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Dear Fellow Shareholders,
The six months ending January 31, 1998, were very good ones for the Domini
Social Equity Fund (the Fund). The Fund's total return for the period of 5.34%
compares favorably with 3.61% for the Standard & Poor's 500 Index (S&P 500).
Calendar year 1997 was also a good one for the Fund, which appreciated 36.02%
while the S&P 500 was up 33.4%.* Domini Social Equity Fund was among only 8%
of U.S. stock funds to surpass the S & P 500 last year.**
We continue to benefit from the extraordinary surge in the U.S. stock mar-
ket that has marked the past several years. Index funds such as ours attempt
to reflect the performance of financial markets, in our case the market for
U.S. equities that a social investor might invest in. This stock market has
realized the fruits of a period of low inflation and relatively steady eco-
nomic growth and a time of relative peace, at least among the major powers.
However, even in the best of times there are signs of wear. The "Asian flu"
seems ready to become a pandemic that will sweep across the U.S. as it did
East Asia. What is striking, though, is how quickly the economic and political
consequences of the malaise have obscured its environmental origins. The eco-
nomic slowdown began in countries celebrated only a year or so ago for their
rapid growth and general prosperity: Indonesia, Malaysia, Singapore, Thailand,
and South Korea.
We in the United States could learn much by observing what led to the pres-
ent situation in Asia. We should remember that these countries suffered during
World War II, and each had bloody moments or outright wars in the decades that
followed. By the end of the 1960s, their leaders had made the pursuit of mate-
rial comfort and social stability for the majority of their peoples public
policy, often at the expense of both civil liberties and environmental quali-
ty. For nearly a generation, their choices seemed inspired. Their people pros-
pered. Restrictions on the press, for instance, seemed a tolerable price, as
did wide-open development of once pristine forests.
Last summer, the bravado of easy times and easy money gave way to fear. In
Indonesia, forest-clearing fires were started by farmers and corporations
seeking to avoid recently legislated burning controls. A drought and a much-
delayed monsoon season led to wild fires and a pall that blanketed the Archi-
pelago. The already bad air quality became toxic and the unnatural dusk re-
minded all who ventured out or looked from their windows of the price of their
prosperity. The smoke smothered the self-confidence South East Asia had en-
joyed. Suddenly, the sense of well-being and an assured future disappeared.
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At the same time, North Americans and Europeans highlighted the human cost
of the Asian miracle: the sweatshop laborers working for next to nothing in
horrible conditions to clothe Westerners at leisure. Both the environmental
and the human degradation are a direct result of greed, and greed is a weak
foundation upon which to build a secure society. The time of prosperity sud-
denly ended.
Social investors in the U.S. have long taken pride in our holistic approach
to our lives. We recognize the interconnections between our investments and
the environment and the quality of workers' lives. We strive, both as individ-
uals and as citizens, to address issues of sustainability and justice. Through
the Domini Social Equity Fund, we shareholders encourage corporations to ad-
dress social and environmental issues. In the report that follows, we high-
light our environmental screens and report on some companies that have note-
worthy accomplishments in this area. By highlighting positive corporate con-
tributions to sound environmental policies, we hope to contribute to a contin-
uous improvement in environmental practices. We continue to strive to be re-
sponsible owners of the companies in our portfolio and to assist you, our
shareholders, in your individual efforts to be a part of the solution.
Sincerely,
/s/ Amy L. Domini
Amy L. Domini
* Average annual total return for the Domini Social Equity Fund for the five
year period and the period since inception (6/3/91) as of December 31, 1997
was 18.92% and 25.35%, respectively. Average annual total return for the S
& P 500 for the five year period and the period since inception (6/3/91) as
of December 31, 1997 was 20.24% and 17.85%, respectively. The S&P 500 Index
is an unmanaged index used to portray the pattern of common stock movement
based on the average performance of 500 widely held common stocks. The
performance information quoted represents past performance and is not
indicative of future results. 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.
** Source: Bloomberg Mutual Fund News
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ENVIRONMENT
In this report we highlight some of our holdings with particularly innova-
tive or strong environmental programs. All the companies held by the Domini
Social Equity Portfolio meet multiple standards for corporate accountability.
We avoid companies in the business of manufacturing alcohol and tobacco prod-
ucts 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 ad-
dition, we evaluate a company's social profile by weighing both strengths and
weaknesses in the areas of community impact, employee relations, the environ-
ment, product safety and usefulness, non-U.S. impact and diversity.
The "bellwether" issues Kinder, Lydenberg, Domini & Co., Inc. (KLD) evaluate
to identify strengths and weaknesses with respect to the Environment follow.
