-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DDUtuE9GzKk6Pg4AGB33phCuCXfNaX+vGN5QRPTsXq/Vo3CsuzgwPuOW7p56T/Ge QNWXmowv68kv+Kk/Pvd3JA== /in/edgar/work/0000950130-00-006360/0000950130-00-006360.txt : 20001130 0000950130-00-006360.hdr.sgml : 20001130 ACCESSION NUMBER: 0000950130-00-006360 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20001128 EFFECTIVENESS DATE: 20001128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINI SOCIAL EQUITY FUND CENTRAL INDEX KEY: 0000851680 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] IRS NUMBER: 043081258 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-29180 FILM NUMBER: 778293 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-05823 FILM NUMBER: 778294 BUSINESS ADDRESS: STREET 1: 11 WEST 25TH STREET CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2123529200 MAIL ADDRESS: STREET 1: 11 WEST 25TH STREET STREET 2: 7TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10010-2001 FORMER COMPANY: FORMER CONFORMED NAME: DOMINI SOCIAL INDEX TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DOMINI SOCIAL INDEX FUND DATE OF NAME CHANGE: 19900624 485BPOS 1 0001.txt DOMINI SOCIAL INVESTMENT TRUST As filed with the Securities and Exchange Commission on November 28, 2000. Registration Nos. 333-29180 811-5823 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 19 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 21 DOMINI SOCIAL INVESTMENT TRUST (Exact Name of Registrant as Specified in Charter) 536 Broadway, 7th Floor, New York, New York 10012 (Address of Principal Executive Offices) Registrant's Telephone Number, including Area Code: 212-217-1100 Amy L. Domini Domini Social Investments LLC 536 Broadway, 7th Floor New York, New York 10012 (Name and Address of Agent for Service) Copy To: Roger P. Joseph, Esq. Bingham Dana LLP 150 Federal Street Boston, Massachusetts 02110 It is proposed that this filing will become effective on December 1, 2000 pursuant to paragraph (b) of Rule 485. Domini Social Index Portfolio has also executed this registration statement. Prospectus December 1, 2000 [GRAPHIC] Domini Social Equity Fund(SM) Domini Social Bond Fund(SM) Domini [LOGO] --------------------- SOCIAL INVESTMENTS(R) The Way You Invest Matters(SM) As with all mutual funds, the Securities and Exchange Commission has not judged whether this fund is a good investment or whether the information in this prospectus is truthful and complete. Anyone who indicates otherwise is committing a crime. Table of Contents Overview.................................................................. 2 The Funds at a Glance Domini Social Equity Fund Investment Objective.................................................... 4 Primary Investment Strategy............................................. 4 Primary Risks........................................................... 4 Past Performance........................................................ 5 Fund Fees and Expenses.................................................. 6 Domini Social Bond Fund Investment Objective.................................................... 8 Primary Investment Strategy............................................. 8 Primary Risks........................................................... 8 Past Performance........................................................ 9 Fund Fees and Expenses.................................................. 10 More Information on Primary Risks........................................ 12 More About the Funds Socially Responsible Investing........................................... 15 Domini Social Equity Fund About Index Investing................................................... 15 Answers to basic questions about how index funds work, how index funds differ from actively managed funds, and an overview of the advantages they offer. What is the Domini 400 Social IndexSM?.................................. 17 Information about the nation's first socially and environmentally screened index and how it was created and is maintained. Domini Social Bond Fund About Bond Fund Investing............................................... 21 More information on the Domini Social Bond Fund's investments and investment techniques. The Social Impact of the Domini Social Bond Fund........................ 25 Information about how the Domini Social Bond Fund invests to promote community development. Additional Investment Strategies & Risk Information....................... 26 Who Manages the Funds?.................................................... 29 The Funds' Distribution Plan.............................................. 30 Shareholder Manual........................................................ A-1 Information about buying and selling shares, distributions, and the tax consequences of an investment in a Fund. Financial Highlights...................................................... B-1
- 1 - Overview Overview The Funds offered in this prospectus provide ways to pursue your investment goals while being consistent with principles of social and environmental re- sponsibility. Each Fund's investments are subject to multiple, broad-based so- cial screens designed to meet the needs of most socially responsible investors. The Domini Funds The Domini Social Equity Fund seeks long-term total return by investing in the stocks of companies that are included in the Domini 400 Social Index. You may want to invest in the Domini Social Equity Fund if you are seeking long-term growth and an efficient way to invest in a broad cross-section of the U.S. stock market and can accept the risks of investing in the stock market. The Domini Social Bond Fund seeks a high level of current income and total re- turn by investing in bonds and other debt instruments. You may want to invest in the Domini Social Bond Fund if you are seeking current income and long-term appreciation from a diversified portfolio of bonds and other debt instruments and can accept the risks that are associated with investments in these markets. Each Fund should be considered a long-term investment and is not appropriate for short-term trading purposes. Each Fund can be used in both regular and tax- deferred accounts, such as IRAs. Socially Responsible Investing The Domini Social Equity Fund and the Domini Social Bond Fund are both "so- cially and environmentally screened", meaning that they seek to invest in com- panies and other issuers that meet the following criteria: . The Funds avoid securities and obligations of issuers that manufacture to- bacco products or alcoholic beverages, derive any revenues from gambling enter- prises or have an ownership share in, or operate, nuclear power plants. The Funds also avoid investment in major military contractors. - 2 - Overview . The Funds seek to hold the securities and obligations of good corporate citi- zens, demonstrated by positive relations with their communities and their em- ployees, by their environmental record, and by the quality and safety of their products. Please see pages 18-19 for more information regarding the Funds' social and en- vironmental policies. Why Reading this Prospectus is Important This prospectus explains the objective, risks, and strategies of the Domini Social Equity Fund and the Domini Social Bond Fund. Reading the prospectus will help you to decide whether a Fund is the right investment for you. Mutual funds: . are not FDIC-insured . have no bank guarantees . may lose value Because you could lose money by investing in these Funds, we suggest that you read this prospectus carefully, and keep it for future reference. - 3 - The Funds at a Glance The Funds at a Glance Domini Social Equity Fund Investment Objective The Domini Social Equity Fund seeks to provide its shareholders with long-term total return that matches the performance of the Domini 400 Social Index, an index made up of the stocks of 400 companies selected using social and environ- mental criteria. The Index is composed primarily of large-capitalization U.S. companies. Primary Investment Strategy The Domini Social Equity Fund seeks to match the composition of the Index as closely as possible.The Fund typically invests in all 400 stocks included in the Domini 400 Social Index, in approximately the same proportion as they are found in the Index.This is known as a full replication strategy. The Fund fol- lows this strategy by investing in the Domini Social Index Portfolio, another fund with the same investment objective. Although you cannot invest directly in an index, an index mutual fund provides you the opportunity to invest in a portfolio that tracks an index. For information about the Domini 400 Social Index's social screens, please re- fer to page 18. Primary Risks The Domini Social Equity Fund's total return, like the stock market in general, will fluctuate widely. An investor can lose money over short or long periods of time. Also, it is possible that returns from the large-cap stocks in which the Fund invests will underperform relative to other asset classes or the overall stock market. The Fund may be adversely affected because it will continue to invest in the Domini 400 Social Index, regardless of how the Index is performing. The Fund's portfolio is subject to strict social and environmental screens. Be- cause of these screens, Fund management may pass up opportunities to buy cer- tain securities when it is otherwise advantageous to do so, or may sell certain securities for social or environmental reasons when it is otherwise disadvanta- geous to do so. - 4 - The Funds at a Glance Past Performance The bar chart and table below provide an indication of the risk of investing in the Domini Social Equity Fund by illustrating how returns have varied from one year to the next and by showing how the Fund's average annual total returns compare with those of the Standard & Poor's 500 Index (S&P 500), a broad-based index. Please note that this information represents past performance, and is not necessarily an indication of how the Fund will perform in the future. Total Return for Years Ended December 31 This bar chart shows how the Domini Social Equity Fund's performance has varied over the last eight calendar years. [BAR CHART] 1992 1993 1994 1995 1996 1997 1998 1999 - --------------------------------------------------------------- 12.10% 6.54% -0.36% 35.17% 21.84% 36.02% 32.99% 22.63% Best quarter covered by the bar chart above: 24.62% (quarter ended 12/31/98) Worst quarter covered by the bar chart above: -9.83% (quarter ended 9/30/98) Year-to-date performance as of September 30, 2000: -7.52% - 5 - The Funds at a Glance Average Annual Total Return as of 12/31/99 The table below shows the Domini Social Equity Fund's average annual total re- turns in comparison to the S&P 500. Since 1 Year 5 Years Inception (6/3/91) - ---------------------------------------------------------------------- Domini Social 22.63% 29.58% 19.79% Equity Fund S&P 500 21.04% 28.56% 19.43% Fund Fees and Expenses The table below describes the fees and expenses that you would pay if you buy and hold shares of the Domini Social Equity Fund.* Shareholder Fees (fees paid directly by you) Sales Charge (Load) Imposed on Purchases: None Deferred Sales Charge (Load): None Redemption Fees Redemptions by Check: None Redemptions by Bank Wire: $10** Exchange Fees: None Annual Fund Operating Expenses (expenses deducted from the Fund's assets) Management Fees: 0.20% Distribution (12b-1) Fees: 0.25% Other Expenses Administrative Services and Sponsorship Fee: 0.50% Other Expenses: 0.09% 0.59% ----- Total Annual Fund Operating Expenses: 1.04% Fee Waiver:+ 0.09% ----- Net Expenses: 0.95% - -----------------------------------------------------------
* The table reflects the expenses of the Domini Social Equity Fund and the Do- mini Social Index Portfolio, the underlying portfolio in which that Fund in- vests. ** You may redeem by writing or calling the Fund. If you wish to receive your redemption proceeds by wire, there is a $10 wire service fee. For additional information, please refer to the Shareholder Manual, page A-1. + For the period from November 30, 2000 to November 30, 2001, Domini Social In- vestments LLC has contractually agreed to waive certain fees and/or reimburse certain expenses, including management fees, so that the Fund's expenses will not exceed, on a per annum basis, 0.95% of its average daily net assets. - 6 - The Funds at a Glance Example The following example is intended to help you compare the cost of investing in the Domini Social Equity Fund with the cost of investing in other mutual funds. It illustrates the hypothetical expenses that you would incur if you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of each period. This example assumes that the Fund provides a return of 5% a year, all dividends and distributions are reinvested, operating expenses remain constant for the time period indicated and the fee waiver re- flected in the fee table above is in effect for the one-year time period. 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------ $97 $328 $578 $1295 This example should not be considered to represent actual expenses or perfor- mance from the past or the future. Actual future expenses may be higher or lower than those shown. Quick Guide to Important Information Minimum Initial Investment: $1,000 ($250 for IRAs or UGMA/UTMA accounts)($500 with Automatic Investment Plan) Investment Adviser: Domini Social Investments LLC Inception Date: June 3, 1991 Net Assets as of September 30, 2000: $1,441,818,607 Available for IRAs Dividends: Distributed semi-annually, usually in June and December Capital Gains: Distributed annually, usually in December Newspaper Listing: Domini Social Inv-Soc Equity Ticker Symbol: DSEFX Cusip Number: 257132100 Website: www.domini.com Shareholder Services: 1-800-762-6814 - 7 - The Funds at a Glance Domini Social Bond Fund Investment Objective The Domini Social Bond Fund seeks to provide its shareholders with a high level of current income and total return by investing in bonds and other debt instru- ments that meet the Fund's social and environmental criteria. Primary Investment Strategy The Domini Social Bond Fund invests at least 85% of its assets in investment- grade-fixed-income debt instruments, including government and corporate bonds, mortgage-backed and asset-backed securities, and in U.S. dollar-denominated bonds issued by non-U.S. entities. The Fund normally maintains an average ef- fective maturity of between 2 and 10 years. All investments meet the Fund's en- vironmental and social criteria. The Fund also invests a portion of its assets (up to 10% percent) in debt in- struments that directly support community development by promoting business creation, housing development and the economic and social development of urban and rural communities. Some of these investments are in unrated or lower-rated securities that carry a higher degree of risk than the Fund's investment-grade securities. The Fund does not currently intend to invest in direct obligations of the U.S. government. The Fund will not invest more than 10% of its assets in below in- vestment-grade securities. For information about the Domini Social Bond Fund's social impact, please refer to page 26. Primary Risks The market prices of the bonds and other debt instruments in which the Domini Social Bond Fund invests may fluctuate. In addition, the credit quality of the issuers of these debt instruments may change. Each of these factors may ad- versely affect the Fund's performance. An investor can lose money over short or long periods of time. - 8 - The Funds at a Glance In general, the value of bonds and other debt instruments go down when interest rates go up. Because falling interest rates also may lead to a higher level of prepayments of some debt instruments, the Fund may be adversely affected if it has to reinvest that money at a lower prevailing interest rate. On the other hand, rising interest rates may cause debt instruments to be repaid later than expected, forcing the Fund to endure the relatively low interest rates on these instruments and extending the average maturity of certain debt instruments. The Fund's portfolio is subject to strict social and environmental screens. Be- cause of these screens, Fund management may pass up opportunities to buy cer- tain securities when it is otherwise advantageous to do so, or may sell certain securities for social or environmental reasons when it is otherwise disadvanta- geous to do so. Past Performance The Domini Social Bond Fund, having commenced operations on June 1, 2000, does not have annual returns for a full calendar year. Therefore, a bar chart and table that illustrate how the returns of the Fund have varied from one year to the next and showing how the Fund's average annual total returns compare with those of a broad-based index are not provided. - 9 - The Funds at a Glance Fund Fees and Expenses The table below describes the fees and expenses that you would pay if you buy and hold shares of the Domini Social Bond Fund.* Shareholder Fees (fees paid directly by you) Sales Charge (Load) Imposed on Purchases: None Deferred Sales Charge (Load): None Redemption Fees Redemptions by Check: None Redemptions by Bank Wire: $10** Exchange Fees: None Annual Fund Operating Expenses (expenses deducted from the Fund's assets) Management Fees: 0.40% Distribution (12b-1) Fees: 0.25% Other Expenses Administrative Services Fee: 0.25% Other Expenses: 2.34% 2.59% ----- Total Annual Fund Operating Expenses: 3.24% Fee Waiver:+ 2.29% ----- Net Expenses: 0.95% - ---------------------------------------------------------
* Because the Domini Social Bond Fund is newly-created, expenses are estimated for the fiscal year ending July 31, 2001. ** You may redeem by writing or calling the Fund. If you wish to receive your redemption proceeds by wire, there is a $10 wire service fee. For additional information, please refer to the Shareholder Manual, page A-1. + For the period ending November 30, 2001, Domini Social Investments LLC has contractually agreed to waive certain fees and/or reimburse certain expenses, including management fees, so that the Fund's expenses will not exceed, on a per annum basis, 0.95% of its average daily net assets. - 10 - The Funds at a Glance Example The following example is intended to help you compare the cost of investing in the Domini Social Bond Fund with the cost of investing in other mutual funds. It illustrates the hypothetical expenses that you would incur if you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of each period. This example assumes that the Fund provides a return of 5% a year, all dividends and distributions are reinvested, that oper- ating expenses remain constant for the time period indicated and that the fee waiver reflected in the fee table above is in effect for the one-year time pe- riod. 1 Year 3 Years - ------------------------------ $97 $783 This example should not be considered to represent actual expenses or perfor- mance from the past or the future. Actual future expenses may be higher or lower than those shown. Quick Guide to Important Information Minimum Initial Investment: $1,000 ($250 for IRAs or UGMA/UTMA accounts)($500 with Automatic Investment Plan) Investment Adviser: Domini Social Investments LLC Commencement of Operations: June 1, 2000 Available for IRAs Dividends: Distributed monthly Capital Gains: Distributed annually, usually in December Newspaper Listing: Domini Soc Inv-Soc Bond Ticker Symbol: DSBFX Cusip Number: 257132209 Website: www.domini.com Shareholder Services: 1-800-762-6814 - 11 - The Funds at a Glance More Information on Primary Risks There can be no guarantee that either Fund will be able to achieve its invest- ment objective. The investment objectives of the Funds may be changed without the approval of the Funds' shareholders, although management currently has no intention to do so. Both the Domini Social Equity Fund and the Domini Social Bond Fund are subject to the risks described below. . Market Risk. The market prices of the securities owned by either of the Funds may go up and down. Therefore, the value of your investment will vary from day to day and may fluctuate widely. This is particularly true for the Domini So- cial Equity Fund because it seeks to remain fully invested in the stock market during all market conditions and equity securities generally have greater price volatility than debt securities. You could lose money by investing in either fund. An investment in either Fund is not a bank deposit and is not insured or guar- anteed. In addition, each Fund is subject to additional specific risks, de- scribed below. The primary risks of investing in the Domini Social Equity Fund include: . Large-Capitalization Companies. The Fund primarily invests in the stocks of large-capitalization companies. Large-capitalization stocks tend to go through cycles where they do better, or worse, than the stock market in general. The performance of your investment will generally follow these broad market trends. Because the Domini 400 Social Index is weighted by market capitalization, a few large companies represent a relatively large percentage of the Index. Should the value of one or more of these stocks decline significantly, it could nega- tively affect the Fund's performance. . Indexing. The Fund will continue to invest in the Domini 400 Social Index, regardless of how the Index is performing. It will not shift its concentration from one industry to another, or from stocks to bonds or cash, in order to de- fend against a falling or stagnant stock market. If the Index is heavily weighted in a single industry or sector, the Fund will be heavily invested in that industry or sector, and as a result can be affected more positively or negatively by developments in those industries than would be another mutual fund whose investments are not restricted to the securities in the Index. - 12 - The Funds at a Glance Also, the Fund's ability to match the performance of the Index may be affected by a number of factors, including Fund operating expenses and transaction costs, inflows and outflows of cash from the Fund and imperfect correlation be- tween the Fund's holdings and those in the Index. The primary risks of investing in the Domini Social Bond Fund include: . Interest Rate Risk. In general, the value of bonds go down when interest rates go up. The value of bond funds tend to follow the same pattern. Falling interest rates, on the other hand, could cause the Fund's income to decline. Securities with longer maturities tend to be more sensitive to changes in in- terest rates, usually making them more volatile than securities with shorter maturities. Under normal market conditions, the Domini Social Bond Fund's aver- age effective maturity is from 2 to 10 years. Prepayments of the debt instru- ments held by the Domini Social Bond Fund may cause its average effective matu- rity to differ from its normal range. This deviation is not a violation of in- vestment policy. . Credit Risk. One factor affecting the price of debt instruments is how creditworthy the issuers of these instruments are perceived to be. This percep- tion is often reflected in credit ratings. The Fund could lose money if the is- suer or a guarantor of a bond or other debt instrument does not make timely principal and/or interest payments, or otherwise does not honor its obliga- tions. In addition, the performance of the Fund may be negatively affected for a number of reasons that directly relate to the issuer, such as management per- formance, financial leverage and reduced demand for the issuer's goods or serv- ices. Understanding Bond Fund Risk: Average Maturity Unlike an individual bond, which reaches maturity and is repaid, a bond fund has no fixed maturity date. Instead, it maintains an average "rolling" maturity by selling aging bonds and buying newer ones. The "average maturity" of a bond fund is the average length of time until each bond held by a fund reaches maturity and is repaid. The average "effective" maturity of a bond fund differs from actual average maturity, which may be longer. The average effective maturity is based on the portfolio manager's expectation of prepayments and the call provisions of certain securities. Using effective maturity rather than calculating average maturity allows the portfolio manager greater flexibility which could also result in more volatility. In general, a bond fund with a longer average effective maturity will usually experience greater volatility than a fund with a shorter average effective maturity. - 13 - The Funds at a Glance Debt instruments with lower ratings tend to be more volatile than those with higher ratings. Lower-rated or unrated securities may also be hard to value ac- curately or sell at a fair price. At least 85% of the Domini Social Bond Fund's portfolio will be comprised of investment-grade fixed-income debt instruments. The Fund will devote a portion of its assets to community development invest- ments. A portion of these investments will be unrated and illiquid. These in- vestments may be riskier than investment-grade securities. . Prepayment and Extension Risk. When interest rates go down, the issuers of some debt instruments may prepay the principal due on these instruments. This can reduce the returns of the Fund because it may have to reinvest that money at the lower prevailing interest rates. On the other hand, rising interest rates may cause debt instruments to be repaid later than expected, forcing the Fund to endure the relatively low interest rates on these instruments. This also extends the average maturity of certain debt instruments, making them more sensitive to changes in interest rates and the Fund's net asset value more vol- atile. Because the Domini Social Bond Fund invests in mortgage-backed securi- ties, it is particularly sensitive to this type of risk. Understanding Bond Fund Risk: Credit Ratings Investment grade debt instruments are those rated "Aaa", "Aa", "A" or "Baa" by Moody's Investors Service, Inc. or "AAA", "AA", "A" or "BBB" by Standard & Poor's and those that the Fund's portfolio managers believe to be of comparable quality. If the credit quality of a security declines after the Domini Social Bond Fund buys it, the Fund's portfolio managers will decide whether the Fund should continue to hold or should sell the security. - 14 - More About the Funds More About the Funds Socially Responsible Investing Socially responsible investors factor social and environmental criteria into their investment decisions. They believe that this helps to encourage greater corporate responsibility, and may also help to identify companies that are good long-term investments because enlightened management may be better able to meet the future needs of society and the environment. In addition, in the course of seeking financial gain for themselves, they look for opportunities to use their investments to improve the lives of others. Typically, social investors avoid companies that manufacture products, or em- ploy practices, that they believe have harmful effects on society or the natu- ral environment. They seek to invest in issuers with positive qualities, such as a proactive environmental record, or positive employee relations. This proc- ess is called "social screening." At Domini Social Investments, in addition to screening our investments, we work with companies to improve their social and environmental performance and file shareholder resolutions on these issues when necessary. In addition, we vote company proxies in a manner that is consistent with our social screening crite- ria, and publicly disclose our votes. The Domini Social Bond Fund uses a por- tion of its assets to promote community development. Domini Social Equity Fund About Index Investing What is an index? An index is an unmanaged group of stocks selected to measure the behavior of the market, or some portion of it. The S&P 500, for example, is an index of 500 companies selected to track the performance of the broad market of large-cap U.S. companies. Investors use indexes as benchmarks to measure how their in- vestments are performing in comparison to the market as a whole. The Domini 400 Social Index attempts to track the performance of a broad repre- sentation of primarily large-cap U.S. companies in which the typical socially responsible investor would consider appropriate to - 15 - More About the Funds invest. The Domini 400 Social Index was created to serve as a benchmark for socially and environmentally conscious investors. What is the difference between an index fund and an actively managed fund? The Domini Social Equity Fund uses a passive investment strategy. This means that the Fund purchases, holds and sells stocks based on the composition of the Domini 400 Social Index, rather than on a manager's judgment as to the di- rection of the market or the merits of any particular stock. Unlike index funds, actively managed funds are generally managed to achieve the highest possible return within certain parameters. These funds are managed by stock-pickers who buy and sell stocks based on their opinion of the finan- cial outlook of the stock. Because index funds use a passive strategy, changes in management generally have less impact on fund performance. Index funds provide investors with an opportunity to invest in a portfolio that is specially designed to match the performance of a particular index. Rather than relying on the skills of a particular mutual fund manager, index fund investors purchase, in a sense, a cross-section of the market. Their per- formance should therefore reflect the segment of the market that their fund is designed to track. What are some of the advantages of index investing? Index investing has become quite popular because it offers investors a conve- nient, relatively low-cost and tax-efficient way to obtain exposure to a broad spectrum of the stock market. Here are some other advantages: . Diversification. Indexes such as the Domini 400 Social Index invest in a large number of companies representing a diverse mix of industries. This structure can help reduce volatility as compared to funds that may invest in a smaller number of companies, or focus on a particular industry. . Benchmark Comparability. Index funds typically match the performance of their particular benchmarks more closely than comparable actively managed funds. The Domini Social Equity Fund seeks to match the performance of the Do- mini 400 Social Index. - 16 - More About the Funds . Tax Efficiency. Turnover rate refers to the volume of buying and selling of stocks by a fund. The turnover rate of index funds tends to be much lower than the average actively managed mutual fund. Depending on your particular tax sit- uation, a low turnover rate may produce fewer taxable capital gains. Compare Turnover Rates The average annual turnover rate for all domestic stock funds is 63%.* The annual turnover rate for the Domini Social Equity Fund was 9%.** (There is no guarantee that this turnover will not be higher in the future.) A 100% turnover rate would occur if a fund sold and replaced securities valued at 100% of its net assets within a one-year period. * As of 09/30/00; taken from Morningstar PrincipiaPro. **For the period from 08/01/99 to 07/31/00. What is the Domini 400 Social Index? The Domini 400 Social Index (DSI 400) is the nation's first socially and envi- ronmentally screened index. It was created and launched in May 1990 by the so- cial research firm of Kinder, Lydenberg, Domini & Co., Inc. ("KLD") in order to serve as a benchmark for social investors, and to determine how social screens affect financial performance. KLD is an affiliate of Domini Social Investments. The Domini Social Equity Fund was launched in 1991 to give investors an oppor- tunity to invest in a portfolio based on the Index. The Index is maintained by KLD. It is composed of the common stocks of 400 companies that meet the social criteria described below. How was the Domini 400 Social Index constructed? To construct the Index, KLD first applied to the S&P 500 a number of tradi- tional social screens. Roughly half of the S&P 500 companies qualified for the Index in this initial screening process. Approximately 150 non-S&P 500 compa- nies were then added with two goals in mind. One goal was to obtain a broad representation of industries, so that the Index would more accurately reflect the market available to the socially responsible investor. Another goal was to identify companies that are particularly strong models of corporate behavior. - 17 - More About the Funds KLD maintains an extensive database of corporate accountability information on more than 1,000 publicly traded companies and bases its decisions on research into the following factors: Exclusionary Screens KLD seeks to exclude the following types of companies from the Index: . Tobacco and Alcohol - companies that manufacture tobacco products or alco- holic beverages; . Gambling - companies that receive identifiable revenues from gambling enter- prises; . Nuclear Power - companies that have an ownership share in, or operate, nu- clear power plants; and . Weapons - companies that receive more than 2% of their gross revenues from the sale of military weapons. Qualitative Screens KLD considers the following criteria when evaluating companies for possible in- clusion in the Index and may exclude companies based on poor performance in these areas: . Environmental Performance - the company's record with regard to fines or pen- alties, waste disposal, toxic emissions, efforts in waste reduction and emissions reduction, recycling, and environmentally beneficial fuels, products and services; . Employee Relations - the company's record with regard to labor matters, workplace safety, employee benefit programs, and meaningful participation in profits either through stock purchase or profit-sharing plans; . Diversity - the company's record with regard to the hiring and promotion of women and minorities, particularly to management positions and the board of di- rectors, including the company's record with respect to the What are Social Screens? All investment decisions use some type of "screen." Screens are guidelines that define which securities will be included in a portfolio, and which will be excluded. In addition to basic financial screens relating to financial solvency, industry and sector diversification, and market capitalization, the stocks in the DSI 400 are selected using two basic types of social screens: exclusionary and qualitative. - 18 - More About the Funds availability of benefit programs that address work/family concerns, innovative hiring programs for the disabled and progressive policies toward gays and les- bians; . Citizenship - the company's record with regard to its charitable activities and its community relations in general; and . Product-Related Issues - the company's record with regard to product safety, marketing practices, and commitment to quality. From time to time, KLD may, at its discretion, choose to apply additional cri- teria, or to modify the application of the criteria listed above, to the Index. As a result, companies may be dropped from or added to the Index. This will im- pact the types of investments held by the Domini Social Equity Fund because it seeks to invest in the securities of the companies that are included in the In- dex. The social criteria listed in this prospectus may be modified and addi- tional social criteria may be imposed at any time without approval of share- holders. How are the Domini Social Equity Fund's largest holdings selected? Like the S&P 500, the DSI 400 is "market capitalization-weighted." Market capi- talization is a measure of the value of a publicly traded company. It is calcu- lated by multiplying the total number of outstanding shares of company stock by the price per share. The Domini Social Equity Fund's portfolio is also market capitalization-weight- ed. For example, assume that the total market value of Company A's shares is twice the total market value of Company B's shares. The Fund's portfolio is structured so that its holdings of Company A's shares will be about twice the value of its holdings of Company B's shares. The Fund's top ten holdings there- fore are simply the ten companies with the highest market value in the Index. Because it seeks to duplicate the Index as closely as possible, the Fund will attempt to have a correlation between the weightings of the stocks it holds in its portfolio and the weightings of the stocks in the Index of 0.95 or better. A figure of 1.0 would indicate a perfect correlation. - 19 - More About the Funds How is the Domini 400 Social Index maintained? To keep turnover low and to more accurately reflect the performance of the mar- ket, the Index is maintained using a "buy and hold" strategy. Generally speak- ing, this means that companies that are in the Index stay in the Index for a long time. A company will not be removed because its stock has not been per- forming well, unless in KLD's opinion the company is no longer financially via- ble. Sometimes a company is removed from the Index because it has been acquired by another company. Sometimes a company may split into two companies, and only one of the surviving companies is selected to stay in the Index (because the Index is maintained to consist of exactly 400 companies at all times). A company may also be removed from the Index because its social profile has de- teriorated, or due to its inadequate response to a significant controversy. When a company is removed from the Index, it is replaced with another company. In the selection process, among other factors, KLD considers the size of the company, the industry it is in, and its social profile. Are there companies I won't like in the Domini 400 Social Index? The screens for the Index are designed to reflect those most widely used by so- cial investors. Therefore, you may find that some companies in the Index do not reflect your social or environmental standards. You may wish to review a list of the companies in the Domini Social Equity Fund's portfolio to decide if they meet your personal standards. The complete list is available in the Fund's an- nual and semi-annual reports. To obtain copies of these reports free of charge, call 1-800-762-6814. No company is a perfect model of corporate or social responsibility. Each year, the Domini Social Equity Fund uses its voice as a shareholder to encourage com- panies to improve their social and environmental records by voting proxies, writing letters, engaging management in dialogue and filing shareholder resolu- tions. - 20 - More About the Funds Domini Social Bond Fund About Bond Fund Investing What is a bond? Essentially, a bond is an IOU issued by a corporation or a government entity. When you purchase a bond, you are lending the issuer a specified amount of money (the principal) for a specified period of time (the term). In exchange, the issuer usually pays regular interest and, when the term is up and the bond matures, the issuer repays the principal amount. Many investors purchase bonds because the interest income paid tends to be higher than money market funds, certificates of deposit or bank accounts. In- vestors also use bonds to help diversify their portfolio because, although bonds and bond funds are subject to market fluctuations, they don't always move in the same direction or to the same degree as stocks. What advantages do bond funds offer? Bond funds are a convenient way to invest in bonds and other debt instruments because they allow you to invest in a professionally managed pool of bonds and debt instruments. Bond funds offer all of the familiar conveniences of stock mutual funds, such as: . Liquidity. See pages A-4 to A-9 for information on how to buy and sell shares. . Reinvestment of Dividends. If you do not depend upon your investment for reg- ular income, you may choose to reinvest your dividends. . Low Minimum Investment. Purchasing an individual bond can be expensive be- cause of the brokerage commissions you may be required to pay and the size of the bond you may be required to purchase. You can invest in the Domini Social Bond Fund for $1,000. If you open your account as an IRA or an UGMA/UTMA, the minimum is $250, and if you choose to use our automatic investment plan, the minimum is $500. . Diversification. A bond fund invests in a large number of bonds and other debt instruments. Although bond funds do not provide any - 21 - More About the Funds guarantees, investing in a large number of bonds and other debt instruments al- lows you to spread certain risks (such as credit risk) among more than one is- suer. What types of bonds and other debt instruments will the Fund typically hold? The Domini Social Bond Fund typically invests at least 85% of its assets in in- vestment-grade-fixed-income debt instruments. The Fund can buy many types of debt instruments including, without limitation, corporate bonds, bonds issued by U.S. government agencies or instrumentalities, and mortgage- and asset- backed securities. The Fund may also invest in the debt instruments of, and de- posit cash with, community development banks. All of the Fund's holdings must pass the Fund's social and environmental screens. The following describes the most common types of bonds and other debt instru- ments the Fund will hold (for a discussion of the risks associated with these types of securities, refer to pages 8 and 13-14): . Securities of U.S. Government Agencies and Instrumentalities include U.S. government agency bonds, which represent loans by investors to a wide variety of governmental agencies and instrumentalities, and other obligations of U.S. government agencies and instrumentalities. The Domini Social Bond Fund will generally hold bonds issued by those government-related organizations involved in housing, farming and education. The Fund may purchase debt obligations of Federal Home Loan Banks, which have the right to borrow an amount limited to a specific line of credit from the U.S. Treasury and the obligations of other U.S. government instrumentalities. Please keep in mind that some securities issued by U.S. government agencies and instrumentalities may not be backed by the full faith and credit of the U.S. government. The Fund does not currently intend to invest in direct obligations of the U.S. government such as U.S. Treasury bills, notes and bonds. . State and Municipal Bonds represent loans to a state or municipal government, or one of their agencies or instrumentalities. . Corporate Bonds are IOUs issued by businesses that want to borrow money for some business purpose. As with other types of - 22 - More About the Funds bonds, the issuer promises to repay the principal on a specific date and to make interest payments in the meantime. The amount of interest offered depends on market conditions and also on the financial health of the corporation issu- ing the bonds. For example, a company whose credit rating is weak will have to offer a higher interest rate to obtain buyers for its bonds. The Fund expects to invest primarily in investment grade corporate bonds, which are corporate bonds rated in one of the four highest rating categories by independent bond rating agencies and those that the Fund's portfolio managers believe to be of comparable quality. Although the Fund may invest in corporate bonds issued by corporations that are not included in the Domini 400 Social Index, all of the Fund's corporate bond holdings must pass the same social and environmental screens used in connection with the Index (see pages 18-19 for more information). . Mortgage-Backed and Asset-Backed Securities represent interests in underlying pools of mortgages or consumer or commercial loans -- most often home loans or credit card, automobile or trade receivables. Unlike ordinary bonds, which gen- erally pay a fixed rate of interest at regular intervals and then pay principal upon maturity, mortgage-backed securities pay both interest and principal as part of their regular payments. Because the mortgages and loans underlying the securities can be prepaid at any time by homeowners or consumer or corporate borrowers, mortgage-backed securities and asset-backed securities are particu- larly sensitive to prepayment risk, discussed earlier (page 14) in this pro- spectus. Mortgage-backed securities are issued by a number of governmental and quasi- governmental agencies, including the Government National Mortgage Association (GNMA or "Ginnie Mae"), Freddie Mac (formerly the Federal Home Loan Mortgage Corporation) and Fannie Mae (formerly the Federal National Mortgage Associa- Because the Domini Social Bond Fund may invest extensively in mortgage-backed and asset-backed securities, the prepayment risk of the Fund may be higher than that for a bond fund that does not invest in these types of securities. See page 14 for more information. - 23 - More About the Funds tion). Ginnie Maes are guaranteed by the full faith and credit of the U.S. gov- ernment as to the timely payment of principal and interest. Freddie Macs and Fannie Maes are backed by their respective issuer only. Of course, your invest- ment in the Domini Social Bond Fund is not insured. The Fund may also invest to a lesser extent in conventional mortgage securities, which are packaged by pri- vate entities and are not guaranteed by the U.S. government. . Community Development. The Fund will invest in mortgages, loans and pools of loans issued by community development banks and financial institutions and by community loan funds. These investments are targeted to underinvested areas, low- to moderate-income individuals, and small businesses. These investments may be lower-rated or unrated and may subject the Fund to more credit risk than other types of debt instruments. Some of these investments may also be illiquid and the Fund may not be able to sell them at an advantageous time or price. Up to 10% of the Fund's assets may be placed in these investments. The Fund may also invest in deposits of, loans to, and loans and pools of loans issued by community development financial institutions, community loan funds and similar institutions. These investments may not be insured by the FDIC. . International dollar-denominated bonds (or Yankee bonds) are bonds denomi- nated in U.S. dollars issued by foreign governments and companies. Because the bond's value is designated in dollars rather than the currency of the issuer's country, the investor is not exposed to currency risk. To the extent that the Fund owns bonds issued by foreign governments and companies, the Fund is sub- ject to risks relating to political, social and economic developments abroad. Please refer to page 27 for additional information about the types of bonds the Domini Social Bond Fund may hold. What will be the Fund's turnover rate? The Domini Social Bond Fund is actively managed. Although the Fund's portfolio managers attempt to minimize portfolio turnover, from time to time the Fund's annual portfolio turnover rate may exceed 100%. The sale of securities may pro- duce capital gains, which, when distributed, are taxable to investors. Active trading may also increase the amount of commissions or mark-ups the Fund pays to brokers or dealers when it buys and sells securities. - 24 - More About the Funds The Social Impact of the Domini Social Bond Fund Although an equity fund such as the Domini Social Equity Fund can have an im- pact on corporate behavior through its screening policies, proxy voting and by filing shareholder resolutions, a socially responsible bond fund provides a special opportunity to make a significant and immediate difference to people and their communities. The Domini Social Bond Fund seeks to play a positive role in the economic and social development of communities by investing a portion (up to 10%) of its as- sets in debt instruments and other investments that support and promote commu- nity development. The Fund's submanager will draw upon its experience in making productive community development investments to carefully select those finan- cial institutions, funds and organizations that are making the greatest impact in the areas of affordable housing, job creation, and economic development in underserved communities. These investments may carry greater credit risks than the Fund's other holdings. The Fund's community investments are focused in two critical areas: affordable housing and economic empowerment for low-to medium-income entrepreneurs through the financing of small business loans. Examples of these types of investments include loans and deposits purchased from Community Development Financial In- stitutions and Community Loan Funds, and small business association (SBA) guar- anteed portions of small business loans. The Fund may invest a portion of its assets in below market-rate community development investments. The Fund's Submanager South Shore Bank, the Domini Social Bond Fund's submanager, is the nation's largest and oldest community devel- opment bank, founded with the purpose of serv- ing the financial needs of residents and businesses in traditionally under- served urban areas. Between 1974 and November 2000, the Bank loaned $600 mil- lion for local rehabilita- tion and commercial development to approxi- mately 13,000 borrow- ers. South Shore Bank currently has more than $950 million in assets and $62 million in capital. The Bank's parent company, Shorebank Corporation, has founded a variety of other for- profit and not-for-profit development enterprises in the U.S. and abroad. Shorebank's investments-- which include loans to minority-owned busi- nesses, housing loans in urban neighborhoods, and real estate develop- ment -- exceeded $100 million in 1999 and are on track to at least equal that amount in 2000. Shorebank is responsible for the creation, place- ment or retention of more than 900 jobs and for the rehabilitation of over 2,300 units of multi-family housing. -25- Additional Investment Strategies & Risk Information Additional Information Additional permissible Domini Social Bond Fund investments include, but are not limited to: . Convertible Bonds. The Fund may invest in convertible bonds, which are bonds that may be converted into stock. Convertible bonds are subject to the market risk of stocks, and, like other bonds, are also subject to interest rate risk and the credit risk of their issuers. Convertible bonds tend to offer lower rates of interest than non- convertible bonds because the stock conversion fea- ture represents increased potential for capital gains. Call provisions may al- low the issuer to repay the debt before it matures. This may hurt the Fund's performance because it may have to reinvest the money repaid at a lower rate. . Zero Coupon Obligations. The Fund may invest in obligations that do not pay current interest, known as "zero coupon" obligations. The prices of zero coupon obligations tend to be more volatile than those of securities that offer regu- lar payments of interest. This makes the Fund's net asset value more volatile. In order to pay cash distributions representing income on zero coupon obliga- tions, the Fund may have to sell other securities on unfavorable terms. These sales may generate taxable gains for shareholders. . Derivatives. The Fund may use derivatives (including futures and options), which are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. The various derivatives that the Fund may use are described in more detail in the Statement of Addi- tional Information. The Fund may use derivatives to reduce exposure to certain risks, such as interest rate risk. The Fund will not use derivatives for lever- age. Suitable derivative transactions may not be available in all circumstanc- es, and there can be no assurance that the Fund will use derivatives, even when they may benefit the Fund. -26- Additional Investment Strategies & Risk Information Derivatives are subject to a number of risks described on pages 12 through 14 of this prospectus, such as market risk, interest rate risk and credit risk. They also may be mispriced or improperly valued, and changes in the value of derivatives may not correlate perfectly with the underlying asset, rate or in- dex. . Temporary Investments. The Fund may temporarily use a different investment strategy for defensive purposes in response to market conditions, economic fac- tors, or other occurrences. This may adversely affect the Fund's performance. Investment Structure The Domini Social Equity Fund invests its assets in the Domini Social Index Portfolio, a registered investment company. The Portfolio has the same invest- ment objective as the Domini Social Equity Fund and invests in securities using the strategies described in this prospectus. The Domini Social Equity Fund may withdraw its investment from the Portfolio at any time if the Board of Trustees of the Domini Social Equity Fund determines that it is in the best interest of the Fund to do so. The Board of Trustees would then consider what action might be taken, including investing all of the Fund's assets in another similarly structured portfolio having the same investment objective as the Fund, or hir- ing an investment adviser to manage the Fund's assets. There is currently no intention to change the Domini Social Equity Fund's investment structure. Ref- erences to the Domini Social Equity Fund in this prospectus include the Portfo- lio, unless the context requires otherwise. The Domini Social Bond Fund invests directly in securities and does not invest through an underlying Portfolio. Cash Reserves Although the Domini Social Equity Fund seeks to be fully invested at all times, it keeps a small percentage of its assets in cash or cash equivalents. These reserves provide the Fund with flexibility to meet redemptions and expenses, and to readjust its portfolio holdings. The Fund may hold these cash reserves uninvested or may invest them in high-quality, short-term debt securities is- sued by agencies or instrumentalities of the U.S. government, bankers' accept- ances, commercial paper, certificates of deposit, bank deposits or repurchase agree- -27- Additional Investment Strategies & Risk Information ments. The issuers of these securities must satisfy certain social criteria. The Domini Social Bond Fund will also invest a portion of its assets in quali- ty, short-term debt securities issued by agencies or instrumentalities of the U.S. government, bankers' acceptances, commercial paper, certificates of depos- it, bank deposits and repurchase agreements. Some of the investments will be with community development banks and financial institutions and may not be in- sured by the FDIC. The issuers of these securities must satisfy certain social criteria. Securities Lending Consistent with applicable regulatory policies, including those of the Board of Governors of the Federal Reserve System and the Securities and Exchange Commis- sion, each of the Domini Social Equity Fund and the Domini Social Bond Fund may make loans of its securities to member banks of the Federal Reserve System and to broker-dealers. These loans would be required to be secured continuously by collateral consisting of securities, cash or cash equivalents maintained on a current basis at an amount at least equal to the market value of the securities loaned. A Fund would have the right to terminate a loan and obtain the securi- ties loaned at any time on three days' notice. During the existence of a loan, a Fund would continue to collect the equivalent of the dividends paid by the issuer on the securities loaned and would also receive interest on investment of cash collateral. A Fund may pay finder's and other fees in connection with securities loans. Loans of securities involve a risk that the borrower may fail to return the securities or may fail to provide additional collateral. The Funds are not required to use every investment technique or strategy listed in this prospectus or in the Statement of Additional Information. For Additional Information about the Funds' investment strategies and risks, the Funds' Statement of Additional Information is available, free of charge, from Domini Social Investments. -28- Who Manages the Funds? Investment Manager Domini Social Investments LLC (DSIL), 536 Broadway, 7th floor, New York, NY 10012, has been managing money since November of 1997 and currently manages more than $2.0 billion dollars in assets for individual and institutional investors who are working to create positive change in society by using social and environmental criteria in their investment decisions. DSIL provides the Funds and the Portfolio with investment supervisory services, overall operational support and administrative services. Social Research & Index Maintenance Kinder, Lydenberg, Domini & Co., Inc. (KLD), an affiliate of DSIL, determines the composition of the Domini 400 Social Index. The following persons are pri- marily responsible for the development and maintenance of the Domini 400 Social Index: Amy L. Domini, CFA, a Managing Principal of DSIL (since 1997) and Foun- der of KLD, Steven D. Lydenberg, CFA, Director of Research, KLD (since 1990), and Peter D. Kinder, JD, President, KLD (since 1988). Portfolio Investment Submanagers Domini Social Equity Fund Mellon Equity Associates, LLP, with its main offices at 500 Grant Street, Pittsburgh, PA 15258, provides investment submanagement services to the Domini Social Equity Fund pursuant to a Submanage-ment Agreement with DSIL. Mellon Eq- uity implements the daily transactions necessary to maintain the proper corre- lation between the Domini Social Equity Fund's portfolio and the Domini 400 So- cial Index. They do not determine the composition of the Index. For the services DSIL and Mellon Equity provided to the Domini Social Equity Fund and the Portfolio during the fiscal year ended July 31, 2000, they re- ceived a total of 0.65% of the average daily net assets of the Domini Social Equity Fund, after waivers. -29- Domini Social Bond Fund South Shore Bank, with its main offices at 7054 S. Jeffery Blvd., Chicago, IL 60649, provides investment submanagement services to the Domini Social Bond Fund pursuant to a Submanagement Agreement with DSIL. South Shore Bank is the nation's oldest and largest community development bank, founded with the pur- pose of serving the financial needs of residents and businesses in tradition- ally underserved urban areas. David J. Oser, Senior Vice President, Investments (since 1994), leads the team responsible for the management of the Domini So- cial Bond Fund. Mr. Oser has been with South Shore Bank since 1976, where he currently manages $450 million in assets for affiliates and institutional cli- ents of the Bank. He also serves as Retirement Plan Trustee and Corporate Sec- retary for the Bank. Mr. Oser holds a Master's degree from the University of Chicago and a Bachelor's degree from Carleton College, Northfield, Minnesota. DSIL and South Shore Bank may receive total investment advisory fees of 0.40% of the average daily net assets of the Domini Social Bond Fund. Both DSIL and South Shore Bank waived their entire fee for the period June 1, 2000 through July 31, 2000. The Funds' Distribution Plan DSIL Investment Services LLC, a wholly owned subsidiary of DSIL, is the dis- tributor of each Fund's shares. Each Fund has adopted a Rule 12b-1 plan that allows the Fund to pay its distributor up to 0.25% of the Fund's average daily net assets, on an annual basis, for the sale and distribution of the Fund's shares and for services provided to shareholders. Because this fee is paid out of each Fund's assets on an ongoing basis, over time the fee will increase the cost of your investment and may cost you more than paying other types of sales charges. For more information about the Funds' distribution plan, see the ex- pense tables, on pages 6 and 10 of this prospectus, and the Statement of Addi- tional Information. -30- Shareholder Manual Shareholder Manual This section provides you with information on how to buy and sell shares of the Funds, how Fund shares are valued, and the tax consequences of an investment in a Fund. Table of Contents How to Open an Account................................................... A-2 Types of Accounts...................................................... A-2 How to Buy Shares........................................................ A-4 How to Exchange Shares................................................... A-6 How to Sell Shares....................................................... A-8 How the Price of Your Shares is Determined............................... A-13 How can I find out a Fund's NAV?....................................... A-13 How do you determine what price I will get when I buy shares?.......... A-13 How do you determine what price I will get when I sell shares?......... A-14 How is the value of securities held by the Funds determined?........... A-14 Fund Statements and Reports.............................................. A-15 Dividends and Capital Gains.............................................. A-16 Taxes.................................................................... A-16 Rights Reserved by the Funds............................................. A-18
