<PAGE> 1
LOGO PROSPECTUS
An Investment For Your Future. January 5, 1998
29 Temple Place, Boston, Massachusetts 02111
1-800-93-GREEN
FOR INFORMATION ON THE GREEN CENTURY FUNDS(R), CALL 1-800-93-GREEN. FOR
INFORMATION ON HOW TO OPEN AN ACCOUNT AND DETAILS ON ACCOUNT SERVICES, CALL
1-800-221-5519. FOR SHARE PRICE INFORMATION, CALL 1-800-882-8316, TWENTY-FOUR
HOURS A DAY.
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The Green Century Funds ("Green Century" or the "Funds") are an open-end,
diversified, no-load family of mutual funds. Green Century endeavors to make a
contribution to a safer, lasting environment by promoting corporate
environmental responsibility. Green Century provides people who care about a
clean, healthy planet the opportunity to use the clout of their investment
dollars to encourage environmentally responsible corporate behavior.
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THE GREEN CENTURY FUNDS
THE GREEN CENTURY BALANCED FUND
The investment objective of the Green Century Balanced Fund (the
"Balanced Fund") is to provide capital growth and income from a diversified
portfolio of stocks and bonds which meet Green Century's standards for
corporate environmental responsibility.
THE GREEN CENTURY EQUITY FUND
The investment objective of the Green Century Equity Fund (the "Equity
Fund") is to achieve long-term total return from a diversified portfolio of
stocks which corresponds to the performance of an index consisting of
approximately 400 companies; the companies in the index are screened to exclude
corporations with poor records based on criteria for environmental and social
corporate responsibility ("Social Index"). Unlike other mutual funds which
directly acquire and manage their own portfolios of securities, the Equity Fund
invests all of its investable assets in a diversified open-end management
investment company having the same investment objective as the Fund (the
"Index Portfolio"), through a master-feeder investment fund structure.
See "Investment Objectives, Policies and Risk Factors - The Green Century
Equity Fund and the Master Feeder Investment Fund Structure."
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There can be, of course, no assurance that a Fund will achieve its investment
objective. This Prospectus sets forth basic information about the Funds that a
prospective investor should know before investing and should be read and
retained for future reference. A Statement of Additional Information about the
Funds, dated January 5, 1998 and incorporated herein by reference, has been
filed with the Securities and Exchange Commission and may be obtained free of
charge by writing the Funds at the address listed above or by calling
1-800-93-GREEN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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LOGO
TABLE OF CONTENTS
Introduction.......................................................
Fee Information....................................................
Financial Highlights...............................................
Performance Information............................................
The Green Century Fund's Environmental Standards....................
The Green Century Funds Advocate for Corporate Environmental
Responsibility....................................................
The Green Century Funds Support Not-For-Profit Environmental
Organizations.....................................................
Investment Objectives, Policies and Risk Factors...................
The Green Century Balanced Fund Investments....................
The Green Century Balanced Fund Environmental Criteria.........
The Green Century Equity Fund Investments......................
The Green Century Equity Fund Environmental and Social
Criteria.......................................................
The Green Century Equity Fund and the Master Feeder
Investment Fund Structure......................................
Additional Investment Policies and Restrictions
Balanced Fund..............................................
Balanced Fund and Equity Fund..............................
Organization and Management of the Funds...........................
Your Account.......................................................
How to Purchase Shares..........................................
How to Sell Shares..............................................
Shareholder and Account Policies...................................
Transaction Information.........................................
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Shareholder Account Statements.....................................
Dividends and Taxes................................................
Valuation of Shares................................................
Description of Shares, Voting Rights and Liabilities...............
Financial Intermediaries...........................................
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FEE INFORMATION
EXPENSE TABLE
The following information, provided by all mutual funds in this
standardized format, is designed to assist you in understanding the various
direct and indirect costs and expenses you will bear as a shareholder of the
Green Century Funds and enable you to compare these costs and expenses with
those of other mutual funds. Unlike many mutual funds, the Green Century Funds
do not charge a sales fee or "load" when you purchase or redeem shares. One
hundred percent of your investment is credited to your account. The
information in the table is based on the actual expenses incurred by the
Balanced Fund for its fiscal year ended June 30, 1997. The information for the
Equity Fund, which summarizes the expenses of the Equity Fund and the Index
Portfolio reflect fees currently in effect.
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND
<S> <C> <C>
Shareholder Transaction Expenses
Sales Load on Purchases........................................... None None
Sales Load on Reinvested Dividends................................ None None
Deferred Sales Load............................................... None None
Redemption Fees(1)................................................ None None
Exchange Fee...................................................... None None
Annual Operating Expenses (as a percentage of average net assets)
Advisory and Management Fees...................................... 0.75% 0.20% (2)
Rule 12b-1 (Distribution) Fees(3)................................. 0.25% 0.00%
Administrative Services Fees(4)................................... 1.50% 1.30%
---- ----
Total Operating Expenses.......................................... 2.50% 1.50%
==== ====
</TABLE>
(1) A fee of $10.00 is charged for redemptions by wire. There is no
charge for redemptions paid by check.
(2) Under the Management Agreement between the Index Portfolio and Domini
Social Investments LLC ("DSI"), DSI's fee for advisory and management
services to the Index Portfolio is 0.20% of the average daily net assets
of the Index Portfolio but will be reduced to the extent necessary to keep
the aggregate annual operating expenses of the Index Portfolio (excluding
brokerage fees and commissions, interest, taxes and other extraordinary
expenses) at no greater than 0.20% of the average daily net assets of the
Portfolio, through October 22, 1998. If this fee reduction were not in
effect, advisory and management fees for the Index Portfolio would be
0.20% of the average daily net assets of the Index Portfolio. See
"Organization and Management of the Funds - The Green Century Equity Fund
and the Index Portfolio."
(3) The Balanced Fund's Distribution fee will not exceed 0.25% per annum of
the Balanced Fund's average net assets. See "Organization and Management
of the Funds." Because of the distribution fee, long-term shareholders in
the Balanced Fund may pay more than the equivalent of the maximum
permitted front-end sales charge.
(4) Green Century Capital Management, Inc. ("Green Century Capital
Management"), the investment adviser of the Balanced Fund (the "Adviser")
and administrator (the "Administrator") of each Fund, has agreed to pay
the total operating expenses of the Funds, excluding interest, taxes,
brokerage costs and other capital expenses and any extraordinary expenses,
which exceed (i) 1.50% of the Equity Fund's average net assets, and (ii)
2.50% of the Balanced Fund's average net assets up to $30 million, 2.25%
on its average net assets from $30 million to $100 million, and 1.75% on
the Balanced Fund's average net assets in excess of $100 million.
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EXAMPLE
The purpose of the example below is to assist investors in understanding
the expenses they will bear on a sample $1,000 investment in each Fund. The
example is based on the Annual Operating Expenses in the Expense Table.
<TABLE>
<CAPTION>
Example:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund........................... $25 $78 $133 $284
Equity Fund............................. $15 $47 $82 $179
</TABLE>
This Example should not be considered representations of past or future
expenses or rates of return. Actual operating expenses and investment return
may be greater or less than those shown.
The Trustees of the Green Century Funds believe that the aggregate per
share expenses of the Equity Fund and the Index Portfolio will be less than the
expenses which the Equity Fund would incur if it retained the services of an
investment manager and sub-manager and invested directly in the types of
securities being held by the Index Portfolio. See "Organization and Management
of the Funds" for further discussion of the expenses of the Equity Fund and
Index Portfolio.
FINANCIAL HIGHLIGHTS
The following information for the years ended June 30, 1996 and 1997 for
the Green Century Balanced Fund and for the years ended July 31, 1996 and 1997
for the Green Century Equity Fund has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon appears in the Annual Report which
is incorporated by reference in the Statement of Additional Information and
which may be obtained free of charge by calling 1-800-93-GREEN. Information
for the Balanced Fund prior to July 1, 1995, was audited by other independent
auditors. This information should be read in conjunction with the financial
statements and related notes included in the Annual Report.
GREEN CENTURY BALANCED FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 18, 1992
(COMMENCEMENT
FOR THE YEARS ENDED JUNE 30, OF OPERATIONS)
------------------------------------------ TO JUNE 30, 1992
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period.................... $13.34 $11.03 $9.68 $10.14 $9.84 $10.00
------- ------- ------ ------- ------ -----------
Income from investment operations:
Net investment income............................... 0.12 0.10 0.10 0.07 0.06 0.02
Net realized and unrealized gain (loss) on
investments......................................... 1.77 2.31 1.35 (0.46) 0.30 (0.16)
------- ------- ------ ------- ------ -----------
Total increase (decrease) from investment operations.... 1.89 2.41 1.45 (0.39) 0.36 (0.14)
------- ------- ------ ------- ------ -----------
Less dividends:
Dividends from net investment income................ (0.10) (0.10) (0.10) (0.07) (0.06) (0.02)
Dividends from net realized gains................... (1.60) - - - -
------- ------- ------ ------- ------ -----------
Total decrease from dividends and distributions......... (1.70) (0.10) (0.10) (0.07) (0.06) (0.02)
------- ------- ------ ------- ------ -----------
Net Asset Value, end of period.......................... $13.53 $13.34 $11.03 $9.68 $10.14 $9.84
======= ======= ====== ======= ====== ===========
Total return (a)........................................ 15.22% 21.98% 15.00% (3.83)% 3.69% (1.45)%(b)
Ratios/Supplemental data:
Net assets, end of period (in 000's)................ $11,022 $8,215 $3,291 $3,151 $2,821 $547
Ratio of expenses to average net assets............. 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%(c)
Ratio of net investment income to average net
assets.............................................. 0.94% 0.85% 0.97% 0.74% 0.85% 1.13%(c)
Portfolio turnover.................................. 109% 136% 16% 14% 11% 2%
Average commission rate paid per share.............. $0.0646 $0.0628 - - - -
</TABLE>
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(a) Total Return for the years ended June 30, 1996 and 1997 reflects
performance achieved by Winslow Management Company as investment
subadviser to the Balanced Fund. Total Return through June 30, 1995 for
the Fund reflects performance achieved by Scudder, Stevens & Clark as
investment subadviser to the Balanced Fund. On July 1, 1995, Winslow
Management Company became the investment subadviser to the Balanced Fund.
See "Organization and Management of the Funds" for more information on
Winslow Management Company.
(b) Not annualized.
(c) Annualized.
GREEN CENTURY EQUITY FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SEPTEMBER 13, 1995
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
JULY 31, 1997 TO JULY 31, 1996
<S> <C> <C>
Net Asset Value, beginning of period ..................... $11.04 $10.00
------- ----------
Income from investment operations:
Net investment income ................................. 0.02 0.02
Net realized and unrealized gain on investment ........ 5.84 1.04
------- ----------
Total increase from investment operations ................ 5.86 1.06
------- ----------
Less dividends:
Dividends from net investment income .................. (0.03) (0.02)
Dividends from net realized gains ..................... (0.01)
------- ----------
Total decrease from dividends and distributions .......... (0.04) (0.02)
------- ----------
Net Asset Value, end of period ........................... $16.86 $11.04
======= ==========
Total return ............................................. 53.14% 10.64% (a)
Ratios/Supplemental data
Net assets, end of period (in 000's) .................. $5,275 $880
Ratio of expenses to average net assets ............... 1.50% 1.50% (b)
Ratio of net investment income to average net assets .. 0.07% 0.49% (b)
Portfolio Turnover (c) ................................ 1% 5%
Average Commission Rate (c) ........................... $0.0496 $0.0501
</TABLE>
(a) Not annualized.
(b) Annualized.
(c) Represents portfolio turnover and average commission rate for the Index
Portfolio for the years ended July 31, 1997 and 1996.
PERFORMANCE INFORMATION
From time to time, the Green Century Funds through its distributor may
advertise various types of yield and total return performance. All performance
figures are based on historical earnings and are not intended to indicate
future performance. An investor's shares, when redeemed, may be worth more or
less than their original cost.
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Total return refers to the total change in value of an investment in a
Fund over a specified period. It differs from yield in that yield figures
measure only the income component of a Fund's investments, while total return
also reflects any change in net asset value. Total return assumes all of a
Fund's dividends and capital gain distributions are reinvested. A cumulative
total return reflects a Fund's performance over a period of time. An average
annual total return reflects the hypothetical annual compounded return that
would have produced the same cumulative total return if the Fund's performance
had been constant over the entire period.
The tables that follow set forth average annual total return information
for the periods indicated:
GREEN CENTURY BALANCED FUND
<TABLE>
<Capiton>
1 Year 3 Years 5 Years Inception
(as of 6/30/97) (as of 6/30/97) (as of 6/30/97) to 6/30/97(1)
<S> <C> <C> <C> <C>
Average Annual Total Return 15.22% 17.36% 10.02% 9.15%
</TABLE>
GREEN CENTURY EQUITY FUND
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Inception(2)
(as of 7/31/97) (as of 7/31/97) (as of 7/31/97) to 7/31/97
<S> <C> <C> <C> <C>
Average Annual Total Return(3) 53.14% 29.52% 19.36% 17.49%
</TABLE>
(1) The Balanced Fund commenced operations on March 18, 1992.
(2) The Index Portfolio commenced investment operations on June 3, 1991.
(3) The Green Century Equity Fund, which commenced investment operations in
September 1995, invests all of its assets in an existing separate
registered investment company which has the same investment objective as
the Fund (the "Index Portfolio"). Consistent with regulatory guidance,
performance for the period prior to the Fund's inception reflects the
performance of the Index Portfolio adjusted to reflect the deduction of
the charges and expenses of the Equity Fund.
A Fund's performance may also be used from time to time in shareholder
reports or other communications to shareholders or prospective investors.
Performance information may include a Fund's investment results and/or
comparisons of its investment results to other investments or relevant indices,
including data from Lipper Analytical Services, Morningstar Inc., Standard &
Poor's 500 Composite Stock Price Index, Franklin's Insight and other industry
publications. The Annual Report of the Funds contains additional performance
information and is available to investors upon request and without charge by
writing to the Green Century Funds at 29 Temple Place, Boston, MA 02111 or by
calling 1-800-93-GREEN.
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THE GREEN CENTURY FUNDS' ENVIRONMENTAL STANDARDS
Green Century endeavors to make a contribution to a safer, lasting
environment by promoting corporate environmental responsibility. Green Century
provides people who care about a clean, healthy planet the opportunity to use
the clout of their investment dollars to encourage environmentally responsible
corporate behavior.
While all of Green Century's investments are selected with a concern for
the environment, the two Green Century Funds each employ a different strategy
to promote environmentally responsible corporate behavior.
The Green Century Balanced Fund strives to invest in companies whose
business is to protect the environment, and companies that have taken steps to
minimize their environmental impact. The Fund seeks to invest in businesses
committed to actively promoting a healthier environmental future. Such
commitments might include producing renewable energy, recycling waste,
providing appropriate technology for sustainable agriculture and offering
effective remedies for existing environmental problems. The Fund also invests
in companies whose primary business is not solving environmental problems but
which conduct their business in an environmentally responsible manner. The
Adviser believes that well-managed environmentally responsible companies
minimize their environmental risks, allowing them to enjoy competitive
advantages from cost reductions, quality improvements, profitability
enhancements and access to expanding and new growth markets. Thus, for both
environmental and financial reasons, the Adviser for the Green Century
Balanced Fund applies rigorous selection criteria concerning the environmental
behavior of the issuers of their investments.
The Green Century Equity Fund invests, through its investment in the Index
Portfolio in a diversified portfolio of approximately 400 companies
which seeks to exclude those companies with the worst environmental records.
Green Century believes that directing environmentally concerned investors'
dollars away from companies that flout basic standards for environmental
responsibility creates an incentive for companies to become better
environmental citizens. We also believe that those companies which pursue the
least environmentally sound practices are at the greatest long term risk of
negative economic consequences, while those which strive to be more
environmentally responsible may benefit financially as a result.
Neither the Green Century Balanced Fund nor the Green Century Equity Fund
will knowingly invest in an issuer primarily engaged in the production of
nuclear energy or the manufacture of nuclear equipment to produce nuclear
energy or nuclear weapons, in the belief that these products are unacceptably
threatening to a sustainable global environment. The Funds will not knowingly
invest in an issuer primarily engaged in the manufacture of tobacco products, a
major contributor to indoor air pollution and environmental health problems.
The Green Century Funds invest under normal conditions in many sectors of
the economy, such as retail, finance, and consumer products. The Funds
are not environmental sector funds which invest exclusively in companies whose
business derives from environmental problems (such as waste-management or
incinerator manufacturers), some of which have consistently negative
environmental records.
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The Funds' environmental criteria limit the available investments compared
with funds with no such criteria. Each Fund may not invest, or invest to a
lesser extent than a fund with similar investment objectives but with no
environmental criteria, in certain industries, such as the steel, oil and
automotive industries. Under certain economic conditions, this could cause each
Fund's investment performance to be better or worse than similar funds with no
environmental criteria.
The selection of an investment by the Green Century Funds does not
constitute an endorsement or validation by the Funds, nor does the exclusion of
a company necessarily reflect failure to satisfy the Funds' environmental
criteria. The Board of Trustees of the Green Century Funds, and the Board of
Trustees of the Index Portfolio in the case of the Equity Fund, will have the
authority, without the vote of shareholders, to determine the manner in which
the Funds and the Index Portfolio implement their stated commitment to
environmentally responsible investing.
THE GREEN CENTURY FUNDS ADVOCATE FOR CORPORATE
ENVIRONMENTAL RESPONSIBILITY
Green Century is actively involved in advocating that the companies held
in the Funds' portfolios improve their environmental performance.
Green Century uses its collective leverage as shareholders to advocate for
more environmentally responsible policies at the companies held by the Funds.
Green Century has worked with other environmentally conscious investors to file
shareholder resolutions to demand more aggressive recycling programs; more
responsible environmental, health and safety policies; and more environmentally
friendly production and purchasing policies. Green Century is committed to
pursuing demands for improved corporate environmental responsibility. As part
of this strategy, the Green Century Balanced Fund may hold small positions in
companies which do not meet the Fund's environmental criteria for the express
purpose of enabling the Fund to advocate for changes in irresponsible corporate
behavior.
Green Century also communicates with the chief executive officers of
corporations to promote additional improvements in their environmental behavior
and works with the Coalition for Environmentally Responsible Economies (CERES)
to encourage greater corporate environmental accountability.
The Trustees of the Green Century Funds monitor all Green Century's
advocacy activities to ensure the activities are consistent with the fiduciary
duties owed investors in the Green Century Funds. Any expenses incurred in
advocating for greater corporate environmental responsibility are paid by the
Funds' Administrator, Green Century Capital Management, and not by the
shareholders of the Funds.
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THE GREEN CENTURY FUNDS SUPPORT NOT-FOR-PROFIT
ENVIRONMENTAL ORGANIZATIONS
Unlike other investment advisers and administrators that are privately
owned for the benefit of individuals or for-profit corporations, Green Century
Capital Management is owned by Paradigm Partners, a California general
partnership, the partners of which are all not-for-profit environmental
advocacy organizations. This means that 100% of the net profits, when
realized, earned by Green Century Capital Management on fees for its role as
Adviser and Administrator will be distributed in partnership distributions to
these not-for-profit environmental advocacy organizations. These revenues will
be used to further efforts to preserve and protect the environment--efforts
that include filing lawsuits against companies that illegally pollute our air
and waterways, campaigning to increase recycling and reduce wasteful packaging,
and researching and advocating to reduce the use of toxic chemicals. The
Massachusetts Public Interest Research Group (MASSPIRG) holds approximately 46%
of the partnership. You may receive a complete list of the environmental
organizations which founded and own Green Century Capital Management by calling
1-800-93-GREEN.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The Green Century Funds offer two different investment options to help you
reach your investment goals. The Funds are designed for long-term investment
and are not designed to meet investors' short-term financial goals. An
investment in each Fund represents an investment in securities with fluctuating
market prices; thus the value of an investment in each Fund will vary as the
aggregate value of a Fund's portfolio securities increases or decreases.
Neither a single Fund nor a combination of the Funds is intended to provide a
complete or balanced investment program. There is no guarantee a Fund will
achieve its investment objective, and potential investors should carefully
consider his or her investment objectives and risk tolerance before investing
in a Fund.
The descriptions that follow are designed to help you select the Fund that
best fits your investment objectives. Please see the Statement of Additional
Information for more information regarding the investment objectives, policies
and risk factors of the Funds.
THE GREEN CENTURY BALANCED FUND
THE GREEN CENTURY BALANCED FUND INVESTMENTS
The investment objective of the Balanced Fund is to provide capital
growth and income from a diversified portfolio of stocks and bonds. The Fund
may be appropriate for those investors seeking income from bond investments and
who also want to be invested in the stock market for its long-term growth
potential and who are willing to accept the associated risks. The Balanced
Fund's assets may be invested in: common stock, preferred stock and other
equity securities, bonds and other fixed income securities, floating rate
obligations, and money market instruments, in each case, compatible with the
Fund's commitment to environmental responsibility. The other fixed income
securities in which the Fund may invest include: U.S. Government securities,
mortgage-backed securities, and zero coupon securities. The Fund may also
engage in writing and purchasing options on portfolio securities.
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There is no predetermined percentage of assets allocated to either stocks
or bonds, although the Balanced Fund will, under normal circumstances, invest
at least 25% of its net assets in fixed income senior securities (bonds). The
Fund may not invest more than 75% of its net assets in equity securities
(stocks), including warrants, preferred stock and securities convertible into
equity securities. For temporary defensive purposes, the Fund may invest up to
100% of its assets in cash and other money market and short-term instruments.
Any such temporary defensive investing will also comply with the Fund's
environmental criteria.
THE GREEN CENTURY BALANCED FUND ENVIRONMENTAL CRITERIA
The Balanced Fund invests in primarily the stocks and bonds of companies
in the following categories: (i) environmental companies whose major business
is products, processes or services that offer solutions to environmental
problems; and (ii) environmentally responsible companies whose primary
business is not solving environmental problems, but that integrate the
principles of waste minimization, pollution prevention, efficient use of
natural resources and sustainable development in their business practices.
Environmental companies develop products or processes that solve
environmental problems in areas such as: alternative energy production,
bio-technology, energy efficiency, water treatment and conservation, air
pollution control, resource recovery, and pollution prevention. Included in
this category are companies whose primary business is related to improving the
environment as well as companies whose primary business may not be
environmental improvement, but which have nonetheless developed important
environmental products or services as a significant component of their
business.
Companies in the portfolio may also include environmentally benign
companies whose overall impact on the environment, as measured by their
consumption of natural resources, toxic emissions, environmental liabilities,
solid waste generation and compliance with environmental law, is minimal but
not necessarily nonexistent. Winslow Management Company ("Winslow"), a
Division of Eaton Vance Management ("Eaton Vance"), serves as the subadviser
of the Balanced Fund (the "Subadviser"). See "Organization and Management of
the Funds." Winslow, in cooperation with Green Century Capital Management,
works with companies that do not have an articulated proactive environmental
strategy to help them craft a comprehensive and proactive environmental
program.
The Balanced Fund also invests in what Green Century Capital Management
and Winslow perceive as "best in its class" companies that have implemented an
environmental program that sets a standard for their industry group. These
companies are recognized leaders in their sectors, contribute to meaningful
reductions in pollutant emissions or waste generation, and demonstrate Green
Century's belief that every company can be environmentally responsible.
Finally, environmentally responsible companies include environmental
turnaround companies that may have a history of environmental problems, but
have minimized their impact on the environment because they have taken
substantive steps to address and in some way solve the problems by, for
example, abandoning certain products or processes that have been proven harmful
to the environment, significantly reducing toxic emissions, or adopting
broadscale pollution prevention and waste minimization programs.
