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Dear Fellow Shareholders:
The year ended July 31, 1997 was one of the most remarkable in the history
of the stock market. Low inflation, relative peace worldwide, and strong
business spending patterns all contributed to an extraordinary rise in equity
markets. We benefitted from the trend. During the 12 months ended July 31, 1997
the Domini Social Equity Fund rose 54.01%*, while the Standard & Poor's 500 rose
52.14%. Through most of this period, large companies with highly predictable
earnings led the rally and, due to our strong representation in such companies,
the Fund benefitted.
I am frequently asked how the social criteria were applied in constructing
the Domini 400 Social Index and how they are used in maintaining it. The
creation of the Domini 400 Social Index (DSI) was an exercise undertaken by
Kinder, Lydenberg, Domini & Co., Inc. (KLD) eight years ago. The first step was
to survey and reflect the standards for social screening at that time. It was
hoped that the DSI would provide a way of measuring the cost or benefit of
applying these generally accepted social screens to an investable universe.
Conventional investors had the Standard & Poor's 500 to help them understand the
trends in stock markets and social investors needed an index of their own.
In constructing the DSI we had to walk a tight-rope held aloft by two strong
poles. These poles represented the two constituent customers of socially
screened portfolios. On the one hand there are investors who seek to avoid
profiting from manufacturers of alcohol, tobacco, gaming, nuclear power and
military weapons. On the other are investors who wish to define the quality of
the interaction between corporations and the world around them. We therefore
took an absolute exclusionary stance on the industries represented by the first
constituency and, in evaluating the needs of the second constituency, we
attempted to include any industry which was not explicitly excluded by the first
constituency. Next, as we sought to reflect the market behavior of the stocks
available, we evaluated the quality of a company's social profile and set a
level that reflected roughly the better half of companies.
The Domini 400 Social Index was launched May 1, 1990 and since then it has
been maintained with an eye towards the lowest possible turnover. As corporate
merger activity picked up throughout the years, we needed to evaluate not only
companies merging with each other but also companies dividing themselves into
two or three new entities. Furthermore, a certain number of corporations' social
profiles deteriorated to the point that it was necessary to remove them from the
Index. Throughout it all, however, the DSI has managed to maintain its integrity
as a low turnover, passive reflection of the investable universe available to
socially responsible investors.
At Domini Social Investments we believe that the application of social
criteria to investments gives you more than a means of reflecting your values.
It is also a means of reflecting those values back to the management teams at
the corpora-
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tions we evaluate. Through years of dialogue (necessary to construct our social
profiles), we have been able to help management teams understand the social
investment environment and the concerns our shareholders have. It is our belief
that the screening process leads us to investments in companies with strong and
positive corporate cultures. This annual report is dedicated to the corporations
and the community. We trust you will find it informative and interesting.
Thank you for your continued support of both this fund and socially
responsible investing.
Sincerely yours,
Amy L. Domini
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COMMUNITY Communities around the world are pressing for socially responsible
corporate policies with regard to environmental practices, labor agreements and
working conditions. But sustainable community development does not stop there. A
healthy community requires investment in its people, its places and its
institutions. The text below is representative of the innovative community
initiatives which corporations are supporting throughout the country. It is by
no means all inclusive, but we hope it gives you a sense of what socially
responsible companies can and are doing to improve the quality of life for their
surrounding communities as well as under served populations around the country.
All the companies whose stock is held by the Domini Social Equity Portfolio
meet multiple standards for corporate accountability. We avoid companies in the
business of manufacturing alcohol and tobacco products as well as those that
provide gambling services or equipment. We seek to avoid companies that sell
weapons or are in the nuclear power industry. In addition, we evaluate a
company's social profile by weighing both strengths and weaknesses in the areas
of community impact, employee relations, the environment, product safety and
usefulness, non-U.S. operations, and diversity.
The "bellwether" issues Kinder, Lydenberg, Domini & Co., Inc. (KLD)
evaluates to identify strengths and weaknesses within the area of COMMUNITY
follow.
AREAS OF STRENGTH:
A. GENEROUS GIVING
The company has consistently given over 1.5% of trailing three-year net
earnings before taxes (NEBT) to charity, or has otherwise been notably generous
in its giving. Major Strength (two diamonds) if over 5%.
B. INNOVATIVE GIVING
The company has a notably innovative giving program that supports nonprofit
organizations such as those promoting self-sufficiency among the economically
disadvantaged. Companies that permit nontraditional federated charitable giving
drives in the workplace are often noted in this section as well.
C. SUPPORT FOR HOUSING
The company is a prominent participant in public/private partnerships that
support housing initiatives for the economically disadvantaged, e.g., the
National Equity Fund or the Enterprise Foundation.
D. SUPPORT FOR EDUCATION
The company has either been notably innovative in its support for primary-
or secondary-school education, particularly for those programs that benefit the
economically disadvantaged, or the company has prominently supported job
training programs for youth.
AREAS OF CONCERN:
A. INVESTMENT CONTROVERSIES
The company is a financial institution whose local investment practices have
led to controversies, particularly ones related to the Community Reinvestment
Act.
B. NEGATIVE ECONOMIC IMPACT
The company's actions have resulted in major controversies concerning the
company's economic impact on the community. These controversies can include
issues related to plant closings, plant siting, "put-or-pay" contracts with
trash incinerators, or other company actions that adversely affect the quality
of life, tax base, or property values in the community.
Below are listed Domini 400 Social Index stocks which receive a major
strength for their contribution to the community and receive no major concern in
any of the other issue areas.
AMERITECH is a telephone holding company which serves Illinois, Indiana,
Michigan, Ohio, and Wisconsin. The company has a long history of
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supporting education through its charitable giving programs. In 1995 it
emphasized the connection of education to technology with a $10 million program
in Michigan to provide discount access rates for public schools to the Internet
and training for teachers and students. A grant of $165,000 was given to
Associated Colleges of Illinois to explore new ways to use technology in
education. Ameritech makes annual $10,000 grants to 20 colleges to attract and
support older students, minorities, and disadvantaged students. In 1994
Ameritech estimated it made approximately $30 million of in kind donations,
primarily telecommunications equipment to schools for distance learning
programs. In 1995 the company initiated a program to donate up to $1,000 per
organization where employees volunteer eight or more hours per month. Ameritech
requires that participants in some of its management development programs do one
half-day of community service.
AT&T is a provider of long distance telecommunications services. In November
1996, the company adopted a policy under which all of its approximately 128,000
employees became eligible to take one paid day off each year to volunteer with
nonprofit organizations. Many companies provide time off for employees to
volunteer, but it is unusual for a firm with such a large workforce as AT&T's to
actively encourage all employees to participate in volunteering. Through its
AT&T CARES (Community Awards Recognizing Employee Service) program, the company
allows employees who volunteer more than 50 hours per year with nonprofit
organizations to request a company grant of $250 for these organizations. This
program was initiated in 1995, and during its first year made 400 grants.
Through a project dubbed the AT&T Learning Network, the company initiated a
program in November 1995 to provide $150 million over five years to help
virtually all elementary and secondary schools in the U.S. obtain free Internet
access and voice-messaging services. The company is also a notably strong
supporter of the arts and made grants in 1996 to several regional theaters.
BEN & JERRY'S manufactures and markets premium ice cream, frozen yogurt, and
sorbet. The company's operations are located primarily in Vermont. The company's
record of charitable donations has been exceptionally generous, with a target of
7.5% of pretax earnings. Employee teams at each of the company's five Vermont
sites contribute a day of company time to a community project they choose. These
include building a playground structure, a nature trail, and a building for a
community-run ski area. The firm's foundation is remarkable in the corporate
community for the innovation of its giving. Among 1995 recipients of its grants
were the Ward Valley Project to stop the proposal for a nuclear waste dump in
Ward Valley, California, Black Workers for Justice in Rocky Mountain, North
Carolina; the Dakota Rural Action group, a grassroots advocacy group seeking to
reform government policies that lead to shipping hazardous waste and radioactive
waste to rural and impoverished communities for disposal; and Pasture Management
Outreach in Vermont, working for ecologically and economically beneficial
farming. The company has an alliance with the Children's Defense Fund to help
raise awareness of children's needs. Ben & Jerry's has given time off and
training to its employees to work with the Vermont Campaign to End Childhood
Hunger. This organization promotes the implementation of school breakfasts in
Vermont public schools.
In 1995 the company reorganized the foundation so that the nine-member board
is composed of company employees chosen by their peers. Fifty percent of
foundation giving is distributed nationally by the foundation board, 35% by
employee-headed community action teams to programs in Vermont, and 15% by the
corporation to support groups such as Business for Social Responsibility. Since
1991 the company has paid premium prices (based on a five-year average of past
prices) for milk and cream throughout the year to support Vermont farmers,
commenting that "we cannot, in
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good conscience, underpay our family farm suppliers to the point that their
livelihood is threatened."
COCA COLA manufactures and markets soft drinks for the U.S. and the
international markets and manufactures and distributes foods, primarily juices.
The company is a supporter of the First Nations Development Institute, a
community economic development organization that focuses on helping native
Americans build sound, sustainable reservation economies. In 1993 the company
made a $1 million grant to the United States Holocaust Memorial Museum in
Washington, D.C. In 1989 the Coca Cola Foundation committed $50 million over ten
years to improve and support education. As of mid-1996, the foundation had
exceeded this amount. The program focuses on arts and science, urban, and
environmental education, global education programs, minority scholarships, and
teacher preparatory programs. As of mid-1996, the foundation had committed $2
million to the Valued Youth Program, which trains young people at risk of
dropping out of high school to serve as tutors and mentors for middle school
students. The foundation planned to expand the program to six other cities in
1996 and 1997. The company is a major contributor to the Atlanta Neighborhood
Development Partnership (ANDP), one of several community development
organizations established around the time Atlanta won its bid to host the 1996
Olympics. In 1995 the company donated $300,000 to ANDP to identify and preserve
low-cost housing for low- to middle-income families.