For more information on: . investing in the Funds, . your account, . the Fund's daily share price, and . socially responsible investing, Call our Shareholder Information Line toll-free at 1-800-762-6814 or visit our website at www.domini.com. Shareholder representatives are available to take your call weekdays, from 9-5PM, Eastern Time. You may make transactions, review account information and obtain the share price of a Fund 24 hours a day, 7 days a week by using our automated telephone system or visiting our website. Quick Reference Ticker Symbols: Domini Social Equity Fund - DSEFX Domini Social Bond Fund - DSBFX Newspaper Listings: Domini Social Equity Fund - Domini Soc Inv-Soc Equity Domini Social Bond Fund - Domini Soc Inv-Soc Bond Account Statements are mailed quarterly. Trade Confirmations are sent after purchases (except Automatic Investment Plan purchases) and redemptions. Annual and Semi-Annual Reports will be mailed in late September and March, respectively, and are available online at www.domini.com. - A-1 - Shareholder Manual How to Open an Account 1. Read this prospectus (and please keep it for future reference). 2. Review the available accounts listed below under "Types of Accounts" and de- cide which account-type is appropriate for you. 3 Decide how much you want to invest. The minimum initial investments in each Fund are: . $1,000 for regular accounts ($500 if using our Automatic Investment Plan) . $250 for Retirement Accounts (Automatic Investment Plan also available) . $250 for UGMA/UTMA Accounts (Automatic Investment Plan also available) The minimums to buy additional shares of each Fund are: . $50 for regular and Retirement Accounts . $25 for Automatic Investment Plan Accounts 4. You can choose one of several different payment methods to make your initial investment. Please review the options listed under "How to Buy Shares," and follow the simple instructions we've provided. Be sure to completely fill out and sign the Account Application. If at any time you need assistance, please call us at 1-800-762-6814, weekdays from 9-5PM, Eastern Time. Types of Accounts You may invest in the Funds through the following types of accounts: Individual and Joint Accounts (Non-Retirement): Invest as an individual or with one or more people. If you are opening a joint account, joint tenancy with rights of survivorship will be assumed unless other ownership is noted on your account application. You may also open an account to invest assets held in an existing personal trust. - A-2 - Shareholder Manual Individual Retirement Accounts (IRAs): You may open an account to fund a traditional IRA, Roth IRA or Education IRA. . $10 Annual IRA account maintenance fee . $10 IRA account termination fee Call 1-800-762-6814 for more information and an IRA account application. Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) Accounts: You may open a UGMA/UTMA account for any child. Employer-Sponsored Retirement Plans: If offered by your employer, you may be able to open an account as part of an employer-sponsored retirement plan, such as a 401(k) plan, 403(b) plan, SEP-IRA or SIMPLE IRA. You may obtain 403(b) forms and information by calling 1-800- 762-6814. You may also contact your employer's plan administrator for further information. Automatic Investment Plan Accounts: Automatically invest specified amounts in a Fund at monthly, quarterly, semi- annual or annual intervals. Automatic investments will continue to be made un- til you notify the Fund and your bank to discontinue further investments. This service may be established for your account at any time. See below for more de- tails, or call 1-800-762-6814. For an Organization: You may open an account for a trust, corporation, partnership, endowment, foun- dation or other entity. - A-3 - Shareholder Manual How to Buy Shares Via the Internet: Current shareholders may purchase new shares of any Fund you currently hold. . Visit our website at www.domini.com. . Click the "Account Access" button. . Enter your Social Security number and Personal Identification Number (PIN) in the appropriate fields. (To obtain a PIN, call 1-800-582-6757.) . The "Account List" will provide you with an overview of your account and transaction processing options. . Online help is available for each screen. In order to make purchases using this service, you will need ACH (Automatic Clearing House) privileges set up on your account. Please call 1-800-582-6757 for more information. By Phone: Current shareholders may purchase shares using our automated telephone account access system. . Dial 1-800-582-6757 . Select "1" for automated account access . Enter your account number followed by the pound sign (#) . Enter your Personal Identification Number (PIN) . Press "2" to process a transaction . At any time you can press "8" to return to the previous menu or "9" to re- turn to the main menu. In order to make purchases using this service, you will need ACH (Automatic Clearing House) privileges set up on your account. Please call 1-800-582-6757 for more information. - A-4 - Shareholder Manual By Check Mail the completed Account Application and your check to: Domini Funds P.O. Box 60494 King of Prussia, PA 19406-0494 For subsequent investments, fill out the investment form that came with your trade confirmation or account statement or send a note with your account number and Fund name. Always be sure to include your account number on your check. If you need additional forms, please call 1-800-762-6814. Your checks must be in U.S. dollars drawn on a U.S. bank and be made payable to "Domini Funds." IMPORTANT: For our mutual protection, Domini cannot accept checks made payable to third parties. By Bank Wire To establish wire privileges on an existing account, or for additional informa- tion about the service, please call the Funds' transfer agent at 1-800-762- 6814. Wire your investment to: Bank: Boston Safe Deposit Bank ABA: 011001234 Acct Name: Domini Funds Acct #: 043370 FBO: Fund Name, and Your Account Name and Number at Domini Funds For new accounts, please call 1-800-762-6814 to obtain an account number before wiring funds. - A-5 - Shareholder Manual Automatic Investment Plan Our Automatic Investment Plan allows you to have specified amounts automati- cally deducted from your bank account or Domini Money Market Account and in- vested in a Fund in monthly, quarterly, semi-annual or annual intervals. Please follow the instructions in the Account Application to establish this service when you open your account. This service can be established for your account at any time. Call the Funds' transfer agent at 1-800-582-6757 for more informa- tion. This service may take up to 4 weeks to begin. Also, due to the varying proce- dures to prepare, process and forward the bank withdrawal information to the Funds, there may be periodic delays between the time of the bank withdrawal and the time your money reaches the appropriate Fund. How to Exchange Shares You may exchange all or a portion of your funds from any of your Domini hold- ings into any other available Domini Fund or the Domini Money Market Account. Via the Internet . Visit our website at www.domini.com. . Click the "Account Access" button. . Enter your Social Security number and Personal Identification Number (PIN) in the appropriate fields. (To obtain a PIN, call 1-800-582-6757.) . The "Account List" will provide you an overview of your account and trans- action processing options. . Online help is available for each screen. The Advantage of Dollar-Cost Averaging One thing is certain: markets fluctuate. Even experienced investors often find it impossible to accurately time a market, and to "sell high and buy low." Dollar-cost averaging is an investment strategy designed to avoid the pitfalls of market timing by investing equal amounts of money at regular intervals (monthly, quarterly, and so on) over a long period of time. The advantage of dollar-cost averaging is that an investor buys more shares at lower prices, and fewer shares at higher prices. As a result, an investor ends up paying an average price per share over a period of time. The key to dollar-cost averaging is to stick with it for the long term, through periods of rising and falling markets. Of course, no strategy can guarantee a profit, or protect your investment from losses. Strictly adhering to a long- term dollar-cost averaging strategy, however, is a good way to avoid the mistake of investing all of your money when the market is high. To facilitate dollar-cost averaging you may purchase Fund shares at regular intervals through the Funds' Automatic Investment Plan. - A-6 - Shareholder Manual By Telephone You may exchange shares using our automated telephone account access system. . Dial 1-800-582-6757 . Select "1" for automated account access . Enter your account number followed by the pound sign (#) . Enter your Personal Identification Number (PIN) . Press "2" to process a transaction . At any time you can press "8" to return to the previous menu or "9" to re- turn to the main menu. OR You may exchange shares using our customer service department. . Dial 1-800-582-6757 . Select "2" to speak to a shareholder service representative In Writing Send a written request signed by the owner to: Domini Funds PO Box 60494 King of Prussia, PA 19406-0494 For information on transferring assets from another mutual fund family, please call 1-800-762-6814 or visit www.domini.com to obtain the necessary forms. The Domini Money Market Account(SM) The Domini Money Market Account (DMMA) offered through South Shore Bank is an FDIC-insured (up to certain limits) interest- bearing account with direct community development benefits. You may open and maintain a DMMA at no charge, and take advantage of free check-writing (with a $500 minimum per check), and easy transfers by telephone to and from your Domini Social Equity Fund or Domini Social Bond Fund account. A DMMA investment is subject to certain terms and conditions. Please call 1-800-762-6814 for more information. The rate of return for the Domini Money Market Account will vary. The Domini Social Equity Fund and Domini Social Bond Fund are not insured by the FDIC. - A-7 - Shareholder Manual How to Sell Shares You are free to sell all or part of your Fund shares at any time during New York Stock Exchange trading hours (generally weekdays from 9AM - 4PM Eastern Time). The appropriate Fund will send the proceeds from the sale to you or a third party that you have designated (this may require a Signature Guarantee) (see page A-12). Transactions are processed at the next determined share price after Domini re- ceives your sale request in good order. You may sell (redeem) your shares in the Funds in the following ways: Via the Internet . Visit our website at www.domini.com. . Click the "Account Access" button. . Enter your Social Security number and Personal Identification Number (PIN) in the appropriate fields. (To obtain a PIN, call 1-800-582-6757.) . The "Account List" will provide you an overview of your account and transaction processing options. . Online help is available for each screen. In order to make an ACH redemption using this service, you will need ACH (Automatic Clearing House) privileges set up on you account. Please call 1-800-582-6757 for more information. What is "Good Order"? Purchase and sale requests must be in "good order" to be accepted by a Fund. To be in "good order" a request must include: . The Fund name and your account number. . The amount of the transaction (in dollars or shares). . Signatures of all owners exactly as registered on the account (for requests by mail). . Signature guarantees, if required (see page A-8). . Any supporting legal documentation that may be required. -A-8- Shareholder Manual By Automated Telephone Access . Dial 1-800-582-6757 . Select "1" for automated account access . Enter your account number followed by the pound sign (#) . Enter you Personal Identification Number (PIN) . Press "2" to process a transaction . At any time you can press "8" to return to the previous menu or "9" to return to the main menu. In order to make a redemption using this service, you will need ACH (Automatic Clearing House) privileges set up on you account. Please call 1-800-582-6757 for more information. In Writing Mail written redemption requests to: Domini Funds P.O. Box 60494 King of Prussia, PA 19406-0494 For overnight deliveries, please use the following address: Domini Funds c/o PFPC, Inc. 211 South Gulph Road King of Prussia, PA 19406 Letters requesting redemptions must: . specify the dollar amount or number of shares to be sold, the fund name and the account number; and . be signed in exactly the same way the account is registered by all regis- tered owners or authorized signers. Your redemption request may require a signature guarantee. Please refer to page A-12 for details. -A-9- Shareholder Manual By Telephone To sell shares by telephone, call the Funds' transfer agent at 1-800-582-6757. If you wish to receive your redemption by wire and have not already established wire privileges on your account, you must submit wire redemption requests in writing along with a Signature Guarantee (see page A-12). Please consider sending a written request to sell shares if you cannot reach the Funds' transfer agent by telephone. Neither the Funds, nor their transfer agent or their distributor will be liable for any loss, liability, cost or expense for acting on telephone instructions believed to be genuine. The Funds will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Please contact the Funds' transfer agent if you wish to suspend telephone redemption privileges. By Wire To establish wire redemption privileges on a new account, fill out the appro- priate area on the application, and attach a voided check. If you have not already established wire redemption privileges on your account you must submit wire redemption requests in writing along with a Signature Guarantee (see page A-12). . $10 wire transfer fee (deducted directly from sale proceeds) . $1,000 minimum wire amount The wire transfer fee and minimum wire amount may be waived for certain insti- tutions at the manager's discretion. Systematic Withdrawal Plan Call our Shareholder Information Line at 1-800-762-6814 for information. If you own shares of a Fund with an aggregate value of $10,000 or more you may establish a Systematic Withdrawal Plan under which shares will be sold, at net asset value, in the amount and for the periods specified (minimum $100.00 per payment). There is no additional charge to participate in the Systematic Withdrawal Plan. -A-10- Shareholder Manual Additional Information on Selling Shares Signature Guarantees You are required to obtain a Signature Guarantee from an Eligible Guarantor for any: . Sales (redemptions) exceeding $50,000; . Written sales requests, regardless of amount, made within 30 days follow- ing any changes in account registration; and . Redemptions made to a third party or to an address other than the address for which the account is registered (unless already established on your account). Eligible Guarantors may include: . banks; . savings institutions; . credit unions; . broker-dealers; and . other guarantors acceptable to the Funds and their transfer agent. The Funds and their transfer agent cannot accept guarantees from notaries pub- lic or organizations that do not provide reimbursement in the case of fraud. The Funds or their transfer agent may, at their option, request further docu- mentation prior to accepting requests for redemptions. Unusual Circumstances Each Fund reserves the right to revise or terminate the telephone redemption privilege at any time, without notice. In the event that a Fund suspends tele- phone redemption privileges, or if you have difficulty getting through on the phone, you will still be able to redeem your shares through the other methods listed above. Each Fund may stop selling its shares or postpone payment: . during any period in which the New York Stock Exchange is closed or in which trading is restricted; or -A-11- Shareholder Manual . if the Securities and Exchange Commission determines that an emergency ex- ists. Large Redemptions It is important that you call the Funds' transfer agent before you redeem a large dollar amount. We must consider the interests of all fund shareholders and so reserve the right to delay delivery of your redemption proceeds -- to seven days -- the amount will disrupt a Fund's operation or performance. Each Fund reserves the right to pay part or all of the redemption proceeds in kind, i.e., in securities, rather than cash. If payment is made in kind, you may incur brokerage commissions if you elect to sell the securities for cash. In an effort to protect the Funds from the possible adverse effects of a sub- stantial redemption in a large account, as a matter of general policy, no shareholder or group of shareholders controlled by the same person or group of persons will knowingly be permitted to purchase in excess of 5% of the out- standing shares of a Fund, except upon approval of DSIL. -A-12- Shareholder Manual How the Price of Your Shares is Determined Each Fund determines its share price (or "NAV", net asset value per share) at the close of regular trading on the New York Stock Exchange, normally 4PM Eastern Time, on each day the Exchange is open for trading. This calculation is made by deducting the amount of the Fund's liabilities (debts) from the value of its assets, and dividing the difference by the number of outstanding shares of that Fund. Total Assets - Total Liabilities Net Asset Value (NAV) = ----------------------------------- Number of Shares Outstanding To calculate the value of your investment, simply multiply the NAV by the num- ber of shares of the Fund you own. How can I find out a Fund's NAV? By Phone: You may obtain a Fund's NAV 24 hours a day, by calling 1-800-762-6814 from a touch-tone phone and accessing our automated system. You may speak with a shareholder representative weekdays from 9-5PM, Eastern Time. Newspaper Listings: This information is also listed in the mutual fund listings of most major newspapers. The Domini Social Equity Fund is most commonly listed as: Domini Soc Inv -- Soc Equity. The Domini Social Bond Fund is most commonly listed as: Domini Soc Inv -- Soc Bond. Quarterly Statements: You will also receive this information quarterly, in your account statement. How do you determine what price I will get when I buy shares? If your order is received by the Funds' transfer agent by 4:00 PM Eastern Time in good order, you will receive the NAV determined at the end of that day. See "What is "Good Order'?" on page A-6 of this prospectus. Each Fund may stop offering its shares for sale at any time and may reject any order for the purchase of its shares. -A-13- Shareholder Manual How do you determine what price I will get when I sell shares? When you sell shares you will receive the next share price that is calculated after your sale request is received by the Funds' transfer agent in good order. See "What is "Good Order'?" on page A-6 of this prospectus. Please note that the Funds will not accept redemption requests (other than by automated tele- phone access or via the internet) after 4PM, and will not hold trades for the following day. The appropriate Fund will normally pay for the shares on the next day the New York Stock Exchange is open for trading, but in any event within seven days. A Fund may delay payment if your checks in payment for the purchase of the shares you wish to sell have not yet cleared (this may take up to 15 days). Each Fund may pay by check or, if you have completed the appropri- ate box on the Account Application, by wire transfer. Access to automated phone access and internet processing and your account may be limited during periods of peak demand, market volatility, systems upgrades, maintenance or other reasons. How is the value of securities held by the Funds determined? Each Fund typically uses market prices to value securities. However, when a market price is not available, or when a Fund has reason to believe that the price does not represent market realities, the Fund may value securities in- stead by using methods approved by the Fund's Board of Trustees. In such a case, the Fund's value for a security may be different from quoted market val- ues. To the extent that a Fund invests in securities that are traded primarily in foreign markets, the value of those securities may change at a time when you are not able to buy or sell Fund shares. This will happen when foreign markets are open on days when the Fund does not price its shares. Each short-term obligation (with a remaining maturity of less than sixty days) is valued at amortized cost, which constitutes fair value as determined by the Board of Trustees. -A-14- Shareholder Manual Fund Statements and Reports Householding: To keep the Funds' costs as low as possible, and to conserve paper usage, where practical, we attempt to eliminate duplicate mailings to the same address. When we find that two or more Fund shareholders have the same last name and address, rather than send a separate report to each shareholder, we will send just one report to that address. If your household is receiving separate mailings that you feel are unnecessary, or if you want us to send separate statements, notify our Shareholder Services department at 1-800-762-6814. Confirmation Statements: Statements confirming the trade date and the amount of your transaction are sent each time you buy, sell, or exchange shares. Confirmation statements are not sent for reinvested distributions or for purchases made through automatic investment plans. Always verify your transactions by reviewing your confirma- tion statement carefully for accuracy. Please report any discrepancies to our Shareholder Services department at 1-800-762-6814 promptly. Fund Financial Reports: Each Fund's annual report is mailed in September, and each Fund's semi-annual report is mailed in March. These reports include information about a Fund's performance, as well as a complete listing of that Fund's holdings. You may also view the Funds' most recent reports online at www.domini.com. Tax Statements: Each year we will send you a statement reporting the previous year's dividend and capital gains distributions, proceeds from the sale of shares, and distri- butions from IRAs or other retirement accounts as required by the Internal Rev- enue Service. These are generally mailed in January. -A-15- Shareholder Manual Dividends and Capital Gains Each Fund pays to its shareholders substantially all of its net income in the form of dividends. Dividends from net income, if any, are typically paid by the Domini Social Equity Fund semi-annually (usually in June and December) and by the Domini Social Bond Fund monthly. Any capital gains are distributed annually in December. You may elect to receive dividends and capital gains either by check or in ad- ditional shares. Unless you choose to receive your dividends by check, all div- idends will be reinvested in additional shares. In either case, these distribu- tions are taxable to you. Taxes This discussion of taxes is for general information only. You should consult your own tax adviser about your particular situation and the status of your ac- count under state and local laws. Taxability of Dividends: Each year the Funds will mail you a report of your dividends for the prior year and how they are treated for federal tax purposes. You will normally have to pay federal income taxes on the dividends you receive from the Funds, whether you take the dividends in cash or reinvest them in additional shares. Dividends designated by the Fund as capital gain dividends are taxable as long-term capi- tal gains. Other dividends are generally taxable as ordinary income. Some divi- dends paid in January may be taxable to you as if they had been paid the previ- ous December. Buying a Dividend: Dividends paid by a Fund will reduce that Fund's net asset value per share. As a result, if you buy shares just before a Fund pays a dividend, you may pay the full price for the shares and then effectively receive a portion of the pur- chase price back as a dividend on which you may need to pay tax. -A-16- Shareholder Manual Taxability of Transactions: Any time you redeem, sell or exchange shares in a non-retirement account, it is considered a taxable event for you. Depending on the purchase price and the sale price of the shares you sell or exchange, you may have a gain or a loss on the transaction. You are responsible for any tax liabilities generated by your transactions. IMPORTANT: By law, you must certify that the Social Security or taxpayer identification number you provide the Fund is correct and that you are not otherwise subject to 31% backup withholding for failing to report income to the IRS. The Fund may be required to withhold (and pay over to the IRS for your credit) 31% of certain distributions and proceds it pays you if you fail to provide this information or otherwise violate IRS regulations. -A-17- Shareholder Manual Rights Reserved by the Funds Each Fund and its agents reserve the following rights: . To waive or lower investment minimums; . To accept initial purchases by telephone or mailgram; . To refuse any purchase or exchange order; . To cancel any purchase or exchange order (including, but not limited to, orders deemed to result in excessive trading, market timing, fraud, or 5% ownership) upon notice to the shareholder within five business days of the transaction or prior to the time the shareholder receives confirmation of the transaction, whichever is sooner; . To implement policies designed to prevent excessive trading; . To freeze any account and suspend account services when notice has been received of a dispute between the registered or beneficial account owners or there is reason to believe a fraudulent transaction may occur; . To otherwise modify the conditions of purchase and any services at any time; . To act on instructions believed to be genuine; and . To notify shareholders and redeem accounts (other than retirement and Au- tomatic Investment Plan Accounts) with a value of less than $500. These actions will be taken when, in the sole discretion of management, they are deemed to be in the best interests of a Fund. -A-18- Financial Highlights Domini Social Equity Fund The financial highlights table is intended to help you understand the Domini Social Equity Fund's financial performance for the past 5 years. Certain infor- mation reflects financial results for a single Fund share.The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions).This information has been derived from information audited by KPMG LLP, whose report, along with the Fund's financial statements, is included in the annual report, which is available upon request.
Year Ended July 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ Net Asset Value, beginning of period.... $37.21 $30.86 $25.43 $16.70 $14.85 ------ ------ ------ ------ ------ Income from investment operations: Net investment income............... (0.02) 0.02 0.01 0.11 0.16 Net realized and unrealized gain on investments.......... 3.06 6.81 5.48 8.85 1.93 ------ ------ ------ ------ ------ Total income from investment operations.. 3.04 6.83 5.49 8.96 2.09 ------ ------ ------ ------ ------ Less distributions and dividends: Dividends to shareholders from net investment income.... -- + (0.03) (0.01) (0.11) (0.16) Dividends to shareholders from net realized gain........ (0.27) (0.45) (0.05) (0.12) (0.08) ------ ------ ------ ------ ------ Total distributions..... (0.27) (0.48) (0.06) (0.23) (0.24) ------ ------ ------ ------ ------ Net asset value, end of period................. $39.98 $37.21 $30.86 $25.43 $16.70 ====== ====== ====== ====== ====== Ratios/supplemental data Total return........... 8.16% 22.26% 21.58% 54.01% 14.11% Portfolio turnover*.... 9% 8% 5% 1% 5% Net assets, end of year (in 000,000's)........ $1,471 $1,083 $ 502 $ 212 $ 81 Ratio of expenses to average net assets.... 0.96%(/1/) 0.98%(/1/) 1.17%(/2/) 0.98%(/3/) 0.98%(/3/) Ratio of net investment income to average net assets............ (0.05)%(/1/) 0.06%(/1/) 0.07%(/2/) 0.62%(/3/) 1.01%(/3/) - -------------------------------------------------------------------------------------------
*The Portfolio turnover rates represent the rate of portfolio activity of the Domini Social Index Portfolio, the underlying portfolio through which the Do- mini Social Equity Fund invests. (1) Reflects a waiver of expenses by Domini Social Investments LLC, the Manager of the Domini Social Index Portfolio and Sponsor of the Fund. Had the Manager not waived its fees, the ratios of expenses and net investment income/(loss) to average net assets would have been 1.01% and (0.10%), respectively, for the year ended July 31, 2000 and 0.99% and 0.05%, respectively, for the year ended July 31, 1999. (2)Reflects a non-recurring payment by the Fund to the Domini Social Equity Fund's former administrator of $650,000 in connection with the termination of the expense payment arrangements with the Fund's former administrator and other such expenses incurred by the Fund in connection with the termination of such arrangements. Had such non-recurring expenses not been included, expenses and net investment income to average net assets would have been 0.98% and 0.27%, respectively. (3) Had the expense payment agreement not been in place the ratio of expenses to average net assets for the years ended July 31, 1997 and 1996 would have been 0.84% and 0.76%, respectively. Had the expense payment agreement not been in place the ratio of net investment income to average net assets for the years ended July 31, 1997 and 1996 would have been 1.07% and 0.92%, respectively. +Amount represents less than $0.005 per share - B-1 - Financial Highlights Domini Social Bond Fund The financial highlights table is intended to help you understand the Domini Social Bond Fund's financial performance for the period June 1, 2000 (Commence- ment of Operations) through July 31, 2000. Certain information reflects finan- cial results for a single Fund share. The total return in the table represents the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This informa- tion has been derived from information audited by KPMG LLP, whose report, along with the Fund's financial statements is included in the annual report, which is available upon request.
For the Period June 1, 2000* to July 31, 2000 ---------------------- For a share outstanding for the Period: Net asset value, beginning of period................... $10.00 ------ Income (loss) from investment operations:.............. 0.09 Net investment income................................ Net realized and unrealized gain (loss) on investments......................................... 0.07 ------ Total income (loss) from investment operations......... 0.16 ------ Less dividends to shareholders from net investment income................................................ (0.09) ------ Net asset value, end of period......................... $10.07 ====== Total return........................................... 9.51%** Portfolio Turnover..................................... 28% Ratios/supplemental data: Net assets, end of year (000's)...................... $4,111 Ratios of net investment income to average net assets.............................................. 5.67%(1)** Ratios of expenses to average net assets............. 0.93%(1)**
- --------- *Commencement of operations (1) Reflects a waiver of fees and expenses paid by the Manager due to contrac- tual fee waiver in effect. Had the Manager not waived their fees and reimbursed expenses, the ratio of net investment income to average net assets and expenses to average net assets would have been (0.18%) and 6.78%, respectively. **Annualized - B-2 - For Additional Information Annual and Semi-Annual Reports Additional information about a Fund's investments is available in that Fund's annual and semi-annual reports to shareholders. These reports include a discus- sion of the market conditions and investment strategies that significantly af- fected the Funds' performance during its last fiscal year, as well as a com- plete listing of the Funds' holdings. They are available by mail from Domini Social Investments, or on our website, www.domini.com. Statement of Additional Information The Funds' Statement of Additional Information contains more detailed informa- tion about each Fund and its management and operations.The Statement of Addi- tional Information is incorporated by reference into this prospectus and is le- gally part of it. It is available by mail from Domini Social Investments. Proxy Voting Guidelines & Social Screening Criteria Published annually, this booklet describes how we will vote our proxies and contains information about the social screens used to maintain the Domini 400 Social Index.The booklet also contains a description of our shareholder activ- ism program. It is available by mail from Domini Social Investments, or on our website, www.domini.com. Contact Domini To make inquiries about the Funds or obtain copies of any of the above, free of charge, call 1-800-762-6814, or write to: Domini Social Investments P.O. Box 60494 King of Prussia, PA 19406-0494 Web Site: To learn more about the Funds or about socially responsible invest- ing, visit us online at www.domini.com. Securities and Exchange Commission Information about the Funds (including the Statement of Additional Information) is available at the Commission's website, www.sec.gov. Copies may be obtained upon payment of a duplicating fee by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section of the Commission, Washington, D.C. 20549-6009.You may also visit the Commission's Public Reference Room in Washington, D.C. For more information about the Public Reference Room you may call the Commission at 1-202-942-8090. File No. 811-5823 STATEMENT OF ADDITIONAL INFORMATION December 1, 2000 DOMINI SOCIAL EQUITY FUND DOMINI SOCIAL BOND FUND
TABLE OF CONTENTS PAGE 1. The Funds..................................................................... 2 2. Investment Objectives; Information Concerning Investment Structure; Investment Policies and Restrictions............................... 2 3. Performance Information....................................................... 19 4. Determination of Net Asset Value; Valuation of Portfolio Securities; Additional Purchase Information............................................... 21 5. Management of the Funds and the Portfolio..................................... 23 6. Independent Auditors.......................................................... 32 7. Taxation...................................................................... 32 8. Portfolio Transactions and Brokerage Commissions.............................. 34 9. Description of Shares, Voting Rights and Liabilities.......................... 36 10. Financial Statements.......................................................... 38 11. Appendix - Rating Information................................................. A-1
This Statement of Additional Information sets forth information which may be of interest to investors but which is not necessarily included in the Funds' Prospectus dated December 1, 2000, as amended from time to time. This Statement of Additional Information should be read in conjunction with the Prospectus. This Statement of Additional Information incorporates by reference the financial statements described on page 38 hereof. These financial statements can be found in the Funds' Annual Report to Shareholders. An investor may obtain copies of the Funds' Prospectus and Annual Report without charge by contacting DSIL Investment Services LLC, the Funds' distributor, at (800) 762-6814. This Statement of Additional Information is NOT a prospectus and is authorized for distribution to prospective investors only if preceded or accompanied by an effective prospectus and should be read only in conjunction with such prospectus. -2- 1. THE FUNDS The Domini Social Equity Fund and the Domini Social Bond Fund (collectively with the Domini Social Equity Fund, the "Funds") are each no-load, diversified open-end management investment companies. Each Fund is a series of shares of beneficial interest of Domini Social Investment Trust (the "Trust"), which was organized as a business trust under the laws of the Commonwealth of Massachusetts on June 7, 1989 and commenced operations on June 3, 1991. Prior to January 20, 2000 the name of the Trust was "Domini Social Equity Fund." Each Fund offers to buy back (redeem) its shares from its shareholders at any time at net asset value. References in this Statement of Additional Information to the "Prospectus" are to the current Prospectus of the Funds, as amended or supplemented from time to time. Domini Social Investments LLC ("DSIL"), the Domini Social Bond Fund's investment manager (the "Bond Fund Manager") and administrator and the Domini Social Equity Fund's sponsor (the "Sponsor"), supervises the overall administration of the Domini Social Equity Fund and provides investment advisory and administrative services to the Domini Social Bond Fund. South Shore Bank ("South Shore") is the Domini Social Bond Fund's investment submanager (the "Bond Fund Submanager"). South Shore manages the investments of the Domini Social Bond Fund from day to day in accordance with that Fund's investment objective and policies. The Board of Trustees provides broad supervision over the affairs of each Fund. Shares of each Fund are continuously sold by DSIL Investment Services LLC, the Funds' distributor (the "Distributor"). An investor should obtain from the Distributor, and should read in conjunction with the Prospectus, the materials describing the procedures under which Fund shares may be purchased and redeemed. The Domini Social Equity Fund seeks to achieve its investment objective by investing all its assets in the Domini Social Index Portfolio (the "Portfolio"), a diversified open-end management investment company having the same investment objective as the Domini Social Equity Fund. DSIL is the Portfolio's investment manager (the "Portfolio Manager"). Mellon Equity Associates, LLP ("Mellon Equity") is the Portfolio's investment submanager (the "Portfolio Submanager"). Mellon Equity manages the investments of the Portfolio from day to day in accordance with the Portfolio's investment objective and policies. Kinder, Lydenberg, Domini & Co., Inc. ("KLD") determines the composition of the Domini 400 Social Index SM (the "Domini Social Index"). "Domini 400," "Domini Social Index," "Domini 400 Social Index" and "investing for good" are service marks of KLD which are licensed to DSIL with the consent of Amy L. Domini (with regard to the word "Domini"). Pursuant to agreements among KLD, DSIL, Amy L. Domini, and each of the Domini Social Equity Fund and the Portfolio, the Domini Social Equity Fund and the Portfolio may be required to discontinue use of one or more of these service marks if (i) DSIL ceases to be the Portfolio Manager, (ii) Ms. Domini or DSIL withdraws her or its consent to the use of the word "Domini," or (iii) the license agreement between KLD and DSIL is terminated. 2. INVESTMENT OBJECTIVES; INFORMATION CONCERNING INVESTMENT STRUCTURE; INVESTMENT POLICIES AND RESTRICTIONS INVESTMENT OBJECTIVES The investment objective of the Domini Social Equity Fund is to provide its shareholders with long-term total return which matches the performance of the Domini Social Index. -3- The investment objective of the Domini Social Bond Fund is to provide its shareholders with a high level of current income and total return by investing in bonds and other debt instruments that meet the Fund's social and environmental criteria. The investment objective of either Fund may be changed without the approval of that Fund's shareholders, but not without written notice thereof to shareholders thirty days prior to implementing the change. If there is a change in a Fund's investment objective, shareholders of that Fund should consider whether the Fund remains an appropriate investment in light of their financial positions and needs. The investment objective of the Portfolio may also be changed without the approval of the investors in the Portfolio, but not without written notice thereof to the investors in the Portfolio (and notice by the Domini Social Equity Fund to its shareholders) 30 days prior to implementing the change. There can, of course, be no assurance that the investment objective of either the Funds or the Portfolio will be achieved. INFORMATION CONCERNING INVESTMENT STRUCTURE Unlike other mutual funds which directly acquire and manage their own portfolio securities, the Domini Social Equity Fund seeks to achieve its investment objective by investing all of its investable assets in the Portfolio, a separate registered investment company with the same investment objective as the Domini Social Equity Fund. In addition to selling a beneficial interest to the Domini Social Equity Fund, the Portfolio may sell beneficial interests to other mutual funds or institutional investors. Such investors will invest in the Portfolio on the same terms and conditions as the Domini Social Equity Fund and will pay a proportionate share of the Portfolio's expenses. However, the other investors investing in the Portfolio are not required to sell their shares at the same public offering price as the Domini Social Equity Fund due to variations in sales commissions and other operating expenses. Investors in the Domini Social Equity Fund should be aware that differences in sales commissions and operating expenses may result in differences in returns experienced by investors in the different funds that invest in the Portfolio. Such differences in returns are also present in other mutual fund structures. Information concerning other holders of interests in the Portfolio is available from the Portfolio Manager at 212-217-1100. Smaller funds investing in the Portfolio may be materially affected by the actions of larger funds investing in the Portfolio. For example, if a large fund withdraws from the Portfolio, the remaining funds may experience higher pro rata operating expenses, thereby producing lower returns. Additionally, the Portfolio may become less diverse, resulting in increased portfolio risk. This possibility also exists for traditionally structured funds which have large or institutional investors. Also, funds with a greater pro rata ownership in the Portfolio could have effective voting control of the operations of the Portfolio. Subject to exceptions that are not inconsistent with applicable rules or policies of the Securities and Exchange Commission (the "SEC"), whenever the Domini Social Equity Fund is requested to vote on matters pertaining to the Portfolio, the Domini Social Equity Fund will hold a meeting of shareholders of the Domini Social Equity Fund and will cast all of its votes in the same proportion as the votes of the Domini Social Equity Fund's shareholders. Fund shareholders who do not vote will not affect the Domini Social Equity Fund's votes at the Portfolio meeting. The percentage of the Domini Social Equity Fund's votes representing Fund shareholders not voting will be voted by the Trustees of the Domini Social Equity Fund in the same proportion as the Domini Social Equity Fund shareholders who do, in fact, vote. Certain changes in the Portfolio's investment objective, policies or restrictions may require the Domini Social Equity Fund to withdraw its interest in the Portfolio. Any such withdrawal could result in a distribution "in kind" of portfolio securities (as opposed to a cash distribution) from the Portfolio. If securities are distributed, the Domini Social Equity Fund could incur brokerage, tax or other charges in converting the securities to cash. In addition, the distribution in kind may result in a less diversified portfolio of investments or adversely affect the liquidity of the Domini Social Equity Fund. Notwithstanding the above, there are other potential means for -4- meeting shareholder redemption requests, such as borrowing. The Domini Social Equity Fund's Trustees believe that the aggregate per share expenses of the Domini Social Equity Fund and the Portfolio are less than or approximately equal to the expenses which the Domini Social Equity Fund would incur if it retained the services of an investment manager and an investment submanager and invested directly in the types of securities being held by the Portfolio. The Domini Social Equity Fund may withdraw its investment from the Portfolio at any time if the Board of Trustees of the Domini Social Equity Fund determines that it is in the best interests of the Domini Social Equity Fund to do so. Upon any such withdrawal, the Board of Trustees of the Domini Social Equity Fund would consider what action might be taken, including the investment of all the assets of the Domini Social Equity Fund in another pooled investment entity having the same investment objective as the Domini Social Equity Fund or the retention of an investment adviser to manage the Domini Social Equity Fund's assets in accordance with the investment policies described above with respect to the Portfolio. In the event the Trustees of the Domini Social Equity Fund were unable to find a substitute investment company in which to invest the Domini Social Equity Fund's assets and were unable to secure directly the services of an investment manager and investment submanager, the Trustees would seek to determine the best course of action. The Domini Social Bond Fund invests directly in securities and does not invest through a Portfolio. INVESTMENT POLICIES The following supplements the information concerning the Funds' and the Portfolio's investment policies contained in the Prospectus and should only be read in conjunction therewith. References to the Portfolio include the Domini Social Equity Fund, and references to the Domini Social Equity Fund include the Portfolio, unless in either case the context otherwise requires. Domini Social Equity Fund INDEX INVESTING: The Portfolio is not managed in the traditional investment sense, since changes in the composition of its securities holdings are made in order to track the changes in the composition of securities included in the Domini Social Index. Moreover, inclusion of a stock in the Domini Social Index does not imply an opinion by KLD, the Portfolio Manager or the Portfolio Submanager as to the merits of that specific stock as an investment. Because the Portfolio seeks to track, rather than exceed, the performance of a particular index, investors should not expect to achieve the potentially greater results that could be obtained by a fund that aggressively seeks growth. However, KLD and the Portfolio Manager believe that enterprises which exhibit a social awareness, based on the criteria described in the Prospectus, should be better prepared to meet future societal needs for goods and services and may also be less likely to incur certain legal liabilities that may be incurred when a product or service is determined to be harmful, and that such enterprises should over the longer term be able to provide a positive return to investors. The Portfolio intends to readjust its securities holdings periodically such that those holdings will correspond, to the extent reasonably practicable, to the Domini Social Index both in terms of composition and weighting. The timing and extent of adjustments in the holdings of the Portfolio, and the extent of the correlation of the holdings of the Portfolio with the Domini Social Index, will reflect the Portfolio Submanager's judgment as to the appropriate balance between the goal of correlating the holdings of the Portfolio with the composition of the Domini Social Index, and the goals of minimizing transaction costs and -5- keeping sufficient reserves available for anticipated redemptions of interests in the Portfolio. To the extent practicable, the Portfolio will seek a correlation between the weightings of securities held by the Portfolio and the weightings of the securities in the Domini Social Index of 0.95 or better. A figure of 1.0 would indicate a perfect correlation. To the extent practicable, the Portfolio will attempt to be fully invested. The ability of the Domini Social Equity Fund to duplicate the performance of the Domini Social Index by investing in the Portfolio will depend to some extent on the size and timing of cash flows into and out of the Domini Social Equity Fund and the Portfolio as well as the Domini Social Equity Fund's and the Portfolio's expenses. The Board of Trustees will receive and review, at least quarterly, a report prepared by the Portfolio Submanager comparing the performance of the Domini Social Equity Fund and the Portfolio with that of the Domini Social Index, and comparing the composition and weighting of the Portfolio's holdings with those of the Domini Social Index, and will consider what action, if any, should be taken in the event of a significant variation between the performance of the Domini Social Equity Fund or the Portfolio, as the case may be, and that of the Domini Social Index, or between the composition and weighting of the Portfolio's securities holdings with those of the stocks comprising the Domini Social Index. If the correlation between the weightings of securities held by the Portfolio and the weightings of the stocks in the Domini Social Index or the correlation between the performance of the Domini Social Equity Fund, before expenses, and the performance of the Domini Social Index falls below 0.95, the Board of Trustees will review with the Portfolio Submanager methods for increasing such correlation, such as through adjustments in securities holdings of the Portfolio. In selecting stocks for inclusion in the Domini Social Index, KLD evaluated, in accordance with the social criteria described in the Prospectus, each of the companies the stocks of which comprise the Standard and Poor's 500 Composite Stock Price Index (the "S&P 500"). If a company whose stock was included in the S&P 500 met KLD's social criteria and met KLD's further criteria for industry diversification, financial solvency, market capitalization, and minimal portfolio turnover, it was included in the Domini Social Index. As of July 31, 2000, of the 500 companies whose stocks comprised the S&P 500, approximately 58% were included in the Domini Social Index. The remaining stocks comprising the Domini Social Index (i.e., those which are not included in the S&P 500) were selected based upon KLD's evaluation of the social criteria described in the Prospectus, as well as upon KLD's criteria for industry diversification, financial solvency, market capitalization, and minimal portfolio turnover. A company which is not included in the S&P 500 may be included in the Domini Social Index primarily in order to afford representation to an industry sector which would otherwise be under-represented in the Domini Social Index. Because of the social criteria applied in the selection of stocks comprising the Domini Social Index, industry sector weighting in the Domini Social Index may vary materially from the industry weightings in other stock indices, including the S&P 500, and certain industry sectors will be excluded altogether. KLD may exclude from the Domini Social Index stocks issued by companies which are in bankruptcy or whose bankruptcy KLD believes may be imminent. KLD may also remove from the Domini Social Index stocks issued by companies which no longer meet its investment criteria. The weightings of stocks in the Domini Social Index are based on each stock's relative total market capitalization (i.e., market price per share times the number of shares outstanding). Because of this weighting, as of July 31, 2000 approximately 37% and 55% of the Domini Social Index was comprised of the 10 largest and 20 largest companies, respectively, in the Domini Social Index. The component stocks of the S&P 500 are chosen by Standard & Poor's Ratings Group ("S&P") solely with the aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the New York Stock Exchange ("NYSE") common stock population, taken as the assumed model for the composition of the total -6- market. Construction of the S&P 500 by S&P proceeds from industry groups to the whole. Since some industries are characterized by companies of relatively small stock capitalization, the S&P 500 does not comprise the 500 largest companies listed on the NYSE. Not all stocks included in the S&P 500 are listed on the NYSE. However, the total market value of the S&P 500 as of July 31, 2000 represented approximately 68% of the aggregate market value of common stocks traded on the NYSE. Inclusion of a stock in the S&P 500 in no way implies an opinion by S&P as to its attractiveness as an investment, nor is S&P a sponsor of or otherwise affiliated with the Domini Social Equity Fund or the Portfolio. CONCENTRATION: It is a fundamental policy of the Portfolio and the Domini Social Equity Fund that neither the Portfolio nor the Domini Social Equity Fund may invest more than 25% of the total assets of the Portfolio or the Domini Social Equity Fund, respectively, in any one industry, although the Domini Social Equity Fund will invest all of its assets in the Portfolio, and the Portfolio may and would invest more than 25% of its assets in an industry if stocks in that industry were to comprise more than 25% of the Domini Social Index. Based on the current composition of the Domini Social Index, this is considered highly unlikely. If the Portfolio were to concentrate its investments in a single industry, the Portfolio and the Domini Social Equity Fund would be more susceptible to any single economic, political or regulatory occurrence than would be another investment company which was not so concentrated. Domini Social Bond Fund REPURCHASE AGREEMENTS: The Domini Social Bond Fund may invest in repurchase agreements that are fully collateralized by securities in which the Domini Social Bond Fund may otherwise invest. A repurchase agreement involves the purchase of a security that must later be sold back to the seller (which is usually a member bank of the U.S. Federal Reserve System or a member firm of the New York Stock Exchange (or a subsidiary thereof)) at an agreed time (usually not more than seven days from the date of purchase) and price. The resale price reflects the purchase price plus an agreed-upon market rate of interest. Under the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase agreements may be