard and Poor's 500
Composite Stock Price Index (the "S&P 500"). If a company whose stock was
included in the S&P 500 met KLD's social criteria and met KLD's further criteria
for industry diversification, financial solvency, market capitalization, and
minimal portfolio turnover, it was included in the Domini Social Index. As of
July 31, 2000, of the 500 companies whose stocks comprised the S&P 500,
approximately 58% were included in the Domini Social Index. The remaining
stocks comprising the Domini Social Index (i.e., those which are not included in
the S&P 500) were selected based upon KLD's evaluation of the social criteria
described in the Prospectus, as well as upon KLD's criteria for industry
diversification, financial solvency, market capitalization, and minimal
portfolio turnover. A company which is not included in the S&P 500 may be
included in the Domini Social Index primarily in order to afford representation
to an industry sector which would otherwise be under-represented in the Domini
Social Index. Because of the social criteria applied in the selection of stocks
comprising the Domini Social Index, industry sector weighting in the Domini
Social Index may vary materially from the industry weightings in other stock
indices, including the S&P 500, and certain industry sectors will be excluded
altogether. KLD may exclude from the Domini Social Index stocks issued by
companies which are in bankruptcy or whose bankruptcy KLD believes may be
imminent. KLD may also remove from the Domini Social Index stocks issued by
companies which no longer meet its investment criteria.
The weightings of stocks in the Domini Social Index are based on each
stock's relative total market capitalization (i.e., market price per share times
the number of shares outstanding). Because of this weighting, as of July 31,
2000 approximately 37% and 55% of the Domini Social Index was comprised of the
10 largest and 20 largest companies, respectively, in the Domini Social Index.
The component stocks of the S&P 500 are chosen by Standard & Poor's Ratings
Group ("S&P") solely with the aim of achieving a distribution by broad industry
groupings that approximates the distribution of these groupings in the New York
Stock Exchange ("NYSE") common stock population, taken as the assumed model for
the composition of the total market. Construction of the S&P 500 by S&P
proceeds from industry groups to the whole.
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Since some industries are characterized by companies of relatively small stock
capitalization, the S&P 500 does not comprise the 500 largest companies listed
on the NYSE. Not all stocks included in the S&P 500 are listed on the NYSE.
However, the total market value of the S&P 500 as of July 31, 2000 represented
approximately 68% of the aggregate market value of common stocks traded on the
NYSE. Inclusion of a stock in the S&P 500 in no way implies an opinion by S&P as
to its attractiveness as an investment, nor is S&P a sponsor of or otherwise
affiliated with the Domini Social Equity Fund or the Portfolio.
CONCENTRATION: It is a fundamental policy of the Portfolio and the Domini
Social Equity Fund that neither the Portfolio nor the Domini Social Equity Fund
may invest more than 25% of the total assets of the Portfolio or the Domini
Social Equity Fund, respectively, in any one industry, although the Domini
Social Equity Fund will invest all of its assets in the Portfolio, and the
Portfolio may and would invest more than 25% of its assets in an industry if
stocks in that industry were to comprise more than 25% of the Domini Social
Index. Based on the current composition of the Domini Social Index, this is
considered highly unlikely. If the Portfolio were to concentrate its
investments in a single industry, the Portfolio and the Domini Social Equity
Fund would be more susceptible to any single economic, political or regulatory
occurrence than would be another investment company which was not so
concentrated.
Domini Social Bond Fund
REPURCHASE AGREEMENTS: The Domini Social Bond Fund may invest in repurchase
agreements that are fully collateralized by securities in which the Domini
Social Bond Fund may otherwise invest. A repurchase agreement involves the
purchase of a security that must later be sold back to the seller (which is
usually a member bank of the U.S. Federal Reserve System or a member firm of the
New York Stock Exchange (or a subsidiary thereof)) at an agreed time (usually
not more than seven days from the date of purchase) and price. The resale price
reflects the purchase price plus an agreed-upon market rate of interest. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase
agreements may be considered to be loans by the buyer. If the seller defaults,
the underlying security constitutes collateral for the seller's obligation to
pay although the Domini Social Bond Fund may incur certain costs in liquidating
this collateral and in certain cases may not be permitted to liquidate this
collateral. In the event of the bankruptcy of the other party to a repurchase
agreement, the Domini Social Bond Fund could experience delays in recovering
either the securities or cash. To the extent that, in the meantime, the value of
the securities purchased has decreased, the Domini Social Bond Fund could
experience a loss.
REVERSE REPURCHASE AGREEMENTS: The Domini Social Bond Fund may enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Domini
Social Bond Fund sells its securities to banks, brokers or dealers, who agree to
sell the securities back to the Domini Social Bond Fund at an agreed time and
price. The Domini Social Bond Fund will segregate securities of a dollar amount
equal in value to the securities subject to the repurchase agreement. The Domini
Social Bond Fund cannot use these segregated assets to meet its current
obligations. Reverse repurchase agreements are considered to be a form of
borrowing. In the event of the bankruptcy of the other party to a reverse
repurchase agreement, the Domini Social Bond Fund could experience delays in
recovering the securities sold. To the extent that, in the meantime, the value
of the securities sold has changed, the Domini Social Bond Fund could experience
a loss.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS: The Domini Social
Bond Fund may invest its assets in forward commitments or commitments to
purchase securities on a when-issued basis. Forward commitments or purchases of
securities on a when-issued basis are transactions where the price of the
securities is fixed at the time of the commitment and delivery and payment
normally take place beyond conventional settlement time after the date of
commitment to purchase. The Domini Social Bond Fund will make
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commitments to purchase obligations on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date. The when-issued securities are subject to market fluctuation,
and no interest accrues on the security to the purchaser during this period. The
payment obligation and the interest rate that will be received on the securities
are each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case,
there could be an unrealized loss at the time of delivery.
While awaiting delivery of securities purchased on a when-issued basis, the
Domini Social Bond Fund will establish a segregated account consisting of cash
and liquid securities equal to the amount of the commitments to purchase
securities on such basis. If the value of these assets declines, the Domini
Social Bond Fund will place additional assets of the type described in the
preceding sentence in the account on a daily basis so that the value of the
assets in the account is equal to the amount of such commitments.
PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS: The Domini Social Bond Fund
may invest up to 15% of its net assets in illiquid securities, or securities for
which there is no readily available market, including privately placed
restricted securities. The absence of a trading market can make it difficult to
establish a market value for illiquid investments. It may be difficult or
impossible for the Domini Social Bond Fund to sell illiquid securities at the
desired time and at an acceptable price.
BANK OBLIGATIONS: The Domini Social Bond Fund may invest in bank
obligations, including:
. certificates of deposit, which are negotiable interest-bearing
instruments with a specific maturity; certificates of deposit are issued
by banks and savings and loan institutions in exchange for the deposit
of funds and normally can be traded in the secondary market prior to
maturity;
. time deposits (including Eurodollar time deposits), which are non-
negotiable receipts issued by a bank in exchange for the deposit of
funds; time deposits earn a specified rate of interest over a definite
period of time, but cannot be traded in the secondary market; time
deposits with a withdrawal penalty are considered to be illiquid
securities;
. bankers' acceptances, which are bills of exchange or time drafts drawn
on and accepted by a commercial bank; they are used by corporations to
finance the shipment and storage of goods and to furnish dollar
exchange; maturities are generally six months or less; and
. other short-term debt obligations.
The Domini Social Bond Fund's investments in bank obligations are
particularly susceptible to adverse events in the banking industry. Banks are
highly regulated. Decisions by regulators may limit the loans banks make and
interest rates and fees they charge, and may reduce bank profitability. Banks
also depend on being able to obtain funds at reasonable costs to finance their
lending operations. This makes them sensitive to changes in money market and
general economic conditions. When a bank's borrowers get in financial trouble,
their failure to repay the bank will also negatively affect the bank's financial
situation.
Bank obligations may be issued by domestic banks, foreign subsidiaries or
foreign branches of domestic banks, domestic and foreign branches of foreign
banks, domestic savings and loan associations and other banking institutions.
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COMMERCIAL PAPER: The Domini Social Bond Fund may invest in commercial
paper, which is unsecured debt of corporations usually maturing in 270 days or
less from its date of issuance.
VARIABLE RATE OBLIGATIONS: Unlike most bonds, which pay a fixed rate of
interest, variable rate debt obligations pay interest at rates that change based
on market interest rates. Interest rates on variable rate obligations may move
in the same or in the opposite direction as market interest rates and may
increase or decrease based on a multiple of the change in a market interest
rate. These obligations tend to be highly sensitive to interest rate movements.
MORTGAGE-BACKED SECURITIES: The Domini Social Bond Fund may invest in
mortgage-backed securities, which are securities representing interests in pools
of mortgage loans. Interests in pools of mortgage-related securities differ
from other forms of debt instruments which normally provide for periodic payment
of interest in fixed amounts with principal payments at maturity or specified
call dates. Instead, these securities provide a monthly payment which consists
of both interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by prepayments of principal
resulting from the sale, refinancing or foreclosure of the underlying property,
net of fees or costs which may be incurred. The market value and interest yield
of these instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages.
The principal governmental issuers or guarantors of mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Fannie Mae
(formerly the Federal National Mortgage Association) ("Fannie Mae"), and Freddie
Mac (formerly the Federal Home Loan Mortgage Corporation) ("Freddie Mac").
Obligations of GNMA are backed by the full faith and credit of the U.S.
government while obligations of Fannie Mae and Freddie Mac are supported by the
respective agency only.
A portion of the Domini Social Bond Fund's assets may be invested in
collateralized mortgage obligations ("CMOs"), which are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by certificates issued by the GNMA, Fannie
Mae or Freddie Mac but also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral collectively hereinafter
referred to as "Mortgage Assets"). The Domini Social Bond Fund may also invest
a portion of its assets in multi-class pass-through securities which are
interests in a trust composed of Mortgage Assets. CMOs (which include multi-
class pass-through securities) may be issued by agencies, authorities or
instrumentalities of the U.S. government or by private originators of or
investors in mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multi-class pass-through
securities. In a CMO, a series of bonds or certificates is usually issued in
multiple classes with different maturities. The class of CMO, often referred to
as a "tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates, resulting in a loss of all
or part of the premium if any has been paid. Interest is paid or accrues on all
classes of the CMOs on a monthly, quarterly or semiannual basis. The principal
of and interest on the Mortgage Assets may be allocated among the several
classes of a series of a CMO in various ways. In a common structure, payments
of principal, including any principal prepayments, on the Mortgage Assets are
applied to the classes of the series of a CMO in the order of their respective
stated maturities or final distribution dates, so that no payment of
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principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
The Domini Social Bond Fund also may invest in real estate mortgage
investment conduits ("REMICs"). REMICs, which were authorized under the Tax
Reform Act of 1986, are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities.
Even if the U.S. government or one of its agencies guarantees principal and
interest payments of a mortgage-backed security, the market price of a mortgage-
backed security is not insured and may be subject to market volatility. When
interest rates decline, mortgage-backed securities experience higher rates of
prepayment because the underlying mortgages are refinanced to take advantage of
the lower rates. The prices of mortgage-backed securities may not increase as
much as prices of other debt obligations when interest rates decline, and
mortgage-backed securities may not be an effective means of locking in a
particular interest rate. In addition, any premium paid for a mortgage-backed
security may be lost when it is prepaid. When interest rates go up, mortgage-
backed securities experience lower rates of prepayment. This has the effect of
lengthening the expected maturity of a mortgage-backed security. This
particular risk, referred to as "maturity extension risk," may effectively
convert a security that was considered short or intermediate-term at the time of
purchase into a long-term security. Long-term securities generally fluctuate
more widely in response to changes in interest rates than short or intermediate-
term securities. Thus, rising interest rates would not only likely decrease the
value of the Domini Social Bond Fund's fixed income securities, but would also
increase the inherent volatility of the Fund by effectively converting short-
term debt instruments into long-term debt instruments. As a result, prices of
mortgage-backed securities may decrease more than prices of other debt
obligations when interest rates go up.