WALT DISNEY is an entertainment company which produces and distributes
films, musical records and television programs; and operates the ABC television
network, theme parks and the Disney stores. While Disney does not disclose
charitable giving figures, according to the Corporate Giving Watch newsletter,
the company contributes $20 million annually to local charities, mainly focusing
on children, families, education, environmental conservation, and the arts. In
early 1997, Disney announced its employees would provide one million volunteer
hours with nonprofit organizations through the year 2000. As part of this
program, employees of The Disney Store will work closely with the Boys and Girls
Clubs of America. In June 1996, Disney announced that it would open a store in
the Harlem USA Development Project shopping mall. The company has agreed to hire
store managers and staff from Harlem. In 1995 the company agreed to work with
five federal agencies to bring recreational equipment and an outdoor camping
experience to city youth as part of the Wonderful Outdoor World (WOW) project.
The company is a supporter of the Pediatric AIDS Foundations. One of the
company's ice hockey rinks in Anaheim facilitates an inner-city youth program
called Growth Opportunities through Athletics, Learning and Service (GOALS).
Established by Disney as a public charity in 1994, the program works with
several hundred underprivileged children each year. The Disney-sponsored
Challenge Program in Florida aims to keep at-risk youth in school through a
work/study arrangement based at the Magic Kingdom and Disney University.
In 1996 Disney was a major contributor to the New York Public Library. The
company also pledged $2 million to the Orlando Performing Arts Center to build a
new complex in downtown Orlando. The company funds 20 four-year university
scholarships each year for high school seniors in Florida, and since 1990 it has
sponsored the annual American Teacher Awards, which are televised on The Disney
Channel.
FANNIE MAE (FEDERAL NATIONAL MORTGAGE ASSOCIATION) provides liquidity to the
home mortgage markets by buying mortgages from lending institutions and issuing
mortgage-backed securities, thereby creating a secondary market for these
mortgages. Since 1991, under the leadership of its director, Harriet Ivey,
Fannie Mae's foundation has initiated an innovative series of major multi year
grants. In 1994 the company announced that it would commit $1 million over five
years to support preventative and primary clinical health
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services for economically disadvantaged women. In 1994 the company contributed
$1.7 million toward the establishment of the National Center for Lead Safe
Housing which is dedicated to preventing lead poisoning in children. Also in
1994, the company made $1.29 million in grants to housing counseling
organizations and committed $1 million to high school education programs
examining the roles of racism and tolerance in society. The company is a
supporter of the First Nations Development Institute, a community economic
development organization that focuses on helping native Americans build sound,
sustainable reservation economies. In 1995 Fannie Mae was one of twenty
corporations to provide first-year funding for the Minority Business Information
Center. In December 1995, Fannie Mae announced plans to contribute $350 million
to its foundation as part of a broad plan to expand national affordable housing
and anti-discrimination programs. The foundation expects to be able to donate
between $50 million to $70 million a year as a result of this new capital. In
March 1995, Fannie Mae announced that it would commit $1 trillion in financing
through the year 2000 to purchase mortgages from minority and low-income
neighborhoods. According to a June 1994 Business Week article, some $850 billion
of this amount would already be available under the company's current lending
guidelines, but Fannie Mae planned to loosen its criteria for other mortgages
that it purchases. Some low-income home buyers would only be required to make a
3% downpayment, for example.
Fannie Mae's foundation is one of few corporate foundations to make program
related investments (PRIs). PRIs are low-interest loans or investments with
below-market-rate returns made by foundations to nonprofit organizations whose
mission meets the foundation's goals. For example, a foundation PRI may consist
of a loan to help capitalize a revolving loan fund for affordable housing run by
a community organization. The foundation makes the PRI with its assets, usually
expects a modest return on this investment, and eventually expects the
investment to be returned to its asset base. In 1994 Fannie Mae made a
commitment to place some $9.7 million in PRIs through 1996. This is a highly
unusual decision within the corporate foundation world. The company's foundation
had approximately $22.1 million in assets at that time.
GENERAL MILLS processes and markets packaged foods. In FY 1996, the General
Mills Foundation donated 2.85% ($16 million) of trailing three-year net earnings
before taxes (NEBT) to charity. The foundation has as a giving target 3% of
domestic pretax earnings. Forty percent of foundation contributions go to
operating support of existing programs, which is unusual for foundations and
indicates the company's long-term commitment to communities. General Mills'
support for volunteerism includes a program at corporate headquarters that links
the skills of employees and retirees with the needs of community groups. In 1997
General Mills plans to initiate an innovative educational grants program. At
certain secondary schools in Minneapolis, Minnesota, and Toledo, Ohio, students
from 8th through 12th grades will be able to apply each year for up to $2,000 in
scholarship funds which, when awarded, will be set aside for their college
education. At the same time, the secondary schools themselves will be eligible
for comparable grants as part of this program. In 1996 over one-third of
foundation giving went to pre-collegiate education, an increase from 13% in
1994. Contributions included $100,000 to the Albuquerque public schools and
$30,000 to the Minneapolis Youth Trust school partnerships. The company is
supplying significant funding for a project of the Executive Leadership Council,
formed by leading African American corporate executives. The key demonstration
project provides information technology transfer to historically black colleges
and universities. The company also provides matching grants for employee
contributions to educational and other nonprofit institutions.
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HASBRO manufactures and markets toys and related items, including games and
preschool and infant products. Grants in 1995 included a program to create safe
children's play gardens within existing community gardens and a program in
Missouri providing services for homeless preschoolers and their families,
including day care and family therapy. In 1996 Hasbro's Children's Foundation
grants included $25,000 to a math and science program for elementary and middle
school girls in East Harlem, New York, and $40,000 for remedial reading
specialist at Boys Harbor in New York. Grants in 1995 included funding for a
literacy project for Navajo youth and a program in the public schools of Eugene,
Oregon, providing computer training and family trips for low-income parents to
help their children succeed in school. In 1994 Hasbro added five new schools to
its program focused on community-centered education. The company has maintained
its headquarters in Pawtucket, Rhode Island, a city which has been economically
depressed for several years. Hasbro's charitable giving in Rhode Island has also
been substantial.
The firm is a member of Businesses for Social Responsibility, a trade
association in Washington, D.C., that seeks to increase corporate responsibility
in the U.S. In 1996 Hasbro joined an innovative private-public partnership in
Rhode Island to encourage businesses to offer employee benefits to adoptive or
foster parents. Hasbro has offered adoption benefits for several years.
HOME DEPOT operates retail do-it-yourself home improvement stores. In 1995
the company's volunteer program, called Team Depot, received the 1995
President's Service award in recognition of innovation, mobilization of
volunteers, and ongoing community involvement to meet community needs. Suzanne
Apple, as director of community affairs, coordinates the teams that contribute
to such programs as City of Hope for cancer research, disaster relief programs,
and INROADS, an internship program for at-risk youth. In 1995 the company
donated $100,000 worth of merchandise for rescue efforts in the Oklahoma City
bombing in 1995. In August 1994, the company announced a donation of $2 million
in cash and $2 million in products and services to sponsor the August 1996
Paralympic Games for athletes with physical impairments. The company is also a
sponsor of City Year programs in Boston, Chicago, and San Jose. The company has
invested in several affordable housing public/private partnerships, including
Greater Miami Neighborhoods and the Long Island Housing Partnership. As of 1995,
the company's volunteers had participated in 60 Habitat for Humanity
construction projects. In 1995 approximately 42% of the budget went to housing
and 25% to at-risk youth. The company matches employee charitable donations
dollar for dollar up to $500. In 1994 the company decentralized its charitable
giving program and allocated the funds to store managers, who in turn decided
what community endeavors to support.
MAY DEPARTMENT STORES COMPANY operates 346 department stores nationwide,
including eight regional chains. In FY 1995 the company donated 1.6% ($14
million) of trailing three-year net earnings before taxes (NEBT) to charity. The
company is a national sponsor of the Older Adult Service and Information System
(OASIS), an organization that services the elderly, and provides permanent
meeting areas in its department stores for OASIS centers. There are currently 43
centers throughout the country. In 1995 May contributed over $850,000 to the
OASIS Institute in St. Louis, Missouri, and $250,000 for the OASIS
intergenerational tutoring program in St. Louis. In 1995 company donations to
AIDS service organizations was approximately $250,000, including $200,000 to the
National Community AIDS Partnership in Washington, D.C. In 1995 the company
reported that it contributed $140,000 to the St. Louis Equity Fund, a Local
Initiatives Support Coalition (LISC) fund that supports low-income housing in
the St. Louis metro area and $200,000 to the Regional Housing Alliance of St.
Louis. In addition, May contributed
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$190,000 to the Young Womens Christian Association, $165,000 to INROADS,
$125,000 to the Make-A-Wish Foundation, and $67,000 for breast cancer research
in New York and Virginia.
MEDTRONIC manufactures and markets medical products for slow, irregular, and
fast heartbeats, vascular and cardiac surgery, including angioplasty catheters
and heart valves, and neurostimulation products and drug administration systems.
