<PAGE>
Rule 497(c), File Nos. 33-29180 and 811-05823
Prospectus
May 1, 2000
[GRAPHIC]
Domini Social Equity Fund/SM/
Domini Social Bond Fund/SM/
[LOGO]
------------------
SOCIAL INVESTMENTS
Investing for Good/SM/
As with all mutual funds, the Securities and Exchange Commission has not judged
whether this fund is a good investment or whether the information in this
prospectus is truthful and complete. Anyone who indicates otherwise is
committing a crime.
<PAGE>
Domini Social Equity Fund
Domini Social Bond Fund
Supplement dated May 1, 2000 to Prospectus dated May 1, 2000
DSIL Investment Services LLC, the distributor for the Domini Social Bond Fund
(the "Fund"), will solicit orders to purchase shares of the Fund during an
initial offering period from May 1, 2000 to May 31, 2000 (the "Subscription
Period"). A purchase request received in proper form to purchase shares of the
Fund that is accompanied by payment and is received by the Fund's transfer
agent by 4:00 pm on May 31, 2000 will be held uninvested until the Fund
commences operations (June 1, 2000). On June 1, 2000, all purchase requests
will be processed at the initial offering price of $10.00 per share.
Domini fund shareholders may exchange all or a portion of shares they currently
hold into the Domini Social Bond Fund. Exchange requests will be effected at
the net asset value on June 1, 2000 of the Domini fund currently held and being
exchanged into the Fund. The value of the shares currently held and being
exchanged into the Fund may go down between the time your exchange request is
given and when the purchase is processed on June 1, 2000. Exchange requests may
be revoked at any time before 4:00 p.m. on May 31, 2000. On June 1, 2000, all
exchange requests will be processed at the initial offering price of $10.00 per
share.
Any exchange into the Fund represents the sale of shares from one fund and the
purchase of shares of the Fund, which may result in a taxable gain or loss in a
non-tax deferred account.
Shares of the Fund will not be available to the public prior to the Fund's
commencement of operations. Prior to June 1, 2000 purchase and exchange
requests will only be accepted through these subscription offers.
<PAGE>
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 IndexSM?.................................. 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?.................................................... 28
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
The Funds offered in this prospectus provide ways to pursue your investment
goals while being consistent with principles of social and environmental
responsibility. Each Fund's investments are subject to multiple, broad-based
social 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. 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
return 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
"socially and environmentally screened", meaning that they seek to invest in
companies and other issuers that meet the following criteria:
. The Funds avoid securities and obligations of issuers that manufacture
tobacco products or alcoholic beverages, derive any revenues from gambling
enterprises or have an ownership share in, or operate, nuclear power plants.
The Funds also avoid investment in major military contractors.
. The Funds seek to hold the securities and obligations of good corporate
citizens, demonstrated by positive relations with their communities and their
employees, by their environmental record, and by the quality and safety of
their products.
- 2 -
<PAGE>
Overview
Please see pages 18-19 for more information regarding the Funds' social and
environmental 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
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
environmental 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
follows 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 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.
Because of these screens, Fund management may pass up opportunities to buy
certain securities when it is otherwise advantageous to do so, or may sell
certain securities for social or environmental reasons when it is otherwise
disadvantageous to do so.
- 4 -
<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 March 31, 2000: 2.72%
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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
returns in comparison to the S&P 500.
<TABLE>
<CAPTION>
Since Inception
1 Year 5 Years (6/3/91)
- -----------------------------------------------------------
<S> <C> <C> <C>
Domini Social Equity Fund 22.63% 29.58% 19.79%
- -----------------------------------------------------------
S&P 500 21.04% 28.56% 19.43%
</TABLE>
Fund Fees and Expenses
The table below describes the fees and expenses that you would pay if you buy
and hold shares of the Domini Social Equity Fund.*
<TABLE>
<S> <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: 0.12% 0.62%
-----
Total Annual Fund Operating Expenses: 1.07%
Fee Waiver:+ 0.12%
-----
Net Expenses: 0.95%
- ------------------------------------------------------------
</TABLE>
*The table reflects the expenses of the Domini Social Equity Fund and the
Domini Social Index Portfolio, the underlying portfolio in which that Fund
invests.
**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, 1999 to November 30, 2000, Domini Social
Investments LLC has contractually agreed to waive certain fees and/or reimburse
certain expenses, including management fees, so that the Fund's expenses will
not exceed, on a per annum basis, 0.95% of its average daily net assets.
- 6 -
<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
reflected in the fee table above is in effect for the one year time period.
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
$97 $328 $578 $1295
</TABLE>
This example should not be considered to represent actual expenses or
performance from the past or the future. Actual future expenses may be higher
or lower than those shown.
Quick Guide to Important Fund 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 March 31, 2000: $1,491,226,306
Available for IRAs
Dividends: Distributed semi-annually, usually in
June and December
Capital Gains: Distributed annually, usually in
December
Newspaper Listing: Domini Social Invmts (Soc Eq) or
Dom Social
Ticker Symbol: DSEFX
Cusip Number: 257132100
Website: www.domini.com
Shareholder Services: 1-800-762-6814
- 7 -
<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
instruments 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
effective maturity of between 2 and 10 years. All investments meet the Fund's
environmental and social criteria.
The Fund also invests a portion of its assets (up to 10% percent) in debt
instruments 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
investment 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
adversely affect the Fund's performance. An investor can lose money over short
or long periods of time.
- 8 -
<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.
Because of these screens, Fund management may pass up opportunities to buy
certain securities when it is otherwise advantageous to do so, or may sell
certain securities for social or environmental reasons when it is otherwise
disadvantageous to do so.
Past Performance
The Domini Social Bond Fund is newly-created and 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.
- 9 -
<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>
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: 1.95% 2.20%
-----
Total Annual Fund Operating Expenses: 2.85%
Fee Waiver:+ 1.90%
-----
Net Expenses: 0.95%
- ---------------------------------------------------
</TABLE>
* Because the Domini Social Bond Fund is newly-created, expenses are estimated
for the fiscal year ending July 31, 2000.
** 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 inception of the Domini Social Bond Fund to November 30,
2000, Domini Social Investments LLC has contractually agreed to waive certain
fees and/or reimburse certain expenses, including management fees, so that
the Fund's expenses will not exceed, on a per annum basis, 0.95% of its
average daily net assets.