CORPORATE ASSET-BACKED SECURITIES: The Domini Social Bond Fund may invest
in corporate asset-backed securities. These securities, issued by trusts and
special purpose corporations, are backed by a pool of assets, such as credit
card and automobile loan receivables, representing the obligations of a number
of different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that
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the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures payment
through insurance policies or letters of credit obtained by the issuer or
sponsor from third parties. The degree of credit support provided for each issue
is generally based on historical information regarding the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
MORTGAGE "DOLLAR ROLLS": The Domini Social Bond Fund may enter into
mortgage dollar roll transactions. In these transactions, the Domini Social Bond
Fund sells mortgage-backed securities for delivery in the future and at the same
time contracts to repurchase substantially similar securities on a specified
future date. During the roll period, the Domini Social Bond Fund does not
receive principal and interest paid on the mortgage-backed securities. The
Domini Social Bond Fund is compensated for the lost principal and interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Domini Social Bond Fund may
also be compensated by receipt of a commitment fee. However, the Domini Social
Bond Fund takes the risk that the market price of the mortgage-backed security
may drop below the future purchase price. When the Domini Social Bond Fund uses
a mortgage dollar roll, it is also subject to the risk that the other party to
the agreement will not be able to perform. The Domini Social Bond Fund will
invest only in covered rolls, which are specific types of dollar rolls for which
the Domini Social Bond Fund establishes a segregated account with liquid high
grade debt instruments equal in value to the securities subject to repurchase by
the Fund.
SECURITIES RATED Baa or BBB: The Domini Social Bond Fund may purchase
securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Rating Service ("S&P") and securities of comparable quality,
which may have poor protection of payment of principal and interest. These
securities are often considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness than
securities assigned a higher quality rating. The market prices of these
securities may go up and down more than higher-rated securities and may go down
significantly in periods of general economic difficulty which may follow periods
of rising interest rates.
CALL FEATURES: Certain securities held by the Domini Social Bond Fund may
permit the issuer at its option to "call," or redeem, its securities. If an
issuer were to redeem securities held by the Domini Social Bond Fund during a
time of declining interest rates, the Domini Social Bond Fund may have to
reinvest that money at the lower prevailing interest rates.
ZERO-COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: The Domini Social
Bond Fund may invest in debt obligations called zero coupon bonds, deferred
interest bonds and payment-in-kind (PIK) bonds. Zero coupon bonds do not pay any
interest. Instead, zero coupon bonds are issued at a significant discount from
the value the Domini Social Bond Fund expects to receive upon maturity. Deferred
interest bonds are similar to zero coupon bonds except that they begin to pay
interest after some delay. Although PIK bonds may pay interest in cash, they
also are similar to zero coupon bonds or deferred interest bonds because the
issuer has the option to make interest payments in additional debt obligations
rather than cash. Because these bonds may not pay interest at regular intervals,
changes in interest rates affect the value of zero coupon, deferred interest and
PIK bonds more than debt obligations that pay regular interest, and the credit
risk of these bonds tends to be greater than the credit risk of debt obligations
which pay regular interest. Even though zero coupon, deferred interest and PIK
bonds may not make payments of interest until maturity or until after a delay,
the Domini Social Bond Fund is required to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
Thus, it may be necessary at times
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for the Domini Social Bond Fund to sell investments in order to make these
distribution payments.
STRIPPED SECURITIES: The Domini Social Bond Fund may invest in stripped
securities, such as interest-only strips (called IOs), which may receive only
interest payments and other types of stripped securities, such as principal-only
strips (called POs), that may receive only principal payments. Stripped
securities are more sensitive to changes in interest rates than are certain
other debt instruments. The value of IOs generally will decrease as interest
rates increase. As interest rates decrease, the Domini Social Bond Fund's
investments in IOs may be adversely affected by a rapid rate of principal
payments (including prepayments) on the underlying securities. A rapid rate of
principal payments (including prepayments) may cause an IO to mature before the
Domini Social Bond Fund recovers its initial investment in the security.
Conversely, if interest rates increase, the Domini Social Bond Fund's
investments in POs may be adversely affected by a lower than expected rate of
principal payments (including prepayments) on the underlying securities. A lower
rate of principal payments (including prepayments) effectively extends the
maturity of a PO.
FUTURES CONTRACTS: Subject to applicable laws, the Domini Social Bond Fund
may enter into bond and interest rate futures contracts. The Domini Social Bond
Fund intends to use futures contracts only for bona fide hedging purposes.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specified security at a specified
future time and at a specified price. A "sale" of a futures contract entails a
contractual obligation to deliver the underlying securities called for by the
contract, and a "purchase" of a futures contract entails a contractual
obligation to acquire such securities, in each case in accordance with the terms
of the contract. Futures contracts must be executed through a futures commission
merchant, or brokerage firm, which is a member of an appropriate exchange
designated as a "contract market" by the Commodity Futures Trading Commission
("CFTC").
When the Domini Social Bond Fund purchases or sells a futures contract, the
Fund must allocate certain of its assets as an initial deposit on the contract.
The initial deposit may be as low as approximately five percent or less of the
value of the contract. The futures contract is marked to market daily thereafter
and the Domini Social Bond Fund may be required to pay or entitled to receive
additional "variation margin", based on decrease or increase in the value of the
futures contract.
Futures contracts call for the actual delivery or acquisition of
securities, or in the case of futures contracts based on indices, the making or
acceptance of a cash settlement at a specified future time; however, the
contractual obligation is usually fulfilled before the date specified in the
contract by closing out the futures contract position through the purchase or
sale, on a commodities exchange, of an identical futures contract. Positions in
futures contracts may be closed out only if a liquid secondary market for such
contract is available, and there can be no assurance that such a liquid
secondary market will exist for any particular futures contract.
The Domini Social Bond Fund's ability to hedge effectively through
transactions in futures contracts depends on, among other factors, the Bond Fund
Manager's or Submanager's judgment as to the expected price movements in the
securities underlying the futures contracts. In addition, it is possible in some
circumstances that the Domini Social Bond Fund would have to sell securities
from its portfolio to meet "variation margin" requirements at a time when it may
be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS: The Domini Social Bond Fund may purchase and
write options to buy or sell futures contracts in which the Fund may invest.
These investment strategies may be used for hedging purposes.
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An option on a futures contract provides the holder with the right to enter
into a "long" position in the underlying futures contract, in the case of a call
option, or a "short" position in the underlying futures contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's
profits or loss on the transaction.
Options on futures contracts that are written or purchased by the Domini
Social Bond Fund on U.S. exchanges are traded on the same contract market as the
underlying futures contract, and, like futures contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange
clearinghouse. In addition, options on futures contracts may be traded on
foreign exchanges.
The Domini Social Bond Fund may cover the writing of call options on futures
contracts (a) through purchases of the underlying futures contract, or (b)
through the holding of a call on the same futures contract and in the same
principal amount as the call written where the exercise price of the call held
(i) is equal to or less than the exercise price of the call written or (ii) is
greater than the exercise price of the call written if the difference is
maintained by the Domini Social Bond Fund in cash or liquid securities in a
segregated account. The Domini Social Bond Fund may cover the writing of put
options on futures contracts (a) through sales of the underlying futures
contract, (b) through segregation of cash or liquid securities in an amount
equal to the value of the security underlying the futures contract, (c) through
the holding of a put on the same futures contract and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written or where the exercise
price of the put held is less than the exercise price of the put written if the
difference is maintained by the Domini Social Bond Fund in cash or liquid
securities in a segregated account. Put and call options on futures contracts
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which the option is traded and applicable laws and
regulations. Upon the exercise of a call option on a futures contract written by
the Domini Social Bond Fund, the Fund will be required to sell the underlying
futures contract which, if the Domini Social Bond Fund has covered its
obligation through the purchase of such contract, will serve to liquidate its
futures position. Similarly, where a put option on a futures contract written by
the Domini Social Bond Fund is exercised, the Fund will be required to purchase
the underlying futures contract which, if the Fund has covered its obligation
through the sale of such contract, will close out its futures position.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities deliverable on exercise of the
futures contract. The Domini Social Bond Fund will receive an option premium
when it writes the call, and, if the price of the futures contract at expiration
of the option is below the option exercise price, the Domini Social Bond Fund
will retain the full amount of this option premium, which provides a partial
hedge
<PAGE>
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against any decline that may have occurred in the Domini Social Bond Fund's
security holdings. Similarly, the writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities
deliverable upon exercise of the futures contract. If the Domini Social Bond
Fund writes an option on a futures contract and that option is exercised, the
Domini Social Bond Fund may incur a loss, which loss will be reduced by the
amount of the option premium received, less related transaction costs. The
Domini Social Bond Fund's ability to hedge effectively through transactions in
options on futures contracts depends on, among other factors, the degree of
correlation between changes in the value of securities held by the Domini Social
Bond Fund and changes in the value of its futures positions. This correlation
cannot be expected to be exact, and the Domini Social Bond Fund bears a risk
that the value of the futures contract being hedged will not move in the same
amount, or even in the same direction, as the hedging instrument. Thus it may be
possible for the Domini Social Bond Fund to incur a loss on both the hedging
instrument and the futures contract being hedged.
The Domini Social Bond Fund may purchase options on futures contracts for
hedging purposes instead of purchasing or selling the underlying futures
contracts. For example, where a decrease in the value of portfolio securities is
anticipated as a result of a projected market-wide decline or changes in
interest or exchange rates, the Domini Social Bond Fund could, in lieu of
selling futures contracts, purchase put options thereon. In the event that such
decrease occurs, it may be offset, in whole or part, by a profit on the option.
Conversely, where it is projected that the value of securities to be acquired by
the Domini Social Bond Fund will increase prior to acquisition, due to a market
advance or changes in interest or exchange rates, the Domini Social Bond Fund
could purchase call options on futures contracts, rather than purchasing the
underlying futures contracts.
Futures contracts and options on futures contracts may be entered into on
U.S. exchanges regulated by the CFTC and on foreign exchanges. The securities
underlying options and futures contracts traded by the Domini Social Bond Fund
may include domestic as well as foreign securities. Investors should recognize
that transactions involving foreign securities or foreign currencies, and
transactions entered into in foreign countries, may involve considerations and
risks not typically associated with investing in U.S. markets.
SWAPS AND RELATED INVESTMENTS: The Domini Social Bond Fund may use swaps,
caps, collars and floors to hedge against a change in interest rates or other
rates which could affect the value of securities in its portfolio. Interest rate
swaps involve the exchange by the Domini Social Bond Fund with another party of
their respective commitments to pay or receive interest. An equity swap is an
agreement to exchange cash flows on a principal amount based on changes in the
values of the reference index. In a typical cap or floor agreement, one party
agrees to make payments only under specified circumstances, usually in return
for payment of a fee by the counterparty. For example, the purchase of an
interest rate cap entitles the buyer, to the extent that a specified index
exceeds a predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the counterparty selling such interest
rate cap. The sale of an interest rate floor obligates the seller to make
payments to the extent that a specified interest rate falls below an agreed-upon
level. A collar arrangement combines elements of buying a cap and selling a
floor.