In FY 1997, the company donated 1.5% ($7.1 million) of trailing three-year net
earnings before taxes (NEBT) to charity. Medtronic also made product donations
valued at $1.4 million. The majority of the company's donations are directed
toward education with a focus on science for pre-collegiate students. Education
is supported through the STAR (Science and Technology are Rewarding) program
which aims to improve K-12 science education. The program has expanded from the
Minneapolis and St. Paul, Minnesota, schools, and as of 1996 supported more than
100 projects involving over 128,000 students and teachers. The program also
targets economically disadvantaged, female, and minority students. In 1995 the
STAR program was recognized by the Conference Board as the best in its class for
innovative corporate-sponsored education programs.
POLAROID designs, manufactures, and markets instant photographic cameras,
films, electronic imaging devices, and polarized filters and lenses. In 1995 the
company donated approximately $2.3 million through grants, scholarships,
matching contributions, and in-kind gifts to charity. Historically, Polaroid's
charitable giving has consistently exceeded 1.5% of earnings. A committee of 50
employees from all levels of the company allocates its charitable donations.
More than most other U.S. corporations, Polaroid has supported initiatives to
address domestic violence. Grants to community organizations and programs in
1994 included $30,000 to Cambridge Community Services, $40,000 to Community
Works, $25,000 to the Neighborhood Development Support Collaborative of Boston,
and $25,000 to People Acting in Community Endeavors. In 1993 it funded the start
of the Jane Doe Safety Fund, a project of the Massachusetts Coalition of
Battered Women's Service Group. It is participating in a Harvard School of
Public Health study of ten corporate Employee Assistance Programs attempting to
grapple with the effects of domestic violence in the workplace. Polaroid's CEO
project encourages local businesses to adopt women's shelters. The company has
also sponsored several educational symposia on domestic violence. Polaroid has
been a sponsor of KidCare, a children's safety project of the National Center
for Missing and Exploited Children. The company contributes its film and cameras
for the creation of photo IDs for children and takes part in training events.
PROCTER & GAMBLE manufactures and markets laundry and cleaning products,
paper products, beauty care products food and beverages, and health care
products. In FY 1995, the company donated 1.60% ($41.85 million) of trailing
three-year net earnings before taxes (NEBT) to charity, down from 2.17% the
previous year. That year Procter & Gamble also made in-kind donations it values
at approximately $12.87 million. Contributions in FY 1996 included $1,302,450
for Cincinnati K-12 Education Initiatives/Programs (up from $707,150 the
previous year) and $20,000 for the Leadership Conference on Education Reform.
Among its other education-related grants that year were $460,000 to the United
Negro College Fund, $60,000 to Tuskegee University, and $50,000 to the National
Action Council for Minorities in Engineering. The company is also a strong
supporter of the Cincinnati Youth Collaborative. Among the company's other FY
1996 grants were $365,000 to the National Council of Negro Women, $50,000 to the
Colorado's Children's Campaign, $40,000 to the Children's Defense Fund, and
$70,000 to Second Harvest. In August 1996, it contributed $500,000 to the
National Urban League's Youth Development Fund. Its FY 1995 grants included $5
million to a job creation and community development project
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in Norwich, New York, to support economic development in that city and $215,000
to the Nature Conservancy. The company is a strong supporter of the arts in its
headquarters city of Cincinnati, Ohio.
TIMBERLAND manufactures and markets footwear and accessories and apparel
under the Timberland brand name. In 1995 Timberland became the largest private
contributor of funds to City Year, a Boston-based community service organization
for young adults, by pledging $5 million over five years. City Year has been
widely praised as an "urban peace corps" that recruits young people to work on
human service projects with city agencies. Timberland has also launched a line
of apparel and accessories labeled "City Year Gear." The profits are divided
between City Year and the company stores for a community service fund. In
addition to its financial support for City Year, Timberland has developed a
highly unusual relationship with this nonprofit organization. The company has
used City Year personnel to provide diversity training for Timberland's
employees. The company provides City Year members with a full line of clothing
and footwear. Jeffrey Swartz serves on City Year's board of directors.
Timberland has a notably strong employee volunteer program. It allows all
full time and part time employees up to 32 hours annually to work on community
service projects, half of which are chosen by the company and half by the
employee. The firm stresses to all its employees that volunteerism is part of
the company culture through a number of means, including publication of a
company newsletter that focuses on its volunteer efforts. In 1992 the company
initiated a worldwide ad campaign aimed at counteracting a rising tide of
racism, particularly in Germany. The campaign had as its slogan "Give Racism The
Boot."
VERMONT FINANCIAL SERVICES CORP is a holding company whose subsidiaries
provide banking services in Vermont. In addition to traditional banking
services, the bank offers the Socially Responsible Banking Fund which accounts
for approximately 10% of total FY 1995 deposits. In 1995 the company donated
1.93% ($225,000) of trailing three-year net earnings before taxes (NEBT) to
charity. In 1996 the bank's Socially Responsible Banking (SRB) Fund committed
another $2 million to support low-income housing in the Rutland area. It had
already committed $1.25 for 17 units in the Rutland area in 1994. In 1995 the
SRB Fund provided a $925,000 loan as well as a grant of $325,000 to the Lake
Champlain Housing Development Corporation for construction of 28
low-to-moderate-income housing units in Burlington. The project is structured as
a cooperative, so that each tenant assumes a portion of the mortgage. In 1989
Vermont National Bank established the SRB Fund which enables depositors to
earmark their deposits for loans to local enterprises and projects that have
positive community impact. Flexible loans are made in five community areas,
including affordable housing, education, agricultural, conservation and
environmental, and small and dual bottom line businesses.
In 1996 the SRB Fund established a revolving loan fund for Vermont organic
farmers to obtain small, low interest loans for purchase of small equipment and
other needs. The SRB Fund also provided 0% loans for a specialty cheese
manufacturer, who in turn made 0% loans to local goat farmers. Other loans
included a mortgage for a parent child center. Funding in 1994 and 1995 included
financial advice and a mortgage that fostered the survival of an art therapy
program in North Bennington, Vermont, and loans to an organic dairy business.
Through its SRB Fund the bank provides significant support for low-income
housing in Vermont. The bank also offers two affinity credit cards. For one
card, a portion of each purchase made is donated to Coop America, a nonprofit
organization promoting cooperatively
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owned businesses in the U.S. and abroad. For the other card, 1% of the users'
purchases go to nonprofit organizations providing a range of services to
children in Vermont.
WACHOVIA is a regional banking company with operations in North Carolina,
Georgia, South Carolina. The banks provide retail banking for individuals, small
businesses, and corporations. According to a 1996 study by the Community
Reinvestment Performance Ratings of CANICCOR, a church-supported nonprofit group
specializing in the analysis of federal data on bank mortgages, the company's
federal Community Reinvestment Act (CRA) performance examinations for 1994 were
50% above the industry average. CRA performance evaluations are conducted each
year by federal regulators to establish the banking industry's record of meeting
community credit needs. In 1994 CRA evaluations resulted in "Outstanding"
ratings at all Wachovia subsidiary banks. The Wachovia Bank of North Carolina
has received this rating for three consecutive years. Wachovia has invested in
low-income housing tax credits and equity financing for low-income multifamily
housing. In 1995 total investments in these properties amounted to $12.6
million, including $500,000 to the Atlanta Housing Equity Fund and $5 million to
the North Carolina Equity Fund for similar investments. Wachovia also
participates in the North Carolina Community Investment Corporation and the
Delaware Community Investment Corporation, funds that provide long-term mortgage
loans for affordable multifamily properties. Charitable donations in 1995
included a second payment of $300,000 to the Atlanta Neighborhood Development
Partnership for renovations of low-to-moderate-income neighborhoods, $200,000 to
the East Lake Community Foundation in Atlanta and $125,000 to Atlanta projects,
$425,000 to Greenville, South Carolina, $30,000 to the Local Initiatives Support
Corporation, and $200,000 to Habitat for Humanity.
WHIRLPOOL manufactures and markets major appliances including home laundry
appliances, home refrigerators and air conditioners, and other home appliances.
Among its major brand names are Whirlpool, Kenmore, KitchenAid, and Speed Queen.
In 1996 the company donated 1.5% ($4.6 million) of trailing three-year net
earnings before taxes (NEBT) to charity. In 1996 and 1995 Whirlpool made
substantial contributions to numerous innovative programs supporting women. In
1996 the company gave $20,000 to the Young Womens Christian Association for a
24-hour resource and referral line for women, $20,000 to the National Hispana
Leadership Institute to evaluate and duplicate a training program for Hispanic
women, and $24,000 over three years to the Raintree Girl Scout Council of
Evansville, Indiana, to support anti-bias programs on cultural diversity for
young girls. In 1996 the company donated $73,950 to the Eleanor Roosevelt Fund
of the American Association of University Women Educational Foundation which
supports women schoolteachers nationwide who are committed to promoting gender
equity in the classroom. In 1996 and 1995, the company respectively donated
$75,100 and $129,000 to the Andrews University Center for Intercultural
Relations to promote greater awareness and sensitivity to people from different
ethnic and cultural backgrounds in the Benton Harbor and St. Joseph, Michigan,
area. In 1995, the company donated $82,000 over three years to the 9-to-5
Working Women Education Fund in Milwaukee for the professional development of
women in non-management positions, $200,000 to the Families and Work Institute
for the research of social issues impacting women, and $100,000 over two years
to the Family Violence Prevention Fund.