- 10 -
<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
operating 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
period.
<TABLE>
<S> <C>
1 Year 3 Years
- ----------------
$97 $703
</TABLE>
This example should not be considered to represent actual expenses or
performance from the past or the future. Actual future expenses may be higher
or lower than those shown.
Quick Guide to Important Fund 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: Not yet available
Ticker Symbol: Not yet available
Cusip Number: 257132209
Website: www.domini.com
Shareholder Services: 1-800-762-6814
- 11 -
<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
investment 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
Social 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.
. Style Risk. Both Funds apply strict social and environmental screens to their
portfolios. Because of these screens, each Fund's portfolio managers may pass
up opportunities to buy certain securities when it is otherwise advantageous to
do so, or may sell certain securities for social or environmental reasons when
it is otherwise disadvantageous to do so.
An investment in either Fund is not a bank deposit and is not insured or
guaranteed. In addition, each Fund is subject to additional specific risks,
described 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
negatively 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
defend against a falling or stagnant stock market. If the Index is heavily
weighted in a single industry or sector, the Fund will be heavily invested in
that industry or sector, and as a result can be
- 12 -
<PAGE>
The Funds at a Glance
[SIDEBAR: 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.]
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.
Also, the Fund's ability to match the performance of the Index may be affected
by a number of factors, including Fund operating expenses and transaction
costs, inflows and outflows of cash from the Fund and imperfect correlation
between the Fund's holdings and those in the Index.
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
interest rates, usually making them more volatile than securities with shorter
maturities. Under normal market conditions, the Domini Social Bond Fund's
average effective maturity is from 2 to 10 years. Prepayments of the debt
instruments held by the Domini Social Bond Fund may cause its average effective
maturity to differ from its normal range. This deviation is not a violation of
investment policy.
. Credit Risk. One factor affecting the price of debt instruments is how
creditworthy the issuers of these instruments are perceived to be. This
perception is often reflected in credit ratings. The Fund could lose money if
the issuer 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
obligations. 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 performance, financial leverage and reduced demand for the issuer's
goods or services.
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<PAGE>
The Funds at a Glance
[SIDEBAR: 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.]
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
accurately 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
investments. A portion of these investments will be unrated and illiquid. These
investments are 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 the those 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 volatile. Because the Domini Social Bond Fund
invests in mortgage-backed securities, it is particularly sensitive to this
type of risk.
- 14 -
<PAGE>
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
employ practices, that they believe have harmful effects on society or the
natural environment. They seek to invest in issuers with positive qualities,
such as a proactive environmental record, or positive employee relations. This
process is called "social screening."
At Domini Social Investments, in addition to screening our investments, we work
with companies to improve their social and environmental performance and file
shareholder resolutions on these issues when necessary. In addition, we vote
company proxies in a manner that is consistent with our social screening
criteria, and publicly disclose our votes. The Domini Social Bond Fund uses a
portion 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
investments are performing in comparison to the market as a whole.
The Domini 400 Social Index attempts to track the performance of a broad
representation of primarily large-cap U.S. companies that the typical socially
responsible investor would consider appropriate to invest in. The Domini 400
Social Index was created to serve as a benchmark for socially and
environmentally conscious investors.
- 15 -
<PAGE>
More About the Funds
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
direction of the market or the merits of any particular stock.
Unlike index funds, actively managed funds are generally managed to achieve the
highest possible return within certain parameters. These funds are managed by
stock-pickers who buy and sell stocks based on their opinion of the financial
outlook of the stock. Because index funds use a passive strategy, changes in
management generally have less impact on fund performance.
Index funds provide investors with an opportunity to invest in a portfolio that
is specially designed to match the performance of a particular index. Rather
than relying on the skills of a particular mutual fund manager, index fund
investors purchase, in a sense, a cross-section of the market. Their
performance should therefore reflect the segment of the market that their fund
is designed to track.
What are some of the advantages of index investing?
Index investing has become quite popular because it offers investors a
convenient, relatively low-cost and tax-efficient way to obtain exposure to a
broad spectrum of the stock market. Here are some other advantages:
. Diversification. Indexes such as the Domini 400 Social Index invest in a
large number of companies representing a diverse mix of industries. This
structure can help reduce volatility as compared to funds that may invest in a
smaller number of companies, or focus on a particular industry.
. Benchmark Comparability. 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
Social Index.
. 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
- 16 -
<PAGE>
More About the Funds
actively managed mutual fund. Depending on your particular tax situation, a low
turnover rate may produce fewer taxable capital gains.
Compare Turnover Rates
The average annual turnover rate for all domestic stock funds is 111%.*
The annual turnover rate for the Domini Social Equity Fund was 8%.** (There is
no guarantee that this turnover will not be higher in the future.)
A 100% turnover rate would occur if a fund sold and replaced securities valued
at 100% of its net assets within a one-year period.
* As of 09/30/99; taken from Morningstar PrincipiaPro.
** For the period from 08/01/98 to 07/31/99.
What is the Domini 400 Social Index?
The Domini 400 Social Index (DSI 400) is the nation's first socially and
environmentally screened index. It was created and launched in May 1990 by the
social research firm of Kinder, Lydenberg, Domini & Co., Inc. ("KLD") in order
to serve as a benchmark for social investors, and to determine how social
screens affect financial performance. KLD is an affiliate of Domini Social
Investments. The Domini Social Equity Fund was launched in 1991 to give
investors an opportunity 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
traditional social screens. Roughly half of the S&P 500 companies qualified for
the Index in this initial screening process. Approximately 150 non-S&P 500
companies were then added with two goals in mind. One goal was to obtain a
broad representation of industries, so that the Index would more accurately
reflect the market available to the socially responsible investor. Another goal
was to identify companies that are particularly strong models of corporate
behavior.
KLD maintains an extensive database of corporate accountability information on
more than 1,000 publicly traded companies and bases its decisions on research
into the following factors:
- 17 -
<PAGE>
[SIDEBAR: 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.]