The Domini Social Bond Fund will maintain liquid assets with its custodian
or otherwise cover its current obligations under swap transactions in accordance
with current regulations and policies applicable to the Fund.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, equity or other factor that
determines the amount of payments to be made under the arrangement. If the Bond
Fund Manager or Submanager is incorrect in its forecasts of such factors, the
investment performance of the Fund would be less
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than what it would have been if these investment techniques had not been used.
If a swap agreement calls for payments by the Domini Social Bond Fund, the Fund
must be prepared to make such payments when due. The Domini Social Bond Fund
will not enter into any swap unless the Bond Fund Manager or Submanager deems
the counterparty to be creditworthy. If the counterparty's creditworthiness
declined, the value of the swap agreement would be likely to decline,
potentially resulting in losses. If the counterparty defaults, the Domini Social
Bond Fund's risk of loss consists of the net amount of payments that the Fund is
contractually entitled to receive. The Domini Social Bond Fund anticipates that
it will be able to eliminate or reduce its exposure under these arrangements by
assignment or other disposition or by entering into an offsetting agreement with
the same or another counterparty.
Swap agreements are subject to the Domini Social Bond Fund's overall limit
that not more than 15% of its net assets may be invested in illiquid securities.
STRUCTURED NOTES AND INDEXED SECURITIES: The Domini Social Bond Fund may
invest in structured notes and indexed securities. A structured note is a debt
security with its interest rate or principal determined by reference to changes
in the value of specific currencies, interest rates, commodities, indices or
other financial indicators or the relative change in two or more financial
indicators. Indexed securities include structured notes as well as securities
other than debt instruments, with their interest rates or principal determined
by one or more financial indicators.
Structured notes and indexed securities may be more volatile, less liquid
and more difficult to accurately price than less complex fixed income
investments. These securities generally expose the Domini Social Bond Fund to
credit risks equal to that of the underlying financial indicators. The interest
rate or the principal amount payable upon maturity of a structured note or
indexed security may go up or down depending on changes in the underlying
indicators. Structured notes and indexed securities often are less liquid than
other debt instruments because they are typically sold in private placement
transactions with no active trading market.
Domini Social Equity Fund and Domini Social Bond Fund
FOREIGN ISSUERS: Some of the stocks included in the Domini Social Index may
be stocks of foreign issuers (provided that the stocks are traded in the United
States in the form of American Depositary Receipts or similar instruments the
market for which is denominated in United States dollars). The Domini Social
Bond Fund also may invest in obligations of foreign issuers. Investments in
foreign securities involve risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are subject. With
respect to securities and obligations of foreign issuers, the Domini Social
Equity Fund and the Domini Social Bond Fund do not purchase securities which the
Domini Social Equity Fund or the Domini Social Bond Fund, as the case may be,
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 Domini Social Equity Fund's or the
Domini Social Bond Fund's investments. In the event unforeseen exchange controls
or foreign withholding taxes are imposed with respect to any of the Domini
Social Equity Fund's or the Domini Social Bond Fund's investments, the effect
may be to reduce the income received by the Domini Social Equity Fund or the
Domini Social Bond Fund on such investments.
RULE 144A SECURITIES: The Domini Social Equity Fund and the Domini Social
Bond Fund each may invest in securities which may be resold pursuant to Rule
144A under the Securities Act of 1933, as amended (the "1933 Act"). The Domini
Social Equity Fund has no current intention to invest in these securities.
<PAGE>
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LOANS OF SECURITIES: Consistent with applicable regulatory policies,
including those of the Board of Governors of the Federal Reserve System and the
SEC, the Domini Social Equity Fund and the Domini Social Bond Fund each may make
loans of its securities to member banks of the Federal Reserve System and to
broker-dealers. The Domini Social Equity Fund and the Domini Social Bond Fund
may lend their respective securities to the broker-dealers and financial
institutions, provided that (1) the loan is secured continuously by collateral,
consisting of securities, cash or cash equivalents, which is marked to the
market daily to ensure that each loan is fully collateralized at all times; (2)
the Domini Social Equity Fund or the Domini Social Bond Fund, as the case may
be, may at any time call the loan and obtain the return of the securities loaned
within three business days; (3) the Domini Social Equity Fund or the Domini
Social Bond Fund, as the case may be, 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 Domini Social
Equity Fund or the Domini Social Bond Fund, as applicable.
The Domini Social Equity Fund and the Domini Social Bond Fund each 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 Domini Social Equity Fund and
the Domini Social Bond Fund 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 Domini Social Equity Fund, the Domini Social
Bond Fund, the Portfolio or Bond Fund Manager or the Portfolio or Bond Fund
Submanager.
OPTION CONTRACTS: Although it has no current intention to do so, the Domini
Social Equity Fund may in the future enter into certain transactions in stock
options. The Domini Social Bond Fund may enter into certain transactions in
options involving securities in which that Fund may otherwise invest. Each Fund
may enter into such options transactions for the purpose of hedging against
possible increases in the value of securities which are expected to be purchased
by the respective Fund or possible declines in the value of securities which are
expected to be sold by that Fund. Generally, the Domini Social Equity Fund 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 a security provides the holder with the right,
but not the obligation, to purchase the underlying security, in the case of a
call option, or to sell the underlying security, in the case of a put option,
for a fixed price at any time up to a stated expiration date. The holder is
required to pay a non-refundable premium, which represents the purchase price of
the option. The holder of an option can lose the entire amount of the premium,
plus related transaction costs, but not more. Upon exercise of the option, the
holder is required to pay the purchase price of the underlying security in the
case of a call option, or deliver the security in return for the purchase price
in the case of a put option.
Prior to exercise or expiration, an option position may be terminated only
by entering into a closing purchase or sale transaction. This requires a
secondary market on the exchange on which the position was originally
established. While a Fund 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 a
Fund, and that Fund 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
<PAGE>
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option positions also could have an adverse impact on a Fund'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 Portfolio Manager
and the Bond Fund Manager do not believe that these trading and position limits
would have an adverse impact on the possible use of hedging strategies by the
Domini Social Equity Fund or the Domini Social Bond Fund, as applicable.
SHORT SALES: Although they have no current intention to do so, the Domini
Social Equity Fund and the Domini Social Bond Fund may make short sales of
securities or maintain a short position, if at all times when a short position
is open the Domini Social Equity Fund or the Domini Social Bond Fund, as
applicable, owns an equal amount of such securities, or securities convertible
into such securities.
CASH RESERVES: The Domini Social Equity Fund and the Domini Social Bond
Fund each may invest cash reserves in short-term debt securities (i.e.,
securities having a remaining maturity of one year or less) issued by agencies
or instrumentalities of the United States Government, bankers' acceptances,
commercial paper, certificates of deposit, bank deposits or repurchase
agreements, provided that the issuer satisfies certain social criteria. The
Domini Social Equity Fund and the Domini Social Bond Fund do not currently
intend to invest in direct obligations of the United States Government. Short-
term debt instruments purchased by the Domini Social Equity Fund and the Domini
Social Bond Fund will be rated at least Prime-1 by Moody's or A-1+ or A-1 by S&P
or, if not rated, determined to be of comparable quality by the Portfolio's or
Domini Social Bond Fund's, as applicable, Board of Trustees. The Domini Social
Equity Fund's policy is to hold its assets in such securities pending
readjustment of its portfolio holdings of stocks comprising the Domini Social
Index and in order to meet anticipated redemption requests. Such investments are
not intended to be used for defensive purposes in periods of anticipated market
decline.
-------------------------
The approval of the Domini Social Equity Fund and of the other investors in
the Portfolio and the approval of shareholders of the Domini Social Bond Fund
are not required to change the investment objective or any of the investment
policies discussed above (other than the policy regarding concentration by the
Domini Social Equity Fund and the Portfolio), including those concerning
security transactions.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS: Each of the Funds and the Portfolio have adopted
the following policies which may not be changed without approval by holders of a
"majority of the outstanding voting securities" of the applicable 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 a Fund or the Portfolio, respectively, present at a
meeting, if the holders of more than 50% of the outstanding "voting securities"
of that Fund or the Portfolio, respectively, are present or represented by
proxy, or (ii) more than 50% of the outstanding "voting securities" of a Fund or
the Portfolio, respectively. The term "voting securities" as used in this
paragraph has the same meaning as in the 1940 Act.
Except as described below, whenever the Domini Social Equity Fund is
requested to vote on a change in the investment restrictions of the Portfolio,
the Domini Social Equity 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
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Domini Social Equity 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 Domini Social Equity Fund, would not require the vote of the
shareholders of the Domini Social Equity Fund, or (b) any proposal with respect
to the Portfolio that is identical in all material respects to a proposal that
has previously been approved by shareholders of the Domini Social Equity Fund.
Any proposal submitted to holders in the Portfolio, and that is not required to
be voted on by shareholders of the Domini Social Equity Fund, would nevertheless
be voted on by the Trustees of the Domini Social Equity Fund.
Neither the Domini Social Equity Fund nor the Portfolio may:
(1) borrow money, except that as a temporary measure for extraordinary or
emergency purposes either the Domini Social Equity Fund or the Portfolio may
borrow an amount not to exceed 1/3 of the current value of the net assets of the
Domini Social Equity Fund or the Portfolio, respectively, including the amount
borrowed (moreover, neither the Domini Social Equity Fund nor the Portfolio may
purchase any securities at any time at which borrowings exceed 5% of the total
assets of the Domini Social Equity Fund or the Portfolio, respectively, taken in
each case at market value) (it is intended that the Portfolio would borrow money
only from banks and only to accommodate requests for the withdrawal of all or a
portion of a beneficial interest in the Portfolio while effecting an orderly
liquidation of securities);
(2) purchase any security or evidence of interest therein on margin, except
that either the Domini Social Equity 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 Domini Social Equity 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 Domini
Social Equity Fund may invest all or any portion of its assets in the Portfolio
and except insofar as either the Domini Social Equity 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 Domini Social Equity Fund or the Portfolio and
provided that any such loans not exceed 30% of its total assets (taken in each
case at market value), or (b) through the use of repurchase agreements or the
purchase of short-term obligations and provided that not more than 10% of its
net assets will be invested in repurchase agreements maturing in more than seven
days; for additional related restrictions, see paragraph (6) immediately
following;
(6) invest in securities which are subject to legal or contractual
restrictions on resale (other than repurchase agreements maturing in not more
than seven days and other than securities which may be resold pursuant to Rule
144A under the 1933 Act if the Board of Trustees determines that a liquid market
exists for such securities) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days), except that the Domini Social
Equity 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 Domini Social
<PAGE>
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Equity 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 Domini Social
Equity 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 Domini Social Equity 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 Domini Social Equity Fund's or the
Portfolio's, as applicable, net assets (taken in each case at market value) is
held as collateral for such sales at any one time;
(9) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating paragraph (1) above;
(10) as to 75% of its assets, purchase securities of any issuer if such
purchase at the time thereof would cause more than 5% of the Portfolio's or the
Domini Social Equity 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 Domini Social Equity 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 Domini Social Equity Fund, as
applicable, will invest more than 25% of its assets in that industry, and except
that the Domini Social Equity Fund may invest all of its assets in the
Portfolio.
In addition, as a matter of fundamental policy, the Domini Social Equity
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
outstanding voting securities of the Domini Social Equity Fund.