AREAS OF STRENGTH:
A. BENEFICIAL PRODUCTS & SERVICES
The company derives substantial revenues from innovative remediation prod-
ucts, environmental services, or products that promote the efficient use of
energy, or it has developed innovative products with environmental benefits.
The term "environmental services" does not include services with questionable
environmental effects, such as landfills, incinerators, waste-to-energy
plants, and deep injection wells.
B. POLLUTION PREVENTION
The company has notably strong pollution prevention programs including both
emissions reductions and toxics-use reductions programs.
C. RECYCLING
The company either is a substantial user of recycled materials as raw mate-
rials in its manufacturing processes, or a major factor in the recycling in-
dustry.
D. ALTERNATIVE FUELS
The company derives substantial revenues from alternative fuels. The term
"alternative fuels" includes natural gas, wind power, and solar energy.
E. COMMUNICATIONS
The company is either a signatory to the CERES Principles or publishes a no-
tably substantive environmental report.
AREAS OF CONCERN:
A. HAZARDOUS WASTE
The company's current liabilities for hazardous waste sites exceed $50 mil-
lion, or the company has recently paid substantial fines or civil penalties
for waste management violations.
B. REGULATORY PROBLEMS
The company has recently paid substantial fines or civil penalties for vio-
lations of air, water, or other environmental regulations, or has a pattern of
regulatory controversies under the Clean Air Act, Clean Water Act, or other
major environmental regulations.
C. OZONE DEPLETING CHEMICALS
The company is among the top manufacturers of ozone depleting chemicals such
as HCFCs, methyl chloroform, methylene chloride, or bromines.
D. SUBSTANTIAL EMISSIONS
The company's legal emissions of toxic chemicals (as defined by and reported
to the EPA) into the air and water are among the highest of the companies fol-
lowed by KLD.
E. AGRICULTURAL CHEMICALS
The company is one of the largest U.S. producers of agricultural chemicals
(pesticides or chemical fertilizers).
PORTFOLIO HIGHLIGHTS:
AIR PRODUCTS manufactures industrial gases, specialty chemicals and spe-
cialty additives; environmental equipment and energy facilities, including
flue gas desulfurization and cogeneration plants; and industrial process
equipment. The firm also provides pollution control services through its pure
air joint venture with Mitsubishi Heavy Industries.
The company has developed several innovative technologies, including the re-
placement of ozone de-
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pleting organic solvents used; supercritical carbon dioxide to replace chemi-
cal solvents; water-based surfactants to reduce VOC emissions; nitrous oxide-
and particulate emissions-reducing equipment for glass production; chlorine
substitutes for bleaching in the pulp and paper industry; the development of
refrigeration systems for food processors that do not use CFCs or ammonia; and
high-solid, water-borne coatings to replace solvent-based paints.
Air Products markets a flue gas desulfurization process to help electric
utilities reduce sulfur dioxide emissions at coal-burning power plants. The
company also engineers and operates co-generation facilities.
Air Products' environmental report presents clear information about the
company's goals, benchmarks, and progress towards those goals. The report also
makes clear that the company has internal communications systems on beneficial
environmental practices and makes the information available worldwide.
BANKAMERICA is a bank holding company with operations in consumer banking,
U.S. corporate and international banking, commercial real estate, middle mar-
ket banking and private banking and investment services.
It is the only bank that KLD follows to adopt a comprehensive environmental
policy program. The program is made up of a 16-person steering committee, and
a network of committees and "Green Teams." The bank's environmental policy
covers four areas: general operations, credit, real estate management, and
health and safety.
Environmental performance is a factor in bonuses and awards for individuals
responsible for the management of BankAmerica's properties. The company sup-
ports employees volunteering for environmental groups and projects.
In 1995 the company created the first conservation bank under a
state/federal plan to protect habitat which is home to endangered species. The
program allows credits to be collected for the purchase of land for environ-
mental conservation. That year the company also worked with the California Re-
sources Agency, the Greenbelt Alliance, and the Low Income Housing Fund to is-
sue a report of the effects of urban sprawl on the environment.
In 1996 the company recycled 12,845 tons of paper, up from 12,652 tons the
previous year. In mid-1994, BankAmerica established a goal to reduce paper use
by 25% by mid-1997. By the end of 1996, consumption had declined 26%. In 1996,
81% of the paper BankAmerica purchased had recycled content, with 49% having
25% or more. Total paper purchases were down 18% between 1994 and 1995.