More About the Funds
Exclusionary Screens
KLD seeks to exclude the following types of companies from the Index:
. Tobacco and Alcohol - companies that manufacture tobacco products or
alcoholic beverages;
. Gambling - companies that receive identifiable revenues from gambling
enterprises;
. Nuclear Power - companies that have an ownership share in, or operate nuclear
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
inclusion 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
penalties, 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
directors, including the company's record with respect to the availability of
benefit programs that address work/family concerns, innovative hiring programs
for the disabled and progressive policies toward gays and lesbians;
- 18 -
<PAGE>
More About the Funds
. 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
criteria, 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 impact 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 Index. The social criteria listed in this prospectus may be modified and
additional social criteria may be imposed at any time without approval of
shareholders.
How are the Domini Social Equity Fund's largest holdings selected?
Like the S&P 500, the DSI 400 is "market capitalization-weighted." Market
capitalization is a measure of the value of a publicly traded company. It is
calculated by multiplying the total number of outstanding shares of company
stock by the price per share.
The Domini Social Equity Fund's portfolio is also market capitalization-
weighted. For example, assume that the total market value of Company A's shares
is twice the total market value of Company B's shares. The Fund's portfolio is
structured so that its holdings of Company A's shares will be about twice the
value of its holdings of Company B's shares. The Fund's top ten holdings
therefore are simply the ten companies with the highest market value in the
Index.
Because it seeks to duplicate the Index as closely as possible, the Fund will
attempt to have a correlation between the weightings of the stocks it holds in
its portfolio and the weightings of the stocks in the Index of 0.95 or better.
A figure of 1.0 would indicate a perfect correlation.
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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
market, the Index is maintained using a "buy and hold" strategy. Generally
speaking, this means that companies that are in the Index stay in the Index for
a long time. A company will not be removed because its stock has not been
performing well, unless in KLD's opinion the company is no longer financially
viable. Sometimes a company is removed from the Index because it has been
acquired by another company. Sometimes a company may split into two companies,
and only one of the surviving companies is selected to stay in the Index
(because the Index is maintained to consist of exactly 400 companies at all
times).
A company may also be removed from the Index because its social profile has
deteriorated, or due to its inadequate response to a significant controversy.
When a company is removed from the Index, it is replaced with another company.
In the selection process, among other factors, KLD considers the size of the
company, the industry it is in, and its social profile.
Are there companies I won't like in the Domini 400 Social Index?
The screens for the Index are designed to reflect those most widely used by
social investors. Therefore, you may find that some companies in the Index do
not reflect your social or environmental standards. You may wish to review a
list of 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
annual and semi-annual reports. To obtain copies of these reports, free of
charge, call 1-800-762-6814.
No company is a perfect model of corporate or social responsibility. Each year,
the Domini Social Equity Fund uses its voice as a shareholder to encourage
companies to improve their social and environmental records by voting proxies,
writing letters, engaging management in dialogue and filing shareholder
resolutions.
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<PAGE>
More About the 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.
Investors 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-3 to A-9 for information how to buy and sell shares.
. Reinvestment of Dividends. If you do not depend upon your investment for
regular income, you may choose to reinvest your dividends.
. Low Minimum Investment. Purchasing an individual bond can be expensive
because 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 guarantees, investing
in a large number of bonds and other debt instruments allows you to spread
certain risks (such as credit risk) among more than one issuer.
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<PAGE>
More About the Funds
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
investment 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
deposit 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
instruments the Fund will hold (for a discussion of the risks associated with
these types of securities, refer to pages 8 and 13):
. 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 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 issuing the bonds. For example, a
company whose credit rating
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<PAGE>
More About the Funds
[SIDEBAR: 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.]
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
generally 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 particularly sensitive to prepayment risk, discussed earlier (page 14) in
this prospectus.
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
Association). Ginnie Maes are guaranteed by the full faith and credit of the
U.S. government as to the timely payment of principal and interest. Freddie
Macs and Fannie Maes are backed by their respective issuer only. Of course,
your investment in the
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<PAGE>
More About the Funds
Domini Social Bond Fund is not insured. The Fund may also invest to a lesser
extent in conventional mortgage securities, which are packaged by private
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
denominated 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 subject 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
produce 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
[SIDEBAR: South Shore Bank, the Domini Social Bond Fund's submanager, is the
nation's largest and oldest community development bank, founded with the
purpose of serving the financial needs of residents and businesses in
traditionally underserved urban areas.
Between 1974 and November 1999, the Bank loaned $600 million for local
rehabilitation and commercial development to approximately 12,500 borrowers.
South Shore Bank currently has more than $830 million in assets and $57 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
businesses, housing loans in urban neighborhoods, and real estate development--
exceeded $100 million in 1999 and are on track to at least equal that amount in
2000.
Shorebank is responsible for more than 900 jobs created, placed or retained,
and for the rehabilitation of over 2,300 units of multi-family housing.]
The Social Impact of the Domini Social Bond Fund
Although an equity fund such as the Domini Social Equity Fund can have an
impact 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
assets in debt instruments and other investments that support and promote
community development. The Fund's submanager will draw upon its experience in
making productive community development investments to carefully select those
financial 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
Institutions and Community Loan Funds, and small business association (SBA)
guaranteed portions of small business loans. The Fund may invest a portion of
its assets in below market-rate community development investments.
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<PAGE>
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
feature represents increased potential for capital gains. Call provisions may
allow 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
regular payments of interest. This makes the Fund's net asset value more
volatile. In order to pay cash distributions representing income on zero coupon
obligations, 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
Additional Information. The Fund may use derivatives to reduce exposure to
certain risks, such as interest rate risk. The Fund will not use derivatives
for leverage. Suitable derivative transactions may not be available in all
circumstances, and there can be no assurance that the Fund will use
derivatives, even when they may benefit the Fund.
Derivatives are subject to a number of risks described on pages 12 and 13 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
index.
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<PAGE>
Additional Investment Strategies & Risk Information
. Temporary Investments. The Fund may temporarily use a different investment
strategy for defensive purposes in response to market conditions, economic
factors, 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
investment 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
interests of the Fund to do so. The Board of Trustees would then consider what
action might be taken, including investing all of the Fund's assets in another
similarly structured portfolio having the same investment objective as the
Fund, or hiring an investment adviser to manage the Fund's assets. There is
currently no intention to change the Domini Social Equity Fund's investment
structure. References to the Domini Social Equity Fund in this prospectus
include the Portfolio, 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
issued by agencies or instrumentalities of the U.S. government, bankers'
acceptances, commercial paper, certificates of deposit, bank deposits or
repurchase agreements. The issuers of these securities must satisfy certain
social criteria.