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THE GREEN CENTURY EQUITY FUND
THE GREEN CENTURY EQUITY FUND INVESTMENTS
The investment objective of the Equity Fund is to achieve long-term total
return by investing substantially all of its investable assets in the Domini
Social Index Portfolio (the "Index Portfolio"), a diversified portfolio of
stocks. The Index Portfolio seeks long-term total return which corresponds to
the total return performance of the Domini Social Index (the "Social Index"
or the "Index") by investing substantially all of its assets in the common
stocks comprising the Social Index. The Equity Fund may be an appropriate
investment vehicle for long term investors who want the potential for growth
offered by the stock market, and who are willing to accept the associated
risks. The Fund seeks to temper the risks inherent in investing in the stock
market by investing in a diversified portfolio of approximately
400 companies. By not concentrating on a specific security or market sector,
the Equity Fund may be less volatile than narrowly focused equity funds or
individual stock investments. Since the investment characteristics of the
Equity Fund will correspond to those of the Index Portfolio, the following is a
description of the Index Portfolio's investment policies. See "The Green
Century Equity Fund and the Master Feeder Investment Fund Structure."
The Index Portfolio invests in the common stocks comprising the Social
Index. The Social Index is a common stock index developed and maintained by
Kinder, Lydenberg, Domini & Co., Inc. ("KLD"), an affiliate of the Index
Portfolio's investment manager. The Index Portfolio is comprised of the common
stocks of approximately 400 companies and seeks to exclude corporations with
poor environmental and social records. The weightings of the stocks comprising
the Social Index are based upon market capitalization. The criteria used in
developing and maintaining the Social Index involve subjective judgment by KLD.
The Index Portfolio is not managed in the traditional investment sense, since
changes in the composition of its securities holdings are made in order to
track the changes in the composition of securities included in the Social
Index.
The Index Portfolio may invest cash reserves in short-term debt securities
(i.e., securities having a remaining maturity of one year or less) issued by
agencies or instrumentalities of the United States Government, bankers'
acceptances, commercial paper or certificates of deposit, provided that the
issuer satisfies KLD's social criteria. The Index Portfolio does not currently
intend to invest in direct obligations of the United States Government.
Short-term debt securities purchased by the Index Portfolio will be rated at
least Prime-1 by Moody's Investors Service, Inc. or A-1+ or A-1 by S&P or, if
not rated, determined to be of comparable quality by the Index Portfolio's
Board of Trustees. The Index Portfolio's policy is to hold assets in such
securities pending readjustment of its holdings of stocks comprising the 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. Because the Index Portfolio seeks to be fully invested in the stocks
comprising the Social Index, the Equity Fund is not intended to be a balanced
investment plan.
The Index Portfolio may invest its cash reserves in high-grade short-term
money market instruments, provided that the issuer satisfies KLD's
environmental and social criteria. The Index Portfolio does not currently
intend to invest in direct obligations of the United States Government. The
Index Portfolio's policy is to hold its assets in such securities pending
readjustment of its portfolio holdings of stocks comprising the 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 Index Portfolio readjusts its securities holdings periodically such
that its holdings will correspond, to the extent reasonably practicable, to the
Social Index both in terms of composition and weighting. The timing and extent
of adjustments in the holdings of the Index Portfolio, and the extent of the
correlation of the holdings of the Portfolio with the Index, reflects the
judgment of the Index Portfolio's submanager as to the appropriate balance
between the goal of correlating the holdings of the Index Portfolio with the
composition of the Index, and the goals of minimizing transaction costs and
keeping sufficient reserves available for anticipated redemptions from the
Index Portfolio. The Index Portfolio's ability to duplicate the performance of
the Index will depend to some extent on the size and timing of the cash flows
into and out of the Index Portfolio as well as the Index Portfolio's expenses.
Adjustments in the securities holdings of the Index Portfolio to accomodate
cash flows will track the Social Index to the extent practicable, but this will
result in brokerage expenses.
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<PAGE> 14
THE GREEN CENTURY EQUITY FUND ENVIRONMENTAL AND SOCIAL CRITERIA
The philosophy of the Equity Fund is that enterprises which exhibit a
social awareness should be better prepared to meet future societal needs for
goods and services and may be less likely to incur certain legal liabilities
that may be charged when a product or service is determined to be harmful.
Green Century Capital Management believes that such enterprises should over the
long term be able to provide investors with a return that is competitive with
enterprises that do not exhibit such social awareness. We also believe that
investing money in companies with better environmental and social records and
withholding investment dollars from companies with poor records will encourage
more corporations to improve their environmental and social performance.
In evaluating stocks for inclusion in the Social Index, KLD considers a
company's environmental performance, particularly in taking positive
initiatives in environmental matters; its employee relations; its corporate
citizenship; the quality of a company's products and its attitudes with regard
to consumer issues; and KLD's criterial for industry diversification, financial
solvency, market capitalization, and portfolio turnover. Environmental
performance includes a company's record on waste disposal, toxic emissions,
fines or penalties, and efforts in waste and emissions reductions, recycling,
and use of environmentally beneficial fuels. Corporate citizenship includes
the company's record on philanthropic activities and its interaction with the
communities it affects. Employee relations include a company's record with
regard to labor matters, its commitment to workplace safety, the breadth,
quality and innovation of its employee benefit programs, and its commitment to
provide employees with a meaningful participation in company profits either
through stock purchase or profit sharing plans. KLD seeks to exclude companies
which, based on data available to it, derive more than 2% of their gross
revenues from the sale of military weapons; derive any revenues from the
manufacture of tobacco products or alcoholic beverages; derive any revenues
from gambling enterprises; own directly or operate nuclear power plants or
participate in businesses related to the nuclear fuel cycle. The Manager of
the Index Portfolio intends to vote proxies of companies included in the Index
Portfolio consistent with the environmental and social criteria used in
developing and maintaining the Social Index. Inclusion of a stock in the Social
Index does not imply an opinion by KLD or the manager as to the merits of that
specific stock as an investment.
THE GREEN CENTURY EQUITY FUND AND THE MASTER-FEEDER INVESTMENT FUND STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Equity Fund seeks to achieve its investment objective
by investing all of its investable assets in the Index Portfolio, a separate
registered investment company with the same investment objective as the Equity
Fund. In addition to selling a beneficial interest to the Equity Fund, the
Index Portfolio may sell beneficial interests to other mutual funds or
institutional investors. Such investors will invest in the Index Portfolio on
the same terms and conditions as the Equity Fund and will pay a proportionate
share of the Index Portfolio's expenses. However, the other investors
investing in the Index Portfolio are not required to sell their shares at the
same public offering price as the Equity Fund due to variations in sales
commissions and other operating expenses. Therefore, investors in the Equity
Fund should be aware that these differences may result in differences in
returns experienced by investors in the different funds that invest in the
Index Portfolio. Such differences in returns are also present in other mutual
fund structures. Information concerning other holders of interests in the
Index Portfolio is available from the Index Portfolio's investment manager, at
212-352-9200.
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<PAGE> 15
Smaller funds investing in the Index Portfolio may be materially affected
by the actions of larger funds investing in the Index Portfolio. For example,
if a large fund withdraws from the Index Portfolio, the Index Portfolio may
become less diverse, resulting in increased portfolio risk. This possibility
exists as well for traditionally structured funds which have large or
institutional investors. Also, funds with a greater pro rata ownership in the
Index Portfolio could have effective voting control of the operations of the
Index Portfolio.
The Trustees of the Equity Fund have adopted the following policy with
respect to voting shares of the Index Portfolio: Whenever the Equity Fund is
requested to vote on a matter pertaining to the Index Portfolio, the Trustees
of the Equity Fund will, in their discretion and in accordance with applicable
law, either seek instructions from shareholders of the Equity Fund and vote the
shares only in accordance with such instructions, or vote the shares held by
the Equity Fund in the same proportion as the vote of all other holders of
shares in the Index Portfolio. Whenever the Trustees determine to seek the
instructions of the Equity Fund shareholders, the Equity Fund will hold a
meeting of its shareholders and, at the meeting of investors in the Index
Portfolio, the Equity Fund will cast all of its votes in the same proportion as
the votes of the Equity Fund's shareholders. Equity Fund shareholders who do
not vote will not affect the Equity Fund's votes at the Index Portfolio
meeting. Shares of the Equity Fund for which no voting instructions have been
received will be voted by the Trustees in the same proportion as the shares for
which it receives voting instructions.
The investment objective of the Equity Fund may be changed without the
approval of the Equity Fund's shareholders, but not without written notice
thereof to shareholders thirty days prior to implementing the change. If there
were a change in the Equity Fund's investment objective, shareholders should
consider whether the Equity Fund remained an appropriate investment in light of
their then-current financial positions and needs. The investment objective of
the Index Portfolio may also be changed without the approval of the investors
in the Index Portfolio, but not without written notice thereof to the investors
in the Index Portfolio (and, in turn, notice by the Equity Fund to its
shareholders) thirty days prior to implementing the change.
Certain changes in the Index Portfolio's investment objective, policies or
restrictions may require the Equity Fund to withdraw its interest in the Index
Portfolio. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Index
Portfolio). If securities are distributed, the 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 Equity Fund.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
The Equity Fund may withdraw its investment from the Index Portfolio at
any time, if the Board of Trustees of the Funds determines that it is in the
best interest of the Equity Fund to do so. Upon any such withdrawal, the Board
of Trustees would consider what action might be taken, including the investment
of all the investable assets of the Equity Fund in another pooled investment
entity having the same investment objective as the Equity Fund or the retention
of an investment adviser to manage the Equity Fund's assets in accordance with
the investment policies described above with respect to the Index Portfolio. In
the event the Trustees of the Green Century Funds were unable to find a
substitute
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<PAGE> 16
investment company in which to invest the Equity Fund's assets and were unable
to secure directly the services of an investment adviser, the Trustees would
seek to determine the best course of action.
For more information about the Index Portfolio's policies, management and
expenses see "Fee Information," and "Organization and Management of the
Funds." For more information about the Index Portfolio's policies and
investment restrictions see the Statement of Additional Information.
ADDITIONAL INVESTMENT POLICIES AND RESTRICTIONS
BALANCED FUND
OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. For hedging purposes and to
increase income, the Balanced Fund may write (sell) covered (under Securities
and Exchange Commission regulations) call and put options on individual
securities and on stock indices and may engage in related closing transactions.
Options trading is a highly specialized activity that entails greater than
ordinary investment risks. Risks associated with writing covered options
include the possible inability to effect closing transactions at favorable
prices; an appreciation limit on the securities set aside for settlement;
losses caused by unanticipated market movements; and the Subadviser's ability
to predict correctly the direction of securities prices, interest rates,
currency exchange rates and other economic factors.
For bona fide hedging or other permissible risk management purposes, such
as protecting the price or interest rate of a security it intends to buy, the
Balanced Fund may enter into interest-rate, securities-index and currency
futures contracts and may purchase and write put and call options on these
futures contracts. Futures contracts obligate the Fund, at maturity, to take
or make delivery of certain securities, the cash value of a securities index or
a stated quantity of a foreign currency. The Fund may lose the expected
benefit of futures transactions if securities prices or interest rates move in
an unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, changes in the value of the Fund's futures and
options positions may not prove to be perfectly or even highly correlated with
changes in the value of its portfolio securities. This could limit the Fund's
ability to hedge effectively against interest-rate and/or market risk and give
rise to additional risks.
In an attempt to manage currency risk, the Balanced Fund may purchase and
sell forward foreign currency exchange contracts, options on currencies and
other currency instruments with respect to 5% of its assets.
CONVERTIBLE SECURITIES. The Balanced Fund may invest in debt and equity
convertible securities which generally offer lower interest or dividend yields
than nonconvertible debt securities of similar quality. A convertible security
may be converted either at a stated price or rate within a specified period of
time into a specified number of shares of common stock. By investing in
convertible securities, the Fund seeks the opportunity, through the conversion
feature, to participate in a portion of the capital appreciation of the common
stock into which the securities are convertible, while earning higher current
income than is available from common stock. The value of convertible
securities may reflect changes in the value of the underlying common stock.
Convertible securities entail less credit risk than the issuer's common stock
because they rank senior to common stock.
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<PAGE> 17
MORTGAGE-BACKED SECURITIES. The Balanced Fund may invest in
mortgage-backed securities which are securities that directly or indirectly
represent an interest in an underlying pool of mortgages. Unlike ordinary
fixed-income securities, which generally pay a fixed rate of interest and
return principal upon maturity, mortgage-backed securities repay both interest
income and principal as part of their periodic payments. Because the mortgages
underlying mortgage-backed certificates can be prepaid at any time by
homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "pre-payment" risks, as well as market risks and financial
risks. The Fund may invest in mortgage-backed securities issued or guaranteed
by an agency or instrumentality of the U.S. Government. Mortgage-backed
securities that are guaranteed by the U.S. Government are guaranteed only as to
the timely payment of principal and interest. The market value of such
securities is not guaranteed and may fluctuate.
ZERO COUPON SECURITIES. The Balanced Fund may invest in zero coupon
securities which do not make regular interest payments; rather, they are sold
at a discount from face value. Principal and accrued discount (representing
interest accrued but not paid) are paid at maturity. Zero coupon securities
are subject to greater market value fluctuations from changing interest rates
than debt obligations of comparable maturities which make current cash
distributions of interest.
HIGH YIELD DEBT SECURITIES. The Balanced Fund may invest up to 35% of its
net assets in fixed income securities that, at the time of the
investment, are either rated CCC or higher by Standard & Poor's Corporation
("S&P") or Caa or higher by Moody's Investor Services ("Moody's") or, if not
rated, considered to be of equivalent quality by the Subadviser of the Balanced
Fund. Please refer to the Statement of Additional Information for a
description of bond rating catagories. Below investment grade securities (those
rated below BBB by S&P or Baa by Moody's or their equivalent) are commonly
referred to as "junk bonds." As of November 30, 1997, 26.5% of the net assets
of the Balanced Fund were invested in below investment grade securities. If
the rating of a debt security is downgraded while owned by the Fund, the
Subadviser will determine whether the Fund should continue to hold the
security. It is expected that the Subadviser will sell promptly any securities
which are non-investment grade which exceed 35% of the Fund's net assets, where
it has determined such sale is in the best interests of the Fund's
shareholders.
While these securities generally offer higher yields than investment grade
securities with similar maturities, lower-quality securities involve
greater risks, including the possibility of default or bankruptcy. Generally,
they are considered to be predominantly speculative regarding, and more
dependent on, the issuer's ability to pay interest and repay principal. Such
inability (or perceived inability) would likely lessen the value of such
securities, which could lower the Fund's net asset value per share. Issuers of
high-yield securities may not be as strong financially as those issuing bonds
with higher credit ratings. Other potential risks associated with investing
in high-yield securities include: heightened sensitivity of highly-leveraged
issuers to adverse economic changes and individual-issuer developments;
subordination to the prior claims of other creditors adverse publicity and
changing investor perceptions about these securities and generally less liquid
markets. The Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of principal and
interest on its holdings. Because of the associated risks, successful
investments in high-yield, high-risk securities are more dependent on the
Subadviser's credit analysis than generally would be the case with investments
in investment grade securities.
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<PAGE> 18
Many corporate high yield bonds are issued pursuant to Rule 144A under the
Securities Act of 1933 and therefore are subject to the Fund's restriction that
no more than 15% of the Fund's net assets can be invested in illiquid
securities.
REPURCHASE AGREEMENTS. As a means of earning income for periods as short
as overnight, the Balanced Fund may enter into repurchase agreements with
selected banks and broker-dealers. Under a repurchase agreement, the Fund
acquires securities, subject to the seller's agreement to repurchase at a
specified time and price. There may be delays and risks of loss if the seller
is unable to meet its obligation to repurchase. Default by the seller would
expose the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.
WHEN-ISSUED SECURITIES. The Balanced Fund may purchase securities on a
when-issued basis for payment and delivery at a later date. Securities
purchased or sold on a when-issued basis involve a risk of loss if the value of
the security to be purchased declines before the settlement date.
BALANCED FUND AND EQUITY FUND
LENDING OF SECURITIES. Consistent with applicable regulatory policies, the
Balanced Fund may seek to increase its income by lending securities. The
Balanced Fund has no current intention of making loans of portfolio securities
that would amount to greater than 5% of the Fund's total assets. The Index
Portfolio may make loans of its securities to member banks of the Federal
Reserve System and to broker-dealers. Such loans would be required to be
secured continuously by collateral and cash or cash equivalents maintained on a
current basis at an amount at least equal to the market value of the securities
loaned. The Index Portfolio would have the right to call a loan and obtain the
securities loaned at any time on five days' notice. Loans of securities involve
the risk that the borrower may fail to return the securities or may fail to
provide additional collateral.
FOREIGN SECURITIES. While the Balanced Fund generally emphasizes
investments in companies domiciled in the United States, the Fund may also
invest up to 25% of its assets in listed and unlisted foreign securities of the
same types and quality as the domestic securities in which the Fund may invest
when the anticipated performance of foreign securities is believed by the
Adviser and the Subadviser to offer more potential than domestic alternatives
in keeping with the investment objective of the Fund. The Fund may also invest
in American Depository Receipts ("ADRs") and Global Depository Receipts
("GDRs") with respect to such foreign securities. The Fund may also invest in
certificates of deposit issued by foreign banks, foreign and domestic branches
of U.S. banks and obligations issued or guaranteed by foreign governments or
political subdivisions thereof.
Up to 3% of the stocks included in the Social Index may be stocks of
foreign issuers (provided that the stocks are traded in the United States in
the form of ADRs or similar instruments the market for which is denominated in
United States dollars).
Investing in securities of foreign issuers involves considerations not
typically associated with investing in securities of companies organized and
operated in the United States. The value of a Fund's foreign investments may be
adversely affected by changes in political or social conditions, government
administrations, economic or monetary policies, diplomatic relations,
confiscatory taxation,
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<PAGE> 19
expropriation, nationalization, limitation on the removal of funds or assets,
or imposition of (or change in) exchange control or tax regulations in foreign
countries. In addition, the economies of individual foreign nations may differ
from the U.S. economy, whether favorably or unfavorably, in areas such as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position; it may also be more
difficult to obtain and enforce a judgment against a foreign issuer. In
general, less information is publicly available with respect to foreign issuers
than is available with respect to U.S. companies. Most foreign companies are
also not subject to the uniform accounting and financial reporting requirements
applicable to issuers in the United States. Any foreign investments made by a
Fund must be made in compliance with U.S. and foreign currency restrictions and
tax laws restricting the amounts and types of foreign investments.
PORTFOLIO TURNOVER. The portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less). Higher levels of
activity result in higher transaction costs and may also result in taxes on
realized gains to be borne by the Fund's shareholders. Purchases and sales are
made for a portfolio whenever necessary, in management's opinion, to meet its
investment objective. The portfolio turnover rates of the Balanced Fund for
the fiscal years ended June 30, 1995, 1996 and 1997 were 16%, 136% and 109%,
respectively.
Frequent changes in the Index Portfolio's holdings may result from the
policy of attempting to correlate the Index Portfolio's securities holdings
with the compositions of the Social Index, and the frequency of such changes
will increase as the rate and volume of purchases and withdrawals of interests
in the Index Portfolio increases. The annual portfolio turnover rates of the
Index Portfolio for the fiscal years ended July 31, 1995, 1996 and 1997 were
6%, 5% and 1%, respectively.
INVESTMENT RESTRICTIONS. As a matter of fundamental investment policy
which cannot be changed without shareholder approval, no more than 25% of the
value of each Fund's and the Index Portfolio's assets may be invested in any
one industry (excluding U.S. Government securities) although the Equity Fund
will invest all of its assets in the Index Portfolio, and the Index 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 Social Index. Based on the
current composition of the Social Index, this is considered highly unlikely. If
the Index Portfolio were to concentrate its investments in a single industry,
the Index Portfolio and the 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. In addition, as a matter of fundamental
policy, the Equity Fund will invest all of its assets (either directly or
through the Index Portfolio) in one or more of: (i) stocks comprising an index
of securities selected applying social and environmental criteria (currently
the Social Index), (ii) short-term debt securities of issuers which meet social
criteria, (iii) cash, and (iv) options on equity securities. These fundamental
policies cannot be changed without the approval of the holders of a "majority
of the outstanding voting securities (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act") of the respective Funds and the Index
Portfolio. For further information on fundamental and non-fundamental policies
and restrictions, see the Statement of Additional Information.
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<PAGE> 20
The investment objective of the Balanced Fund is not fundamental and may
be modified without shareholder approval. The investment objectives of the
Equity Fund and the Index Portfolio also are not fundamental and may be changed
without the approval of the shareholders or investors, but not without written
notice thereof to shareholders thirty days prior to implementing the change.
Because of the risks inherent in all investments, there can be no assurance
that the objectives of the Funds will be met. See "Investment Objectives,
Policies and Risk Factors - The Green Century Equity Fund and the Master-Feeder
Investment Structure." Except as stated otherwise, all investment guidelines,
policies and restrictions described herein and in the Statement of Additional
Information are non-fundamental.
ORGANIZATION AND MANAGEMENT OF THE FUNDS
The Green Century Funds were organized on July 1, 1991 as a Massachusetts
business trust (the "Green Century Funds" or the "Funds"). Each Fund represents
a separate series of shares of the Green Century Funds. The Green Century
Funds are registered under the 1940 Act as a diversified open-end management
investment company. The business and affairs of the Green Century Funds are
conducted under the direction of its Board of Trustees and the affairs of the
Index Portfolio are conducted under the direction of its Board of Trustees.
The Trustees of the Green Century Funds are identified below under "Green
Century Funds Board of Trustees."
THE GREEN CENTURY BALANCED FUND
INVESTMENT ADVISER. Green Century Capital Management is the investment
adviser for the Balanced Fund and oversees the portfolio management of
the Balanced Fund on a day-to-day basis. Green Century Capital Management's
role is to ensure that the Fund's investment objective and environmental and
investment policies are accurately and effectively implemented. For its
services, Green Century Capital Management receives an advisory fee from the
Balanced Fund which is accrued daily and paid monthly at an annual rate equal
to 0.75% of the Balanced Fund's average daily net assets. This fee is higher
than that paid by most mutual funds. Kristina Curtis, Chief Operating Officer,
is responsible for the day-to-day management of Green Century Capital
Management. She has served as Chief Operating Officer of Green Century Capital
Management since the company was organized in 1991. Green Century Capital
Management has served as investment adviser and administrator for the Balanced
Fund since the commencement of operations of the Balanced Fund. The Balanced
Fund is the only investment advisory client of Green Century Capital
Management.
SUBADVISER. Pursuant to a Subadvisory Agreement between Winslow
Management Company ("Winslow" or the "Subadviser") and Green Century Capital
Management, Winslow serves as the Subadviser for the Fund. Winslow, a division
of Eaton Vance Management, conducts the day-to-day investment management for
the Balanced Fund consistent with the guidelines and directions set by Green
Century Capital Management. An adherent of rigorous investment discipline,
Winslow uses a fundamental security analysis of each investment. This
qualitative approach is complemented with a proprietary computer model that
mixes a variety of statistical data to rank a large group of securities on an
ongoing basis pursuant to several factors. Winslow also attempts to take
advantage of market inefficiencies through timely execution of trades.
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<PAGE> 21
Winslow has managed equity and debt investments in environmental and
environmentally responsible companies for its clients since 1984.
Winslow has been a division of Eaton Vance Management since June 30, 1993 and
formerly was an independent company. As of November 30, 1997, Winslow had $88
million in assets under management and Winslow and Eaton Vance, collectively,
had over $21 billion in assets under management. Jackson W. Robinson provides
the day-to-day investment management for the Balanced Fund, and has provided
such services for the Balanced Fund since July 1, 1995. Mr. Robinson has
served as President of Winslow since 1984.