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COMPARISON OF $10,000 INVESTMENT IN THE
DOMINI SOCIAL EQUITY FUND AND S&P 500+
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C>
1 Year ended 7/31/97 54.01%
5 Years ended 7/31/97 18.86%
Inception (6/3/91) to 7/31/97 16.71%
DOLLARS (Thousands) DSE FUND* S&P 500
30-Jun-91 $10,000.00 $10,000.00
31-Jul-91 10,465.70 10,506.86
30-Oct-91 10,674.88 10,591.34
31-Jan-92 11,203.28 11,269.64
30-Apr-92 11,454.23 11,269.64
31-Jul-92 11,801.92 11,804.16
31-Oct-92 11,736.87 12,070.98
31-Jan-93 12,386.89 12,893.76
30-Apr-93 12,510.53 12,624.91
31-Jul-93 12,829.98 12,985.98
31-Oct-93 13,486.75 13,646.10
31-Jan-94 13,978.90 13,949.68
30-Apr-94 13,174.70 13,205.70
31-Jul-94 13,491.02 13,367.19
31-Oct-94 14,007.09 13,852.07
31-Jan-95 14,052.53 13,976.43
30-Apr-95 15,472.00 15,208.32
31-Jul-95 17,008.21 16,723.38
31-Oct-95 17,706.34 17,410.34
31-Jan-96 19,479.20 18,851.41
30-Apr-96 20,142.09 19,488.13
31-Jul-96 19,823.67 19,083.06
31-Oct-96 21,970.19 21,208.48
31-Jan-97 24,607.55 23,967.20
30-Apr-97 25,202.21 24,763.04
31-Jul-97 30,153.87 29,389.35
Past performance is not predictive of future
performance.
</TABLE>
+ The performance information in this chart represents past performance. The
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
* The Fund began investing in the stocks comprising the Domini Social Index on
June 3, 1991. The above chart begins on June 30, 1991.
11
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
<S> <C> <C>
COMMON STOCKS -- 99.1%
APPAREL -- 0.9%
Brown Group, Inc......... 1,400 $ 24,500
Hartmarx Corp. (b)....... 2,300 17,394
Liz Claiborne............ 5,300 253,738
Nike, Inc................ 21,900 1,364,644
Osh Kosh B'Gosh.......... 800 17,100
Phillips-Van Heusen
Corp.................... 1,900 26,600
Reebok International Ltd.
(b)..................... 4,100 211,663
Russell Corp............. 2,700 78,806
Springs Industries,
Inc..................... 1,600 77,400
Stride Rite Corp......... 3,400 46,113
Timberland Co. (b)....... 600 38,775
V.F. Corp................ 4,800 430,800
------------
2,587,533
------------
BANKING -- 7.8%
Banc One Corp............ 43,695 2,452,382
BankAmerica Corp......... 53,900 4,069,250
BankBoston Corp.......... 11,100 942,806
Bankers Trust New York
Corp.................... 5,800 586,888
Barnett Banks, Inc....... 15,000 854,063
CoreStates Financial
Corp.................... 15,600 962,325
Fifth Third Bancorp...... 12,050 761,409
First Chicago NBD
Corp.................... 23,606 1,791,105
J P Morgan & Co. Inc..... 13,900 1,610,663
Mellon Bank Corp......... 19,500 983,531
Norwest Corp............. 28,200 1,778,363
PNC Bank Corp............ 24,300 1,111,725
SunTrust Banks, Inc...... 16,600 1,065,512
Vermont Financial
Services Corp........... 200 10,100
Wachovia Corp............ 12,200 786,900
Washington Mutual,
Inc..................... 18,880 1,305,080
Wells Fargo & Co......... 6,700 1,842,081
------------
22,914,183
------------
COMMERCIAL PRODUCTS AND SERVICES -- 1.7%
Avery Dennison Corp...... 7,900 348,588
Cintas Corp.............. 3,400 222,700
DeVry Inc. (b)........... 2,700 79,313
Deluxe Corp.............. 6,200 206,538
HON Industries, Inc...... 2,300 137,425
Harland (John H.) Co..... 2,300 45,138
Herman Miller, Inc....... 3,600 178,650
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
<S> <C> <C>
COMMERCIAL PRODUCTS AND SERVICES -- CONTINUED
Ikon Office Solutions
Inc..................... 10,000 $ 291,875
Kelly Services........... 2,775 83,944
Moore Corp. Ltd.......... 6,300 136,631
National Service
Industries.............. 3,600 177,525
New England Business
Services, Inc........... 800 23,600
Pitney Bowes, Inc........ 11,000 826,375
Standard Register........ 2,000 64,750
Tennant Co............... 1,000 35,500
Xerox Corp............... 24,500 2,015,125
------------
4,873,677
------------
CONSTRUCTION -- 0.2%
Apogee Enterprises,
Inc..................... 2,000 42,750
Centex Corp.............. 2,400 133,800
Fleetwood Enterprises,
Inc..................... 2,400 77,850
Granite Construction
Inc..................... 1,100 22,825
Kaufman & Broad Home
Corp.................... 2,700 57,713
Rouse Co................. 5,100 151,406
Skyline Corp............. 500 12,719
TJ International, Inc.... 3,500 85,750
------------
584,813
------------
ENERGY -- 3.0%
ARCO Chemical Co......... 7,400 334,850
Amoco Corp............... 37,400 3,515,600
Anadarko Petroleum
Corp.................... 4,500 314,438
Apache Corp.............. 6,800 239,700
Atlantic Richfield Co.... 24,400 1,825,426
Consolidated Natural
Gas..................... 7,000 405,125
Helmerich & Payne Inc.... 2,100 141,356
Louisiana Land &
Exploration Co.......... 2,800 197,750
Monterey Resources
Inc..................... 3,087 47,085
Oryx Energy Co. (b)...... 8,100 199,969
Pennzoil Co.............. 3,300 257,813
Rowan Companies, Inc.
(b)..................... 6,600 216,975
Santa Fe Energy
Resources, Inc. (b)..... 7,000 60,375
Sun Co., Inc............. 5,600 200,550
Western Atlas, Inc.
(b)..................... 4,100 326,206
Williams Companies,
Inc..................... 12,000 549,000
------------
8,832,218
------------
</TABLE>
12
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
FINANCIAL SERVICES -- 5.7%
<S> <C> <C>
A.G. Edwards, Inc........ 4,825 $ 203,856
Ahmanson (H.F.) &
Company................. 7,600 404,225
American Express Co...... 35,700 2,989,875
Beneficial Corp.......... 4,000 290,000
Block (H. & R.), Inc..... 8,000 306,500
Dime Bancorp, Inc........ 8,000 160,500
Federal Home Loan
Mortgage Corp........... 52,600 1,896,888
Federal National Mortgage
Association............. 80,800 3,822,850
First Fed Financial Corp.
(b)..................... 600 20,700
Golden West Financial
Corp.................... 4,300 361,738
Household International
Inc..................... 8,100 1,048,950
MBIA, Inc................ 3,200 377,600
MBNA, Corp............... 25,300 1,138,500
Merrill Lynch & Co.,
Inc..................... 25,000 1,760,937
Piper Jaffrey Inc........ 1,500 32,156
Schwab (Charles) & Co.,
Inc..................... 13,200 617,925
Student Loan Marketing
Association............. 4,300 644,731
Transamerica Corp........ 5,000 504,375
Value Line, Inc.......... 500 20,250
Wesco Financial Corp..... 400 116,000
------------
16,718,556
------------
FOODS & BEVERAGES -- 9.3%
Ben & Jerry's (b)........ 700 9,013
CPC International,
Inc..................... 10,900 1,045,718
Campbell Soup Co......... 35,100 1,820,813
Coca-Cola Co............. 188,500 13,053,625
Fleming Companies,
Inc..................... 2,500 39,844
General Mills, Inc....... 12,200 843,325
Heinz (H.J.) Co.......... 27,800 1,284,013
Hershey Foods Corp....... 11,600 640,900
Kellogg Co............... 15,700 1,442,438
Natures Sunshine
Products, Inc........... 1,100 22,550
Odwalla, Inc. (b)........ 1,300 13,163
Pepsico, Inc............. 116,500 4,463,406
Quaker Oats Co........... 10,500 537,469
Ralston-Purina Group..... 8,100 731,025
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
<S> <C> <C>
FOODS & BEVERAGES -- CONTINUED
SUPERVALUE, Inc.......... 4,600 $ 186,300
Smucker (J.M.) Co........ 2,100 50,663
Sysco Corp............... 13,200 492,525
Tootsie Roll Industries,
Inc..................... 1,779 87,188
Wrigley (Wm.) Jr. Co..... 8,800 677,050
------------
27,441,028
------------
HEALTH CARE -- 8.3%
ALZA Corp. (b)........... 6,400 206,800
Acuson Corp. (b)......... 2,000 52,625
Allergan, Inc............ 4,800 153,300
Angelica Corp............ 800 15,400
Becton Dickinson & Co.... 9,300 498,713
Bergen Brunswig Corp..... 3,618 107,636
Biomet, Inc.............. 8,400 167,475
Boston Scientific Corp.
(b)..................... 14,700 1,054,725
Forest Laboratories, Inc.
(b)..................... 2,900 131,950
Humana, Inc. (b)......... 12,300 299,813
Johnson & Johnson........ 101,300 6,312,256
Manor Care, Inc.......... 4,700 155,100
Marquette Medical
Systems, Inc.--
Class A (b)............. 1,500 38,625
Medtronic, Inc........... 18,000 1,570,500
Merck & Co., Inc......... 91,700 9,531,069
Mylan Labs, Inc.......... 9,700 163,688
Oxford Health
Plans, Inc. (b)......... 5,900 495,969
Schering-Plough Corp..... 55,400 3,022,763
St. Jude Medical, Inc.
(b)..................... 6,900 281,606
Stryker Corp............. 7,400 288,600
Sunrise Medical, Inc.