The Domini Social Bond Fund will also invest a portion of its assets in
quality, short-term debt securities issued by agencies or instrumentalities of
the U.S. government, bankers' acceptances, commercial paper, certificates of
deposit, bank deposits and repurchase agreements. Some of the investments will
be with community development
- 27 -
<PAGE>
Additional Investment Strategies & Risk Information
banks and financial institutions and may not be insured 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
Commission, 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 securities 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.
Who Manages the Funds?
Investment Manager
Domini Social Investments LLC (DSIL), 11 West 25th Street, 7th floor, New
York, NY 10010, has been managing money since November of 1997 and currently
manages more than $1.5 billion dollars in assets for individual and
institutional investors who are working to create positive change in society
by using social and environmental criteria in their investment decisions. A
team of managers at DSIL manages each of the Domini Social Index Portfolio,
the Domini Social Equity Fund and the Domini Social Bond Fund. DSIL provides
the Funds and the Portfolio with investment supervisory services, overall
operational support and administrative services.
- 28 -
<PAGE>
Who Manages the Funds?
Social Research & Index Maintenance
Kinder, Lydenberg, Domini & Co., Inc. (KLD), an affiliate of DSIL, determines
the composition of the Domini 400 Social Index. The following persons are
primarily responsible for the development and maintenance of the Domini 400
Social Index: Amy L. Domini, CFA, a Managing Principal of DSIL and Founder of
KLD (since 1988), Steven D. Lydenberg, CFA, Director of Research, KLD (since
1990), and Peter D. Kinder, JD, President, KLD (since 1988).
Portfolio Investment 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 Submanagement Agreement with DSIL. Mellon
Equity implements the daily transactions necessary to maintain the proper
correlation between the Domini Social Equity Fund's portfolio and the Domini
400 Social Index. They do not determine the composition of the Index.
For the services DSIL and Mellon Equity provided to the Domini Social Equity
Fund and the Portfolio during the fiscal year ended July 31, 1999, they
received a total of 0.69% of the average daily net assets of the Domini Social
Equity Fund, after waivers.
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
purpose of serving the financial needs of residents and businesses in
traditionally underserved urban areas. David J. Oser, Senior Vice President,
Investments (since 1994) leads the team responsible for the management of the
Domini Social Bond Fund. Mr. Oser has been with South Shore Bank since 1976,
where he currently manages $450 million in assets for affiliates and
institutional clients of the Bank. He also serves as Retirement Plan Trustee
and Corporate Secretary 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.
The Domini Social Bond Fund is newly-created and has not paid management fees.
DSIL and South Shore Bank may receive total investment advisory fees of 0.40%
- 29 -
<PAGE>
Who Manages the Funds?
of the average daily net assets of the Domini Social Bond Fund, after waivers,
during the fiscal year ended July 31, 2000.
The Funds' Distribution Plan
DSIL Investment Services LLC, a wholly owned subsidiary of DSIL, is the
distributor 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
expense tables, on pages 6 and 10 of this prospectus, and the Statement of
Additional Information.
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<PAGE>
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-3
How to Exchange Shares................................................... A-5
How to Sell Shares....................................................... A-6
How the Price of Your Shares is Determined............................... A-9
How can I find out a Fund's NAV?....................................... A-10
How do you determine what price I will get when I buy shares?.......... A-10
How do you determine what price I will get when I sell shares?......... A-10
How is the value of securities held by the Funds determined?........... A-10
Fund Statements and Reports.............................................. A-11
Dividends and Capital Gains.............................................. A-12
Taxes.................................................................... A-12
Rights Reserved by the Funds............................................. A-13
</TABLE>
For more information on:
. investing in the Funds,
. your account,
. each Fund's daily share price, and
. socially responsible investing,
Call our Shareholder Information Line toll-free at 1-800-762-6814. Shareholder
representatives are available to take your call weekdays, from 9-5PM, Eastern
Time. You may obtain the share price of a Fund 24 hours a day, 7 days a week by
using our automated system.
Visit our web site at www.domini.com.
Quick Reference
Ticker Symbols:
Domini Social Equity Fund - DSEFX
Domini Social Bond Fund - Not yet available
Newspaper Listing:
Domini Social Equity Fund - Domini Social Invmts (Soc Eq) or
Dom Social
Domini Social Bond Fund - Not yet available
Account Statements are mailed quarterly.
Trade Confirmations are sent after purchases and
redemptions.
Annual and Semi-Annual Reports will be mailed in
late September and March, respectively, 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
decide 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.
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.
- A-2 -
<PAGE>
Shareholder Manual
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
until 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 details, or call 1-800-762-6814.
For an Organization:
You may open an account for a trust, corporation, partnership, endowment,
foundation or other entity.
How to Buy Shares
By Check
Mail the completed Account Application and your check to:
Domini Funds
P.O. Box 60494
King of Prussia, PA 19406-0494
For subsequent investments, fill out the investment form that came with your
trade confirmation or account statement or send a note with your account number
and Fund name. Always be sure to include your account number on your check. If
you need additional forms, please call 1-800-762-6814.
Your checks must be in U.S. dollars drawn on a U.S. bank and be made payable to
"Domini Funds."
IMPORTANT: For our mutual protection, Domini
cannot accept checks made payable to third
parties.
- A-3 -
<PAGE>
Shareholder Manual
[SIDEBAR: 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.]
By Bank Wire
To establish wire privileges on an existing account, or for additional
information 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.
Automatic Investment Plan
Our Automatic Investment Plan allows you to have specified amounts
automatically deducted from your bank account or Domini Money Market Account
and invested 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 1-800-762-6814 for more
information.
This service may take up to 4 weeks to begin. Also, due to the varying
procedures 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.
- A-4 -
<PAGE>
Shareholder Manual
How to Exchange Shares
You may exchange all or a portion of your shares into any other available
Domini funds or the Domini Money Market AccountSM. You may request an exchange
by calling 1-800-762-6814, or in writing. All written requests must be signed
by all owners. For information on transferring assets from another mutual fund
family, please call 1-800-762-6814 or visit www.domini.com to obtain the
necessary forms.