The Domini Social Bond Fund may not:
(1) borrow money if such borrowing is specifically prohibited by the 1940
Act or the rules and regulations promulgated thereunder;
(2) make loans to other persons if such loans are specifically prohibited
by the 1940 Act or the rules and regulations promulgated thereunder;
(3) purchase securities of any issuer if such purchase at the time thereof
would cause with respect to 75% of the total assets of the Domini Social Bond
Fund more than 10% of the voting securities of such issuer to be held by the
Domini Social Bond Fund; provided that, for purposes of this restriction, the
issuer of an option or futures contract shall not be deemed to be the issuer of
the security or securities underlying such contract; and provided further that
the Domini Social Bond Fund may invest all or any portion of its assets in one
or more investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such Act;
<PAGE>
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(4) purchase securities of any issuer if such purchase at the time thereof
would cause as to 75% of the Domini Social Bond Fund's total assets more than 5%
of the Domini Social Bond Fund's 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, any state or political subdivision thereof, or
any political subdivision of any such state, or any agency or instrumentality of
the United States or of any state or of any political subdivision of any state);
provided that, for purposes of this restriction, the issuer of an option or
futures contract shall not be deemed to be the issuer of the security or
securities underlying such contract; and provided further that the Domini Social
Bond Fund may invest all or any portion of its assets in one or more investment
companies, to the extent not prohibited by the 1940 Act, the rules and
regulations thereunder, and exemptive orders granted under such Act;
(5) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Domini Social Bond Fund's
investment objective, up to 25% of its assets, at market value at the time of
each investment, may be invested in any one industry, except that positions in
futures contracts shall not be subject to this restriction;
(6) underwrite securities issued by other persons, except that all or any
portion of the assets of the Domini Social Bond Fund may be invested in one or
more investment companies, to the extent not prohibited by the 1940 Act, the
rules and regulations thereunder, and exemptive orders granted under such Act,
and except in so far as the Domini Social Bond Fund may technically be deemed an
underwriter under the 1933 Act in selling a security;
(7) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein) or
interests in oil, gas or mineral leases in the ordinary course of business (the
foregoing shall not be deemed to preclude the Domini Social Bond Fund from
purchasing or selling futures contracts or options thereon, and the Domini
Social Bond Fund reserves the freedom of action to hold and to sell real estate
acquired as a result of the ownership of securities by that Fund);
(8) purchase or sell commodities or commodity contracts in the ordinary
course of business (the foregoing shall not be deemed to preclude the Domini
Social Bond Fund from purchasing or selling futures contracts or options
thereon); and
(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.
For purposes of restriction (1) above, covered mortgage dollar rolls and
arrangements with respect to securities lending are not treated as borrowing.
NON-FUNDAMENTAL RESTRICTION: Neither the Domini Social Equity Fund nor the
Portfolio will as a matter of operating policy:
purchase puts, calls, straddles, spreads and any combination thereof if the
value of its aggregate investment in such securities will exceed 5% of the
Domini Social Equity Fund's or Portfolio's, as applicable, total assets at the
time of such purchase.
This restriction is not fundamental and may be changed with respect to the
Domini Social Equity Fund by that Fund without approval by the Fund's
shareholders or with respect to the Portfolio by the Portfolio without the
approval of the Domini Social Equity Fund or its other investors. Each Fund
will comply with the state securities laws and regulations of all states in
which it is registered.
PERCENTAGE RESTRICTIONS: If a percentage restriction or rating restriction
on investment or utilization of assets set forth above or referred to in the
Prospectus is adhered to
<PAGE>
-20-
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 a Fund
or the Portfolio or a later change in the rating of a security held by a Fund or
the Portfolio will not be considered a violation of policy; provided that if at
any time the ratio of borrowings of a Fund or the Portfolio to the net asset
value of that Fund or the Portfolio, respectively, exceeds the ratio permitted
by Section 18(f) of the 1940 Act, the applicable Fund or the Portfolio as the
case may be, will take the corrective action required by Section 18(f).
3. PERFORMANCE INFORMATION
Performance information concerning each Fund may from time to time be used
in advertisements, shareholder reports or other communications to shareholders.
Each Fund may provide its period, annualized, and average annual "total rates of
return." The "total rate of return" refers to the change in the value of an
investment over a stated period based on any change in net asset value per share
and includes the value of any shares purchasable with any dividends or capital
gains declared during such period. Period total rates of return may be
"annualized." An average "annualized" total rate of return is a compounded total
rate of return which assumes that the period total rate of return is generated
over a 52-week period, and that all dividends and capital gains distributions
are reinvested. An annualized total rate 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. Average annual total return figures represent the
average annual percentage change over the specified period.
Each 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.
Average annual total return is a measure of a Fund's performance over time.
It is determined by taking a Fund's performance over a given period and
expressing it as an average annual rate. The average annual total return
quotation is computed in accordance with a standardized method prescribed by SEC
rules. The average annual total return for a specific period is found by taking
a hypothetical $1,000 initial investment in Fund shares on the first day of the
period and computing the redeemable value of the investment at the end of the
period. The redeemable value is then divided by the initial investment, and its
quotient is taken to the Nth root (N representing the number of years in the
period) and is subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains
distributions have been reinvested in Fund shares at net asset value on the
reinvestment date during the period.
The Domini Social Bond Fund may provide "yield" quotations with respect to
that Fund. The "yield" of the Domini Social Bond Fund refers to the income
generated by an investment in that 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.
<PAGE>
-21-
Any current "yield" quotation of the Domini Social Bond 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 that Fund's net investment income earned during the period by the
product of the average daily number of shares outstanding during the period that
were entitled to receive dividends and the maximum offering price per share on
the last day of the period, (b) subtracting 1 from the result, and (c)
multiplying the result by 2.
Set forth below is average annual total return information for shares of
the Domini Social Equity Fund for the periods indicated, assuming that capital
gains distributions, if any, were reinvested.
Period Average Annual Total Return
------ ---------------------------
One year ended July 31, 2000 8.16%
Five years ended July 31, 2000 23.09%
June 3, 1991 (Commencement of
Investment in the Portfolio) to
July 31, 2000 17.82%
Since the Domini Social Equity Fund's average annual total return
quotations are based on historical earnings and since rates of return fluctuate
over time, these quotations should not be considered as an indication or
representation of the future performance of that Fund.
The Domini Social Bond Fund commenced operations on June 1, 2000 and does
not have annual total return information as of the date of this Statement of
Additional Information.
Total rate of return information with respect to the Domini Social Index
will be computed in the same fashion as set forth above with respect to the
Domini Social Equity Fund, except that for purposes of this computation an
investment will be assumed to have been made in a portfolio consisting of all of
the stocks comprising the Domini Social Index weighted in accordance with the
weightings of the stocks comprising the Domini Social Index. Performance
information with respect to the Domini Social Index will not take into account
brokerage commission and other transaction costs which will be incurred by the
Portfolio.
From time to time the Funds may also quote data and fund rankings from
various sources, such as Lipper Analytical Services, Inc., Morningstar, Inc.,
Wiesenberger, Money Magazine, The Wall Street Journal, Kiplinger's Personal
Finance Magazine, Smart Money Magazine, Business Week and The New York Times,
and may compare their respective performance to that of the Domini 400 Social
IndexSM and various other unmanaged securities indices, such as the S&P 500 and
the Dow Jones Industrial Average. "Standard & Poor", "S&P" and "Standard &
Poor's 500" are trademarks of McGraw Hill Companies.
4. DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES; ADDITIONAL PURCHASE INFORMATION
The net asset value of each share of the Funds is determined each day on
which the NYSE is open for trading ("Fund Business Day"). As of the date of
this Statement of Additional Information, the NYSE is open for trading every
weekday except for the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. This determination of net asset value
of shares of each Fund is made once during each such day as of the close of
regular trading of the NYSE by dividing the value of each Fund's net assets
(i.e., for the Domini Social Equity Fund the value of its investment in the
Portfolio and any other assets less its liabilities, including expenses payable
or accrued, for the Domini Social Bond Fund the value of its assets less its
liabilities, including expenses payable or accrued) by the number of shares of
<PAGE>
-22-
that Fund outstanding at the time the determination is made. Purchases and
redemptions will be effected at the time of determination of net asset value
next following the receipt of any purchase or redemption order deemed to be in
good order. See "Shareholder Manual" in the Prospectus.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same day as the Domini Social Equity Fund
determines its net asset value per share. The net asset value of the Domini
Social Equity Fund's investment in the Portfolio is equal to the Domini Social
Equity Fund's pro rata share of the total investment of the Domini Social Equity
Fund and of other investors in the Portfolio less the Domini Social Equity
Fund's pro rata share of the Portfolio's liabilities.
Equity securities are valued at the last sale price on the exchange on
which they are primarily traded or on the NASDAQ system for unlisted national
market issues, or at the last quoted bid price for securities in which there
were no sales during the day or for unlisted securities not reported on the
NASDAQ system. Options and futures contracts are normally valued at the
settlement price on the exchange on which they are traded.
Bonds and other fixed income securities (other than short-term obligations)
are valued on the basis of valuations furnished by a pricing service, use of
which has been approved by the Board of Trustees of the Portfolio or the Funds,
as applicable. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities. Short-
term obligations (maturing in 60 days or less) are valued at amortized cost,
which constitutes fair value as determined by the Board of Trustees of the
Portfolio or the Funds, as applicable.
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 or the Funds', as applicable, 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 or the Funds', as applicable, 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 or a Fund,
as applicable, 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 long-term obligations is determined on the basis of
interest accrued plus amortization of "original issue discount" (generally, the
difference between issue price and
<PAGE>
-23-
stated redemption price at maturity) and premiums (generally, the excess of
purchase price over stated redemption price at maturity). Interest income on
short-term obligations is determined on the basis of interest accrued less
amortization of premium.
Shares may be purchased directly from the Distributor or through Service
Organizations (see "Transfer Agent, Custodian, and 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 appropriate Fund so that the order receives the net asset
value next determined following receipt of the order. Investors wishing to
purchase shares through a Service Organization should contact that organization
directly for appropriate 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.
Each Fund has authorized certain brokers to accept on its behalf purchase
and redemption orders and has authorized these brokers to designate
intermediates to accept such orders. Each Fund will be deemed to have received
such an order when an authorized broker or its designee accepts the order.
Orders will be priced at the appropriate Fund's net asset value next computed
after they are accepted by an authorized broker or designee. Investors may be
charged a fee if they effect transactions in Fund shares through a broker or
agent.
5. MANAGEMENT OF THE FUNDS AND THE PORTFOLIO
The management and affairs of the Funds are supervised by the Trustees of
the Trust under the laws of the Commonwealth of Massachusetts. The management
and affairs of the Portfolio are supervised by its Trustees under the laws of
the State of New York.
The Trustees and officers of the Trust and the Portfolio and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Funds. Unless otherwise indicated below, the address of each officer is 536
Broadway, 7th Floor, New York, NY 10012.
TRUSTEES OF THE TRUST AND THE PORTFOLIO
AMY L. DOMINI* -- 230 Congress Street, Boston, Massachusetts 02110. Chair,
President and Trustee of the Trust, Portfolio and Domini Institutional Trust;
Manager of DSIL; Private Trustee, Loring, Wolcott & Coolidge; Trustee, New
England Quarterly (since 1998); Trustee, Episcopal Church Pension Fund; Former
Member, Governing Board, Interfaith Center on Corporate Responsibility; Former
Trustee, National Association Community Loan Funds; Former Board Member of
National Community Capital Association (1987-1990). Her date of birth is
January 15, 1950.