(b)..................... 1,500 22,500
United American
Healthcare Corp. (b).... 300 2,063
------------
24,573,176
------------
HOUSEHOLD GOODS -- 5.0%
Alberto Culver Co.--
Class B................. 4,300 120,669
Avon Products, Inc....... 10,000 725,625
Bassett Furniture
Industries, Inc......... 900 27,000
Black & Decker Corp...... 7,400 311,725
Church & Dwight Co.,
Inc..................... 4,400 130,625
Clorox Co................ 3,900 544,538
Colgate-Palmolive Co..... 22,300 1,689,225
</TABLE>
13
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
HOUSEHOLD GOODS -- CONTINUED
<S> <C> <C>
Fedders Corp............. 2,700 $ 16,369
Handleman Co. (b)........ 2,500 16,094
Harman International
Industries.............. 1,230 48,893
Hasbro Inc............... 9,850 302,272
Huffy Corp............... 700 10,325
Leggett & Platt, Inc..... 7,000 317,625
Mattel, Inc.............. 22,085 767,454
Maytag Corp.............. 7,400 215,988
Newell Co................ 12,100 507,444
Oneida Ltd............... 800 23,600
Procter & Gamble Co...... 51,300 7,804,012
Rubbermaid, Inc.......... 11,300 294,506
Shaw Industries.......... 10,000 106,875
Snap-On Inc.............. 4,450 183,563
Stanhome, Inc............ 1,100 36,231
Stanley Works............ 6,700 303,594
Thomas Industries Inc.... 800 23,700
Whirlpool Corp........... 5,700 285,000
------------
14,812,952
------------
INSURANCE -- 6.6%
Aetna, Inc............... 11,370 1,295,469
American General Corp.... 18,162 967,127
American International
Group................... 52,400 5,580,600
Chubb Corp............... 13,200 930,600
Cigna Corp............... 5,600 1,117,200
Cincinnati Financial
Corp.................... 3,995 330,087
General Re Corp.......... 6,100 1,274,138
Hartford Steam Boiler,
Inc..................... 1,600 89,200
Jefferson Pilot Corp..... 5,500 390,844
Lincoln National Corp.... 7,800 554,775
Marsh & McLennan
Companies, Inc.......... 12,500 967,969
Providian Financial
Corp.................... 7,100 278,231
ReliaStar Financial
Corp.................... 2,800 214,725
SAFECO Corp.............. 9,800 469,175
St. Paul Cos............. 6,300 494,156
Torchmark Corp........... 5,200 414,050
Travelers, Inc........... 48,500 3,488,969
UNUM Corp................ 10,700 476,150
USF&G Corp............... 8,400 206,325
------------
19,539,790
------------
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
<S> <C> <C>
MEDIA -- 3.4%
Disney (Walt) Co......... 51,400 $ 4,153,763
BET Holdings, Inc.--
Class A (b)............. 900 36,000
Banta Corp............... 2,350 64,919
Comcast Corp............. 26,500 601,219
Dow Jones & Co., Inc..... 7,300 315,269
Harcourt General Inc..... 5,200 245,700
King World Productions
Inc..................... 2,700 109,013
Lee Enterprises, Inc..... 3,500 89,688
McGraw-Hill Companies.... 7,800 528,938
Media General, Inc.--
Class A................. 1,900 67,450
Meredith Corp............ 3,900 107,981
New York Times Co........ 7,300 366,825
R.R. Donnelley & Sons.... 11,100 446,081
Scholastic Corp. (b)..... 2,200 77,550
Tele-Communications,
Inc.--Series A (b)...... 50,100 857,962
Times Mirror Co.--Class
A....................... 7,500 409,687
US West Media Group...... 45,900 1,012,669
Viacom Inc.--Class A
(b)..................... 4,900 149,756
Washington Post Co....... 800 331,000
------------
9,971,470
------------
MISCELLANEOUS -- 1.8%
Cross (A.T.)............. 900 7,988
American Greetings
Corp.................... 5,800 194,300
Avnet, Inc............... 3,400 223,763
Bemis Co................. 3,900 179,156
CPI Corp................. 600 12,225
Case Corp................ 5,600 349,650
Deere & Co............... 19,200 1,092,000
General Signal........... 4,000 196,750
Gibson Greetings Inc.
(b)..................... 900 20,363
Hillenbrand Industries
Inc..................... 5,300 243,138
Hunt Manufacturing,
Inc..................... 600 12,713
Ionics, Inc. (b)......... 1,400 59,325
Jostens Inc.............. 2,600 67,113
Marriott International,
Inc..................... 9,600 660,000
Omnicom Group............ 6,200 432,838
Polaroid Corp............ 3,400 202,300
Sealed Air Corp. (b)..... 3,400 159,375
Service Corp.
International........... 18,100 615,400
Sonoco Products Co....... 6,805 226,692
</TABLE>
14
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
MISCELLANEOUS -- CONTINUED
<S> <C> <C>
Toro Co.................. 800 $ 29,200
Whitman Corp............. 7,700 194,425
------------
5,178,714
------------
MISCELLANEOUS MANUFACTURING -- 2.2%
Applied Materials, Inc.
(b)..................... 13,700 1,258,687
CLARCOR Inc.............. 900 23,344
Cincinnati Milacron...... 2,800 78,400
Crown Cork & Seal,
Inc..................... 9,800 495,513
Dionex Corp. (b)......... 800 36,500
Fastenal Co.............. 2,700 151,031
Gerber Scientific Inc.... 1,700 35,913
Graco Inc................ 1,450 47,759
Illinois Tool Works
Inc..................... 18,800 975,250
Isco, Inc................ 300 2,438
James River Corp......... 6,300 259,481
Kimberly-Clark Corp...... 42,564 2,157,463
Lawson Prods. Inc........ 800 21,000
Millipore Corp........... 3,300 145,819
Nordson Corp............. 1,500 91,500
Philip Services (b)...... 1,527 22,722
Thermo Electron Corp..... 11,330 387,344
WH Brady Co.--Class A.... 1,400 41,475
Watts Industries Inc.--
Class A................. 1,900 47,975
Wellman, Inc............. 2,200 50,050
Zurn Industries, Inc..... 700 20,694
------------
6,350,358
------------
RESOURCE DEVELOPMENT -- 1.9%
Air Products &
Chemicals............... 8,300 731,956
Aluminum Company of
America................. 13,100 1,159,350
Battle Mountain Gold
Co...................... 17,300 96,231
BetzDearborn Inc......... 2,000 131,000
Cabot Corp............... 5,200 147,225
Calgon Carbon Corp....... 2,700 36,450
Consolidated Papers,
Inc..................... 3,400 202,725
Cyprus Amax Minerals
Co...................... 7,000 177,625
Echo Bay Mines Ltd.
(b)..................... 10,600 53,000
Fuller H. B. Co.......... 1,300 67,113
Inland Steel Industries,
Inc..................... 3,600 82,575
Mead Corp................ 3,700 266,400
Morton International
Inc.-- New.............. 10,700 357,781
Nalco Chemical........... 4,900 199,981
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
<S> <C> <C>
RESOURCE DEVELOPMENT -- CONTINUED
Nucor Corp............... 6,650 $ 412,716
Praxair, Inc............. 11,900 655,987
Sigma-Aldrich Corp....... 7,800 270,075
Westvaco Corp............ 7,900 264,156
Worthington Industries... 7,300 144,632
------------
5,456,978
------------
RETAIL -- 9.6%
Albertson's, Inc......... 18,900 700,481
American Stores Co....... 20,900 527,725
Bob Evans Farms.......... 3,000 49,875
CVS Corp................. 12,600 716,625
Charming Shoppes Inc.
(b)..................... 7,900 46,413
Circuit City Stores...... 7,500 271,875
Claire's Stores Inc...... 3,200 68,800
Costco Companies Inc.
(b)..................... 15,915 602,781
Dayton-Hudson Corp....... 16,400 1,059,850
Dillards Inc.--Class A
Stock................... 8,600 325,188
Dollar General........... 6,659 292,996
Egghead Inc. (b)......... 1,500 9,563
Gap, Inc. (The).......... 20,600 915,413
Giant Food Inc........... 4,400 147,675
Great Atlantic & Pacific
Tea Co.................. 2,900 79,569
Hannaford Brothers Co.... 3,000 102,375
Hechinger Co.--Class A
(b)..................... 3,000 7,875
Home Depot Inc........... 55,449 2,765,519
International Dairy
Queen, Inc. (b)......... 1,800 44,550
Kmart Corp. (b).......... 36,800 437,000
Kroger Co. (b)........... 19,200 567,600
Land's End, Inc. (b)..... 2,200 65,175
Lillian Vernon Corp...... 1,000 16,750
Longs Drugstores Corp.... 2,900 78,119
Lowe's Companies, Inc.... 13,100 492,888
Luby's Cafeterias,
Inc..................... 1,800 35,438
May Department Stores
Co...................... 17,900 1,000,163
McDonald's Corp.......... 52,500 2,821,875
Mercantile Stores
Company, Inc............ 2,600 174,688
Nordstrom, Inc........... 5,800 328,788
Penney (J.C.) Company,
Inc..................... 18,600 1,088,100
Ruby Tuesday, Inc........ 1,400 35,613
</TABLE>
15
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
RETAIL -- CONTINUED
<S> <C> <C>
Ryans Family
Steakhouse (b).......... 3,600 $ 31,050
Sears Roebuck............ 29,600 1,874,050
Sherwin Williams Co...... 13,000 416,813
Spec's Music, Inc. (b)... 200 125
Starbucks Corp. (b)...... 6,100 249,719
TCBY Enterprises, Inc.... 1,900 13,063
TJX Cos., Inc............ 11,800 352,525
Tandy Corp............... 4,300 255,581
The Limited, Inc......... 20,400 455,175
The Pep Boys............. 4,400 146,300
Toys 'R' Us, Inc. (b).... 21,520 733,025
Wal-Mart Stores, Inc..... 172,400 6,475,775
Walgreen Co.............. 18,600 1,050,900
Whole Foods Market, Inc.