The Domini Money Market 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-5 -
<PAGE>
Shareholder Manual
[SIDEBAR: 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-8).
. Any supporting legal documentation that may be required.]
How to Sell Shares
You are free to sell all or part of your Fund shares at any time during New
York Stock Exchange trading hours (generally weekdays from 9AM - 4PM Eastern
Time). The 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-8).
Transactions are processed at the next determined share price after Domini
receives your sale request in good order.
You may sell (redeem) your shares in the Funds in the following ways:
In Writing
Mail written redemption requests to:
Domini Funds
P.O. Box 60494
King of Prussia, PA 19406-0494
For overnight deliveries, please use the following address:
Domini Funds
c/o PFPC, Inc.
211 South Gulph Road
King of Prussia, PA 19406
- A-6 -
<PAGE>
Shareholder Manual
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
registered owners or authorized signers.
Your redemption request may require a signature guarantee. Please refer to page
A-8 for details.
By Telephone
To sell shares by telephone, call the Funds' transfer agent at 1-800-762-6814.
If you wish to receive your redemption by wire and have not already established
wire privileges on your account, you must submit wire redemption requests in
writing along with a Signature Guarantee (see page A-8).
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
appropriate area on the application, and attach a voided check.
If you have not already established wire redemption privileges on your account
you must submit wire redemption requests in writing along with a Signature
Guarantee (see page A-8).
- A-7 -
<PAGE>
Shareholder Manual
. $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
institutions 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.
Additional Information on Selling Shares
Signature Guarantees
You are required to obtain a Signature Guarantee from an Eligible Guarantor for
any:
. Sales (redemptions) exceeding $50,000;
. Written sales requests, regardless of amount, made within 30 days
following any changes in account registration; and
. Redemptions made to a third party or to an address other than the address
for which the account is registered (unless already established on your
account).
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
public or organizations that do not provide reimbursement in the case of fraud.
The Funds or their transfer agent may, at their option, request further
documentation prior to accepting requests for redemptions.
- A-8 -
<PAGE>
Shareholder Manual
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
telephone redemption privileges, or if you have difficulty getting through on
the phone, you will still be able to redeem your shares through the other
methods listed above.
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
. if the Securities and Exchange Commission determines that an emergency
exists.
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 - up to
seven days - if 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
substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a Fund, except upon approval of DSIL.
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
number of shares of the Fund you own.
- A-9 -
<PAGE>
Shareholder Manual
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: Domini Social Invmts (Soc Eq) or Dom Social.
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-6 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.
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-6 of this prospectus. Please note that
the Funds will not accept redemption requests 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
appropriate box on the Account Application, by wire transfer.
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
instead 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
values. To the extent that a Fund invests
- A-10 -
<PAGE>
Shareholder Manual
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.
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
confirmation 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
distributions from IRAs or other retirement accounts as required by the
Internal Revenue Service. These are generally mailed in January.
- A-11 -
<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
additional shares. Unless you choose to receive your dividends by check, all
dividends will be reinvested in additional shares. In either case, these
distributions are taxable to you.
Taxes
This discussion of taxes is for general information only. You should consult
your own tax adviser about your particular situation and the status of your
account under state and local laws.
Taxability of Dividends:
Each year the 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
capital gains. Other dividends are generally taxable as ordinary income. Some
dividends paid in January may be taxable to you as if they had been paid the
previous December.
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
purchase price back as a dividend on which you may need to pay tax.
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.
- A-12 -
<PAGE>
Shareholder Manual
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 proceeds it pays you
if you fail to provide this information or
otherwise violate IRS regulations.
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
Automatic 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-13 -
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand the Domini
Social Equity Fund's financial performance for the past 5 years. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited, except for the six months
ended January 31, 2000, by KPMG LLP, whose report, along with the Fund's
financial statements, is included in the annual report, which is available upon
request. The Domini Social Bond Fund is newly-created and has not yet issued
financial statements.
<TABLE>
<CAPTION>
Six Months Ended
January 31, 2000
(unaudited)
----------------
<S> <C>
Net Asset Value, beginning of
period.......................... $ 37.21
----------
Income from investment operations:
Net investment income............ (0.01)
Net realized and unrealized gain
on investments................. 2.67
----------
Total income from investment
operations................... 2.66
----------
Less distributions and dividends:
Dividends to shareholders from
net investment income.......... --
Dividends to shareholders from
net realized gain.............. (0.27)
----------
Total distributions............ (0.27)
----------
Net asset value, end of period.... $ 39.60
==========
Ratios/supplemental data
Total return..................... 9.16%+
Portfolio turnover*.............. 2%
Net assets, end of year (000's).. $1,317,659
Ratio of expenses to average net
assets......................... 0.97%(/1/)+
Ratio of net investment income to
average net assets............. 0.04%(/1/)+
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended July 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period.......................... $ 30.86 $ 25.43 $ 16.70 $ 14.85 $ 12.13
---------------- -------------- -------------- ------------- -------------
Income from investment operations:
Net investment income............ 0.02 0.01 0.11 0.16 0.17
Net realized and unrealized gain
on investments................. 6.81 5.48 8.85 1.93 2.83
---------------- -------------- -------------- ------------- -------------
Total income from investment
operations................... 6.83 5.49 8.96 2.09 3.00
---------------- -------------- -------------- ------------- -------------
Less distributions and dividends:
Dividends to shareholders from
net investment income.......... (0.03) (0.01) (0.11) (0.16) (0.20)
Dividends to shareholders from
net realized gain.............. (0.45) (0.05) (0.12) (0.08) (0.08)
---------------- -------------- -------------- ------------- -------------
Total distributions............ (0.48) (0.06) (0.23) (0.24) (0.28)
---------------- -------------- -------------- ------------- -------------
Net asset value, end of period.... $ 37.21 $ 30.86 $ 25.43 $ 16.70 $ 14.85
================ ============== ============== ============= =============
Ratios/supplemental data
Total return..................... 22.26% 21.58% 54.01% 14.11% 25.10%
Portfolio turnover*.............. 8% 5% 1% 5% 6%
Net assets, end of year (000's).. $1,082,978 $501,894 $212,310 $80,915 $54,638
Ratio of expenses to average net
assets......................... 0.98%(/1/) 1.17%(/2/) 0.98%(/3/) 0.98%(/3/) 0.90%(/4/)
Ratio of net investment income to
average net assets............. 0.06%(/1/) 0.07%(/2/) 0.62%(/3/) 1.01%(/3/) 1.38%(/4/)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*The Portfolio turnover rates represent the rate of portfolio activity of the
Domini Social Index Portfolio, the underlying portfolio through which the
Domini Social Equity Fund invests.