The company reported that in partnership with Friends of the Trees, the bank
sponsors a campaign to plant 140,000 trees and seedlings in the Portland, Ore-
gon, area by the year 2001. The company also sponsored the Californians and
the Land project to promote sustainable use of land in California.
The company designated Terra Green Stoneware Tiles made from recycled glass
as a Bank standard for new construction and renovation. The company requires
its vendors, including property management companies, landscapers, and cafete-
ria operator to meet its environmental standards.
BEN & JERRY'S HOMEMADE, INC. manufactures and markets premium ice cream,
frozen yogurt and sorbet.
In 1992 the company signed the CERES Principles and publishes a comprehen-
sive annual environmental report that details a variety of company-wide ef-
forts to improve its impact on the environment.
In 1993 the company hired two outside consulting groups to initiate environ-
mental and energy audits of its operations. One of these, E-Source, is the
consulting group that has grown out of Amory and Hunter Lovins' work with the
Rocky Mountain Institute. Ben & Jerry's already had in place many recycling
and reuse programs and purchased numerous recycled products and materials for
its operations.
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Each site had in place a system for tracking energy use, solid waste, recy-
cling, and water use per gallon of quality ice cream. The company's incentive
bonus system includes outstanding environmental performance among its criteria
for a bonus. In 1996 the company developed a system to extend its environmen-
tal performance standards to suppliers.
The company also established a system for measuring and reducing its energy
consumption. To reduce the environmental impact of diesel fuel consumed by de-
livery trucks, the company has begun to use rail for long distance deliveries.
CHURCH & DWIGHT manufactures and markets baking soda (sodium decarbonate)
based products under the Arm & Hammer brand name.
Church & Dwight was the first corporate sponsor of Earth Day on April 22,
1970. The company was a pioneer in the wildlife conservation movement, having
put trading-type conservation cards depicting various birds species in its
baking soda boxes from 1888 until 1966. The corporation has used recycled
packaging since 1907. In 1970 the company introduced the first national phos-
phate-free brand of powder laundry detergent.
Church & Dwight has been promoting the environmental benefits of its prod-
ucts. Baking soda is an environmentally benign alternative to many of more
harmful household cleansers. The firm is also pursuing environmentally posi-
tive industrial uses of sodium bicarbonate. It has recently introduced
ARMAKLEEN E-2001, a water-based solvent for cleaning circuit boards, as an al-
ternative to chlorofluorocarbons, which were previously used. The company also
markets Armex, a blasting agent with health and safety benefits in the clean-
ing of walls and buildings, and experimenting with the use of its products to
reduce lead and copper levels in municipal drinking water. It also is develop-
ing a sodium bicarbonate-based flue gas emission control technology. Sodium
bicarbonate can remove acid gases, which contribute to acid rain, from smoke-
stack emissions.
The company has won numerous environmental awards, including the Corporate
Achievement Award given by the United Nations Environmental Program's Earth
Achievement Award for Environmental and Social Responsibility.
The company's environmental improvement program is integrated into its total
quality management program. This program focuses on pollution prevention
through strategies such as reducing toxic chemical releases, reducing packag-
ing through design changes, reusing materials, and recycling.
CONNECTICUT ENERGY is a public utility holding company primarily involved in
the distribution of natural gas to customers through its southern Connecticut
Gas Company subsidiary.
The company derives virtually all its revenues from natural gas, a fuel with
environmental advantages over coal or oil.
In 1991 Southern Connecticut Gas instituted a program to recycle ditch mate-
rials, saving landfill space and backfill costs. The company refurbishes old
meters for reuse, rather than discarding them.
In 1993 Connecticut Energy sponsored and supported legislation that encour-
aged the use of natural gas. The legislation included acts that provide a 50%
tax credit for investment in alternative fueling stations and vehicle conver-
sions; an exemption from the state motor fuels tax for vehicles using natural
gas, propane, or LNG; an exclusion of natural gas from the state's gross earn-
ings tax when it is sold for use in vehicles; and an exclusion of the purchase
of natural gas fueling and conversion equipment from the state's sales tax.
As of March 1997, more than 135 natural gas powered vehicles (NGVs) operated
in the company's service area. The vehicles are supplied by seven locally-
based fuel stations. In 1996 the company reported that CNE Development was es-
tablishing a joint venture to develop NGV service projects. The first project
will be to establish and maintain a fleet of 120 NGV maxivans for airport
shuttle service.
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CONSOLIDATED PAPERS, INC. manufactures and markets coated printing papers
and supercalendered printing papers, custom-designed specialty paper for food
and consumer product packaging, and paperboard and corrugated products.