(b)..................... 3,300 113,850
Woolworth Corp. (b)...... 10,200 288,788
------------
28,334,084
------------
TECHNOLOGY -- 22.5%
AT&T Corp................ 123,700 4,553,706
Advanced Micro
Devices (b)............. 10,800 378,675
Amdahl Corp. (b)......... 9,300 109,856
American Power Conversion
Corp. (b)............... 6,900 171,638
Analog Devices (b)....... 12,100 380,394
Apple Computer, Inc...... 9,600 168,000
Autodesk, Inc............ 3,500 148,313
Automatic Data
Processing, Inc......... 22,200 1,098,900
Baldor Electric Co....... 1,900 59,375
Borland International
Inc. (b)................ 2,400 19,800
Broderbund Software,
Inc. (b)................ 1,400 30,363
Cisco Systems, Inc.
(b)..................... 50,400 4,009,950
Compaq Computer (b)...... 51,900 2,964,788
Computer Associates
International Inc....... 27,400 1,864,913
Cooper Industries,
Inc..................... 9,000 500,063
DSC Communications (b)... 8,900 262,550
Digital Equipment Corp.
(b)..................... 11,600 477,775
Grainger (W.W.), Inc..... 3,900 374,400
Hewlett-Packard Company.. 77,200 5,408,825
Hubbell Inc.--Class B.... 5,160 245,423
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
<S> <C> <C>
TECHNOLOGY -- CONTINUED
Hutchinson Technology
Inc. (b)................ 1,200 $ 36,975
Intel Corp............... 124,600 11,439,838
International Business
Machines................ 75,500 7,984,125
MCI Communications
Corp.................... 52,000 1,836,250
Merix Corp. (b).......... 300 5,250
Micron Technology,
Inc..................... 15,900 774,131
Microsoft Corp. (b)...... 91,100 12,890,650
Molex Inc................ 9,650 375,747
National Semiconductor
Corp. (b)............... 10,700 337,050
Novell Inc............... 26,200 198,546
Perkin-Elmer Corp........ 3,300 269,363
Quarterdeck Corp. (b).... 2,900 8,338
Raychem Corp............. 3,100 300,700
Shared Medical Systems
Corp.................... 1,900 102,600
Solectron Corp. (b)...... 4,300 339,163
Sprint Corp.............. 32,500 1,608,750
Stratus Computer, Inc.
(b)..................... 1,900 103,550
Sun Microsystems, Inc.
(b)..................... 27,900 1,274,681
Tandem Computers,
Inc. (b)................ 8,800 258,500
Tektronix, Inc........... 2,500 154,375
Tellabs, Inc. (b)........ 13,600 814,300
Thomas & Betts Corp...... 4,200 239,925
3 Com Corp. (b).......... 25,100 1,372,656
Xilinx, Inc. (b)......... 5,600 265,300
------------
66,218,470
------------
TRANSPORTATION -- 1.8%
AMR Corp. (b)............ 6,800 731,425
Airborne Freight Corp.... 1,700 83,406
Alaska Air Group, Inc.
(b)..................... 800 23,650
CSX Corp................. 16,400 1,012,700
Consolidated Freightways
Corp. (b)............... 1,700 25,819
Delta Air Lines, Inc..... 5,300 471,038
Federal Express Corp.
(b)..................... 8,700 561,694
GATX Corp................ 1,700 104,656
Norfolk Southern Corp.... 9,500 1,052,125
Roadway Express Inc...... 1,600 36,625
Ryder System............. 5,600 200,550
Southern New England
Telecommunication
Corp.................... 4,900 194,775
Southwest Airlines,
Inc..................... 11,000 321,062
UAL Corp. (b)............ 4,500 369,281
</TABLE>
16
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
TRANSPORTATION -- CONTINUED
<S> <C> <C>
Yellow Corp. (b)......... 2,000 $ 54,000
------------
5,242,806
------------
UTILITIES -- 6.9%
AGL Resources Inc........ 4,100 85,844
American Water Works
Co...................... 5,900 127,956
Ameritech Corp........... 41,800 2,818,888
Bell Atlantic Corp....... 33,300 2,416,331
BellSouth Corp........... 75,500 3,576,813
Brooklyn Union Gas Co.... 3,900 117,244
CalEnergy, Inc. (b)...... 4,800 193,500
Citizens Utilities--
Class A (b)............. 13,966 117,846
Connecticut Energy
Corp.................... 700 15,969
Eastern Enterprises...... 1,600 57,300
El Paso Natural Gas
Co...................... 4,600 265,938
Energen Corp............. 1,100 39,875
Enron Corp............... 23,100 876,356
Equitable Resources,
Inc..................... 2,400 71,550
Frontier Corp............ 12,400 255,750
Idaho Power Co........... 2,700 87,581
LG & E Energy Corp....... 4,700 102,519
MCN Corp................. 5,800 183,788
NICOR, Inc............... 3,900 142,838
NYNEX Corp............... 33,200 1,840,525
Northwestern Public
Service Co.............. 1,500 28,125
Oge Energy Corp.......... 3,100 141,825
Oneok Inc................ 2,000 70,000
Pacific Enterprises...... 6,300 210,656
Peoples Energy Corp...... 2,400 92,100
Potomac Electric Power... 9,000 200,813
Public Service Co. of
Colorado................ 4,800 199,800
SBC Communications,
Inc..................... 69,459 4,111,093
<CAPTION>
ISSUER SHARES VALUE
------------------------------ ------- ------------
<S> <C> <C>
UTILITIES -- CONTINUED
Sonat, Inc............... 6,500 $ 324,188
Telephone and Data
Systems, Inc............ 4,400 168,850
US West, Inc. (b)........ 36,100 1,319,906
Washington Gas Light..... 3,300 85,800
------------
20,347,567
------------
VEHICLE COMPONENTS -- 0.5%
Cooper Tire & Rubber
Co...................... 5,700 142,144
Cummins Engine Co.,
Inc..................... 2,900 227,650
Dana Corp................ 8,000 363,500
Federal-Mogul Corp....... 2,400 84,900
Genuine Parts............ 13,600 443,700
Modine Mfg. Co........... 2,100 65,625
SPX Corp. (b)............ 800 41,600
Smith (A.O.) Corp........ 1,200 42,975
Spartan Motors, Inc...... 700 6,213
------------
1,418,307
------------
TOTAL INVESTMENTS -- 99.1%......... 291,396,680
OTHER ASSETS, LESS LIABILITIES --
0.9%.............................. 962,290
------------
NET ASSETS --100.0%................ $292,358,970
------------
------------
</TABLE>
- - - ------------
(a)The aggregate cost for federal income tax purposes is $200,235,272, the
aggregate gross unrealized appreciation is $92,193,207, and the aggregate
gross unrealized depreciation is $1,031,799, resulting in net unrealized
appreciation of $91,161,408.
(b) Non-income producing security.
See Notes to Financial Statements
17
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (Cost $200,235,272)...................... $291,396,680
Cash.......................................................... 3,566,465
Dividends receivable.......................................... 378,347
------------
Total assets.............................................. 295,341,492
------------
LIABILITIES:
Payable for securities purchased.............................. 2,932,971
Expense payment fee payable (Note 2).......................... 49,551
------------
Total liabilities......................................... 2,982,522
------------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS.......... $292,358,970
------------
------------
NET ASSETS CONSIST OF:
Paid-in capital............................................... $292,358,970
------------
------------
</TABLE>
See Notes to Financial Statements
18
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $536).............. $ 2,657,798
EXPENSES:
Expense payment and sponsorship fees............................ 417,522
Custody fees offset by compensating balances.................... 70,377
-----------
Total expenses.................................................. 487,899
-----------
Fees paid indirectly........................................ (70,377)
-----------
Net expenses................................................ 417,522
-----------
NET INVESTMENT INCOME............................................... 2,240,276
NET REALIZED GAIN ON INVESTMENTS
Proceeds from sales................................ $ 2,468,457
Cost of securities sold............................ 2,035,040
-----------
Net realized gain on investments............................ 433,417
NET CHANGES IN UNREALIZED APPRECIATION OF INVESTMENTS
Beginning of year.................................. 16,620,535
End of year........................................ 91,161,408
-----------
Net change in unrealized appreciation....................... 74,540,873
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $77,214,566
-----------
-----------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1997 1996
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income............................ $ 2,240,276 $ 1,132,780
Net realized gain on investments................. 433,417 697,337
Net change in unrealized appreciation of
investments.................................... 74,540,873 6,861,507
------------ -----------
Net Increase in Net Assets Resulting from
Operations................................. 77,214,566 8,691,624
------------ -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Additions........................................ 137,135,556 52,533,365
Reductions....................................... (22,391,710) (14,827,219)
------------ -----------
Net Increase in Net Assets from Transactions
in Investors' Beneficial Interests......... 114,743,846 37,706,146
------------ -----------
Total Increase in Net Assets............. 191,958,412 46,397,770
NET ASSETS:
Beginning of year................................ 100,400,558 54,002,788
------------ -----------
End of year...................................... $292,358,970 $100,400,558
------------ -----------
------------ -----------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
YEAR ENDED
-------------------------------------------------------------------------------
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 JULY 31, 1994 JULY 31, 1993
-------------- -------------- ------------- ------------- -------------
FINANCIAL HIGHLIGHTS
<S> <C> <C> <C> <C> <C>
Ratio of net investment income to
average net assets................ 1.34%(1) 1.48%(1) 1.85%(2) 2.13%(2) 1.88%
Ratio of expenses to average net
assets............................ 0.29%(1) 0.59%(1) 0.43%(2) 0.29%(2) 0.29%
Portfolio turnover rate............. 1% 5% 6% 8% 4%
Average commission rate paid per
share............................. $0.0512 $0.0496 -- -- --
</TABLE>
- - - --------------------------------------------------------------------------------
(1) Had the Expense Payment Agreement and Sponsor Arrangement not been in place,
the ratios of net investment income and expenses for the years ended July
31, 1997 and July 31, 1996 would have been 1.34% and 0.25% and 1.14% and
0.85% respectively.