For its services, Winslow receives a base fee from the Adviser of 0.40% of
the average daily net assets of the Balanced Fund, subject to an adjustment up
or down of 0.20% annually as follows:
<TABLE>
<CAPTION>
If, on an annual basis, the Balanced Fund's
Total Return differs from the Lipper Directors'
Analytical Data Balanced Fund Average Then the Adviser will pay
Total Return (the "Index Total Return") by: Winslow an annual fee of:
<S> <C>
positive 2.00% or more 0.60%
positive 1.00% to positive 1.99% 0.50%
negative 0.99% to positive 0.99% 0.40%
negative 1.00% to negative 1.99% 0.30%
negative 2.00% or more 0.20%
</TABLE>
The Board of Trustees believes that the performance adjustments are
appropriate although not within the 10 percentage points per year range
suggested by Release No. 7113 under the 1940 Act. In the event the Lipper
Directors' Analytical Data Balanced Fund Average ceases to become available or
the Trustees determine such Index Total Return is no longer a reasonable
performance benchmark, the Trustees may substitute another performance
benchmark. See the Statement of Additional Information for additional
information regarding Winslow's fee arrangement.
THE GREEN CENTURY EQUITY FUND AND THE INDEX PORTFOLIO
INVESTMENT MANAGER. Domini Social Investments LLC ("DSI"), DSI provides
investment supervisory services, overall operational support and overall
administrative services to the Index Portfolio. For its services, DSI receives
a fee equal on an annual basis to 0.20% of the Index Portfolio's average daily
net assets, except that for the first year of the Management Agreement
commencing October 22, 1997, the fee payable to DSI will be reduced by the
amount, if any, by which the total ordinary operating expenses of the Index
Portfolio (excluding brokerage fees and commissions, interest, taxes, and any
other extraordinary expenses) exceed, on an annual basis, 0.20% of the average
daily net assets of the Index Portfolio. DSI was organized in April, 1997 and
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended, in June, 1997. It was formed by principals of KLD, the former
investment adviser for the Index Portfolio, and other investment company and
marketing professionals. DSI has no prior experience in managing or advising a
mutual fund.
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<PAGE> 22
Prior to October 22, 1997, KLD, as the investment adviser to the Index
Portfolio, was entitled to receive from the Index Portfolio a fee accrued daily
and paid monthly at an annual rate equal to 0.025% of the Index Portfolio's
average daily net assets. KLD also served as sponsor of the Index Portfolio
and provided the Index Portfolio with administrative personnel and services
necessary to operate the Index Portfolio. For these services and facilities,
KLD received fees from the Index Portfolio at an annual rate of 0.20% of the
average daily net assets of the Index Portfolio for its then-current fiscal
year for administrative and expense payment services. KLD continues to
determine and monitor the composition of the Social Index (which determines the
composition of the Index Portfolio's securities), and provides other services
relating to socially responsible investments pursuant to a license agreement
between DSI and KLD. See "Investment Objectives, Policies and Risk Factors."
The following persons are primarily responsible for the development and
maintenance of the Social Index: Steven D. Lydenberg, Director of Research,
KLD, since 1990; and Peter D. Kinder, President, KLD, since 1988.
The entering into of the Management Agreement and the Submanagement
Agreement (discussed below), and the termination of the investment advisory and
sponsorship agreements, were part of a restructuring by the Index Portfolio
effective October 22, 1997 which was designed to provide a more centralized
management structure for the Index Portfolio. Additional information regarding
the service providers for the Index Portfolio prior to October 22, 1997 is
provided in the Statement of Additional Information. Because of the expense
payment arrangements between the Equity Fund and Green Century Capital
Management, the changes in the management of the Index Portfolio and the
expenses to be incurred by the Index Portfolio will not have any impact on the
total expenses of the Equity Fund to be borne by its shareholders. See "Fee
Information."
INVESTMENT SUBMANAGER. Mellon Equity Associates ("Mellon Equity" or
"Submanager") provides investment submanagement services to the Index
Portfolio on a day-to-day basis pursuant to a Submanagement Agreement with DSI
effective October 22, 1997. Mellon Equity's services as Submanager include
determining what securities shall be purchased, sold or exchanged to track the
composition of the Index. Mellon Equity does not determine the composition of
the Social Index. DSI pays Mellon Equity an investment submanagement fee equal
on an annual basis to 0.10% of the average daily net assets of the Index
Portfolio. Prior to October 22, 1997, Mellon Equity served as the investment
manager of the Index Portfolio. For its services, the Index Portfolio paid
Mellon Equity an investment management fee equal on an annual basis to 0.10% of
the average daily net assets of the Index Portfolio.
Mellon Equity is a Pennsylvania business trust founded in 1987 whose
beneficial owners are Mellon Bank N.A. and MMIP, Inc. (a wholly owned
subsidiary of Mellon Bank Corporation ("Mellon Bank")). Mellon Equity has been
registered as an investment adviser under the Investment Advisers Act of 1940
since 1986. Prior to 1987 the Submanager was part of the Equity Management
Group of Mellon Bank's Trust and Investment Department, which managed domestic
equity, tax-exempt and institutional pension assets since 1947. As of November
30, 1997, Mellon Equity had approximately $15.9 billion in assets under
management.
John R. O'Toole (a senior vice president of Mellon Equity, CFA and a
member of AIMR), has been primarily responsible for the day-to-day portfolio
management of the Index Portfolio since November 1994. He has been employed by
Mellon Equity and/or Mellon Bank as a portfolio manager for over five years.
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<PAGE> 23
THE GREEN CENTURY BALANCED FUND AND THE GREEN CENTURY EQUITY FUND
ADMINISTRATOR. Green Century Capital Management serves as the
Administrator of the Green Century Funds. Pursuant to an Administrative
Services Agreement, Green Century Capital Management pays all the expenses of
each Fund other than the Funds' investment advisory fees, if any; fees under
the Distribution Plan, if any; interest, taxes, brokerage costs and other
capital expenses; expenses of the non-interested Trustees of the Funds
(including counsel fees); and any extraordinary expenses.
For such administrative services, the Administrator receives a fee from
the Balanced Fund at a rate such that immediately following any payment to the
Administrator, the total operating expenses of the Balanced Fund (including
investment advisory and distribution fees), on an annual basis, do not exceed
2.50% of the Balanced Fund's average daily net assets up to $30 million, 2.25%
on average net assets from $30 million to $100 million, and 1.75% on average
net assets in excess of $100 million. The Administrator receives a fee from
the Equity Fund at a rate such that immediately following any payment to the
Administrator, the combined total operating expenses of the Fund and the Index
Portfolio, on an annual basis, do not exceed 1.50% of the Fund's average daily
net assets.
SUBADMINISTRATOR. Sunstone Financial Group, Inc. ("Sunstone") serves as
the sub-administrator of the Funds pursuant to a Subadministration
Agreement between Green Century Capital Management and Sunstone dated July 7,
1997. As sub-administrator, Sunstone is responsible for conducting certain
administrative services (which include clerical, regulatory and other services)
for the Funds subject to the supervision and direction of Green Century Capital
Management. Sunstone receives a fee from the Administrator (not the Funds) for
its administrative services on behalf of the Administrator which fee is based
on each Fund's average net assets at an annual rate of 0.175% and decreasing as
assets exceed certain levels, subject to an annual minimum for each Fund of
$35,000 in the first year. The annual minimum fee increases incrementally each
year. Sunstone does not act or serve in any capacity with respect to the Index
Portfolio. Prior to July 7, 1997, Signature Broker-Dealer Services, Inc. served
as subadministrator. Sunstone is an affiliate of the Funds' distributor.
Sunstone and its affiliates provided administration, transfer agent and/or
distribution services to 17 fund families representing over $11 billion in
assets as of November 30, 1997.
DISTRIBUTOR AND DISTRIBUTION PLAN. Sunstone Distribution Services, LLC
("Sunstone Distribution Services"), an affiliate of Sunstone, serves as the
Distributor of the shares of the Funds and acts as the agent of each Fund in
connection with the offering of shares of the Funds. Prior to July 7, 1997,
Signature Broker-Dealer Services, Inc. served as distributor of the shares of
the Funds.
The Board of Trustees of the Green Century Funds has adopted a
Distribution Plan with respect to the Balanced Fund in accordance with Rule
12b-1 under the 1940 Act. The Board of Trustees of the Green Century Funds
adopted the Distribution Plan with respect to the Balanced Fund after
determining that there is a reasonable likelihood that the Distribution Plan
will benefit the Fund and its respective shareholders. The Distribution Plan
provides that the Balanced Fund shall pay a distribution fee to the Distributor
at an annual rate of up to 0.25% of the average daily net assets of the Fund in
anticipation of or as reimbursement for expenses (other than interest or
carrying charges) of (i) compensating broker-dealers with trail or maintenance
commissions and (ii) promoting the sale of shares of the respective Fund such
as by paying for the preparation, printing and distribution of prospectuses for
other than
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<PAGE> 24
current shareholders and sales literature or other promotional activities. If
such an expense is not reimbursed during the then-current fiscal year, it will
not be reimbursed in a subsequent fiscal year.
TRANSFER AGENT AND CUSTODIAN. Investors Bank & Trust Company ("IBT"),
is the transfer agent and custodian for the Green Century Funds and the Index
Portfolio. As of November 30, 1997, IBT had approximately $141 billion in assets
under custody and provided services for approximately 1,420 mutual funds.
AUDITORS. KPMG Peat Marwick LLP are the independent auditors of the Green
Century Funds and the Index Portfolio.
GREEN CENTURY FUNDS BOARD OF TRUSTEES. The affairs of the Green Century
Funds are conducted under the direction of its Board of Trustees and the
affairs of the Index Portfolio are conducted under the direction of its Board
of Trustees. The Trustees and officers of the Funds are separate and
independent from the Trustees and officers of the Index Portfolio. For more
information regarding the Trustees of the Funds and the Index Portfolio see
"Trustees and Officers" in the Statement of Addition Information. The
following are the Trustees of the Green Century Funds:
<TABLE>
<S> <C>
David J. Fine................Attorney, DANGEL, DONLAN & FINE, Boston, Massachusetts
Douglas M. Husid*............President, GREEN CENTURY FUNDS;
Attorney, GOULSTON & STORRS, Boston, Massachusetts
Steven Kadish................Assistant Vice Chancellor for Biological Laboratories and
Programs, UNIVERSITY OF MASSACHUSETTS MEDICAL CENTER, Boston,
Massachusetts
Stephen Morgan...............President, EUA, CITIZENS' CONSERVATION SERVICES, INC.,
Lowell, Massachusetts
Douglas H. Phelps*...........Chairperson, U.S. PUBLIC INTEREST RESEARCH GROUP
C. William Ryan..............Owner and Director, BROOKLINE TAI CHI, Brookline, Massachusetts
James H. Starr...............Attorney, STARR & BURGESS, PC, Crested Butte, Colorado
Wendy Wendlandt*.............Chairperson of the Board, EARTH DAY 2000, Los Angeles, California
</TABLE>
* An "interested person" (as defined in the 1940 Act) of the Funds.
GREEN CENTURY FUNDS ADVISORY BOARD. National leaders of the environmental
and business communities serve on an advisory board to the Green Century Funds.
The Advisory Board serves as a resource regarding the application and
refinement of the Funds' environmental criteria. They are:
<TABLE>
<S> <C>
Joan Bavaria................President, FRANKLIN RESEARCH AND DEVELOPMENT CORPORATION;
Chairperson, CERES (Coalition for Environmentally
Responsible Economies)
Hillel Gray.................Policy Director, NATIONAL ENVIRONMENTAL LAW CENTER
Denis Hayes.................Executive Director, BULLIT FOUNDATION;
Organizer, EARTH DAY 1990 and EARTH DAY 1970
Gene Karpinski..............Executive Director, U.S. PUBLIC INTEREST RESEARCH GROUP
Maureen Kirk................Executive Director, OREGON STATE PUBLIC INTEREST
RESEARCH GROUP
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
Steven Rothstein............President, ENVIRONMENTAL FUTURES, INC.
Andrew Savitz...............Director, COOPERS & LYBRAND: ENVIRONMENTAL ADVISORY
SERVICES
Robert B. Zevin.............Senior Vice President and Economist, UNITED STATES TRUST
COMPANY
</TABLE>
YOUR ACCOUNT
MINIMUM INVESTMENTS
- -------------------
TO OPEN AN ACCOUNT
Regular Investment Account............................. $2,000
Individual Retirement Account (IRA).................... $500
Uniform Gift or Transfer to Minors Account
(UGMA/UTMA)............................................ $500
No minimum initial investment is required for investors
who wish to open an account with a $100 or more a
month Automatic Investment Plan.
TO ADD TO AN ACCOUNT
By Check, Wire or Exchange...................... $100
By Automatic Investment Plan.................... $50
MINIMUM BALANCES--Shareholders are encouraged to maintain a share balance
worth at least $1,000, which amount may be changed by the Trustees of the
Funds. Individual Retirement Accounts and Uniform Gift or Transfer to Minors
Act accounts have a $500 minimum balance requirement. The Funds reserve the
right, following 60 days' written notice to shareholders, to redeem all shares
in accounts with balances less than the minimum. This provision does not apply
to Automatic Investment Plan accounts. Reductions in value that result solely
from market activity will not trigger an involuntary redemption. The Funds will
mail the proceeds of the redeemed account to the shareholder.
HOW TO PURCHASE SHARES
OPENING AN ACCOUNT
1 BY CHECK
To open an account by check, please complete and sign the registration
form and mail it with a check made payable to Green Century Balanced Fund or
Green Century Equity Fund to: Green Century Funds, P.O. Box 9130, MFD23,
Boston, MA 02117-9130.
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<PAGE> 26
2 BY WIRE
You may also open an account by instructing your bank to wire Federal
funds (monies of member banks within the Federal Reserve System) to the
Green Century Funds' custodian bank. Your bank may impose a fee for
sending a wire. If you are opening a new account by wire transfer, you
must telephone the Funds to obtain additional information about this
alternative. The Funds will not be responsible for the consequences of
delays, including delays in the banking or Federal Reserve wire systems.
Please call 1-800-221-5519 weekdays from 8:30 a.m. to 5:00 p.m. Eastern
Time for more information about how to purchase shares by wire. After
calling, complete the registration form and mail it to the address given
above. Wire the amount of your initial investment per the following
instructions:
Investors Bank & Trust Company
ATTN: Transfer Agent
ABA#: 011001438
DDA#: 020103333
Green Century Balanced Fund OR Green Century Equity Fund
Your Name
Your Green Century Funds Account Number
Transaction Reference Number
3 BY EXCHANGE
You may also open an account in one Fund by exchanging shares with a
value of $2,000 or more ($500 for an IRA or UGMA/UTMA account) from
another Green Century Fund. Your new account will be established using
the same name(s) and address as your existing account.
To exchange by telephone, call 1-800-221-5519 weekdays from 8:30 a.m. to
5:00 p.m. Eastern Time. To exchange by letter, write to the "Green
Century Funds" at the address given above, including the name of the Fund
from which you are exchanging, the registered name(s) of ownership and
address, the account number, the dollar amount or number of shares to be
exchanged and the Fund into which you are exchanging. Sign your
name(s) exactly as it appears on your account statement. The exchange
requirements for corporations, other organizations, trusts, fiduciaries,
institutional investors and retirement plans may be different from those
for individual accounts. Please call 1-800-221-5519 for more information.
The Funds reserve the right to modify or terminate the exchange privilege
upon 60 days prior written notice to shareholders.
4 BY AUTOMATIC INVESTMENT
You may open an account with no initial investment if you enroll in the
Automatic Investment Plan and invest a minimum of $100 a month through
the Plan. Complete and sign the registration form, including the
Automatic Investment Plan section and mail it to: Green Century Funds,
P.O. Box 9130, MFD23, Boston, MA 02117-9130. You may terminate your
participation in the Automatic Investment Plan at any time with written
notification to the Funds at the same address.
26
<PAGE> 27
MAKING ADDITIONAL INVESTMENTS
1 BY CHECK ($100 MINIMUM)
You may make subsequent investments by submitting a check for $100 or
more with the tear-off stub (remittance form) from your account
statement. You may also mail your check with a letter of instruction
indicating the amount of your purchase, your account number, and the
name in which your account is registered, to: Green Century Funds, P.O.
Box 9130, MFD23, Boston, MA 02117-9130.
2 BY WIRE ($100 MINIMUM)
You may also make additional investments by instructing your bank to
wire Federal funds. Your bank may impose a fee for sending the wire. The
Green Century Funds cannot be responsible for the consequences of
delays, including delays in the banking or Federal Reserve wire systems.
Wire your additional investment per the instructions which follow. Call
1-800-221-5519 to obtain a Transaction Reference Number prior to wiring
funds.
Investors Bank & Trust Company
ATTN: Transfer Agent
ABA#: 011001438
DDA#: 020103333
Green Century Balanced Fund OR Green Century Equity Fund
Your Name
Your Green Century Funds Account Number
Your Transaction Reference Number
3 BY EXCHANGE ($100 MINIMUM)
Follow instruction No. 3 under "Opening an Account."
4 AUTOMATIC INVESTMENT PLAN ($50 MINIMUM)
You may arrange to make regular investments through automatic deductions
from your checking or savings account. If you wish to select this
option, please complete the appropriate section on your registration
form. If you wish to set up an Automatic Investment Plan after opening
an account, please call 1-800-93-GREEN for further information. You may
terminate your participation in the Automatic Investment Plan at any
time with written notification to the Funds at P.O. Box 9130, Boston, MA
02117-9130.
HOW TO SELL SHARES (REDEMPTIONS)
You can take money out of your account at any time by selling
(redeeming) some or all of your shares. See also "Processing Time" on
page __.
1 BY TELEPHONE
This is the quickest and easiest way to sell Fund shares. In order to
be able to redeem your shares by telephone, you must elect this option
on your registration form when you open your account. If you did not
elect telephone redemption on your registration form, call
1-800-221-5519 for more information. If you elected telephone
redemption on your registration form, call 1-800-221-5519 to request
either that the monies be wired or sent by check to the authorized
27
<PAGE> 28
bank account listed on your registration form or that a check be sent to
you at the address listed on your registration form. You must also
provide your name, address, Fund account number and social security
number before you may redeem shares by telephone. All telephone
redemption requests are recorded. There will be a charge for all wire
redemptions. There is no charge for redemption by check. If you open
an account by wire, you cannot redeem shares by telephone until the
Funds' transfer agent has received your completed and signed
registration form. Telephone redemption is not available for shares
held in IRA accounts.
2 BY MAIL
In order to redeem your shares by mail, send a letter to the "Green
Century Funds" and include the Fund name, the account registration
name(s) and address, the account number, and the dollar amount or the
number of shares you wish to redeem. Mail your letter to: Green Century
Funds, P.O. Box 9130, MFD23, Boston, MA 02117-9130.
Sign your name(s) exactly as it appears on your account statement. For
your protection and to prevent fraudulent redemptions, we require a
signature guarantee for the signature of each person in whose name the
account is registered on written redemption requests. Green Century's
transfer agent accepts signature guarantees from financial institutions
defined under Rule 17A(d)-15 of the Securities Exchange Act of 1934
(FDIC member commercial bank, trust company, New York Stock Exchange
member brokerage firm or New York or Massachusetts savings bank).
Financial institutions which participate in one of the medallion
signature programs must use the specific "Medallion Guaranteed" stamp.
A notary public cannot provide a signature guarantee. The redemption
requirements for corporations, other organizations, trusts, fiduciaries,
institutional investors and Individual Retirement Accounts (IRAs) may be
different from those for regular accounts. For more information please
call 1-800-221-5519.
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION INFORMATION
PURCHASES BY CHECK. Checks must be made payable to the Green Century
Balanced Fund or the Green Century Equity Fund (or to the Green Century Funds).
No third party checks will be honored. Checks also must be drawn on or payable
through a U.S. bank and be in U.S. dollars. If you purchase shares with a check
that is returned due to insufficient funds, your purchase will be cancelled and
you will be responsible for any losses or fees incurred in the transaction. If
you purchase shares by check and redeem them within 15 days of purchase, the
Funds will release your redemption proceeds when your check clears. It is
possible, although unlikely, that this could take up to 15 days. Redemption
requests by telephone, including exchanges, will be accepted prior to the
expiration of the 15-day period if your check has cleared. If you purchase
shares by Federal funds wire, you may avoid this delay.
CONFIRMATION OF TRANSACTIONS. All purchases and redemptions will be
confirmed promptly. Usually a confirmation of your purchase or sale of Fund
shares will be mailed on the business day following receipt of your
instructions.
28
<PAGE> 29
SHARE PRICE CALCULATION. Once each business day, the share price for
each Fund is calculated. This is the Fund's Net Asset Value (the "NAV").
Because all the Green Century Funds are no-load, this is also the offering
price at which each Fund share is sold. Shares are purchased at the next share
price calculated after your investment is received and accepted. Shares are
sold at the next share price calculated after your order is received and
accepted. Shares are purchased in full and fractional share amounts.
PROCESSING TIME. The Funds will normally send your redemption proceeds
within one business day following the redemption request, but may take up to
seven days (or longer in the case of shares recently purchased by check). All
purchase and redemption requests received in good order by the Funds' transfer
agent are executed, without a sales charge, at the next-determined net asset
value. Reinvested dividends receive the net asset value as of the ex-dividend
date.
TAX INFORMATION. A redemption of shares, including an exchange into
another Fund, is a sale of shares and may result in a gain or loss for income
tax purposes.
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER. Please be sure to complete
the Social Security or Tax Identification Number section of the Funds'
registration form when you open an account with the Green Century Funds.
Federal tax law requires the Funds to withhold 31% of taxable dividends,
capital gains distributions and redemption and exchange proceeds from accounts
(other than those of certain exempt payees) without a Social Security or Tax
Identification Number and certain other information or upon notification from
the Internal Revenue Service or a broker that withholding is required. The
Funds reserve the right to reject new account registrations without a Social
Security or Tax Identification Number. The Funds also reserve the right to
close, by redemption, accounts without Social Security or Tax Identification
Numbers.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). Shares of the Funds are
available for Individual Retirement Accounts (IRAs), for Roth IRAs, for
Simplified Employee Pension Plans (SEP-IRAs), for SIMPLE IRAs and for Education
IRAs. For further information and to receive the appropriate forms, please
call 1-800-93-GREEN.
TELEPHONE TRANSACTION LIABILITY. All investors are given the privilege to
initiate transactions (except redemptions) by telephone upon opening an
account. To redeem shares by telephone, you must elect this option in writing.
See page __ for further information. Neither the Funds nor any of their service
contractors (including but not limited to the Funds' Adviser and Subadviser,
Administrator and the Transfer Agent, defined herein) will be liable for any
loss or expense in acting upon any telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions
are genuine, the Funds will use such procedures that are considered to be
reasonable, including requesting a shareholder to correctly state his or her
Fund account number, the name and address in which his or her account is
registered, his or her Social Security number, and, when applicable, his or her
banking institution, bank account number and the name in which his or her bank
account is registered. To the extent that the Funds fail to use reasonable
procedures to verify the genuineness of telephone instructions, the Funds
and/or their service contractors may be liable for any losses due to telephone
instructions that prove to be fraudulent or unauthorized.
29
<PAGE> 30
SHAREHOLDER ACCOUNT STATEMENTS
Shareholders of the Green Century Funds will receive quarterly statements
showing all account activity during that quarter, including dividends.
Additional purchases and redemptions of shares of each Fund will be confirmed
promptly, usually as of the next business day after the purchase or redemption
is received. The Green Century Funds will send you detailed tax information on
the amount and type of their dividends and distributions each year.