The firm annually recycles about 40,000 tons of unprocessed wastepaper and
transforms it into paperboard. In 1996 the company reported that 37% of the
energy needs of the company were met by recycling byproducts (pulping liquors,
wood waste, and bark residue) of the production process. In 1994 the company
increased production of recycled papers by 275% from 1993, and it manufactures
recycled papers at all of its papermaking mills.
The company's office recycling program includes office paper, paper prod-
ucts, aluminum and tin cans, plastics, and glass. The company also partici-
pates in the National Office Paper Recycling Challenge. The company collects
100% of its office paper for recycling. Consolidated also recycles waste oil,
light bulbs, antifreeze, appliances, lead acid batteries, and computers. Gen-
eral trash was reduced by 46% between 1991 and 1994. The bleaching of mechani-
cal pulp by the company is totally chlorine free.
Consolidated has numerous pollution reduction programs in place. The company
owns and operates three wastewater treatment plants which remove 98% of bio-
logical oxygen demand and suspended solids material. The company installed ox-
ygen delignification on the kraft hardwood and softwood lines in 1986 and
1993, respectively. Oxygen delignification allows material previously dis-
charged to be used for fuel. The company also has monitoring programs to track
the discharge of various substances.
Consolidated has two wastewater treatment facilities that reduce the
company's reliance on landfills by creating biosolids used in agricultural
landspreading programs.
EQUITABLE RESOURCES, INC. (ERI) is a full service energy marketing company.
The company is involved in oil and natural gas exploration and productions,
natural gas transmission and distribution, and energy marketing, which in-
cludes marketing of natural gas and electricity, extraction and sale of natu-
ral gas liquids, intrastate transportation, cogeneration development, and cen-
tral facility plant operations.
ERI sponsors annual Earth Day celebrations and the Three Rivers Environmen-
tal Awards celebration. In 1990 ERI established a department of environmental
health & safety (EHS). The department reports to a senior corporate officer
and to the audit committee of the board of directors. The staff of the depart-
ment meets frequently with the company's various business units. The company
has an ongoing environmental awareness training program for all employees. The
curriculum covers compliance, prevention, and response. Equitable has estab-
lished an environmental hotline available to all employees.
In 1996 ERI published its first comprehensive environmental report. The re-
port detailed a variety of company wide efforts to improve the company's im-
pact on the environment. The report is above average for natural gas compa-
nies.
ERI has converted 200 of its vehicles to compressed natural gas. The firm
services 12 natural gas fueling stations in the Pittsburgh region.
As of December 1995, the company was a participant in the EPA Green Lights
program to convert its facilities to use more energy-efficient lighting. The
company has completely retrofitted three of its facilities. Equitable is also
a participant in the EPA's natural gas star program to reduce methane
emissions through new technologies and sound management.
THE GAP STORES operate apparel specialty stores under the brand names The
Gap, GapKids, Banana Republic and Old Navy Clothing.
The Gap reports that it has built an experimental "green" store in Texas for
Banana Republic. The store was built using a maximum amount of recycled mate-
rials. As a result of this pilot project the company has implemented a new ap-
proach to managing its contracting relationships, incorporating as much envi-
ronmental design into new construction as possible.
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The company has a variety of environmental programs it designs and imple-
ments through a full time environmental staff, including one overseeing manu-
facturing operations. Programs include initiatives to recycle shipping and
packaging materials at its stores throughout the U.S., the use of recycled
polyester in the production of its blue jeans, an employee participation pro-
gram, energy efficiency in lighting, and involvement in a retailer and manu-
facturer business association looking at organic and pesticide-reduced cotton.
HANNAFORD owns and operates supermarkets under the names Shop 'n Save and
Hannaford Food, Drug superstores, and Wilson's Supermarkets.
Hannaford coordinates its environmental initiatives through its Earth Mat-
ters program, which has an annual budget of approximately $20,000. The company
has reduced by 40% the solid waste it sends to landfills and incinerators.
About a third of the company's stores separate food wastes from the produce
and bakery departments for composting at local farms.
The company has a demonstrated commitment to recycling, as evidenced by the
recycling of paper bags, plastic bags, and corrugated cardboard; the sale of
canvas tote bags at stores; and its goal of having all packaging on its
shelves be recycled or recyclable. In October 1994, the Corporate Challenge
News reported that the company's Shop 'n Save stores in Maine were offering
rebates to customers who reused their grocery bags.
According to the 1994 book, The Bottom Line of Green is Black, Hannaford was
the first supermarket in the U.S. to introduce a CFC-free refrigeration and
air-conditioning system. In 1993 the company equipped its new store in Glen
Falls, New York, with refrigeration and air conditioning systems using R-134a,
a hydrogen-based refrigerant with no ozone-depleting potential.