(2) Reflects a voluntary waiver of fees by the Administrator and Adviser due to
the limitations set forth in the Expense Reimbursement Agreement. Had the
Administrator and Adviser not waived their fees, the ratios of net
investment income and expenses to average net assets for the years ended
July 31, 1995 and 1994 would have been 1.75% and 0.53% and 2.00% and 0.42%
respectively.
(3)Ratio of total expenses to average net assets for the years ended July 31,
1997 and 1996 include indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratios would have been 0.25% and 0.50% for the years
ended July 31, 1997 and 1996, respectively.
See Notes to Financial Statements
20
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
- - - --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. Domini Social Index
Portfolio (the "Index Portfolio") is registered under the Investment Company Act
of 1940 (the "Act") as a no-load, diversified, open-end management investment
company which was organized as a trust under the laws of the State of New York
on June 7, 1989. The Index Portfolio intends to correlate its investment
portfolio as closely as is practicable with the Domini 400 Social Index (the
"Index"), which is a common stock index developed and maintained by Kinder,
Lydenberg, Domini & Co., Inc. ("KLD"), the Index Portfolio's Adviser. The
Declaration of Trust permits the Trustees to issue an unlimited number of
beneficial interests in the Index Portfolio. The Index Portfolio commenced
operations upon effectiveness on August 10, 1990 and began investment operations
on June 3, 1991.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of the Index Portfolio's significant accounting policies.
(A) VALUATION OF INVESTMENTS: The Index Portfolio values securities at the
last reported sale price, or at the last reported bid price if no sales are
reported.
(B) DIVIDEND INCOME: Dividend income is recorded on the ex-dividend date.
(C) FEDERAL TAXES: The Index Portfolio's policy is to comply with the
applicable provisions of the Internal Revenue Code. Accordingly, no provision
for Federal taxes is deemed necessary.
(D) OTHER: Investment transactions are accounted for on the trade date.
Gains and losses are determined on the basis of identified cost.
2. TRANSACTIONS WITH AFFILIATES.
(A) INVESTMENT ADVISORY FEES: The Index Portfolio has retained KLD as the
Investment Adviser of the Index Portfolio. The services provided by KLD consist
of the determination of the stocks to be included in the Index and evaluating,
in accordance with KLD's criteria, debt securities which may be purchased by the
Index Portfolio. For its services under the Investment Advisory Agreement, KLD
receives from the Index Portfolio a fee accrued daily at an annual rate equal to
0.025% of the Index Portfolio's average daily net assets. Prior to October 4,
1996, KLD received an investment advisory fee accrued daily at an annual rate
equal to 0.050% of the Index Portfolio's average daily net assets.
(B) INVESTMENT MANAGEMENT FEES: The Index Portfolio has retained Mellon
Equity Associates ("MEA") as the Investment Manager of the Index Portfolio. MEA
does not determine the composition of the Index. Under the Management Agreement,
the Index Portfolio pays MEA an investment management fee equal on an annual
basis to 0.10% of the Index Portfolio's average daily net assets. Prior to
October 4, 1996 MEA received a fee based on the following percentages of the
Index Portfolio's average daily net assets for its then-current fiscal year:
0.10% of assets up to $50 million; 0.30% of assets
21
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1997
- - - --------------------------------------------------------------------------------
between $50 million and $100 million; 0.20% of assets between $100 million and
$500 million; and 0.15% of assets over $500 million.
(C) SPONSOR FEES: Pursuant to a Sponsorship Agreement dated November 6,
1996, KLD agreed to pay all of the ordinary operating expenses of the Index
Portfolio except the sponsorship fee and excluding brokerage fees and
commissions, interest, taxes and extraordinary expenses. Under this arrangement,
KLD receives sponsorship fees from the Index Portfolio at an annual rate equal
to 0.20% of the average daily net assets of the Index Portfolio. From October 4,
1996 to November 5, 1996 the Administrator, Signature Broker-Dealer Services,
Inc. ("Signature"), received expense payment fees from the Index Portfolio at an
annual rate equal to 0.20% of the average daily net assets of the Index
Portfolio, and prior to October 4, 1996, at an annual rate equal to 0.50% of the
average daily net assets of the Index Portfolio. The Sponsorship Arrangement is
scheduled to terminate on December 31, 1999. For the year ended July 31, 1997,
the Sponsor and Administrator incurred approximately $370,950 in expenses on
behalf of the Index Portfolio.
(D) ADMINISTRATION FEES: Pursuant to an Administrative Services Agreement
between KLD and Signature, Signature serves as Administrator of the Index
Portfolio. Certain officers of Signature serve as officers and trustees to the
Index Portfolio. Under the Administrative Services Agreement, Signature provides
management and administrative services necessary for the operations of the Index
Portfolio, furnishes office space and facilities required for conducting the
business of the Index Portfolio and pays the compensation of the Index
Portfolio's officers and trustees affiliated with Signature. For these services
Signature receives from the KLD a fee accrued daily at an annual rate equal to
0.025% of the Index Portfolio's average daily net assets.
3. INVESTMENT TRANSACTIONS. Purchase and sales of investments, other than U.S.
Government securities and short-term obligations, aggregated $119,258,928 and
$2,468,457, respectively. Custody fees of the Portfolio were reduced by $70,377
which was compensation for uninvested cash left on deposit with the custodian.
Cash balances could have been employed to earn additional income for the
Portfolio.
4. MANAGEMENT RESTRUCTURING. On June 30, 1997 the Board of Trustees (the
"Board") of the Index Portfolio voted to approve certain management changes (the
"Management Restructuring") in order to provide for a more centralized
management structure. The Management Restructuring includes the Index Portfolio,
subject to shareholder approval, entering into a new management agreement with
Domini social Investments LLC to provide investment supervisory and
administrative services and a new submanagement agreement with MEA to manage the
investment of the Index Portfolio on a day-to-day basis.
In connection with the Management Restructuring, the Board has also approved
the termination of the existing Sponsorship Agreement with KLD, including the
expense payment agreement.
22
<PAGE>
[LOGO]
Independent Auditors' Report
The Board of Trustees
Domini Social Index Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Domini Social Index Portfolio as
of July 31, 1997, and the related statement of operations for the year then
ended, statement of changes in net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned by the
Portfolio as of July 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Domini Social Index Portfolio as of July 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended and financial highlights for each of the years in
the five-year period then ended in conformity with generally accepted accounting
principles.