JULIA ELIZABETH HARRIS -- 54 Burroughs Street, Jamaica Plain, Massachusetts
02130. Trustee, Domini Institutional Trust; Vice President, UNC Partners, Inc.
(since April 1990); Director and Treasurer, Boom Times, Inc. (1997 - 1999);
Director and Chair of Board of Directors, The Green Book, Inc. (1991 - 1996);.
Her date of birth is July 11, 1948.
KIRSTEN S. MOY -- 151 North Michigan Avenue, Suite 1209, Chicago, Illinois
60601. Trustee, Domini Institutional Trust; Consultant, Project Director and
Principal Researcher, Community Development Innovation and Infrastructure
Initiative (since December 1998); CDFI Rating System Advisory Board Member,
National Community Capital Association (since 1999); Member, Community Economic
Development Board of Overseers, New Hampshire College (since November 1998);
Advisory Group Member, Shorebank Liquidity Project (since 1999);
<PAGE>
-24-
Consultant, Equitable Life Assurance Society (since December 1998); Board
Member, Free Associates Theatre Company (since August 1999); Consultant, Social
Investment Forum, Community Development Project (June 1998-December 1998);
Director, Community Development Financial Institutions Fund, U.S. Department of
the Treasury (October 1995 - October 1997); Senior Vice President and Portfolio
Manager, Equitable Real Estate Investment Management (prior to October 1995).
Her date of birth is June 30, 1947.
WILLIAM C. OSBORN -- 115 Buckminster Road, Brookline, Massachusetts 02445.
Trustee, Domini Institutional Trust; Manager, Commons Capital Management LLC;
Consultant, Arete Corporation (prior to 1999); Manager, Venture Investment
Management Company LLC (prior to 1999); Vice President and General Manager,
TravElectric Services Corp (prior to 1995); President, Environmental
Technologies (prior to 1993); Director, Evergreen Solar, Inc; Director,
Conservation Services Group; Director, Fingerlakes Aquaculture LLC; Director,
Surgical Sealants, Inc; Director, World Power Technologies, Inc. His date of
birth is July 7, 1944.
KAREN PAUL -- 4050 Park Avenue, Miami, Florida 33133. Trustee, Domini
Institutional Trust; Professor of Management and International Business, Florida
International University (since 1991); Partner, Trinity Industrial Technology
(since 1997); Executive Director, Center for Management in the Americas (since
1997). Her date of birth is September 23, 1944.
GREGORY A. RATLIFF -- 1712 Carmen Avenue, Chicago, Illinois 60640. Trustee,
Domini Institutional Trust; Director, Access to Economic Opportunity, John D.
and Catherine T. MacArthur Foundation (since 1997); Associate Director, Program-
Related Investments, John D. and Catherine T. MacArthur Foundation (1993-1997).
His date of birth is June 12, 1960.
FREDERICK C. WILLIAMSON, SR. -- Five Roger Williams Green, Providence, Rhode
Island 02904. Trustee, Domini Institutional Trust; Treasurer and Trustee, RIGHA
(charitable foundation supporting health care needs) since 1990; Chairman, Rhode
Island Historical Preservation and Heritage Commission (since 1995); Trustee,
National Parks and Conservation Association (1986-1997); Advisor, National Parks
and Conservation Association (since 1997); President's Advisory Board - Salve
Regina University, Newport, RI (since 1999). His date of birth is September 20,
1915.
Each of the Trustees who are not interested persons receives an annual
retainer for serving as a Trustee of the Trust, the Portfolio and the Domini
Institutional Trust of $6,000, and in addition, receives $1,000 for attendance
at each joint meeting of the Boards of the Trust, the Portfolio and the Domini
Institutional Trust (reduced to $500 in the event that a Trustee participates at
an in-person meeting by telephone). In addition, each Trustee receives
reimbursement for reasonable expenses incurred in attending meetings. The
compensation paid to the Trustees for the fiscal year ended July 31, 2000 is set
forth below. The Trustees may hold various other directorships unrelated to the
Trust or Portfolio.
<PAGE>
-25-
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from the Trust,
Accrued as Estimated Portfolio and
Aggregate Part of Annual Benefits Domini
Compensation Fund Upon Institutional
from the Trust Expenses Retirement Trust
<S> <C> <C> <C> <C>
Amy L. Domini, None None None None
Chair, President
and Trustee
Julia Elizabeth $ 4330 None None $9,500
Harris,
Trustee
Kirsten S. Moy, $ 4330 None None $9,500
Trustee
William C. Osborn, $ 4330 None None $9,500
Trustee
Karen Paul, $ 4330 None None $9,500
Trustee
Gregory A. Ratliff, $ 4135 None None $9,000
Trustee
Timothy Smith, $ 4330 None None $9,500
Trustee*
Frederick C. $4,330 None None $9,500
Williamson, Sr.,
Trustee
</TABLE>
________________________
* Mr. Smith resigned as a Trustee of Trust after July 31, 2000.
OFFICERS
STEVEN D. LYDENBERG* -- Vice President of the Trust and the Portfolio; Director
of Research of Kinder, Lydenberg, Domini & Co., Inc.; Member, Domini Social
Investments LLC (since 1997). His date of birth is October 21, 1945.
DAVID P. WIEDER* -- Vice President of the Trust and the Portfolio (since 1997);
Chief Executive Officer and Managing Principal, Domini Social Investments LLC
(since 1997); President of FSSI (since 1989); Vice-President of investment
companies within Fundamental Family of Funds (1989-1997); Vice-President of
Fundamental Portfolio Advisors (1991-1997). His date of birth is January 8,
1966.
<PAGE>
-26-
SIGWARD M. MOSER* -- Vice President of the Trust and the Portfolio (since 1997);
President and Managing Principal, Domini Social Investments LLC (since 1997);
President of Communications House International, Inc.; Director of Financial
Communications Society. His date of birth is June 12, 1962.
CAROLE M. LAIBLE* -- Secretary and Treasurer of the Trust and the Portfolio
(since 1997); Financial Compliance Officer of Domini Social Investments LLC
(since 1997); Board of Governors, Daytop - NJ (since 1998); Financial Compliance
Officer, FSSI (1994-1997); Financial Compliance Officer and Secretary of
investment companies within Fundamental Family of Funds (1994-1997); General
Service Manager, McGladrey & Pullen LLP (certified public accountants) (prior to
1994). Her date of birth is October 31, 1963.
As of October 31, 2000, all Trustees and officers of the Trust and the
Portfolio as a group owned less than 1% of any Fund's outstanding shares. As of
the same date, the following shareholders of record owned 5% or more of the
outstanding shares of the Domini Social Equity Fund: Charles Schwab & Co., 101
Montgomery Street, San Francisco, CA (6,106,707.841 shares, 16.35%), Manulife
Financial, 250 Bloor Street East, Toronto, Ontario, Canada M4W 1E5
(4,039,235.890 shares, 10.81%), and Fidelity Investments, Inst Operations as
Agent for Certain Emp Benefit Plans, 100 Magellan Way No, Covington, KY 41015-
1987 ( 2,319,535.469 shares, 6.21%). The Domini Social Equity Fund has no
knowledge of any other owners of record or beneficial owners of 5% or more of
the outstanding shares of that Fund. Shareholders owning 25% or more of the
outstanding shares of the Domini Social Equity Fund may take actions without the
approval of any other investor in that Fund.
As of October 31, 2000, the following shareholders of record owned 5% or
more of the outstanding shares of the Domini Social Bond Fund: Charles Schwab &
Co., special Custody Account For the Benefit of Customers, 101 Montgomery
Street, San Francisco, CA 94104 (61,657.336 shares, 10.21%), and Caisse Centrale
Des Banques Populaires Bourse Etrangere, 10 Rue Des Roquemonts Zac, BP 5062
14022 CAEN, Cedex, France (39,272.267 shares, 6.5%).
The Trustees who are not "interested persons" (the "Disinterested
Trustees") of the Trust as defined by the 1940 Act are the same as the
Disinterested Trustees of the Portfolio. Any conflict of interest between the
Domini Social Equity Fund and the Portfolio will be resolved by the Trustees in
accordance with their fiduciary obligations and in accordance with the 1940 Act.
The Trust's Declaration of Trust provides that it will indemnify its Trustees
and officers (the "Indemnified Parties") against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Trust, unless, as to liability to the Trust or its
shareholders, it is finally adjudicated that the Indemnified Parties engaged in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in their offices, or unless with respect to any other matter it
is finally adjudicated that the Indemnified Parties did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Trust. In case of settlement, such indemnification will not be provided unless
it has been determined by a court or other body approving the settlement or
other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such Indemnified Parties have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
MANAGER AND SUBMANAGERS
DSIL provides advice to the Portfolio and the Domini Social Bond Fund
pursuant to separate Management Agreements (the "Management Agreements"). The
services provided by DSIL consist of furnishing continuously an investment
program for the Portfolio and the Domini Social Bond Fund. DSIL will have
authority to determine from time to time what securities are purchased, sold or
exchanged, and what portion of assets of the Portfolio and the
<PAGE>
-27-
Domini Social Bond Fund is held uninvested. With respect to the Portfolio, DSIL
will also perform such administrative and management tasks as may from time to
time be reasonably requested, including: (i) maintaining office facilities and
furnishing clerical services necessary for maintaining the organization of the
Portfolio and for performing administrative and management functions; (ii)
supervising the overall administration of the Portfolio, including negotiation
of contracts and fees with and monitoring of performance and billings of the
Portfolio's transfer agent, shareholder servicing agents, custodian and other
independent contractors or agents; (iii) overseeing (with the advice of
Portfolio's counsel) the preparation of and, if applicable, filing all documents
required for compliance by the Portfolio with applicable laws and regulations,
including registration statements, prospectuses and statements of additional
information, semi-annual and annual reports to shareholders, proxy statements
and tax returns; (iv) preparing agendas and supporting documents for and minutes
of meetings of Trustees, committees of Trustees and shareholders; and (v)
arranging for maintenance of the books and records of the Portfolio. DSIL
furnishes at its own expense all facilities and personnel necessary in
connection with providing these services. The Management Agreement for the
Portfolio will continue in effect if such continuance is specifically approved
at least annually by the Portfolio's Board of Trustees or by a majority of the
outstanding voting securities of the Portfolio at a meeting called for the
purpose of voting on the Management Agreement (with the vote of each investor in
the Portfolio being in proportion to the amount of its investment), and, in
either case, by a majority of the Portfolio's Trustees who are not parties to
the Management Agreement or interested persons of any such party at a meeting
called for the purpose of voting on the Management Agreement. The Management
Agreement for the Domini Social Bond Fund will continue in effect for an initial
two-year period and thereafter if such continuance is specifically approved at
least annually by the Domini Social Bond Fund's Board of Trustees or by a
majority of the outstanding voting securities of the Domini Social Bond Fund at
a meeting called for the purpose of voting on the Management Agreement, and, in
either case, by a majority of the Domini Social Bond Fund'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.
Each Management Agreement provides that DSIL may render services to others.