DIVIDENDS AND TAXES
The Funds normally declare and pay dividends of net income semiannually in
June and December and distribute net capital gains once a year in December. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. Each Fund intends to
distribute substantially all of its income and net capital gains.
The Balanced Fund's fiscal year end is June 30. The fiscal year end of the
Equity Fund is July 31.
You may opt to receive distributions in cash (via check) or have them
reinvested in additional shares of the Funds. Dividends and capital gain
distributions are automatically reinvested unless you request otherwise. If you
invest in an Individual Retirement Account (IRA), all dividends and capital
gains distributions must be reinvested; however, if you are over 591/2 years
old, distributions from IRA accounts may be paid to you in cash (via check).
Except for tax-exempt accounts, dividends from net investment income are
taxable to shareholders as ordinary income. Long-term capital gains
distributions, if any (based on the applicable long-term capital gains holding
period), are taxable as long-term capital gains regardless of the length of
time you have owned your shares. Distributions of short-term capital gains are
taxable as ordinary income. A portion of the dividends from net investment
income may qualify for the dividends-received deduction for corporations.
A shareholder may also be subject to state and local taxes on dividends
and distributions from the Funds. Shareholders will be notified to the extent,
if any, that dividends reflect interest received from U.S. Government
securities. Such dividends may be exempt from certain state income taxes.
VALUATION OF SHARES
The net asset value per share of each Green Century Fund is computed by
dividing the value of each Fund's total assets, less its liabilities, by the
total number of shares outstanding. The net asset value of the Balanced Fund
fluctuates based on the market values of its investments; the net asset value
of the Equity Fund fluctuates based on the value of its beneficial interest in
the Index Portfolio. In calculating the net asset value per share, the Balanced
Fund uses the current market value of the securities and the Equity Fund uses
the value of its beneficial interest in the Index Portfolio.
30
<PAGE> 31
The net asset value per share of each Fund is determined every business
day as of the close of regular trading of the New York Stock Exchange
(currently 4:00 p.m. Eastern Time) and at such other times as may be necessary
or appropriate. For share prices 24 hours a day, call 1-800-882-8316.
The net asset value of the Index Portfolio is determined by deducting the
amount of the Index Portfolio's liabilities from the value of its assets. At
the close of each business day, the value of the Equity Fund's beneficial
interest in the Index Portfolio will be determined by multiplying the net asset
value of the Index Portfolio by the percentage, effective for that day, which
represents the Fund's share of the aggregate beneficial interests in the Index
Portfolio.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Green Century Funds' Declaration of Trust permits the Board of
Trustees of the Funds to issue an unlimited number of full and fractional
Shares of Beneficial Interest (par value $0.01 per share) and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the respective Fund. The
Funds reserve the right to create and issue additional series of shares. Shares
of each series participate equally in the earnings, dividends and assets of
that particular series.
Each share represents an equal proportionate interest in a Fund with each
other share of that Fund. (Shares have no pre-emptive or conversion rights.
Shares when issued are fully paid and non-assessable, except as set forth
below.) Shareholders are entitled to one vote for each share held. Upon
liquidation of a Fund, shareholders would be entitled to share pro rata in the
net assets of the Fund available for distribution to shareholders. The Funds
are not required to and have no current intention to hold annual meetings of
shareholders, although the Funds will hold special meetings of shareholders
when in the judgment of the Board of Trustees of the Funds it is necessary or
desirable to submit matters for a shareholder vote. Shareholders have under
certain circumstances the right to communicate with other shareholders in
connection with requesting a meeting of shareholders for the purpose of
removing one or more Trustees. Shareholders also have under certain
circumstances the right to remove one or more Trustees without a meeting.
Green Century Funds is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders of such
a business trust may, under certain circumstances, be held personally liable as
partners for its obligations. However, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and a Fund itself was unable to meet
its obligations.
The Index Portfolio, in which all of the assets of the Equity Fund will be
invested, is organized as a trust under the laws of the State of New York. The
Equity Fund and other entities investing in the Index Portfolio (e.g., other
investment companies and common and commingled trust funds) will each be liable
for all obligations of the Index Portfolio.
31
<PAGE> 32
FINANCIAL INTERMEDIARIES
From time to time, Green Century Capital Management enters into contracts
with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name on behalf of that customer. Pursuant to such
contract, each Financial Intermediary as agent with respect to shareholders of
and prospective investors in the Funds who are customers of that Financial
Intermediary, among other things: provides necessary personnel and facilities
to establish and maintain certain shareholders accounts and records enabling it
to hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Green Century Funds; assists in processing purchase
and redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Funds; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Green Century Funds to its customers; and receives, tabulates and transmits
to the Green Century Funds proxies executed by its customers with respect to
meetings of shareholders of the Funds. For these services, the Financial
Intermediary receives such fees from Green Century Capital Management as may be
agreed upon from time to time between Green Century Capital Management and such
Financial Intermediary.
An investor who has an account with a Financial Intermediary may place
purchase orders for Fund shares with the Green Century Funds through that
Financial Intermediary. Each Financial Intermediary may establish and amend
from time to time a minimum initial and a minimum subsequent purchase
requirement for its customers. A transaction or other fee may be charged by a
Financial Intermediary on the purchase of Fund shares. Each Financial
Intermediary may establish its own policy with respect to the reinvestment of
dividends and capital gains distributions in additional Fund shares. Shares
held by a Financial Intermediary on behalf of a shareholder must be redeemed
through that Financial Intermediary. A transaction or other fee may be charged
by a Financial Intermediary on the redemption of Fund shares.
32
<PAGE> 33
INVESTMENT ADVISER (Balanced Fund) AND ADMINISTRATOR
Green Century Capital Management, Inc.
29 Temple Place
Boston, MA 02111
1-800-93-GREEN
INVESTMENT SUBADVISER (Balanced Fund)
Winslow Management Company
24 Federal Street
Boston, MA 02110
INVESTMENT MANAGER (Index Portfolio)
Domini Social Investments LLC
11 West 25th Street, 7th Floor
New York, NY 10010
INVESTMENT SUBMANAGER (Index Portfolio)
Mellon Equity Associates
500 Grant Street, Suite 3700
Pittsburgh, PA 15258
COUNSEL TO INDEPENDENT TRUSTEES OF THE FUNDS
Debevoise & Plimpton
555 13th Street, N.W.
Washington, DC 20004
SUBADMINISTRATOR and DISTRIBUTOR
Sunstone Financial Group, Inc. (Subadministrator)
Sunstone Distribution Services, LLC (Distributor)
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
TRANSFER AGENT AND CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
33
<PAGE> 34
COUNSEL TO GREEN CENTURY CAPITAL MANAGEMENT, INC.
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
FOR MORE INFORMATION ABOUT THE GREEN CENTURY FUNDS CALL 1-800-93-GREEN
FOR SPECIFIC INFORMATION ABOUT YOUR OWN ACCOUNT, CALL 1-800-221-5519
Printed on recycled paper with soy-based ink.
Prospectus
GREEN CENTURY FUNDS
LOGO
(R)
BALANCED
FUND
EQUITY
FUND
34
<PAGE> 35
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
GREEN CENTURY FUNDS
29 Temple Place, Suite 200, Boston, Massachusetts 02111
- --------------------------------------------------------------------------------
Green Century Funds (the "Trust") offers two separate series (each, a
"Fund"), each with its own investment objective. Each series pursues its
respective investment objective through investments consistent with the Trust's
commitment to environmental responsibility. The GREEN CENTURY BALANCED FUND
(the "Balanced Fund") seeks capital growth and income from a diversified
portfolio of stocks and bonds. The GREEN CENTURY EQUITY FUND (the "Equity
Fund") seeks long-term total return from a diversified portfolio of stocks
which corresponds to the total return performance of the "Domini Social
IndexSM" (the "Social Index"), an index comprised of stocks selected based upon
environmental and social criteria. The Equity Fund seeks to achieve its
investment objective by investing all of its investable assets (the "Assets")
in the Domini Social Index Portfolio (the "Index Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Equity Fund. The Index Portfolio invests in the common stocks included in
the Social Index. There can be no assurance that the investment objective of
each Fund will be achieved.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Trust's Prospectus dated January 5, 1998 a copy of
which may be obtained from the Trust at the address noted above. Terms used
but not defined herein, but which are defined in the Prospectus, are used as
defined in the Prospectus.
<TABLE>
<CAPTION>
Table of Contents Page
----------------- ----
<S> <C>
Investment Objectives, Risks and Policies........................ 2
History of Green Century Funds and Green Century and
Capital Management Shareholder Activism......................... 17
Investment Restrictions.......................................... 19
Trustees, Officers and Advisory Board............................ 23
Investment Advisers and Managers................................. 28
Administrator, Subadministrator, Transfer Agent and Custodian,
and Expenses.................................................... 34
Distribution Plan................................................ 36
Net Asset Value; Redemption in Kind.............................. 37
Performance Advertising.......................................... 38
Federal Taxes.................................................... 39
Description of Shares, Voting Rights and Liabilities............. 41
Portfolio Transactions and Brokerage Commissions................. 43
Independent Auditors and Experts................................. 47
Additional Information........................................... 47
Financial Statements............................................. 48
Appendix - Description of Securities Ratings..................... 49
</TABLE>
The date of this Statement of Additional Information is January 5, 1998.
1
<PAGE> 36
INVESTMENT OBJECTIVES, RISKS AND POLICIES
- -------------------------------------------------------------------------------
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Funds and
the Index Portfolio.
BALANCED FUND
U.S. Government Agency Obligations--The Fund will invest in obligations
issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities, some of which are backed by the full faith and credit of the
U.S. Government (i.e., direct pass-through certificates of the Government
National Mortgage Association ("GNMA")), some of which are supported by the
right of the issuer to borrow from the U.S. Government (i.e., obligations of
the Federal Home Loan Banks) and some of which are backed only by the credit of
the issuer itself (i.e., obligations of the Student Loan Marketing
Association).
Repurchase Agreements--Repurchase agreements may be entered into for the
Fund only with selected banks or broker-dealers. This is an agreement in which
the seller (the "Lender") of a security agrees to repurchase from the Fund the
security sold at a mutually agreed upon time and price. As such, it is viewed
as the lending of money to the Lender. The resale price normally is in excess
of the purchase price, reflecting an agreed upon interest rate. The rate is
effective for the period of time assets of the Fund are invested in the
agreement and is not related to the coupon rate on the underlying security.
The period of these repurchase agreements will usually be short, from overnight
to one week. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of one year from the effective date
of the repurchase agreement. The Fund will always receive as collateral
securities whose market value (which is marked to the market daily), including
accrued interest, will be at least equal to 100% of the dollar amount invested
on behalf of the Fund in each agreement along with accrued interest. Payment
for such securities will be made for the Fund only upon physical delivery or
evidence of book entry transfer to the account of the Trust's custodian. If
the seller under a repurchase agreement becomes insolvent, the Fund's right to
dispose of the securities may be restricted. In the event of the commencement
of bankruptcy or insolvency proceedings with respect to the seller of the
security before repurchase of the security under a repurchase agreement, the
Fund may encounter delay and incur costs before being able to sell the
security. If the Lender defaults, the Fund might incur a loss if the value of
the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition,
if bankruptcy proceedings are commenced with respect to the Lender, realization
upon the collateral on behalf of the Fund may be delayed or limited in certain
circumstances. The Lender may also fail to repurchase the obligations.
Repurchase agreements are considered collateralized loans under the Investment
Company Act of 1940, as amended (the "1940 Act").
A repurchase agreement with more than seven days to maturity may not be
entered into for the Fund if, as a result, more than 15% of the market value of
the Fund's net assets would be invested in such repurchase agreements together
with any illiquid securities that the Fund may hold. The Balanced Fund has no
current intention to invest more than 5% of its net assets in repurchase
agreements.
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Certificates of Deposit--The Fund may invest in certificates of deposit of
large domestic or foreign banks (i.e., banks which at the time of their most
recent annual financial statements show total assets in excess of one billion
U.S. dollars or the equivalent thereof) and certificates of deposit of smaller
banks as described below. Although the Trust recognizes that the size of a
bank is important, this fact alone is not necessarily indicative of its
creditworthiness. Investment in certificates of deposit issued by foreign
banks or foreign branches of domestic banks involves investment risks that are
different in some respects from those associated with investment in
certificates of deposit issued by domestic banks, including the possible
imposition of withholding taxes on interest income, the possible adoption of
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such certificates of deposit, or other adverse
political or economic developments. In addition, it might be more difficult to
obtain and enforce a judgment against a foreign bank or a foreign branch of a
domestic bank. (See "Foreign Securities".)
The Fund may also invest in certificates of deposit issued by banks and
savings and loan institutions which had at the time of their most recent annual
financial statements total assets of less than one billion dollars, provided
that (i) the principal amounts of such certificates of deposit are insured by
an agency of the U.S. Government, (ii) at no time will the Fund hold more than
$100,000 principal amount of certificates of deposit of any one such bank, and
(iii) at the time of acquisition, no more than 10% of the Fund's assets (taken
at current value) are invested in certificates of deposit of such banks having
total assets not in excess of one billion dollars.
When-Issued Securities--The Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. When so offered, the price, which
is generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued or forward
delivery securities take place at a later date. During the period between
purchase and settlement, no payment is made by the purchaser to the issuer and
no interest on the when-issued or forward delivery security accrues to the
purchaser. While when-issued or forward delivery securities may be sold prior
to the settlement date, it is intended that the Fund will purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time the Fund makes the commitment to
purchase a security on a when-issued or forward delivery basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. The market value of when-issued or forward delivery securities
may be more or less than the purchase price. The Trust does not believe that
the Fund's net asset value or income will be adversely affected by its purchase
of securities on a when-issued or forward delivery basis. The Fund will
establish a segregated account in which it will maintain cash, U.S. Government
securities and high-grade debt obligations equal in value to commitments for
when-issued or forward delivery securities.
Mortgage-Backed Securities and Mortgage Pass-Through Securities--The Fund
may also invest in mortgage-backed securities, which are interests in pools of
mortgage loans, including mortgage loans made by savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage loans are
assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below.
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Unscheduled or early payments on the underlying mortgage may shorten the
securities' effective maturities and lessen their growth potential. The Fund
may agree to purchase or sell these securities with payment and delivery taking
place at a future date. A decline in interest rates may lead to a faster rate
of repayment of the underlying mortgages, and expose the Fund to a lower rate
of return upon reinvestment. To the extent that such mortgage-backed
securities are held by the Fund, the prepayment right will tend to limit to
some degree the increase in net asset value of the Fund because the value of
the mortgage-backed securities held by the Fund may not appreciate as rapidly
as the price of noncallable debt securities.
Interests in pools of mortgage-backed securities differ from other forms
of debt securities, 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 repayments of principal
resulting from the sale of the underlying property, refinancing or foreclosure,
net of fees or costs which may be incurred. Some mortgage-related securities
(such as securities issued by the Government National Mortgage Association) are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit
of the United States Government, the timely payment of principal and interest
on securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages. These guarantees, however, do not
apply to the market value or yield of mortgage-backed securities or to the
value of Fund shares. Also, GNMA securities often are purchased at a premium
over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) mortgages from a list of approved
seller/servicers which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks and credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment of principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government.
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FHLMC is a corporate instrumentality of the United States Government and
was created by Congress in 1970 for the purpose of increasing the availability
of mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the United
States Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such nongovernmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of
interest and principal of these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance and letters of credit. The insurance and guarantees are issued by
governmental entities, private insurers and the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will
be considered in determining whether a mortgage-related security meets the
Fund's investment quality standards. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. The Fund may buy mortgage-related
securities without insurance or guarantees, if through an examination of the
loan experience and practices of the originators/servicers and poolers, the
Fund's investment adviser and investment subadviser determine that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable.
Foreign Currencies--Investments in foreign securities usually will involve
currencies of foreign countries. Moreover, the Fund temporarily may hold funds
in bank deposits in foreign currencies during the completion of investment
programs and may purchase forward foreign currency contracts, foreign currency
futures contracts and options on such contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund values its assets
daily in terms of U.S. dollars, it does not intend to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. It will do so from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while offering a lesser
rate of exchange should the Fund desire to resell that currency to the dealer.
The Fund will conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward or futures contracts to
purchase or sell foreign currencies.
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Because the Balanced Fund may be invested in both U.S. and foreign
securities markets, changes in the Fund's share price will not be correlated
with movements in the U.S. markets. The Fund's share price will reflect the
movements of both the different stock and bond markets in which it is invested
and of the currencies in which the investments are denominated; the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
the Fund's investment performance. U.S. and foreign securities markets do not
always move in step with each other, and the total returns from different
markets may vary significantly. The Fund may invest in many securities markets
around the world in an attempt to take advantage of opportunities wherever they
may arise.
Floating Rate Obligations--Certain of the obligations that the Fund may
purchase have a floating or variable rate of interest. Such obligations bear
interest at rates that are not fixed, but which vary with changes in specific
market rates or indices, such as the Prime Rate, and at specified intervals.
Certain of such obligations may carry a demand feature that would permit the
holder to tender them back to the issuer at par value prior to maturity.
Because of the variable rate nature of such instruments, the yield of the
Fund purchasing such instruments will decline and its shareholders will forego
the opportunity for capital appreciation during periods when prevailing
interest rates have declined. On the other hand, during periods where
prevailing interest rates have increased, the Fund's yield will increase and
its shareholders will have reduced risk to capital depreciation.
Zero Coupon Securities--The Fund may invest in zero coupon securities
which pay no cash income and are sold at substantial discounts from their value
at maturity. Zero coupon securities include so-called "stripped" U.S. Treasury
obligations as well as privately issued securities which are issued by a bank
or a securities firm that has purchased U.S. Treasury obligations and separated
their interest and principal components. When held to maturity, their entire
income, which consists of accretion of discount, comes from the difference
between the purchase price and their value at maturity. Zero coupon securities
are subject to greater market value fluctuations from changing interest rates
than debt obligations of comparable maturities which make current distributions
of interest (cash). Zero coupon convertible securities offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks as they usually are issued with
short maturities (15 years or less) and are issued with options and/or
redemption features exercisable by the holder of the obligation entitling the
holder to redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying
principal (the "corpus") of the U.S. Treasury security. A number of securities
firms and banks have stripped the interest coupons and receipts and then resold
them in custodial receipt programs with a number of different names, including
"Treasury Income Growth Receipts" ("TIGRS") and Certificate of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof.
Counsel to the underwriters of these certificates or other evidences of
ownership of the U.S.
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Treasury securities has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as the Funds, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission ("SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if the Fund is
"diversified," or for any other purpose, under the 1940 Act.
The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Fund will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be
sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form.
Purchasers of stripped obligations acquire, in effect, discount obligations
that are economically identical to the zero coupon securities that the Treasury
sells itself.
Equity Investments--Equity investments may or may not pay dividends and
may or may not carry voting rights. Common stock occupies the most junior
position in a company's capital structure. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time and to receive interest or dividends until the holder elects to
convert. The provisions of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible
debentures, the holder's claims on assets and earnings are subordinated to the
claims of other creditors, and are senior to the claims of preferred and common
shareholders. In the case of preferred stock and convertible preferred stock,
the holder's claims on assets and earnings are subordinated to the claims of
all creditors but are senior to the claims of common shareholders.
Debt Securities--The Fund may invest in debt securities of foreign and
U.S. issuers. The Fund's debt investments may be selected on the basis of
capital appreciation potential, by evaluating, among other things, potential
yield, if any, credit quality, and the fundamental outlooks for currency and
interest rate trends in different parts of the globe, taking into account the
ability to hedge a degree of currency or local bond price risk. The Fund's
investments in high yield, high risk debt obligations rated below investment
grade, which have speculative characteristics, bear special risks. They are
subject to greater credit risks, including the possibility of default or
bankruptcy of the issuer. The value of such investments may also be subject to
a greater degree of volatility in response to interest rate fluctuations,
economic downturns and changes in the financial condition of the issuer.
These securities generally are less liquid than higher quality securities.
During periods of deteriorating economic conditions and contractions in the
credit markets, the ability of such
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<PAGE> 42
issuers to service their debt, meet projected goals or obtain additional
financing may be impaired. The Fund will also take such action as it considers
appropriate in the event of anticipated financial difficulties, default or
bankruptcy of either the issuer of any such obligation or of the underlying
source of funds for debt service. Such action may include retaining the
services of various persons and firms (including affiliates of the investment
adviser and investment subadviser) to evaluate or protect any real estate or
other assets securing any such obligation or acquired by the Fund as a result
of any such event. The Fund will incur additional expenditures in taking
protective action with respect to portfolio obligations in default and assets
securing such obligations.
Risks Related to Lower-Rated Securities
While any investment carries some risk, certain risks associated with
lower-rated securities are different from those for investment-grade
securities. The risk of loss through default is greater because lower-rated
securities are usually unsecured and are often subordinate to an issuer's other
obligations. Additionally, the issuers of these securities frequently have
high debt levels and are thus more sensitive to difficult economic conditions,
individual corporate developments and rising interest rates. Consequently, the
market price of these securities may be quite volatile and may result in wider
fluctuations of the Fund's net asset value per share.
There remains some uncertainty about the performance level of the market
for lower-rated securities under adverse market and economic environments. An
economic downturn or increase in interest rate could have a negative impact on
both the markets for lower-rated securities (resulting in a greater number of
bond defaults) and the value of lower-rated securities held in the portfolio of
investments.
The economy and interest rates can affect lower-rated securities
differently than other securities. For example, the prices of lower-rated
securities are more sensitive to adverse economic changes or individual
corporate developments than are the prices of higher-rated investments. In
addition, during an economic downturn or period in which interest rates are
rising significantly, highly leveraged issuers may experience financial
difficulties, which, in turn, would adversely affect their ability to service
their principal and interest payment obligations, meet projected business goals
and obtain additional financing.
If an issuer of a security defaults, the Balanced Fund may incur
additional expenses to seek recovery. In addition, periods of economic
uncertainty would likely result in increased volatility for the market prices
of lower-rated securities as well as the Balanced Fund's net asset value. In
general, both the prices and yields of lower-rated securities will fluctuate.
In certain circumstances it may be difficult to determine a security's
fair value due to a lack of reliable objective information. Such instances
occur where there is not an established secondary market for the security or
the security is lightly traded. As a result the Balanced Fund's valuation of a
security and the price it is actually able to obtain when it sells the security
could differ.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and liquidity of lower-rated
securities held by the Fund, especially in a thinly traded market. Illiquid or
restricted securities held by the Balanced Fund may involve special
registration responsibilities, liabilities and costs, and could
involve other liquidity and valuation difficulties.
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Current laws, such as those requiring federally-insured savings and loan
associations to remove investments in lower-rated securities from their
portfolios, as well as other pending proposals, may have a material impact on
the market for lower-rated securities.
The ratings assigned by a rating agency evaluates the safety of
lower-rated security's principal and interest payments, but does not address
market value risk. Because the ratings of the rating agencies may not always
reflect current conditions and events, in addition to using recognized rating
agencies and other sources, the Subadviser performs its own analysis of the
issuers whose lower-rated securities the Balanced Fund holds. Because of this,
the Balanced Fund's performance may depend more on the Subadviser's credit
analysis than is the case of mutual funds investing in higher-rated securities.
Options on Securities--The Fund may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase gain. However, the Fund may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Fund.
The Fund may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing
purchase transaction." Where the Fund cannot effect a closing purchase
transaction, it may be forced to incur brokerage commissions or dealer spreads
in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options, and
there can be no assurance that viable exchange markets will develop or
continue.
The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately
ten broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Fund will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New
York and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The investment adviser
and investment subadviser will monitor the creditworthiness of dealers with
whom the Fund enters into such options transactions under the general
supervision of the Trust's Trustees.