[SIG]
Boston, Massachusetts
August 22, 1997
23
<PAGE>
DOMINI SOCIAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Domini Social Index Portfolio, at value (Note 1)........... $ 213,589,722
Receivable for fund shares sold.......................................... 476,356
-------------
Total Assets......................................................... 214,066,078
-------------
LIABILITIES:
Payables for:
Fund shares repurchased.............................................. 1,636,932
Expense payment fee payable (Note 2)................................. 119,554
-------------
Total Liabilities.................................................... 1,756,486
-------------
NET ASSETS................................................................... $ 212,309,592
-------------
-------------
NET ASSETS CONSIST OF:
Paid-in capital.......................................................... $ 137,170,473
Undistributed net investment income...................................... 133,474
Accumulated net realized gain from Portfolio............................. 225,844
Net unrealized appreciation from Portfolio............................... 74,779,801
-------------
$ 212,309,592
-------------
-------------
Shares outstanding........................................................... 8,349,302
-------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($212,309,592 DIVIDED BY 8,349,302)....................................... $25.43
------
------
</TABLE>
See Notes to Financial Statements
24
<PAGE>
DOMINI SOCIAL EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME FROM DOMINI SOCIAL INDEX PORTFOLIO:
Investment income from Portfolio........................................... $ 2,050,506
Expenses from Portfolio.................................................... (325,583)
-----------
Net investment income from Portfolio................................... 1,724,923
EXPENSES:
Expense payment fee (Note 2)............................................... 931,257
-----------
NET INVESTMENT INCOME.......................................................... 793,666
-----------
NET REALIZED AND UNREALIZED GAIN FROM PORTFOLIO:
Net realized gain from Portfolio........................................... 313,391
Net change in unrealized appreciation from Portfolio....................... 57,365,930
-----------
Net realized and unrealized gain from Portfolio............................ 57,679,321
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $58,472,987
-----------
-----------
</TABLE>
See Notes to Financial Statements
25
<PAGE>
DOMINI SOCIAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 1997 JULY 31, 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ 793,666 $ 738,651
Net realized gain from Portfolio 313,391 678,218
Net change in unrealized appreciation from
Portfolio 57,365,930 7,655,739
------------- -------------
Net Increase in Net Assets from
Operations................................ 58,472,987 9,072,608
------------- -------------
DISTRIBUTIONS AND DIVIDENDS:
Dividends to shareholders from net investment
income...................................... (734,467) (703,445)
Distributions to shareholders from net
realized gain............................... (665,632) (349,085)
------------- -------------
Net Decrease in Net Assets from
Distributions and Dividends............... (1,400,099) (1,052,530)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares.................. 91,114,168 36,711,039
Net asset value of shares issued in
reinvestment of distributions and
dividends................................... 1,170,272 831,237
Payments for shares redeemed.................. (17,962,957) (19,284,669)
------------- -------------
Net Increase in Net Assets from Capital
Share Transactions........................ 74,321,483 18,257,607
------------- -------------
Total Increase in Net Assets.............. 131,394,371 26,277,685
NET ASSETS:
Beginning of year............................. 80,915,221 54,637,536
------------- -------------
End of year (including undistributed net
investment income of $133,474 and $74,275,
respectively)............................... $212,309,592 $80,915,221
------------- -------------
------------- -------------
OTHER INFORMATION
SHARE TRANSACTIONS:
Sold.......................................... 4,298,608 2,236,871
Issued in reinvestment of distributions and
dividends................................... 57,225 50,571
Redeemed...................................... (850,791) (1,122,922)
------------- -------------
Net increase.................................. 3,505,042 1,164,520
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements
26
<PAGE>
DOMINI SOCIAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year...... $ 16.70 $ 14.85 $ 12.13 $ 12.00 $ 11.06
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income............... 0.11 0.16 0.17 0.17 0.14
Net realized and unrealized gain on
investments....................... 8.85 1.93 2.83 0.18 0.97
---------- ---------- ---------- ---------- ----------
Total income from investment
operations............................. 8.96 2.09 3.00 0.35 1.11
---------- ---------- ---------- ---------- ----------
Less distributions and dividends:
Dividends to shareholders from net
investment income................. (0.11) (0.16) (0.20) (0.15) (0.15)
Distributions to shareholders from
net realized gain................. (0.12) (0.08) (0.08) (0.07) (0.02)
---------- ---------- ---------- ---------- ----------
Total distributions..................... (0.23) (0.24) (0.28) (0.22) (0.17)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year............ $ 25.43 $ 16.70 $ 14.85 $ 12.13 $ 12.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratios/supplemental data
Total return........................ 54.01% 14.11% 25.10% 2.90% 10.00%
Net assets, end of year (in 000's).. $212,310 $80,915 $54,638 $31,369 $17,229
Ratio of expenses to average net
assets............................ 0.98%(1) 0.98%(1) 0.90%(2) 0.75%(2) 0.75%(2)
Ratio of net investment income to
average net assets................ 0.62%(1) 1.01%(1) 1.38%(2) 1.67%(2) 1.41%(2)
</TABLE>
- - - --------------------------------------------------------------------------------
(1) Had the expense payment agreement not been in place the ratio of net
investment income and expenses to average net assets for the years ended
July 31, 1997 and 1996, would have been 0.76% and 0.84%, and 0.92% and
1.07%, respectively.
(2) Reflects a voluntary waiver of fees by the Administrator and Adviser due to
limitations set forth in the expense payment agreement. Had the
Administrator and Adviser not waived their fees, the ratios of net
investment income and expenses to average net assets for the years ended
July 31, 1995, 1994, and 1993 would have been 1.13% and 1.15%, 1.39% and
1.03%, and 1.26% and 0.90%, respectively.
See Notes to Financial Statements
27
<PAGE>
DOMINI SOCIAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
- - - --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES. Domini Social Equity Fund (the "Fund") is
a Massachusetts business trust registered under the Investment Company Act of
1940 (the "Act"), as an open-end management investment company. The Fund invests
substantially all of its assets in the Domini Social Index Portfolio (the
"Portfolio"), an open-end, diversified management investment company having the
same investment objective as the Fund. The value of such investment reflects the
Fund's proportionate interest in the net assets of the Portfolio (approximately
73.1% at July 31, 1997). The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements.
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
the Fund's significant accounting policies.
A. VALUATION OF INVESTMENTS. Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INVESTMENT INCOME AND DIVIDENDS TO SHAREHOLDERS. The Fund earns income
daily, net of Portfolio expenses, on its investments in the Portfolio. Dividends
to shareholders are declared and paid semiannually from net investment income.
Distributions to shareholders of realized capital gains, if any, are made
annually.
C. FEDERAL TAXES. The Fund's policy is to comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, including net realized
gains, if any, within the prescribed time periods. Accordingly, no provision for
federal income or excise tax is deemed necessary.
D. OTHER. All net investment income of the Portfolio is allocated pro rata
among the Fund and the other investors in the Portfolio.
2. TRANSACTIONS WITH AFFILIATES.
A. ADMINISTRATION. The Fund has retained Signature to serve as
Administrator and Distributor. Signature provided administrative services
necessary for the operations of the Fund, furnishes office space and facilities
required for conducting the business of the Fund and pays the compensation of
the Fund's officers and Trustees affiliated with Signature. For its services and
facilities, Signature receives fees computed and paid monthly from the Fund at
an annual rate equal to 0.20% of the average daily net assets of the Fund for
the Fund's then-current fiscal year. Prior to October 4, 1996 Signature received
fees computed daily and paid monthly at an annual rate equal to 0.15% of the
average daily net assets of the Fund.
B. DISTRIBUTION. The Trustees have adopted a Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Act. Signature acts as agent of
the Fund and principal underwriter of shares of the Fund pursuant to the Plan.
Under the Plan, Signature may receive a fee from the Fund at an annual rate
28
<PAGE>
DOMINI SOCIAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1997
- - - --------------------------------------------------------------------------------
not to exceed 0.25% of the Fund's average daily net assets in anticipation of,
or as reimbursement for, costs and expenses incurred in connection with the sale
of shares of the Fund.
C. EXPENSE PAYMENT FEE. Under an expense payment agreement with the
Sponsor the Administrator pays certain expenses of the Fund and receives a fee
from the Fund, computed and paid monthly, such that after such fee the aggregate
expenses will not exceed 0.98% of the Fund's average daily net assets. For the
year ended July 31, 1997, Signature incurred $746,706 in expenses on behalf of
the Fund, including the Fund's share of the Portfolio's expenses. The expense
payment agreement will terminate on December 31, 1999 unless sooner terminated
on mutual consent of the parties.
3. INVESTMENT TRANSACTIONS. Additions and reductions in the Fund's investment
in the Portfolio aggregated $90,705,109 and $15,351,075, respectively.
4. MANAGEMENT RESTRUCTURING. The Trustees of the Portfolio and the Fund,
respectively, have approved certain changes in service providers to the
Portfolio and Fund, subject to a vote of the Portfolio's investors and the
Fund's shareholders at a meeting on October 21, 1997. These changes include:
- - - - The appointment of Domini Social Investments LLC ("DSI") as investment
manager of the Portfolio to replace KLD as investment advisor of the
Portfolio.
- - - - Approval of a Sub-management Agreement under which MEA will continue to
provide day-to-day portfolio management services to the Portfolio.
- - - - The appointment of DSI as Sponsor of the Fund for which DSI will be entitled
to a fee at an annual rate equal to 0.50% of the Fund's average daily net
assets. For a period of one year from the adoption of the agreement Sponsor
fees will be waived to the extent necessary to reduce the Fund's annual
operating expenses to 0.98%. DSI will perform certain oversight,
administrative and management functions which are now performed by Signature
as Administrator.
5. SUBSEQUENT EVENT. On August 20, 1997, the Trustees of the Fund approved a
plan to terminate the Fund's expense payment agreement with Signature. In
consideration of the early termination of that agreement the Fund has agreed to
pay Signature approximately $550,000. On August 20, 1997, the Fund accrued the
final payment amount plus expenses associated with the termination of the
agreement. On September 17, 1997, the Fund paid the final payment amount to
Signature.
29
<PAGE>
[LOGO]
Independent Auditors' Report
The Board of Trustees
Domini Social Equity Fund:
We have audited the accompanying statement of assets and liabilities of the
Domini Social Equity Fund as of July 31, 1997, and the related statement of
operations for the year then ended, statements of changes in net assets for each
of the years in the two-year period then ended and financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Domini Social Equity Fund as of July 31, 1997, the results of its operations for
the year then ended, changes in its net assets for each of the years in the
two-year period then ended and financial highlights for each of the years in the
five-year period then ended in conformity with generally accepted accounting
principles.
[SIG]
Boston, Massachusetts
September 19, 1997
30
<PAGE>
PORTFOLIO INVESTMENT ADVISER
Kinder, Lydenberg, Domini & Co., Inc.
129 Mt. Auburn Street
Cambridge, MA 02138
PORTFOLIO INVESTMENT MANAGER
Mellon Equity Associates
500 Grant Street, Suite 3700
Pittsburgh, PA 15258
DISTRIBUTOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
(800) 762-6814
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
SHAREHOLDER SERVICE AGENT
Fundamental Shareholder Services, Inc.
P.O. Box 117
New York, NY 10274-117
(800) 782-4165
AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110
ANNUAL
REPORT
JULY 31, 1997
THOUSANDS OF STARFISH
HAD WASHED ASHORE.
A LITTLE GIRL BEGAN THROWING THEM
IN THE WATER SO THEY WOULDN'T DIE.
"DON'T BOTHER, DEAR" HER MOTHER SAID,
"IT WON'T REALLY MAKE ANY
DIFFERENCE." THE GIRL STOPPED
FOR A MOMENT AND LOOKED AT
THE STARFISH IN HER HAND.
"IT WILL MAKE A DIFFERENCE
TO THIS ONE."
.
[LOGO] Printed on Recycled Paper
INVESTING FOR GOOD-SM-
- - - --------------------------------------------------------------------------------
THE DOMINI SOCIAL EQUITY FUND