considered to be loans by the buyer. If the seller defaults, the underlying security constitutes collateral for the seller's obligation to pay although the Domini Social Bond Fund may incur certain costs in liquidating this collateral and in certain cases may not be permitted to liquidate this collateral. In the event of the bankruptcy of the other party to a repurchase agreement, the Domini Social Bond Fund could experience delays in recovering either the securities or cash. To the extent that, in the meantime, the value of the securities purchased has decreased, the Domini Social Bond Fund could experience a loss. REVERSE REPURCHASE AGREEMENTS: The Domini Social Bond Fund may enter into reverse repurchase agreements. In a reverse repurchase agreement, the Domini Social Bond Fund sells its securities to banks, brokers or dealers, who agree to sell the securities back to the Domini Social Bond Fund at an agreed time and price. The Domini Social Bond Fund will segregate securities of a dollar amount equal in value to the securities subject to the repurchase agreement. The Domini Social Bond Fund cannot use these segregated assets to meet its current obligations. Reverse repurchase agreements are considered to be a form of borrowing. In the event of the bankruptcy of the other party to a reverse repurchase agreement, the Domini Social Bond Fund could experience delays in recovering the securities sold. To the extent that, in the meantime, the value of the securities sold has changed, the Domini Social Bond Fund could experience a loss. FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS: The Domini Social Bond Fund may invest its assets in forward commitments or commitments to purchase securities on a when-issued basis. Forward commitments or purchases of securities on a when-issued basis are transactions where the price of the securities is fixed at the time of the commitment and delivery and payment normally take place beyond conventional settlement -7- time after the date of commitment to purchase. The Domini Social Bond Fund will make commitments to purchase obligations on a when-issued basis only with the intention of actually acquiring the securities, but may sell them before the settlement date. The when-issued securities are subject to market fluctuation, and no interest accrues on the security to the purchaser during this period. The payment obligation and the interest rate that will be received on the securities are each fixed at the time the purchaser enters into the commitment. Purchasing obligations on a when-issued basis is a form of leveraging and can involve a risk that the yields available in the market when the delivery takes place may actually be higher than those obtained in the transaction itself. In that case, there could be an unrealized loss at the time of delivery. While awaiting delivery of securities purchased on a when-issued basis, the Domini Social Bond Fund will establish a segregated account consisting of cash and liquid securities equal to the amount of the commitments to purchase securities on such basis. If the value of these assets declines, the Domini Social Bond Fund will place additional assets of the type described in the preceding sentence in the account on a daily basis so that the value of the assets in the account is equal to the amount of such commitments. PRIVATE PLACEMENTS AND ILLIQUID INVESTMENTS: The Domini Social Bond Fund may invest up to 15% of its net assets in illiquid securities, or securities for which there is no readily available market, including privately placed restricted securities. The absence of a trading market can make it difficult to establish a market value for illiquid investments. It may be difficult or impossible for the Domini Social Bond Fund to sell illiquid securities at the desired time and at an acceptable price. BANK OBLIGATIONS: The Domini Social Bond Fund may invest in bank obligations, including: . certificates of deposit, which are negotiable interest-bearing instruments with a specific maturity; certificates of deposit are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity; . time deposits (including Eurodollar time deposits), which are non-negotiable receipts issued by a bank in exchange for the deposit of funds; time deposits earn a specified rate of interest over a definite period of time, but cannot be traded in the secondary market; time deposits with a withdrawal penalty are considered to be illiquid securities; . bankers' acceptances, which are bills of exchange or time drafts drawn on and accepted by a commercial bank; they are used by corporations to finance the shipment and storage of goods and to furnish dollar exchange; maturities are generally six months or less; and . other short-term debt obligations. The Domini Social Bond Fund's investments in bank obligations are particularly susceptible to adverse events in the banking industry. Banks are highly regulated. Decisions by regulators may limit the loans banks make and interest rates and fees they charge, and may reduce bank profitability. Banks also depend on being able to obtain funds at reasonable costs to finance their lending operations. This makes them sensitive to changes in money market and general economic conditions. When a bank's borrowers get in financial trouble, their failure to repay the bank will also negatively affect the bank's financial situation. Bank obligations may be issued by domestic banks, foreign subsidiaries or foreign branches of domestic banks, domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. -8- COMMERCIAL PAPER: The Domini Social Bond Fund may invest in commercial paper, which is unsecured debt of corporations usually maturing in 270 days or less from its date of issuance. VARIABLE RATE OBLIGATIONS: Unlike most bonds, which pay a fixed rate of interest, variable rate debt obligations pay interest at rates that change based on market interest rates. Interest rates on variable rate obligations may move in the same or in the opposite direction as market interest rates and may increase or decrease based on a multiple of the change in a market interest rate. These obligations tend to be highly sensitive to interest rate movements. MORTGAGE-BACKED SECURITIES: The Domini Social Bond Fund may invest in mortgage-backed securities, which are securities representing interests in pools of mortgage loans. Interests in pools of mortgage-related securities differ from other forms of debt instruments which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by prepayments of principal resulting from the sale, refinancing or foreclosure of the underlying property, net of fees or costs which may be incurred. The market value and interest yield of these instruments can vary due to market interest rate fluctuations and early prepayments of underlying mortgages. The principal governmental issuers or guarantors of mortgage-backed securities are the Government National Mortgage Association ("GNMA"), Fannie Mae (formerly the Federal National Mortgage Association) ("Fannie Mae"), and Freddie Mac (formerly the Federal Home Loan Mortgage Corporation) ("Freddie Mac"). Obligations of GNMA are backed by the full faith and credit of the U.S. government while obligations of Fannie Mae and Freddie Mac are supported by the respective agency only. A portion of the Domini Social Bond Fund's assets may be invested in collateralized mortgage obligations ("CMOs"), which are debt obligations collateralized by mortgage loans or mortgage pass-through securities. Typically, CMOs are collateralized by certificates issued by the GNMA, Fannie Mae or Freddie Mac but also may be collateralized by whole loans or private mortgage pass-through securities (such collateral collectively hereinafter referred to as "Mortgage Assets"). The Domini Social Bond Fund may also invest a portion of its assets in multi-class pass-through securities which are interests in a trust composed of Mortgage Assets. CMOs (which include multi-class pass-through securities) may be issued by agencies, authorities or instrumentalities of the U.S. government or by private originators of or investors in mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. Payments of principal of and interest on the Mortgage Assets, and any reinvestment income thereon, provide the funds to pay debt service on the CMOs or make scheduled distributions on the multi-class pass-through securities. In a CMO, a series of bonds or certificates is usually issued in multiple classes with different maturities. The class of CMO, often referred to as a "tranche," is issued at a specific fixed or floating coupon rate and has a stated maturity or final distribution date. Principal prepayments on the Mortgage Assets may cause the CMOs to be retired substantially earlier than their stated maturities or final distribution dates, resulting in a loss of all or part of the premium if any has been paid. Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis. The principal of and interest on the Mortgage Assets may be allocated among the several classes of a series of a CMO in various ways. In a common structure, payments of principal, including any principal prepayments, on the Mortgage Assets are applied to the classes of the series of a CMO in the order of their respective stated maturities or final distribution dates, so that no payment of -9- principal will be made on any class of CMOs until all other classes having an earlier stated maturity or final distribution date have been paid in full. The Domini Social Bond Fund also may invest in real estate mortgage investment conduits ("REMICs"). REMICs, which were authorized under the Tax Reform Act of 1986, are private entities formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue multiple classes of securities. Even if the U.S. government or one of its agencies guarantees principal and interest payments of a mortgage-backed security, the market price of a mortgage-backed security is not insured and may be subject to market volatility. When interest rates decline, mortgage-backed securities experience higher rates of prepayment because the underlying mortgages are refinanced to take advantage of the lower rates. The prices of mortgage-backed securities may not increase as much as prices of other debt obligations when interest rates decline, and mortgage-backed securities may not be an effective means of locking in a particular interest rate. In addition, any premium paid for a mortgage-backed security may be lost when it is prepaid. When interest rates go up, mortgage-backed securities experience lower rates of prepayment. This has the effect of lengthening the expected maturity of a mortgage-backed security. This particular risk, referred to as "maturity extension risk," may effectively convert a security that was considered short or intermediate-term at the time of purchase into a long-term security. Long-term securities generally fluctuate more widely in response to changes in interest rates than short or intermediate-term securities. Thus, rising interest rates would not only likely decrease the value of the Domini Social Bond Fund's fixed income securities, but would also increase the inherent volatility of the Fund by effectively converting short-term debt instruments into long-term debt instruments. As a result, prices of mortgage-backed securities may decrease more than prices of other debt obligations when interest rates go up. CORPORATE ASSET-BACKED SECURITIES: The Domini Social Bond Fund may invest in corporate asset-backed securities. These securities, issued by trusts and special purpose corporations, are backed by a pool of assets, such as credit card and automobile loan receivables, representing the obligations of a number of different parties. Corporate asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. The underlying assets (e.g., loans) are also subject to prepayments which shorten the securities' weighted average life and may lower their return. Corporate asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that -10- the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default ensures payment through insurance policies or letters of credit obtained by the issuer or sponsor from third parties. The degree of credit support provided for each issue is generally based on historical information regarding the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an investment in such a security. MORTGAGE "DOLLAR ROLLS": The Domini Social Bond Fund may enter into mortgage dollar roll transactions. In these transactions, the Domini Social Bond Fund sells mortgage-backed securities for delivery in the future and at the same time contracts to repurchase substantially similar securities on a specified future date. During the roll period, the Domini Social Bond Fund does not receive principal and interest paid on the mortgage-backed securities. The Domini Social Bond Fund is compensated for the lost principal and interest by the difference between the current sales price and the lower price for the future purchase (often referred to as the "drop") as well as by the interest earned on the cash proceeds of the initial sale. The Domini Social Bond Fund may also be compensated by receipt of a commitment fee. However, the Domini Social Bond Fund takes the risk that the market price of the mortgage-backed security may drop below the future purchase price. When the Domini Social Bond Fund uses a mortgage dollar roll, it is also subject to the risk that the other party to the agreement will not be able to perform. The Domini Social Bond Fund will invest only in covered rolls, which are specific types of dollar rolls for which the Domini Social Bond Fund establishes a segregated account with liquid high grade debt instruments equal in value to the securities subject to repurchase by the Fund. SECURITIES RATED Baa or BBB: The Domini Social Bond Fund may purchase securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Rating Service ("S&P") and securities of comparable quality, which may have poor protection of payment of principal and interest. These securities are often considered to be speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness than securities assigned a higher quality rating. The market prices of these securities may go up and down more than higher-rated securities and may go down significantly in periods of general economic difficulty which may follow periods of rising interest rates. CALL FEATURES: Certain securities held by the Domini Social Bond Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by the Domini Social Bond Fund during a time of declining interest rates, the Domini Social Bond Fund may have to reinvest that money at the lower prevailing interest rates. ZERO-COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: The Domini Social Bond Fund may invest in debt obligations called zero coupon bonds, deferred interest bonds and payment-in-kind (PIK) bonds. Zero coupon bonds do not pay any interest. Instead, zero coupon bonds are issued at a significant discount from the value the Domini Social Bond Fund expects to receive upon maturity. Deferred interest bonds are similar to zero coupon bonds except that they begin to pay interest after some delay. Although PIK bonds may pay interest in cash, they also are similar to zero coupon bonds or deferred interest bonds because the issuer has the option to make interest payments in additional debt obligations rather than cash. Because these bonds may not pay interest at regular intervals, changes in interest rates affect the value of zero coupon, deferred interest and PIK bonds more than debt obligations that pay regular interest, and the credit risk of these bonds tends to be greater than the credit risk of debt obligations which pay regular interest. Even though zero coupon, deferred interest and PIK bonds may not make payments of interest until maturity or until after a delay, the Domini Social Bond Fund is required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, it may be necessary at times -11- for the Domini Social Bond Fund to sell investments in order to make these distribution payments. STRIPPED SECURITIES: The Domini Social Bond Fund may invest in stripped securities, such as interest-only strips (called IOs), which may receive only interest payments and other types of stripped securities, such as principal-only strips (called POs), that may receive only principal payments. Stripped securities are more sensitive to changes in interest rates than are certain other debt instruments. The value of IOs generally will decrease as interest rates increase. As interest rates decrease, the Domini Social Bond Fund's investments in IOs may be adversely affected by a rapid rate of principal payments (including prepayments) on the underlying securities. A rapid rate of principal payments (including prepayments) may cause an IO to mature before the Domini Social Bond Fund recovers its initial investment in the security. Conversely, if interest rates increase, the Domini Social Bond Fund's investments in POs may be adversely affected by a lower than expected rate of principal payments (including prepayments) on the underlying securities. A lower rate of principal payments (including prepayments) effectively extends the maturity of a PO. FUTURES CONTRACTS: Subject to applicable laws, the Domini Social Bond Fund may enter into bond and interest rate futures contracts. The Domini Social Bond Fund intends to use futures contracts only for bona fide hedging purposes. Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specified security at a specified future time and at a specified price. A "sale" of a futures contract entails a contractual obligation to deliver the underlying securities called for by the contract, and a "purchase" of a futures contract entails a contractual obligation to acquire such securities, in each case in accordance with the terms of the contract. Futures contracts must be executed through a futures commission merchant, or brokerage firm, which is a member of an appropriate exchange designated as a "contract market" by the Commodity Futures Trading Commission ("CFTC"). When the Domini Social Bond Fund purchases or sells a futures contract, the Fund must allocate certain of its assets as an initial deposit on the contract. The initial deposit may be as low as approximately five percent or less of the value of the contract. The futures contract is marked to market daily thereafter and the Domini Social Bond Fund may be required to pay or entitled to receive additional "variation margin", based on decrease or increase in the value of the futures contract. Futures contracts call for the actual delivery or acquisition of securities, or in the case of futures contracts based on indices, the making or acceptance of a cash settlement at a specified future time; however, the contractual obligation is usually fulfilled before the date specified in the contract by closing out the futures contract position through the purchase or sale, on a commodities exchange, of an identical futures contract. Positions in futures contracts may be closed out only if a liquid secondary market for such contract is available, and there can be no assurance that such a liquid secondary market will exist for any particular futures contract. The Domini Social Bond Fund's ability to hedge effectively through transactions in futures contracts depends on, among other factors, the Bond Fund Manager's or Submanager's judgment as to the expected price movements in the securities underlying the futures contracts. In addition, it is possible in some circumstances that the Domini Social Bond Fund would have to sell securities from its portfolio to meet "variation margin" requirements at a time when it may be disadvantageous to do so. OPTIONS ON FUTURES CONTRACTS: The Domini Social Bond Fund may purchase and write options to buy or sell futures contracts in which the Fund may invest. These investment strategies may be used for hedging purposes. -12- An option on a futures contract provides the holder with the right to enter into a "long" position in the underlying futures contract, in the case of a call option, or a "short" position in the underlying futures contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Upon exercise of the option by the holder, the contract market clearinghouse establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position in the case of a put option. In the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of initial and variation margin deposits. In addition, the writer of an option on a futures contract, unlike the holder, is subject to initial and variation margin requirements on the option position. A position in an option on a futures contract may be terminated by the purchaser or seller prior to expiration by effecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profits or loss on the transaction. Options on futures contracts that are written or purchased by the Domini Social Bond Fund on U.S. exchanges are traded on the same contract market as the underlying futures contract, and, like futures contracts, are subject to regulation by the CFTC and the performance guarantee of the exchange clearinghouse. In addition, options on futures contracts may be traded on foreign exchanges. The Domini Social Bond Fund may cover the writing of call options on futures contracts (a) through purchases of the underlying futures contract, or (b) through the holding of a call on the same futures contract and in the same principal amount as the call written where the exercise price of the call held (i) is equal to or less than the exercise price of the call written or (ii) is greater than the exercise price of the call written if the difference is maintained by the Domini Social Bond Fund in cash or liquid securities in a segregated account. The Domini Social Bond Fund may cover the writing of put options on futures contracts (a) through sales of the underlying futures contract, (b) through segregation of cash or liquid securities in an amount equal to the value of the security underlying the futures contract, (c) through the holding of a put on the same futures contract and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written or where the exercise price of the put held is less than the exercise price of the put written if the difference is maintained by the Domini Social Bond Fund in cash or liquid securities in a segregated account. Put and call options on futures contracts may also be covered in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Upon the exercise of a call option on a futures contract written by the Domini Social Bond Fund, the Fund will be required to sell the underlying futures contract which, if the Domini Social Bond Fund has covered its obligation through the purchase of such contract, will serve to liquidate its futures position. Similarly, where a put option on a futures contract written by the Domini Social Bond Fund is exercised, the Fund will be required to purchase the underlying futures contract which, if the Fund has covered its obligation through the sale of such contract, will close out its futures position. The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities deliverable on exercise of the futures contract. The Domini Social Bond Fund will receive an option premium when it writes the call, and, if the price of the futures contract at expiration of the option is below the option exercise price, the Domini Social Bond Fund will retain the full amount of this option premium, which provides a partial hedge -13- against any decline that may have occurred in the Domini Social Bond Fund's security holdings. Similarly, the writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities deliverable upon exercise of the futures contract. If the Domini Social Bond Fund writes an option on a futures contract and that option is exercised, the Domini Social Bond Fund may incur a loss, which loss will be reduced by the amount of the option premium received, less related transaction costs. The Domini Social Bond Fund's ability to hedge effectively through transactions in options on futures contracts depends on, among other factors, the degree of correlation between changes in the value of securities held by the Domini Social Bond Fund and changes in the value of its futures positions. This correlation cannot be expected to be exact, and the Domini Social Bond Fund bears a risk that the value of the futures contract being hedged will not move in the same amount, or even in the same direction, as the hedging instrument. Thus it may be possible for the Domini Social Bond Fund to incur a loss on both the hedging instrument and the futures contract being hedged. The Domini Social Bond Fund may purchase options on futures contracts for hedging purposes instead of purchasing or selling the underlying futures contracts. For example, where a decrease in the value of portfolio securities is anticipated as a result of a projected market-wide decline or changes in interest or exchange rates, the Domini Social Bond Fund could, in lieu of selling futures contracts, purchase put options thereon. In the event that such decrease occurs, it may be offset, in whole or part, by a profit on the option. Conversely, where it is projected that the value of securities to be acquired by the Domini Social Bond Fund will increase prior to acquisition, due to a market advance or changes in interest or exchange rates, the Domini Social Bond Fund could purchase call options on futures contracts, rather than purchasing the underlying futures contracts. Futures contracts and options on futures contracts may be entered into on U.S. exchanges regulated by the CFTC and on foreign exchanges. The securities underlying options and futures contracts traded by the Domini Social Bond Fund may include domestic as well as foreign securities. Investors should recognize that transactions involving foreign securities or foreign currencies, and transactions entered into in foreign countries, may involve considerations and risks not typically associated with investing in U.S. markets. SWAPS AND RELATED INVESTMENTS: The Domini Social Bond Fund may use swaps, caps, collars and floors to hedge against a change in interest rates or other rates which could affect the value of securities in its portfolio. Interest rate swaps involve the exchange by the Domini Social Bond Fund with another party of their respective commitments to pay or receive interest. An equity swap is an agreement to exchange cash flows on a principal amount based on changes in the values of the reference index. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the counterparty. For example, the purchase of an interest rate cap entitles the buyer, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a contractually-based principal amount from the counterparty selling such interest rate cap. The sale of an interest rate floor obligates the seller to make payments to the extent that a specified interest rate falls below an agreed-upon level. A collar arrangement combines elements of buying a cap and selling a floor. The Domini Social Bond Fund will maintain liquid assets with its custodian or otherwise cover its current obligations under swap transactions in accordance with current regulations and policies applicable to the Fund. The most significant factor in the performance of swaps, caps, floors and collars is the change in the specific interest rate, equity or other factor that determines the amount of payments to be made under the arrangement. If the Bond Fund Manager or Submanager is incorrect in its forecasts of such factors, the investment performance of the Fund would be less -14- than what it would have been if these investment techniques had not been used. If a swap agreement calls for payments by the Domini Social Bond Fund, the Fund must be prepared to make such payments when due. The Domini Social Bond Fund will not enter into any swap unless the Bond Fund Manager or Submanager deems the counterparty to be creditworthy. If the counterparty's creditworthiness declined, the value of the swap agreement would be likely to decline, potentially resulting in losses. If the counterparty defaults, the Domini Social Bond Fund's risk of loss consists of the net amount of payments that the Fund is contractually entitled to receive. The Domini Social Bond Fund anticipates that it will be able to eliminate or reduce its exposure under these arrangements by assignment or other disposition or by entering into an offsetting agreement with the same or another counterparty. Swap agreements are subject to the Domini Social Bond Fund's overall limit that not more than 15% of its net assets may be invested in illiquid securities. STRUCTURED NOTES AND INDEXED SECURITIES: The Domini Social Bond Fund may invest in structured notes and indexed securities. A structured note is a debt security with its interest rate or principal determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators or the relative change in two or more financial indicators. Indexed securities include structured notes as well as securities other than debt instruments, with their interest rates or principal determined by one or more financial indicators. Structured notes and indexed securities may be more volatile, less liquid and more difficult to accurately price than less complex fixed income investments. These securities generally expose the Domini Social Bond Fund to credit risks equal to that of the underlying financial indicators. The interest rate or the principal amount payable upon maturity of a structured note or indexed security may go up or down depending on changes in the underlying indicators. Structured notes and indexed securities often are less liquid than other debt instruments because they are typically sold in private placement transactions with no active trading market. Domini Social Equity Fund and Domini Social Bond Fund FOREIGN ISSUERS: Some of the stocks included in the Domini Social Index may be stocks of foreign issuers (provided that the stocks are traded in the United States in the form of American Depositary Receipts or similar instruments the market for which is denominated in United States dollars). The Domini Social Bond Fund also may invest in obligations of foreign issuers. Investments in foreign securities involve risks relating to political, social and economic developments abroad, as well as risks resulting from the differences between the regulations to which U.S. and foreign issuers and markets are subject. With respect to securities and obligations of foreign issuers, the Domini Social Equity Fund and the Domini Social Bond Fund do not purchase securities which the Domini Social Equity Fund or the Domini Social Bond Fund, as the case may be, believes, at the time of purchase, will be subject to exchange controls or foreign withholding taxes; however, there can be no assurance that such laws may not become applicable to certain of the Domini Social Equity Fund's or the Domini Social Bond Fund's investments. In the event unforeseen exchange controls or foreign withholding taxes are imposed with respect to any of the Domini Social Equity Fund's or the Domini Social Bond Fund's investments, the effect may be to reduce the income received by the Domini Social Equity Fund or the Domini Social Bond Fund on such investments. RULE 144A SECURITIES: The Domini Social Equity Fund and the Domini Social Bond Fund each may invest in securities which may be resold pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"). The Domini Social Equity Fund has no current intention to invest in these securities. -15- LOANS OF SECURITIES: Consistent with applicable regulatory policies, including those of the Board of Governors of the Federal Reserve System and the SEC, the Domini Social Equity Fund and the Domini Social Bond Fund each may make loans of its securities to member banks of the Federal Reserve System and to broker-dealers. The Domini Social Equity Fund and the Domini Social Bond Fund may lend their respective securities to the broker-dealers and financial institutions, provided that (1) the loan is secured continuously by collateral, consisting of securities, cash or cash equivalents, which is marked to the market daily to ensure that each loan is fully collateralized at all times; (2) the Domini Social Equity Fund or the Domini Social Bond Fund, as the case may be, may at any time call the loan and obtain the return of the securities loaned within three business days; (3) the Domini Social Equity Fund or the Domini Social Bond Fund, as the case may be, will receive any interest or dividends paid on the securities loaned; and (4) the aggregate market value of securities loaned will not at any time exceed 30% of the total assets of the Domini Social Equity Fund or the Domini Social Bond Fund, as applicable. The Domini Social Equity Fund and the Domini Social Bond Fund each will earn income for lending its securities either in the form of fees received from the borrower of the securities or in connection with the investment of cash collateral in short-term money market instruments. Loans of securities involve a risk that the borrower may fail to return the securities or may fail to provide additional collateral. In connection with lending securities, the Domini Social Equity Fund and the Domini Social Bond Fund may pay reasonable finders, administrative and custodial fees. No such fees will be paid to any person if it or any of its affiliates is affiliated with the Domini Social Equity Fund, the Domini Social Bond Fund, the Portfolio or Bond Fund Manager or the Portfolio or Bond Fund Submanager. OPTION CONTRACTS: Although it has no current intention to do so, the Domini Social Equity Fund may in the future enter into certain transactions in stock options. The Domini Social Bond Fund may enter into certain transactions in options involving securities in which that Fund may otherwise invest. Each Fund may enter into such options transactions for the purpose of hedging against possible increases in the value of securities which are expected to be purchased by the respective Fund or possible declines in the value of securities which are expected to be sold by that Fund. Generally, the Domini Social Equity Fund would only enter into such transactions on a short-term basis pending readjustment of its holdings of underlying stocks. The purchase of an option on a security provides the holder with the right, but not the obligation, to purchase the underlying security, in the case of a call option, or to sell the underlying security, in the case of a put option, for a fixed price at any time up to a stated expiration date. The holder is required to pay a non-refundable premium, which represents the purchase price of the option. The holder of an option can lose the entire amount of the premium, plus related transaction costs, but not more. Upon exercise of the option, the holder is required to pay the purchase price of the underlying security in the case of a call option, or deliver the security in return for the purchase price in the case of a put option. Prior to exercise or expiration, an option position may be terminated only by entering into a closing purchase or sale transaction. This requires a secondary market on the exchange on which the position was originally established. While a Fund would establish an option position only if there appears to be a liquid secondary market therefor, there can be no assurance that such a market will exist for any particular option contract at any specific time. In that event, it may not be possible to close out a position held by a Fund, and that Fund could be required to purchase or sell the instrument underlying an option, make or receive a cash settlement or meet ongoing variation margin requirements. The inability to close out -16- option positions also could have an adverse impact on a Fund's ability effectively to hedge its portfolio. Each exchange on which option contracts are traded has established a number of limitations governing the maximum number of positions which may be held by a trader, whether acting alone or in concert with others. The Portfolio Manager and the Bond Fund Manager do not believe that these trading and position limits would have an adverse impact on the possible use of hedging strategies by the Domini Social Equity Fund or the Domini Social Bond Fund, as applicable. SHORT SALES: Although they have no current intention to do so, the Domini Social Equity Fund and the Domini Social Bond Fund may make short sales of securities or maintain a short position, if at all times when a short position is open the Domini Social Equity Fund or the Domini Social Bond Fund, as applicable, owns an equal amount of such securities, or securities convertible into such securities. CASH RESERVES: The Domini Social Equity Fund and the Domini Social Bond Fund each may invest cash reserves in short-term debt securities (i.e., securities having a remaining maturity of one year or less) issued by agencies or instrumentalities of the United States Government, bankers' acceptances, commercial paper, certificates of deposit, bank deposits or repurchase agreements, provided that the issuer satisfies certain social criteria. The Domini Social Equity Fund and the Domini Social Bond Fund do not currently intend to invest in direct obligations of the United States Government. Short-term debt instruments purchased by the Domini Social Equity Fund and the Domini Social Bond Fund will be rated at least Prime-1 by Moody's or A-1+ or A-1 by S&P or, if not rated, determined to be of comparable quality by the Portfolio's or Domini Social Bond Fund's, as applicable, Board of Trustees. The Domini Social Equity Fund's policy is to hold its assets in such securities pending readjustment of its portfolio holdings of stocks comprising the Domini Social Index and in order to meet anticipated redemption requests. Such investments are not intended to be used for defensive purposes in periods of anticipated market decline. ------------------------- The approval of the Domini Social Equity Fund and of the other investors in the Portfolio and the approval of shareholders of the Domini Social Bond Fund are not required to change the investment objective or any of the investment policies discussed above (other than the policy regarding concentration by the Domini Social Equity Fund and the Portfolio), including those concerning security transactions. INVESTMENT RESTRICTIONS FUNDAMENTAL RESTRICTIONS: Each of the Funds and the Portfolio have adopted the following policies which may not be changed without approval by holders of a "majority of the outstanding voting securities" of the applicable Fund or the Portfolio, respectively, which as used in this Statement of Additional Information means the vote of the lesser of (i) 67% or more of the outstanding "voting securities" of a Fund or the Portfolio, respectively, present at a meeting, if the holders of more than 50% of the outstanding "voting securities" of that Fund or the Portfolio, respectively, are present or represented by proxy, or (ii) more than 50% of the outstanding "voting securities" of a Fund or the Portfolio, respectively. The term "voting securities" as used in this paragraph has the same meaning as in the 1940 Act. Except as described below, whenever the Domini Social Equity Fund is requested to vote on a change in the investment restrictions of the Portfolio, the Domini Social Equity Fund will hold a meeting of its shareholders and will cast its vote proportionately as instructed by its shareholders. However, subject to applicable statutory and regulatory requirements, the -17- Domini Social Equity Fund would not request a vote of its shareholders with respect to (a) any proposal relating to the Portfolio, which proposal, if made with respect to the Domini Social Equity Fund, would not require the vote of the shareholders of the Domini Social Equity Fund, or (b) any proposal with respect to the Portfolio that is identical in all material respects to a proposal that has previously been approved by shareholders of the Domini Social Equity Fund. Any proposal submitted to holders in the Portfolio, and that is not required to be voted on by shareholders of the Domini Social Equity Fund, would nevertheless be voted on by the Trustees of the Domini Social Equity Fund. Neither the Domini Social Equity Fund nor the Portfolio may: (1) borrow money, except that as a temporary measure for extraordinary or emergency purposes either the Domini Social Equity Fund or the Portfolio may borrow an amount not to exceed 1/3 of the current value of the net assets of the Domini Social Equity Fund or the Portfolio, respectively, including the amount borrowed (moreover, neither the Domini Social Equity Fund nor the Portfolio may purchase any securities at any time at which borrowings exceed 5% of the total assets of the Domini Social Equity Fund or the Portfolio, respectively, taken in each case at market value) (it is intended that the Portfolio would borrow money only from banks and only to accommodate requests for the withdrawal of all or a portion of a beneficial interest in the Portfolio while effecting an orderly liquidation of securities); (2) purchase any security or evidence of interest therein on margin, except that either the Domini Social Equity Fund or the Portfolio may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities and except that either the Domini Social Equity Fund or the Portfolio may make deposits of initial deposit and variation margin in connection with the purchase, ownership, holding or sale of options; (3) write any put or call option or any combination thereof, provided that this shall not prevent (i) the purchase, ownership, holding or sale of warrants where the grantor of the warrants is the issuer of the underlying securities, or (ii) the purchase, ownership, holding or sale of options on securities; (4) underwrite securities issued by other persons, except that the Domini Social Equity Fund may invest all or any portion of its assets in the Portfolio and except insofar as either the Domini Social Equity Fund or the Portfolio may technically be deemed an underwriter under the 1933 Act in selling a security; (5) make loans to other persons except (a) through the lending of securities held by either the Domini Social Equity Fund or the Portfolio and provided that any such loans not exceed 30% of its total assets (taken in each case at market value), or (b) through the use of repurchase agreements or the purchase of short-term obligations and provided that not more than 10% of its net assets will be invested in repurchase agreements maturing in more than seven days; for additional related restrictions, see paragraph (6) immediately following; (6) invest in securities which are subject to legal or contractual restrictions on resale (other than repurchase agreements maturing in not more than seven days and other than securities which may be resold pursuant to Rule 144A under the 1933 Act if the Board of Trustees determines that a liquid market exists for such securities) if, as a result thereof, more than 10% of its net assets (taken at market value) would be so invested (including repurchase agreements maturing in more than seven days), except that the Domini Social Equity Fund may invest all or any portion of its assets in the Portfolio; (7) purchase or sell real estate (including limited partnership interests but excluding securities secured by real estate or interests therein), interests in oil, gas or mineral leases, commodities or commodity contracts in the ordinary course of business (the Domini Social -18- Equity Fund and Portfolio reserve the freedom of action to hold and to sell real estate acquired as a result of the ownership of securities by the Domini Social Equity Fund or the Portfolio); (8) make short sales of securities or maintain a short position, unless at all times when a short position is open the Domini Social Equity Fund or the Portfolio, as applicable, owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short, and unless not more than 5% of the Domini Social Equity Fund's or the Portfolio's, as applicable, net assets (taken in each case at market value) is held as collateral for such sales at any one time; (9) issue any senior security (as that term is defined in the 1940 Act) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder, except as appropriate to evidence a debt incurred without violating paragraph (1) above; (10) as to 75% of its assets, purchase securities of any issuer if such purchase at the time thereof would cause more than 5% of the Portfolio's or the Domini Social Equity Fund's, as applicable, assets (taken at market value) to be invested in the securities of such issuer (other than securities or obligations issued or guaranteed by the United States or any agency or instrumentality of the United States), except that for purposes of this restriction the issuer of an option shall not be deemed to be the issuer of the security or securities underlying such contract and except that the Domini Social Equity Fund may invest all or any portion of its assets in the Portfolio; or (11) invest more than 25% of its assets in any one industry unless the stocks in a single industry were to comprise more than 25% of the Domini Social Index, in which case the Portfolio or the Domini Social Equity Fund, as applicable, will invest more than 25% of its assets in that industry, and except that the Domini Social Equity Fund may invest all of its assets in the Portfolio. In addition, as a matter of fundamental policy, the Domini Social Equity Fund will invest all of its investable assets (either directly or through the Portfolio) in one or more of: (i) stocks comprising an index of securities selected applying social criteria, which initially will be the Domini Social Index, (ii) short-term debt securities of issuers which meet social criteria, (iii) cash, and (iv) options on equity securities. This fundamental policy cannot be changed without the approval of the holders of a majority of the outstanding voting securities of the Domini Social Equity Fund. The Domini Social Bond Fund may not: (1) borrow money if such borrowing is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder; (2) make loans to other persons if such loans are specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder; (3) purchase securities of any issuer if such purchase at the time thereof would cause with respect to 75% of the total assets of the Domini Social Bond Fund more than 10% of the voting securities of such issuer to be held by the Domini Social Bond Fund; provided that, for purposes of this restriction, the issuer of an option or futures contract shall not be deemed to be the issuer of the security or securities underlying such contract; and provided further that the Domini Social Bond Fund may invest all or any portion of its assets in one or more investment companies, to the extent not prohibited by the 1940 Act, the rules and regulations thereunder, and exemptive orders granted under such Act; -19- (4) purchase securities of any issuer if such purchase at the time thereof would cause as to 75% of the Domini Social Bond Fund's total assets more than 5% of the Domini Social Bond Fund's assets (taken at market value) to be invested in the securities of such issuer (other than securities or obligations issued or guaranteed by the United States, any state or political subdivision thereof, or any political subdivision of any such state, or any agency or instrumentality of the United States or of any state or of any political subdivision of any state); provided that, for purposes of this restriction, the issuer of an option or futures contract shall not be deemed to be the issuer of the security or securities underlying such contract; and provided further that the Domini Social Bond Fund may invest all or any portion of its assets in one or more investment companies, to the extent not prohibited by the 1940 Act, the rules and regulations thereunder, and exemptive orders granted under such Act; (5) concentrate its investments in any particular industry, but if it is deemed appropriate for the achievement of the Domini Social Bond Fund's investment objective, up to 25% of its assets, at market value at the time of each investment, may be invested in any one industry, except that positions in futures contracts shall not be subject to this restriction; (6) underwrite securities issued by other persons, except that all or any portion of the assets of the Domini Social Bond Fund may be invested in one or more investment companies, to the extent not prohibited by the 1940 Act, the rules and regulations thereunder, and exemptive orders granted under such Act, and except in so far as the Domini Social Bond Fund may technically be deemed an underwriter under the 1933 Act in selling a security; (7) purchase or sell real estate (including limited partnership interests but excluding securities secured by real estate or interests therein) or interests in oil, gas or mineral leases in the ordinary course of business (the foregoing shall not be deemed to preclude the Domini Social Bond Fund from purchasing or selling futures contracts or options thereon, and the Domini Social Bond Fund reserves the freedom of action to hold and to sell real estate acquired as a result of the ownership of securities by that Fund); (8) purchase or sell commodities or commodity contracts in the ordinary course of business (the foregoing shall not be deemed to preclude the Domini Social Bond Fund from purchasing or selling futures contracts or options thereon); and (9) issue any senior security (as that term is defined in the 1940 Act) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder. For purposes of restriction (1) above, covered mortgage dollar rolls and arrangements with respect to securities lending are not treated as borrowing. NON-FUNDAMENTAL RESTRICTION: Neither the Domini Social Equity Fund nor the Portfolio will as a matter of operating policy: purchase puts, calls, straddles, spreads and any combination thereof if the value of its aggregate investment in such securities will exceed 5% of the Domini Social Equity Fund's or Portfolio's, as applicable, total assets at the time of such purchase. This restriction is not fundamental and may be changed with respect to the Domini Social Equity Fund by that Fund without approval by the Fund's shareholders or with respect to the Portfolio by the Portfolio without the approval of the Domini Social Equity Fund or its other investors. Each Fund will comply with the state securities laws and regulations of all states in which it is registered. PERCENTAGE RESTRICTIONS: If a percentage restriction or rating restriction on investment or utilization of assets set forth above or referred to in the Prospectus is adhered to -20- at the time an investment is made or assets are so utilized, a later change in percentage resulting from changes in the value of the securities held by a Fund or the Portfolio or a later change in the rating of a security held by a Fund or the Portfolio will not be considered a violation of policy; provided that if at any time the ratio of borrowings of a Fund or the Portfolio to the net asset value of that Fund or the Portfolio, respectively, exceeds the ratio permitted by Section 18(f) of the 1940 Act, the applicable Fund or the Portfolio as the case may be, will take the corrective action required by Section 18(f). 3. PERFORMANCE INFORMATION Performance information concerning each Fund may from time to time be used in advertisements, shareholder reports or other communications to shareholders. Each Fund may provide its period, annualized, and average annual "total rates of return." The "total rate of return" refers to the change in the value of an investment over a stated period based on any change in net asset value per share and includes the value of any shares purchasable with any dividends or capital gains declared during such period. Period total rates of return may be "annualized." An average "annualized" total rate of return is a compounded total rate of return which assumes that the period total rate of return is generated over a 52-week period, and that all dividends and capital gains distributions are reinvested. An annualized total rate of return will be slightly higher than a period total rate of return if the period is shorter than one year, because of the effect of compounding. Average annual total return figures represent the average annual percentage change over the specified period. Each Fund will calculate its total rate of return for any period by (a) dividing (i) the sum of the net asset value per share on the last day of the period and the net asset value per share on the last day of the period of shares purchasable with dividends and capital gains declared during such period with respect to a share held at the beginning of such period and with respect to shares purchased with such dividends and capital gains distributions, by (ii) the public offering price per share (i.e., net asset value) on the first day of such period, and (b) subtracting 1 from the result. Any annualized total rate of return quotation will be calculated by (x) adding 1 to the period total rate of return quotation calculated above, (y) raising such sum to a power which is equal to 365 divided by the number of days in such period, and (z) subtracting 1 from the result. Average annual total return is a measure of a Fund's performance over time. It is determined by taking a Fund's performance over a given period and expressing it as an average annual rate. The average annual total return quotation is computed in accordance with a standardized method prescribed by SEC rules. The average annual total return for a specific period is found by taking a hypothetical $1,000 initial investment in Fund shares on the first day of the period and computing the redeemable value of the investment at the end of the period. The redeemable value is then divided by the initial investment, and its quotient is taken to the Nth root (N representing the number of years in the period) and is subtracted from the result, which is then expressed as a percentage. The calculation assumes that all income and capital gains distributions have been reinvested in Fund shares at net asset value on the reinvestment date during the period. The Domini Social Bond Fund may provide "yield" quotations with respect to that Fund. The "yield" of the Domini Social Bond Fund refers to the income generated by an investment in that Fund over a 30-day or one-month period (which period shall be stated in any advertisement or communications with a shareholder). This income is then "annualized", that is, the amount of income generated by the investment over the period is assumed to be generated over a 52-week period and is shown as a percentage of investment. A "yield" quotation, unlike a total rate of return quotation, does not reflect changes in net asset value. -21- Any current "yield" quotation of the Domini Social Bond Fund shall consist of an annualized historical yield, carried at least to the nearest hundredth of one percent, based on a thirty calendar day period and shall be calculated by (a) raising to the sixth power the sum of 1 plus the quotient obtained by dividing that Fund's net investment income earned during the period by the product of the average daily number of shares outstanding during the period that were entitled to receive dividends and the maximum offering price per share on the last day of the period, (b) subtracting 1 from the result, and (c) multiplying the result by 2. Set forth below is average annual total return information for shares of the Domini Social Equity Fund for the periods indicated, assuming that capital gains distributions, if any, were reinvested. Period Average Annual Total Return ------ --------------------------- One year ended July 31, 2000 8.16% Five years ended July 31, 2000 23.09% June 3, 1991 (Commencement of Investment in the Portfolio) to July 31, 2000 17.82% Since the Domini Social Equity Fund's average annual total return quotations are based on historical earnings and since rates of return fluctuate over time, these quotations should not be considered as an indication or representation of the future performance of that Fund. The Domini Social Bond Fund commenced operations on June 1, 2000 and does not have annual total return information as of the date of this Statement of Additional Information. Total rate of return information with respect to the Domini Social Index will be computed in the same fashion as set forth above with respect to the Domini Social Equity Fund, except that for purposes of this computation an investment will be assumed to have been made in a portfolio consisting of all of the stocks comprising the Domini Social Index weighted in accordance with the weightings of the stocks comprising the Domini Social Index. Performance information with respect to the Domini Social Index will not take into account brokerage commission and other transaction costs which will be incurred by the Portfolio. From time to time the Funds may also quote data and fund rankings from various sources, such as Lipper Analytical Services, Inc., Morningstar, Inc., Wiesenberger, Money Magazine, The Wall Street Journal, Kiplinger's Personal Finance Magazine, Smart Money Magazine, Business Week and The New York Times, and may compare their respective performance to that of the Domini 400 Social IndexSM and various other unmanaged securities indices, such as the S&P 500 and the Dow Jones Industrial Average. "Standard & Poor(TM)", "S&P(TM)" and "Standard & Poor's 500(TM)" are trademarks of McGraw Hill Companies. 