HERMAN MILLER designs and manufactures furniture and furniture systems for
offices and health care facilities. The company's manufacturing facilities are
located primarily in Michigan.
Since 1990 Herman Miller has only used tropical woods that come from sus-
tained-yield forests. It has phased out use of Brazilian rosewood and Honduran
mahogany under this policy, although it continues to use mahogany from other
sources. For several decades the company has had a policy that all facilities
must allocate 50% of their land to green spaces.
The company is a substantial user of recycled materials in its manufacturing
processes. The company uses fabric scraps for insulation in packaging, re-uses
waste powder in its furniture coating process, and produces a 100% recyclable
office chair. Much of the company's unused production scraps are resold to au-
to, leather, and carpet makers. The company also publishes a list of recycling
businesses for use by its dealers, distributors, and suppliers.
The company has undertaken notable energy conservation projects. Through its
co-generation plant the company burns its nonplastic, nontoxic waste to power
the central plant's heat and air-conditioning and provide 10% of its electric-
ity.
The company has set itself the following environmental goals for the end of
the year 1998: elimination of the use of landfills, a life-cycle analysis of
all new products to aid in selection of materials, a 30% reduction of material
waste generated by the company, and a 50% reduction in packaging materials.
HEWLETT-PACKARD manufactures computing, communication, and measurement prod-
ucts and services for industry, business, engineering, science, medicine, and
education.
Hewlett-Packard has a commuter program in place that encourages the use of
alternative and/or public transportation. A company transportation coordinator
assists employees in finding the best available commute option. Showers,
clothes lockers, bike racks, repair equipment, and maps are available to em-
ployees for biking and walking convenience. Em-
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ployees working in Santa Clara County are eligible to receive a free $20 com-
muter voucher check to use towards the purchase of monthly transit passes. The
company provides free electric power to those commuting in electric powered
vehicles.
Many of the firm's scientific instruments play leading roles in environmen-
tal testing and remediation. In the U.S., from 1988 to 1995, it reduced by
99.9% releases of chemicals targeted under the EPA's voluntary emissions re-
ductions program. From 1987 to 1995, it reduced by 98% all reportable toxic
air emissions and by 91% all reportable chemical releases.
The company has taken several administrative steps to assure that environ-
mental concerns are integrated into daily operations. Managers are held per-
sonally accountable for the environmental performance of their work sites. A
set of guidelines, Design for the Environment, integrates environmental con-
cerns into the full product development and manufacturing process. Environmen-
tal concerns are integrated into the company's quality audits for its suppli-
ers.
Hewlett-Packard reports recycling 75% of its nonhazardous wastes worldwide.
It recycles approximately 99% (by weight) of the electronic hardware returned
to the company's product take-back centers located in California and France.
For employees commuting to work, the company offers vanpool matching and re-
ferral services, and discounts on transit passes.
IMCO owns and operates aluminum recycling plants.
IMCO is one of the leading nonferrous metals recyclers in the country. The
company has the capacity to recycle 1.5 billion pounds of aluminum, 40 million
pounds of zinc, and 10 million pounds of magnesium, annually. The amount of
energy required to recover a pound of aluminum is about five percent of the
amount required to produce a pound of virgin aluminum. There is virtually no
difference in quality between virgin and recycled aluminum.
IMCO is developing processes to recover useful materials including aluminum,
salts, and nonmetallic oxides from salt-cake, and thus reduce the costs of
landfilling it.
IBM In August 1995, IBM announced that it had given $16 million in grants,
citing 14 U.S. and international university studies currently underway. In
March 1993, the company awarded ten grants, which included funding to the Uni-
versity of Virginia for the study of bioremediation, California Institute of
Technology for computer analysis of urban and regional air quality, and Har-
vard University for a study of the press and environmental change.
At the end of 1995, IBM achieved an 84% reduction from 1988 levels of the 17
chemicals in the EPA's 33/50 Program. The company also achieved its self im-
posed goal to eliminate the use of ethylene-based glycol ethers from its manu-
facturing processes. It recycles 85% of hazardous waste.
IBM has a comprehensive annual progress report that details a variety of
company-wide efforts to improve its impact on the environment including: envi-
ronmental benchmarks and goals, progress towards meeting goals, emissions da-
ta, regulatory problems, remediation liabilities, environmental challenges,
internal communications systems, environmental policies and practices outside
the U.S., and health and safety data.
The firm also makes cash awards to employees for innovative environmental
ideas. In 1995 IBM awarded $210,000 to 46 employees for their ideas.