Options on Securities Indices--In addition to options on securities, the
Fund may also purchase and write (sell) call and put options on securities
indices. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Fund
generally will only purchase or write such an option if the investment
adviser and investment subadviser believe the option can be closed
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out. Use of options on securities indices also entails the risk that
trading in such options may be interrupted if trading in certain securities
included in the index is interrupted. The Fund will not purchase such options
unless its investment adviser and investment subadviser believe the market is
sufficiently developed such that the risk of trading in such options is no
greater than the risk of trading in options on securities. Price movements in
the Fund's portfolio may not correlate precisely with movements in the level of
an index and, therefore, the use of options on indices cannot serve as a
complete hedge. Because options on securities indices require settlement in
cash, the Fund may be forced to liquidate portfolio securities to meet
settlement obligations.
Options on Currencies--The Fund may write (sell) call and put options on
currencies to increase gain and may purchase such options to hedge the value of
securities the Fund holds or intends to buy. Purchased currency options may be
denominated in a currency that is linked to the currency the Fund owns or may
wish to purchase. This technique, referred to as "proxy hedging," involves the
additional risk that the linkage between the currencies may be changed or
eliminated.
Futures Contracts--The Fund may enter into futures contracts on
securities, currencies and indices which are traded on exchanges that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC") or,
consistent with CFTC regulations, on foreign exchanges. The Fund will do so to
hedge against anticipated changes in securities values, as a substitute for the
purchase or sale of securities or currencies or to enhance return.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on an exchange
regulated by the CFTC, in each case that are not for bona fide hedging purposes
(as defined by the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the amount by which options are
"in-the-money") may not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses
on any contracts the Fund has entered into.
The Fund may also purchase and write call and put options on futures
contracts which are traded on exchanges that are licensed and regulated by the
CFTC, or, consistent with CFTC regulations, on foreign exchanges.
While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the
same series, the Fund's ability to establish and close out options positions at
fairly established prices will be subject to the existence of a liquid market.
The Balanced Fund will not purchase or write options on futures contracts
unless, in the Trust's advisers' opinion, the market for such options has
sufficient liquidity that the risks associated with such options transactions
are not at unacceptable levels.
While futures contracts will be traded to reduce certain risks, futures
trading itself entails certain other risks. Unanticipated changes in
securities values, interest rates or currency prices may result in a poorer
overall performance for the Fund than if it had not entered into any futures
contracts. Some futures contracts may not have a broad and liquid market, in
which case the contracts may not be able to be closed at a fair price and
the Fund may lose in excess of the initial margin deposit. Moreover,
in the event of an imperfect correlation between the futures contract and the
portfolio position which is intended to be protected, the
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<PAGE> 45
desired protection may not be obtained and the Fund may be exposed to risk
of loss.
The Fund will incur brokerage costs and will be required to post and
maintain "margin" as a good-faith deposit against performance of its
obligations under futures contracts and under options written by the Fund. In
addition, the Fund is required to segregate assets, such as liquid securities
and cash, in an amount equal to the value of the instruments underlying futures
contracts and call options purchased and put options written by the Fund.
Forward Currency Exchange Contracts--A forward currency exchange contract
("forward contract") involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
While the Fund will enter into forward and futures contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Thus, while the Fund may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Fund than if it had not engaged in any such transaction.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward or
futures contracts entered into by the Fund. Such imperfect correlation may
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Combined Transactions--The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions,
multiple foreign currency transactions (including forward foreign currency
exchange contracts) and any combination of futures, options and foreign
currency transactions ("component" transactions), instead of a single
transaction, as part of a single hedging strategy when, in the opinion of the
investment adviser and investment subadviser, it is in the best interest of the
Fund to do so. A combined transaction, while part of a single hedging
strategy, may contain elements of risk that are present in each of its
component transactions.
Use of Segregated and Other Special Accounts--Options, futures and forward
foreign currency transactions which obligate the Fund to provide cash,
securities or currencies to complete such transactions will entail the Fund
either segregating assets in an account with, or on the books of, the Custodian
to the extent the Fund does not own the securities, or the securities
denominated in the currency, which are the subject of the obligation, or
otherwise "covering" the transaction as allowed under interpretive positions of
the SEC. For example, a call option written by the Fund will require the Fund
to hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate high grade
liquid debt obligations sufficient to meet the obligation by purchasing and
delivering the securities if the call is exercised. A call option written on
an index will require the Fund to have portfolio securities which correlate
with the index or to segregate such high grade liquid assets. A put option
written by the Fund also will require the Fund to segregate such high grade
liquid assets sufficient to cover the Fund's obligation to buy the securities
covered by the put if the put is exercised.
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Except when the Fund enters into a forward contract for the purpose of the
purchase or sale of a security denominated in a foreign currency, a forward
foreign currency contract which obligates the Fund to provide currencies will
require the Fund to hold currencies or liquid securities denominated in that
currency which will equal the Fund's obligations. Such a contract requiring
the purchase of currencies also requires segregation.
Unless the Fund owns or maintains a segregated account consisting of the
securities, cash or currencies which are the subject of the obligation as
described above, the Fund will hold liquid assets in a segregated account.
These assets cannot be transferred while the obligation is outstanding unless
replaced with other suitable assets. Rather than segregating assets in the
case of an index-based transaction, the Fund could own securities substantially
replicating the movement of the particular index.
In the case of a futures contract, the Fund, apart from its duty to
segregate, must deposit initial margin and variation margin, as often as daily
if the position moves adversely, sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. Similarly, options on futures
contracts require margin to the extent necessary to meet the Fund's
commitments.
In lieu of such procedures, such transactions may be covered by other
means, consistent with applicable regulatory policies. The Fund may enter into
certain offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a
put option sold by the Fund. Moreover, instead of segregating assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Of course, the offsetting transaction must
terminate at the time of or after the primary transaction.
Other Mortgage-Backed Securities--Governmental, government-related or
private entities may create mortgage loan pools and other mortgage-related
securities offering mortgage pass-through and mortgage-collateralized
investments in addition to those described above. The mortgages underlying
these securities may include alternative mortgage instruments, that is,
mortgage instruments whose principal or interest payments may vary or whose
terms to maturity may differ from customary long-term fixed rate mortgages. As
new types of mortgage-related securities are developed and offered to
investors, the investment adviser and investment subadviser will, consistent
with the Fund's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities. The Fund
will not purchase any such other mortgage-backed securities until the Trust's
Prospectus and this Statement of Additional Information have been supplemented.
EQUITY FUND
The Equity Fund seeks to achieve its investment objective by investing all
its Assets in the Index Portfolio, which has the same investment objective as
the Equity Fund. The Index Portfolio seeks to achieve its investment objective
by investing in the common stocks comprising the Social Index. The Equity
Fund's policy is to invest at least 80% of its Assets (either directly or
through the Index Portfolio) in the stocks comprising the Social Index.
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In selecting stocks for inclusion in the Social Index:
1. Kinder, Lydenberg & Domini & Co., Inc. ("KLD") evaluated, in accordance
with the social criteria described in the Prospectus, each of the companies the
stocks of which comprise the Standard & 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 its further criteria for industry
diversification, financial solvency, market capitalization, and minimal
portfolio turnover, it was included in the Social Index. As of July 31, 1997,
of the 500 companies whose stocks comprised the S&P 500, approximately 50% were
included in the Social Index.
2. The remaining stocks comprising the 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 its criteria for
industry diversification, financial solvency, market capitalization, and
minimal portfolio turnover. Because of the social criteria applied in the
selection of stocks comprising the Social Index, industry sector weighting in
the 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 Social Index stocks issued by companies which are
in bankruptcy or whose bankruptcy KLD believes may be imminent.
The component stocks of the S&P 500 are chosen by Standard & Poor's
Corporation ("S&P") solely with the aim of achieving a distribution by broad
industry groupings that approximates the distribution of these groupings in the
New York Stock Exchange common stock population, taken as the assumed model for
the composition of the total market. Construction of the S&P 500 by S&P
proceeds from industry groups to the whole. Since some industries are
characterized by companies of relatively small stock capitalization, the S&P
500 does not comprise the 500 largest companies listed on the New York Stock
Exchange. Not all stocks included in the S&P 500 are listed on the New York
Stock Exchange. However, the total market value of the S&P 500 as of July 31,
1997 represented 79.3% of the aggregate market value of common stocks traded on
the New York Stock Exchange.
Inclusion of a stock in the S&P 500 Index in no way implies an opinion by
S&P as to its attractiveness as an investment, nor is S&P a sponsor of or
otherwise affiliated with the Equity Fund or the Index Portfolio. "S&P 500" is
a trademark of S&P. A company which is not included in the S&P 500 may be
included in the Social Index primarily in order to afford representation to an
industrial sector which would otherwise be under-represented in the Social
Index. Because of the environmental and social criteria applied in the
selection of stocks comprising the Social Index, industry sector weighting in
the Social Index may vary materially from the industry weightings in other
stock indices, including the S&P 500.
The weightings of stocks in the Social Index are based on each stock's
relative total market capitalization, (i.e., market price per share times the
number of shares outstanding.) Because of this weighting, as of July 31, 1997
approximately 40% of the Social Index was comprised of the 20 largest companies
in that Index.
The Index Portfolio intends to readjust its securities holdings
periodically such that those holdings will correspond, to the extent reasonably
practicable, to the Social Index both in terms of composition and weighting.
The timing and extent of adjustments in the holdings of the Index
Portfolio, and the extent of the
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<PAGE> 48
correlation of the holdings of the Index Portfolio with the Social Index,
will reflect the Index Portfolio's submanager's judgment as to the appropriate
balance as between the goal of correlating its holdings with the composition of
the Social Index and the goals of minimizing transaction costs and keeping
sufficient reserves available for anticipated redemptions of shares. To the
extent practicable, the Index Portfolio will seek a correlation between the
weightings of securities held by the Index Portfolio to the weightings of the
securities in the Social Index of 0.95 or better. The Board of Trustees of the
Index Portfolio will receive and review, at least quarterly, a report prepared
by the Submanager comparing the performance of the Index Portfolio with that of
the Social Index, and comparing the composition and weighting of the Index
Portfolio's holdings with those of the Social Index, and will consider what
action, if any, should be taken in the event of a significant variation between
the performance of the Equity Fund or the Index Portfolio, as the case may be,
and that of the Social Index, or between the composition and weighting of the
Index Portfolio's securities holdings with those of the stocks comprising the
Social Index. If the correlation between the weightings of securities held by
the Index Portfolio and the weightings of the stocks in the Social Index falls
below 0.95, the Board of Trustees of the Index Portfolio will review, with the
Submanager of the Index Portfolio methods for increasing such correlation, such
as through adjustments in securities holdings of the Index Portfolio. As of
July 31, 1997, the correlation between the weightings of securities held by the
Index Portfolio and the weightings of the stocks in the Social Index was 0.99.
To the extent practicable, the Index Portfolio will attempt to be fully
invested.
Securities Subject to Taxation: The Index Portfolio does not purchase
securities which the Index Portfolio believes, at the time of purchase, will be
subject to exchange controls or foreign withholding taxes; however, there can
be no assurance that such laws may not become applicable to certain of the
Index Portfolio's investments. In the event unforeseen exchange controls or
foreign withholding taxes are imposed with respect to any of the Index
Portfolio's investments, the effect may be to reduce the income received by the
Index Portfolio on such investments.
Rule 144A Securities: Although neither the Equity Fund nor the Index
Portfolio has any current intention to do so, each may invest in securities
which may be resold pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "1933 Act").
Option Contracts: Although it has no current intention to do so, the
Index Portfolio may in the future enter into certain transactions in stock
options for the purpose of hedging against possible increases in the value of
securities which are expected to be purchased by the Index Portfolio or
possible declines in the value of securities which are expected to be sold by
the Index Portfolio. Generally, the Index Portfolio would only enter into such
transactions on a short-term basis pending readjustment of its holdings of
underlying stocks.
The purchase of an option on an equity security provides the holder with
the right, but not the obligation, to purchase the underlying security, in the
case of a call option, or to sell the underlying security, in the case of a put
option, for a fixed price at any time up to a stated expiration date. The
holder is required to pay a non-refundable premium, which represents the
purchase price of the option. The holder of an option can lose the entire
amount of the premium, plus related transaction costs, but not more. Upon
exercise of the option, the holder is required to pay the purchase price of the
underlying security in the case of a call option, or deliver the security in
return for the purchase price in the case of a put option.
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<PAGE> 49
Prior to exercise or expiration, an option position may be terminated only
by entering into a closing purchase or sale transaction. This requires a
secondary market on the exchange on which the position was originally
established. While the Index Portfolio would establish an option position only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular option contract at
any specific time. In that event, it may not be possible to close out a
position held by the Index Portfolio, and the Index Portfolio could be required
to purchase or sell the instrument underlying an option, make or receive a cash
settlement or meet ongoing variation margin requirements. The inability to
close out option positions also could have an adverse impact on the Index
Portfolio's ability effectively to hedge its portfolio.
Each exchange on which option contracts are traded has established a
number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Adviser
of the Index Portfolio does not believe that these trading and position limits
would have an adverse impact on the possible use of hedging strategies by the
Index Portfolio.
Short Sales: Although it has no current intention to do so, the Index
Portfolio may make short sales of securities or maintain a short position, if
at all times when a short position is open the Index Portfolio owns an equal
amount of such securities, or securities convertible into such securities.
BALANCED FUND AND EQUITY FUND
Foreign Securities--The investment advisers believe that diversification
of assets on a global basis decreases the degree to which events in any one
country, including the United States, will affect an investor's entire
investment holdings. In the period since World War II, many leading foreign
economies have grown more rapidly than the United States economy, providing
investment opportunities, although there can be no assurance that this will be
true in the future. As with any long-term investment, the value of shares when
sold may be higher or lower than when purchased.
Investors should recognize that investing in foreign securities involves
certain risk factors, including those set forth below, which are not typically
associated with investing in United States securities and which may affect the
Funds' performance favorably or unfavorably. Many foreign stock markets, while
growing in volume of trading activity, have substantially less volume than the
New York Stock Exchange, and securities of some foreign companies are less
liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets is less than that in the
United States market and at times, volatility of price can be greater than in
the United States. Further, foreign markets have different clearance and
settlement procedures and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to a Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges, although
the Funds will endeavor to achieve the most favorable net results on portfolio
transactions. Further, the Funds may encounter difficulties or be
unable to pursue legal remedies
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and obtain judgment in foreign courts. There is generally less government
supervision and regulation of business and industry practices, stock exchanges,
brokers and listed companies than in the United States. It may be more
difficult for the Funds' agents to keep currently informed about corporate
actions such as stock dividends or other matters which may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. The investment advisers seek to mitigate the risks
associated with the foregoing considerations through diversification and
continuous professional management.
The Funds may also invest in sponsored and unsponsored American Depository
Receipts (ADRs) and, in the case of the Balanced Fund, Global Depository
Receipts (GDRs). ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership in the underlying securities. Transactions in
these securities may not necessarily be settled in the same currency as
transactions in the securities into which they represent. Generally ADRs, in
registered form, are designed for use in U.S. securities markets.
Risks of Specialized Investment Techniques Abroad--The above described
specialized investment techniques, when conducted abroad, may not be regulated
as effectively as in the United States; may not involve a clearing mechanism
and related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Funds' ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in
the United States, and (v) lesser trading volume.
Lending of Portfolio Securities--Each Fund and the Index Portfolio may
lend their securities to brokers, dealers and financial institutions, provided
(1) the loan is secured continuously by collateral, consisting of U.S.
Government securities or cash or letters of credit, which is marked to the
market daily to ensure that each loan is fully collateralized at all times; (2)
the loan may be called at any time and the return of the securities loaned
obtained within three business days; (3) each Fund or the Index Portfolio, 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 Funds or the Index Portfolio, as the
case may be.
Each Fund and the Index Portfolio will earn income for lending their
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 Funds and the Index Portfolio
may pay reasonable finders,
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administrative and custodial fees. No such fees will be paid to any
person if it or any of its affiliates is affiliated with the Funds, the Index
Portfolio, the investment adviser of the Funds or Index Portfolio, the
investment subadviser of the Balanced Fund or the investment manager of the
Index Portfolio.
At the present time, the Balanced Fund has no intention to loan securities
worth more than 5% of the Fund's assets. Although the Index Portfolio reserves
the right to lend its securities, it has no current intention of doing so in
the foreseeable future. The Equity Fund will not lend its securities.
HISTORY OF THE GREEN CENTURY FUNDS AND
GREEN CENTURY CAPITAL MANAGEMENT
SHAREHOLDER ACTIVISM
While the companies in the portfolios of the Green Century Balanced Fund
and the Index Portfolio must meet basic standards for corporate environmental
responsibility, some still have room for improvement. In such cases, Green
Century may enter into dialogue with those companies or file a shareholder
resolution to initiate improvement. The following is a history of Green
Century's shareholder activism as of October 31, 1997.
CERES -- Green Century Capital Management has been actively involved with
CERES, the Coalition of Environmentally Responsible Economies, created in 1989
to spur corporations to better their environmental behavior. The CERES
Principles establish comprehensive corporate environmental standards and
disclosure requirements. Companies that endorse the Principles back up their
pledges with concrete information, publicly reported in the CERES Report.
Green Century Capital Management's participation in CERES has enabled it to
join in negotiations with various corporations, which have ranged from Aveda
and Ben & Jerry's to General Motors and Sunoco, and help increase the pressure
for change. Green Century Capital Management staff also spoke at the May 1993
PepsiCo annual shareholders meeting in favor of that company's endorsement of
the CERES Principles.
In June of 1997, Green Century co-sponsored a resolution with Thermo
Electron, urging the company to endorse the Principles. The resolution won 4.5
percent of the vote, sufficient to allow the resolution's filers to re-file
next year and to continue to press the company to endorse the Principles.
Green Century is currently preparing to co-file shareholder resolutions at
Intel and Thermo Electron for vote at their Spring 1998 annual meetings to
encourage both companies to endorse the CERES Principles.
PEPSICO -- Green Century continued the dialogue with PepsiCo in November of
1993, when the Balanced Fund filed a shareholder resolution to spur the
corporation to further improve its environmental programs and limit its active
opposition to environmental protection measures such as recycling campaigns and
efforts to pass state and national Bottle Bill legislation. The vote was held
at the May 1994 annual shareholders meeting at which Green Century Capital
Management staff made a presentation in support of the resolution. The
resolution received 43.8 million votes, equal to 8.45% of the votes cast on the
resolution. This was a strong first showing, sending a message to PepsiCo
management about the growing shareholder concern for the environment.
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In 1995, PepsiCo came to the negotiating table with Green Century,
apparently wishing to avoid the negative publicity that another shareholder
resolution involving PepsiCo's opposition to the bottle bill could create. The
company agreed to conduct a comprehensive study of its environmental policies
and devise a set of principles designed to guide company-wide action. PepsiCo
also agreed to discontinue the use of disposable shipping containers in favor
of plastic shells that it will reuse. The company also committed to
manufacture a new aluminum lid that will save 25 million pounds of aluminum per
year.
GENERAL MILLS -- In July of 1994, Green Century Capital Management learned that
General Mills had allowed the manufacture and distribution of 50 million boxes
of cereal that had been made from oats treated with an illegal pesticide.
Though General Mills recalled the contaminated cereal, Green Century Capital
Management wrote to General Mills CEO H. Brewster Atwater requesting that the
company more closely monitor its food manufacturing. Mr. Atwater responded by
outlining the steps the company would take to prevent similar mishaps.
INTEL -- In 1994 the Green Century Balanced Fund joined forces with the Jessie
Smith Noyes Foundation in filing a shareholder resolution that would require
Intel, an electronics producer, to make publicly available information which
would allow public assessment of its facilities' environmental and safety
hazards. The resolution was in response to a report by the Southwest
Organizing Project which states that Intel's Rio Rancho plant in New Mexico
would require amounts of water exceeding local capacity. While the resolution
did not pass, it did move Intel President Andrew Grove to initiate a long
sought after dialogue with Noyes' President Stephen Viederman.
The following year, the Green Century Balanced Fund and Noyes filed
another shareholder resolution with Intel, prompting Intel to revise its
Environmental, Health and Safety Policy to include sharing information on the
company's environmental and safety hazards with the public. Further, Intel
agreed that the "communities" with which it will share information will include
all community groups and not just the elected officials and local advisory
panels set up by Intel to which the company had offered limited information in
the past. As a result, Noyes, with the support of Green Century and the other
co-filers, withdrew the shareholders resolution. The resolution's proponents
and local community organizations will continue to monitor Intel's
implementation of the new policy.
SECURITIES AND EXCHANGE COMMISSION -- In February of 1995, Green Century
Capital Management staff corresponded with SEC Commissioner Arthur Levitt to
urge him not to allow the SEC to restrict shareholder activism, and with
Senator John Kerry to urge him to consider the rights of shareholders to file
resolutions when considering two pending nominations to the Securities and
Exchange Commission.
In September of 1997, Green Century Capital Management staff again wrote
SEC President Levitt to reiterate Green Century's concern that issues important
to environmentally conscious investors be allowed on the ballot at companies'
annual shareholder meetings.
TIME WARNER -- In 1992, Time Warner, Inc. committed to convert Time magazine to
chlorine-free paper. The company has not only not done so as of yet and has
resisted requests to report on its plans to convert.
In 1995, Green Century Capital Management staff wrote Time President
Reginald Brack to request that Time convert to chlorine free paper in its
publications. The Green Century Balanced Fund then joined as
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a co-filer in a shareholder resolution at Time which asked the Time Board of
Directors to report on its plans to convert to the use of chlorine-free paper.
The resolution was presented at Time Warner's annual shareholder meeting by
Green Century Trustee Wendy Wendlandt on May 16, 1996 and won a yes vote of
nearly 18 million shares, or 5.5% of the votes cast. This was enough to
persuade Time Warner CEO Gerald Levin to state that he welcomed continuing
dialogue with the resolution's proponents and to qualify the resolution to be
introduced the following year.
In May of 1997 the resolution was voted on a second time and did not
garner enough votes to allow us to re-introduce it next year. Green Century
will continue to work with our co-filers and others on alternative strategies.
GREEN CENTURY EQUITY FUND PROXY VOTES - Invested in a portfolio that owns the
stocks of 400 companies, the Equity Fund's portfolio has opportunities to vote
its shares on many environmental and social issues. Key among these in the
past year was the movement to encourage corporations to endorse the CERES
Principles. The Equity Fund's adviser supported shareholder resolutions
advocating CERES endorsements at several companies last year, including
American Express Company and Kellogg Company.
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
Each Fund and the Index Portfolio is operated under the following
investment restrictions which are deemed fundamental policies and may be
changed with respect to a Fund or the Index Portfolio only with the approval of
the holders of a "majority of the outstanding voting securities" of the Fund or
the Index Portfolio which, as defined in the 1940 Act and as used herein, means
the vote of (i) 67% or more of the Fund's shares or the Index Portfolio's
interests present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund or interests in the Index Portfolio are present
in person or represented by proxy; or (ii) more than 50% of the Fund's
outstanding shares or the Index Portfolio's outstanding interests whichever is
less. Whenever the Equity Fund is requested to vote on a matter pertaining to
the Index Portfolio, the Trustees of the Equity Fund will, in their discretion
and in accordance with applicable law, either seek instructions from
shareholders of the Equity Fund and vote the shares only in accordance with
such instructions, or vote the shares held by the Equity Fund in the same
proportion as the vote of all other holders of shares in the Index Portfolio.