4. DETERMINATION OF NET ASSET VALUE; VALUATION OF PORTFOLIO SECURITIES; ADDITIONAL PURCHASE INFORMATION The net asset value of each share of the Funds is determined each day on which the NYSE is open for trading ("Fund Business Day"). As of the date of this Statement of Additional Information, the NYSE is open for trading every weekday except for the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. This determination of net asset value of shares of each Fund is made once during each such day as -22- of the close of regular trading of the NYSE by dividing the value of each Fund's net assets (i.e., for the Domini Social Equity Fund the value of its investment in the Portfolio and any other assets less its liabilities, including expenses payable or accrued, for the Domini Social Bond Fund the value of its assets less its liabilities, including expenses payable or accrued) by the number of shares of that Fund outstanding at the time the determination is made. Purchases and redemptions will be effected at the time of determination of net asset value next following the receipt of any purchase or redemption order deemed to be in good order. See "Shareholder Manual" in the Prospectus. The value of the Portfolio's net assets (i.e., the value of its securities and other assets less its liabilities, including expenses payable or accrued) is determined at the same time and on the same day as the Domini Social Equity Fund determines its net asset value per share. The net asset value of the Domini Social Equity Fund's investment in the Portfolio is equal to the Domini Social Equity Fund's pro rata share of the total investment of the Domini Social Equity Fund and of other investors in the Portfolio less the Domini Social Equity Fund's pro rata share of the Portfolio's liabilities. Equity securities are valued at the last sale price on the exchange on which they are primarily traded or on the NASDAQ system for unlisted national market issues, or at the last quoted bid price for securities in which there were no sales during the day or for unlisted securities not reported on the NASDAQ system. Options and futures contracts are normally valued at the settlement price on the exchange on which they are traded. Bonds and other fixed income securities (other than short-term obligations) are valued on the basis of valuations furnished by a pricing service, use of which has been approved by the Board of Trustees of the Portfolio or the Funds, as applicable. In making such valuations, the pricing service utilizes both dealer-supplied valuations and electronic data processing techniques which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Short-term obligations (maturing in 60 days or less) are valued at amortized cost, which constitutes fair value as determined by the Board of Trustees of the Portfolio or the Funds, as applicable. Portfolio securities (other than short-term obligations with remaining maturities of less than sixty days) for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Portfolio's or the Funds', as applicable, Board of Trustees. A determination of value used in calculating net asset value must be a fair value determination made in good faith utilizing procedures approved by the Portfolio's or the Funds', as applicable, Board of Trustees. While no single standard for determining fair value exists, as a general rule, the current fair value of a security would appear to be the amount which the Portfolio or a Fund, as applicable, could expect to receive upon its current sale. Some, but not necessarily all, of the general factors which may be considered in determining fair value include: (i) the fundamental analytical data relating to the investment; (ii) the nature and duration of restrictions on disposition of the securities; and (iii) an evaluation of the forces which influence the market in which these securities are purchased and sold. Without limiting or including all of the specific factors which may be considered in determining fair value, some of the specific factors include: type of security, financial statements of the issuer, cost at date of purchase, size of holding, discount from market value, value of unrestricted securities of the same class at the time of purchase, special reports prepared by analysts, information as to any transactions or offers with respect to the security, existence of merger proposals or tender -23- offers affecting the security, price and extent of public trading in similar securities of the issuer or comparable companies, and other relevant matters. Interest income on long-term obligations is determined on the basis of interest accrued plus amortization of "original issue discount" (generally, the difference between issue price and stated redemption price at maturity) and premiums (generally, the excess of purchase price over stated redemption price at maturity). Interest income on short-term obligations is determined on the basis of interest accrued less amortization of premium. Shares may be purchased directly from the Distributor or through Service Organizations (see "Transfer Agent, Custodian, and Service Organizations" below) by clients of those Service Organizations. If an investor purchases shares through a Service Organization, the Service Organization must promptly transmit such order to the appropriate Fund so that the order receives the net asset value next determined following receipt of the order. Investors wishing to purchase shares through a Service Organization should contact that organization directly for appropriate instructions. Investors making purchases through a Service Organization should be aware that it is the responsibility of the Service Organization to transmit orders for purchases of shares by its customers to the Transfer Agent and to deliver required funds on a timely basis. Each Fund has authorized certain brokers to accept on its behalf purchase and redemption orders and has authorized these brokers to designate intermediates to accept such orders. Each Fund will be deemed to have received such an order when an authorized broker or its designee accepts the order. Orders will be priced at the appropriate Fund's net asset value next computed after they are accepted by an authorized broker or designee. Investors may be charged a fee if they effect transactions in Fund shares through a broker or agent. 5. MANAGEMENT OF THE FUNDS AND THE PORTFOLIO The management and affairs of the Funds are supervised by the Trustees of the Trust under the laws of the Commonwealth of Massachusetts. The management and affairs of the Portfolio are supervised by its Trustees under the laws of the State of New York. The Trustees and officers of the Trust and the Portfolio and their principal occupations during the past five years are set forth below. Their titles may have varied during that period. Asterisks indicate that those Trustees and officers are "interested persons" (as defined in the 1940 Act) of the Funds. Unless otherwise indicated below, the address of each officer is 536 Broadway, 7th Floor, New York, NY 10012. TRUSTEES OF THE TRUST AND THE PORTFOLIO AMY L. DOMINI* -- 230 Congress Street, Boston, Massachusetts 02110. Chair, President and Trustee of the Trust, Portfolio and Domini Institutional Trust; Managing Principal of DSIL; Private Trustee, Loring, Wolcott & Coolidge; Trustee, New England Quarterly (since 1998); Trustee, Episcopal Church Pension Fund; Former Member, Governing Board, Interfaith Center on Corporate Responsibility; Former Trustee, National Association Community Loan Funds; Former Board Member of National Community Capital Association (1987-1990). Her date of birth is January 15, 1950. JULIA ELIZABETH HARRIS -- 54 Burroughs Street, Jamaica Plain, Massachusetts 02130. Trustee, Domini Institutional Trust; Vice President, UNC Partners, Inc. (since April 1990); Director and Treasurer, Boom Times, Inc. (1997 - 1999); Director and Chair of Board of Directors, The Green Book, Inc. (1991 - 1996);. Her date of birth is July 11, 1948. -24- KIRSTEN S. MOY -- 151 North Michigan Avenue, Suite 1209, Chicago, Illinois 60601. Trustee, Domini Institutional Trust; Consultant, Project Director and Principal Researcher, Community Development Innovation and Infrastructure Initiative (since December 1998); CDFI Rating System Advisory Board Member, National Community Capital Association (since 1999); Member, Community Economic Development Board of Overseers, New Hampshire College (since November 1998); Advisory Group Member, Shorebank Liquidity Project (since 1999); Consultant, Equitable Life Assurance Society (since December 1998); Board Member, Free Associates Theatre Company (since August 1999); Consultant, Social Investment Forum, Community Development Project (June 1998-December 1998); Director, Community Development Financial Institutions Fund, U.S. Department of the Treasury (October 1995 - October 1997); Senior Vice President and Portfolio Manager, Equitable Real Estate Investment Management (prior to October 1995). Her date of birth is June 30, 1947. WILLIAM C. OSBORN -- 115 Buckminster Road, Brookline, Massachusetts 02445. Trustee, Domini Institutional Trust; Manager, Commons Capital Management LLC; Consultant, Arete Corporation (prior to 1999); Manager, Venture Investment Management Company LLC (prior to 1999); Vice President and General Manager, TravElectric Services Corp (prior to 1995); President, Environmental Technologies (prior to 1993); Director, Evergreen Solar, Inc; Director, Conservation Services Group; Director, Fingerlakes Aquaculture LLC; Director, Surgical Sealants, Inc; Director, World Power Technologies, Inc. His date of birth is July 7, 1944. KAREN PAUL -- 4050 Park Avenue, Miami, Florida 33133. Trustee, Domini Institutional Trust; Professor of Management and International Business, Florida International University (since 1991); Partner, Trinity Industrial Technology (since 1997); Executive Director, Center for Management in the Americas (since 1997). Her date of birth is September 23, 1944. GREGORY A. RATLIFF -- 1712 Carmen Avenue, Chicago, Illinois 60640. Trustee, Domini Institutional Trust; Director, Access to Economic Opportunity, John D. and Catherine T. MacArthur Foundation (since 1997); Associate Director, Program-Related Investments, John D. and Catherine T. MacArthur Foundation (1993-1997). His date of birth is June 12, 1960. FREDERICK C. WILLIAMSON, SR. -- Five Roger Williams Green, Providence, Rhode Island 02904. Trustee, Domini Institutional Trust; Treasurer and Trustee, RIGHA (charitable foundation supporting health care needs) since 1990; Chairman, Rhode Island Historical Preservation and Heritage Commission (since 1995); Trustee, National Parks and Conservation Association (1986-1997); Advisor, National Parks and Conservation Association (since 1997); President's Advisory Board - Salve Regina University, Newport, RI (since 1999). His date of birth is September 20, 1915. Each of the Trustees who are not interested persons receives an annual retainer for serving as a Trustee of the Trust, the Portfolio and the Domini Institutional Trust of $6,000, and in addition, receives $1,000 for attendance at each joint meeting of the Boards of the Trust, the Portfolio and the Domini Institutional Trust (reduced to $500 in the event that a Trustee participates at an in-person meeting by telephone). In addition, each Trustee receives reimbursement for reasonable expenses incurred in attending meetings. The compensation paid to the Trustees for the fiscal year ended July 31, 2000 is set forth below. The Trustees may hold various other directorships unrelated to the Trust or Portfolio. -25-
Pension or Total Retirement Compensation Benefits from the Trust, Accrued as Estimated Portfolio and Aggregate Part of Annual Benefits Domini Compensation Fund Upon Institutional from the Trust Expenses Retirement Trust Amy L. Domini, None None None None Chair, President and Trustee Julia Elizabeth $4330 None None $9,500 Harris, Trustee Kirsten S. Moy, $4330 None None $9,500 Trustee William C. Osborn, $4330 None None $9,500 Trustee Karen Paul, $4330 None None $9,500 Trustee Gregory A. Ratliff, $4135 None None $9,000 Trustee Timothy Smith, $4330 None None $9,500 Trustee * Frederick C. $4,330 None None $9,500 Williamson, Sr., Trustee
- ------------------------ * Mr. Smith resigned as a Trustee of Trust after July 31, 2000. OFFICERS STEVEN D. LYDENBERG* -- Vice President of the Trust and the Portfolio; Director of Research of Kinder, Lydenberg, Domini & Co., Inc.; Member, Domini Social Investments LLC (since 1997). His date of birth is October 21, 1945. DAVID P. WIEDER* -- Vice President of the Trust and the Portfolio (since 1997); Chief Executive Officer and Managing Principal, Domini Social Investments LLC (since 1997); President of FSSI (since 1989); Vice-President of investment companies within Fundamental Family of Funds (1989-1997); Vice-President of Fundamental Portfolio Advisors (1991-1997). His date of birth is January 8, 1966. -26- SIGWARD M. MOSER* -- Vice President of the Trust and the Portfolio (since 1997); President and Managing Principal, Domini Social Investments LLC (since 1997); President of Communications House International, Inc.; Director of Financial Communications Society. His date of birth is June 12, 1962. CAROLE M. LAIBLE* -- Secretary and Treasurer of the Trust and the Portfolio (since 1997); Financial Compliance Officer of Domini Social Investments LLC (since 1997); Board of Governors, Daytop - NJ (since 1998); Financial Compliance Officer, FSSI (1994-1997); Financial Compliance Officer and Secretary of investment companies within Fundamental Family of Funds (1994-1997); General Service Manager, McGladrey & Pullen LLP (certified public accountants) (prior to 1994). Her date of birth is October 31, 1963. As of October 31, 2000, all Trustees and officers of the Trust and the Portfolio as a group owned less than 1% of any Fund's outstanding shares. As of the same date, the following shareholders of record owned 5% or more of the outstanding shares of the Domini Social Equity Fund: Charles Schwab & Co., 101 Montgomery Street, San Francisco, CA (6,106,707.841 shares, 16.35%), Manulife Financial, 250 Bloor Street East, Toronto, Ontario, Canada M4W 1E5 (4,039,235.890 shares, 10.81%), and Fidelity Investments, Inst Operations as Agent for Certain Emp Benefit Plans, 100 Magellan Way No, Covington, KY 41015-1987 (2,319,535.469 shares, 6.21%). The Domini Social Equity Fund has no knowledge of any other owners of record or beneficial owners of 5% or more of the outstanding shares of that Fund. Shareholders owning 25% or more of the outstanding shares of the Domini Social Equity Fund may take actions without the approval of any other investor in that Fund. As of October 31, 2000, the following shareholders of record owned 5% or more of the outstanding shares of the> Domini Social Bond Fund: Charles Schwab & Co., special Custody Account For the Benefit of Customers, 101 Montgomery Street, San Francisco, CA 94104 (61,657.336 shares, 10.21%), and Caisse Centrale Des Banques Populaires Bourse Etrangere, 10 Rue Des Roquemonts Zac, BP 5062 14022 CAEN, Cedex, France (39,272.267 shares, 6.5%). The Trustees who are not "interested persons" (the "Disinterested Trustees") of the Trust as defined by the 1940 Act are the same as the Disinterested Trustees of the Portfolio. Any conflict of interest between the Domini Social Equity Fund and the Portfolio will be resolved by the Trustees in accordance with their fiduciary obligations and in accordance with the 1940 Act. The Trust's Declaration of Trust provides that it will indemnify its Trustees and officers (the "Indemnified Parties") against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, unless, as to liability to the Trust or its shareholders, it is finally adjudicated that the Indemnified Parties engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices, or unless with respect to any other matter it is finally adjudicated that the Indemnified Parties did not act in good faith in the reasonable belief that their actions were in the best interests of the Trust. In case of settlement, such indemnification will not be provided unless it has been determined by a court or other body approving the settlement or other disposition, or by a reasonable determination, based upon a review of readily available facts, by vote of a majority of disinterested Trustees or in a written opinion of independent counsel, that such Indemnified Parties have not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of their duties. -27- MANAGER AND SUBMANAGERS DSIL provides advice to the Portfolio and the Domini Social Bond Fund pursuant to separate Management Agreements (the "Management Agreements"). The services provided by DSIL consist of furnishing continuously an investment program for the Portfolio and the Domini Social Bond Fund. DSIL will have authority to determine from time to time what securities are purchased, sold or exchanged, and what portion of assets of the Portfolio and the Domini Social Bond Fund is held uninvested. With respect to the Portfolio, DSIL will also perform such administrative and management tasks as may from time to time be reasonably requested, including: (i) maintaining office facilities and furnishing clerical services necessary for maintaining the organization of the Portfolio and for performing administrative and management functions; (ii) supervising the overall administration of the Portfolio, including negotiation of contracts and fees with and monitoring of performance and billings of the Portfolio's transfer agent, shareholder servicing agents, custodian and other independent contractors or agents; (iii) overseeing (with the advice of Portfolio's counsel) the preparation of and, if applicable, filing all documents required for compliance by the Portfolio with applicable laws and regulations, including registration statements, prospectuses and statements of additional information, semi-annual and annual reports to shareholders, proxy statements and tax returns; (iv) preparing agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders; and (v) arranging for maintenance of the books and records of the Portfolio. DSIL furnishes at its own expense all facilities and personnel necessary in connection with providing these services. The Management Agreement for the Portfolio will continue in effect if such continuance is specifically approved at least annually by the Portfolio's Board of Trustees or by a majority of the outstanding voting securities of the Portfolio at a meeting called for the purpose of voting on the Management Agreement (with the vote of each investor in the Portfolio being in proportion to the amount of its investment), and, in either case, by a majority of the Portfolio's Trustees who are not parties to the Management Agreement or interested persons of any such party at a meeting called for the purpose of voting on the Management Agreement. The Management Agreement for the Domini Social Bond Fund will continue in effect for an initial two-year period and thereafter if such continuance is specifically approved at least annually by the Domini Social Bond Fund's Board of Trustees or by a majority of the outstanding voting securities of the Domini Social Bond Fund at a meeting called for the purpose of voting on the Management Agreement, and, in either case, by a majority of the Domini Social Bond Fund's Trustees who are not parties to the Management Agreement or interested persons of any such party at a meeting called for the purpose of voting on the Management Agreement. Each Management Agreement provides that DSIL may render services to others. DSIL may employ, at its own expense, or may request that the Portfolio or the Domini Social Bond Fund employ (subject to the requirements of the 1940 Act) one or more subadvisers or submanagers, subject to DSIL's supervision. Each Management Agreement is terminable without penalty on not more than 60 days' nor less than 30 days' written notice by the Portfolio or the Domini Social Bond Fund, as the case may be, when authorized either by majority vote of the outstanding voting securities in the Portfolio (with the vote of each investor in the Portfolio being in proportion to the amount of its investment) or the Domini Social Bond Fund, as applicable, or by a vote of a majority of the appropriate Board of Trustees, or by DSIL, and will automatically terminate in the event of its assignment. Each Management Agreement provides that neither DSIL nor its personnel shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in its services to the Portfolio or the Domini Social Bond Fund, as the case may be, except for willful misfeasance, bad faith or gross negligence or reckless disregard of its or their obligations and duties under the Management Agreement. Under the Management Agreement between the Portfolio and DSIL, DSIL's fee for advisory and administrative services to the Portfolio is 0.20% of the average daily net assets of -28- the Portfolio. Under the Management Agreement between the Trust, with respect to the Domini Social Bond Fund, and DSIL, DSIL's fee for advisory services to the Domini Social Bond Fund is 0.40% of the average daily net assets of that Fund. DSIL is a Massachusetts limited liability company with offices at 536 Broadway, 7th Floor, New York, NY 10012, and is registered as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"). The names of the principal owners of DSIL and their relationship to the Trust follows: Amy L. Domini, Chair of the Board and President of the Trust, is the Manager and principal executive officer and a co-owner of DSIL. Sigward M. Moser, Vice President of the Trust, is a co-owner of DSIL. David P. Wieder, Vice President of the Trust is a co-owner of DSIL. Mr. Wieder is also President and an owner of FSSI, which served as the Domini Social Equity Fund's transfer agent until September 24, 1999. Mellon Equity manages the assets of the Portfolio pursuant to an Investment Submanagement Agreement (the "Portfolio Submanagement Agreement"). The Portfolio Submanager furnishes at its own expense all services, facilities and personnel necessary in connection with managing the Portfolio's investments and effecting securities transactions for the Portfolio. The Portfolio Submanagement Agreement will continue in effect if such continuance is specifically approved at least annually by the Portfolio's Board of Trustees or by a majority vote of the outstanding voting securities in the Portfolio at a meeting called for the purpose of voting on the Portfolio Submanagement Agreement (with the vote of each being in proportion to the amount of its investment), and, in either case, by a majority of the Portfolio's Trustees who are not parties to the Portfolio Submanagement Agreement or interested persons of any such party at a meeting called for the purpose of voting on the Portfolio Submanagement Agreement. Effective January 1, 1998, Mellon Equity Associates was reorganized as a Pennsylvania limited liability partnership. Pursuant to an Agreement and Plan of Merger dated December 29, 1997, (the "Merger Agreement"), Mellon Equity Associates was merged into Mellon Equity Associates, LLP, a newly-formed Pennsylvania limited liability partnership, with Mellon Equity Associates, LLP being the surviving entity. Mellon Bank, N.A. ("Mellon Bank") is the 99% limited partner and MMIP, Inc. is the 1% general partner of Mellon Equity Associates, LLP. In accordance with the provisions of the Merger Agreement, all property, rights, privileges, franchises, patents, trademarks, licenses, registrations, and other assets and interests of Mellon Equity Associates vested in Mellon Equity Associates, LLP. By operation of law, the obligations and liabilities of Mellon Equity Associates were assumed by Mellon Equity Associates, LLP. Mellon Equity is a professional investment counseling firm that provides investment management services to the equity and balanced pension, public fund, and profit-sharing investment management markets, and is a registered investment adviser under the Advisers Act. Mellon Bank's predecessor organization managed domestic equity, tax-exempt and institutional pension accounts since 1947. The address of Mellon Equity and each of the principal executive officers and directors of Mellon Equity is 500 Grant Street, Suite 4200, Pittsburgh, Pennsylvania 15258. South Shore manages the assets of the Domini Social Bond Fund pursuant to an Investment Submanagement Agreement (the "Bond Fund Submanagement Agreement"). The Bond Fund Submanager furnishes at its own expense all services, facilities and personnel necessary in connection with managing the Domini Social Bond Fund's investments and effecting securities transactions for the Domini Social Bond Fund. The Bond Fund Submanagement Agreement will continue in effect if such continuance is specifically approved at least annually by the Domini Social Bond Fund's Board of Trustees or by a majority vote of the outstanding voting securities of that Fund at a meeting called for the purpose of voting on -29- the Bond Fund Submanagement Agreement, and, in either case, by a majority of the Domini Social Bond Fund's Trustees who are not parties to the Bond Fund Submanagement Agreement or interested persons of any such party at a meeting called for the purpose of voting on the Bond Fund Submanagement Agreement. Effective January 1, 1939, South Shore Bank was organized as an Illinois Banking Corporation. The address of South Shore Bank is 7054 S. Jeffery Blvd., Chicago, IL 60649. Each Submanagement Agreement provides that the applicable submanager may render services to others. Each Submanagement Agreement is terminable without penalty upon not more than 60 days' nor less than 30 days' written notice by the Portfolio or Domini Social Bond Fund, as the case may be, when authorized either by majority vote of the outstanding voting securities in the Portfolio (with the vote of each being in proportion to the amount of their investment) or of the Domini Social Bond Fund, as applicable, or by a vote of the majority of the appropriate Board of Trustees, or by DSIL with the consent of the Trustees and may be terminated by the applicable submanager on not less than 90 days' written notice to DSIL and the Trustees, and will automatically terminate in the event of its assignment. Each Submanagement Agreement provides that the applicable submanager shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in its services to the Portfolio or the Domini Social Bond Fund, as the case may be, except for willful misfeasance, bad faith or gross negligence or reckless disregard for its or their obligations and duties under the Submanagement Agreement. Under the Portfolio Submanagement Agreement, DSIL pays Mellon Equity an investment submanagement fee equal on an annual basis to 0.07% of the average daily net assets of the Portfolio. Under the Bond Fund Submanagement Agreement, DSIL pays South Shore an investment submanagement fee equal on an annual basis to 0.20% of the average daily net assets of the Domini Social Bond Fund. Prior to October 22, 1997, pursuant to an investment advisory agreement (the "KLD Advisory Agreement"), KLD served as investment adviser to the Portfolio and furnished continuously an investment program by determining the stocks to be included in the Domini Social Index. Additionally, prior to October 22, 1997, pursuant to a management agreement (the "Mellon Equity Management Agreement"), Mellon Equity served as investment manager and managed the assets of the Portfolio on a daily basis. Prior to October 22, 1997 and until November 15, 1999, Mellon Equity was paid investment management fees equal on an annual basis to 0.10% of the average daily net assets of the Portfolio. Prior to October 22, 1997, pursuant to a sponsorship agreement (the "KLD Sponsorship Agreement"), KLD furnished administrative services for the Portfolio. Prior to October 22, 1997, pursuant to an administrative services agreement (the "Signature Administration Agreement"), Signature Broker-Dealer Services, Inc. served as the administrator of the Portfolio. Prior to October 22, 1997, the aggregate investment management and administration fees under the prior agreements with respect to the Portfolio were equal to 0.15% of the Portfolio's average daily net assets for its then current fiscal year. For the fiscal years ended July 31, 2000 and 1999, the Portfolio incurred approximately $3,257,616 and $1,791,617, respectively, in management fees pursuant to its Management Agreement. For the fiscal year ended July 31, 1998, the Portfolio incurred approximately $701,774 in management fees pursuant to its Management Agreement, $17,385 in advisory fees pursuant to the KLD Advisory Agreement, $17,385 in aggregate administration fees pursuant to the Signature Administration Agreement and $86,354 in management fees pursuant to the Mellon Equity Management Agreement. For the fiscal year ended July 31, 1997, the Portfolio incurred $46,528 in advisory fees pursuant to the KLD Advisory Agreement, -30- $46,528 in administration fees pursuant to the KLD Sponsorship Agreement, $156,868 in aggregate administration fees pursuant to the Signature Administration Agreement, and $182,885 in management fees pursuant to the Mellon Equity Management Agreement. For the period from June 1, 2000 (commencement of operations) through July 31, 2000, the Domini Social Bond Fund did not pay any management fees. DSIL waived all management fees payable under its Management Agreement. SPONSOR Pursuant to a Sponsorship Agreement with respect to the Domini Social Equity Fund and Administration Agreement with respect to the Domini Social Bond Fund, DSIL provides the Domini Social Equity Fund and the Domini Social Bond Fund with oversight, administrative and management services. DSIL provides each Fund with general office facilities and supervises the overall administration of each Fund, including, among other responsibilities, the negotiation of contracts and fees with, and the monitoring of performance and billings of, the independent contractors and agents of each Fund; the preparation and filing of all documents required for compliance by each Fund with applicable laws and regulations, including registration statements, prospectuses and statements of additional information, semi-annual and annual reports to shareholders, proxy statements and tax returns; preparing agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders; maintaining telephone coverage to respond to shareholder inquiries; answering questions from the general public, the media and investors in each Fund regarding the securities holdings of the Portfolio and the Domini Social Bond Fund, as applicable, limits on investment and the Funds' proxy voting philosophy and shareholder activism philosophy; and arranging for the maintenance of books and records of each Fund. The Sponsor provides persons satisfactory to the Board of Trustees of the Funds to serve as officers of the Funds. Such officers, as well as certain other employees and Trustees of the Funds, may be directors, officers or employees of the Sponsor or its affiliates. Under the Sponsorship Agreement between DSIL and the Trust on behalf of the Domini Social Equity Fund, DSIL's fee for administrative and sponsorship services with respect to the Domini Social Equity Fund is 0.50% of the average daily net assets of that Fund. Under the Administration Agreement between DSIL and the Trust on behalf of the Domini Social Bond Fund, DSIL's fee for administrative services with respect to the Domini Social Bond Fund is 0.25% of the average daily net assets of that Fund. Currently, DSIL is reducing its fee to the extent necessary to keep the aggregate annual operating expenses of the Domini Social Equity Fund (including the Domini Social Equity Fund's share of the Portfolio's expenses but excluding brokerage fees and commissions, interest, taxes and other extraordinary expenses) at no greater than 0.95% of the average daily net assets of the Domini Social Equity Fund. For the fiscal years ended July 31, 2000, July 31, 1999 and July 31, 1998, the Domini Social Equity Fund incurred $6,578,565, $3,820,667 and $1,419,618 in sponsorship fees, respectively. Currently, DSIL is reducing its fee to the extent necessary to keep the aggregate annual expenses of the Domini Social Bond Fund (excluding brokerage fees and commissions, interest, taxes and other extraordinary expenses) at no greater than 0.95% of the average daily net assets of the Domini Social Bond Fund. For the period from June 1, 2000 (commencement of operations) through July 31, 2000, DSIL waived payment of its fee for administrative services provided to the Domini Social Bond Fund. Prior to October 22, 1997, Signature Broker-Dealer Services, Inc. served as administrator of the Domini Social Equity Fund. For the fiscal year ended July 31, 1997, the Domini Social Equity Fund incurred $156,868 in administrative fees. -31- The Sponsorship Agreement with respect to the Funds provides that DSIL may render administrative services to others. The Sponsorship Agreement also provides that neither the Sponsor nor its personnel shall be liable for any error of judgment or mistake of law or for any act or omission in the administration or management of either Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the Sponsorship Agreement. DISTRIBUTOR Each Fund has adopted a Distribution Plan which provides that each Fund may pay the Distributor a fee not to exceed 0.25% per annum of that Fund's average daily net assets in anticipation of, or as reimbursement or compensation for, expenses incurred in connection with the sale of shares of the Fund, such as payments to broker-dealers who advise shareholders regarding the purchase, sale or retention of shares of the Fund, payments to employees of the Distributor, advertising expenses and the expenses of printing and distributing prospectuses and reports used for sales purposes, expenses of preparing and printing sales literature and other distribution-related expenses. For the fiscal years ended July 31, 1997, 1998, 1999 and 2000 the Domini Social Equity Fund accrued $153,295, $580,272, $1,327,042 and $2,874,845 respectively, in distribution fees. For the fiscal year ended July 31, 2000, payments made by the Domini Social Equity Fund pursuant to the Distribution Plan were used for advertising ($1,034,944), printing and mailing of prospectuses to other than current shareholders ($57,497), compensation to dealers ($891,202) and communications and servicing [($_________)]. For the fiscal year ended July 31, 2000 the Domini Social Bond Fund accrued $1,400 in distribution fees. The Distribution Plan will continue in effect indefinitely as to a Fund if such continuance is specifically approved at least annually by a vote of both a majority of that Fund's Trustees and a majority of that Fund's Trustees who are not "interested persons of the Fund" and who have no direct or indirect financial interest in the operation of the Distribution Plan or in any agreement related to such Plan ("Qualified Trustees"). The Distributor will provide to the Trustees of each Fund a quarterly written report of amounts expended by that Fund under the Distribution Plan and the purposes for which such expenditures were made. The Distribution Plan further provides that the selection and nomination of each Fund's Qualified Trustees shall be committed to the discretion of the disinterested Trustees of that Fund. The Distribution Plan may be terminated as to a Fund at any time by a vote of a majority of that Fund's Qualified Trustees or by a vote of the shareholders of that Fund. The Distribution Plan may not be materially amended with respect to a Fund without a vote of the majority of both that Fund's Trustees and Qualified Trustees. The Distributor will preserve copies of any plan, agreement or report made pursuant to the Distribution Plan for a period of not less than six (6) years from the date of the Distribution Plan, and for the first two (2) years the Distributor will preserve such copies in an easily accessible place. Each Fund has entered into a Distribution Agreement with the Distributor. Under the Distribution Agreement, the Distributor acts as the agent of each Fund in connection with the offering of shares of that Fund and is obligated to use its best efforts to find purchasers for shares of the Fund. The Distributor acts as the principal underwriter of shares of each Fund and bears the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead) and equipment. Prior to August 15, 1999, Signature Broker-Dealer Services, Inc. served as the distributor of the Domini Social Equity Fund. TRANSFER AGENT, CUSTODIAN AND SERVICE ORGANIZATIONS Each Fund has entered into a Transfer Agency Agreement with PFPC Inc. (formerly known as First Data Investor Services Group, Inc.), 4400 Computer Drive, -32- Westborough, MA 01581, pursuant to which PFPC acts as the transfer agent for each Fund. The Transfer Agent maintains an account for each shareholder of the Funds, performs other transfer agency functions, and acts as dividend disbursing agent for the Funds. Each Fund has entered into a Custodian Agreement with Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston, MA 02116, pursuant to which IBT acts as custodian for each Fund. The Portfolio has entered into a Transfer Agency Agreement with IBT pursuant to which IBT acts as transfer agent for the Portfolio. The Portfolio also has entered into a Custodian Agreement with IBT pursuant to which IBT acts as custodian for the Portfolio. The Custodian's responsibilities include safeguarding and controlling the Portfolio's and the Domini Social Bond Fund's cash and securities, handling the receipt and delivery of securities, determining income and collecting interest on the Portfolio's and Domini Social Bond Fund's investments, maintaining books of original entry for portfolio and fund accounting and other required books and accounts, and calculating the daily net asset value of the Portfolio and the daily net asset value of shares of each Fund. Securities held by the Portfolio and the Domini Social Bond Fund may be deposited into certain securities depositaries. The Custodian does not determine the investment policies of the Portfolio or the Domini Social Bond Fund or decide which securities the Portfolio or the Domini Social Bond Fund will buy or sell. The Portfolio and the Domini Social Bond Fund may, however, invest in securities of the Custodian and may deal with the Custodian as principal in securities transactions. Each Fund may from time to time enter into agreements with various banks, trust companies (other than Mellon Equity), broker-dealers (other than the Distributor) or other financial organizations (collectively, "Service Organizations") to provide services for that Fund, such as maintaining shareholder accounts and records. Each Fund may pay fees to Service Organizations (which may vary depending upon the services provided) in amounts up to an annual rate of 0.25% of the daily net asset value of the shares of that Fund owned by shareholders with whom the Service Organization has a servicing relationship. In addition each Fund may reimburse Service Organizations for their costs related to servicing shareholder accounts. For the fiscal years ended July 31, 1997, 1998, 1999 and 2000 the Domini Social Equity Fund accrued $3,711, $0, $940 and $97,733, respectively, in service organization fees. The Domini Social Bond Fund is newly-created and has not accrued service organization fees as of the date of this Statement of Additional Information. EXPENSES The Funds and the Portfolio each are responsible for all of their respective expenses, including the compensation of their respective Trustees who are not interested persons of a Fund or the Portfolio; governmental fees; interest charges; taxes; membership dues in the Investment Company Institute allocable to a Fund or the Portfolio; fees and expenses of independent auditors, of legal counsel and of any transfer agent, custodian, registrar or dividend disbursing agent of a Fund or the Portfolio; insurance premiums; and expenses of calculating the net asset value of the Portfolio and of shares of the Funds. The Domini Social Equity Fund and the Domini Social Bond Fund each will also pay sponsorship fees payable to the Sponsor, and all expenses of distributing and redeeming shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, reports, notices, proxy statements and reports to shareholders and to governmental offices and commissions; expenses of shareholder meetings; and expenses relating to the issuance, registration and qualification of shares of the Funds and the preparation, printing and mailing of prospectuses for such purposes. The Portfolio and the Domini Social Bond Fund each will pay the expenses connected with the execution, recording and settlement of security transactions and the investment management fees payable to DSIL. The Portfolio and the Domini Social Bond Fund each also -33- will pay the fees and expenses of its custodian for all services to the Portfolio and the Domini Social Bond Fund, as applicable, including safekeeping of funds and securities and maintaining required books and accounts; expenses of preparing and mailing reports to investors and to governmental offices and commissions; and expenses of meetings of investors. CODES OF ETHICS The Portfolio, the Funds and DSIL have each adopted a Code of Ethics (collectively, the "Codes of Ethics") under Rule 17j-1 of the 1940 Act. The Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Portfolio or the Funds. The Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The Codes of Ethics are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of the Codes of Ethics may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. 6. INDEPENDENT AUDITORS KPMG LLP, 99 High Street, Boston, MA 02110, are the independent auditors for the Funds and for the Portfolio, providing audit services, tax return preparation, and assistance and consultation with respect to the preparation of filings with the SEC. 7. TAXATION TAXATION OF THE FUNDS AND THE PORTFOLIO FEDERAL TAXES: Each of our Funds is treated as a separate entity for federal tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). Further, each Fund has elected to be treated and intends to qualify as a "regulated investment company" under Subchapter M of the Code. We plan to continue this election in the future for all of the Funds. As a regulated investment company, a Fund will not be subject to any federal income or excise taxes on its net investment income and net realized capital gains that it distributes to shareholders in accordance with the timing requirements imposed by the Code. If a Fund should fail to qualify as a "regulated investment company" in any year, that Fund would incur a regular corporate federal income tax upon its taxable income and Fund distributions would generally be taxable as ordinary dividend income to shareholders. We anticipate that the Portfolio will be treated as a partnership for federal income tax purposes. As such, the Portfolio is not subject to federal income taxation. Instead, the Domini Social Equity Fund must take into account, in computing its federal income tax liability, its share of the Portfolio's income, gains, losses, deductions, credits and other items, without regard to whether it has received any distributions from the Portfolio. FOREIGN TAXES: Although neither Fund expects to pay any federal income or excise taxes, investment income received by a Fund from foreign securities may be subject to foreign income taxes withheld at the source; we do not expect to be able to pass through to shareholders foreign tax credits with respect to such foreign taxes. The United States has entered into tax treaties with many foreign countries that may entitle the Funds to a reduced rate of tax or an exemption from tax on such income; each Fund intends to qualify for treaty reduced rates where available. It is not possible, however, to determine a Fund's effective rate of foreign tax in advance since the amount of a Fund's assets to be invested within various countries is not known. -34- STATE TAXES: Each Fund is organized as a series of the Trust, a Massachusetts business trust. As long as it qualifies as a "regulated investment company" under the Code, a Fund will not have to pay Massachusetts income or excise taxes. The Portfolio is organized as a New York trust. The Portfolio is not subject to any income or franchise tax in the State of New York. TAXATION OF SHAREHOLDERS TAXATION OF DISTRIBUTIONS: Shareholders of each Fund normally will have to pay federal income taxes, and any state or local taxes, on the dividends and other distributions they receive from a Fund. Dividends from ordinary income and any distributions from net short-term capital gains are taxable to shareholders as ordinary income for federal income tax purposes, whether the distributions are paid in cash or reinvested in additional shares. Distributions of net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses), whether paid in cash or reinvested in additional shares, are taxable to shareholders as long-term capital gains for federal income tax purposes without regard to the length of time the shareholders have held their shares. Any Fund dividend that is declared in October, November, or December of any calendar year, that is payable to shareholders of record in such a month, and that is paid the following January will be treated as if received by the shareholders on December 31 of the year in which the divided is declared. DIVIDENDS-RECEIVED DEDUCTION: A portion of Domini Social Equity Fund's ordinary income dividends (but none of that Fund's capital gains) is normally eligible for the dividends received deduction for corporations if the recipient otherwise qualifies for that deduction with respect to its holding of Fund shares. Availability of the deduction for a particular corporate shareholder is subject to certain limitations, and deducted amounts may be subject to the alternative minimum tax and result in certain basis adjustments. Since the investment income of the Domini Social Bond Fund is derived from interest rather than dividends, no portion of the dividends received from this Fund will be eligible for the dividends received deduction. Moreover, the portion of any Fund's dividends that is derived from investments in foreign corporations will not qualify for such deduction. "BUYING A DIVIDEND": Any Fund distribution will have the effect of reducing the per share net asset value of shares in that Fund by the amount of the distribution. Shareholders purchasing shares shortly before the record date of any distribution may thus pay the full price for the shares and then effectively receive a portion of the purchase price back as a taxable distribution. DISPOSITION OF SHARES: In general, any gain or loss realized upon a taxable disposition of shares of a Fund by a shareholder that holds such shares as a capital asset will be treated as long-term capital gain or loss if the shares have been held for more than twelve months and otherwise as a short-term capital gain or loss. However, any loss realized upon a disposition of shares in a Fund held for six months or less will be treated as a long-term capital loss to the extent of any distributions of net capital gain made with respect to those shares. Any loss realized upon a disposition of shares may also be disallowed under rules relating to wash sales. EFFECTS OF CERTAIN INVESTMENTS AND TRANSACTIONS CERTAIN DEBT INSTRUMENTS. An investment by Domini Social Bond Fund in zero coupon bonds, deferred interest bonds, payment-in-kind bonds, certain stripped securities and certain securities purchased at a market discount will cause the Fund to recognize income prior to the receipt of cash payments with respect to those securities. In order to distribute this income and avoid a tax on the Fund, the Fund may be required to liquidate portfolio -35- securities that it might otherwise have continued to hold, potentially resulting in additional taxable gain or loss to the Fund. OPTIONS, ETC. A Fund's transactions in options, futures and forward contracts will be subject to special tax rules that may affect the amount, timing and character of Fund income and distributions to shareholders. For example, certain positions held by a Fund on the last business day of each taxable year will be marked to market (e.g., treated as if closed out) on that day, and any gain or loss associated with the positions will be treated as 60% long-term and 40% short-term capital gain or loss. Certain positions held by a Fund that substantially diminish its risk of loss with respect to other positions in its portfolio may constitute "straddles", and may be subject to special tax rules that would cause deferral of fund losses, adjustments in the holding periods of fund securities, and conversion of short-term into long-term capital losses. Certain tax elections exist for straddles that may alter the effects of these rules. Each Fund intends to limit its activities in options, futures and forward contracts to the extent necessary to meet the requirements of the Code. FOREIGN SECURITIES: Special tax considerations apply with respect to foreign investments of each Fund. Foreign exchange gains and losses realized by a Fund will generally be treated as ordinary income and losses. Use of non-U.S. currencies for non-hedging purposes may have to be limited in order to avoid a tax on a Fund. The foregoing is limited to a discussion of federal taxation. It should not be viewed as a comprehensive discussion of the items referred to nor as covering all provisions relevant to investors. Dividends and distributions may also be subject to state or local taxes. Shareholders should consult their own tax advisers for additional details on their particular tax status. 8. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS Specific decisions to purchase or sell securities for the Portfolio and the Domini Social Bond Fund are made by portfolio managers who are employees of the applicable submanager and who are appointed and supervised by its senior officers. Changes in the Portfolio's or the Domini Social Bond Fund's investments are reviewed by the appropriate Board of Trustees. The portfolio managers of the Portfolio and the Domini Social Bond Fund may serve other clients of a submanager in a similar capacity. The Portfolio's and Domini Social Bond Fund's primary consideration in placing securities transactions with broker-dealers for execution is to obtain and maintain the availability of execution at the most favorable prices and in the most effective manner possible. The applicable submanager attempts to achieve this result by selecting broker-dealers to execute transactions on behalf of the Portfolio or the Domini Social Bond Fund and other clients of that submanager on the basis of their professional capability, the value and quality of their brokerage services, and the level of their brokerage commissions. In the case of securities traded in the over-the-counter market (where no stated commissions are paid but the prices include a dealer's markup or markdown), a submanager normally seeks to deal directly with the primary market makers, unless in its opinion, best execution is available elsewhere. In the case of securities purchased from underwriters, the cost of such securities generally includes a fixed underwriting commission or concession. Consistent with the foregoing primary consideration, the Conduct Rules of the National Association of Securities Dealers, Inc. and such other policies as the Trustees of the Portfolio or the Domini Social Bond Fund may determine, the applicable submanager may consider sales of shares of the Domini Social Equity Fund and of securities of other investors in the Portfolio or shares of the Domini Social Bond Fund as a factor in the selection of broker-dealers to execute the Portfolio's or the Domini Social Bond Fund's securities transactions. None of the Portfolio, Domini Social Bond Fund or Domini Social Equity Fund will engage in brokerage transactions with DSIL, Mellon Equity, or -36- South Shore or any of their respective affiliates or any affiliate of a Fund or the Portfolio. Most of the Domini Social Bond Fund's transactions will be on a principal basis. Under the Portfolio and Bond Fund Submanagement Agreements and as permitted by Section 28(e) of the Securities Exchange Act of 1934, a submanager may cause the Portfolio or the Domini Social Bond Fund, as applicable, to pay a broker-dealer acting on an agency basis which provides brokerage and research services to the submanager or DSIL an amount of commission for effecting a securities transaction for the Portfolio or the Domini Social Bond Fund in excess of the amount other broker-dealers would have charged for the transaction if the submanager determines in good faith that the greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of either a particular transaction or the submanager's or DSIL's overall responsibilities to the Portfolio or the Domini Social Bond Fund, as the case may be, or to its other clients. Not all of such services are useful or of value in advising the Portfolio or the Domini Social Bond Fund. The term "brokerage and research services" includes advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or of purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; and effecting securities transactions and performing functions incidental thereto such as clearance and settlement. However, because of the Portfolio's policy of investing in accordance with the Domini Social Index, Mellon Equity and DSIL currently intend to make only a limited use of such brokerage and research services with respect to the Portfolio. Although commissions paid on every transaction will, in the judgment of the submanagers, be reasonable in relation to the value of the brokerage services provided, commissions exceeding those which another broker might charge may be paid to broker-dealers who were selected to execute transactions on behalf of the Portfolio or the Domini Social Bond Fund and a submanager's or DSIL's other clients, in part for providing advice as to the availability of securities or of purchasers or sellers of securities and services in effecting securities transactions and performing functions incidental thereto such as clearance and settlement. Certain broker-dealers may be willing to furnish statistical, research and other factual information or services to a submanager or DSIL for no consideration other than brokerage or underwriting commissions. The submanagers and DSIL attempt to evaluate the quality of research provided by brokers. The submanagers and DSIL sometimes use evaluations resulting from this effort as a consideration in the selection of brokers to execute portfolio transactions. However, neither the submanagers nor DSIL are able to quantify the amount of commissions which are paid as a result of such research because a substantial number of transactions are effected through brokers which provide research but which are selected principally because of their execution capabilities. The fees that the Portfolio and the Domini Social Bond Fund pay to their respective submanager and DSIL will not be reduced as a consequence of the Portfolio's or the Domini Social Bond Fund's receipt of brokerage and research services. To the extent the Portfolio's or the Domini Social Bond Fund's securities transactions are used to obtain brokerage and research services, the brokerage commissions paid by the Portfolio or the Domini Social Bond Fund will exceed those that might otherwise be paid for such portfolio transactions and research, by an amount which cannot be presently determined. Such services may be useful and of value to a submanager or DSIL in serving the Portfolio or the Domini Social Bond Fund, as the case may be, and other clients and, conversely, such services obtained by the placement of brokerage business of other clients may be useful to a submanager or DSIL in carrying out -37- its obligations to the Portfolio or the Domini Social Bond Fund. While such services are not expected to reduce the expenses of the submanagers or DSIL, a submanager or DSIL would, through use of the services, avoid the additional expenses which would be incurred if it should attempt to develop comparable information through its own staff. For the fiscal years ended July 31, 1997, 1998 1999 and 2000, the Portfolio paid brokerage commissions of $101,639, $175,344, $327,338 and $256,045, respectively. The Domini Social Bond Fund is newly-created and did not pay brokerage commissions during the period from June 1, 2000 (commencement of operations) through July 31, 2000. In certain instances there may be securities which are suitable for the Portfolio or the Domini Social Bond Fund as well as for one or more of a submanager's or DSIL's other clients. Investment decisions for the Portfolio and the Domini Social Bond Fund and for a submanager's or DSIL's other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Portfolio and the Domini Social Bond Fund are concerned. However, it is believed that the ability of the Portfolio and the Domini Social Bond Fund to participate in volume transactions will produce better executions for the Portfolio and the Domini Social Bond Fund. 9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES The Trust is a Massachusetts business trust established under a Declaration of Trust dated as of March 1, 1990. Its authorized capital consists of an unlimited number of shares of beneficial interest of $0.01 par value, issued in separate series. Each share of each series represents an equal proportionate interest in that series with each other share of that series. The assets of the Trust received for the issue or sale of the shares of each series and all income, earnings, profits and proceeds thereof, subject only to the rights of creditors, are specifically allocated to such series and constitute the underlying assets of such series. The underlying assets of each series are segregated on the books of account, and are to be charged with the liabilities in respect to such series and with such a share of the general liabilities of the Trust. If a series were unable to meet its obligations, the assets of all other series might be available to creditors for that purpose, in which case the assets of such other series could be used to meet liabilities which are not otherwise properly chargeable to them. Expenses with respect to any two or more series are to be allocated in proportion to the asset value of the respective series except where allocations of direct expenses can otherwise be fairly made. The officers of the Trust, subject to the general supervision of the Trustees, have the power to determine which liabilities are allocable to a given series, or which are general or allocable to two or more series. In the event of the dissolution or liquidation of the Trust or any series, the holders of the shares of any series are entitled to receive as a class the value of the underlying assets of such shares available for distribution to shareholders. Shares of the Trust entitle their holder to one vote per share; however, separate votes are taken by each series on matters affecting an individual series. For example, a change in investment policy for a series would be voted upon only by shareholders of the series involved. The Trust's Declaration of Trust provides that, at any meeting of shareholders of the Trust or of any series, a Shareholder Servicing Agent may vote any shares as to which such Shareholder Servicing Agent is the agent of record and which are not represented in person or by proxy at -38- the meeting, proportionately in accordance with the votes cast by holders of all shares otherwise represented at the meeting in person or by proxy as to which such Shareholder Servicing Agent is the agent of record. Any shares so voted by a Shareholder Servicing Agent will be deemed represented at the meeting for purposes of quorum requirements. The Trustees of the Trust have the authority to designate additional series and to designate the relative rights and preferences as between the different series. All shares issued and outstanding will be fully paid and nonassessable by the Trust, and redeemable as described in this Statement of Additional Information and in the Prospectus. The Declaration of Trust provides that obligations of the Trust are not binding upon the Trustees individually but only upon the property of the Trust, that the Trustees and officers will not be liable for errors of judgment or mistakes of fact or law, and that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust unless, as to liability to Trust or Fund shareholders, it is finally adjudicated that they engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in their offices, or unless with respect to any other matter it is finally adjudicated that they did not act in good faith in the reasonable belief that their actions were in the best interests of the Trust. In the case of settlement, such indemnification will not be provided unless it has been determined by a court or other body approving the settlement or other disposition, or by a reasonable determination, based upon a review of readily available facts, by vote of a majority of disinterested Trustees or in a written opinion of independent counsel, that such officers or Trustees have not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of their duties. Under Massachusetts law, shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable as partners for its obligations and liabilities. However, the Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Funds and provides for indemnification and reimbursement of expenses out of Fund property for any shareholder held personally liable for the obligations of a Fund. The Declaration of Trust also provides for the maintenance, by or on behalf of the Trust and the Funds, of appropriate insurance (for example, fidelity bonding and errors and omissions insurance) for the protection of the Funds and their shareholders and the Trust's Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which both inadequate insurance existed and a Fund itself was unable to meet its obligations. The Portfolio, in which all of the investable assets of the Domini Social Equity Fund are invested, is organized as a trust under the laws of the State of New York. The Portfolio's Declaration of Trust provides that the Domini Social Equity Fund and other entities investing in the Portfolio (i.e., other investment companies, insurance company separate accounts and common and commingled trust funds) will each be liable for all obligations of the Portfolio. However, the risk of the Domini Social Equity Fund incurring financial loss on account of such liability is limited to circumstances in which both inadequate insurance existed and the Portfolio itself was unable to meet its obligations. Accordingly, the Trust's Trustees believe that neither the Domini Social Equity Fund nor its shareholders will be adversely affected by reason of the Domini Social Equity Fund's investing in the Portfolio. Each investor in the Portfolio, including the Domini Social Equity Fund, may add to or reduce its investment in the Portfolio on each Fund Business Day. At the close of each such business day, the value of each investor's interest in the Portfolio will be determined by multiplying the net asset value of the Portfolio by the percentage representing that investor's share of the aggregate beneficial interests in the Portfolio effective for that day. Any additions -39- or withdrawals, which are to be effected as of the close of business on that day, will then be effected. The investor's percentage of the aggregate beneficial interests in the Portfolio will then be re-computed as the percentage equal to the fraction (i) the numerator of which is the value of such investor's investment in the Portfolio as of the close of business on such day plus or minus, as the case may be, the amount of any additions to or withdrawals from the investor's investment in the Portfolio effected as of the close of business on such day, and (ii) the denominator of which is the aggregate net asset value of the Portfolio as of the close of business on such day plus or minus, as the case may be, the amount of the net additions to or withdrawals from the aggregate investments in the Portfolio by all investors in the Portfolio. The percentage so determined will then be applied to determine the value of the investor's interest in the Portfolio as of the close of business on the following Fund Business Day. 10. FINANCIAL STATEMENTS The audited financial statements of the Domini Social Equity Fund and the Portfolio (Statement of Assets and Liabilities at July 31, 2000, Statement of Operations for the year ended July 31, 2000, Statement of Changes in Net Assets for each of the years in the two-year period ended July 31, 2000, Financial Highlights for each of the years in the five-year period ended July 31, 2000, Notes to Financial Statements and Independent Auditors' Report), each of which is included in the Annual Report to Shareholders of the Domini Social Equity Fund which has been filed with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder, are hereby incorporated by reference into this Statement of Additional Information and have been so incorporated in reliance upon the reports of KPMG LLP, independent auditors, on behalf of the Domini Social Equity Fund and the Portfolio. The audited financial statements of the Domini Social Bond Fund (Statement of Assets and Liabilities at July 31, 2000, Statement of Operations for the year ended July 31, 2000, Statement of Changes in Net Assets for the period June 1, 2000 (Commencement of Operations) to July 31, 2000, Financial Highlights for the period June 1, 2000 (Commencement of Operations) to July 31, 2000, Notes to Financial Statements and Independent Auditors' Report), each of which is included in the Annual Report to Shareholders of the Domini Social Bond Fund which has been filed with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder, are hereby incorporated by reference into this Statement of Additional Information and have been so incorporated in reliance upon the reports of KPMG LLP, independent auditors on behalf of the Domini Social Bond Fund. Domini Social Investments\SM\, Domini Social Equity Fund\SM\, Domini Social Bond Fund\SM\, Domini Money Market Account\SM\, The Responsible Index Fund\SM\ and domini.com\SM\ are service marks of Domini Social Investments LLC. A-1 APPENDIX RATING INFORMATION The following ratings are opinions of Standard & Poor's Rating Service ("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"), not recommendations to buy, sell or hold an obligation. The ratings below are as described by the rating agencies. While the rating agencies may from time to time revise such ratings, they are under no obligation to do so. Standard & Poor's Standard & Poor's Four Highest Long-Term Issue Credit Ratings AAA An obligation rated AAA has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Plus The ratings from AA to CCC may be modified by the addition of a plus (+) or minus sign to show relative standing within the major rating or categories. minus(-) Standard & Poor's Short-Term Issue Credit Ratings SP-1 Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3 Speculative capacity to pay principal and interest. Standard & Poor's Commercial Paper Ratings A-1 This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated B are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the due date, even if the applicable grace period has not expired, unless Standard & Poor's believes such payments will be made during such grace period. Moody's Moody's Four Highest Debt Ratings - Taxable Debt & Deposits Globally Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. A-3 Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Moody's Short-Term Prime Rating System - Taxable Debt & Deposits Globally Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: . Leading market positions in well-established industries. . High rates of return on funds employed. . Conservative capitalization structure with moderate reliance on debt and ample asset protection. . Broad margins in earnings coverage of fixed financial charges and high internal cash generation. . Well-established access to a range of financial markets and assured sources of alternate liquidity. Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Not Prime Issuers rated Not Prime do not fall within any of the Prime rating categories. PART C
Item 23. Exhibits * a(1) Amended and Restated Declaration of Trust of the Registrant. ** a(2) Certificate and Amendment No. 2 to Declaration of Trust of the Registrant. ******** a(3) Amendments to Declaration of Trust of the Registrant. ******** b Amended and Restated By-Laws of the Registrant. d(1) Management Agreement between the Registrant and Domini Social Investments LLC ("DSIL") with respect to Domini Social Bond Fund. d(2) Submanagement Agreement between DSIL and South Shore Bank with respect to Domini Social Bond Fund. e Amended and Restated Distribution Agreement between the Registrant and DSIL Investment Services LLC, as distributor. **** g(1) Custodian Agreement between the Registrant and Investors Bank & Trust Company, as custodian. g(2) Letter Agreement adding Domini Social Bond Fund to the Custodian Agreement between the Registrant and Investors Bank & Trust Company, as custodian. ***** h(1) Transfer Agency Agreement between the Registrant and PFPC, Inc. ("PFPC"). h(2) Letter Agreement adding Domini Social Bond Fund to the Transfer Agency Agreement between the Registrant and PFPC. h(3) Expense Limitation Agreement with respect to Domini Social Equity Fund. h(4) Expense Limitation Agreement with respect to Domini Social Bond Fund. h(5) Administration Agreement between the Registrant and DSIL. *** i Opinion and consent of counsel. and ****** j Opinion and consent of independent accountants. m Amended and Restated Distribution Plan of the Registrant. p Codes of Ethics *** q Powers of Attorney. and **** - ------------------------ * Incorporated by reference from Post-Effective Amendment No. 7 to the Registrant's Registration Statement as filed with the SEC on November 22, 1995. ** Incorporated by reference from Post-Effective Amendment No. 11 to the Registrant's Registration Statement as filed with the SEC on November 25, 1997. *** Incorporated by reference from Post-Effective Amendment No. 13 to the Registrant's Registration Statement as filed with the SEC on September 29, 1999. **** Incorporated by reference from Post-Effective Amendment No. 14 to the Registrant's Registration Statement as filed with the SEC on November 23, 1999. ***** Incorporated by reference from Post-Effective Amendment No. 15 to the Registrant's Registration Statement as filed with the SEC on November 30, 1999. ****** Incorporated by reference from Post-Effective Amendment No. 16 to the
Registrant's Registration Statement as filed with the SEC on January 13, 2000. ******* Incorporated by reference from Post-Effective Amendment No. 17 to the Registrant's Registration Statement as filed with the SEC on March 31, 2000. ******** Incorporated by reference from Post-Effective Amendment No. 18 to the Registrant's Registration Statement as filed with the SEC on April 28, 2000. Item 24. Persons Controlled by or under Common Control with Registrant Not applicable. Item 25. Indemnification Reference is hereby made to (a) Article V of the Registrant's Declaration of Trust, filed as an exhibit to Post-Effective Amendment No. 7 to the Registrant's Registration Statement; and (b) Section 4 of the Amended and Restated Distribution Agreement by and between the Registrant and DSIL Investment Services LLC, filed as an exhibit hereto. The Trustees and officers of the Registrant and the personnel of the Registrant's administrator and distributor are insured under an errors and omissions liability insurance policy. The Registrant and its officers are also insured under the fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940, as amended (the "1940 Act"). Item 26. Business and Other Connections of Investment Adviser Domini Social Investments LLC ("DSIL") is a Massachusetts limited liability company with offices at 536 Broadway, 7th Floor, New York, New York 10012, and is registered as an investment adviser under the Investment Advisers Act of 1940. The owners of DSIL are James Earl Brooks, Amy Lee Domini, Steven D. Lydenberg, Sigward Moser and David P. Wieder.
Principal Employment during the Name Business Address Past Two Fiscal Years James E. Brooks Four Arlington Street President, Equity Resources Group, Inc. (real Cambridge, MA 02140 estate investment) Amy L. Domini 230 Congress Street Trustee, Loring, Wolcott & Coolidge (fiduciary) Cambridge, MA 02110 Steven D. Lydenberg 536 Broadway, 7th Floor Director of Research, KLD New York, NY 10012 Sigward Moser 536 Broadway, 7th Floor President and Director, Communication House New York, NY 10012 International, Inc. (advertising agency) David P. Wieder 536 Broadway, 7th Floor President, Director, Equity Owner and Chairman, New York, NY 10012 Fundamental Shareholder Services, Inc.
C-2 Item 27. Principal Underwriters (a) DSIL Investment Services LLC is the distributor for the Registrant. DSIL Investment Services LLC serves as the distributor or placement agent for the following other registered investment companies: Domini Institutional Social Equity Fund and Domini Social Index Portfolio. (b) The information required by this Item 27 with respect to each director or officer of DSIL Investment Services LLC is incorporated herein by reference from Schedule A of Form BD (File No. 008-44763) as filed by DSIL Investment Services LLC pursuant to the Securities Exchange Act of 1934. (c) Not applicable. Item 28. Location of Accounts and Records The accounts and records of the Registrant are located, in whole or in part, at the offices of the Registrant and at the following locations: Name: Address: Domini Social Investments LLC 536 Broadway, 7th Floor (manager) New York, NY 10012 DSIL Investment Services LLC 536 Broadway, 7th Floor (distributor) New York, NY 10012 Investors Bank & Trust Company 200 Clarendon Street (custodian) Boston, MA 02116 PFPC 4400 Computer Drive (transfer agent) Westborough, MA 01581 Item 29. Management Services Not applicable. Item 30. Undertakings Not applicable. C-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act and has duly caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and Commonwealth of Massachusetts on the 28th day of November, 2000. DOMINI SOCIAL INVESTMENT TRUST By: Amy L. Domini ------------------------------ Amy L. Domini President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities indicated below on November 28, 2000. Signature Title Amy L. Domini President (Principal Executive Officer) and - -------------------------------- Trustee of Domini Social Investment Trust Amy L. Domini Carole M. Laible Treasurer (Principal Accounting and - -------------------------------- Financial Officer) of Domini Social Carole M. Laible Investment Trust Julia Elizabeth Harris* Trustee of Domini Social Investment Trust - -------------------------------- Julia Elizabeth Harris Kirsten S. Moy* Trustee of Domini Social Investment Trust - -------------------------------- Kirsten S. Moy William C. Osborn* Trustee of Domini Social Investment Trust - -------------------------------- William C. Osborn Karen Paul* Trustee of Domini Social Investment Trust - -------------------------------- Karen Paul Gregory A. Ratliff* Trustee of Domini Social Investment Trust - -------------------------------- Gregory A. Ratliff Frederick C. Williamson, Sr.* Trustee of Domini Social Investment Trust - -------------------------------- Frederick C. Williamson, Sr. *By: Amy L. Domini - ------------------------------- Amy L. Domini Executed by Amy L. Domini on behalf of those indicated pursuant to Powers of Attorney. SIGNATURES Domini Social Index Portfolio has duly caused this Post-Effective Amendment to the Registration Statement on Form N-1A (File No. 33-29180) of Domini Social Investment Trust to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and Commonwealth of Massachusetts on the 28th day of November, 2000. DOMINI SOCIAL INDEX PORTFOLIO By: Amy L. Domini ------------------------------------ Amy L. Domini President of Domini Social Index Portfolio This Post-Effective Amendment to the Registration Statement on Form N-1A of Domini Social Investment Trust has been signed below by the following persons in the capacities indicated below on November 28, 2000. Signature Title Amy L. Domini President (Principal Executive Officer) - ------------------------------ and Trustee of Domini Social Index Portfolio Amy L. Domini Carole M. Laible Treasurer (Principal Accounting and Financial - ------------------------------ Officer) of Domini Social Index Portfolio Carole M. Laible Julia Elizabeth Harris* Trustee of Domini Social Index Portfolio - ------------------------------ Julia Elizabeth Harris Kirsten S. Moy* Trustee of Domini Social Index Portfolio - ------------------------------ Kirsten S. Moy William C. Osborn* Trustee of Domini Social Index Portfolio - ------------------------------ William C. Osborn Karen Paul* Trustee of Domini Social Index Portfolio - ------------------------------ Karen Paul Gregory A. Ratliff* Trustee of Domini Social Index Portfolio - ------------------------------ Gregory A. Ratliff Frederick C. Williamson, Sr.* Trustee of Domini Social Index Portfolio - ------------------------------ Frederick C. Williamson, Sr. *By: Amy L. Domini - ------------------------------ Amy L. Domini Executed by Amy L. Domini on behalf of those indicated pursuant to Powers of Attorney. INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION OF EXHIBIT d(1) Management Agreement between the Registrant and Domini Social Investments LLC ("DSIL") with respect to Domini Social Bond Fund. d(2) Submanagement Agreement between DSIL and South Shore Bank with respect to Domini Social Bond Fund. e Amended and Restated Distribution Agreement between the Registrant and DSIL Investment Services LLC, as distributor. g(2) Letter Agreement adding Domini Social Bond Fund to the Custodian Agreement between the Registrant and Investors Bank & Trust Company, as custodian. h(2) Letter Agreement adding Domini Social Bond Fund to the Transfer Agency Agreement between the Registrant and PFPC Inc. h(3) Expense Limitation Agreement with respect to Domini Social Equity Fund. h(4) Expense Limitation Agreement with respect to Domini Social Bond Fund. h(5) Administration Agreement between the Registrant and DSIL. j Opinion and consent of independent accountants. m Amended and Restated Distribution Plan of the Registrant. P Codes of Ethics EX-99.D1 2 0002.txt MANAGEMENT AGREEMENT Exhibit d(1) MANAGEMENT AGREEMENT MANAGEMENT AGREEMENT, dated as of May 1, 2000, by and between Domini Social Investment Trust, a Massachusetts business trust (the "Trust"), and Domini Social Investments LLC, a Massachusetts limited liability company ("DSI" or the "Manager"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Trust engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, in each case as amended and in effect from time to time, the "1940 Act"); and WHEREAS, the Trust wishes to engage DSI to provide certain investment advisory services for the series of the Trust designated as Domini Social Bond Fund (the "Fund"), and DSI is willing to provide such investment advisory services for the Fund on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows: 1. DUTIES OF DSI. DSI shall act as the Manager for the Fund and as such shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested, subject always to the restrictions of the Trust's Declaration of Trust, dated June 7, 1989, and By-laws, as each may be amended and restated from time to time (respectively, the "Declaration" and the "By-Laws"), the provisions of the 1940 Act, and the then-current registration statement of the Trust with respect to the Fund. The Manager shall also make recommendations as to the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the Trust's portfolio securities shall be exercised. Should the Board of Trustees of the Trust at any time, however, make any definite determination as to investment policy applicable to the Fund and notify the Manager thereof in writing, the Manager shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination has been revoked. The Manager shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above and, in particular, to place all orders for the purchase or sale of securities for the Fund's account with the brokers or dealers selected by it, and to that end the Manager is authorized as the agent of the Trust to give instructions to the custodian or any subcustodian of the Fund as to deliveries of securities and payments of cash for the account of the Fund. In connection with the selection of such brokers or dealers and the placing of such orders, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to the Fund and/or the other accounts over which the Manager, any subadviser, submanager or respective "affiliated person" thereof exercises investment discretion. The Manager is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Manager determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Manager and any "affiliated person" of the Manager have with respect to accounts over which they exercise investment discretion. The Trustees of the Trust shall periodically review the commissions paid by the Fund to determine if the commissions paid over representative periods of time were reasonable in relation to the benefits to the Fund. In making purchases or sales of securities or other property for the account of the Fund, the Manager may deal with itself or with the Trustees of the Trust or the Trust's underwriter or distributor to the extent such actions are permitted by the 1940 Act. In providing the services and assuming the obligations set forth herein, the Manager may, subject to the requirements of the 1940 Act or any exemptive order granted thereunder, employ at its own expense, or may request that the Trust employ at the Fund's expense, one or more subadvisers or submanagers; provided that in each case the Manager shall supervise the activities of each subadviser or submanager. Any agreement between the Manager and a subadviser or submanager shall be subject to the renewal, termination and amendment provisions applicable to this Agreement. Any agreement by the Trust on behalf of the Fund and a subadviser or submanager may be terminated by the Manager at any time on not more than 60 days' nor less than 30 days' written notice to the Trust and the subadviser or submanager, as applicable. 2. ALLOCATION OF CHARGES AND EXPENSES. DSI shall furnish at its own expense all necessary services, facilities and personnel in connection with its responsibilities under Section 1 above. Except as provided in the foregoing sentence, it is understood that the Trust will pay all of its own expenses including, without limitation, organization costs of the Trust; compensation of Trustees who are not "interested persons" of the Trust; governmental fees, including but not limited to Securities and Exchange Commission fees and state "blue sky" fees, if any; interest expense; loan commitment fees; taxes; brokerage fees and commissions; membership dues in industry and professional associations; fees and expenses of auditors and accountants, legal counsel and any transfer agent, distributor, shareholder servicing agent, recordkeeper, registrar or dividend disbursing agent of the Trust; expenses relating to the issuance and redemption of shares of beneficial interest of the Fund and servicing shareholder accounts; expenses of preparing, typesetting, printing and mailing prospectuses, statements of additional information, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund; expenses connected with the execution, recording and settlement of security transactions; insurance premiums; fees and expenses of the custodian for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; expenses of calculating the net asset value of the Fund (including but not limited to the fees of independent pricing services); expenses connected with maintaining the Trust's existence as a Massachusetts business trust; expenses of meetings of the Fund's shareholders; and such non-recurring or extraordinary expenses as may arise, including those relating to actions, suits or proceedings to which the Trust on behalf of the Fund may be party and the legal obligation which the Trust may have to indemnify its Trustees and officers with respect thereto. 3. COMPENSATION OF DSI. For the services to be rendered and facilities provided by DSI hereunder for the benefit of the Fund, the Trust will pay DSI from the assets of the Fund an advisory fee accrued daily and payable monthly at an annual rate equal to 0.40% of the Fund's average daily net assets for the Fund's then current fiscal year. The Manager shall pay any applicable fees to any subadviser(s) or submanager(s) on the Fund's behalf. If DSI provides services hereunder for less than the whole of any period specified in this Section 3, the compensation to DSI shall be accordingly adjusted and prorated. 4. COVENANTS OF DSI. DSI agrees that it will not deal with itself, or with the Trustees of the Trust or the Trust's principal underwriter or distributor, if any, as principals in making purchases or sales of securities or other property, except as permitted by the 1940 Act, will not take a long or short position in shares of beneficial interest of the Fund, except as permitted by the Declaration, and will comply with all other provisions of the Declaration and By-Laws and the then-current registration statement of the Trust applicable to the Fund relative to DSI and its directors and officers. 5. LIMITATION OF LIABILITY OF DSI. 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 Fund, 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 hereunder. As used in this Section 5, the term "DSI" shall include directors, officers and employees of DSI as well as DSI itself. 6. ACTIVITIES OF DSI. The services of DSI to the Fund are not to be deemed to be exclusive, DSI being free to render investment advisory and/or other services to others. It is understood that Trustees and officers of the Trust and shareholders of the Fund are or may be or may become interested in DSI as directors, officers, employees or otherwise and that directors, officers and employees of DSI are or may become similarly interested in the Trust or the Fund and that DSI may be or may become interested in the Trust or the Fund as a shareholder or otherwise. 7. DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT. This Agreement shall become effective as of the day and year first above written, shall govern the relations between the parties hereto thereafter and shall remain in force until January 14, 2002, on which date it will terminate unless its continuance after January 14, 2002 is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust or of DSI at a meeting specifically called for the purpose of voting on such approval and (b) by the Board of Trustees of the Trust or by "vote of a majority of the outstanding voting securities" of the Fund. This Agreement 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 Fund, or by DSI, in each case on not more than 60 days' nor less than 30 days' written notice to the other party. This Agreement shall automatically terminate in the event of its "assignment." This Agreement may be amended only if such amendment is approved by the "vote of a majority of the outstanding voting securities" of the Fund (except for any such amendment as may be effected in the absence of such approval without violating the 1940 Act). The terms "specifically approved at least annually," "vote of a majority of the outstanding voting securities," "assignment," "affiliated person" and "interested persons," when used in this Agreement, shall have the respective meanings specified in, and shall be construed in a manner consistent with, the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the Act. Each party acknowledges and agrees that all obligations of the Trust under this Agreement are binding only with respect to the Fund; that any liability of the Trust under this Agreement, or in connection with the transactions contemplated herein, shall be discharged only out of the assets of the Fund; and that no other series of the Trust shall be liable with respect to this Agreement or in connection with the transactions contemplated herein. The undersigned officer of the Trust has executed this Agreement not individually, but as an officer under the Declaration and the obligations of this Agreement are not binding upon any of the Trustees or officers of the Trust or holders of shares of beneficial interest of the Fund individually. 8. GOVERNING LAW. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written. DOMINI SOCIAL INVESTMENT TRUST DOMINI SOCIAL On behalf of Domini Social Bond Fund INVESTMENTS LLC By: Carole M. Laible By: David P. Wieder ---------------- --------------- Title: Treasurer/Secretary Title: Managing Principal EX-99.D2 3 0003.txt SUBMANAGEMENT AGREEMENT Exhibit d(2) SUBMANAGEMENT AGREEMENT SUBMANAGEMENT AGREEMENT, dated as of May 1, 2000, by and between Domini Social Investments LLC, a Massachusetts limited liability company ("DSI" or the "Manager"), and South Shore Bank, an Illinois banking corporation ("SSB" or the "Submanager"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Domini Social Investment Trust (the "Trust") engages in business as an open-end management investment company and is registered as such under the Investment Company Act of 1940, as amended (collectively with the rules and regulations promulgated thereunder, in each case as in effect from time to time, the "1940 Act"); WHEREAS, DSI has entered into a Management Agreement (the "Management Agreement") with the Trust wherein DSI has agreed to provide certain investment advisory services for the series of the Trust designated as Domini Social Bond Fund (the "Fund"); and WHEREAS, as permitted by Section 1 of the Management Agreement, DSI wishes to subcontract some of the performance of its obligations thereunder to SSB, and SSB desires to accept such obligations on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows: 1. APPOINTMENT OF SSB. In accordance with and subject to the Management Agreement between the Trust and the Manager with respect to the Fund, the Manager hereby retains SSB to act as the Submanager for the Fund for the period and on the terms set forth in this Agreement. The Submanager accepts such appointment and agrees to provide an investment program for the Fund for the compensation provided by this Agreement. 2. DUTIES OF THE SUBMANAGER. The Submanager shall provide the Fund and the Manager with such investment advice and supervision as the Manager may from time to time consider necessary for the proper supervision of such portion of the Fund's investment assets as the Manager may designate from time to time. Notwithstanding any provision of this Agreement, the Manager shall retain all rights and ultimate responsibilities to supervise and, in its discretion, conduct investment activities relating to the Fund. The Submanager shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased, sold or exchanged and what portion of the assets of the Fund allocated by the Manager to the Submanager shall be held uninvested, subject always to the restrictions of the Trust's Declaration of Trust, dated June 7, 1989, and By-laws, as each may be amended and restated from time to time (respectively, the "Declaration" and the "By-Laws"), the provisions of the 1940 Act, and the then-current registration statement of the Trust with respect to the Fund and, subject further, to the Submanager notifying the Manager in advance of the Submanager's intention to purchase any securities except insofar as the requirement for such notification may be waived or limited by the Manager, it being understood that the Submanager shall be responsible for compliance with any restrictions imposed in writing by the Manager from time to time in order to facilitate compliance with the above-mentioned restrictions and such other restrictions as the Manager may determine. Further, the Manager or the Trustees of the Trust may at any time, upon written notice to the Submanager, suspend or restrict the right of the Submanager to determine what securities shall be purchased or sold on behalf of the Fund and what portion, if any, of the assets of the Fund allocated by the Manager to the Submanager shall be held uninvested. The Submanager shall also, as requested, make recommendations to the Manager as to the manner in which proxies, voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's portfolio securities shall be exercised. Should the Board of Trustees of the Trust or the Manager at any time, however, make any definite determination as to an investment policy applicable to the Fund and notify the Submanager thereof in writing, the Submanager shall be bound by such determination for the period, if any, specified in such notice or until similarly notified that such determination has been revoked. The Submanager shall take, on behalf of the Fund, all actions which it deems necessary to implement the investment policies determined as provided above and, in particular, to place all orders for the purchase or sale of securities for the Fund's account with the brokers or dealers selected by it, and to that end the Submanager is authorized as the agent of the Fund to give instructions to the custodian or any subcustodian of the Fund as to deliveries of securities and payments of cash for the account of the Fund. The Submanager will advise the Manager on the same day it gives any such instructions. In connection with the selection of such brokers or dealers and the placing of such orders, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to the Fund and/or the other accounts over which the Submanager, the Manager or a respective "affiliated person" thereof exercises investment discretion. The Submanager is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Submanager determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Submanager, the Manager and any "affiliated person" thereof have with respect to accounts over which they exercise investment discretion. The Trustees of the Trust shall periodically review the commissions paid by the Fund to determine if the commissions paid over representative periods of time were reasonable in relation to the benefits to the Fund. In making purchases or sales of securities or other property for the account of the Fund, the Submanager may deal with itself or with the Trustees of the Trust or the Fund's underwriter or distributor to the extent such actions are permitted by the 1940 Act. The Board of Trustees of the Trust, in its discretion, may instruct the Submanager to effect all or a portion of its securities transactions with one or more brokers and/or dealers selected by the Board of Trustees if it determines that the use of such brokers and/or dealers is in the best interest of the Fund. 3. ALLOCATION OF CHARGES AND EXPENSES. The Submanager shall furnish at its own expense all necessary services, facilities and personnel in connection with its responsibilities under Section 2 above. Except as provided in the foregoing sentence, it is understood that the Trust will pay all of its own expenses including, without limitation, organization costs of the Trust; compensation of Trustees who are not "interested persons" of the Trust; governmental fees; interest charges; loan commitment fees; taxes; membership dues in industry associations allocable to the Trust; fees and expenses of independent auditors, legal counsel and any transfer agent, distributor, registrar or dividend disbursing agent of the Trust; expenses relating to the issuance and redemption of shares of beneficial interest of the Fund and servicing shareholder accounts; expenses of preparing, typesetting, printing and mailing prospectuses, statements of additional information, shareholder reports, notices, proxy statements and reports to governmental officers and commissions and to shareholders of the Fund; expenses connected with the execution, recording and settlement of security transactions; insurance premiums; fees and expenses of the custodian for all services to the Fund, including safekeeping of funds and securities and maintaining required books and accounts; expenses of calculating the net asset value of the Fund (including but not limited to the fees of independent pricing services); expenses of meetings of the Fund's shareholders; and such non-recurring or extraordinary expenses as may arise, including those relating to actions, suits or proceedings to which the Trust on behalf of the Fund may be a party and the legal obligation which the Trust may have to indemnify its Trustees and officers with respect thereto. 4. COMPENSATION OF THE SUBMANAGER. For the services to be rendered by the Submanager hereunder, the Manager shall pay to the Submanager out of the management fee it receives from the Trust out of the assets of the Fund, and only to the extent thereof, a subadvisory fee, accrued daily and paid monthly, at an annual rate equal to 0.20% of the average daily net assets of the Fund allocated to the Submanager. If SSB serves as Submanager for less than the whole of any period specified in this Section 4, the compensation to SSB, as Submanager, shall be accordingly adjusted and prorated. 5. COVENANTS OF THE SUBMANAGER. The Submanager agrees that it will not deal with itself, or with the Trustees of the Trust or the Trust's principal underwriter or distributor, if any, as principals in making purchases or sales of securities or other property, except as permitted by the 1940 Act, will not take a long or short position in shares of beneficial interest of the Fund, except as permitted by the Declaration, and will comply with all other provisions of the Declaration and By-Laws and the then-current registration statement of the Trust applicable to the Fund relative to the Submanager and its directors and officers. 6. LIMITATION OF LIABILITY OF THE SUBMANAGER. The Submanager shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund, 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 hereunder. As used in this Section 6, the term "Submanager" shall include directors, officers and employees of the Submanager as well as the Submanager itself. The Trust is expressly made a third party beneficiary of this Agreement and may enforce any obligations of the Submanager under this Agreement and recover directly from the Submanager for any liability the Submanager may have hereunder. 7. ACTIVITIES OF THE SUBMANAGER. The services of the Submanager to the Fund are not to be deemed to be exclusive, the Submanager being free to render investment advisory and/or other services to others. It is understood that Trustees and officers of the Trust and shareholders of the Fund or the Manager are or may be or may become interested in the Submanager as directors, officers, employees or otherwise and that directors, officers and employees of the Submanager are or may become similarly interested in the Trust or the Fund or the Manager and that the Submanager may be or may become interested in the Trust or the Fund as a shareholder or otherwise. 8. DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT. This Agreement shall become effective as of the day and year first above written, shall govern the relations between the parties hereto thereafter and shall remain in force until January 14, 2002, on which date it will terminate unless its continuance after January 14, 2002 is "specifically approved at least annually" (a) by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust or of DSI or the Submanager at a meeting specifically called for the purpose of voting on such approval and (b) by the Board of Trustees of the Trust or by "vote of a majority of the outstanding voting securities" of the Fund. This Agreement may be terminated at any time without the payment of any penalty by (i) the Trustees of the Trust, (ii) the "vote of a majority of the outstanding voting securities" of the Fund or (iii) DSI with the prior consent of the Trustees of the Trust, in each case on not more than 60 days' nor less than 30 days' written notice to the other party. This Agreement may be terminated at any time without the payment of any penalty by the Submanager on not less than 90 days' written notice to the Manager and the Trustees of the Trust. This Agreement shall automatically terminate in the event of its "assignment." This Agreement constitutes the entire agreement between the parties and may be amended only if such amendment is approved by the parties hereto, the Trustees of the Trust and the "vote of a majority of the outstanding voting securities" of the Fund (except for any such amendment as may be effected in the absence of such vote without violating the 1940 Act or any exemptive order granted thereunder). The terms "specifically approved at least annually," "vote of a majority of the outstanding voting securities," "assignment," "affiliated person" and "interested persons," when used in this Agreement, shall have the respective meanings specified in, and shall be construed in a manner consistent with, the 1940 Act, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under the Act. 9. GOVERNING LAW. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts; provided, however, that nothing herein will be construed in a manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940 or any rules or regulations of the Securities and Exchange Commission thereunder. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written. SOUTH SHORE BANK By: Anne Arvia ---------- Title: Anne Arvia, SVP and CFO DOMINI SOCIAL INVESTMENTS LLC By: David P. Wieder --------------- Title: David P. Wieder, Managing Principal Acknowledged: Domini Social Investment Trust On behalf of Domini Social Bond Fund By: Carole M. Laible ---------------- Title: Carole M. Laible, Treasurer, Secretary EX-99.E 4 0004.txt AMENDED AND RESTATED DISTRIBUTION AGREEMENT Exhibit e AMENDED AND RESTATED -------------------- DISTRIBUTION AGREEMENT ---------------------- AMENDED AND RESTATED DISTRIBUTION AGREEMENT, dated as of August 15, 1999 and amended and restated as of May 1, 2000 by and between Domini Social Investment Trust (formerly, "Domini Social Equity Fund"), a Massachusetts business trust (the "Trust"), and DSIL INVESTMENT SERVICES LLC, a New York limited liability company and a subsidiary of Domini Social Investments LLC (the "Distributor"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Trust is engaged in business as an open-end investment company registered under the Investment Company Act of 1940 (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); WHEREAS, the Trust's shares of beneficial interests ("Shares") have been divided into one or more series ("Series"); WHEREAS, the Board of Trustees of the Trust has adopted an Amended and Restated Distribution Plan, dated as of May 1, 1990 and amended and restated as of January 14, 2000 (as amended and restated and in effect from time to time, the "Distribution Plan"), which is incorporated herein by reference and pursuant to which the Trust desires to enter into this Amended and Restated Distribution Agreement with respect to its current and future Series; WHEREAS, the Trust wishes to engage the Distributor to provide certain services with respect to the distribution of the Shares of each of its Series, and the Distributor is willing to provide such services to each Series of the Trust on the terms and conditions hereinafter set forth; and WHEREAS, the Trust has entered into a distribution agreement, dated as of August 15, 1999, with respect to its Series designated Domini Social Equity Fund (the "Original Agreement") and desires to amend and restate the Original Agreement in its entirety in order to provide that its provisions apply to each of the Series of the Trust. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows, and the Original Agreement is hereby amended and restated as follows: 1. The Trust grants to the Distributor the right, as agent of the Trust, to sell Shares of each Series of the Trust upon the terms hereinbelow set forth during the term of this Agreement. While this Agreement is in force, the Distributor agrees to use its best efforts to find purchasers for Shares of each Series of the Trust. The Distributor shall have the right, as agent of the Trust, to order from the Trust the Shares needed, but not more than the Shares needed (except for clerical errors and errors of transmission), to fill unconditional orders for Shares placed with the Distributor, all such orders to be made in the manner set forth in the Trust's then-current prospectus (the "Prospectus") and then- current statement of additional information (the "Statement of Additional Information"). The price which shall be paid to the Trust for the Shares so purchased shall be the net asset value per Share as determined in accordance with the provisions of the Declaration of Trust and By-Laws, as each may from time to time be amended (collectively, the "Governing Instruments"). The Distributor shall notify the Custodian of the Trust (currently Investors Bank & Trust Company), at the end of each business day, or as soon thereafter as the orders placed with the Distributor have been compiled, of the number of Shares and the prices thereof which have been ordered through the Distributor since the end of the previous business day. The right granted to the Distributor to place orders for Shares with the Trust shall be exclusive, except that this exclusive right shall not apply to Shares issued in the event that an investment company (whether a regulated or private investment company or a personal holding company) is merged with and into or consolidated with the Trust or in the event that the Trust acquires, by purchase or otherwise, all (or substantially all) the assets or the outstanding shares of any such company; nor shall it apply to Shares issued by the Trust as a dividend or stock split. The exclusive right to place orders for Shares granted to the Distributor may be waived by the Distributor by notice to the Trust in writing, either unconditionally or subject to such conditions and limitations as may be set forth in such notice to the Trust. The Trust hereby acknowledges that the Distributor may render distribution and other services to other parties, including other investment companies. In connection with its duties hereunder, the Distributor shall also arrange for computation of performance statistics with respect to the Trust and arrange for publication of current price information in newspapers and other publications. 2. The Shares may be sold by the Distributor on behalf of the Trust, to any investor or to or through any dealer having a sales agreement with the Distributor, upon the following terms and conditions: The public offering price of Shares of the Trust, i.e., the price per Share at which the Distributor or any dealer purchasing Shares through the Distributor may sell shares to the public, shall be the net asset value of such Shares. The net asset value of Shares of the Trust shall be determined by the Trust, or by an agent of the Trust, as of the close of the New York Stock Exchange on each day on which the New York Stock Exchange is open for trading (and on such other days as the Trustees deem necessary in order to comply with Rule 22c-1 under the 1940 Act), in accordance with the method established pursuant to the Governing Instruments. The Trust shall have the right to suspend the sale of Shares if, because of some extraordinary condition, the New York Stock Exchange shall be closed, or if conditions existing during the hours when the Exchange is open render such action advisable or for any other reason deemed adequate by the Trust. 3. The Trust agrees that it will, from time to time, but subject to the necessary approval, if any, of its shareholders, take all necessary action to register such number of Shares under the Securities Act of 1933, as amended (the "1933 Act"), as the Distributor may reasonably be expected to sell. The Distributor shall be an independent contractor and neither the Distributor nor any of its directors, officers or employees as such, is or shall be an employee of the Trust. It is understood that Trustees, officers and shareholders of the Trust are or may become interested in the Distributor, as directors, officers, employees, or otherwise and that directors, officers and employees of the Distributor are or may become similarly interested in the Trust and that the Distributor may be or become interested in the Trust as a shareholder or otherwise. The Distributor is responsible for its own conduct and the employment, control and conduct (but only with respect to the duties and obligations of the Distributor hereunder) of its agents and employees and for any injury to any person through its agents or employees. The Distributor assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder. 4. The Distributor covenants and agrees that, in selling Shares, it will use its best efforts in all respects duly to conform with the requirements of all state and federal laws and the Conduct Rules of the National Association of Securities Dealers, Inc. relating to the sale of Shares, and will indemnify and hold harmless the Trust and each of its Trustees and officers and each person, if any, who controls the Trust within the meaning of Section 15 of the Act (the "Indemnified Parties") against all losses, liabilities, damages, claims or expenses (including the reasonable cost of investigating or defending any alleged loss, liability, damages, claim or expense and reasonable counsel fees incurred in connection therewith) arising from any claim, demand, action or suit (collectively, "Claims"), arising by reason of any person's acquiring any of the Shares through the Distributor, which may be based upon the 1933 Act or any other statute or common law, on account of any wrongful act of the Distributor or any of its employees (including any failure to conform with any requirement of any state or federal law or the Conduct Rules of the National Association of Securities Dealers, Inc. relating to the sale of Shares) or on the ground that the registration statement under the 1933 Act, including all amendments thereto (the "Registration Statement"), or Prospectus or previous prospectus or Statement of Additional Information or previous statement of additional information, with respect to such Shares, includes or included an untrue statement of a material fact or omits or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, if and only if any such act, statement or omission was made in reliance upon information furnished by the Distributor to the Trust; provided, however, that in no case (i) is the indemnity of the Distributor in - -------- ------- --- favor of any Indemnified Party to be deemed to protect any such Indemnified Party against liability to which such Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under this Agreement, or (ii) is the Distributor to be liable under its ---- indemnity agreement contained in this Section 4 with respect to any Claim made against any Indemnified Party unless such Indemnified Party shall have notified the Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the Claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Distributor of any such Claim shall not relieve it from any liability which it may have to any Indemnified Party otherwise than on account of its indemnity agreement contained in this Section 4. The Distributor shall be entitled to participate, at its own expense, in the defense, or, if it so elects, to assume the defense, of any suit brought to enforce any such Claim, and, if the Distributor elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to each Indemnified Party. In the event that the Distributor elects to assume the defense of any such suit and retain such counsel, each Indemnified Party shall bear the fees and expenses of any additional counsel retained by it but, in case the Distributor does not elect to assume the defense of any such suit, it shall reimburse the Indemnified Parties for the reasonable fees and expenses of any counsel retained by them. Except with the prior written consent of the Distributor, no Indemnified Party shall confess any Claim or make any compromise in any case in which the Distributor will be asked to indemnify such Indemnified Party. The Distributor agrees promptly to notify the Trust of the commencement of any litigation or proceeding against it in connection with the issuance and sale of any of the Shares. Neither the Distributor nor any dealer nor any other person is authorized to give any information or to make any representation on behalf of the Trust in connection with the sale of Shares, other than those contained in the Registration Statement or Prospectus or Statement of Additional Information. The Trust covenants and agrees that it will indemnify and hold harmless the Distributor, its directors and officers and each person, if any, who controls the Distributor within the meaning of Section 15 of the Act against all losses, liabilities, damages, claims or expenses (including the reasonable cost of investigating or defending any alleged loss, liabilities, damages, claims or expenses and reasonable counsel fees incurred in connection therewith) arising from any Claims, arising by reason of any person's acquiring any of the Shares through the Distributor, which may be based upon the 1933 Act or any other statute or common law, on account that the Registration Statement or Prospectus or previous prospectus or Statement of Additional Information or previous statement of additional information, with respect to such Shares, includes or included an untrue statement of a material fact or omits or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, except insofar as such act, statement or omission was made in reliance upon information furnished by the Distributor to the Trust for use in the Registration Statement or Prospectus; provided, -------- however, that in no case (i) is the indemnity of the Trust in favor of the - ------- Distributor deemed to protect any person who is also an officer or Trustee of the Trust or who controls the Trust within the meaning of Section 15 of the 1933 Act unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent, that such result would not be against public policy as expressed in the 1933 Act; and further provided, that in no event shall anything contained herein be so construed as to protect the Distributor against any liability to the Trust or to its shareholders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations under this Agreement, or (ii) is the Trust to be liable under its indemnity agreement contained in this Section 4 with respect to any Claim made against the Distributor unless it shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the Claim shall have been served upon it (or after the Distributor shall have received notice of such service on any designated agent), but failure to notify the Trust of any such Claim shall not relieve it from any liability which it may have to the Distributor otherwise than on account of its indemnity agreement contained in this Section 4. The Trust shall be entitled to participate, at its own expense, in the defense, or, if it so elects, to assume the defense, of any suit brought to enforce any such Claim, and, if the Trust elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor. In the event that the Trust elects to assume the defense of any such suit and retain such counsel, the Distributor shall bear the fees and expenses of any additional counsel retained by it but, in case the Trust does not elect to assume the defense of any such suit, it shall reimburse the Distributor for the reasonable fees and expenses of any counsel retained by them. Except with the prior written consent of the Trust, the Distributor shall not confess any Claim or make any compromise in any case in which the Trust will be asked to indemnify it. The Trust agrees promptly to notify the Distributor of the commencement of any litigation in connection with the issuance and sale of any of the Shares. 