INTERFACE manufactures and markets carpet tile, carpet rolls, broadloom car-
pets, and replacement, installation, and maintenance services.
In late 1994, Interface began a long-range program, called EcoSense, that
was designed for the company to achieve greater resource efficiency and to ul-
timately achieve ecological sustainability. The company's goal is to no longer
be a net "taker" from the earth. The program's key elements are closed loop
recycling, using benign sources of energy for
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production processes, and eliminating wasted raw materials and energy from all
operations. Interface believes that these initiatives will give the company a
competitive advantage in marketing its products.
In January 1995, the company initiated a worldwide war-on-waste program that
it calls Quality Utilizing Employee Suggestions and Teamwork (QUEST). QUEST
teams comprise a multidisciplinary group of employees who identify and elimi-
nate waste from a process or product. Any employee can join or form a team for
any reason. The company applies a zero-based definition of waste; any measur-
able cost that goes into manufacturing a product, but that does not result in
identifiable value to the customer. The company reports that in FY 1995 and FY
1996, it saved $25 million eliminating such waste. It expects to eliminate $75
million more by the end of FY 1998.
Some of the world's leading authorities on global ecology serve as consul-
tants to the company. The "Eco Dream Team" includes Paul Hawken, author of The
Ecology of Commerce and The Next Economy, and chairman of The Natural Step
U.S.A.; Amory Lovins, energy consultant and director of Rocky Mountain Insti-
tute; and David Brower, former executive director of the Sierra Club and foun-
der of The Earth Island Institute.
LILLIAN VERNON CORPORATION is a specialty catalog company that markets gift,
household, gardening, kitchen, Christmas, and children's products.
The company has a policy of not selling fur or ivory and reports that in ad-
dition to in-house recycling programs, it uses recycled computer paper, pack-
ing bags, forms, and purchase orders. Its Warehouse Annex uses an energy-sav-
ing geothermal heat pump system. The firm donates a portion of the profits
from the sales of its stuffed panda bear product to the World Wildlife Fund.
ODWALLA produces and distributes fruit- and vegetable-based beverages in the
western United States. The company markets approximately 20 products, includ-
ing fresh fruit juices, quenchers (lemonades), smoothies (drinks based on
tropical fruit purees), and vegetable drinks based on carrot juice.
In 1993 Odwalla began conducting annual comprehensive environmental audits
of its activities. The company uses this audit as a benchmark against which it
can measure its future performance. The company has received numerous environ-
mental business awards, including the Sierra Club Environmental Conscience
Award.
In the past, Odwalla has established collection centers for its used juice
containers, and it currently provides interested customers with details on re-
cycling centers near their homes. The company recycles office paper, purchases
recycled-content products, and is a member of the Recycled Paper Coalition of
California. Most organic wastes from the company's production facilities are
sold to cattle feed companies, a practice common in the food processing indus-
try. Odwalla also dries a portion of its citrus peels and sells them for com-
mercial uses.
Odwalla has made a commitment to purchase new trucks for its fleet that will
be convertible to run on compressed natural gas (CNG), a fuel with environmen-
tal benefits over gasoline. In San Francisco, where CNG refueling stations are
in service, Odwalla is running three of its trucks on CNG. Odwalla supports
sustainable agriculture through its involvement in California Clean, an asso-
ciation of family farmers using chemical-free farming.
PITNEY-BOWES manufactures and markets mailing systems, copying systems, and
facsimile systems. It also provides facilities management and mortgage servic-
ing, and commercial and industrial financing services.
In December 1989, the firm set a goal of totally eliminating the generation
of air, water, and solid wastes by the end of 1995. Pitney-Bowes reports that
from 1989 through 1995 it reduced hazardous wastes emissions by 88%, report-
able emissions to the air by 99%, and waste water discharges by 81%. By the
end of 1993, it had totally eliminated use of the chlorinated solvent
trichlorethane.
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In October 1994, Pitney-Bowes received the Green Product Award for its ef-
forts in creating environmentally friendly products. In 1991 the company ini-
tiated its Design for Environment Quality Program aimed at minimizing the en-
vironmental impact of its products throughout their life cycle.
The company has an Environmentally Responsible Procurement Program through
which it screens its suppliers based on their environmental performance. In
1991 Pitney-Bowes launched a Product Disposition Program whereby the company
collects outdated and scrap equipment from its customers.
The company has a comprehensive annual environmental report that reports on
the following: environmental benchmarks and goals, progress towards meeting
goals, emissions data, regulatory problems, remediation liabilities, and
health and safety data.
POLAROID designs, manufactures, and markets instant photographic cameras,
films, electronic imaging devices and polarized filters and lenses.