BALANCED FUND
The Trust, on behalf of the Balanced Fund may not:
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(1) borrow money or mortgage or hypothecate assets of the Fund, except
that in an amount not to exceed 1/3 of the current value of the Fund's net
assets, it may borrow money as a temporary measure for extraordinary or
emergency purposes and enter into reverse repurchase agreements or dollar roll
transactions, and except that it may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings (it is intended that money
would be borrowed only from banks and only either to accommodate requests for
the redemption of shares while effecting an orderly liquidation of portfolio
securities or to maintain liquidity in the event of an unanticipated failure to
complete a portfolio security transaction or other similar situations) or
reverse repurchase agreements, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters of credit
solely for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Non-Fundamental State and
Federal Restrictions" below. (As an operating policy, the Fund may not engage
in reverse repurchase agreements.);
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(3) underwrite securities issued by other persons except insofar as the
Trust or the Fund may technically be deemed an underwriter under the 1933 Act
in selling a portfolio security;
(4) make loans to other persons except (a) through the lending of the
Fund's portfolio securities and provided that any such loans not exceed 30% of
the Fund's total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations and provided
that not more than 10% of the Fund's net assets will be invested in repurchase
agreements maturing in more than seven days, or (c) by purchasing a portion of
an issue of debt securities of types commonly distributed privately to
financial institutions, for which purposes the purchase of short-term
commercial paper or a portion of an issue of debt securities which are part of
an issue to the public shall not be considered the making of a loan;
(5) 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
(except futures and option contracts) in the ordinary course of business (the
Trust may hold and sell, for the Fund's portfolio, real estate acquired as a
result of the Fund's ownership of securities);
(6) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue and equal in amount
to, the securities sold short, and unless not more than 10% of the Fund's net
assets (taken at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time (the
Trust has no current intention to engage in short selling);
(7)concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement of
the Fund's investment objective, up to 25% of its total
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assets may be invested in any one industry, except that positions in
futures or option contracts shall not be subject to this restriction; and
(8) 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, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security
for purposes of this restriction.
Non-Fundamental Restrictions--In order to comply with certain federal
statutes and policies the Trust, on behalf of the Balanced Fund will not as a
matter of operating policy:
(1) purchase securities issued by any investment company if as a
result thereof (a) more than 10% of the Fund's total assets (taken at
the greater of cost or market value) to be invested in the securities
of such issuers; (b) more that 5% of the Fund's total assets (taken at
the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Fund (the Trust has
no current intention of investing the assets of the Fund in other
investment companies);
(2) invest more than 15% of the net assets of the Fund (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable;
(3) with respect to 75% of the total assets of the Fund, invest more
than 5% of the total assets of the Fund in the securities or
obligations of any one issuer (other than U.S. Government obligations)
or acquire more than 10% of the outstanding voting securities of any
one issuer;
These policies are not fundamental and may be changed without shareholder
approval in response to changes in the various state and federal requirements.
EQUITY FUND AND INDEX PORTFOLIO
Neither the Equity Fund nor the Index Portfolio may:
(1) borrow money, except that as a temporary measure for extraordinary or
emergency purposes either the Fund or the Index Portfolio may borrow an amount
not to exceed 1/3 of the current value of the net assets of the Fund or the
Index Portfolio, respectively, including the amount borrowed (moreover, neither
the Fund nor the Index Portfolio may purchase any securities at any time at
which borrowings exceed 5% of the total assets of the Fund or the Index
Portfolio, respectively, taken in each case at market value) (it is intended
that the Index Portfolio would borrow money only from banks and only to
accommodate requests for the withdrawal of all or a portion of a beneficial
interest in the Index Portfolio while effecting an orderly liquidation of
securities); for additional related restrictions, see clause (i) under the
caption "Non-Fundamental State and Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on margin,
except that either the Fund or the Index Portfolio may short-term credit as may
be necessary for the clearance of purchases and
21
<PAGE> 56
sales of securities and except that either the Fund or the Index Portfolio
may make deposits of initial deposit and variation margin in connection with
the purchase, ownership, holding or sale of options;
(3) write any put or call option or any combination thereof, provided that
this shall not prevent (i) the purchase, ownership, holding or sale of warrants
where the grantor of the warrants is the issuer of the underlying securities,
or (ii) the purchase, ownership, holding or sale of options on securities;
(4) underwrite securities issued by other persons, except that the Fund
may invest all or any portion of its assets in the Index Portfolio and except
insofar as either the Fund or the Index Portfolio may technically be deemed an
underwriter under the 1933 Act in selling a security;
(5) make loans to other persons except (a) through the lending of
securities held by either the Fund or the Index 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 Fund
may invest all or any portion of its assets in the Index Portfolio;
(7) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Fund and Index Portfolio reserve the
freedom of action to hold and to sell real estate acquired as a result of the
ownership of securities by the Fund or the Index Portfolio);
(8) make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund or the Index Portfolio, as
applicable, owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short, and unless not more than 5% of the Fund's or the Index Portfolio's, as
applicable, net assets (taken in each case at market value) is held as
collateral for such sales at any one time (it is the present intention of the
Index Portfolio and the Fund to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax purposes);
(9) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating paragraph (1) above;
(10) as to 75% of its assets, purchase securities of any issuer if such
purchase at the time thereof would cause more than 5% of the Index Portfolio's
or the Fund's, as applicable, assets (taken at market value) to be invested in
the securities of such issuer (other than securities or obligations issued or
guaranteed by the
22
<PAGE> 57
United States or any agency or instrumentality of the United States),
except that for purposes of this restriction the issuer of an option shall not
be deemed to be the issuer of the security or securities underlying such
contract and except that the Fund may invest all or any portion of its assets
in the Index Portfolio; and
(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 Social Index,
in which case the Index Portfolio or the Fund, as applicable, will invest more
than 25% of its assets in that industry, and except that the Fund may invest
all of its assets in the Index Portfolio.
Non-Fundamental Restrictions: In order to comply with certain federal
statutes and regulatory policies, neither the Equity Fund nor the Index
Portfolio will as a matter of operating policy invest more than 15% of the net
assets of the Fund or the Index Portfolio, respectively, (taken at the greater
of cost or market value) in securities that are illiquid or not readily
marketable (defined as a security that cannot be sold in the ordinary course of
business within seven days at approximately the value at which the Fund or the
Index Portfolio, respectively, has valued the security).
This policy is not fundamental and may be changed with respect to the Fund
without approval by the Fund's shareholders or with respect to the Index
Portfolio by the Index Portfolio without the approval of the Fund or its other
investors. The Equity Fund will comply with the state securities laws and
regulations of all states in which it is registered. The Index Portfolio will
comply with the applicable investment limitations found in the state securities
laws and regulations of all states in which the Fund is registered.
Percentage Restrictions: If a percentage restriction or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the securities held by a Fund or the Index Portfolio or a later change
in the rating of a security held by a Fund or the Index Portfolio will not be
considered a violation of policy; provided that if at any time the ratio of
borrowings of a Fund to the net asset value of a Fund exceeds the ratio
permitted by Section 18(f) of the 1940 Act, a Fund will take the corrective
action required by Section 18(f).
TRUSTEES, OFFICERS AND ADVISORY BOARD
- --------------------------------------------------------------------------------
The Trustees and officers of the Trust and the Index Portfolio and their
principal occupations during the past five years (although their titles may
have varied during the period) are:
TRUSTEES OF THE TRUST
DAVID J. FINE (49) - Trustee of the Trust; Attorney, Dangel, Donlan & Fine
(since January, 1996); Attorney, Dangel & Fine (from August, 1993 to January,
1996); Attorney, Fine, Halpern & Strassfeld (from July, 1991 to August, 1993).
DOUGLAS M. HUSID* (46) - Trustee of the Trust; President of the Trust;
Attorney, Goulston & Storrs, P.C. (since October, 1991).
23
<PAGE> 58
STEVEN KADISH (41) - Trustee of the Trust; Assistant Vice Chancellor for
Biologic Laboratories and Programs, University of Massachusetts Medical Center
(since June, 1997); Assistant Secretary for Administration and Finance,
Commonwealth of Massachusetts (from June, 1995 to June, 1997) Director of
Operations, Medicaid, Department of Public Welfare, Commonwealth of
Massachusetts (from July, 1992 to June, 1995); Deputy Director, Division of
Capital Planning and Operations, Commonwealth of Massachusetts (prior to July,
1992).
STEPHEN MORGAN (49) - Trustee of the Trust; President, EUA, Citizens
Conservation Services, Inc. (since January, 1995); Chief Operating Officer,
Citizens Conservation Corp. (from July, 1991 to January, 1995).
DOUGLAS H. PHELPS* (50) - Trustee of the Trust; Chair, Fund for Public
Interest Research (since May, 1983); President, Telefund, Inc. (since January,
1988).
C. WILLIAM RYAN (43) - Trustee of the Trust; Director, Brookline Tai Chi
(since March, 1992).
JAMES H. STARR (50) - Trustee of the Trust; Attorney, Starr and Burgess,
PC (since 1989); Director, Crested Butte Land Trust (since 1991).
WENDY WENDLANDT* (36) - Trustee of the Trust; Chairperson of the Board,
Earth Day 2000 (since February, 1991); Senior Staff, Fund for Public Interest
Research (since November, 1989).
OFFICERS OF THE TRUST
KRISTINA A. CURTIS (45) - Treasurer of the Trust; Treasurer, Director and
Chief Operating Officer, Green Century Capital Management, Inc. (since July,
1991).
ADRIENNE M. SHISHKO (35) - Secretary and Assistant Treasurer of the Trust;
General Counsel, Vice President - Marketing and Director, Green Century Capital
Management, Inc. (from July, 1991 to March, 1996).
TRUSTEES OF THE INDEX PORTFOLIO
EMILY W. CARD (55) - 1223 Wilshire Blvd., #334, Santa Monica, California
90403; Attorney; President, The Card Group, Inc..
AMY L. DOMINI* (47) - 230 Congress Street, Boston, Massachusetts, 02110;
Chair, President and Trustee of the Index Portfolio and the Domini Social
Equity Fund since 1990; Manager of Domini Social Investments, LLC (since 1997);
Officer of KLD; Trustee, Loring, Wolcott & Coolidge (since 1987); Trustee,
Episcopal Church Pension Fund; Member, Governing Board, Interfaith Center on
Corporate Responsibility.
ALLEN M. MAYES (76) - P.O. Box 21222, Beaumont, Texas, 77720; Retired Senior
Associate General Secretary of the General Board of Pensions of the United
Methodist Church (since May, 1982); Director of Ministerial Services, Texas
Annual Conference, The United Methodist Church; Former Member of
24
<PAGE> 59
the Board of Directors of Investor Responsibility Research Center; Member of
Board of Trustees of Wiley College (since November, 1969).
WILLIAM C. OSBORN (52) - 115 Buckminster Road, Brookline, Massachusetts,
02146; Manager, Venture Investment Management Company LLC (since 1996); Vice
President and General Manager, TravElectric Services Corp. (from 1993 to 1995);
President, Environmental Technologies, Inc. (from 1990 to 1993); Director,
Evergreen Solar, Inc. (since 1996); Director, Conservation Services Group
(since 1992).
KAREN PAUL (53) - 4050 Park Avenue, Miami, Florida 33133; Associate Dean
and Professor of Business Environment, Florida International University.
TIMOTHY SMITH (53) - Interfaith Center for Corporate Responsibility, 475
Riverside Drive, New York, New York 10115; Executive Director of the Interfaith
Center on Corporate Responsibility (since 1974); Trustee of the Calvert New
Africa Fund (since 1994).
FREDERICK C. WILLIAMSON, SR. (81) - 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 Commission (since 1986).
______________________
*An "interested person" of the Trust or the Index Portfolio as that term
is defined in the 1940 Act.
OFFICERS OF THE INDEX PORTFOLIO**
CAROLE M. LAIBLE (34) - Secretary and Treasurer of the Index Portfolio
(since 1997); Financial Compliance Officer of Domini Social Investments LLC
(since 1997); Financial Compliance Officer of Fundamental Shareholder Services,
Inc. (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.
DAVID P. WEIDER (31) - Vice President of the Index Portfolio (since 1997);
Member, Domini Social Investments LLC (since 1997); President of Fundamental
Shareholder Services, Inc.
SIGWARD M. MOSER (35) - Vice President of the Index Portfolio (since
1997); President of Communications House International, Inc; Director of
Financial Communications Society; Member, Domini Social Investments LLC (since
1997).
PETER D. KINDER (50) - 129 Mt. Auburn Street, Cambridge, Massachusetts,
02138; Vice President of the Index Portfolio; Officer of KLD (since March,
1988).
STEVEN D. LYDENBERG (51) - 129 Mt. Auburn Street, Cambridge,
Massachusetts, 02138; Vice President of the Index Portfolio; Director of
Research of KLD (since January, 1990).
Unless otherwise indicated, the mailing address of all of the Trustees and
officers of the Trust is Green
25
<PAGE> 60
Century Funds, 29 Temple Place, Suite 200, Boston, Massachusetts 02111. Unless
otherwise indicated, the mailing address of all the officers of the Index
Portfolio is 11 West 25th Street, New York, New York 10010. Each of the
officers also serve as officers of the Domini Social Equity Fund and Domini
Institutional Trust, other registered investment companies which invest in the
Index Portfolio. Each of the listed Trustees of the Index Portfolio (except
Mr. Mayes) also serves as Trustees of the Domini Social Index Fund and the
Domini Institutional Trust.
No Trustee of the Trust receives any compensation from the Trust, but each
Trustee who is not an "interested person" of the Trust is reimbursed for any
out-of-pocket expenses incurred in attending meetings of the Board of Trustees
or of any committee thereof. Each Trustee of the Index Portfolio who is not
otherwise affiliated with the Index Portfolio, receives an annual retainer of
$4000 plus a meeting fee of $500.
26
<PAGE> 61
<TABLE>
<CAPTION>
Trust Trustees
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FROM THE TRUST FOR
THE TRUST FOR THE THE FISCAL YEAR
YEAR ENDED JUNE 30, ENDED JUNE 30, 1997
1997 FOR THE PENSION OR FOR THE BALANCED
BALANCED FUND AND RETIREMENT BENEFITS ESTIMATED ANNUAL FUND AND
JULY 31, 1997 FOR ACCRUED AS PART OF BENEFITS UPON JULY 31, 1997 FOR
THE EQUITY FUND FUND EXPENSES RETIREMENT THE EQUITY FUND
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
David J. Fine,
Trustee None None None None
Douglas M. Husid None None None None
Steven Kadish,
Trustee None None None None
Stephen Morgan,
Trustee None None None None
Douglas H. Phelps,
Trustee None None None None
C. William Ryan,
Trustee None None None None
James H. Starr,
Trustee None None None None
Wendy Wendlandt,
Trustee None None None None
</TABLE>
<TABLE>
<CAPTION>
Index Portfolio Trustees
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM PENSION OR FROM THE TRUST AND
THE PORTFOLIO FOR RETIREMENT BENEFITS ESTIMATED ANNUAL THE PORTFOLIO FOR
THE YEAR ENDED ACCRUED AS PART OF BENEFITS UPON THE FISCAL YEAR
JULY 31, 1997 FUND EXPENSES RETIREMENT ENDED JULY 31, 1997
------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Emily W. Card, Trustee $205 None None $205
Amy L. Domini, Chair,
President and Trustee None None None None
Allen M. Mayes,
Trustee $2,000 None None $2,000
William C. Osborn,
Trustee $55 None None $55
Karen Paul, Trustee None None None None
Timothy Smith, Trustee $2,000 None None $2,000
Frederick C.
Williamson, Trustee $2,000 None None $2,000
</TABLE>
The Board of Trustees of the Trust has created an Advisory Board as a
resource with respect to the application and refinement of the Trust's
environmental criteria. The Advisory Board has no other power,
27
<PAGE> 62
authority or responsibility with respect to the management of the Trust or the
conduct of the affairs of the Trust. No member of the Advisory Board receives
any compensation for his or her services. The Advisory Board serves as a
resource regarding the application and refinement of the Funds' environmental
criteria. They are:
<TABLE>
<S> <C>
Joan Bavaria.... President, FRANKLIN RESEARCH AND DEVELOPMENT CORPORATION;
Chairperson, CERES (Coalition for Environmentally Responsible Economies)
Hillel Gray..... Policy Director, NATIONAL ENVIRONMENTAL LAW CENTER
Denis Hayes..... Executive Director, BULLIT FOUNDATION; Organizer, EARTH DAY 1990 and
EARTH DAY 1970
Gene Karpinski.. Executive Director, U.S. PUBLIC INTEREST RESEARCH GROUP
Maureen Kirk.... Executive Director, OREGON STATE PUBLIC INTEREST RESEARCH GROUP
Steven Rothstein President, ENVIRONMENTAL FUTURES, INC.
Andrew Savitz... Director, COOPERS & LYBRAND: ENVIRONMENTAL ADVISORY SERVICES
Robert B. Zevin. Senior Vice President and Economist, UNITED STATES TRUST COMPANY
</TABLE>
As of November 30, 1997 all Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of each Fund. As of November 30,
1997, the following are the only persons known by the Trust to have more than
5% of the outstanding shares of the Balanced or Equity Funds: Glyn Mills
Nominees (Lombard Street) Limited A/C 1781 owned 30.47% of the outstanding
shares of the Balanced Fund and National Financial Services Corporation owned
13.46% of the Equity Fund. Shareholders owning 25% or more of the outstanding
shares of a Fund may take actions without the approval of any other
investor in that Fund.
INVESTMENT ADVISER AND MANAGER
- --------------------------------------------------------------------------------
BALANCED FUND
INVESTMENT ADVISER Under an Investment Advisory Agreement dated as of
August 13, 1991 (the Advisory Agreement") between the Trust, on behalf of the
Balanced Fund, and Green Century Capital Management, Inc. ("Green Century
Capital" or the "Adviser"), and subject to the general supervision of the
Trust's Trustees and in conformance with the respective stated policies of the
Balanced Fund, Green Century Capital provides general investment advice to the
Balanced Fund. Green Century Capital also helps the Trust design, and
instructs the Balanced Fund's investment subadviser as to how to implement the
Trust's environmental criteria.
The Investment Advisory Agreement provides that it will continue
indefinitely if its continuance is specifically approved at least annually by
the vote of the holders of a majority of the outstanding voting securities of
the Fund or by vote of a majority of the Trust's Board of Trustees; and
provided further that such continuance is also approved annually by the vote of
a majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of the Trust's Adviser, cast in person at a meeting called
for the purpose of voting on such approval. The Advisory Agreement may be
terminated at any time without payment of any penalty, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting securities of
the Fund upon 60 days' prior written notice to the Adviser and by the Adviser
upon 60 days' prior written notice to the Trust. The Advisory Agreement
provides that it shall terminate automatically in the event of its assignment.
28
<PAGE> 63
The Advisory Agreement further provides that absent willful misfeasance,
bad faith, gross negligence, or reckless disregard of obligations or duties
under the Advisory Agreement on the part of the Adviser, the Adviser shall not
be subject to liability to the Trust or to any shareholder of the Fund for any
act or omission in the course of, or in connection with, rendering services
under the Advisory Agreement or for any losses that may be sustained in the
purchase, holding of sale of any security. The Advisory Agreement also
provides that the services of the Adviser are not deemed exclusive and that the
Adviser may render similar services to others.
Under the Advisory Agreement, the Trust has agreed that the names "Green
Century Funds" and "Green Century" are proprietary to the Trust's Adviser.
As compensation for the services rendered and obligations assumed by the
Adviser, the Trust pays to the Adviser monthly a fee equal on an annual basis
to 0.75% of the average daily net assets of the Balanced Fund, computed and
accrued daily. For the fiscal years ended June 30, 1995, 1996 and 1997, the
Balanced Fund accrued advisory fees aggregating $23,012, $51,494 and $67,209,
respectively.
INVESTMENT SUBADVISER Green Century Capital has entered into an Investment
Subadvisory Agreement on behalf of the Balanced Fund (an "Subadvisory
Agreement") with Winslow Management Company ("Winslow" or the "Subadviser")
dated as of July 1, 1995. It is Winslow's responsibility under the direction of
the Adviser, to make the day-to-day investment decisions for the Balanced Fund
and to place the purchase and sale orders for the portfolio transactions of the
Balanced Fund consistent with the environmental criteria established by the
Trust's Adviser and subject to the general direction of the Trust's Adviser.
Winslow is a separate operating division of Eaton Vance Management ("Eaton
Vance"), a registered investment adviser. Winslow manages equity and debt
investments in environmental and environmentally responsible companies for its
clients. Winslow has been a division of Eaton Vance since June 30, 1993 and
formerly was an independent company. As of June 30, 1997, Winslow had over $80
million in assets under management.
The Subadvisory Agreement provides that it will continue indefinitely if
its continuance is approved at least annually by vote of the holders of a
majority of the outstanding voting securities of the Fund or by vote of a
majority of the Trust's Board of Trustees; and further provided that such
continuance is also approved annually by the vote of a majority of the Trustees
who are not parties to the Subadvisory Agreement or interested persons of the
Subadviser, cast in person at a meeting called for the purpose of voting on
such approval. The Subadvisory Agreement will terminate automatically in the
event of the termination of the Advisory Agreement or in the event of its
assignment. In addition, the Subadvisory Agreement may be terminated at any
time without payment of any penalty, by the Trust's Board of Trustees or by a
vote of the majority of the outstanding voting securities of the Fund upon 60
days' prior written notice to the Subadviser and by the Subadviser upon 60
days' prior written notice to the Trust.
The Subadvisory Agreement further provides that absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the Subadvisory Agreement on the part of the Subadviser, the
Subadviser shall not be subject to liability to the Trust or to any shareholder
of the Fund for any act or omission in the course of, or connected with,
rendering services thereunder or for any losses that may be sustained in the
purchase, holding of sale of any security. The Subadvisory Agreement also
provides that the services of the Subadviser are not deemed exclusive and that
the Subadviser may render similar
29
<PAGE> 64
services to others.
For its services, Green Century Capital has agreed to pay Winslow a fee
equal on an annual basis to 0.40% of the value of the average daily net assets
of the Balanced Fund (the "Base Fee"), such fee shall be accrued daily and
payable at the end of each quarter, and subject to the following adjustment:
for each calendar quarter commencing one year after Winslow begins rendering
services hereunder, the Base Fee shall be adjusted as follows: (i) if the
Fund's total return (calculated in accordance with Rule 482 of Regulation C
promulgated under the 1933 Act) for the immediately prior twelve month period
("Fund Total Return") is greater than the total return of the Lipper Directors'
Analytical Data Balanced Fund Average (the "Index Total Return") plus 1%, then
the Base Fee for such quarter shall be increased by an amount which is the
product of .025% multiplied by the average daily net assets for such year, (ii)
if the Fund Total Return exceeds the Index Total Return plus 2%, then the Base
Fee for such quarter shall be increased by an amount which is the product of
.05% multiplied by the average daily net assets for such year, (iii) if the
Fund Total Return is less than the Index Total Return minus 1%, then the Base
Fee for such quarter shall be decreased by an amount which is the product of
.025% multiplied by the average daily net assets for such year, or (iv) if the
Fund Total Return is less than the Index Total Return minus 2%, then the Base
Fee for such quarter shall be reduced by an amount which is the product of .05%
multiplied by the average daily net assets for such year.
For Example:
If, on an annual basis, the Balanced Fund's
Total Return differs from the Index Total Then the Trust's Adviser will
Return by: pay Winslow an annual fee of:
positive 2.00% or more 0.60%
positive 1.00% to positive 1.99% 0.50%
negative 0.99% to positive 0.99% 0.40%
negative 1.00% to negative 1.99% 0.30%
negative 2.00% or more 0.20%
The Board of Trustees believes that the performance adjustments are
appropriate although not within the 10 percentage points per year range
suggested by Release No. 7113 under the 1940 Act. In the event the Lipper
Directors' Analytical Data Balanced Fund Average ceases to become available or
the Trustees determine such Index Total Return is no longer a reasonable
performance benchmark, the Trustees may substitute another performance
benchmark.