(1)Reflects a voluntary waiver of expenses by Domini Social Investments LLC,
the Manager of the Domini Social Index Portfolio. Had the Manager not waived
its fees, the ratios of expenses and net investment income to average net
assets would have been 0.98% and 0.03%, respectively, for the six months ended
January 31, 2000 and 0.99% and 0.05%, respectively, for the year ended July 31,
1999.
(2)Reflects a non-recurring payment to the Domini Social Equity Fund's former
administrator by the Fund 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.
(4)Reflects a voluntary waiver of fees by Signature Financial Group, the Fund's
former Administrator, and Kinder, Lydenberg, Domini Co., the prior Fund's
former Adviser, due to the limitations set forth in the expense payment
agreement. Had Signature Financial Group and Kinder, Lydenberg, Domini Co., not
waived their fees, the ratios of expenses and net investment income to average
net assets for the year ended July 31, 1995 would have been 1.15% and 1.13%,
respectively.
+Annualized.
- B-1 -
<PAGE>
For Additional Information
Annual and Semi-Annual Reports
Additional information about the Domini Social Equity Fund's investments is
available in that Fund's annual and semi-annual reports to shareholders. These
reports include a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year,
as well as a complete listing of the Fund's holdings. They are available by
mail from Domini Social Investments, or on our website, www.domini.com. The
Domini Social Bond Fund is newly-created and has not issued annual or semi-
annual reports as of the date of this prospectus.
Statement of Additional Information
The Funds' Statement of Additional Information contains more detailed
information about each Fund and its management and operations. The Statement of
Additional Information is incorporated by reference into this prospectus and is
legally 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
activism 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
investing, 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>
This is filed pursuant to Rule 497(c)
File Nos. 33-29180 and 811-05823
STATEMENT OF ADDITIONAL INFORMATION
May 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 May 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 Domini Social Equity Fund's Annual Report to
Shareholders. An investor may obtain copies of the Funds' Prospectus and the
Domini Social Equity Fund's 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"). 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.
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.
<PAGE>
-3-
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 212-352-9200.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk. This
possibility also exists for traditionally structured funds which have large or
institutional investors. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Subject to exceptions that are not inconsistent with applicable
rules or policies of the Securities and Exchange Commission (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.
The Domini Social Equity Fund's Trustees believe that the aggregate per
share expenses of the Domini Social Equity Fund and the Portfolio will be less
than or approximately equal to the
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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 Domini Social Equity Fund
include the Portfolio, unless the context otherwise requires.
Domini Social Equity Fund
INDEX INVESTING: The Domini Social Equity Fund 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 Domini Social Equity Fund 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 Domini Social Equity Fund 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 Domini
Social Equity Fund, and the extent of the correlation of the holdings of the
Domini Social Equity Fund 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 available for anticipated redemptions of Domini Social
Equity Fund shares. To the extent practicable, the Portfolio will seek a
correlation between the weightings of securities held by the Portfolio and the
weightings of the securities in the Domini Social Index of 0.95 or better. A
figure of 1.0 would indicate a perfect correlation. To the extent practicable,
the Domini Social Equity
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Fund 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, 1999, of the 500 companies whose stocks comprised the S&P 500,
approximately 58% were included in the Domini Social Index. The remaining
stocks comprising the Domini Social Index (i.e., those which are not included in
the S&P 500) were selected based upon KLD's evaluation of the social criteria
described in the Prospectus, as well as upon KLD's criteria for industry
diversification, financial solvency, market capitalization, and minimal
portfolio turnover. A company which is not included in the S&P 500 may be
included in the Domini Social Index primarily in order to afford representation
to an industry sector which would otherwise be under-represented in the Domini
Social Index. Because of the social criteria applied in the selection of stocks
comprising the Domini Social Index, industry sector weighting in the Domini
Social Index may vary materially from the industry weightings in other stock
indices, including the S&P 500, and certain industry sectors will be excluded
altogether. KLD may exclude from the Domini Social Index stocks issued by
companies which are in bankruptcy or whose bankruptcy KLD believes may be
imminent. KLD may also remove from the Domini Social Index stocks issued by
companies which no longer meet its investment criteria.
The weightings of stocks in the Domini Social Index are based on each
stock's relative total market capitalization (i.e., market price per share times
the number of shares outstanding). Because of this weighting, as of August 31,
1999 approximately 34% and 51% of the Domini Social Index was comprised of the
10 largest and 20 largest companies, respectively, in the Domini Social Index.
The component stocks of the S&P 500 are chosen by Standard & Poor's Ratings
Group ("S&P") solely with the aim of achieving a distribution by broad industry
groupings that approximates the distribution of these groupings in the New York
Stock Exchange ("NYSE") common stock population, taken as the assumed model for
the composition of the total market. Construction of the S&P 500 by S&P
proceeds from industry groups to the whole. Since some industries are
characterized by companies of relatively small stock capitalization, the S&P 500
does not comprise the 500 largest companies listed on the NYSE. Not all stocks
included in the S&P 500 are listed on the NYSE. However, the total market value
of the S&P 500 as of October 28, 1999 represented approximately 72.32% of the
aggregate market value of common stocks traded on the NYSE.
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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 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
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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.
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.
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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 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.
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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 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
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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 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
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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.
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.
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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 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.
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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 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.
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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.
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.
<PAGE>
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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 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
<PAGE>
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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 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
<PAGE>
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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 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;
<PAGE>
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(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;
(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;
<PAGE>
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(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 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
<PAGE>
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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.