5. The Trust will pay, or cause to be paid: (i) all costs and expenses of the Trust, including fees and disbursements of its counsel, in connection with the preparation and filing of the Registration Statement, Prospectus and Statement of Additional Information, and preparing and mailing to shareholders Prospectuses, Statements of Additional Information, statements and confirmations and periodic reports (including the expense of setting in type the Registration Statement, Prospectus and Statement of Additional Information or any periodic report); (ii) the cost of preparing temporary or permanent certificates for Shares; (iii) the cost and expenses of delivering to the Distributor all Shares purchased through it as agent hereunder; (iv) subject to the Distribution Plan, a distribution fee to the Distributor at an annual rate not to exceed 0.25% of the average daily net assets of each Series of the Trust for that Series' then-current fiscal year in anticipation of, or as reimbursement for, expenses incurred by the Distributor in connection with the sale of Shares of that Series or required to be borne by the Distributor hereunder, including, without limitation, payments to broker-dealers, banks and investment advisers who advise shareholders regarding the purchase or sale or retention of Shares of the Trust, compensation of employees of the Distributor, advertising expenses and the expenses of printing (excluding typesetting) and distributing prospectuses and reports used for sales purposes, expenses of preparing and printing sales literature and other distribution-related expenses whether or not specifically required to be made by the Distributor pursuant to the terms of this Agreement; (v) subject to the Distribution Plan, with respect to Series other than Domini Social Equity Fund, a fee, in addition to the fee provided in paragraph (iv) above, at an annual rate which, when added to the amount received by the Distributor with respect to a Series under paragraph (vi) above, will equal 0.25% of the average daily net assets of that Series for its then-current fiscal year, as compensation for distribution services provided by the Distributor in connection with the sale of Shares of that Series; (vi) all fees and disbursements of the Transfer Agent and Custodian; and (vii) a fee to the Manager of the Trust (pursuant to the Management Agreement). The Distributor agrees that with respect to the sale of Shares of the Trust, subject to the Trust's obligations under clause (iv) above, (a) after the Prospectus and Statement of Additional Information and periodic reports have been set in type, it will bear the expense (other than the cost of mailing to shareholders of the Trust) of printing and distributing any copies thereof ordered by it which are to be used in connection with the offering or sale of Shares to any dealer or prospective investor, and (b) it will bear the expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by any dealer in connection with the offering of Shares for sale to the public and any expense of sending confirmations and statements to any dealer having a sales agreement with the Distributor. 6. If, at any time during the term of this Agreement, the Trust shall deem it necessary or advisable in the best interests of the Trust that any amendment of this Agreement be made in order to comply with any recommendation or requirement of the Securities and Exchange Commission or other governmental authority or to obtain any advantage under Massachusetts or federal tax laws, it shall notify the Distributor of the form of amendment which it deems necessary or advisable and the reasons therefor. If the Distributor declines to assent to such amendment (after a reasonable time), the Trust may terminate this Agreement forthwith by written notice to the Distributor without payment of any penalty. If, at any time during the term of this Agreement, the Distributor requests the Trust to make any change in its Governing Instruments or in its methods of doing business which are necessary in order to comply with any requirement of federal law or regulations of the Securities and Exchange Commission or of a national securities association of which the Distributor is or may become a member, relating to the sale of Shares, and the Trust fails (after a reasonable time) to make any such change as requested, the Distributor may terminate this Agreement forthwith by written notice to the Trust without payment of any penalty. 7. The Distributor agrees that it will not take any long or short position in the Shares of the Trust and that, so far as it can control the situation, it will prevent any of its Directors or officers from taking any long or short position in the Shares of the Trust, except as permitted by the Governing Instruments. 8. This Agreement shall become effective upon its execution and shall continue in force indefinitely as to each Series, provided that such continuance is "specifically approved at least annually" with respect to the applicable Series by the vote of a majority of the Trustees of the Trust who are not "interested persons" of the Trust or of the Distributor at a meeting specifically called for the purpose of voting on such approval, and by the Board of Trustees of the Trust. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the 1940 Act. If such annual approval is not obtained, this Agreement shall terminate on the date which is 15 months after the date of the last approval. This Agreement may be terminated with respect to any Series of the Trust at any time by (i) the Trust, (a) by the vote of a majority of the --- --- Trustees of the Trust who are not "interested persons" of the Trust or the Distributor, (b) by the vote of the Board of Trustees of the Trust, or (c) by --- --- the "vote of a majority of the outstanding voting securities" of the applicable Series, or (ii) by the Distributor, in any case without payment of any penalty ---- on not more than 60 days nor less than 30 days written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. 9. The terms "vote of a majority of the outstanding voting securities", "interested person", "assignment" and "specifically approved at least annually" shall have the respective meanings specified in, and shall be construed in a manner consistent with, the 1940 Act, subject, however, to such exemptions as ------- may be granted by the Securities and Exchange Commission thereunder. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names on their behalf by the undersigned, thereunto duly authorized, and their respective seals to be hereto affixed, all as of the day and year first above written. The obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Trust individually, but bind only the Trust estate. The obligations of a particular Series shall be paid only from the assets of that Series and shall not be enforceable against any other Series. DOMINI SOCIAL INVESTMENT TRUST By David P. Wieder --------------- Title: Vice President DSIL INVESTMENT SERVICES LLC By Carole M. Laible ---------------- Title: Treasurer EX-99.G2 5 0005.txt LETTER AGREEMENT Exhibit g(2) Domini Social Investment Trust 11 West 25th Street New York, NY 10010 May 1, 2000 Investors Bank & Trust Company P.O. Box 1537 Boston, Massachusetts 02205-1537 Attention: Timothy O'Leary Re: Domini Social Bond Fund - Custodian Contract Ladies and Gentlemen: Pursuant to Section 4 of the Custodian Contract dated June 3, 1993 (the "Contract"), between Domini Social Investment Trust (formerly, "Domini Social Index Trust") (the "Trust") and Investors Bank & Trust Company (the "Custodian"), we hereby request that Domini Social Bond Fund (the "Fund") be added to the list of series of the Trust to which the Custodian renders services as custodian under the terms of the Contract. Please sign below to evidence your agreement to render such services as custodian on behalf of the Fund and to add the Fund as a beneficiary under the Contract. Domini Social Investment Trust By: Carole M. Laible ---------------- Title: Treasurer/Secretary Agreed: INVESTORS BANK & TRUST COMPANY By: Andrew Nesvet --------------- Title: Senior Director EX-99.H2 6 0006.txt LETTER AGREEMENT Exhibit h(2) Domini Social Investment Trust 11 West 25th Street New York, NY 10010 May 1, 2000 PFPC Inc. 4400 Computer Drive Westboro, Massachusetts 01581 Attention: President Re: Domini Social Bond Fund - Transfer Agency and Service Agreement Ladies and Gentlemen: This letter serves as notice that pursuant to Article 18 of the Transfer Agency and Services Agreement dated as of September 24, 1999 (the "Agreement") between Domini Social Investment Trust (formerly, "Domini Social Equity Fund") (the "Trust") and PFPC INC.("PFPC"), Domini Social Bond Fund (the "Fund") is added to the list of series of the Trust to which PFPC renders services as transfer agent pursuant to the terms of the Agreement. Please sign below to acknowledge your receipt of this notice adding the Fund as a beneficiary under the Agreement. Domini Social Investment Trust By: /s/ Carole M. Laible --------------------- Title: Secretary/Treasurer ------------------- Acknowledgment: PFPC Inc. By: /s/ Debralee Goldberg --------------------- Title: Senior Vice President --------------------- EX-99.H3 7 0007.txt EXPENSE LIMITATION AGREEMENT Exhibit h(3) Domini Social Investments LLC 536 Broadway, 7th Floor New York, New York 10012 November 30, 2000 Domini Social Investment Trust 536 Broadway, 7th Floor New York, New York 10012 Re: Expense Limitation Agreement Ladies and Gentlemen: Domini Social Investments LLC currently provides oversight and administrative and management services to Domini Social Investment Trust (the "Trust"), a Massachusetts business trust. We hereby agree with the Trust that we will waive expenses payable to us by the Trust's series designated Domini Social Equity Fund or will reimburse such series for all expenses payable by that series to the extent necessary so that the series' aggregate expenses (excluding brokerage fees and commissions, interest, taxes and other extraordinary expenses), net of waivers and reimbursements, would not exceed on a per annum basis 0.95% of that series' average daily net assets. The agreement in this letter shall take effect on the date hereof, and shall remain in effect until November 30, 2001. Please sign below to confirm your agreement with the terms of this letter. Sincerely, Domini Social Investments LLC By: /s/ David P. Wieder -------------------------------- Title: Managing Principal Agreed: Domini Social Investment Trust By: /s/ Carole M. Laible -------------------------------- Title: Secretary/Treasurer EX-99.H4 8 0008.txt EXPENSE LIMITATION AGREEMENT Exhibit h(4) Domini Social Investments LLC 536 Broadway, 7th Floor New York, New York 10012 November 30, 2000 Domini Social Investment Trust 536 Broadway, 7th Floor New York, New York 10012 Re: Expense Limitation Agreement Ladies and Gentlemen: Domini Social Investments LLC currently provides oversight and administrative and management services to Domini Social Investment Trust (the "Trust"), a Massachusetts business trust. We hereby agree with the Trust that we will waive expenses payable to us by the Trust's series designated Domini Social Bond Fund or will reimburse such series for all expenses payable by that series to the extent necessary so that the series' aggregate expenses (excluding brokerage fees and commissions, interest, taxes and other extraordinary expenses), net of waivers and reimbursements, would not exceed on a per annum basis 0.95% of that series' average daily net assets. The agreement in this letter shall take effect on the date hereof, and shall remain in effect until November 30, 2001. Please sign below to confirm your agreement with the terms of this letter. Sincerely, Domini Social Investments LLC By: /s/ David P. Wieder ----------------------------- Title: Managing Principal Agreed: Domini Social Investment Trust By: /s/ Carole M. Laible ------------------------------ Title: Secretary/Treasurer EX-99.H5 9 0009.txt ADMINISTRATION AGREEMENT Exhibit h(5) ADMINISTRATION AGREEMENT ADMINISTRATION AGREEMENT, dated as of May 1, 2000 by and between Domini Social Investment Trust (formerly, "Domini Social Equity Fund"), a Massachusetts business trust (the "Trust"), with respect to its series, the Domini Social Bond Fund (the "Series'), and Domini Social Investments LLC, a Massachusetts limited liability company ("DSI" or the "Administrator"). W I T N E S S E T H: WHEREAS, the Trust is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended, and consists of one or more series; WHEREAS, the Trust desires to enter into this Agreement with respect to its Series; WHEREAS, the Trust wishes to engage DSI to provide certain oversight, administrative and management services with respect to its Series, and DSI is willing to provide such oversight, administrative and management services to the Trust with respect to its Series on the terms and conditions hereinafter set forth; and NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as herein set forth, the parties covenant and agree as follows: 1. DUTIES OF THE ADMISTRATOR. Subject to the direction and control of the Board of Trustees of the Trust, the Administrator shall perform such oversight, administrative and management services as may from time to time be reasonably requested by the Trust, which shall include without limitation: (a) maintaining office facilities (which may be in the office of DSI or an affiliate) and furnishing clerical services necessary for maintaining the organization of the Trust and for performing the oversight, administrative and management functions herein set forth; (b) arranging, if desired by the Trust, for directors, officers or employees of the Administrator to serve as Trustees, officers or agents of the Trust if duly elected or appointed to such positions and subject to their individual consent and to any limitations imposed by law; (c) supervising the overall administration of the Series, including the updating of corporate organizational documents, and the negotiation of contracts and fees with and the monitoring and coordinating of performance and billings of the Series' transfer agent, shareholder servicing agents (if any), custodian, administrator, subadministrator (if any) and other independent contractors or agents; (d) overseeing (with advice of the Trust's counsel) the preparation of and, if applicable, filing all documents required for compliance by the Trust with applicable laws and regulations (including state "blue sky" laws and regulations) pertaining to the Series, including registration statements on Form N-1A, prospectuses and statements of additional information, or similar forms, as applicable, semi-annual and annual reports to shareholders and proxy statements, and reviewing tax returns; (e) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and preparation of notices, proxy statements and minutes of meetings of shareholders; (f) arranging for maintenance of books and records of the Series; (g) maintaining telephone coverage to respond to shareholder inquiries regarding matters to which this Agreement pertains to which the transfer agent is unable to respond; (h) providing reports and assistance regarding the Series' compliance with securities and tax laws and the Series' investment objectives; (i) arranging for dissemination of yield and other performance information to newspapers and tracking services; (j) arranging for and preparing annual renewals for fidelity bond and errors and omissions insurance coverage; (k) developing a budget for the Series, establishing the rate of expense accruals and arranging for the payment of all fixed and management expenses; and (l) answering questions from the general public, the media and shareholders of the Series regarding (i) the securities holdings of the Series; (ii) any limits in which the Series invests; (iii) the social investment philosophy of the Series; and (iv) the proxy voting philosophy and shareholder activism philosophy of the Series. Notwithstanding the foregoing, the Administrator shall not be deemed to have assumed, pursuant to this Agreement, any duties with respect to, and shall not be responsible for, the management of the Series' assets or the rendering of investment advice and supervision with respect thereto or the distribution of shares of the Series, nor shall the Administrator be deemed to have assumed or have any responsibility with respect to functions specifically assumed by any transfer agent, custodian, fund accounting pricing agent or shareholder servicing agent of the Series. 2. ALLOCATION OF CHARGES AND EXPENSES. DSI shall pay the entire salaries and wages of all of the Trust's Trustees, officers and agents who devote part or all of their time to the affairs of DSI or its affiliates, and the wages and salaries of such persons shall not be deemed to be expenses incurred by the Trust for purposes of this Section 2. The Trust shall pay all of its operating expenses, including but not limited to fees due the Administrator under this Agreement, compensation of Trustees not affiliated with the Administrator, governmental fees, including but not limited to Securities and Exchange Commission fees and state "blue sky" fees; interest charges; taxes and related charges; membership dues of the Trust in the Investment Company Institute and other professional or industry associations; fees and expenses of the Trust's independent auditors and accountants, of legal counsel and any transfer agent, distributor, shareholder servicing agent, recordkeeper, registrar or dividend disbursing agent of the Trust; expenses of distributing, issuing and redeeming shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses and statements of additional information, reports, notices, proxy statements and reports to shareholders and governmental officers and commissions; expenses connected with the execution, recording and settlement of portfolio security transactions; insurance premiums; fees and expenses of the Trust's custodian for all services to the Series, including safekeeping of funds and securities and maintaining required books and accounts; expenses of calculating the net asset value of shares of the Series; expenses of shareholder meetings; and expenses relating to the issuance, registration and qualification of shares of the Series of the Trust. 3. COMPENSATION OF THE ADMISTRATOR. For the services to be rendered and facilities to be provided by the Administrator hereunder with respect to the Series, the Trust shall pay DSI from the assets of the Series a fee accrued daily and payable monthly at an annual rate equal to 0.25% of the Series' average daily net assets for the Series' then current fiscal year. If DSI serves as the Administrator for less than the whole of any period specified in this Section 3, the compensation to DSI, as Administrator, shall be prorated. For purposes of computing the fees payable to the Administrator hereunder, the value of the Series' net assets shall be computed in the manner specified in the Trust's then-current prospectus and statement of additional information applicable to the Series. 4. LIMITATION OF LIABILITY OF THE ADMISTRATOR. The Administrator shall not be liable for any error of judgment or mistake of law or for any act or omission in the oversight, administration or management of the Trust or the performance of its duties hereunder, 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 hereunder. As used in this Section 4, the term "Administrator" shall include DSI and/or any of its affiliates and the directors, officers and employees of DSI and/or any of its affiliates. 5. ACTIVITIES OF THE ADMISTRATOR. The services of the Administrator to the Trust are not to be deemed to be exclusive, DSI being free to render oversight, administrative and/or other services to other parties. It is understood that Trustees, officers and shareholders of the Trust are or may become interested in the Administrator and/or any of its affiliates as directors, officers, employees or otherwise and that directors, officers and employees of the Administrator and/or any of its affiliates are or may become similarly interested in the Trust and that the Administrator and/or any of its affiliates may be or become interested in the Trust as a shareholder or otherwise. 6. DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT. This Agreement shall become effective as of the day and year first above written and shall govern the relations between the parties hereto thereafter, unless terminated as set forth in this Section 6. This Agreement may not be altered or amended, except by an instrument in writing and executed by both parties. This Agreement may be terminated 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 60 days' written notice to the other party. 7. SUBCONTRACTING BY DSI. DSI may subcontract for the performance of some or all of DSI's obligations hereunder with any one or more persons; provided, however, that DSI shall not enter into any such subcontract with any entity other than a subsidiary or an affiliate of DSI unless the Trustees of the Trust shall have found the subcontracting party to be qualified to perform the obligations sought to be subcontracted; and provided, further, that, unless the Trust otherwise expressly agrees in writing, DSI shall be as fully responsible to the Trust for the acts and omissions of any subcontractor as it would be for its own acts or omissions. 8. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 9. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally, by telecopy or mailed postage-paid to the other party at such address as such other party may designate in accordance with this Section 9 for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust shall be 11 West 25th Street, 7th Floor, New York, New York 10010, and the address of DSI shall be 11 West 25th Street, 7th Floor, New York, New York 10010. 10. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced and interpreted in accordance with and governed by the laws of the Commonwealth of Massachusetts without reference to principles of conflicts of law. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written. The undersigned Trustee of the Trust has executed this Agreement not individually but as a Trustee under the Trust's Declaration of Trust, dated June 7, 1989, as amended, and the obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Trust individually but bind only the Trust estate. The obligations of the Series shall be paid only from the assets of the Series and shall not be enforceable against any other series of the Trust. DOMINI SOCIAL INVESTMENT TRUST, On Behalf of Domini Social Bond Fund By /s/ Carole M. Laible ----------------------------------- Name Carole M. Laible Title Treasurer/Secretary DOMINI SOCIAL INVESTMENTS LLC By /s/ David P. Wieder ---------------------------------- Name David P. Wieder Title Managing Principal EX-99.J 10 0010.txt OPINION AND CONSENT Independent Auditors' Consent The Board of Trustees and Shareholders Domini Social Equity Fund, and Domini Social Bond Fund, and Domini Social Index Portfolio We consent to the use of our reports for the Domini Social Equity Fund and Domini Social Bond Fund, both dated September 15, 2000, and the Domini Social Index Portfolio, dated September 15, 2000, all incorporated herein by reference, and to the references to our firm under the heading "Financial Highlights" in the prospectus and "Independent Auditors" in the statement of additional information. s/ KPMG LLP ----------------- KPMG LLP Boston, Massachusetts November 17, 2000 EX-99.M 11 0011.txt AMENDED AND RESTATED DISTRIBUTION PLAN Exhibit m AMENDED AND RESTATED DISTRIBUTION PLAN AMENDED AND RESTATED DISTRIBUTION PLAN, dated as of May 1, 1990, and amended and restated as of January 14, 2000, of Domini Social Investment Trust (formerly, "Domini Social Equity Fund"), a Massachusetts business trust (the "Trust"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered under the Investment Company Act of 1940 (collectively with the rules and regulations promulgated thereunder, the "1940 Act"); WHEREAS, the Trust's shares of beneficial interests ("Shares") are divided into separate series representing interests in separate securities and other assets; WHEREAS, the Trust has adopted a distribution plan in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1") with respect to its series designated Domini Social Equity Fund (the "Original Plan") and desires to adopt this Amended and Restated Distribution Plan (the "Plan") to amend and restate the Original Plan in its entirety in order to provide that its provisions apply to the Domini Social Equity Fund, the Domini Social Bond Fund and each other series of the Trust that adopts this Plan as provided herein (the "Series"); and WHEREAS, the Trust desires to enter into an amended and restated distribution agreement (in such form as may from time to time be approved by the Board of Trustees of the Trust in the manner specified in Rule 12b-1) (the "Distribution Agreement"), whereby the Distributor named in the Distribution Agreement (the "Distributor") will provide facilities and personnel and render services to the Trust in connection with the offering and distribution of the Shares; WHEREAS, the Board of Trustees, in considering whether the Trust should adopt and implement this Plan, has evaluated such information as it deemed necessary to an informed determination as to whether this Plan should be adopted and implemented and has considered such pertinent factors it deemed necessary to form the basis for a decision to use assets of the Trust for such purposes, and has determined that there is a reasonable likelihood that the adoption and implementation of this Plan will benefit the Trust and its shareholders. NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the Trust as a plan for distribution in accordance with Rule 12b-1, on the following terms and conditions, and hereby amends and restates the Original Plan as follows: 1. As specified in the Distribution Agreement, the Distributor shall provide facilities, personnel and a program with respect to the offering and sale of Shares. 2. The Distributor shall, subject to paragraph 3 below, bear all distribution-related expenses in connection with the services described in paragraph 1, including without limitation, the compensation of personnel necessary to provide such services and all costs of travel, office expenses (including rent and overhead) and equipment. 3. (a) As consideration for all services performed, the Trust may pay the Distributor a fee at an annual rate not to exceed 0.25% of the average daily net assets of each Series for its then-current fiscal year in anticipation of, or as reimbursement for, expenses incurred by the Distributor in connection with the sale of Shares of that Series such as payments to broker-dealers, banks and investment advisers who advise shareholders regarding the purchase, sale or retention of Shares of the Trust, compensation of employees of the Distributor, advertising expenses and the expenses of printing (excluding typesetting) and distributing prospectuses and reports used for sales purposes, expenses of preparing and printing sales literature and other distribution-related expenses. (b) With respect to any Series other than Domini Social Equity Fund, the Trust may pay the Distributor a fee, in addition to the fee provided in paragraph (a) above, at an annual rate which, when added to the amount received by the Distributor with respect to such Series under paragraph (a) above, will not exceed 0.25% of the average daily net assets of that Series for its then- current fiscal year, as compensation for distribution services provided by the Distributor in connection with the sale of Shares of that Series. 4. The Trust shall pay all fees and expenses of any independent auditor, legal counsel, administrator, transfer agent, custodian, shareholder servicing agent, registrar or dividend disbursing agent of each Series, expenses of distributing and redeeming Shares and servicing shareholder accounts; expenses of preparing, printing and mailing prospectuses, shareholder reports, notices, proxy statements reports to governmental officers and commissions and to shareholders of each Series; expenses connected with the execution, recording and settlement of portfolio security transactions; insurance premiums; expenses of calculating the net asset value of Shares; expenses of shareholder meetings; and expenses relating to the issuance, registration and qualification of Shares. 5. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Declaration of Trust or By-Laws or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of Trustees of the responsibility for and control of the conduct of the affairs of the Trust. 6. The Original Plan having been approved with respect to the Series of the Trust designated Domini Social Equity Fund by a vote of at least a "majority of the outstanding voting securities" of that Series and by a vote of the Board of Trustees and vote a majority of the Trustees who are not "interested persons" of the Trust and who have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Qualified Trustees"), this Plan shall become effective as to Domini Social Equity Fund upon approval by a vote of the Board of Trustees and vote of a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on this Plan. 7. This Plan shall become effective as to each Series of the Trust other than Domini Social Equity Fund upon (a) approval by a vote of at least a "majority of the outstanding voting securities" of that Series, and (b) approval by a vote of the Board of Trustees and vote of a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on this Plan. 8. This Plan shall continue in effect indefinitely; provided, however, that such continuance is subject to annual approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on continuance of this Plan. If such annual approval is not obtained with respect to a Series, this Plan shall expire as to that Series on the date which is 15 months after the date of the last approval. 9. This Plan may be amended at any time by the Board of Trustees, provided that (a) any amendment to increase materially the amount to be spent for the services described herein shall be effective only upon approval by a vote of a "majority of the outstanding voting securities" of each applicable Series, and (b) any material amendment of this Plan shall be effective only upon approval by a vote of the Board of Trustees and a majority of the Qualified Trustees, such votes to be cast in person at a meeting called for the purpose of voting on such amendment. This Plan may be terminated at any time with respect to any Series by vote of a majority of the Qualified Trustees or by a vote of a "majority of the outstanding voting securities" of the applicable Series. 10. The Trust and the Distributor each shall provide the Board of Trustees, and the Board of Trustees shall review, at least quarterly, a written report of the amounts expended under the Plan and the purposes for which such expenditures were made. 11. While this Plan is in effect, the selection and nomination of Qualified Trustees shall be committed to the discretion of the Trustees who are not "interested persons" of the Trust. 12. For the purposes of this Plan, the terms "interested persons" and "majority of the outstanding voting securities" are used as defined in the 1940 Act. In addition, for purposes of determining the fees payable to the Distributor, the value of a Series' net assets shall be computed in the manner specified in the Trust's then-current prospectus with respect to that Series for computation of the net asset value of the Shares of that Series. 13. The Trust shall preserve copies of this Plan, and each agreement related hereto and each report referred to in paragraph 10 hereof (collectively, the "Records") for a period of six years from end of the fiscal year in which such Record was made and each such Record shall be kept in an easily accessible place for the first two years of said record-keeping. 14. This Plan shall be construed in accordance with the laws of the Commonwealth of Massachusetts and the applicable provisions of the 1940 Act. 15. If any provision of this Plan shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Plan shall not be affected thereby. EX-99.P 12 0012.txt CODES OF ETHICS Exhibit (p) CODE OF ETHICS FOR DOMINI SOCIAL EQUITY FUND DOMINI INSTITUTIONAL TRUST DOMINI SOCIAL INDEX PORTFOLIO Revised January 14, 2000 Domini Social Equity Fund, Domini Institutional Trust and Domini Social Index Portfolio, each on behalf of its current and future series (each, an "Investment Company"; collectively, the "Investment Companies") have each determined to adopt this Code of Ethics (the "Code") as of January 14, 2000, to specify and prohibit certain types of personal securities transactions deemed to create a conflict of interest and to establish reporting requirements and preventive procedures pursuant to the provisions of Rule 17j-1(c) under the Investment Company Act of 1940 (the "1940 Act"). I. DEFINITIONS ----------- A An "Access Person" means (i) any Trustee, Director, officer or Advisory Person (as defined below) of the Investment Company or any investment adviser thereof, or (ii) any director or officer of a principal underwriter of the Investment Company who, in the ordinary course of his or her business, makes, participates in or obtains information regarding the purchase or sale of securities for the Investment Company for which the principal underwriter so acts or whose functions or duties as part of the ordinary course of his or her business relate to the making of any recommendation to the Investment Company regarding the purchase or sale of securities; or (iii) notwithstanding the provisions of clause (i) above, where the investment adviser is primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients (as determined in accordance with Rule 17j-1 of the 1940 Act), any trustee, director, officer or Advisory Person of the investment adviser who, with respect to the Investment Company, makes any recommendation or participates in the determination of which recommendations shall be made, or whose principal function or duties relate to the determination of which recommendations shall be made to the Investment Company or who in connection with his or her duties, obtains any information concerning securities recommendations being made by such investment adviser to the Investment Company. B An "Advisory Person" means (i) any employee of the Investment Company or any investment adviser or investment manager thereof (or of any company in a control relationship to the Investment Company or such 1 investment adviser), who, in connection with his or her regular functions or duties, makes, participates in or obtains information regarding the purchase or sale of securities by the Investment Company or whose functions relate to any recommendations with respect to such purchases or sales and (ii) any natural person in a control relationship with the Investment Company or adviser who obtains information regarding the purchase or sale of securities (or any recommendation with respect thereto). C A "Portfolio Manager" means any person or persons with the direct responsibility and authority to make investment decisions affecting the Investment Company. D "Access Persons," "Advisory Persons" and "Portfolio Managers" shall not include any individual who is required to file reports with any investment adviser, subadviser, administrator or the principal underwriter pursuant to a code of ethics described in Section V and found by the Trustees to be substantially in conformity with Rule 17j- 1 of the 1940 Act. E "Beneficial Ownership" shall be interpreted subject to the provisions of Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the Securities Exchange Act of 1934. F "Control" shall have the same meaning as set forth in Section 2(a)(9) of the 1940 Act. G "Disinterested Trustee" means a Trustee who is not an "interested person" of the Investment Company within the meaning of Section 2(a)(19) of the 1940 Act. An "interested person" includes any person who is a trustee, director, officer or employee of any investment adviser of the Investment Company, or owner of 5% or more of the outstanding stock of any investment adviser of the Investment Company. Affiliates of brokers or dealers are also "interested persons", except as provided in Rule 2(a)(19)(1) under the 1940 Act. H "Review Officer" is the person designated by the Investment Company's Board of Trustees to monitor the overall compliance with this Code. In the absence of any such designation the Review Officer shall be the Treasurer or any Assistant Treasurer of the Investment Company. I "Preclearance Officer" is the person designated by the Investment Company's Board of Trustees to provide preclearance of any personal security transaction as required by this Code. 2 J "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a security or the purchase or sale of a future or index on a security or option thereon. K "Security" shall have the meaning as set forth in Section 2(a)(36) of the 1940 Act (in effect, all securities), except that it shall not include securities issued by the Government of the United States (or any short-term debt security that is a "government security" as that term is defined in the 1940 Act), bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, and shares of registered open-end investment companies. L A security is "being considered for purchase or sale" when a recommendation to purchase or sell the security has been made and communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation. M A security "held or to be acquired" by the Investment Company means (i) a security which, within the most recent 15 days (1) is or has been held by the Investment Company or (2) is being or has been considered by the Investment Company or its investment adviser for purchase by the Investment Company and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a security described in clause (i) of this definition. II. STATEMENT OF GENERAL PRINCIPLES ------------------------------- The following general fiduciary principles shall govern the personal investment activities of all Access Persons. Each Access Person shall: A at all times, place the interests of the Investment Company before his or her personal interests; B conduct all personal securities transactions in a manner consistent with this Code, so as to avoid any actual or potential conflicts of interest, or an abuse of position of trust and responsibility; and C not take any inappropriate advantage of his or her position with or on behalf of the Investment Company. 3 III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES --------------------------------------------- A. Unlawful Actions ---------------- No Access Person shall, in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired by the Investment Company: 1. employ any device, scheme or artifice to defraud the Investment Company; 2. make to the Investment Company any untrue statement of a material fact or omit to state to the Investment Company a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; 3. engage in any act, practice or course of business which would operate as a fraud or deceit upon the Investment Company; or 4. engage in any manipulative practice with respect to the Investment Company. B Blackout Periods ---------------- 1. No Access Person (other than a Disinterested Trustee) shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership on a day during which he or she knows or should have known the Investment Company has a pending "buy" and "sell" order in that same security until that order is executed or withdrawn. 2. No Advisory Person or Portfolio Manager shall purchase or sell, directly or indirectly, any security in which he or she has, or by reason of such transaction acquires, any direct or indirect beneficial ownership within at least seven calendar days before and after the Investment Company trades (or has traded) in that security. C Initial Public Offerings ------------------------ No Advisory Person shall acquire any security in an initial public offering for his or her personal account. 4 D Private Placements ------------------ With regard to private placements, each Advisory Person shall: 1. obtain express prior written approval from the Preclearance Officer for any acquisition of securities in a private placement (the Review Officer, in making such determination, shall consider, among other factors, whether the investment opportunity should be reserved for the Investment Company, and whether such opportunity is being offered to such Advisory Person by virtue of his or her position with the Investment Company); and 2. after authorization to acquire securities in a private placement has been obtained, disclose such personal investment with respect to any subsequent consideration by the Investment Company (or any other investment company for which he or she acts in a capacity as an Advisory Person) for investment in that issuer. If the Investment Company decides to purchase securities of an issuer the shares of which have been previously obtained for personal investment by an Advisory Person, that decision shall be subject to an independent review by Advisory Persons with no personal interest in the issuer. E Short-Term Trading Profits -------------------------- No Advisory Person shall profit from the purchase and sale, or sale and purchase, of the same (or equivalent) securities of which such Advisory Person has beneficial ownership within 60 calendar days. Any profit so realized shall, unless the Investment Company's Board of Trustees approves otherwise, be disgorged as directed by the Investment Company's Board of Trustees. F Gifts ----- No Advisory Person shall receive any gift or other things of more than de minimis value from any person or entity that does business with or on behalf of the Investment Company. G Service as a Director or Trustee -------------------------------- 1. No Advisory Person shall serve on a board of directors or trustees of a publicly traded company without prior authorization from the Board of Trustees of the Investment Company, based upon a determination 5 that such board service would be consistent with the interests of the Investment Company and its investors. 2. If board service of an Advisory Person is authorized by the Board of Trustees of the Investment Company such Advisory Person shall be isolated from the investment-making decisions of the Investment Company with respect to the companies of which he or she is a director or trustee. H Exempted Transactions --------------------- The prohibitions of Section III (other than Section III.C and Section III.D) shall not apply to: 1. purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control; 2. purchases or sales that are non-volitional on the part of the Access Person or the Investment Company, including mergers, recapitalizations or similar transactions; 3. purchases which are part of an automatic dividend reinvestment plan; 4. purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired; and 5. purchases and sales that receive prior approval in writing by the Preclearance Officer as (a) only remotely potentially harmful to the Investment Company because they would be very unlikely to affect a highly institutional market, (b) clearly not economically related to the securities to be purchased or sold or held by the Investment Company or client, and (c) not representing any danger of the abuses proscribed by Rule 17j-1, but only if in each case the prospective purchaser has identified to the Review Officer all factors of which he or she is aware which are potentially relevant to a conflict of interest analysis, including the existence of any substantial economic relationship between his or her transaction and securities held or to be held by the Investment Company. 6 IV. COMPLIANCE PROCEDURES --------------------- A Preclearance ------------ An Access Person (other than a Disinterested Trustee) may not, directly or indirectly, acquire or dispose of beneficial ownership of a security except as provided below unless: 1. such purchase or sale has been approved by the Preclearance Officer; 2. the approved transaction is completed on the same day approval is received; and 3. the Preclearance Officer has not rescinded such approval prior to execution of the transaction. Each Access Person may effect total purchases and sales of up to $25,000 of securities listed on a national securities exchange within any six month period without preclearance from the Board of Trustees or the Preclearance Officer, provided that: 1) The six month period is a "rolling" period, i.e., the limit ----- is applicable between any two dates which are six months apart; 2) Transactions in options and futures, other than options or futures on commodities, will be included for purposes of calculating whether the $25,000 limit has been exceeded. Such transactions will be measured by the value of the securities underlying the options and futures; and 3) Although preclearance is not required for personal transactions in securities which fall into this de minimis exception, these trades must still be reported pursuant to Section IV.B. B. Reporting --------- 1. Unless excepted by paragraph 2 of this Section IV.B, every Access Person of the Investment Company must report to the Review Officer as described below. a. Initial Holdings Reports. Not later than 10 days after the person becomes an Access Person, the following information: 7 . the title, number of shares and principal amount of each security in which the Access Person had any direct or indirect beneficial ownership when the person became an Access Person; . the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and . the date that the report is signed and submitted by the Access Person. b. Quarterly Transaction Reports. Not later than 10 days after the end of each calendar quarter, the following information: (i) With respect to any transaction during the quarter in a security in which the Access Person had any direct or indirect beneficial ownership: . the date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each security involved; . the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); . the price of the security at which the transaction was effected; . the name of the broker, dealer or bank with or through which the transaction was effected; and . the date that the report is signed and submitted by the Access Person. (ii) With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person: 8 . the name of the broker, dealer or bank with whom the Access Person established the account; . the date that the account was established; and . the date that the report is signed and submitted by the Access Person. (iii) In the event that no reportable transactions occurred during the quarter, the report should be so noted and returned signed and dated. c. Annual Holdings Reports. Not later than each January 31st, the following information (which information must be current as of the immediately preceding December 31st): . the title, number of shares and principal amount of each security in which the Access Person had any direct or indirect beneficial ownership; . the name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and . the date on which the report is signed and submitted by the Access Person. 2. The following are the exceptions to the reporting requirements outlined in Section IV.B.1: a. A person need not make any report required under of Section IV.B.1 with respect to transactions effected for, and securities held in, any account over which the person has no direct influence or control, including such an account in which the person has any beneficial ownership. 9 b. A Disinterested Trustee who would be required to make the reports required under Section IV.B.1 solely by reason of being a trustee of the Investment Company need not make: (i) an initial holdings report or an annual holdings report under Section IV.B.1; or (ii) a quarterly transaction report under Section IV.B.1 unless the Disinterested Trustee knew or, in the ordinary course of fulfilling his or her official duties as a Trustee of the Investment Company, should have known, that during the 15- day period immediately before or after the Trustee's transaction in a security, the Investment Company purchased or sold the security (or such security was added to or deleted from the Domini 400 Social Index) or the Investment Company or its investment adviser considered purchasing or selling the security (or such security was being considered for addition to or deletion from the Domini 400 Social Index). c. A person need not make a quarterly transaction report under Section IV.B.1 if the report would duplicate information contained in broker trade confirmations or account statements received by the Review Officer with respect to the person in the time period required under Section IV.B.1, if all of the information required under Section IV.B.1 is contained in the broker trade confirmations or account statements or in the records of the Investment Company. 3. Any report delivered pursuant to Section IV.B.1 may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the securities to which the report relates. 4. Each Access Person must certify annually (no later than each January 31st) that he or she has read and understands this Code of Ethics and has complied with its provisions. Such certificates and reports are to be given to the Review Officer. C Review ------ The Review Officer shall review all of the reports delivered under Section IV.B to determine whether a violation of this Code of Ethics may have 10 occurred and shall take into account the exemptions allowed under Section III.G hereunder to the extent applicable. Before making a determination that a violation has been committed by an Access Person, the Review Officer shall give such person an opportunity to supply additional information regarding the transaction in question. V. INVESTMENT ADVISER'S, ADMINISTRATOR'S OR PRINCIPAL UNDERWRITER'S CODE OF ------------------------------------------------------------------------ ETHICS ------ This Code of Ethics does not apply to "access persons" (as defined in Rule 17j-1 under the 1940 Act) of any investment adviser, subadviser, administrator or principal underwriter of the Investment Company who are not otherwise Access Persons as defined herein. Each investment adviser (including, where applicable, any subadviser), administrator (if any) or principal underwriter of the Investment Company shall: A submit to the Board of Trustees of the Investment Company a copy of its Code of Ethics adopted pursuant to Rule 17j-1; B promptly report to the Investment Company in writing any material amendments to its Code of Ethics; C promptly furnish to the Investment Company upon request copies of any reports made pursuant to such Code of Ethics by any person who is an Access Person of the Investment Company; and D immediately furnish to the Investment Company, without request, all material information regarding any violation of such Code of Ethics by any person who is an Access Person of the Investment Company. VI. REVIEW BY THE BOARD OF TRUSTEES ------------------------------- Each of the Review Officer of the Investment Company and the Investment Company's investment advisers, subadvisers, administrator and principal underwriter shall furnish a written report to the Board of Trustees, at least annually, that: A describes any issues arising under the Code of Ethics or procedures of such entity since the last report to the Board of Trustees, including, but not limited to, information about material violations of its Code of Ethics or procedures and sanctions imposed in response to the material violations; and 11 B certifies that the Investment Company, investment adviser, subadviser, administrator or principal underwriter, as applicable, has adopted procedures reasonably necessary to prevent its Access Persons from violating its Code of Ethics. VII. SANCTIONS --------- A Sanctions for Violations by Access Persons ------------------------------------------ If the Review Officer determines that a violation of this Code has occurred, he or she shall so advise the Board of Trustees and the Board may impose such sanctions as it deems appropriate, including, inter alia, disgorgement of profits, censure, suspension or termination of the employment of the violator. All material violations of the Code and any sanctions imposed as a result thereto shall be reported periodically to the Board of Trustees. B Sanctions for Violations by Disinterested Trustees -------------------------------------------------- If the Review Officer determines that any Disinterested Trustee has violated this Code, he or she shall so advise the President of the Investment Company and also a committee consisting of the Disinterested Trustees (other than the person whose transaction is at issue) and shall provide the committee with a report, including the record of pertinent actual or contemplated portfolio transactions of the Investment Company and any additional information supplied by the person whose transaction is at issue. The committee, at its option, shall either impose such sanctions as it deems appropriate or refer the matter to the full Board of Trustees of the Investment Company, which shall impose such sanctions as it deems appropriate. VIII. MISCELLANEOUS ------------- A Access Persons -------------- The Review Officer of the Investment Company will identify all Access Persons who are under a duty to make reports to the Investment Company and will inform such persons of such duty. Any failure by the Review Officer to notify any person of his or her duties under this Code shall not relieve such person of his or her obligations hereunder. 12 B Records ------- The Investment Company's administrator shall maintain records in the manner and to the extent set forth below, which records may be maintained on microfilm under the conditions described in Rule 31a- 2(f) under the 1940 Act, and shall be available for examination by representatives of the Securities and Exchange Commission ("SEC"): 1. a copy of this Code and any other code which is, or at any time within the past five years has been, in effect shall be preserved in an easily accessible place; 2. a record of any violation of this Code and of any action taken as a result of such violation shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; 3. a copy of each report made pursuant to this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place; 4. a list of all persons who are required, or within the past five years have been required, to make reports pursuant to this Code shall be maintained in an easily accessible place; 5. copy of each report required under Section VI shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an early accessible place; and 6. record of any decision, and the reasons supporting the decision, to approve the acquisition by Advisory Persons of securities under Section III.D shall be preserved for a period of not less than five years from the end of the fiscal year in which the approval is granted. C Confidentiality --------------- All reports of securities transactions and any other information filed pursuant to this Code shall be treated as confidential, except to the extent required by law. 13 D Interpretation of Provisions ---------------------------- The Board of Trustees of the Investment Company may from time to time adopt such interpretations of this Code as it deems appropriate. 14 DOMINI SOCIAL EQUITY FUND DOMINI INSTITUTIONAL TRUST DOMINI SOCIAL INDEX PORTFOLIO QUARTERLY TRANSACTIONS REPORT ----------------------------- To: __________________________, Review Officer From: ___________________________ (Your Name) This Transaction Report (the "Report") is submitted pursuant to Section IV of the Code of Ethics of Domini Social Equity Fund, Domini Institutional Trust and Domini Social Index Portfolio (each, an "Investment Company"; collectively, the "Investment Companies") and supplies (below) information with respect to transactions in any security in which I may be deemed to have, or by reason of such transaction acquire, any direct or indirect beneficial ownership interest (whether or not such security is a security held or to be acquired by an Investment Company) for the calendar quarter ended ____________. Unless the context otherwise requires, all terms used in the Report shall have the same meaning as set forth in the Code of Ethics. For purposes of the Report, beneficial ownership shall be interpreted subject to the provisions of the Code of Ethics and Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the Securities Exchange Act of 1934.