In late 1994, Polaroid became one of only five Fortune 500 companies to en-
dorse the CERES Principles, an independently monitored code of corporate con-
duct for environmental accountability.
The company has a worldwide Toxic Use and Waste Reduction program under
which it conducts internal audits and keeps track of environmental compliance.
The program emphasizes goal setting and measurement of performance. Plant man-
agers are required to submit a report on "timely correction actions and of all
excursions that occur at their facilities."
The company is developing an environmental cost accounting system that will
identify the cost of waste generated. It ties manager performance to specific
environmental performance criteria. The company also has a compliance and
awareness training program to educate employees about workplace safety and en-
vironmental management issues.
Polaroid will do business with suppliers who "meet high health, safety, en-
vironmental, social, ethical and legal standards of performance." Polaroid pe-
riodically reviews its suppliers to ensure that the materials they obtain from
them do not contain chloroflurocarbons. The company also reviews its suppli-
ers' waste disposal practices. The company shares technical information on en-
vironmental issues with its suppliers. These include creating recycling and
reuse programs, developing less-wasteful packaging methods, and sharing knowl-
edge on ozone depleting chemicals-free processes.
PRAXAIR manufactures and markets industrial gases.
Praxair's Italian subsidiary, IGI, has developed a proprietary technology
for using oxygen in the treatment of contaminated industrial wastewater. The
company now uses this technology worldwide. Oxygen has several other benefi-
cial uses. Oxygen increases the burning efficiencies and decreases emissions
to the environment in numerous applications, from steel manufacturing to the
incineration of hazardous wastes. In addition, oxygen is being increasingly
used as a replacement (in either oxygen or ozone form) for chlorine in the
bleaching process by many pulp and paper manufacturers.
The company has plans for a joint venture with Nucor and U.S. Steel to
develop technology for making steel directly from iron carbide. This could
eliminate the need for energy-intensive, polluting coke ovens and blast fur-
naces. It would lower nitrogen oxide emissions through the increased use of
oxygen in the glass manufacturing process. Also under development is a con-
trolled atmosphere soldering technology that enables the electronics industry
to eliminate the use of chlorofluorocarbons (CFCs) in the cleaning process of
circuit boards.
TIMBERLAND manufactures and markets footwear and accessories and apparel un-
der the Timberland brand name.
In 1993 Timberland signed the CERES Principles that standardize environmen-
tal reporting for U.S. corporations. It is one of a handful of publicly traded
companies to do so. As a CERES signatory, it publishes a complete environmen-
tal report annually.
10
<PAGE>
Timberland has an office recycling program at corporate headquarters that in
1994 recycled 25 tons of paper. In 1992 it installed energy efficient lighting
throughout its corporate headquarters. The firm reports that its purchasing
department assesses the environmental records of companies from which Timber-
land purchases goods and services. The company also has an environmental news-
letter for its employees interested in making suggestions to the company. Tim-
berland reports that it has integrated environmental considerations in the de-
sign of its stores and headquarters. The company works with The Wilderness So-
ciety on a variety of educational projects.
WELLMAN manufactures and sells polyester products in three groups: the fi-
bers group; the recycled products group, which manufactures polyester fiber
from postconsumer and producer plant wastes and which operates plastic recy-
cling plants; and the packaging products group.
In 1993 the firm launched its EcoSpun fiber product, which contains 100% re-
cycled content, and of which at least 35% is from postconsumer sources.
In 1996 Wellman expanded its recycled plastic line when it received no ob-
jection from the Food and Drug Administration to use up to 100% recycled resin
for all food and beverage containers currently approved for virgin resin.
Approximately 40% of the fibers produced by Wellman each year are made from
recycled materials. In April 1997, the company expanded its South Carolina PET
resin facility's capacity to 200 million pounds per year. Its fiber plant in
Ireland has a production capacity of 174 million pounds, of which 35 million
pounds comes from used bottles. These fibers are used in carpeting, fill, and
other products in which less fine fibers are required.
WHIRLPOOL manufactures and markets home laundry appliances, home refrigera-
tors and air conditioners, and other home appliances.
Whirlpool is involved in a number of innovative recycling initiatives. In
1996 the company agreed to work with Appliance Recycling Centers of America,
Inc., a company that reconditions and sells used appliances. In 1994 the
company's North American plants recycled more than 280,000 tons of materials,
including cardboard, plastics, wood pallets, scrap metals, rubber, aluminum,
office paper, foam packaging, and plastic drums. Whirlpool has instituted a
"global environmental management process" designed to integrate environmental
considerations into product design, employee training, monitoring operations,
and manufacturing processes.