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, 1999 22.26%
Five years ended July 31, 1999 26.72%
June 3, 1991 (Commencement of
<PAGE>
-21-
Investment in the Portfolio) to
July 31, 1999 19.07%
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 is newly-created and does not have performance
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
Index/SM/ 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
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
<PAGE>
-22-
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 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.
<PAGE>
-23-
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 11
West 25th Street, 7th Floor, New York, NY 10010.
TRUSTEES OF THE TRUST AND THE PORTFOLIO
AMY L. DOMINI* -- 230 Congress Street, Boston, Massachusetts 02110; Chair,
President and Trustee of the Trust, Portfolio and Domini Institutional Trust;
Managing Principal of DSIL; Officer of Kinder, Lydenberg, Domini & Co., Inc.;
Private Trustee, Loring, Wolcott & Coolidge; Trustee, New England Quarterly
(since 1998); Board Member, Social Investment Forum (since 1994); Trustee,
Episcopal Church Pension Fund; Former Member, Governing Board, Interfaith Center
on Corporate Responsibility; Former Trustee, National Association Community Loan
Funds; Former Board Member of National Community Capital Association (1987-
1990). Her date of birth is January 15, 1950.
JULIA ELIZABETH HARRIS -- 54 Burroughs Street, Jamaica Plain, Massachusetts
02130; Vice President, UNC Partners, Inc. (since April 1990); Director and
Treasurer, Boom Times, Inc. (since May 1997); Director and Chair of Board of
Directors, The Green Book, Inc. (October 1991 - June 1996); Trustee, Domini
Institutional Trust. Her date of birth is July 11, 1948.
KIRSTEN S. MOY -- 151 North Michigan Avenue, Suite 1209, Chicago, Illinois
60601; Consultant, Project Director and Principal Researcher, Community
Development Innovation and Infrastructure Initiative (since December 1998); CDFI
Rating System Advisory Board Member, National Community Capital Association
(since 1999); Member, Community Economic Development Board of Overseers, New
Hampshire College (since November 1998); Advisory Group Member, Shorebank
Liquidity Project (since 1999); Consultant, Equitable Life Assurance Society
(since December 1998); Board Member, Free Associates Theatre Company (since
August 1999); Consultant, Social Investment Forum, Community Development Project
(June 1998-December 1998); Director, Community Development Financial
Institutions Fund, U.S. Department of the Treasury (October 1995 - October
1997); Senior Vice President and Portfolio Manager, Equitable Real Estate
Investment Management (prior to October 1995); Trustee, Domini Institutional
Trust. Her date of birth is June 30, 1947.
WILLIAM C. OSBORN -- 115 Buckminster Road, Brookline, Massachusetts 02445;
Consultant, Arete Corporation; Manager, Venture Investment Management Company
LLC (prior to 1999); Trustee, Domini Institutional Trust; Vice President and
General Manager, TravElectric Services Corp (prior to 1995); President,
Environmental Technologies (prior to 1993); Director, Evergreen
<PAGE>
-24-
Solar, Inc; Director, Conservation Services Group; Director, Fingerlakes
Aquaculture LLC; Director, Surgical Sealants, Inc; Director, World Power
Technologies, Inc. His date of birth is July 7, 1944.
KAREN PAUL -- 4050 Park Avenue, Miami, Florida 33133; Associate Dean and
Professor of Business Environment, Florida International University (since
1991); Trustee, Domini Institutional Trust; Partner, Trinity Industrial
Technology (since 1997); Executive Director, Center for Management in the
Americas (since 1997). Her date of birth is September 23, 1944.
GREGORY A. RATLIFF -- 1712 Carmen Avenue, Chicago, Illinois 60640; Director,
Access to Economic Opportunity, John D. and Catherine T. MacArthur Foundation
(since 1997); Associate Director, Program-Related Investments, John D. and
Catherine T. MacArthur Foundation (1993-1997); Trustee, Domini Institutional
Trust. His date of birth is June 12, 1960.
TIMOTHY SMITH -- 475 Riverside Drive, Room 550, New York, New York 10115;
Executive Director, Interfaith Center on Corporate Responsibility (since 1971);
Trustee, Calvert New Africa Fund; Chair, Calvert Social Investment Fund Advisory
Council; Trustee, Domini Institutional Trust. His date of birth is September
15, 1943.
FREDERICK C. WILLIAMSON, SR. -- Five Roger Williams Green, Providence, Rhode
Island 02904; Treasurer and Trustee, RIGHA (charitable foundation supporting
health care needs) since 1990; Chairman, Rhode Island Historical Preservation
and Heritage Commission (since 1995); Trustee, National Parks and Conservation
Association (1986-1997); Advisor, National Parks and Conservation Association
(since 1997); Trustee of the National Park Trust (since 1991); Trustee, Domini
Institutional Trust. 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, 1999 is set
forth below. The Trustees may hold various other directorships unrelated to the
Trust or Portfolio.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from the Trust,
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 $ 928* None None $1,160*
Harris,
Trustee
Kirsten S. Moy, $ 928* None None $1,160*
Trustee
</TABLE>
<PAGE>
-25-
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
William C. Osborn, $4,000 None None $6,000
Trustee
Karen Paul, $4,000 None None $6,000
Trustee
Gregory A. Ratliff, $ 928* None None $1,160*
Trustee
Timothy Smith, $4,000 None None $6,000
Trustee
Frederick C. $4,000 None None $6,000
Williamson, Sr.,
Trustee
</TABLE>
________________________
* Ms. Harris, Ms. Moy and Mr. Ratliff became trustees on June 1, 1999.
OFFICERS
PETER D. KINDER* -- Vice President of the Trust and the Portfolio; President of
Kinder, Lydenberg, Domini & Co., Inc.; Member, Domini Social Investments LLC
(since 1997). His date of birth is September 28, 1946.
STEVEN D. LYDENBERG* -- Vice President of the Trust and the Portfolio; Director
of Research of Kinder, Lydenberg, Domini & Co., Inc.; Member, Domini Social
Investments LLC (since 1997). His date of birth is October 21, 1945.
DAVID P. WIEDER* -- Vice President of the Trust and the Portfolio (since 1997);
Chief Executive Officer and Managing Principal, Domini Social Investments LLC
(since 1997); President of FSSI (since 1989); Vice-President of investment
companies within Fundamental Family of Funds (1989-1997); Vice-President of
Fundamental Portfolio Advisors (1991-1997). His date of birth is January 8,
1966.