For the fiscal years ended June 30, 1996 and 1997, the Adviser paid Winslow
subadvisory fees aggregating $27,464, and $37,028, respectively.
Prior to July 1, 1995, Scudder, Stevens & Clark served as investment subadviser
to the Balanced Fund. For the fiscal year ended June 30, 1995, the Adviser paid
Scudder, Stevens & Clark subadvisory fees of $7,670.
30
<PAGE> 65
EQUITY FUND AND INDEX PORTFOLIO
INVESTMENT ADVISER The Equity Fund has not retained the services of an
investment adviser or investment subadviser since the Fund seeks to achieve its
investment objective by investing all its assets in the Index Portfolio. The
Index Portfolio has retained the services of Domini Social Investments LLC
("DSI") as investment manager and Mellon Equity Associates ("Mellon Equity") as
submanager for the Index Portfolio.
INVESTMENT MANAGER Pursuant to a Management Agreement dated and effective
as of October 22, 1997 (the "Management Agreement") between the Index Portfolio
and DSI, DSI provides investment supervisory and administrative services to the
Index Portfolio. The services provided by DSI consist of investment
supervisory services, overall operational support and administrative services.
The administrative services include the provision of general office facilities
and supervising the overall administration of the Index Portfolio.
The Management Agreement provides that it shall remain in force until
October 22, 1999, on which date it will terminate unless its continuance after
October 22, 1999 is specifically approved at least annually (i) by the vote of
a majority of the Trustees of the Index Portfolio who are not "interested
persons" of the Index Portfolio or of DSI at a meeting specifically called for
the purpose of voting on such approval, and (ii) by the Board of Trustees of
the Index Portfolio or by vote of a majority of the outstanding voting
securities of the Index Portfolio. The Management Agreement also provides that
it may be terminated at any time without the payment of any penalty by the
Trustees or by the vote of a majority of the outstanding voting securities of
the Index Portfolio, or by DSI, in each case on not more than 60 days' nor less
than 30 days' written notice to the other party. The Management Agreement
shall automatically terminate in the event of its assignment.
Pursuant to the Management Agreement, DSI 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 the execution of securities
transactions for the Index Portfolio, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder. The Management Agreement
further provides that the services of DSI to the Index Portfolio are not deemed
to be exclusive, DSI being free to render investment advisory, administrative
and/or other services to others.
For its services under the Management Agreement, DSI receives a fee equal
on an annual basis to 0.20% of the Index Portfolio's average daily net assets,
except that for the first year of the Management Agreement, the fee payable to
DSI will be reduced by the amount, if any, by which the total ordinary
operating expenses of the Index Portfolio (excluding brokerage fees and
commissions, interest, taxes, and any other extraordinary expenses) exceed, on
an annual basis, 0.20% of the average daily net assets of the Index Portfolio.
Prior to October 22, 1997, the investment adviser to the Index Portfolio was
Kinder, Lydenberg, Domini & Co., Inc. ("KLD"). The services provided by KLD
consisted of the determination of the stocks to be included in the Social Index
and evaluating, in accordance with KLD's environmental and social criteria, debt
securities which may be purchased by the Index Portfolio. KLD furnished at its
own expense all facilities and
31
<PAGE> 66
personnel necessary in connection with providing these services. For its
services under its investment advisory agreement with the Index Portfolio, KLD
was entitled to receive from the Index Portfolio a fee accrued daily and paid
monthly at an annual rate equal to 0.025% of the Index Portfolio's average
daily net assets. For the fiscal year ended July 31, 1995, KLD voluntarily
waived all of its advisory fees. For the fiscal years ended July 31, 1996 and
1997, KLD received advisory fees of $38,150 and $46,528, respectively.
In addition to serving as investment manager, prior to October 22, 1997,
KLD also served as sponsor of the Index Portfolio. Pursuant to a Sponsorship
Agreement dated November 6, 1996, KLD was responsible for the ordinary
operating expenses of the Index Portfolio (other than brokerage fees and
commissions, interest, taxes and extraordinary expenses) and provided the Index
Portfolio with administrative personnel and services necessary to operate the
Index Portfolio. For these services and facilities, KLD received fees from the
Index Portfolio at an annual rate of 0.20% of the average daily net assets of
the Index Portfolio for the Index Portfolio's then-current fiscal year. KLD
continues to determine and monitor the composition of the Domini 400 Social
Index (which determines the composition of the Index Portfolio's securities),
and provide other services relating to socially responsible investments
pursuant to a license agreement between DSI and KLD. KLD received sponsorship
fees of $295,633 for the period November 6, 1996 to July 31, 1997 from the
Index Portfolio. The Sponsorship Agreement was terminated as of October 22,
1997.
Prior to October 22, 1997, and pursuant to an Administrative Services
Agreement between Signature Broker-Dealer Services, Inc. ("Signature") and KLD,
KLD engaged Signature to provide certain administrative services to the Index
Portfolio. In such capacity, Signature performed certain administrative
services requested by KLD. For these services, since November 6, 1996, KLD paid
to Signature a fee computed daily and paid monthly at an annual rate of 0.025%
of the average daily net assets of the Index Portfolio. For its services, for
the period from October 4, 1996 until November 6, 1996, Signature received fees
computed daily and paid monthly from the Index Portfolio at an annual equal to
0.025% of the average daily net assets of the Index Portfolio. Prior to
October 4, 1996, Signature received administrative fees computed daily and paid
monthly from the Index Portfolio at an annual rate of 0.05% of the average
daily net assets of the Index Portfolio. For the fiscal years ended July 31,
1995, 1996 and 1997, Signature received Adminsitrative Services fees from the
Index Portfolio of $0, $38,150, and $46,528, respectively. The Administrative
Services Agreement was terminated effective October 22, 1997.
"Domini(SM)" and "Domini 400 Social Index(SM)" are service marks of KLD
which are licensed to DSI with the consent of Amy L. Domini. Pursuant to
agreements among DSI, Ms. Domini and the Index Portfolio, the Index Portfolio
may be required to discontinue the use of these service marks if DSI ceases to
be the Manager of the Index Portfolio or Ms. Domini withdraws her consent.
The Equity Fund and the Index Portfolio use certain proprietary rights,
know-how and financial services referred to as the Hub and Spoke investment
fund structure from Signature Financial Group. Hub and Spoke is a registered
service mark of Signature Financial Group.
INVESTMENT SUBMANAGER Mellon Equity Associates ("Mellon Equity") provides
investment submanagement services to the Index Portfolio on a day-to-day basis
pursuant to a Submanagement Agreement with DSI effective October 22, 1997.
Mellon Equity's services as submanager include providing DSI with such
investment advice and supervision as DSI may from time to time consider
necessary for the
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proper supervision of the Index Portfolio's investment assets, and determining
what securities shall be purchased, sold or exchanged and what portion of the
assets of the Index Portfolio allocated by DSI shall be held uninvested. Mellon
Equity does not determine the composition of the Domini Social Index.
The Submanagement Agreement provides that it shall remain in force until
October 22, 1999, on which date it will terminate unless its continuance after
October 22, 1999 is specifically approved at least annually (i) by the vote of
a majority of the Trustees of the Index Portfolio who are not "interested
persons" of the Index Portfolio or of DSI or Mellon Equity at a meeting
specifically called for the purpose of voting on such approval, and (ii) by the
Board of Trustees of the Index Portfolio or by vote of a majority of the
outstanding voting securities of the Index Portfolio. The Submanagement
Agreement also provides that it may be terminated at any time without the
payment of any penalty by the Trustees of the Index Portfolio, or by the vote
of a majority of the outstanding voting securities of the Index Portfolio, or
by DSI with the prior consent of the Trustees of the Index Portfolio, in each
case on not more than 60 days' nor less than 30 days' written notice to the
other party. In addition, the Submanagement Agreement may be terminated at any
time without the payment of any penalty by Mellon Equity on not less than 90
days' written notice to DSI and the Trustees of the Index Portfolio. The
Submanagement Agreement shall automatically terminate in the event of its
assignment.
Pursuant to the Submanagement Agreement, Mellon Equity 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 the execution of securities
transactions for the Index Portfolio, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties thereunder. The Submanagement Agreement
further provides that the services of Mellon Equity to the Index Portfolio are
not deemed to be exclusive, Mellon Equity being free to render investment
advisory, administrative and/or other services to others.
Under the Submanagement Agreement, DSI pays Mellon Equity an investment
submanagement fee equal on an annual basis to 0.10% of the average daily net
assets of the Index Portfolio.
Prior to October 22, 1997, Mellon Equity managed the assets of the Index
Portfolio pursuant to an investment management agreement with the Index
Portfolio. Prior to November 21, 1994, State Street Bank and Trust Company
served as investment manager to the Index Portfolio. Mellon Equity furnished
at its own expense all services, facilities and personnel necessary in
connection with managing the Index Portfolio's investments and effecting
securities transactions for the Index Portfolio. Since October 4, 1996, the
Index Portfolio paid Mellon Equity an investment management fee equal on an
annual basis to 0.10% of the Index Portfolio's average daily net assets. For
the fiscal years ended July 31, 1995, 1996 and 1997, respectively, the Index
Portfolio incurred $39,589, $128,901 and $182,885 in investment management
fees.
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ADMINISTRATOR, SUBADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN, AND EXPENSES
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ADMINISTRATOR Pursuant to an Administrative Services Agreement dated April 7,
1995 between the Trust and Green Century Capital (the "Administration
Agreement"), Green Century Capital, as the Trust's administrator (the
"Administrator"), provides the Trust with general office facilities and
supervises the overall administration of the Trust, including, among other
responsibilities, the negotiation of contracts and fees with, and the
monitoring of performance and billings of, the Trust's independent contractors
and agents; the preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations; and arranging for the
maintenance of books and records of the Trust. As described in the Prospectus,
the Administrator also pays, pursuant to the administrative services agreement,
all the operating expenses of each Fund other than the Funds' investment
advisory fees, if any, fees under the Distribution Plan, if any, interest,
taxes, brokerage costs and other capital expenses, expenses of the
non-interested Trustees of the Funds (including counsel fees) and any
extraordinary expenses.
Green Century Capital was founded in 1991 by a partnership of
not-for-profit environmental advocacy organizations, for the following
purposes: to provide quality environmentally responsible investment
opportunities to the members of its founding organizations and other
environmentally conscious investors; it generate revenue to support the
environmental research and advocacy work of its founding organizations; and to
promote corporate environmental responsibility by advocating that companies
improve their environmental performance. As do the advocacy organizations that
founded Green Century Capital, Green Century upholds the right of people to
speak for the public interest and corporate responsibility.
The Administration Agreement provides that it shall remain in force until
terminated. The Agreement may be terminated as to any Fund at any time,
without the payment of any penalty, by the Board of Trustees of the Trust or by
the Administrator, in each case on not less than 30 days' written notice to the
other party. The Agreement further provides that the Administrator shall not
be liable for any error of judgment or mistake of law or for any act or
omission in the administration or management of the Trust or the performance of
its duties, except for willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of the reckless disregard of its
obligations and duties.
For such administrative services, the Administrator receives a fee from
the Balanced Fund at a rate such that immediately following any payment to the
Administrator, the total operating expenses of the Balanced Fund (including
investment advisory and distribution fees), on an annual basis, do not exceed
2.50% of the Balanced Fund's average daily net assets up to $30 million, 2.25%
on average net assets from $30 million to $100 million, and 1.75% on average
net assets in excess of $100 million. The Administrator receives a fee from
the Equity Fund at a rate such that immediately following any payment to the
Administrator, the combined total operating expenses of the Fund and the Index
Portfolio (including investment advisory fees and any amortization of
organization expenses), on an annual basis, do not exceed 1.50% of the Fund's
average daily net assets.
For the fiscal years ended June 30, 1995, 1996 and 1997, the Balanced Fund
accrued administrative services fees aggregating $46,032, $102,989 and $134,417,
respectively. For the period September 13, 1995 to July 31, 1996 and the fiscal
year ended July 31, 1997, the Equity Fund accrued administrative service fees to
the Administrator of the Trust aggregating $3,431 and $27,359, respectively.
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<PAGE> 69
SUBADMINISTRATOR Pursuant to a Subadministration Agreement dated July 7, 1997
(the "Subadministration Agreement"), between the Administrator and Sunstone
Financial Group, Inc. ("Sunstone"), Sunstone provides certain day-to-day
administrative services to the Trust, under the supervision and direction of
the Administrator of the Trust. The Subadministration Agreement provides that
it shall continue to July 7, 1998 unless sooner terminated, and thereafter will
continue automatically in effect for successive annual periods until
terminated. The Agreement may be terminated at any time with respect to any one
or both Funds without penalty (i) upon mutual consent of the parties, or (ii)
by either party upon not less than ninety (90) days' written notice.
The Subadministration Agreement provides further that Sunstone shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by Green Century Capital or the Funds in connection with the matters to which
the Agreement relates, except for a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under the
Subadministration Agreement.
Sunstone receives a fee from the Administrator (not the Funds) for its
administrative services on behalf of the Administrator, which fee is based on
each Fund's average net assets at the annual rate of 0.175% on the first
$50,000,000 of average net assets, 0.105% on the next $50,000,000, 0.075% on
the next $50,000,000, and 0.050% on average net assets in excess of
$150,000,000, subject to an annual minimum for each Fund of $35,000 in the
first year, $40,000 in the second year, and $50,000 in the third year. The
minimum annual fee increases 6.0% each year after year three. Sunstone does not
act or serve in any capacity with respect to the Index Portfolio.
Prior to July 7, 1997, Signature Broker-Dealer Services, Inc.
("Signature") served as the subadministrator of the Funds. For the fiscal years
ended June 30, 1995, 1996 and 1997, Green Century Capital paid
subadministrative services fees to Signature for its subadministrative services
for the Equity Fund and the Balanced Fund aggregating $4,602, $10,708, and
$16,062, respectively.
TRANSFER AGENT The Trust and the Index Portfolio have entered into a transfer
agency agreement with Investors Bank & Trust Company ("IBT") pursuant to which
IBT acts as transfer agent for the Trust and the Index Portfolio (the "Transfer
Agent"). IBT maintains an account for each shareholder of each Fund and each
investor in the Index Portfolio, performs other transfer agency functions and
acts as dividend disbursing agent for each Fund and the Index Portfolio,
respectively.
CUSTODIAN Pursuant to a Custodian Agreement with each of the Trust and the
Index Portfolio, IBT also acts as the custodian of the Funds' assets (i.e., cash
and securities or, in the case of the Equity Fund, its interest in the Index
Portfolio) and as the custodian of the Index Portfolio's assets (the
"Custodian"). The Custodian's responsibilities include safeguarding and
controlling the Funds' and the Index Portfolio's cash and securities, handling
the receipt and delivery of securities, determining income and collecting
interest on the Funds' and the Index Portfolio's investments, maintaining books
of original entry for portfolio and fund accounting and other required books and
accounts, and calculating the daily net asset value of shares and interests in
the Fund and the Index Portfolio, respectively. Securities held by the Funds
and the Index Portfolio may be deposited into certain securities depositaries.
The Custodian does not determine the investment policies of the Funds or the
Index Portfolio nor does the Custodian decide which securities the Funds or the
Index Portfolio will buy or sell. The Index Portfolio may, however, invest in
securities of the Custodian and may deal
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<PAGE> 70
with the Custodian as a principal in securities transactions. For its
services, IBT will receive such compensation as may from time to time be agreed
upon by it and the Funds and the Index Portfolio, as the case may be.
DISTRIBUTION PLAN
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The Trust has adopted a Distribution Plan with respect to the Balanced
Fund in accordance with Rule 12b-1 under the 1940 Act after concluding that
there is a reasonable likelihood that the Distribution Plan will benefit the
Fund and its shareholders. The Trust has not adopted a Distribution Plan with
respect to the Equity Fund. The Distribution Plan provides that the Balanced
Fund shall pay a fee to Sunstone Distribution Services, LLC, as the distributor
of shares of the Balanced Fund (the "Distributor"), at an annual rate not to
exceed 0.25% of the Fund's average daily net assets in anticipation of, or as
reimbursement for expenses (i) of compensating broker-dealers with trail or
maintenance commissions and (ii) of printing prospectuses and reports used for
sales purposes, expenses of the preparation and printing of sales literature
and other such distribution-related expenses. Prior to July 7, 1997, Signature
served as distributor of the shares of the Trust. For the fiscal years ended
June 30, 1995, 1996 and 1997, the Balanced Fund accrued distribution fees
aggregating $7,671, $17,165 and $22,403, respectively.
The Distribution Plan will continue in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
majority of the Trustees and a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust and who have no direct or
indirect financial interest in the operation of the Distribution Plan or in any
agreement related to the Plan ("Qualified Trustees"). The Distribution Plan
requires that the Trust shall provide to its Board of Trustees, and its Board
of Trustees shall review, at least quarterly, a written report of the amounts
expended (and the purposes therefor) under the Distribution Plan. The
Distribution Plan further provides that the selection and nomination of the
Qualified Trustees shall be committed to the discretion of the disinterested
Trustees then in office. The Distribution Plan may be terminated at any time
by a vote of a majority of the Qualified Trustees or by a vote of the
shareholders of the Balanced Fund. The Distribution Plan may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of shareholders and may not be materially amended in any case without
a vote of the majority of both the 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 years from the date
of the Plan, and for the first two years the Distributor will preserve such
copies in an easily accessible place.
The Distributor acts as the agent of the Trust in connection with the
offering of shares of the Balanced Fund and the Equity Fund pursuant to a
Distribution Agreement. After the prospectuses and periodic reports have been
prepared, set in type and mailed to existing shareholders, the Distributor pays
for the printing and distribution of copies thereof which are used in
connection with the offering of shares of the Funds to prospective investors.
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<PAGE> 71
NET ASSET VALUE; REDEMPTION IN KIND
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The net asset value of each Fund's shares is determined each day the New
York Stock Exchange is open for trading ("Fund Business Day"). (As of the date
of this Statement of Additional Information, such Exchange is open for trading
every weekday except for the following holidays: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.) This determination of net
asset value of shares of the Fund is made once during each such day as of the
close of the New York Stock Exchange (currently 4:00 p.m., Eastern time) in the
case of the Funds by deducting the amount of the Fund's liabilities from the
value of its assets and dividing the difference by the number of shares of the
Fund outstanding at the time the determination is made.
Valuation Procedures: Balanced Fund--In valuing the Balanced Fund's
assets, a security listed on the New York Stock Exchange (and not subject to
restrictions against sale by a Fund on such Exchange) will be valued at its
last sale price on such Exchange. Lacking any sales, the security will be
valued at the mean between the closing asked price and the closing bid price.
Securities listed on other exchanges (and not subject to restriction against
sale by a Fund on such exchanges) will be similarly valued, using quotations on
the exchange on which the security is traded most extensively. Unlisted
securities which are quoted on the NASD National Market System, for which there
have been sales of such securities, will be valued at the last sale price
reported on such system. If there are no such sales, the value will be the
high or "inside" bid, which is the bid supplied by the NASD on its NASDAQ
System for such securities in the over-the-counter market. The value of such
securities quoted on the NASDAQ System, but not listed on the National Market
System, will be valued at the high or "inside" bid. Unlisted securities which
are not quoted on the NASDAQ System and for which over-the-counter market
quotations are readily available will be valued at the mean between the current
bid and asked prices for such securities in the over-the-counter market. Other
unlisted securities (and listed securities subject to restriction on sale) will
be valued at their fair value as determined in good faith by the Trustees
although the actual calculation may be done by others. Short-term corporate
investments with remaining maturities of sixty days or less are valued at
amortized cost. Open futures contracts are valued at the most recent
settlement price, unless such price does not reflect the fair value of the
contract, in which case such positions will be valued by or under the direction
of the Trustees.
Subject to the Trust's compliance with applicable regulations, the Trust
has reserved the right to pay the redemption price of shares of the Balanced
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust has elected, however, to be governed by Rule 18f-1 under
the 1940 Act, as a result of which the Trust is obligated with respect to any
one investor during any 90 day period to redeem shares of the Balanced Fund
solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets at
the beginning of such 90 day period.
Valuation Procedures: Equity Fund and Index Portfolio--The value of the
Index 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 Equity Fund determines
its net asset value per share. The net asset value of the Equity Fund's
investment in the Index Portfolio is equal to the Fund's pro rata share of the
total investment of the Fund and of other investors in the Index Portfolio less
the Fund's pro
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rata share of the Index Portfolio's liabilities. Equity securities held by the
Index Portfolio are valued at the last sale price on the exchange on which they
are primarily traded or on the NASDAQ system for unlisted national market
issues, or at the last quoted bid price for securities in which there were no
sales during the day or for unlisted securities not reported on the NASDAQ
system. If the Index Portfolio purchases option contracts, such option
contracts which are traded on commodities or securities exchanges are normally
valued at the settlement price on the exchange on which they are traded.
Short-term obligations with remaining maturities of less than sixty days are
valued at amortized cost, which constitutes fair value as determined by the
Board of Trustees of the Index Portfolio. Index 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 Index Portfolio's
Board of Trustees.
PERFORMANCE ADVERTISING
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Equity Fund and Balanced Fund--The average annual total rate of return of
the Funds will be calculated for any period by (a) dividing (i) the sum of the
aggregate net asset value per share on the last day of the period of shares
purchased with a $1,000 payment on the first day of the period and the
aggregate net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains distributions declared during such
period with respect to shares purchased on the first day of such period and
with respect to shares purchased with such dividends and capital gains
distributions, by (ii) $1,000, (b) raising the quotient to a power equal to 1
divided by the number of years in the period, and (c) subtracting 1 from the
result.
The total rate of return of the Funds for any specified period will be
calculated by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment
on the first day of the period and the aggregate net asset value per share on
the last day of the period of shares purchasable with dividends and capital
gains distributions declared during such period with respect to shares
purchased on the first day of such period and with respect to shares purchased
with such dividends and capital gains distributions, by (ii) $1,000, and (b)
subtracting 1 from the result.
For the period March 18, 1992 (commencement of operations) through June
30, 1997, the average annual total return of the Balanced Fund was 9.15%. The
Balanced Fund's average annual total return for the one and five year periods
ended June 30, 1997 were 15.22% and 10.02%, respectively.
The Equity Fund's total rate of return for the fiscal year ended July 31,
1997 was 53.14%. The Fund's average annual total return for the five
years ended July 31, 1997 was 19.36%. The Fund's average annual total return
for the fiscal periods since the Index Portfolio's commencement of investment
operations (June 3, 1991) through July 31, 1997 was 17.49%. The Equity Fund,
which commenced investment operations on September 13, 1995, invests all of its
Assets in the Index Portfolio, a separate registered investment company which
commenced investment operations on June 3, 1991 and commenced operations on
August 10, 1990. Consistent with applicable regulatory guidance, performance
for the period from June 3, 1991 to the commencement of operations of the
Equity Fund will reflect the investment performance of the Index Portfolio. The
performance for this prior period reflects the deduction of the charges and
expenses of the Equity Fund forth in the Expense Table in the Prospectus.
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Total rate of return and yield information with respect to the Social
Index will be computed in the same fashion as set forth above with respect to
the 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 Social Index weighted in accordance with the weightings
of the stocks comprising the Social Index. Performance information with
respect to the Social Index will not take into account brokerage commission and
other transaction costs which will be incurred by the Index Portfolio.