DSIL may employ, at its own expense, or may request that the Portfolio or the
Domini Social Bond Fund employ (subject to the requirements of the 1940 Act) one
or more subadvisers or submanagers, subject to DSIL's supervision. Each
Management Agreement is terminable without penalty on not more than 60 days' nor
less than 30 days' written notice by the Portfolio or the Domini Social Bond
Fund, as the case may be, when authorized either by majority vote of the
outstanding voting securities in the Portfolio (with the vote of each investor
in the Portfolio being in proportion to the amount of its investment) or the
Domini Social Bond Fund, as applicable, or by a vote of a majority of the
appropriate Board of Trustees, or by DSIL, and will automatically terminate in
the event of its assignment. Each Management Agreement provides that neither
DSIL 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 or the Domini Social Bond Fund, as the case may
be, except for willful misfeasance, bad faith or gross negligence or reckless
disregard of its or their obligations and duties under the Management Agreement.
Under the Management Agreement between the Portfolio and DSIL, DSIL's fee
for advisory and administrative services to the Portfolio is 0.20% of the
average daily net assets of the Portfolio.
Under the Management Agreement between the Trust, with respect to the
Domini Social Bond Fund, and DSIL, DSIL's fee for advisory services to the
Domini Social Bond Fund is 0.40% of the average daily net assets of that Fund.
<PAGE>
-28-
DSIL is a Massachusetts limited liability company with offices at 536
Broadway, 7th Floor, New York, NY 10012, and is registered as an investment
adviser under the Investment Advisers Act of 1940 (the "Advisers Act"). The
names of the principal owners of DSIL and their relationship to the Trust
follows: Amy L. Domini, Chair of the Board and President of the Trust, is the
Manager and principal executive officer and a co-owner of DSIL. Sigward M.
Moser, Vice President of the Trust, is a co-owner of DSIL. David P. Wieder,
Vice President of the Trust is a co-owner of DSIL. Mr. Wieder is also President
and an owner of FSSI, which served as the Domini Social Equity Fund's transfer
agent until September 24, 1999.
Mellon Equity manages the assets of the Portfolio pursuant to an Investment
Submanagement Agreement (the "Portfolio Submanagement Agreement"). The
Portfolio Submanager furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Portfolio's investments and
effecting securities transactions for the Portfolio. The Portfolio
Submanagement Agreement will continue in effect if such continuance is
specifically approved at least annually by the Portfolio's Board of Trustees or
by a majority vote of the outstanding voting securities in the Portfolio at a
meeting called for the purpose of voting on the Portfolio Submanagement
Agreement (with the vote of each being in proportion to the amount of its
investment), and, in either case, by a majority of the Portfolio's Trustees who
are not parties to the Portfolio Submanagement Agreement or interested persons
of any such party at a meeting called for the purpose of voting on the Portfolio
Submanagement Agreement.
Effective January 1, 1998, Mellon Equity Associates was reorganized as a
Pennsylvania limited liability partnership. Pursuant to an Agreement and Plan
of Merger dated December 29, 1997, (the "Merger Agreement"), Mellon Equity
Associates was merged into Mellon Equity Associates, LLP, a newly-formed
Pennsylvania limited liability partnership, with Mellon Equity Associates, LLP
being the surviving entity. Mellon Bank, N.A. ("Mellon Bank") is the 99%
limited partner and MMIP, Inc. is the 1% general partner of Mellon Equity
Associates, LLP. In accordance with the provisions of the Merger Agreement, all
property, rights, privileges, franchises, patents, trademarks, licenses,
registrations, and other assets and interests of Mellon Equity Associates vested
in Mellon Equity Associates, LLP. By operation of law, the obligations and
liabilities of Mellon Equity Associates were assumed by Mellon Equity
Associates, LLP. Mellon Equity is a professional investment counseling firm
that provides investment management services to the equity and balanced pension,
public fund, and profit-sharing investment management markets, and is a
registered investment adviser under the Advisers Act. Mellon Bank's predecessor
organization managed domestic equity, tax-exempt and institutional pension
accounts since 1947. The address of Mellon Equity and each of the principal
executive officers and directors of Mellon Equity is 500 Grant Street, Suite
4200, Pittsburgh, Pennsylvania 15258.
South Shore manages the assets of the Domini Social Bond Fund pursuant to
an Investment Submanagement Agreement (the "Bond Fund Submanagement Agreement").
The Bond Fund Submanager furnishes at its own expense all services, facilities
and personnel necessary in connection with managing the Domini Social Bond
Fund's investments and effecting securities transactions for the Domini Social
Bond Fund. The Bond Fund Submanagement Agreement will continue in effect if
such continuance is specifically approved at least annually by the Domini Social
Bond Fund's Board of Trustees or by a majority vote of the outstanding voting
securities of that Fund at a meeting called for the purpose of voting on the
Bond Fund Submanagement Agreement, and, in either case, by a majority of the
Domini Social Bond Fund's Trustees who are not parties to the Bond Fund
Submanagement Agreement or interested persons of any such party at a meeting
called for the purpose of voting on the Bond Fund Submanagement Agreement.
Effective January 1, 1939, South Shore Bank was organized as an Illinois
Banking Corporation. The address of South Shore Bank is 7054 S. Jeffery Blvd.,
Chicago, IL 60649.
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Each Submanagement Agreement provides that the applicable submanager may
render services to others. Each Submanagement Agreement is terminable without
penalty upon not more than 60 days' nor less than 30 days' written notice by the
Portfolio or Domini Social Bond Fund, as the case may be, when authorized either
by majority vote of the outstanding voting securities in the Portfolio (with the
vote of each being in proportion to the amount of their investment) or of the
Domini Social Bond Fund, as applicable, or by a vote of the majority of the
appropriate Board of Trustees, or by DSIL with the consent of the Trustees and
may be terminated by the applicable submanager on not less than 90 days' written
notice to DSIL and the Trustees, and will automatically terminate in the event
of its assignment. Each Submanagement Agreement provides that the applicable
submanager shall not be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in its
services to the Portfolio or the Domini Social Bond Fund, as the case may be,
except for willful misfeasance, bad faith or gross negligence or reckless
disregard for its or their obligations and duties under the Submanagement
Agreement.
Under the Portfolio Submanagement Agreement, DSIL pays Mellon Equity an
investment submanagement fee equal on an annual basis to 0.07% of the average
daily net assets of the Portfolio.
Under the Bond Fund Submanagement Agreement, DSIL pays South Shore an
investment submanagement fee equal on an annual basis to 0.20% of the average
daily net assets of the Domini Social Bond Fund.
Prior to October 22, 1997, pursuant to an investment advisory agreement
(the "KLD Advisory Agreement"), KLD served as investment adviser to the
Portfolio and furnished continuously an investment program by determining the
stocks to be included in the Domini Social Index. Additionally, prior to
October 22, 1997, pursuant to a management agreement (the "Mellon Equity
Management Agreement"), Mellon Equity served as investment manager and managed
the assets of the Portfolio on a daily basis. Prior to October 22, 1997 and
until November 15, 1999, Mellon Equity was paid investment management fees equal
on an annual basis to 0.10% of the average daily net assets of the Portfolio.
Prior to October 22, 1997, pursuant to a sponsorship agreement (the "KLD
Sponsorship Agreement"), KLD furnished administrative services for the
Portfolio. Prior to October 22, 1997, pursuant to an administrative services
agreement (the "Signature Administration Agreement"), Signature Broker-Dealer
Services, Inc. served as the administrator of the Portfolio. Prior to October
22, 1997, the aggregate investment management and administration fees under the
prior agreements with respect to the Portfolio were equal to 0.15% of the
Portfolio's average daily net assets for its then current fiscal year.
For the fiscal years ended July 31, 2000 and 1999, the Portfolio incurred
approximately $3,257,616 and $1,791,617, respectively, in management fees
pursuant to its Management Agreement. For the fiscal year ended July 31, 1998,
the Portfolio incurred approximately $701,774 in management fees pursuant to its
Management Agreement, $17,385 in advisory fees pursuant to the KLD Advisory
Agreement, $17,385 in aggregate administration fees pursuant to the Signature
Administration Agreement and $86,354 in management fees pursuant to the Mellon
Equity Management Agreement. For the fiscal year ended July 31, 1997, the
Portfolio incurred $46,528 in advisory fees pursuant to the KLD Advisory
Agreement, $46,528 in administration fees pursuant to the KLD Sponsorship
Agreement, $156,868 in aggregate administration fees pursuant to the Signature
Administration Agreement, and $182,885 in management fees pursuant to the Mellon
Equity Management Agreement.
For the period from June 1, 2000 (commencement of operations) through July
31, 2000, the Domini Social Bond Fund did not pay any management fees. DSIL
waived all management fees payable under its Management Agreement.
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SPONSOR
Pursuant to a Sponsorship Agreement with respect to the Domini Social
Equity Fund and Administration Agreement with respect to the Domini Social Bond
Fund, DSIL provides the Domini Social Equity Fund and the Domini Social Bond
Fund with oversight, administrative and management services. DSIL provides each
Fund with general office facilities and supervises the overall administration of
each Fund, including, among other responsibilities, the negotiation of contracts
and fees with, and the monitoring of performance and billings of, the
independent contractors and agents of each Fund; the preparation and filing of
all documents required for compliance by each Fund with applicable laws and
regulations, including registration statements, prospectuses and statements of
additional information, semi-annual and annual reports to shareholders, proxy
statements and tax returns; preparing agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees and shareholders;
maintaining telephone coverage to respond to shareholder inquiries; answering
questions from the general public, the media and investors in each Fund
regarding the securities holdings of the Portfolio and the Domini Social Bond
Fund, as applicable, limits on investment and the Funds' proxy voting philosophy
and shareholder activism philosophy; and arranging for the maintenance of books
and records of each Fund. The Sponsor provides persons satisfactory to the
Board of Trustees of the Funds to serve as officers of the Funds. Such
officers, as well as certain other employees and Trustees of the Funds, may be
directors, officers or employees of the Sponsor or its affiliates.
Under the Sponsorship Agreement between DSIL and the Trust on behalf of the
Domini Social Equity Fund, DSIL's fee for administrative and sponsorship
services with respect to the Domini Social Equity Fund is 0.50% of the average
daily net assets of that Fund. Under the Administration Agreement between DSIL
and the Trust on behalf of the Domini Social Bond Fund, DSIL's fee for
administrative services with respect to the Domini Social Bond Fund is 0.25% of
the average daily net assets of that Fund. Currently, DSIL is reducing its fee
to the extent necessary to keep the aggregate annual operating expenses of the
Domini Social Equity Fund (including the Domini Social Equity Fund's share of
the Portfolio's expenses but excluding brokerage fees and commissions, interest,
taxes and other extraordinary expenses) at no greater than 0.95% of the average
daily net assets of the Domini Social Equity Fund. For the fiscal years ended
July 31, 2000, July 31, 1999 and July 31, 1998, the Domini Social Equity Fund
incurred $6,578,565, $3,820,667 and $1,419,618 in sponsorship fees,
respectively. Currently, DSIL is reducing its fee to the extent necessary to
keep the aggregate annual expenses of the Domini Social Bond Fund (excluding
brokerage fees and commissions, interest, taxes and other extraordinary
expenses) at no greater than 0.95% of the average daily net assets of the Domini
Social Bond Fund. For the period from June 1, 2000 (commencement of operations)
through July 31, 2000, DSIL waived payment of its fee for administrative
services provided to the Domini Social Bond Fund.
Prior to October 22, 1997, Signature Broker-Dealer Services, Inc. served as
administrator of the Domini Social Equity Fund. For the fiscal year ended July
31, 1997, the Domini Social Equity Fund incurred $156,868 in administrative
fees.