SIGWARD M. MOSER* -- Vice President of the Trust and the Portfolio (since 1997);
President and Managing Principal, Domini Social Investments LLC (since 1997);
President of Communications House International, Inc.; Director of Financial
Communications Society. His date of birth is June 12, 1962.
CAROLE M. LAIBLE* -- Secretary and Treasurer of the Trust and the Portfolio
(since 1997); Financial Compliance Officer of Domini Social Investments LLC
(since 1997); Board of 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 March 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
<PAGE>
-26-
Fund: Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104
(5,579,352 shares, 16.2%), Manulife Financial, 250 Bloor Street East, 7E Floor,
Toronto, Ontario, Canada, M4W 1E5 (3,686,261 shares, 10.7%), Fidelity
Investments as agent for certain employee benefit plans, 100 Magellan Way
(KW1C), Covington, Kentucky 41015 (2,201,423 shares, 6.4%). 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. The Domini Social Bond
Fund is newly-created and has no shareholders as of the date of this Statement
of Additional Information.
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 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
<PAGE>
-27-
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.
DSIL is a Massachusetts limited liability company with offices at 11
West 25th Street, 7th Floor, New York, NY 10010, and is registered as an
investment adviser under the Investment Advisers Act of 1940 (the "Advisers
Act"). The names of the principal owners of DSIL and their relationship to the
Trust follows: Amy L. Domini, Chair of the Board and President of the Trust, is
the Manager and principal executive officer and a co-owner of DSIL. Ms. Domini
is also Chief Executive Officer, Secretary, Treasurer and co-owner of KLD which
licenses the Domini Social Index to DSIL. Peter D. Kinder, Vice President of
the Trust, is a co-owner of DSIL. Mr. Kinder is also President and a co-owner
of KLD. Sigward M. Moser, Vice President of the Trust, is a co-owner of DSIL.
David P. Wieder, Vice President of the Trust is a co-owner of DSIL. Mr. Wieder
is also President and an owner of FSSI, a registered transfer agent which served
as the 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
<PAGE>
-28-
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.
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.
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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, the
Portfolio paid Mellon Equity an investment management fee equal on an annual
basis to 0.10% of the average daily net assets of the Portfolio. Prior to
October 22, 1997, pursuant to a sponsorship agreement (the "KLD Sponsorship
Agreement"), KLD furnished administrative services for the Portfolio. Prior to
October 22, 1997, pursuant to an administrative services agreement (the
"Signature Administration Agreement"), Signature Broker-Dealer Services, Inc.
served as the administrator of the Portfolio. Prior to October 22, 1997, the
aggregate investment management and administration fees under the prior
agreements with respect to the Portfolio were equal to 0.15% of the Portfolio's
average daily net assets for its then current fiscal year.
For the fiscal year ended July 31, 1999, the Portfolio incurred
approximately $1,791,617 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.
Because the Domini Social Bond Fund is newly-created, it has not paid
management fees as of the date of this Statement of Additional Information.
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
<PAGE>
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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 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, 1999 and July 31, 1998, the Domini Social Equity Fund incurred
$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. Because the Domini
Social Bond Fund is newly-created, as of the date of this Statement of
Additional Information, it has not paid sponsorship fees.
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.
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, and 1999 the Domini Social Equity Fund accrued $153,295,
$580,272, and $1,327,042 respectively, in distribution fees. For the fiscal
year ended July 31, 1999, payments made by the Domini Social Equity Fund
pursuant to the Distribution Plan were used for advertising ($310,408), printing
and mailing of prospectuses to other than current shareholders ($34,943),
compensation to dealers ($563,574) and communications and servicing ($418,117).
Because the Domini Social Bond Fund is newly-created, as of the date of this
Statement of Additional Information, it has not paid 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
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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 First Data
Investor Services Group, Inc. ("First Data"), 4400 Computer Drive, Westborough,
MA 01581, pursuant to which First Data acts as the transfer agent for 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 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
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Organizations for their costs related to servicing shareholder accounts. For the
fiscal years ended July 31, 1997, 1998, and 1999 the Domini Social Equity Fund
accrued $3,711, $0, and $940 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.
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.
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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 tax preference items, without
regard to whether it has received any cash 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.
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
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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. A 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 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.
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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 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
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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 and 1999, the Portfolio
paid brokerage commissions of $101,639, $175,344, and $327,338 respectively.
The Domini Social Bond Fund is newly-created and did not pay brokerage
commissions during those periods.
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
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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 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
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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 denominator of which is the aggregate net asset value
of the Portfolio as of the close of business on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of business on the
following Fund Business Day.
10. FINANCIAL STATEMENTS
The audited financial statements of the Domini Social Equity Fund and the
Portfolio (Statement of Assets and Liabilities at July 31, 1999, Statement of
Operations for the year ended July 31, 1999, Statement of Changes in Net Assets
for each of the years in the two-year period ended July 31, 1999, Financial
Highlights for each of the years in the five-year period ended July 31, 1999,
Notes to Financial Statements and Independent Auditors' Report), each of which
is included in the Annual Report to Shareholders of the 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 unaudited financial statements of the Domini Social Equity Fund and
the Portfolio (Statement of Assets and Liabilities at January 31, 2000,
Statement of Operations for the six months ended January 31, 2000, Statement of
Changes in Net Assets for the six months ended January 31, 2000 and the year
ended July 31, 1999, Financial Highlights for the six months ended January 31,
2000 and for each of the years in the four-year period ended July 31, 1999 and
Notes to Financial Statements), each of which is included in the Semi-Annual
Report to Shareholders of the Domini
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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.
The Domini Social Bond Fund is newly-created and has not issued financial
statements as of the date of this Statement of Additional Information.
Domini Social Investments/SM/, Domini Social Equity Fund/SM/, Domini Social Bond
Fund/SM/, Domini Money Market Account/SM/, The Responsible Index Fund/SM/ and
domini.com/SM/ are 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
<TABLE>
<S> <C>
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 standing within the major rating categories.
or minus(-)
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.
</TABLE>
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A-2
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
<PAGE>
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.