The total rate of return should not be considered a representation of the
total rate of return of the respective Fund or the Index Portfolio in the
future since the total rate of return is not fixed. Actual total rates of
return will depend on changes in the market value of, and dividends and
interest received from, the investments held by the Funds or Index Portfolio
and expenses of the Funds and the Index Portfolio during the period.
Performance is historical and will fluctuate. An investor's shares when
redeemed may be worth more or less than their original cost.
Total rate of return information may be useful for reviewing the
performance of a Fund or the Index Portfolio and for providing a basis for
comparison with other investment alternatives. However, unlike bank deposits
or other investments which pay a fixed yield for a stated period of time, total
rate of return fluctuates, and this should be considered when reviewing
performance or making comparisons.
Any current "yield" quotation of the Funds shall consist of an annualized
historical yield, carried to at least the nearest hundredth of one percent,
based on a 30 calendar day or one-month period and shall be calculated by (a)
raising to the sixth power the sum of 1 plus the quotient obtained by dividing
the Fund's net investment income earned during the period by the product of the
average daily number of shares outstanding during the period that were entitled
to receive dividends and the maximum offering price per share on the last day
of the period, (b) subtracting 1 from the result, and (c) multiplying the
result by 2.
FEDERAL TAXES
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Each year, the Trust intends to qualify each Fund and elect that each Fund
be treated as a separate "regulated investment company" under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). Under Subchapter M
of the Code each Fund will not be subject to federal income taxes on amounts
distributed to shareholders. As long as each Fund qualifies as a "regulated
investment company" under the Code, the Fund will not be required to pay
Massachusetts income or excise taxes.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) at least 90% of a Fund's annual gross income,
without offset for losses from the sale or other disposition of securities, be
derived from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or other income derived
with respect to its business of investing in such securities; (b) for the
Funds' fiscal years ending in 1998 only, less than 30% of a Fund's annual
gross income is derived from gains (without offset for losses) from the sale or
other disposition of securities held for less than three months; and (c) the
holdings of a Fund are diversified so that, at the end of each quarter of its
taxable year, (i) at least 50% of the market value of a Fund's assets is
represented by cash, U.S. Government securities, securities of other regulated
investment companies and other securities limited in respect of any
one issuer to an amount not greater than 5% of the Fund's assets and 10% of the
outstanding voting
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securities of such issuer, and (ii) not more than 25% of the value of a Fund's
assets is invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies).
In addition, in order not to be subject to federal income tax, at least 90% of
a Fund's net investment income and net short-term capital gains earned in each
year must be distributed to the Fund's shareholders. If a Fund should fail to
qualify as a "regulated investment company" in any year, the Fund would incur a
regular corporate federal income tax upon its taxable income and Fund
distributions would generally be taxable as ordinary dividend income to the
shareholders.
Shareholders of the Funds will normally have to pay federal income taxes
and any state or local income taxes on the dividends and capital gain
distributions they receive from the Fund. Dividends from ordinary income and
any distributions from net short-term capital gains are taxable to shareholders
as ordinary income for federal income tax purposes, whether the distributions
are made in cash or in additional shares. A portion of the Funds' ordinary
income (but none of the Funds' capital gains) dividends is normally eligible
for the dividends received deduction for corporations if the recipient
otherwise qualifies for that deduction with respect to its holding of Fund
shares. Availability of the deduction for a particular corporate shareholder
is subject to certain limitations, and deducted amounts may be subject to the
alternative minimum tax and result in certain basis adjustments. Distributions
of net capital gains, whether made in cash or in additional shares, may receive
favorable tax treatment 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. The Funds will notify shareholders regarding the federal
tax status of its distributions after the end of each calendar year.
Gains or losses on sales of securities for the Funds may receive favorable
tax treatment if the securities have been held by it longer than the applicable
holding period except in certain cases where a put has been acquired or a call
has been written thereon for the Fund. Other gains or losses on the sale of
securities will be short-term capital gains or losses.
Options--Gains and losses on the sale, lapse or other termination of
options on securities will generally be treated as gains and losses from the
sale of securities. If an option written for the Balanced Fund or the Index
Portfolio lapses or is terminated through a closing transaction, such as a
repurchase for the Balanced Fund or the Index Portfolio of the option from its
holder, the Balanced Fund or the Index Portfolio may realize a short-term
capital gain or loss, depending on whether the premium income is greater or
less than the amount paid in the closing transaction. If securities are sold
for the Balanced Fund or the Index Portfolio pursuant to the exercise of a call
option written for it, the premium received will be added to the sale price of
the securities delivered in determining the amount of gain or loss on the sale.
The 1998 requirement that less than 30% of the Balanced Fund's or the Index
Portfolio's gross income be derived from gains from the sale of securities held
for less than three months may limit the ability of the Balanced Fund or the
Index Portfolio to write options and engage in transactions involving stock
index futures.
Certain option contracts held for the Balanced Fund and the Index
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been
sold at market value. Sixty percent of any gain or loss recognized on these
deemed sales and on actual dispositions will be treated as long-term capital
gain or loss, and the remainder will be treated as short-term
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capital gain or loss regardless of how long the Balanced Fund or the Index
Portfolio has held such options. The Balanced Fund or the Index Portfolio may
be required to defer the recognition of losses on stock or securities to the
extent of any unrecognized gain on offsetting positions held for it.
Redemption of Shares--Any gain or loss realized on the redemption of Fund
shares by a shareholder who is not a dealer in securities will be treated as
long-term capital gain or loss if the shares have been held for more than the
applicable holding period, and otherwise as short-term capital gain or loss.
However, any loss realized by a shareholder upon the redemption of Fund shares
held one year or less will be treated as a long-term capital loss to the extent
of any long-term capital gains distributions received by the shareholder with
respect to such shares. Additionally, any loss realized on a redemption or
exchange of Fund shares will be disallowed to the extent the shares disposed of
are replaced within a period of 61 days beginning 30 days before such
disposition, such as pursuant to reinvestment of a dividend or capital gains
distribution in Fund shares.
Investment Activities--The Balanced Fund's and Index Portfolio's
activities in options may be restricted by the requirements of the Internal
Revenue Code for qualification as a regulated investment company. In addition,
the Balanced Fund's and the Index Portfolio's activities involving futures
contracts and forward contracts may be limited by the requirements of
Subchapter M of the Internal Revenue Code for qualification as a regulated
investment company.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
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The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Shares of Beneficial Interest (par
value $0.01 per share) of each series and to divide or combine the shares into
a greater or lesser number of shares of that series without thereby changing
the proportionate beneficial interests in that series. The Funds are the only
current series of shares of the Trust, and the Trust has reserved the right to
create and issue additional series of shares. Each share of a series represents
an equal proportionate interest in that series with each other share of that
series. The shares of each series participate equally in the earnings,
dividends and assets of the particular series. Shares of each series are
entitled to vote separately to approve advisory agreements or changes in
fundamental investment policy, but shares of all series may vote together in
the election or selection of Trustees, principal underwriters and accountants.
Upon liquidation or dissolution of a series, shareholders of that series would
be entitled to share pro rata in the net assets of that series available for
distribution to shareholders.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. The Trust is not required and has no present
intention to hold annual meetings of shareholders, but the Trust will hold
special meetings of shareholders when in the judgment of the Trustees it is
necessary or desirable to submit matters for a shareholder vote. Shareholders
have under certain circumstances (i.e., upon application and submission of
certain specified documents to the Trustees by a specified number of
shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have under certain circumstances the right to
remove one or more Trustees without a meeting by a declaration in writing by a
specified number of shareholders. No material amendment may be made to the
Trust's Declaration of Trust without the affirmative vote of the holders of a
majority of the outstanding shares of each series affected by the amendment.
(See
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"Investment Objectives, Policies and Restrictions--Investment Restrictions".)
Shares have no preference, preemptive, conversion or similar rights.
Shareholders in the Fund do not have cumulative voting rights, and shareholders
owning more than 50% of the outstanding shares of the Trust may elect all of
the Trustees if they chose to do so. Shares, when issued, are fully paid and
nonassessable, except as set forth below. The Fund may be terminated (i) upon
sale of its assets, if approved by the vote of the holders of two thirds of its
outstanding shares, except that if the Board of Trustees recommends such sale
of assets, the approval by vote of the majority of the Fund's outstanding
shares will be sufficient, or (ii) by the vote of the holders of the majority
of the Fund's outstanding shares, or (iii) by the Trustees of the Trust by
written notice to the shareholders. If not so terminated, each Fund will
continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business
trust may, under certain circumstances, be held personally liable as partners
for its obligations and liabilities. However, the Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides for indemnification and reimbursement of expenses out
of Trust property for any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust also provides that the
Trust shall maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trustees individually but only upon the property of
the Trust and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
Each investor in the Index Portfolio, including the Equity Fund, may add
to or reduce its investment in the Index Portfolio on each Fund Business Day.
At the close of each such business day, the value of each investor's interest
in the Index Portfolio will be determined by multiplying the net asset value of
the Index Portfolio by the percentage representing that investor's share of the
aggregate beneficial interests in the Index 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 Index 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 Index 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 Index
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 Index 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 Index Portfolio by all investors in the Index Portfolio. The percentage so
determined will then be applied to determine the value of the investor's
interest in the Index Portfolio as of the close of business on the following
Fund Business Day.
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PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
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BALANCED FUND
Specific decisions to purchase or sell securities for the Fund are made by
a portfolio manager who is an employee of the Subadviser and who is appointed
and supervised by its senior officers. Changes in the Fund's investments are
reviewed by the Board of Trustees. The Fund's portfolio manager may serve
other clients of the respective Subadviser in a similar capacity.
Decisions concerning the execution of portfolio security transactions of
the Balanced Fund, including the selection of the market and the broker-dealer
firm, are made by the Subadviser. The Subadviser is also responsible for the
execution of transactions for all other accounts managed by it.
The Subadviser places the security transactions of the Balanced Fund and
of all other accounts managed by it for execution with many broker-dealer
firms. The Subadviser uses its best efforts to obtain execution of portfolio
transactions at prices which are advantageous to the Fund and (when a disclosed
commission is being charged) at reasonably competitive commission rates. In
seeking such execution, the Subadviser will use its best judgement in
evaluating the terms of a transaction, and will give consideration to various
relevant factors, including without limitation the size and type of the
transaction, the general execution and operational capabilities of the
broker-dealer, the nature and character of the market for the security, the
confidentiality, speed and certainty of effective execution required for the
transaction, the reputation, reliability, experience and financial condition of
the broker-dealer, the value and quality of services rendered by the
broker-dealer in other transactions, and the reasonableness of the commission,
if any. Transactions on United States stock exchanges and other agency
transactions involve the payment by the Fund of negotiated brokerage
commissions. Such commissions vary among different broker-dealer firms, and a
particular broker-dealer may charge different commissions according to such
factors as the difficulty and size of the transaction and the volume of
business done with such broker-dealer. Transactions in foreign securities
usually involve the payment of fixed brokerage commissions, which are generally
higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets,
but the price paid or received by the Fund usually includes an undisclosed
dealer markup or markdown. In an underwritten offering the price paid by the
Fund often includes a disclosed fixed commission or discount retained by the
underwriter or dealer. Although commissions paid on portfolio security
transactions will, in the judgement of the Subadviser, be reasonable in
relation to the value of the services provided, commissions exceeding those
which another firm might charge may be paid to broker-dealers who were selected
to execute transactions on behalf of the Fund and the Subadviser's other
clients in part for providing brokerage and research services to the
Subadviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the
Balanced Fund may receive a commission which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Subadviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided. This determination may be made on the basis of either that
particular transaction or on the basis of the overall responsibilities which
the Subadviser and its affiliates have for accounts over which they exercise
investment discretion. In making any such determination, the
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Subadviser will not attempt to place a specific dollar value on the brokerage
and research services provided or to determine what portion of the commission
should be related to such services. Brokerage and research services may
include advice as to the value of securities, the advisability of investing in,
purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, 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);
and the "Research Services" referred to in the next paragraph.
It is a common practice in the investment advisory industry for the
advisers of investment companies, institutions and other investors to receive
research, statistical and quotation services, data, information and other
services, products and materials which assists such advisers in the performance
of their investment responsibilities ("Research Services") from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and
from third parties with which these broker-dealers have arrangements.
Consistent with this practice, the Subadviser receives Research Services from
many broker-dealer firms with which the Subadviser places the Fund transactions
and from third parties which with these broker-dealers have arrangements.
These Research Services include such matters as general economic and market
reviews, industry and company reviews, evaluations of securities and portfolio
strategies and transactions, recommendations as to the purchase and sale of
securities and other portfolio transactions, financial, industry and trade
publications, news and information services, pricing and quotation equipment
and services, and research oriented computer hardware, software, data bases and
services. Any particular Research Service obtained through a broker-dealer may
be used by the Subadviser in connection with client accounts other than those
accounts which pay commissions to such broker-dealer. Any such Research
Service may be broadly useful and of value to the Subadviser in rendering
investment advisory services to all or a significant portion of its clients, or
may be relevant and useful for the management of only one client's account or
of a few clients' accounts, or may be useful for the management of merely a
segment of certain clients' accounts, regardless of whether any such account or
accounts paid commissions to the broker-dealer through which such Research
Service was obtained. The advisory fee paid by the Balanced Fund is not
reduced because the Subadviser receives such Research Services. The Subadviser
evaluates the nature and quality of the various Research Services obtained
through broker-dealer firms and attempts to allocate sufficient commissions to
such firms to ensure the continued receipt of Research Services which the
Subadviser believes are useful or of value to it rendering investment advisory
services to its clients.
Subject to the requirement that the Subadviser shall use its best efforts
to seek to execute Fund security transactions at advantageous prices and at
reasonably competitive commission rates or spreads, the Subadviser is
authorized to consider as a factor in the selection of any broker-dealer firm
with whom Fund orders may be placed the fact that such firm has sold or is
selling shares of investment companies sponsored by the Subadviser or Eaton
Vance. This policy is not inconsistent with a rule of the National Association
of Securities Dealers, Inc., which provides that no firm which is a member of
the Association shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Securities considered as investments for the Balanced Fund may also be
appropriate for other investment accounts managed by the Subadviser or its
affiliates. The Subadviser will attempt to allocate equitably portfolio
security transactions among the Fund and the portfolios of its other investment
accounts whenever decisions are made to purchase or sell securities by the Fund
and one or more of such other
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accounts simultaneously. In making such allocations, the main factors to be
considered are the respective investment objectives of the Fund and such other
accounts, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment by the Fund and such
accounts, the size of investment commitments generally held by the Fund and
such accounts and the opinions of the persons responsible for recommending
investments to the Fund and such accounts. While this procedure could have a
detrimental effect on the price or amount of the securities available to the
Fund from time to time, it is the opinion of the Trustees of the Trust and the
Fund that the benefits available from the Subadviser organization outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
For the fiscal years ended June 30, 1995, 1996 and 1997, the Balanced Fund
accrued brokerage commissions aggregating $905, $21,408 and $20,762,
respectively. Approximately 50% of the brokerage commissions were allocated
primarily on the basis of research services provided for the fiscal years ended
June 30, 1996 and 1997.
The portfolio turnover rate is the ratio of the lesser of sales or
purchases to the monthly average value of the portfolio (excluding from both
the numerator and the denominator all securities with maturities at the time of
acquisition of one year or less). Higher levels of Fund activity result in
higher transaction costs and may also result in taxes on realized capital gains
to be borne by the Fund's shareholders. Purchases and sales are made for the
Fund whenever necessary, in management's opinion, to meet the Fund's objective.
The portfolio turnover rate of the Balanced Fund for the fiscal years ended
June 30, 1996 and 1997 was 136% and 109%, respectively.
EQUITY FUND AND INDEX PORTFOLIO
Specific decisions to purchase or sell securities for the Index Portfolio
are made by a portfolio manager who is an employee of Mellon Equity and who is
appointed and supervised by its senior officers. Changes in the Index
Portfolio's investments are reviewed by its Board of Trustees. The portfolio
manager of the Index Portfolio may serve other clients of Mellon Equity in a
similar capacity.
Frequent changes in the Index Portfolio's holdings may result from the
policy of attempting to correlate the Index Portfolio's securities holdings
with the composition of the Social Index, and the frequency of such changes
will increase as the rate and volume of purchases and redemptions of shares of
the Index Portfolio increases. The annual portfolio turnover rates of the
Index Portfolio for the fiscal years ended July 31, 1996 and 1997 were 5% and
1%, respectively.
The Index Portfolio's primary consideration in placing securities
transactions with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most
effective manner possible. Mellon Equity attempts to achieve this result by
selecting broker-dealers to execute transactions on behalf of the Index
Portfolio and other clients of Mellon Equity 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), Mellon Equity normally seeks to deal
directly with the primary market makers, unless in its opinion, best execution
is available elsewhere. In the case of securities purchased from underwriters,
the cost of such securities generally includes a fixed underwriting commission
or concession. From time to time, soliciting dealer fees are available to
Mellon Equity on the
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tender of the Index Portfolio's securities in so-called tender or exchange
offers. Such soliciting dealer fees are in effect recaptured for the Index
Portfolio by Mellon Equity. At present no other recapture arrangements are in
effect. Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. and such other
policies as the Trustees of the Index Portfolio may determine, Mellon Equity
may consider sales of shares of the Equity Fund and of securities of other
investors in the Index Portfolio as a factor in the selection of broker-dealers
to execute the Index Portfolio's securities transactions. Neither the Index
Portfolio nor the Equity Fund will engage in brokerage transactions with DSI,
Mellon Equity or Green Century Capital or any of their respective affiliates or
any affiliate of the Equity Fund or the Index Portfolio.
Under the Submanagement Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, Mellon Equity may cause the Index Portfolio to
pay a broker-dealer acting on an agency basis which provides brokerage and
research services to Mellon Equity or DSI an amount of commission for effecting
a securities transaction for the Index Portfolio in excess of the amount other
broker-dealers would have charged for the transaction if Mellon Equity
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 Mellon
Equity's or DSI's overall responsibilities to the Index Portfolio or to its
other clients. Not all of such services are useful or of value in advising the
Index Portfolio.
The term "brokerage and research services" includes advice as to the value
of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement. However, because of the
Index Portfolio's policy of investing in accordance with the Social Index,
Mellon Equity and DSI currently intend to make only a limited use of such
brokerage and research services.
Although commissions paid on every transaction will, in the judgment of
Mellon Equity, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Index Portfolio and Mellon Equity's or KLD'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 Mellon Equity or KLD for no
consideration other than brokerage or underwriting commissions.
Mellon Equity and KLD attempt to evaluate the quality of research provided
by brokers. Mellon Equity and KLD sometimes use evaluations resulting from
this effort as a consideration in the selection of brokers to execute portfolio
transactions. However, neither Mellon Equity nor DSI is able to quantify the
amount of commissions which are paid as a result of such research because a
substantial number of transactions are effected through brokers which provide
research but which are selected principally because of their execution
capabilities.
The fees that the Index Portfolio pays to Mellon Equity and DSI will not
be reduced as a consequence
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of the Index Portfolio's receipt of brokerage and research services. To the
extent the Index Portfolio's securities transactions are used to obtain
brokerage and research services, the brokerage commissions paid by the Index
Portfolio will exceed those that might otherwise be paid for such portfolio
transactions and research, by an amount which cannot be presently determined.
Such services may be useful and of value to Mellon Equity or DSI in serving
both the Index Portfolio and other clients and, conversely, such services
obtained by the placement of brokerage business of other clients may be useful
to Mellon Equity or DSI in carrying out its obligations to the Index Portfolio.
While such services are not expected to reduce the expenses of Mellon Equity
or DSI, Mellon Equity or DSI 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, 1995, 1996 and 1997 the Index Portfolio paid brokerage commissions of
$15,222, $45,018 and $101,337.
In certain instances there may be securities which are suitable for the
Index Portfolio as well as for one or more of Mellon Equity's or DSI's other
clients. Investment decisions for the Index Portfolio and for Mellon Equity's
or DSI'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 Index Portfolio is concerned. However, it is believed that the
ability of the Index Portfolio to participate in volume transactions will
produce better executions for the Index Portfolio.
INDEPENDENT AUDITORS AND EXPERTS
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KPMG Peat Marwick LLP are the independent auditors of the Balanced Fund,
the Equity Fund and the Index Portfolio, providing audit services and review of
filings with the SEC. Prior to July 1, 1995, other auditors served as
independent auditors of the Balanced Fund. The financial statements of the
Funds incorporated herein by reference have been so incorporated by reference
in reliance upon the report of KPMG Peat Marwick LLP as experts in accounting
and auditing. The financial statements of the Index Portfolio incorporated
herein by reference have been so incorporated by reference in reliance upon the
report of KPMG Peat Marwick LLP as experts in accounting and auditing.
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i)
during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (ii) during periods in which an
emergency exists which causes disposal of, or evaluation of the net asset value
of, the Funds' portfolio securities to be unreasonable or impracticable, or
(iii) for such other periods as the SEC may permit.
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With respect to the securities offered by the Funds' Prospectus, this
Statement of Additional Information and the Prospectus do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act. Pursuant to the rules and regulations of the SEC, certain portions
have been omitted. The Registration Statement including the exhibits filed
therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference.
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The financial statements of the Funds and the Portfolio as of June 30,
1997 and July 31, 1997 have been filed as part of each of the Fund's annual
report with the Securities and Exchange Commission pursuant to Section 30(b) of
the 1940 Act and Rule 30b2-1 thereunder, are hereby incorporated herein by
reference from such report. A copy of such report will be provided, without
charge, to each person receiving this Statement of Additional Information.
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APPENDIX - DESCRIPTION OF SECURITIES RATINGS(1)
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DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
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 fluctuations 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 in 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 sometime 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.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
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C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
SHORT-TERM DEBT
Moody's short term debt ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
one year.
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or P-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.
Issuers rated PRIME-2 or P-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.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S CORPORATE BOND RATINGS:
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
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A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
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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 date due even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
PLUS (+) OR MINUS (-): 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.
NR: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER
A: S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category 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.
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 adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
FITCH INVESTORS SERVICE, INC.
INVESTMENT GRADE BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligors ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
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BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligors ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
HIGH YIELD BOND RATINGS
BB: Bonds are considered speculative. The obligors ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligors limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default of interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) OR MINUS (-): The ratings from AA to C may be modified by the addition
of a plus or minus sign to indicate the relative position of a credit within
the rating category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
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F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as the "F-1+" and "F-1 " categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be rated
below investment grade.
DUFF & PHELPS
INVESTMENT GRADE BOND RATINGS
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AND AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, AND A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, AND BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
HIGH YIELD BOND RATINGS
BB+, BB, AND BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, AND B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
Preferred stocks are rated on the same scale as bonds but the preferred rating
gives weight to its more junior [ ?? Copy to come]
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COMMERCIAL PAPER/CERTIFICATES OF DEPOSIT
CATEGORY 1: TOP GRADE
DUFF 1 PLUS: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to alternative sources
of funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
DUFF 1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1 MINUS: High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
CATEGORY 2: GOOD GRADE
DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
CATEGORY 3: SATISFACTORY GRADE
DUFF 3: Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
No ratings are issued for companies whose paper is not deemed to be of
investment grade.
* * * * *
NOTES:
(1) The ratings indicated herein are believed to be the most recent ratings
available at the date of this Statement of Additional Information for the
securities listed. Ratings are generally given to securities at the time
of issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated
do not necessarily represent ratings which would be given to these
securities on the date of the Fund's fiscal year end.
Bonds which are unrated expose the investor to risks with respect to capacity
to pay interest or repay principal which are similar to the risks of
lower-rated bonds. The Balanced Fund is dependent on the investment adviser's
or investment subadviser's judgment, analysis and experience in the evaluation
of such bonds.
Investors should note that the assignment of a rating to a bond by a rating
service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
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