The Sponsorship Agreement with respect to the Funds provides that DSIL may
render administrative services to others. The Sponsorship Agreement also
provides that neither the Sponsor nor its personnel shall be liable for any
error of judgment or mistake of law or for any act or omission in the
administration or management of either Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by reason
of reckless disregard of its or their obligations and duties under the
Sponsorship Agreement.
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DISTRIBUTOR
Each Fund has adopted a Distribution Plan which provides that each Fund may
pay the Distributor a fee not to exceed 0.25% per annum of that Fund's average
daily net assets in anticipation of, or as reimbursement or compensation 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, 1997, 1998, 1999 and 2000 the Domini Social Equity Fund accrued
$153,295, $580,272, $1,327,042 and $2,874,845 respectively, in distribution
fees. For the fiscal year ended July 31, 2000, payments made by the Domini
Social Equity Fund pursuant to the Distribution Plan were used for advertising
($1,173,294), printing and mailing of prospectuses to other than current
shareholders ($57,497), compensation to dealers ($1,002,824) and communications
and servicing ($641,186). For the fiscal year ended July 31, 2000 the Domini
Social Bond Fund accrued $1,400 in distribution fees.
The Distribution Plan will continue in effect indefinitely as to a Fund if
such continuance is specifically approved at least annually by a vote of both a
majority of that Fund's Trustees and a majority of that 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 each Fund a quarterly written report of amounts expended by that
Fund under the Distribution Plan and the purposes for which such expenditures
were made. The Distribution Plan further provides that the selection and
nomination of each Fund's Qualified Trustees shall be committed to the
discretion of the disinterested Trustees of that Fund. The Distribution Plan may
be terminated as to a Fund at any time by a vote of a majority of that Fund's
Qualified Trustees or by a vote of the shareholders of that Fund. The
Distribution Plan may not be materially amended with respect to a Fund without a
vote of the majority of both that Fund's Trustees and 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 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.
Each Fund has entered into a Distribution Agreement with the Distributor.
Under the Distribution Agreement, the Distributor acts as the agent of each Fund
in connection with the offering of shares of that Fund and is obligated to use
its best efforts to find purchasers for shares of the Fund. The Distributor acts
as the principal underwriter of shares of each Fund and bears the compensation
of personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead) and equipment. Prior to August 15, 1999,
Signature Broker-Dealer Services, Inc. served as the distributor of the Domini
Social Equity Fund.
TRANSFER AGENT, CUSTODIAN AND SERVICE ORGANIZATIONS
Each Fund has entered into a Transfer Agency Agreement with PFPC Inc.
(formerly known as First Data Investor Services Group, Inc.), 4400 Computer
Drive, Westborough, MA 01581, pursuant to which PFPC acts as the transfer agent
for each Fund. The Transfer Agent maintains an account for each shareholder of
the Funds, performs other transfer agency functions, and acts as dividend
disbursing agent for the Funds.
Each Fund has entered into a Custodian Agreement with Investors Bank &
Trust Company ("IBT"), 200 Clarendon Street, Boston, MA 02116, pursuant to which
IBT acts as custodian for each Fund. The Portfolio has entered into a Transfer
Agency Agreement with IBT
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pursuant to which IBT acts as transfer agent for the Portfolio. The Portfolio
also has entered into a Custodian Agreement with IBT pursuant to which IBT acts
as custodian for the Portfolio. The Custodian's responsibilities include
safeguarding and controlling the Portfolio's and the Domini Social Bond Fund's
cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest on the Portfolio's and Domini Social
Bond Fund'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 each
Fund. Securities held by the Portfolio and the Domini Social Bond Fund may be
deposited into certain securities depositaries. The Custodian does not determine
the investment policies of the Portfolio or the Domini Social Bond Fund or
decide which securities the Portfolio or the Domini Social Bond Fund will buy or
sell. The Portfolio and the Domini Social Bond Fund may, however, invest in
securities of the Custodian and may deal with the Custodian as principal in
securities transactions.
Each Fund may from time to time enter into agreements with various banks,
trust companies (other than Mellon Equity), broker-dealers (other than the
Distributor) or other financial organizations (collectively, "Service
Organizations") to provide services for that Fund, such as maintaining
shareholder accounts and records. Each 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 that
Fund owned by shareholders with whom the Service Organization has a servicing
relationship. In addition each Fund may reimburse Service Organizations for
their costs related to servicing shareholder accounts. For the fiscal years
ended July 31, 1997, 1998, 1999 and 2000 the Domini Social Equity Fund accrued
$3,711, $0, $940 and $97,733, respectively, in service organization fees. The
Domini Social Bond Fund is newly-created and has not accrued service
organization fees as of the date of this Statement of Additional Information.
EXPENSES
The Funds and the Portfolio each are responsible for all of their
respective expenses, including the compensation of their respective Trustees who
are not interested persons of a Fund or the Portfolio; governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute
allocable to a 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 a Fund or the Portfolio; insurance premiums; and expenses of
calculating the net asset value of the Portfolio and of shares of the Funds.
The Domini Social Equity Fund and the Domini Social Bond Fund each will
also pay sponsorship fees payable to the Sponsor, and 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 Funds and the
preparation, printing and mailing of prospectuses for such purposes.
The Portfolio and the Domini Social Bond Fund each will pay the expenses
connected with the execution, recording and settlement of security transactions
and the investment management fees payable to DSIL. The Portfolio and the
Domini Social Bond Fund each also will pay the fees and expenses of its
custodian for all services to the Portfolio and the Domini Social Bond Fund, as
applicable, 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; and expenses of meetings
of investors.
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CODES OF ETHICS
The Portfolio, the Funds and DSIL have each adopted a Code of Ethics
(collectively, the "Codes of Ethics") under Rule 17j-1 of the 1940 Act. The
Codes of Ethics permit personnel subject to the Codes to invest in securities,
including securities that may be purchased or held by the Portfolio or the
Funds. The Codes of Ethics can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-202-942-8090. The Codes
of Ethics are available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov, and copies of the Codes of Ethics may be obtained, after
paying a duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
6. INDEPENDENT AUDITORS
KPMG LLP, 99 High Street, Boston, MA 02110, are the independent auditors
for the Funds and for the Portfolio, providing audit services, tax return
preparation, and assistance and consultation with respect to the preparation of
filings with the SEC.
7. TAXATION
TAXATION OF THE FUNDS AND THE PORTFOLIO
FEDERAL TAXES: Each of our Funds is treated as a separate entity for
federal tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"). Further, each Fund has elected to be treated and intends to qualify as
a "regulated investment company" under Subchapter M of the Code. We plan to
continue this election in the future for all of the Funds. As a regulated
investment company, a Fund will not be subject to any federal income or excise
taxes on its net investment income and net realized capital gains that it
distributes to shareholders in accordance with the timing requirements imposed
by the Code. If a Fund should fail to qualify as a "regulated investment
company" in any year, that Fund would incur a regular corporate federal income
tax upon its taxable income and Fund distributions would generally be taxable as
ordinary dividend income to shareholders.
We anticipate that the Portfolio will be treated as a partnership for
federal income tax purposes. As such, the Portfolio is not subject to federal
income taxation. Instead, the Domini Social Equity Fund must take into account,
in computing its federal income tax liability, its share of the Portfolio's
income, gains, losses, deductions, credits and other items, without regard to
whether it has received any distributions from the Portfolio.
FOREIGN TAXES: Although neither Fund expects to pay any federal income or
excise taxes, investment income received by a Fund from foreign securities may
be subject to foreign income taxes withheld at the source; we do not expect to
be able to pass through to shareholders foreign tax credits with respect to such
foreign taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Funds to a reduced rate of tax or an exemption
from tax on such income; each Fund intends to qualify for treaty reduced rates
where available. It is not possible, however, to determine a Fund's effective
rate of foreign tax in advance since the amount of a Fund's assets to be
invested within various countries is not known.
STATE TAXES: Each Fund is organized as a series of the Trust, a
Massachusetts business trust. As long as it qualifies as a "regulated investment
company" under the Code, a Fund will not have to pay Massachusetts income or
excise taxes. The Portfolio is organized as a New York trust. The Portfolio is
not subject to any income or franchise tax in the State of New York.
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TAXATION OF SHAREHOLDERS
TAXATION OF DISTRIBUTIONS: Shareholders of each Fund normally will have to
pay federal income taxes, and any state or local taxes, on the dividends and
other distributions they receive from a Fund. Dividends from ordinary income and
any distributions from net short-term capital gains are taxable to shareholders
as ordinary income for federal income tax purposes, whether the distributions
are paid in cash or reinvested in additional shares. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net short-
term capital losses), whether paid in cash or reinvested in additional shares,
are taxable to shareholders as long-term capital gains for federal income tax
purposes without regard to the length of time the shareholders have held their
shares. Any Fund dividend that is declared in October, November, or December of
any calendar year, that is payable to shareholders of record in such a month,
and that is paid the following January will be treated as if received by the
shareholders on December 31 of the year in which the divided is declared.
DIVIDENDS-RECEIVED DEDUCTION: A portion of Domini Social Equity Fund's
ordinary income dividends (but none of that 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. Since the
investment income of the Domini Social Bond Fund is derived from interest rather
than dividends, no portion of the dividends received from this Fund will be
eligible for the dividends received deduction. Moreover, the portion of any
Fund's dividends that is derived from investments in foreign corporations will
not qualify for such deduction.
"BUYING A DIVIDEND": Any Fund distribution will have the effect of reducing
the per share net asset value of shares in that Fund by the amount of the
distribution. Shareholders purchasing shares shortly before the record date of
any distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
DISPOSITION OF SHARES: In general, any gain or loss realized upon a taxable
disposition of shares of a 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 a Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any distributions of net capital gain made with respect to those
shares. Any loss realized upon a disposition of shares may also be disallowed
under rules relating to wash sales.
EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS
CERTAIN DEBT INSTRUMENTS. An investment by Domini Social Bond Fund in zero
coupon bonds, deferred interest bonds, payment-in-kind bonds, certain stripped
securities and certain securities purchased at a market discount will cause the
Fund to recognize income prior to the receipt of cash payments with respect to
those securities. In order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund.
OPTIONS, ETC. A Fund's transactions in options, futures and forward contracts
will be subject to special tax rules that may affect the amount, timing and
character of Fund income and distributions to shareholders. For example, certain
positions held by a Fund on the last
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business day of each taxable year will be marked to market (e.g., treated as if
closed out) on that day, and any gain or loss associated with the positions will
be treated as 60% long-term and 40% short-term capital gain or loss. Certain
positions held by a Fund that substantially diminish its risk of loss with
respect to other positions in its portfolio may constitute "straddles", and may
be subject to special tax rules that would cause deferral of fund losses,
adjustments in the holding periods of fund securities, and conversion of short-
term into long-term capital losses. Certain tax elections exist for straddles
that may alter the effects of these rules. Each Fund intends to limit its
activities in options, futures and forward contracts to the extent necessary to
meet the requirements of the Code.
FOREIGN SECURITIES: Special tax considerations apply with respect to
foreign investments of each Fund. Foreign exchange gains and losses realized by
a Fund will generally be treated as ordinary income and losses. Use of non-U.S.
currencies for non-hedging purposes may have to be limited in order to avoid a
tax on a Fund.
The foregoing is limited to a discussion of federal taxation. It should not
be viewed as a comprehensive discussion of the items referred to nor as covering
all provisions relevant to investors. Dividends and distributions may also be
subject to state or local taxes. Shareholders should consult their own tax
advisers for additional details on their particular tax status.
8. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Portfolio and the
Domini Social Bond Fund are made by portfolio managers who are employees of the
applicable submanager and who are appointed and supervised by its senior
officers. Changes in the Portfolio's or the Domini Social Bond Fund's
investments are reviewed by the appropriate Board of Trustees. The portfolio
managers of the Portfolio and the Domini Social Bond Fund may serve other
clients of a submanager in a similar capacity.
The Portfolio's and Domini Social Bond Fund'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 applicable submanager attempts to
achieve this result by selecting broker-dealers to execute transactions on
behalf of the Portfolio or the Domini Social Bond Fund and other clients of that
submanager on the basis of their professional capability, the value and quality
of their brokerage services, and the level of their brokerage commissions. In
the case of securities traded in the over-the-counter market (where no stated
commissions are paid but the prices include a dealer's markup or markdown), a
submanager normally seeks to deal directly with the primary market makers,
unless in its opinion, best execution is available elsewhere. In the case of
securities purchased from underwriters, the cost of such securities generally
includes a fixed underwriting commission or concession. Consistent with the
foregoing primary consideration, the Conduct Rules of the National Association
of Securities Dealers, Inc. and such other policies as the Trustees of the
Portfolio or the Domini Social Bond Fund may determine, the applicable
submanager may consider sales of shares of the Domini Social Equity Fund and of
securities of other investors in the Portfolio or shares of the Domini Social
Bond Fund as a factor in the selection of broker-dealers to execute the
Portfolio's or the Domini Social Bond Fund's securities transactions. None of
the Portfolio, Domini Social Bond Fund or Domini Social Equity Fund will engage
in brokerage transactions with DSIL, Mellon Equity, or South Shore or any of
their respective affiliates or any affiliate of a Fund or the Portfolio. Most of
the Domini Social Bond Fund's transactions will be on a principal basis.
Under the Portfolio and Bond Fund Submanagement Agreements and as permitted
by Section 28(e) of the Securities Exchange Act of 1934, a submanager may cause
the Portfolio or the Domini Social Bond Fund, as applicable, to pay a broker-
dealer acting on an agency basis which provides brokerage and research services
to the submanager or DSIL an amount of
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commission for effecting a securities transaction for the Portfolio or the
Domini Social Bond Fund in excess of the amount other broker-dealers would have
charged for the transaction if the submanager determines in good faith that the
greater commission is reasonable in relation to the value of the brokerage and
research services provided by the executing broker-dealer viewed in terms of
either a particular transaction or the submanager's or DSIL's overall
responsibilities to the Portfolio or the Domini Social Bond Fund, as the case
may be, or to its other clients. Not all of such services are useful or of value
in advising the Portfolio or the Domini Social Bond Fund.
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,
Mellon Equity and DSIL currently intend to make only a limited use of such
brokerage and research services with respect to the Portfolio.
Although commissions paid on every transaction will, in the judgment of the
submanagers, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Portfolio or the Domini Social Bond Fund and a submanager's or DSIL'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 a submanager or DSIL for
no consideration other than brokerage or underwriting commissions.
The submanagers and DSIL attempt to evaluate the quality of research
provided by brokers. The submanagers and DSIL sometimes use evaluations
resulting from this effort as a consideration in the selection of brokers to
execute portfolio transactions. However, neither the submanagers nor DSIL are
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 and the Domini Social Bond Fund pay to their
respective submanager and DSIL will not be reduced as a consequence of the
Portfolio's or the Domini Social Bond Fund's receipt of brokerage and research
services. To the extent the Portfolio's or the Domini Social Bond Fund's
securities transactions are used to obtain brokerage and research services, the
brokerage commissions paid by the Portfolio or the Domini Social Bond Fund 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 a submanager or DSIL in serving the Portfolio or the
Domini Social Bond Fund, as the case may be, and other clients and, conversely,
such services obtained by the placement of brokerage business of other clients
may be useful to a submanager or DSIL in carrying out its obligations to the
Portfolio or the Domini Social Bond Fund. While such services are not expected
to reduce the expenses of the submanagers or DSIL, a submanager or DSIL would,
through use of the services, avoid the additional expenses which would be
incurred if it should attempt to develop comparable information through its own
staff. For the fiscal years ended July 31, 1997, 1998 1999 and 2000, the
Portfolio paid brokerage commissions of $101,639, $175,344, $327,338 and
$256,045, respectively. The Domini Social Bond Fund is newly-
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created and did not pay brokerage commissions during the period from June 1,
2000 (commencement of operations) through July 31, 2000.
In certain instances there may be securities which are suitable for the
Portfolio or the Domini Social Bond Fund as well as for one or more of a
submanager's or DSIL's other clients. Investment decisions for the Portfolio and
the Domini Social Bond Fund and for a submanager's or DSIL's other clients are
made with a view to achieving their respective investment objectives. It may
develop that a particular security is bought or sold for only one client even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Portfolio and the
Domini Social Bond Fund are concerned. However, it is believed that the ability
of the Portfolio and the Domini Social Bond Fund to participate in volume
transactions will produce better executions for the Portfolio and the Domini
Social Bond Fund.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust is a Massachusetts business trust established under a Declaration
of Trust dated as of March 1, 1990. Its authorized capital consists of an
unlimited number of shares of beneficial interest of $0.01 par value, issued in
separate series. Each share of each series represents an equal proportionate
interest in that series with each other share of that series.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. If a series were unable to meet its obligations, the
assets of all other series might be available to creditors for that purpose, in
which case the assets of such other series could be used to meet liabilities
which are not otherwise properly chargeable to them. Expenses with respect to
any two or more series are to be allocated in proportion to the asset value of
the respective series except where allocations of direct expenses can otherwise
be fairly made. The officers of the Trust, subject to the general supervision of
the Trustees, have the power to determine which liabilities are allocable to a
given series, or which are general or allocable to two or more series. In the
event of the dissolution or liquidation of the Trust or any series, the holders
of the shares of any series are entitled to receive as a class the value of the
underlying assets of such shares available for distribution to shareholders.
Shares of the Trust entitle their holder to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. The Trust's Declaration of
Trust provides that, at any meeting of shareholders of the Trust or of any
series, a Shareholder Servicing Agent may vote any shares as to which such
Shareholder Servicing Agent is the agent of record and which are not represented
in person or by proxy at the meeting, proportionately in accordance with the
votes cast by holders of all shares otherwise represented at the meeting in
person or by proxy as to which such Shareholder Servicing Agent is the agent of
record. Any shares so voted by a Shareholder Servicing Agent will be deemed
represented at the meeting for purposes of quorum requirements.
The Trustees of the Trust have the authority to designate additional series
and to
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designate the relative rights and preferences as between the different series.
All shares issued and outstanding will be fully paid and nonassessable by the
Trust, and redeemable as described in this Statement of Additional Information
and in the Prospectus.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless, as
to liability to Trust or Fund shareholders, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Trust. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Funds
and provides for indemnification and reimbursement of expenses out of Fund
property for any shareholder held personally liable for the obligations of a
Fund. The Declaration of Trust also provides for the maintenance, by or on
behalf of the Trust and the Funds, of appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Funds and their shareholders and the Trust's Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and a Fund
itself was unable to meet its obligations.
The Portfolio, in which all of the investable assets of the Domini Social
Equity 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 Domini Social
Equity 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 Domini Social Equity Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trust's Trustees believe that neither the
Domini Social Equity Fund nor its shareholders will be adversely affected by
reason of the Domini Social Equity Fund's investing in the Portfolio.
Each investor in the Portfolio, including the Domini Social Equity Fund,
may add to or reduce its investment in the Portfolio on each Fund Business Day.
At the close of each such business day, the value of each investor's interest in
the Portfolio will be determined by multiplying the net asset value of the
Portfolio by the percentage representing that investor's share of the aggregate
beneficial interests in the Portfolio effective for that day. Any additions or
withdrawals, which are to be effected as of the close of business on that day,
will then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be re-computed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the close of business on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from
the investor's investment in the Portfolio effected as of the close of business
on such day, and (ii) the
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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 follo wing Fund Business Day.
10. FINANCIAL STATEMENTS
The audited financial statements of the Domini Social Equity Fund and the
Portfolio (Statement of Assets and Liabilities at July 31, 2000, Statement of
Operations for the year ended July 31, 2000, Statement of Changes in Net Assets
for each of the years in the two-year period ended July 31, 2000, Financial
Highlights for each of the years in the five-year period ended July 31, 2000,
Notes to Financial Statements and Independent Auditors' Report), each of which
is included in the Annual Report to Shareholders of the Domini Social Equity
Fund which has been filed with the SEC pursuant to Section 30(b) of the 1940 Act
and Rule 30b2-1 thereunder, are hereby incorporated by reference into this
Statement of Additional Information and have been so incorporated in reliance
upon the reports of KPMG LLP, independent auditors, on behalf of the Domini
Social Equity Fund and the Portfolio.
The audited financial statements of the Domini Social Bond Fund (Statement
of Assets and Liabilities at July 31, 2000, Statement of Operations for the year
ended July 31, 2000, Statement of Changes in Net Assets for the period June 1,
2000 (Commencement of Operations) to July 31, 2000, Financial Highlights for the
period June 1, 2000 (Commencement of Operations) to July 31, 2000, Notes to
Financial Statements and Independent Auditors' Report), each of which is
included in the Annual Report to Shareholders of the Domini Social Bond Fund
which has been filed with the SEC pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder, are hereby incorporated by reference into this Statement
of Additional Information and have been so incorporated in reliance upon the
reports of KPMG LLP, independent auditors on behalf of the Domini Social Bond
Fund.
Domini Social Investments(SM), Domini Social Equity Fund(SM), Domini Social Bond
Fund(SM), Domini Money Market Account(SM), The Way You Invest Matters(SM), The
Responsible Index Fund(SM) and domini.com(SM) are registered service marks of
Domini Social Investments LLC.
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A-1
APPENDIX
RATING INFORMATION
The following ratings are opinions of Standard & Poor's Rating Service
("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"), not
recommendations to buy, sell or hold an obligation. The ratings below are as
described by the rating agencies. While the rating agencies may from time to
time revise such ratings, they are under no obligation to do so.
Standard & Poor's
Standard & Poor's Four Highest Long-Term Issue Credit Ratings
AAA An obligation rated AAA has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is extremely
strong.
AA An obligation rated AA differs from the highest-rated
obligations only in small degree. The obligor's
capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to
the adverse effects of changes in circumstances and
economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection
parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial
commitment on the obligation.
Plus The ratings from AA to CCC may be modified by the
(+) addition of a plus or minus sign to show relative
or minus(-) standing within the major rating categories.
Standard & Poor's Short-Term Issue Credit Ratings
SP-1 Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay
debt service is given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest,
with some vulnerability to adverse financial and
economic changes over the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
Standard & Poor's Commercial Paper Ratings
A-1 This designation indicates that the degree of safety
regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation.
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A-2
A-2 Capacity for timely payment on issues with this
designation is satisfactory. However, the relative
degree of safety is not as high as for issues
designated A-1.
A-3 Issues carrying this designation have an adequate
capacity for timely payment. They are, however, more
vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
B Issues rated B are regarded as having only speculative
capacity for timely payment.
C This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
D Debt rated D is in payment default. The D rating
category is used when interest payments or principal
payments are not made on the due date, even if the
applicable grace period has not expired, unless
Standard & Poor's believes such payments will be made
during such grace period.
Moody's
Moody's Four Highest Debt Ratings - Taxable Debt & Deposits Globally
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edged."
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat
larger than the Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-
grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
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A-3
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
Moody's Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