Nature of Transaction (Whether Name of the Purchase, Principal Broker, Dealer Sale, or Amount of Price At Or Bank With Other Type Of Securities Which the Whom The Nature Of Title of Date of Disposition Acquired or Transaction Transaction Ownership Securities Transaction Or Acquisition) Disposed Of Was Effected Was Effected Securities* - ---------- ----------- --------------- ----------- ------------ -------------- -----------
____________ * If appropriate, you may disclaim beneficial ownership of any security listed in this report. I HEREBY CERTIFY THAT I (1) HAVE READ AND UNDERSTAND THE CODE OF ETHICS OF THE INVESTMENT COMPANY, DATED JANUARY 14, 2000, (2) RECOGNIZE THAT I AM SUBJECT TO THE CODE OF ETHICS, (3) HAVE COMPLIED WITH THE REQUIREMENTS OF THE CODE OF ETHICS OVER THE PAST YEAR, (4) HAVE DISCLOSED ALL PERSONAL SECURITIES TRANSACTIONS OVER THE PAST YEAR REQUIRED TO BE DISCLOSED BY THE CODE OF ETHICS, (5) HAVE SOUGHT AND OBTAINED PRECLEARANCE WHENEVER REQUIRED BY THE CODE OF ETHICS AND (6) CERTIFY THAT TO THE BEST OF MY KNOWLEDGE THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT. NAME (Print) ___________________________________________________________________ SIGNATURE ___________________________________________________________________ DATE ___________________________________________________________________ Page 1 of 2 DOMINI SOCIAL EQUITY FUND DOMINI INSTITUTIONAL TRUST DOMINI SOCIAL INDEX PORTFOLIO (each an "Investment Company"; collectively the "Investment Companies" PERSONAL TRADING REQUEST AND AUTHORIZATION ------------------------------------------ Personal Trading Request (to be completed by Access Person prior to any personal - -------------------------------------------------------------------------------- trade): - ------ Name: _________________________________ Date of proposed transaction: _________________________________ Name of the issuer and dollar amount or number of securities of the issuer to be purchased or sold: ________________________________________________________________________________ Nature of the transaction (i.e., purchase, sale):/1/ ___________________________ Are you or a member of your immediate family an officer or director of the issuer of the securities or of any affiliate/2/ of the issuer? Yes ____ No ____ If yes, please describe: ________________________________________________ Describe the nature of any direct or indirect professional or business relationship that you may have with the issuer of the securities./3/ ________________________________________________________________________________ Do you have any material nonpublic information concerning the issuer? Yes _____ No ______ ______________________ /1/If other than market order, please describe any proposed limits. /2/For purposes of this question, "affiliate" includes (i) any entity that directly or indirectly owns, controls or holds with power to vote 5% or more of the outstanding voting securities of the issuer and (ii) any entity under common control with the issuer. /3/A "professional relationship" includes, for example, the provision of legal counsel or accounting services. A "business relationship" includes, for example, the provision of consulting services or insurance coverage. 1 Page 2 of 2 Do you beneficially own more than 1/2 of 1% of the outstanding equity securities of the issuer? Yes _______ No _______ If yes, please report the name of the issuer and the total number of shares "beneficially owned": ________________________________________________________________________________ Are you aware of any facts regarding the proposed transaction, including the existence of any substantial economic relationship between the proposed transaction and any securities held or to be acquired by an Investment Company, that may be relevant to a determination of the existence of a potential conflict of interest?/4/ Yes _______ No _______ If yes, please describe: ________________________________________________________________________________ To the best of your knowledge and belief, the answers that you have provided above are true and correct. ___________________________ Signature _____________________ /4/ Facts that would be responsive to this question include, for example (i) receipt of "special favors" from a stock promoter, including participation in a private placement or initial public offering as an inducement to purchase other securities for the Investment Company, or (ii) investment in securities of a limited partnership that in turn owns warrants of a company formed for the purpose of effecting a leveraged buy-out, in circumstances where the Investment Company might invest in securities related to the leveraged buy-out. The foregoing are only examples of pertinent facts and in no way limit the types of facts that may be responsive to this question. 2 Approval or Disapproval of Personal Trading Request (to be completed by - ----------------------------------------------------------------------- Preclearance Officer): - --------------------- _____ I confirm that the above-described proposed transaction appears to be consistent with the policies described in the Code of Ethics, and that the conditions necessary/5/ for approval of the proposed transaction have been satisfied. _____ I do not believe the above-described proposed transaction is consistent with the policies described in the Code of Ethics, or that the conditions necessary for approval of the proposed transaction have been satisfied. Dated: ____________ Signed: _______________________ Title: _______________________ __________________ /5/ In the case of a personal securities transaction by an Access Person of the Investment Company (other than Disinterested Trustees), the Code of Ethics requires that the Preclearance Officer determine that the proposed personal securities transaction (i) is not potentially harmful to the Investment Company (ii) would be unlikely to affect the market in which the Investment Company's portfolio securities are traded, and (iii) is not related economically to securities to be purchased, sold, or held by the Investment Company. In addition, the Code requires that the Preclearance Officer determine that the decision to purchase or sell the security at issue is not the result of information obtained in the course of the Access Person's relationship with the Investment Company. 3 DOMINI SOCIAL INVESTMENTS LLC (the "Adviser") DSIL INVESTMENT SERVICES LLC (the "Distributor") Code of Ethics Revised March 1, 2000 This Code of Ethics is intended to (a) minimize conflicts of interest, and even the appearance of conflicts of interest, between the personnel of the Adviser and the Distributor and their respective clients in the securities markets and (b) effect compliance with applicable securities laws. Each of the Adviser and the Distributor depends upon a high level of public and client confidence for its success. That confidence can be maintained only if the employees of the Adviser and the Distributor observe the highest standards of ethical behavior in the performance of their duties. This Code (as it may be amended or modified from time to time) is intended to inform all employees of the Adviser and the Distributor of certain standards of conduct which they are expected to observe. It is not possible to provide a precise, comprehensive definition of a conflict of interest. However, one factor which is common to all conflict of interest situations is the possibility that an employee's actions or decisions will be affected because of an actual or potential divergence between his or her personal interests and those of the Adviser or the Distributor, as applicable, or its clients. A particular activity or situation may be found to involve a conflict of interest even though it does not result in any financial loss to the Adviser or the Distributor, as applicable, or its clients and regardless of the motivation of the employee involved. In all cases, if a conflict situation arises between an employee and the Adviser or the Distributor, as applicable, or its clients, the interest of the Adviser or the Distributor, as applicable, or its client shall prevail. This Code also addresses the possibility that personnel may, by virtue of their positions with the Adviser or the Distributor, as applicable, be afforded opportunities to participate in certain investment opportunities that are not generally available to the investing public. Accepting such opportunities would tend to compromise the independent judgment personnel are expected to exercise for the benefit of clients and is therefore unacceptable. This Code is intended to help address these concerns in a systematic way. However, it is important that personnel go beyond the letter of this Code and remain sensitive to the need to avoid improper conflicts of interest, or even the appearance of such conflicts of interest, that are not expressly addressed by this Code. -2- This Code shall be administered by the Review Person and the Deputy Review Person. Carole M. Laible is hereby named the "Review Person" and shall serve in such capacity until the Management Committee of the Adviser and the Distributor's Board of Managers designate a successor Review Person. Adam Kanzer is hereby named the "Deputy Review Person" and shall serve in such capacity until the Management Committee of the Adviser and the Distributor's Board of Managers designate a successor Deputy Review Person. The Deputy Review Person shall be responsible for administering the Code (including preclearance of trades and review of transaction reports) for the Review Person. 1. Scope of this Code. (a) Persons Covered. This Code applies to (i) each managing member, manager, officer or Advisory Person (as defined below) of the Adviser and (ii) each employee, managing member, manager or officer of the Distributor who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of Covered Securities by a Fund (as defined below) for which the Distributor acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to a Fund regarding the purchase or sale of Covered Securities (each, an "Access Person"). All full-time employees of the Adviser and the Distributor ---------------------------------------------------------- shall be considered Access Persons unless advised, in writing, to the --------------------------------------------------------------------- contrary by the Review Person. ----------------------------- An "Advisory Person" is (i) any employee of the Adviser (or of any company in a control relationship to the Adviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Covered Securities by a Fund or any other client of the Adviser, or whose functions relate to the making of any recommendations with respect to such purchases or sales, and (ii) any natural person in a control relationship with the Adviser who obtains information concerning the recommendations made by the Adviser with regard to the purchase or sale of Covered Securities. A "Fund" is an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act") for which the Adviser provides investment advisory services or for which the Distributor provides distribution services, as applicable. (b) Definition of Securities. As used in this Code, the term "securities" means all types of securities as defined in Section 2(a)(36) of the 1940 Act, and includes all types of debt, equity, and other securities, including, among other things, common and preferred stocks, bonds, mutual fund shares, money market instruments, debentures, notes, limited partnership interests, warrants, depositary receipts, options and other derivative securities. This Code does not apply to savings, checking, NOW or money market accounts with banks, savings and loan associations, credit unions or similar institutions. -3- Definition of Covered Security. As used in this code "Covered Security" means any security except for (i) direct obligations of the Government of the United States, (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, and (iii) shares issued by open-end investment companies registered under the 1940 Act. A direct obligation of the Government of the United States includes any security issued or guaranteed as to principal or interest by the Government of the United States or by any agency or instrumentality of the Government of the United States. A "Security Held or to be Acquired" by a Fund means (i) any Covered Security which, within the most recent 15 days (A) is or has been held by the Fund or (B) is being or has been considered by the Fund or the Adviser for purchase by the Fund and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in the preceding clause (i). (c) Beneficial Ownership. For purposes of this Code, "beneficial ownership" is interpreted in the same manner as it would be under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, and the rules and regulations thereunder. Accordingly, a person shall have "beneficial ownership" of any security if he or she, directly or indirectly, through any contact, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the security. A person has a pecuniary interest in a security if he or she has the opportunity, directly or indirectly, to profit or share in any profit from a transaction in the subject security. A person may have an indirect pecuniary interest in a security if, among other things: (i) the security is held by a member of that person's immediate family sharing the same household; (ii) the person is a general partner and the security is held by the general partnership or limited partnership; (iii) the person's interest in such security is held by a trust; or (iv) the person has a right to acquire such security through the exercise or conversion of any derivative security, whether or not presently exercisable. (d) Types of Transactions Covered. This Code applies to all types of transactions in securities, including purchases, sales, exchanges, redemptions, short sales, donations, and gifts. 2. Prohibited Securities Transactions. -4- (a) Unlawful Actions. No Access Person shall, in connection with the purchase or sale, directly or indirectly, by such Access Person of a Security Held or to be Acquired by a Fund: (i) employ any device, scheme or artifice to defraud the Fund; (ii) make any untrue statement of a material fact to the Fund or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (iii) engage in any act, practice or course of business which would operate as a fraud or deceit upon the Fund; or (iv) engage in any manipulative practice with respect to the Fund. (b) Restricted Securities. At the start of every month, the Review Person will circulate a list of all issuers that during the month will be reviewed or evaluated by the Adviser or its affiliate, Kinder, Lydenberg, Domini & Co., Inc. ("KLD") for addition to, or removal from, the Domini Social Index or any other index established or maintained by the Adviser or KLD (each, an "Index"). The list will also include issuers for which the Adviser or KLD completed an review or evaluation for addition to or removal from an Index during the preceding month. The securities of each issuer on that list will be considered "Restricted Securities" until the circulation by the Adviser of a subsequent monthly list that does not include such issuer. An issuer shall remain on the list circulated for the next month following the month in which the Adviser or KLD completes its review or evaluation of the issuer for addition to or removal from an Index and publishes the results of such review or evaluation (including any decision to add the issuer to, or remove the issuer from, an Index). (c) Restrictions. No Access Person shall: (i) effect any transaction in any security that is a Restricted Security at the time such transaction is effected; or (ii) purchase or otherwise acquire any security that reasonably appears to have been offered or made available to such an Access Person by virtue of his/her position with the Adviser or the Distributor, as applicable, and is not generally available to the investing public. (d) Exceptions. The restrictions set forth in Sections 2(c), 5(a)(iii) and 5(a)(iv) of this Code shall not apply to the following: (i) transactions in shares of any open-end investment companies (open-end mutual funds) that are registered under the 1940 Act; -5- (ii) purchases made pursuant to an automatic dividend reinvestment plan; (iii) receipts of stock dividends, stock splits, or similar distributions; (iv) transfers that are gifts or donations, provided that the donee represents in writing that he or she has no present intention of selling the securities; (v) transactions for the sole account and benefit of other persons to whom an Access Person has a fiduciary relationship apart from the Adviser or the Distributor, as applicable; (vi) transactions effected on behalf of an Access Person that are beyond his or her reasonable control; (vii) purchases made upon the exercise of rights distributed by an issuer on a pro rata basis to all holders of a class of its -------- securities, and sales of any such rights so acquired; (viii) the receipt by an Access Person of securities as compensation for, or in connection with, his or her employment or the exercise by an Access Person of an option or warrant received by such Access Person as compensation for, or in connection with, his or her employment; and (ix) transactions that receive prior written approval of the Review Person, on the grounds that they are unlikely to have any adverse effect on the Adviser or the Distributor, as applicable, or their respective clients, involve no apparent impropriety, and appear to be consistent with applicable securities laws. 3. Misuse of Inside Information. (a) Definition of Inside Information. For purposes of this Code, "Inside Information" means any information obtained by an employee of the Adviser or the Distributor in connection with his or her work on behalf of the Adviser or the Distributor that such employee knows, or in the exercise of reasonable care should know, is (i) not available to the investing public generally, and (ii) material to a decision to effect a transaction in a security. (b) Ban on Trading. No employee of the Adviser or the Distributor shall effect any transaction in, directly or indirectly, any security on the basis of any Inside Information. This restriction is not subject to the exceptions set forth in Sections 2(d), 4(b), or 5(b). (c) Ban on Release or Disclosure. No employee of the Adviser or the Distributor shall release or disclose Inside Information to any person outside of the Adviser or the Distributor except that: -6- (i) employees may release to authorized representatives of a client Inside Information to which that client is entitled; (ii) employees may release Inside Information to the Adviser's or the Distributor's lawyers, accountants, and consultants as appropriate in the conduct of the Adviser's or the Distributor's affairs; (iii) employees may release Inside Information to regulatory officials and other persons as required by law; and (iv) employees may release Inside Information in accordance with the policies established by the Adviser's Management Committee or the Distributor's Board of Managers, as applicable and the instructions of the Review Person. 4. Reporting. (a) Reporting Requirements. Each Access Person shall (unless excepted under Section 4(b)) report to the Review Person as set forth below: (i) Initial Holdings Reports. Not later than 10 days after the person becomes an Access Person, the following information: (A) the title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership when the person became an Access Person; (B) the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and (C) the date that the report is signed and submitted by the Access Person. (ii) Quarterly Transaction Reports. Not later than 10 days after the end of each calendar quarter, the following information: (A) With respect to any transaction during the quarter in a Covered Security in which the Access Person had any direct or indirect beneficial ownership: . the date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Covered Security involved; -7- . the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); . the price of the Covered Security at which the transaction was effected; . the name of the broker, dealer or bank with or through which the transaction was effected; and . the date that the report is signed and submitted by the Access Person. (B) With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person: the name of the broker, dealer or bank with whom the Access Person established the account; the date that the account was established; and the date that the report is signed and submitted by the Access Person. (C) In the event that no reportable transactions occurred during the quarter, the report should be so noted and returned signed and dated. (iii) Annual Holdings Reports. Not later than each January 31st, the following information (which information must be current as of the immediately preceding December 31st): . the title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership; . the name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and . the date on which the report is signed and submitted by the Access Person. (b) Exceptions to Reporting Requirements. The following are the exceptions to the reporting requirements outlined in Section 4(a): -8- (i) A person need not make any report under Section 4(a) with respect to transactions effected for, and Covered Securities held in, any account over which the person has no direct influence or control. (ii) A person need not make a quarterly transaction report under Section 4(a)(ii) if the report would duplicate information contained in broker trade confirmations or account statements received by the Review Person with respect to the person in the time period required under Section 4(a)(ii) and if all of the information required under Section 4(a)(ii) is contained in the broker trade confirmations or account statements or in the records of the Adviser or the Distributor, as applicable. (c) Certification. Each Access Person shall certify to the Review Person in writing that (i) he or she has read and understands this Code, (ii) he or she understands that he or she is subject to this Code, (iii) he or she has complied with the requirements of this Code, and (iv) he or she has disclosed or reported all securities transactions required to be disclosed or reported under this Code, such certification to be given at the following times: (A) in the case of persons that are Access Persons at the date hereof, within 30 days after the adoption of this Code; (B) in the case of persons that become Access Persons after the date hereof, no later than 10 days after such person becomes an Access Person; and (C) in all cases, once every calendar year on or before January 31st. 5. Preclearance of Certain Securities Transactions. (a) Preclearance Requirements. No Access Person shall: (i) acquire, directly or indirectly, beneficial ownership in any securities (including Restricted Securities) in an initial public offering; (ii) acquire, directly or indirectly, beneficial ownership in any securities (including Restricted Securities) in a private placement transaction; (iii) effect any transaction (other than those transactions described in clauses (i) and (ii) above) in any security; or (iv) profit from the purchase and sale, or the sale and purchase, of the same or equivalent securities within 60 calendar days; unless, in each case, the transaction has been approved by the Review Person not more than 72 hours prior to initiation of the transaction (and such approval has not been rescinded). (b) Exceptions to Preclearance Requirements. Sections 5(a)(iii) and 5(a)(iv) shall not apply to the following: -9- (i) any transaction that is exempt under Section 2(d), including transactions in shares of any open-end investment companies that are registered under the 1940 Act; (ii) any transactions in securities listed on a national securities exchange of a company having a total market capitalization (at the time of the transaction or, if such information is not available, according to the company's most recent published annual or quarterly financial statements) of not less than $5 billion; (iii) transactions in the debt instruments issued or guaranteed by a state or local government; (iv) transactions in debt instruments issued or guaranteed by the United States Government, Quasi United States Government Agency or instrumentality of the United States; or (v) total purchases and sales of up to $25,000 of securities listed on a national securities exchange within any rolling six month period. 6. Additional Restrictions on Access Persons. (a) Gifts. No Access Person shall accept any gift or gratuity from any person or business entity that does business with the Adviser or the Distributor, provided this restriction does not apply to: (i) any gifts or gratuities received in any 90 day period from any one person or business entity, or several related persons or business entities, having an aggregate fair market value of not more than $150; (ii) travel, lodging, entertainment, food, and beverages provided in connection with a business or professional meeting or function; and (iii) goods and services, such as investment research reports and newsletters, that are used in the conduct of the business of the Adviser or the Distributor, as applicable. (b) Service as a Director of a Publicly Traded Company. No Access Person shall serve as a director of a company that files or is required to file with the Securities and Exchange Commission periodic reports under Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (such as 10-Ks, 1O-Qs, and 8-Ks) without the prior approval of the Review Person. 7. Review by the Review Person. -10- (a) Review of Reports. The Review Person shall review all of the reports delivered under Section 4 to determine whether a violation of this Code may have occurred. Before making a determination that a violation has been committed by an Access Person, the Review Officer shall give such person an opportunity to supply additional information regarding the transaction in question. (b) Factors to be Considered. In reviewing proposed transactions and other matters submitted for preclearance or approval under this Code, the Review Person shall consider whether such transactions or matters involve or are likely to involve: (i) violations of this Code or applicable securities laws; (ii) improper use of Inside Information; or (iii) an investment opportunity that should be reserved for the Adviser or the Distributor, as applicable, or its clients. (c) Approval Subject to Conditions. The Review Person may grant approval of proposed transactions and other matters submitted for preclearance or approval under this Code subject to such conditions as the Review Person may impose to protect the interests of the Adviser and the Distributor and their respective clients, including, among other things, requiring that an Access Person who is authorized to acquire securities in a private placement disclose that investment when he or she plays a part in a review or analysis of the issuer of the securities. (d) Deputy Review Person May Act When Review Person is Unavailable. In the event the Review Person is unavailable to review any report or proposed transaction or other matter under this Code and it is unlikely that the Review Person will become available in sufficient time to review the report in a timely manner or for the transaction or other matter to proceed without material hardship, the Deputy Review Person may review such report or perform all functions of the Review Person under the Code with respect to such transaction or other matter. Nonetheless, the Deputy Review Person may defer review of any report or transaction or other matter until the Review Person is available to conduct such review. 8. Sanctions. Any violations of this Code will be reported to and subject to review by the Management Committee of the Adviser or the President of the Distributor, as applicable. (a) If the Management Committee or the President, as applicable, determines that a violation of this Code has occurred, the Management Committee or the President, as applicable, may impose such sanctions as is deemed appropriate, including, among other things: (i) a letter of censure, (ii) forfeiture of any profit made or loss avoided from a transaction in violation of this Code, or -11- (iii) suspension or termination of employment. (b) Any Access Person subject to any sanctions imposed by the Management Committee or the President under this Code shall be entitled, upon request made within 60 days of the imposition of such sanctions, to a complete review of the matter by the Board of Managers of the Adviser or the Board of Managers of the Distributor, as applicable. Pending such a review the Management Committee of the Adviser or the President of the Distributor, as applicable, may impose such interim sanctions as is deemed appropriate to protect the interests of the Adviser or the Distributor, as applicable, until final resolution of the matter. (c) Any violations resulting in sanctions will be reported to: (i) the Board of Managers of the Adviser or the Board of Managers of the Distributor, as applicable, and (ii) (other than with respect to interim sanctions pending the applicable Board of Managers review of a matter) the board of directors or trustees of each Fund. 9. Miscellaneous. (a) Access and Advisory Persons. The Review Person will identify all Access and Advisory Persons who are under a duty to make reports under this Code and will inform such persons of such duty. Any failure by the Review Person to notify any person of his or her duties under this Code shall not relieve such person of his or her obligations hereunder. (b) Records. Each of the Adviser and the Distributor shall maintain records in the manner and to the extent set forth below, and shall be available for examination by representatives of the Securities and Exchange Commission ("SEC"): (i) a copy of this Code and any other code which is, or at any time within the past five years has been, in effect shall be preserved in an easily accessible place; (ii) a record of any violation of this Code and of any action taken as a result of such violation shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; (iii) a copy of each report made pursuant to this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place; (iv) a list of all persons who are required, or within the past five years have been required, to make reports pursuant to this Code shall be maintained in an easily accessible place; and -12- (v) record of any decision, and the reasons supporting the decision, to approve the acquisition by an Access Person of securities under Section 5(a) shall be preserved for a period of not less than five years from the end of the fiscal year in which the approval is granted. (c) Confidentiality. All reports of securities transactions and any other information filed pursuant to this Code shall be treated as confidential, except to the extent required by law. [LOGO] Mellon ======------------------------------------------------------------------- Securities Trading Policy [PICTURE APPEARS HERE] [LOGO] Mellon July 2000 Dear Mellon Financial Employee: At Mellon, we take great pride in our transformation over the years from a regional bank to a global financial services company. Our growth makes us better able to meet customers' changing needs, gives us greater stability during any unexpected economic downturn and affords us the opportunity to be the best performing financial services company. This diversity of our businesses also makes us a complex organization, which is why it's more important than ever that you clearly understand Mellon's Securities Trading Policy. Mellon has long maintained strict policies regarding securities transactions, all with the same clear-cut objective: to establish and demonstrate our compliance with the high standards with which we conduct our business. If you are new to Mellon, please take the time to fully understand the Policy and consult it whenever you are unsure about appropriate actions. If you have seen the Policy previously, I urge you to renew your understanding of the entire document and its implications for you. Only by strict adherence to the Policy can we ensure that our well-deserved reputation for integrity is preserved. Sincerely yours, /s/ Martin G. McGuinn Martin G. McGuinn Chairman and Chief Executive Officer Table of Contents =================---------------------------------------------------------------
Page # INTRODUCTION...................................................................... 1 CLASSIFICATION OF EMPLOYEES....................................................... 2 Insider Risk Employees....................................................... 2 Investment Employees......................................................... 2-3 Access Decision Makers....................................................... 3 Other Employees.............................................................. 3 Consultants, Independent Contractors and Temporary Employees................. 3 PERSONAL SECURITIES TRADING PRACTICES............................................. 4-45 Section One-Applicable to Insider Risk Employees Quick Reference - Insider Risk Employees..................................... 4 Standards of Conduct for Insider Risk Employees.............................. 5-9 Restrictions on Transactions in Mellon Securities............................ 10-12 Restrictions on Transactions in Other Securities............................. 12-15 Protecting Confidential Information.......................................... 16-18 Section Two-Applicable to Investment Employees Quick Reference - Investment Employees....................................... 19 Standards of Conduct for Investment Employees................................ 20-25 Restrictions on Transactions in Mellon Securities............................ 26-28 Restrictions on Transactions in Other Securities............................. 28-31 Protecting Confidential Information.......................................... 32-34 Special Procedures for Access Decision Makers................................ 34 Section Three-Applicable to Other Employees Quick Reference - Other Employees............................................ 35 Standards of Conduct for Other Employees..................................... 36-37 Restrictions on Transactions in Mellon Securities............................ 37-39 Restrictions on Transactions in Other Securities............................. 39-42 Protecting Confidential Information.......................................... 43-45 GLOSSARY Definitions.................................................................... 46-52 Exhibit A - Sample Letter to Broker............................................ 53
Introduction ============-------------------------------------------------------------------- The Securities Trading Policy (the "Policy") is designed to reinforce Mellon Financial Corporation's ("Mellon's") reputation for integrity by avoiding even the appearance of impropriety in the conduct of Mellon's business. The Policy sets forth procedures and limitations which govern the personal securities transactions of every Mellon employee. Mellon and its employees are subject to certain laws and regulations governing personal securities trading. Mellon has developed this Policy to promote the highest standards of behavior and ensure compliance with applicable laws. Employees should be aware that they may be held personally liable for any improper or illegal acts committed during the course of their employment, and that "ignorance of the law" is not a defense. Employees may be subject to civil penalties such as fines, regulatory sanctions including suspensions, as well as criminal penalties. Employees outside the United States are also subject to applicable laws of foreign jurisdictions, which may differ substantially from US law and which may subject such employees to additional requirements. Such employees must comply with applicable requirements of pertinent foreign laws as well as with the provisions of the Policy. To the extent any particular portion of the Policy is inconsistent with foreign law, employees should consult the General Counsel or the Manager of Corporate Compliance. Any provision of this Policy may be waived or exempted at the discretion of the Manager of Corporate Compliance. Any such waiver or exemption will be evidenced in writing and maintained in the Audit & Risk Review Department. Employees must read the Policy and must comply with it. Failure to comply with the provisions of the Policy may result in the imposition of serious sanctions, including but not limited to disgorgement of profits, dismissal, substantial personal liability and referral to law enforcement agencies or other regulatory agencies. Employees should retain the Policy in their records for future reference. Any questions regarding the Policy should be referred to the Manager of Corporate Compliance or his/her designee. - -------------------------------------------------------------------------------- page 1 Classification of Employees =======================--------------------------------------------------------- The Policy is applicable to all employees of Mellon and all of its subsidiaries which are more than 50% owned by Mellon. This includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees. It does not include consultants and contract or temporary employees, nor employees of subsidiaries which are 50% or less owned by Mellon. Although the Policy provisions generally have worldwide applicability, some sections of the Policy may conflict with the laws or customs of the countries in which Mellon operations are located. The Policy may be amended for operations outside the United States only with the approval of the Manager of Corporate Compliance. Employees are engaged in a wide variety of activities for Mellon. In light of the nature of their activities and the impact of federal and state laws and the regulations thereunder, the Policy imposes different requirements and limitations on employees based on the nature of their activities for Mellon. To assist employees in complying with the requirements and limitations imposed on them in light of their activities, employees are classified into one of four categories: Insider Risk Employee, Investment Employee, Access Decision Maker and Other Employee. Appropriate requirements and limitations are specified in the Policy based upon an employee's classification. Business line management, in conjunction with the Manager of Corporate Compliance, will determine the classification of each employee based on the following guidelines. Employees should confirm their classification with their Preclearance Compliance Officer or the Manager of Corporate Compliance. Insider Risk Employee You are considered to be an Insider Risk Employee if, in the normal conduct of your Mellon responsibilities, you are likely to receive or be perceived to possess or receive, material nonpublic information concerning Mellon's commercial credit or corporate finance customers. This will typically include certain employees in the credit, lending and leasing businesses, certain members of the Audit & Risk Review, and Legal Departments, and all members of the Senior Management Committee who are not Investment Employees. Investment Employee You are considered to be an Investment Employee if, in the normal conduct of your Mellon responsibilities, you are likely to receive or be perceived to possess or receive, material nonpublic information concerning Mellon's trading in securities for the accounts of others, and/or if you provide investment advice. - -------------------------------------------------------------------------------- page 2 Classification of Employees =======================--------------------------------------------------------- Investment Employee This will typically include: (cont.) . certain employees in fiduciary securities sales and trading, investment management and advisory services, investment research and various trust or fiduciary functions; . an employee of a Mellon entity registered under the Investment Advisers Act of 1940 who is also an "Access Person" as defined by Rule 17j-1 of the Investment Company Act of 1940 (see glossary); and . any member of Mellon's Senior Management Committee who, as part of his/her usual duties, has management responsibility for fiduciary activities or routinely has access to information about customers' securities transactions. Access Decision Maker (ADM) A person designated as such by the Investment Ethics Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non- investment grade debt securities for mutual funds and other managed accounts. See further details in the Access Decision Maker edition of the Policy. Other Employee You are considered to be an Other Employee if you are an employee of Mellon Financial Corporation or any of its direct or indirect subsidiaries who is not an Insider Risk Employee, Investment Employee, or an ADM. Consultants, Independent Managers should inform consultants, Contractors and Temporary independent contractors and temporary Employees employees of the general provisions of the Policy (such asthe prohibition on trading while in possession of material nonpublic information), but generallythey will not be required to preclear trades or report their personal securities holdings. If one of these persons would be considered an Insider Risk Employee, Investment Employee or Access Decision Maker if the person were a Mellon employee, the person's manager should advise the Manager of Corporate Compliance who will determine whether such individual should be subject to the preclearance and reporting requirements of the Policy. - -------------------------------------------------------------------------------- page 3 Personal Securities Trading Practices =============================--------------------------------------------------- Section One-Applicable to Insider Risk Employees QUICK REFERENCE-INSIDER RISK EMPLOYEES Some things you must do Duplicate Statements & Confirmations--Instruct your broker, trust account manager or other entity through which you have a securities trading account to send directly to Manager of Corporate Compliance, Mellon Financial Corporation, PO Box 3130, Pittsburgh, PA 15230-3130: . Trade confirmations summarizing each transaction . Periodic statements Exhibit A of this Policy can be used to notify your broker. This applies to all accounts in which you have a beneficial interest. (See Glossary) Preclearance--Before initiating a securities transaction, written preclearance must be obtained from the Manager of Corporate Compliance. This can be done by completing a Preclearance Request Form and: . delivering the request to the Manager of Corporate Compliance, AIM 151-4340, . faxing the request to (412) 234-1516, or . contacting the Manager of Corporate Compliance for other available notification options. Preclearance Request Forms can be obtained from Corporate Compliance (412) 234-1661. If preclearance approval is received the trade must be executed before the end of the 3rd business day (with the date of approval being the 1st business day), at which time the preclearance approval will expire. Special Approvals . Acquisition of securities in a Private Placement must be precleared by the employee's Department/ Entity head and the Manager of Corporate Compliance. . Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. Some things you must not do Mellon Securities--The following transactions in Mellon securities are prohibited for all Mellon Employees: . Short sales . Purchasing and selling or selling and purchasing within 60 days . Purchasing or selling during a blackout period . Margin purchases or options other than employee options. Non-Mellon Securities--New investments in financial services organizations are prohibited for certain employees only-see page 13. Other restrictions are detailed throughout Section One. Read the Policy! Exemptions Preclearance is NOT required for: . Purchases or sales of municipal bonds, non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures, index securities, securities issued by investment companies, commercial paper; CDs; bankers' acceptances; repurchase agreements; and direct obligations of the government of the United States. . Transactions in any account over which the employee has no direct or indirect control over the investment decision making process. . Transactions that are non-volitional on the part of an employee (such as stock dividends). . Changes in elections under Mellon's 401(k) Retirement Savings Plan. . An exercise of an employee stock option administered by Human Resources. . Automatic reinvestment of dividends under a DRIP or Automatic Investment Plan. (Optional cash purchases under a DRIP or Direct Purchase Plan do require preclearance.) . Sales of securities pursuant to tender offers and sales or exercises of "Rights" (see page 7). Questions? (412) 234-1661 This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. - -------------------------------------------------------------------------------- page 4 Personal Securities Trading Practices =============================--------------------------------------------------- STANDARDS OF CONDUCT FOR INSIDER RISK EMPLOYEES Because of their particular responsibilities, Insider Risk Employees are subject to preclearance and personal securities reporting requirements, as discussed below. Every Insider Risk Employee must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. Conflict of Interest No employee may engage in or recommend any securities transac-tion that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. Material Nonpublic Information No employee may engage in or recommend a securities transaction, for his or her own benefit or for the benefit of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. Brokers Trading Accounts--All Insider Risk Employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. Personal Securities Transactions Trading Accounts--All Insider Risk Employees are required to instruct Reports their broker, trust account manager or other entity through which they have a securities trading account to submit directly to the Manager of Corporate Compliance copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other exempt securities as that term is defined by the Policy and the account has the capability to have reportable securities traded in it, the Insider Risk Employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance. An example of an instruction letter to a broker is in Exhibit A. - -------------------------------------------------------------------------------- page 5 Personal Securities Trading Practices =============================--------------------------------------------------- Preclearance for Personal All Insider Risk Employees must Securities Transactions notify the Manager of Corporate Compliance in writing and receive preclearance before they engage in any purchase or sale of a security. Insider Risk Employees should refer to the provisions under "Beneficial Ownership" on page 15, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the Manager of Corporate Compliance. The Manager of Corporate Compliance will notify the Insider Risk Employee whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the Manager of Corporate Compliance to the Insider Risk Employee. A record of such notification will be maintained by the Manager of Corporate Compliance. However, it shall be the responsibility of the Insider Risk Employee to obtain a written record of the Manager of Corporate Compliance's notification within 24 hours of such notification. The Insider Risk Employee should retain a copy of this written record. As there could be many reasons for preclearance being granted or denied, Insider Risk Employees should not infer from the preclear- ance response anything regarding the security for which preclearance was requested. Although making a preclearance request does not obligate an Insider Risk Employee to do the transaction, it should be noted that: . preclearance requests should not be made for a transaction that the Insider Risk Employee does not intend to make. . preclearance authorization will expire at the end of the third business day after it is received. The day authorization is granted is considered the first business day. . Insider Risk Employees should not discuss with anyone else, inside or outside Mellon, the response they received to a pre- clearance request. If the Insider Risk Employee is preclearing as beneficial owner of another's account, the response may be dis- closed to the other owner. . Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the three-day preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. - -------------------------------------------------------------------------------- page 6 Personal Securities Trading Practices =============================--------------------------------------------------- Exemptions from Requirement Preclearance by Insider Risk Employees is not to Preclear required for the following transactions: . Purchases or sales of Exempt Securities (direct obligations of the government of the United States; high quality short-term debt instruments; bankers' acceptances; CDs; commercial paper; repurchase agreements; and securities issued by open-end investment companies); . Purchases or sales of municipal bonds, closed-end mutual funds; non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; . Purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may only be exempted from preclearance procedures, when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; . Transactions that are non-volitional on the part of an employee (such as stock dividends); . The sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); . Changes to elections in the Mellon 401(k) plan; . Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; . Sales of rights acquired from an issuer, as described above; and/or . Sales effected pursuant to a bona fide tender offer. Gifting of Securities Insider Risk Employees desiring to make a bona fide gift of securities or who receive a bona fide gift, including an inheritance, of securities do not need to preclear the transaction. However, Insider Risk Employees must report such bona fide gifts to the Manager of Corporate Compliance. The report must be made within 10 days of making or receiving the gift and must disclose the following informa-tion: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transac-tion was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An Insider Risk Employee who purchases a security with the intention of making a gift must preclear the purchase transaction. - -------------------------------------------------------------------------------- page 7 Personal Securities Trading Practices ====================------------------------------------------------------------ DRIPs, DPPs and AIPs Certain companies with publicly traded securities establish: . Dividend Reinvestment Plans (DRIPs)-- These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). . Direct Purchase Plans (DPPs) -These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. . Automatic Investment Plans (AIPs)- These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. Insider Risk Employees who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. Insider Risk Employees must preclear all optional cash purchases through a DRIP and all purchases through a DPP. Insider Risk Employees must also preclear all sales through a DRIP, DPP or AIP. Restricted List The Manager of Corporate Compliance will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for Insider Risk Employees. The Restricted List will not be distributed outside of the office of Corporate Compliance. From time to time, such trading restrictions may be appropriate to protect Mellon and its Insider Risk Employees from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information to avoid unwarranted inferences. To assist the Manager of Corporate Compliance in identifying companies that may be appropriate for inclusion on the Restricted List, the department/entity heads in which Insider Risk Employees are employed are required to inform the Manager of Corporate Compliance in writing of any companies they believe should be included on the Restricted List, based upon facts known or readily available to such department heads. - -------------------------------------------------------------------------------- page 8 Personal Securities Trading Practices ====================------------------------------------------------------------ Restricted List Although the reasons for inclusion on the (cont.) Restricted List may vary, they could typically include the following: . Mellon is involved as a lender, investor or adviser in a merger, acquisition or financial restructuring involving the company; . Mellon is involved as a selling shareholder in a public distribution of the company's securities; . Mellon is involved as an agent in the distribution of the company's securities; . Mellon has received material nonpublic information on the company; . Mellon is considering the exercise of significant creditors' rights against the company; or . The company is a Mellon borrower in Credit Recovery. Department heads of sections in which Insider Risk Employees are employed are also responsible for notifying the Manager of Corporate Compliance in writing of any change in circumstances making it appropriate to remove a company from the Restricted List. The Manager of Corporate Compliance will retain copies of the restricted lists for five years. Confidential Treatment The Manager of Corporate Compliance will use his or her best efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential. " However, such documents will be available for inspection by appropriate regulatory agencies and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. - -------------------------------------------------------------------------------- page 9 Personal Securities Trading Practices ====================------------------------------------------------------------ RESTRICTIONS ON TRANSACTIONS IN MELLON SECURITIES Employees who engage in transactions involving Mellon securities should be aware of their unique responsibilities with respect to such transactions arising from the employment relationship and should be sensitive to even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" on page 15 for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). . Short Sales--Short sales of Mellon securities by employees are prohibited. . Short Term Trading--Employees are prohibited from purchasing and selling, or from selling and purchasing, Mellon securities within any 60 calendar day period. . Margin Transactions--Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. . Option Transactions--Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. . Major Mellon Events--Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. . Mellon Blackout Period--Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. - -------------------------------------------------------------------------------- page 10 Personal Securities Trading Practices ====================------------------------------------------------------------ Mellon 401(k) Plan For purposes of the blackout period and the short term trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: . Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. . Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However, changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: This does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: . Employees are not required to preclear any elections or changes made in their 401(k) account. . There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. . The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. Mellon Employee Receipt--Your receipt of an employee stock Stock Options option from Mellon is not deemed to be a purchase of a security. Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises--The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises--The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. - -------------------------------------------------------------------------------- page 11 Personal Securities Trading Practices ====================------------------------------------------------------------ Mellon Employee Sales--The sale of the Mellon securities that Stock Options were received in the exercise of an employee stock option is treated like any other sale (cont.) under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES Purchases or sales by an employee of the securities of issuers with which Mellon does business, or other third party issuers, could result in liability on the part of such employee. Employees should be sensitive to even the appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" on page 15, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: . Credit, Consulting or Advisory Relationship--Employees may not buy or sell securities of a company if they are considering granting, renewing, modifying or denying any credit facility to that company, acting as a benefits consultant to that company, or acting as an adviser to that company with respect to the company's own securities. In addition, lending employees who have assigned responsibilities in a specific industry group are not permitted to trade securities in that industry. This prohibition does not apply to transactions in open end mutual funds. . Customer Transactions--Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. . Excessive Trading, Naked Options--Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. . Front Running--Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. - -------------------------------------------------------------------------------- page 12 Personal Securities Trading Practices ====================------------------------------------------------------------ . Initial Public Offerings--Insider Risk Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Insider Risk Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. . Material Nonpublic Information-- Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. . Private Placements--Insider Risk Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance and the employee's department head. Approval must be given by both persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. . Scalping--Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. . Short Term Trading--All employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. Prohibition on Investments in You are prohibited from acquiring any Securities of Financial Services security issued by a financial services Organizations organization if you are: . a member of the Mellon Senior Management Committee. . employed in any of the following departments: . Corporate Strategy & Development . Legal (Pittsburgh only) . Finance (Pittsburgh only) . an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. - -------------------------------------------------------------------------------- page 13 Personal Securities Trading Practices ====================------------------------------------------------------------ Prohibition on Investments in Financial Services Organizations--The Securities of Financial Services term "security issued by a financial Organizations services organization" includes any (cont.) security issued by: . Commercial Banks other than Mellon . Bank Holding Companies other than Mellon . Insurance Companies . Investment Advisory Companies . Shareholder Servicing Companies . Thrifts . Savings and Loan Associations . Broker/Dealers . Transfer Agents . Other Depository Institutions The term "securities issued by a financial services organization" does not include securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date--Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. - -------------------------------------------------------------------------------- page 14 Personal Securities Trading Practices ====================------------------------------------------------------------ Beneficial Ownership The provisions of the Policy apply to transactions in the employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: . accounts of a spouse, minor children or relatives to whom substantial support is contributed; . accounts of any other member of the employee's household (e.g., a relative living in the same home); . trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; . corporate accounts controlled, directly or indirectly, by the employee; . arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and . any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). Non-Mellon Employee The provisions discussed above do not apply Benefit Plans to transactions done under a bona fide employee benefits plan administered by an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - -------------------------------------------------------------------------------- page 15 Personal Securities Trading Practices ====================------------------------------------------------------------ PROTECTING CONFIDENTIAL INFORMATION As an employee you may receive information about Mellon, its customers and other parties that, for various reasons, should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. Insider Trading and Tipping Federal securities laws generally prohibit Legal Prohibitions the trading of securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider trading). Any person who passes along material nonpublic information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: . a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; . tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; . dividend declarations or changes; . extraordinary borrowings or liquidity problems; . defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; . earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; . pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; . a proposal or agreement concerning a financial restructuring; . a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; . a significant expansion or contraction of operations; . information about major contracts or increases or decreases in orders; . the institution of, or a development in, litigation or a regulatory proceeding; . developments regarding a company's senior management; - -------------------------------------------------------------------------------- page 16 Personal Securities Trading Practices ====================------------------------------------------------------------ Insider Trading and Tipping . information about a company received Legal Prohibitions from a director of that company; and (cont.) . information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic"--Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. Mellon's Policy Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. - -------------------------------------------------------------------------------- page 17 Personal Securities Trading Practices ====================------------------------------------------------------------ Restrictions on the Flow of As a diversified financial services Information within Mellon organization, Mellon faces unique challenges (The "Chinese Wall") in complying with the prohibitions on insider trading and tipping of material non-public information, and misuse of confidential information. This is because one Mellon unit might have material nonpublic information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities-- for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. - -------------------------------------------------------------------------------- page 18 Personal Securities Trading Practices ====================------------------------------------------------------------ Section Two-Applicable to Investment Employees QUICK REFERENCE-INVESTMENT EMPLOYEES Some things you must do Statement of Accounts and Holdings--Provide to your Preclearance Compliance Officer a statement of all securities accounts and holdings within 10 days of becoming an Investment Employee, and again annually on request. Duplicate Statements & Confirmations--Instruct your broker, trust account manager or other entity through which you have a securities trading account to send directly to Compliance: . Trade confirmations summarizing each transaction . Periodic statements Exhibit A can be used to notify your broker. Contact your designated Preclearance Compliance Officer for the correct address. This applies to all accounts in which you have a beneficial interest. Preclearance--Before initiating a securities transaction, written preclearance must be obtained from the designated Preclearance Compliance Officer. This can be accomplished by completing a Preclearance Request Form and: . delivering or faxing the request to the designated Preclearance Compliance Officer, or . contacting the designated Preclearance Compliance Officer for other available notification options. Preclearance Request Forms can be obtained from the designated Preclearance Compliance Officer. If preclearance approval is received the trade should be communicated to the broker on the same day, and executed before the end of the next business day, at which time the preclearance approval will expire. Special Approvals . Acquisition of securities in a Private Placement must be precleared by the employee's Department/Entity head, the Manager of Corporate Compliance and the designated Preclearance Compliance Officer. . Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. Some things you must not do Mellon Securities--The following transactions in Mellon securities are prohibited for all Mellon Employees: . Short sales; . Purchasing and selling or selling and purchasing within 60 days; . Purchasing or selling during a blackout period . Margin purchases or options other than employee options. Non-Mellon Securities-- . Purchasing and selling or selling and purchasing within 60 days is discouraged, and any profits must be disgorged. . New investments in financial services organizations are prohibited for certain employees only (see page 30). Other restrictions are detailed throughout Section Two. Read the Policy! Exemptions Preclearance is NOT required for: . Purchases or sales of high quality short-term debt instruments, non- financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures, index securities, open-end mutual funds, non-affiliated closed-end investment companies, commercial paper; CDs; bankers' acceptances; repurchase agreements; and direct obligations of the government of the United States.) . Transactions in any account over which the employee has no direct or indirect control over the investment decision making process. . Transactions that are non-volitional on the part of an employee (such as stock dividends). . Changes in elections under Mellon's 401(k) Retirement Savings Plan. . An exercise of an employee stock option administered by Human Resources. . Automatic reinvestment of dividends under a DRIP or Automatic Investment Plan. (Optional cash purchases under a DRIP or Direct Purchase Plan do require preclearance.) . Sales of securities pursuant to tender offers and sales or exercises of "Rights" (see page 23). Questions? Contact your designated Preclearance Compliance Officer. If you don't know who that is, call 412-234-1661 This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. - -------------------------------------------------------------------------------- page 19 Personal Securities Trading Practices ====================------------------------------------------------------------ STANDARDS OF CONDUCT FOR INVESTMENT EMPLOYEES Because of their particular responsibilities, Investment Employees are subject to preclearance and personal securities reporting requirements, as discussed below. Every Investment Employee must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. Conflict of Interest No employee may engage in or recommend any securities transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. Material Nonpublic No employee may divulge the current Information portfolio positions, or current or anticipated portfolio transactions, programs or studies, of Mellon or any Mellon customer to anyone unless it is properly within his or her job responsibilities to do so. No employee may engage in or recommend a securities transaction, for his or her own benefit or for the benefit of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. Brokers Trading Accounts--All Investment Employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. - -------------------------------------------------------------------------------- page 20 Personal Securities Trading Practices ====================------------------------------------------------------------ Personal Securities Statements & Confirmations--All Investment Transactions Reports Employees are required to instruct their broker, trust account manager or other entity through which they have a securities trading account to submit directly to the Manager of Corporate Compliance or designated Preclearance Compliance Officer copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other exempt securities as that term is defined by the Policy and the account has the capability to have reportable securities traded in it, the Investment Employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance or designated Preclearance Compliance Officer. Exhibit A is an example of an instruction letter to a broker. Other securities transactions which were not completed through a brokerage account, such as gifts, inheritances, spin-offs from securities held outside brokerage accounts, or other transfers must be reported to the designated Preclearance Compliance Officer within 10 days. Preclearance for Personal All Investment Employees must notify the Securities Transactions designated Preclearance Compliance Officer in writing and receive preclearance before they engage in any purchase or sale of a security for their own accounts. Investment Employees should refer to the provisions under "Beneficial Ownership" on page 31, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the designated Preclearance Compliance Officer. The designated Preclearance Compliance Officer will notify the Investment Employee whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the designated Preclearance Compliance Officer to the Investment Employee. A record of such notification will be maintained by the designated Preclearance Compliance Officer. However, it shall be the responsibility of the Investment Employee to obtain a written record of the designated Preclearance Compliance Officer's notification within 48 hours of such notification. The Investment Employee should retain a copy of this written record. As there could be many reasons for preclearance being granted or denied, Investment Employees should not infer from the preclearance response anything regarding the security for which preclearance was requested. - -------------------------------------------------------------------------------- page 21 Personal Securities Trading Practices ====================------------------------------------------------------------ Preclearance for Personal Although making a preclearance request does Securities Transactions not obligate an Investment Employee to do (cont.) the transaction, it should be noted that: . Preclearance requests should not be made for a transaction that the Investment Employee does not intend to make. . The order for a transaction should be placed with the broker on the same day that preclearance authorization is received. The broker must execute the trade by the close of business on the next business day, at which time the preclearance authorization will expire. . Investment Employees should not discuss with anyone else, inside or outside Mellon, the response they received to a preclearance request. If the Investment Employee is preclearing as beneficial owner of another's account, the response may be disclosed to the other owner. . Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. Blackout Policy Except as described below, Investment Employees will not generally be given clearance to execute a transaction in any security that is on the restricted list maintained by their Preclearance Compliance Officer, or for which there is a pending buy or sell order for an affiliated account. This provision does not apply to transactions effected or contemplated by index funds. Exceptions--Regardless of any restrictions above, Investment Employees will generally be given clearance to execute the following transactions: . Purchase or sale of up to $50,000 of securities of the top 200 issuers on the Russell list of largest publicly traded companies. . Purchase or sale of up to the greater of 100 shares or $10,000 of securities ranked 201 to 500 on the Russell list of largest publicly traded companies. The Investment Employee is limited to two such trades in the securities of any one issuer in any calendar month. - -------------------------------------------------------------------------------- page 22 Personal Securities Trading Practices ====================------------------------------------------------------------ Exemptions from Requirement Preclearance is not required for the to Preclear following transactions: . Purchases or sales of Exempt Securities (direct obligations of the government of the United States; high quality short- term debt instruments; bankers' acceptances; CDs; commercial paper; repurchase agreements; and securities issued by open-end investment companies); . Purchases or sales of non-affiliated closed-end investment companies; non- financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; . Purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may only be maintained, without being subject to preclearance procedures, when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; . Transactions that are non-volitional on the part of an employee (such as stock dividends); . The sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); . Changes to elections in the Mellon 401(k) plan; . Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; . Sales of rights acquired from an issuer, as described above; and/or . Sales effected pursuant to a bona fide tender offer. Gifting of Securities Investment Employees desiring to make a bona fide gift of securities or who receive a bona fide gift of securities do not need to preclear the transaction. However, Investment Employees must report such bona fide gifts to the designated Preclearance Compliance Officer. The report must be made within 10 days of making or receiving the gift and must disclose the following information: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transaction was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An Investment Employee who purchases a security with the intention of making a gift must preclear the purchase transaction. - -------------------------------------------------------------------------------- page 23 Personal Securities Trading Practices ====================------------------------------------------------------------ DRIPS, DPPs and AIPs Certain companies with publicly traded securities establish: . Dividend Reinvestment Plans (DRIPs)-- These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). . Direct Purchase Plans (DPPs)--These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. . Automatic Investment Plans (AIPs)--These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. Investment Employees who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. Investment Employees must preclear all optional cash purchases through a DRIP and all purchases through a DPP. Investment Employees must also preclear all sales through a DRIP, DPP or AIP. Statement of Securities Within ten days of receiving this Policy Accounts and Holdings and on an annual basis thereafter, all Investment Employees must submit to the designated Preclearance Compliance Officer: . a listing of all securities trading accounts in which the employee has a beneficial interest. . a statement of all securities in which they presently have any direct or indirect beneficial ownership other than Exempt Securities, as defined in the Glossary. The annual report must be completed upon the request of Corporate Compliance, and the information submitted must be current within 30 days of the date the report is submitted. The annual statement of securities holdings contains an acknowledgment that the Investment Employee has read and complied with this Policy. - -------------------------------------------------------------------------------- page 24 Personal Securities Trading Practices ====================------------------------------------------------------------ Restricted List Each Preclearance Compliance Officer will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for Investment Employees in their area. From time to time, such trading restrictions may be appropriate to protect Mellon and its Investment Employees from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information in order to avoid unwarranted inferences. The Preclearance Compliance Officer will retain copies of the restricted lists for five years. Confidential Treatment The Manager of Corporate Compliance and/or Preclearance Compliance Officer will use his or her best efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies, and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. Documents received from Investment Employees are also available for inspection by the boards of directors of 40-Act entities and by the boards of directors (or trustees or managing general partners, as applicable) of the investment companies managed or administered by 40-Act entities. - -------------------------------------------------------------------------------- page 25 Personal Securities Trading Practices ====================------------------------------------------------------------ RESTRICTIONS ON TRANSACTIONS IN MELLON SECURITIES Investment Employees who engage in transactions involving Mellon securities should be aware of their unique responsibilities with respect to such transactions arising from the employment relationship and should be sensitive to even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" on page 31 for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). . Short Sales-Short sales of Mellon securities by employees are prohibited. . Short Term Trading-Investment Employees are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. In addition to any other sanction, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. . Margin Transactions-Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. . Option Transactions-Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. . Major Mellon Events-Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. . Mellon Blackout Period-Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. - -------------------------------------------------------------------------------- page 26 Personal Securities Trading Practices ====================------------------------------------------------------------ Mellon 401(k) Plan For purposes of the blackout period and the short term trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: . Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. . Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However: . with respect to Investment Employees, any profits realized on short term changes in the 401(k) will not have to be disgorged. . changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: This does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: . Employees are not required to preclear any elections or changes made in their 401(k) account. . There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. . The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. Mellon Employee Receipt-Your receipt of an employee stock option Stock Options from Mellon is not deemed to be a purchase of a security. Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises-The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. - -------------------------------------------------------------------------------- page 27 Personal Securities Trading Practices =====================----------------------------------------------------------- Mellon Employee "Cashless" Exercises-The exercise of an employee Stock Options stock option which is part of a "cashless (cont.) exercise" or "netting of shares" that is Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales-The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES Purchases or sales by an employee of the securities of issuers with which Mellon does business, or other third party issuers, could result in liability on the part of such employee. Employees should be sensitive to even the appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: . Customer Transactions-Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. . Excessive Trading, Naked Options-Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. . Front Running-Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. ________________________________________________________________________________ page 28 Personal Securities Trading Practices =====================----------------------------------------------------------- . Initial Public Offerings-Investment Employees are prohibited from acquiring securities through an allocation by the under-writer of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Investment Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. . Material Nonpublic Information-Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. . Private Placements-Investment Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance, the designated Preclearance Compliance Officer and the Investment Employee's department head. Approval must be given by all three persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, Investment Employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. . Scalping-Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. . Short Term Trading-All Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. With respect to Investment Employees, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. Exception: securities may be sold pursuant to a bona fide tender offer without disgorgement under the 60-day rule. ________________________________________________________________________________ page 29 Personal Securities Trading Practices =====================----------------------------------------------------------- Prohibition on Investments in You are prohibited from acquiring any Securities of Financial Services security issued by a financial services Organization organization if you are: . a member of the Mellon Senior Management Committee. . employed in any of the following departments: . Corporate Strategy & Development . Legal (Pittsburgh only) . Finance (Pittsburgh only) . an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Financial Services Organizations-The term "security issued by a financial services organization" includes any security issued by: . Commercial Banks other than Mellon . Bank Holding Companies other than Mellon . Insurance Companies . Investment Advisory Companies . Shareholder Servicing Companies . Thrifts . Savings and Loan Associations . Broker/Dealers . Transfer Agents . Other Depository Institutions The term "securities issued by a financial services organization" does not include securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date-Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. ________________________________________________________________________________ page 30 Personal Securities Trading Practices =====================----------------------------------------------------------- Beneficial Ownership The provisions of the Policy apply to transactions in the employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: . accounts of a spouse, minor children or relatives to whom substantial support is contributed; . accounts of any other member of the employee's household (e.g., a relative living in the same home); . trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; . corporate accounts controlled, directly or indirectly, by the employee; . arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and . any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). Non-Mellon Employee The provisions discussed above do not apply Benefit Plans to transactions done under a bona fide employee benefits plan administered by an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. ________________________________________________________________________________ page 31 Personal Securities Trading Practices =====================----------------------------------------------------------- PROTECTING CONFIDENTIAL INFORMATION As an employee you may receive information about Mellon, its customers and other parties that, for various reasons, should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. Insider Trading and Tipping Federal securities laws generally prohibit Legal Prohibitions the trading of securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider trading). Any person who passes along material nonpublic information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: . a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; . tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; . dividend declarations or changes; . extraordinary borrowings or liquidity problems; . defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; . earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; . pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; . a proposal or agreement concerning a financial restructuring; . a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; . a significant expansion or contraction of operations; . information about major contracts or increases or decreases in orders; . the institution of, or a development in, litigation or a regulatory proceeding; . developments regarding a company's senior management; . information about a company received from a director of that company; and . information regarding a company's possible noncompliance with environmental protection laws. ________________________________________________________________________________ page 32 Personal Securities Trading Practices =====================----------------------------------------------------------- Insider Trading and Tipping This list is not exhaustive. All relevant Legal Prohibitions circumstances must be considered when (cont.) determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. Mellon's Policy Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. ________________________________________________________________________________ page 33 Personal Securities Trading Practices =====================----------------------------------------------------------- Restrictions on the Flow of As a diversified financial services Information within Mellon organization, Mellon faces unique challenges (The "Chinese Wall") in complying with the prohibitions on insider trading and tipping of material non-public information, and misuse of confidential information. This is because one Mellon unit might have material nonpublic information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. SPECIAL PROCEDURES FOR ACCESS DECISION MAKERS Certain Portfolio Managers and Research Analysts in the fiduciary businesses have been designated as Access Decision Makers and are subject to additional procedures which are discussed in a separate edition of the Securities Trading Policy. If you have reason to believe that you may be an Access Decision Maker, contact your supervisor, designated Preclearance Compliance Officer or the Manager of Corporate Compliance. ________________________________________________________________________________ page 34 Personal Securities Trading Practices =====================----------------------------------------------------------- Section Three-Applicable to Other Employees QUICK REFERENCE-OTHER EMPLOYEES Some things you must do . If you buy or sell Mellon Financial Corporation securities you must provide a report of the trade and a copy of the broker confirmation within 10 days of transaction to the Manager of Corporate Compliance, AIM 151-4340. This does not apply to the exercise of employee stock options, or changes in elections under Mellon's 401(k) Retirement Savings Plan. . If you want to purchase any security in a Private Placement you must first obtain the approval of your Department/Entity head and the Manager of Corporate Compliance. Contact the Manager of Corporate Compliance at 412- 234-0810. . Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. . For Employees who are subject to the prohibition on new investments in financial services organizations (certain employees only-see page 41), broker must send directly to Manager of Corporate Compliance, Mellon Financial Corporation, PO Box 3130, Pittsburgh, PA 15230-3130: . Broker trade confirmations summarizing each transaction . Periodic statements Exhibit A can be used to notify your broker of all accounts for which your broker will be responsible for sending duplicate confirmations and statements. Some things you must not do Mellon Securities--The following transactions in Mellon securities are prohibited for all Mellon Employees: . Short sales . Purchasing and selling or selling and purchasing within 60 days . Purchasing or selling during a blackout period . Margin purchases or options other than employee options. Non-Mellon Securities-- . New investments in financial services organizations (certain employees only-see page 41). Other restrictions are detailed throughout Section Three. Read the Policy! Questions? 412-234-1661 This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. ________________________________________________________________________________ page 35 Personal Securities Trading Practices =====================----------------------------------------------------------- STANDARDS OF CONDUCT FOR OTHER EMPLOYEES Every Other Employee must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. Conflict of Interest No employee may engage in or recommend any securities transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. Material Nonpublic No employee may engage in or recommend a Information securities transaction, for his or her own benefit or for the benefit of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. Brokers Trading Accounts-All employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. Personal Securities Transactions Other Employees must report in writing to the Reports Manager of Corporate Compliance within ten calendar days whenever they purchase or sell Mellon securities. Purchases and sales include optional cash purchases under Mellon's Dividend Reinvestment and Common Stock Purchase Plan (the "Mellon DRIP"). It should be noted that the reinvestment of dividends under the DRIP, changes in elections under Mellon's 401(k) Retirement Savings Plan, the receipt of stock under Mellon's Restricted Stock Award Plan, and the receipt or exercise of options under Mellon's employee stock option plans are not considered purchases or sales for the purpose of this reporting requirement. Brokerage Account Statements Certain Other Employees are subject to the restriction on investments in financial services organizations and are required to instruct their brokers to send statements directly to Corporate Compliance. See page 41. An example of an instruction letter to a broker is contained in Exhibit A. ________________________________________________________________________________ page 36 Personal Securities Trading Practices =====================----------------------------------------------------------- Confidential Treatment The Manager of Corporate Compliance will use his or her best efforts to assure that all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. RESTRICTIONS ON TRANSACTIONS IN MELLON SECURITIES Employees who engage in transactions involving Mellon securities should be aware of their unique responsibilities with respect to such transactions arising from the employment relationship and should be sensitive to even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be expected to exercise influence or control (see provisions under "Beneficial Ownership" on page 42 for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). . Short Sales-Short sales of Mellon securities by employees are prohibited. . Short Term Trading-Employees are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. . Margin Transactions-Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. . Option Transactions-Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. . Major Mellon Events-Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. ________________________________________________________________________________ page 37 Personal Securities Trading Practices ====================------------------------------------------------------------ . Mellon Blackout Period-Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. Mellon 401(k) Plan For purposes of the blackout period and the short term trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: . Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. . Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However, changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: This does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: . Employees are not required to preclear any elections or changes made in their 401(k) account. . There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. . The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. - -------------------------------------------------------------------------------- page 38 Personal Securities Trading Practices ====================------------------------------------------------------------ Mellon Employee Receipt-Your receipt of an employee stock option from Stock Options Mellon is not deemed to be a purchase of a security. Therefore, it is exempt from reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises-The exercise of an employee stock option that results in your holding the shares is exempt from reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises-The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales-The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES Purchases or sales by an employee of the securities of issuers with which Mellon does business, or other third party issuers, could result in liability on the part of such employee. Employees should be sensi- tive to even the appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" on page 42, which is applicable to the following restrictions.The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restric- tions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: . Credit, Consulting or Advisory Relationship-Employees may not buy or sell securities of a company if they are considering granting, renewing, modifying or denying any credit facility to that company, acting as a benefits consultant to that company, or acting as an adviser to that company with respect to the company's own securities. In addition, lending employees who have assigned responsibilities in a specific industry group are not permitted to trade securities in that industry. This prohibition - -------------------------------------------------------------------------------- page 39 Personal Securities Trading Practices ====================------------------------------------------------------------ does not apply to transactions in open end mutual funds. . Customer Transactions-Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. . Excessive Trading, Naked Options-Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. . Front Running-Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. . Initial Public Offerings-Other Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Other Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. . Material Nonpublic Information-Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. . Private Placements-Other Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance and the employee's department head. Approval must be given by both persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. . Scalping-Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. . Short Term Trading-Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. - -------------------------------------------------------------------------------- page 40 Personal Securities Trading Practices ====================------------------------------------------------------------ Prohibition on Investments in You are prohibited from acquiring any Securities of Financial Services security issued by a financial services Organizations organization if you are: . a member of the Mellon Senior Management Committee. . employed in any of the following departments: . Corporate Strategy & Development . Legal (Pittsburgh only) . Finance (Pittsburgh only) . an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Brokerage Accounts-All employees subject to this restriction on investments in financial services organizations are required to instruct their brokers to submit directly to the Manager of Corporate Compliance copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account has no reportable securities traded in it, the employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance. An example of an instruction letter to a broker is contained in Exhibit A. Financial Services Organizations-The term "security issued by a financial services organization" includes any security issued by: . Commercial Banks other than Mellon . Bank Holding Companies other than Mellon . Insurance Companies . Investment Advisory Companies . Shareholder Servicing Companies . Thrifts . Savings and Loan Associations . Broker/Dealers . Transfer Agents . Other Depository Institutions The term "securities issued by a financial services organization" does not include securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date-Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. - -------------------------------------------------------------------------------- page 41 Personal Securities Trading Practices ====================------------------------------------------------------------ Prohibition on Investments in Additional securities of a financial Securities of Financial Services services organization acquired through the Organizations reinvestment of the dividends paid by such (cont.) financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. Beneficial Ownership The provisions of the Policy apply to transactions in the employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: . accounts of a spouse, minor children or relatives to whom substantial support is contributed; . accounts of any other member of the employee's household (e.g. a relative living in the same home); . trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; . corporate accounts controlled, directly or indirectly, by the employee; . arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and . any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). Non-Mellon Employee The provisions discussed above do not apply Benefit Plans to transactions done Benefit Plans under a bona fide employee benefits plan administered by an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - -------------------------------------------------------------------------------- page 42 Personal Securities Trading Practices ====================------------------------------------------------------------ PROTECTING CONFIDENTIAL INFORMATION As an employee you may receive information about Mellon, its cus-tomers and other parties that, for various reasons, should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. Insider Trading and Tipping Federal securities laws generally prohibit Legal Prohibitions the trading of securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider trading). Any person who passes along material nonpublic information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: . a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; . tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; . dividend declarations or changes; . extraordinary borrowings or liquidity problems; . defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; . earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; . pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; . a proposal or agreement concerning a financial restructuring; . a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; . a significant expansion or contraction of operations; . information about major contracts or increases or decreases in orders; . the institution of, or a development in, litigation or a regulatory proceeding; . developments regarding a company's senior management; information about a company received from a director of that company; and . information regarding a company's possible noncompliance with environmental protection laws. - -------------------------------------------------------------------------------- page 43 Personal Securities Trading Practices ====================------------------------------------------------------------ Insider Trading and Tipping This list is not exhaustive. All relevant Legal Prohibitions circumstances must be considered when (cont.) determining whether an item of information is material. "Nonpublic"- Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. Mellon's Policy Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. - -------------------------------------------------------------------------------- page 44 Personal Securities Trading Practices ====================------------------------------------------------------------ Restrictions on the Flow of As a diversified financial services Information within Mellon organization, Mellon faces unique (The "Chinese Wall") challenges in complying with the prohibitions on insider trading and tipping of material non-public information, and misuse of confidential information. This is because one Mellon unit might have material nonpublic information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that com- pany's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. - -------------------------------------------------------------------------------- page 45 Glossary ====================------------------------------------------------------------ Definitions . 40-Act entity-A Mellon entity registered under the Investment Company Act and/or the Investment Advisers Act of 1940. . Access Decision Maker-A person designated as such by the Investment Ethics Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for investment companies and other managed accounts. See further details in the Access Decision Maker edition of the Policy. . access person-As defined by Rule 17j-1 under the Investment Company Act of 1940, "access person" means: (A) With respect to a registered investment company or an investment adviser thereof, any director, officer, general partner, or advisory person (see definition below), of such investment company or investment adviser; (B) With respect to a principal underwriter, any director, officer, or general partner of such principal underwriter who in the ordinary course of his business makes, participates in or obtains information regarding the purchase or sale of securities for the registered investment company for which the principal underwriter so acts, or whose functions or duties as part of the ordinary course of his business relate to the making of any recommendations to such investment company regarding the purchase or sale of securities. (C) Notwithstanding the provisions of paragraph (A) hereinabove, where the investment adviser is primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients, the term "access person" shall mean: any director, officer, general partner, or advisory person of the investment adviser who, with respect to any registered investment company, makes any recommendations, participates in the determination of which recommendation shall be made, or whose principal function or duties relate to the determination of which recommendation will be made, to any such investment company; or who, in connection with his duties, obtains any information concerning securities recommendations being made by such investment adviser to any registered investment company. (D) An investment adviser is "primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients" when, for each of its most recent three fiscal years or for the period of time since its organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of (i) its total sales and revenues, and (ii) its income (or loss) before income taxes and extraordinary items, from such other business or businesses. - -------------------------------------------------------------------------------- page 46 Glossary ====================------------------------------------------------------------ . advisory person of a registered investment company or an investment adviser thereof means: (A) Any employee of such company or investment adviser (or any company in a control relationship to such investment company or investment adviser) who, in connection with his regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a registered investment company, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (B) Any natural person in a control relationship to such company or investment adviser who obtains information concerning recommendations made to such company with regard to the purchase or sale of a security. . approval-written consent or written notice of non- objection. . beneficial ownership-The definition that follows conforms to interpretations of the Securities and Exchange Commission on this matter. Because a determination of beneficial ownership requires a detailed analysis of personal financial circumstances that are subject to change, Corporate Compliance ordinarily will not advise employees on this definition. It is the responsibility of employee to read the definition and based on that definition, determine whether he/she is the beneficial owner of an account. If the employee determines that he/she is not a beneficial owner of an account and Corporate Compliance becomes aware of the existence of the account, the employee will be responsible for justifying his/her determination. Securities owned of record or held in the employee's name are generally considered to be beneficially owned by the employee. Securities held in the name of any other person are deemed to be beneficially owned by the employee if by reason of any contract, understanding, relationship, agreement or other arrangement, the employee obtains therefrom benefits substantially equivalent to those of ownership, including the power to vote, or to direct the disposition of, such securities. Beneficial ownership includes securities held by others for the employee's benefit (regardless of record ownership), e.g., securities held for the employee or members of the employee's immediate family, defined below, by agents, custodians, brokers, trustees, executors or other adminis- trators; securities owned by the employee, but which have not been transferred into the employee's name on the books of the company; securities which the employee has pledged; or securi- ties owned by a corporation that should be regarded as the employee's personal holding corporation. As a natural person, beneficial ownership is deemed to include securities held in the name or for the benefit of the employee's immediate family, which includes the employee's spouse, the employee's minor children and stepchildren and the employee's relatives or - -------------------------------------------------------------------------------- page 47 Glossary =================--------------------------------------------------------------- . beneficial ownership-definition continued: the relatives of the employee's spouse who are sharing the employee's home, unless because of countervailing circumstances, the employee does not enjoy benefits substantially equivalent to those of ownership. Benefits substantially equivalent to ownership include, for example, application of the income derived from such securities to maintain a common home, meeting expenses that such person otherwise would meet from other sources, and the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An employee is also deemed the beneficial owner of securities held in the name of some other person, even though the employee does not obtain benefits of ownership, if the employee can vest or revest title in himself at once, or at some future time. In addition, a person will be deemed the beneficial owner of a security if he has the right to acquire beneficial ownership of such security at any time (within 60 days) including but not limited to any right to acquire: (1) through the exercise of any option, warrant or right; (2) through the conversion of a security; or (3) pursuant to the power to revoke a trust, discretionary account or similar arrangement. With respect to ownership of securities held in trust, beneficial ownership includes ownership of securities as a trustee in instances where either the employee as trustee or a member of the employee's "immediate family" has a vested interest in the income or corpus of the trust, the ownership by the employee of a vested beneficial interest in the trust and the ownership of securities as a settlor of a trust in which the employee as the settlor has the power to revoke the trust without obtaining the consent of the beneficiaries. Certain exemptions to these trust beneficial ownership rules exist, including an exemption for instances where beneficial ownership is imposed solely by reason of the employee being settlor or beneficiary of the securities held in trust and the ownership, acquisition and disposition of such securities by the trust is made without the employee's prior approval as settlor or beneficiary. "Immediate family" of an employee as trustee means the employee's son or daughter (including any legally adopted children) or any descendant of either, the employee's stepson or stepdaughter, the employee's father or mother or any ancestor of either, the employee's stepfather or stepmother and the employee's spouse. To the extent that stockholders of a company use it as a personal trading or investment medium and the company has no other substantial business, stockholders are regarded as beneficial owners, to the extent of their respective interests, of the stock thus invested or traded in. A general partner in a partnership is considered to have indirect beneficial ownership in the securities held by the partnership to the extent of his pro rata interest in the partnership. Indirect beneficial ownership is not, however, considered to exist solely by reason of an indirect interest in portfolio - -------------------------------------------------------------------------------- page 48 Glossary =====================----------------------------------------------------------- . beneficial ownership-definition continued: securities held by any holding company registered under the Public Utility Holding Company Act of 1935, a pension or retirement plan holding securities of an issuer whose employees generally are beneficiaries of the plan and a business trust with over 25 beneficiaries. Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership as part of a plan or scheme to evade the reporting requirements of the Securities Exchange Act of 1934 shall be deemed the beneficial owner of such security. The final determination of beneficial ownership is a question to be determined in light of the facts of a particular case. Thus, while the employee may include security holdings of other members of his family, the employee may nonetheless disclaim beneficial ownership of such securities. . "Chinese Wall" Policy-procedures designed to restrict the flow of information within Mellon from units or individuals who are likely to receive material nonpublic information to units or individuals who trade in securities or provide investment advice. . direct family relation-employee's husband, wife, father, mother, brother, sister, daughter or son. Includes the preceding plus, where appropriate, the following prefixes/suffix: grand-, step-, foster-, half- and -in-law. . discretionary trading account-an account over which the employee has no direct or indirect control over the investment decision making process. . employee-any employee of Mellon Financial Corporation or its more-than-50%-owned direct or indirect subsidiaries; includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees; does not include consultants and contract or temporary employees. . exempt securities-Exempt Securities are defined as: . direct obligations of the government of the United States; . high quality short-term debt instruments; . bankers' acceptances; . bank certificates of deposit and time deposits; . commercial paper; . repurchase agreements; . securities issued by open-end investment companies; - -------------------------------------------------------------------------------- page 49 Glossary ======================---------------------------------------------------------- . family relation-see direct family relation. . General Counsel-General Counsel of Mellon Financial Corporation or any person to whom relevant authority is delegated by the General Counsel. . index fund-an investment company or managed portfolio which contains securities of an index in proportions designed to replicate the return of the index. . initial public offering (IPO)-the first offering of a company's securities to the public through an allocation by the underwriter. . investment club- is a membership organization where investors make joint decisions on which securities to buy or sell. The securities are generally held in the name of the investment club. Since each member of an investment club participates in the investment decision making process, Insider Risk Employees, Investment Employees and Access Decision Makers belonging to such investment clubs must preclear and report the securities transactions contemplated by such investment clubs. In contrast, a private investment company is an organization where the investor invests his/her money, but has no direct control over the way his/her money is invested. Insider Risk Employees, Investment Employees and Access Decision Makers investing in such a private investment company are not required to preclear any of the securities transactions made by the private investment company. Insider Risk Employees, Investment Employees and Access Decision Makers are required to report their investment in a private investment company to the Manager of Corporate Compliance and certify to the Manager of Corporate Compliance that they have no direct control over the way their money is invested. . investment company-a company that issues securities that represent an undivided interest in the net assets held by the company. Mutual funds are investment companies that issue and sell redeemable securities representing an undivided interest in the net assets of the company. . Investment Ethics Committee is composed of investment, legal, compliance, and audit management representatives of Mellon and its affiliates. The members of the Investment Ethics Committee are: . President and Chief Investment Officer of The Dreyfus Corporation (Committee Chair) . General Counsel, Mellon Financial Corporation . Chief Risk Management Officer, Mellon Trust . Manager of Corporate Compliance, Mellon Financial Corporation - -------------------------------------------------------------------------------- page 50 Glossary =====================----------------------------------------------------------- . Corporate Chief Auditor, Mellon Financial Corporation . Chief Investment Officer, Mellon Private Asset Management . Executive Officer of a Mellon investment adviser (rotating membership) The Committee has oversight of issues related to personal securities trading and investment activity by Access Decision Makers. . Manager of Corporate Compliance-the employee within the Audit & Risk Review Department of Mellon Financial Corporation who is responsible for administering the Securities Trading Policy, or any person to whom relevant authority is delegated by the Manager of Corporate Compliance. . Mellon-Mellon Financial Corporation and all of its direct and indirect subsidiaries. . Option-a security which gives the investor the right, but not the obligation, to buy or sell a specific security at a specified price within a specified time. For purposes of compliance with the Policy, any Mellon employee who buys/sells an option, is deemed to have purchased/sold the underlying security when the option was purchased/sold. Four combinations are possible as described below. . Call Options If a Mellon employee buys a call option, the employee is considered to have purchased the underlying security on the date the option was purchased. If a Mellon employee sells a call option, the employee is considered to have sold the underlying security on the date the option was sold. . Put Options If a Mellon employee buys a put option, the employee is considered to have sold the underlying security on the date the option was purchased. If a Mellon employee sells a put option, the employee is considered to have bought the underlying security on the date the option was sold. Below is a table describing the above: Transaction Type ------------------------------------------------------ Option Type Buy Sale ------------------------------------------------------ Put Sale of Purchase of Underlying Security Underlying Security ------------------------------------------------------ Call Purchase of Sale of Underlying Security Underlying Security ------------------------------------------------------ - -------------------------------------------------------------------------------- page 51 Glossary =========================------------------------------------------------------- . Preclearance Compliance Officer-a person designated by the Manager of Corporate Compliance and/or the Investment Ethics Committee to administer, among other things, employees' preclearance requests for a specific business unit. . private placement-an offering of securities that is exempt from registration under the Securities Act of 1933 because it does not constitute a public offering. Includes limited partnerships. . Senior Management Committee-the Senior Management Committee of Mellon Financial Corporation. . short sale-the sale of a security that is not owned by the seller at the time of the trade. - -------------------------------------------------------------------------------- page 52 ================================------------------------------------------------ Exhibit A-Sample Instruction Letter to Broker - -------------------------------------------------------------------------------- [LOGO OF MELLON] Date Broker ABC Street Address City, State ZIP Re: John Smith & Mary Smith Account No. xxxxxxxxxxxx In connection with my existing brokerage accounts at your firm noted above, please be advised that the Compliance Department of my employer should be noted as an "Interested Party" with respect to my accounts. They should, therefore, be sent copies of all trade confirmations and account statements relating to my account. Please send the requested documentation ensuring the account holder's name appears on all correspondence to: Manager, Corporate Compliance Mellon Financial Corporation PO Box 3130 Pittsburgh, PA 15230-3130 or Preclearance Compliance Officer (obtain address from your designated Preclearance Compliance Officer) Thank you for your cooperation in this request. Sincerely yours, Employee cc: Manager, Corporate Compliance (151-4340) or Preclearance Compliance Officer - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- page 53 Questions Concerning the Securities Trading Policy? Contact Corporate Compliance, (412) 234-1661 AIM 151-4340, Mellon Bank, Pittsburgh, PA 15258-0001 [LOGO OF MELLON] ------------------------------------------------------------------ Corporate Compliance www.mellon.com -----END PRIVACY-ENHANCED MESSAGE-----