The company developed a washing machine that uses two-thirds less energy and
water. Whirlpool introduced a horizontal-axis washing machine in China which
uses 50% less water. The company also developed a small-capacity, no-frost re-
frigerator that does not contain CFCs for markets in Asia and Latin America.
In Europe the company introduced a washing machine and dryer that are both 95-
percent recyclable.
The company's annual environmental report details company wide efforts to
improve its impact on the environment. The publication reports on the follow-
ing: emissions data, regulatory problems, remediation liabilities, environmen-
tal challenges they face, internal communications systems, environmental poli-
cies and practices outside the U.S.
In 1996 the company reported that there were no chlorofluorocarbons (CFCs)
present in its U.S. and European production facilities, and that CFCs would be
phased out of its plants in Argentina and Brazil in 1997. Whirlpool also re-
ported that it is committed to phasing out CFCs in its facilities in Asia be-
fore the 2010 deadline imposed by the Montreal Protocol of 1987.
WHOLE FOODS MARKET, INC. The company has incorporated its strong environmen-
tal beliefs into the products it provides. Its stores carry extensive lines of
organic produce and minimally processed products and feature green departments
that carry environmentally safe and recycled household products. Stores offer
a five-cent-per-bag rebate to customers who use their own shopping bags.
11
<PAGE>
The company has organized Eco Teams in its stores to become active in each
community on environmental issues. Environmental projects in 1994 included a
campaign in the southwestern U.S., conducted jointly with the Environmental
Working Group, which informed consumers about estrogenic pesticides; and sup-
port of the Carolina Farm Stewardship Association, a coalition of farmers,
businesses, gardeners, and consumers dedicated to ecologically sound agricul-
tural practices.
12
<PAGE>
COMPARISON OF $10,000 INVESTMENT IN THE
DOMINI SOCIAL EQUITY FUND S&P 500
Average Annual Total Return
1 Year Ended 5 Years Ended Inception (6/3/91)
1/31/98 1/31/98 to 1/31/98/2/
- ----------------------------------------------------------------------
29.18% 19.15% 17.59%
6/30/91 10 10
10/30/91 10.59134 10.67656
1/31/92 11.26964 11.20443
4/30/92 11.26964 11.45136
7/31/92 11.80416 11.8094
10/31/92 12.2204 11.74513
1/31/93 12.89376 12.39685
4/30/93 12.62491 12.52083
7/31/93 12.96598 12.8416
10/31/93 13.6461 13.50023
1/31/94 13.94968 13.99337
4/30/94 13.2057 13.18614
7/31/94 13.36719 13.50288
10/31/94 13.85207 14.02062
1/31/95 13.97643 14.05953
4/30/95 15.20832 15.47674
7/31/95 16.72338 17.01578
10/31/95 17.41034 17.7157
1/31/96 18.85141 19.49132
4/30/96 19.48813 20.1598
7/31/96 19.08306 19.83869
10/31/96 21.20848 21.98457
1/31/97 23.9672 24.63018
4/30/97 24.76304 25.21475
7/31/97 29.38935 30.15839
10/31/97 28.15276 29.05176
1/31/98 30.95879 31.24764
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
/1/ 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 S&P 500 is an unmanaged index used to portray the
pattern of common stock movement based on the average performance of 500
widely held common stocks.
/2/ The Fund began investing in the stocks comprising the Domini Social Index
on June 3, 1991. The above chart begins on June 30, 1991.
13
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
APPAREL -- 0.3%
Brown Group, Inc. ....................................... 1,700 $ 24,650
Hartmarx Corporation (b)................................. 3,300 24,544
Liz Claiborne, Inc. ..................................... 6,500 263,250
Oshkosh B'Gosh........................................... 800 27,400
Phillips-Van Heusen Corporation.......................... 2,500 30,156
Reebok International Ltd. (b)............................ 5,500 146,781
Russell Corporation...................................... 3,500 86,406
Springs Industries, Inc.................................. 2,000 105,250
Stride Rite Corporation.................................. 4,600 52,325
Timberland Company (The) (b)............................. 1,100 64,075
V. F. Corporation........................................ 12,200 521,550
------------
1,346,387
------------
BANKING -- 7.5%
Banc One Corporation..................................... 59,195 3,307,521
BankAmerica Corporation.................................. 69,900 4,967,269
BankBoston Corporation................................... 14,500 1,297,750
Bankers Trust New York Corporation....................... 9,700 1,011,831
CoreStates Financial Corp................................ 19,800 1,514,700
Fifth Third Bancorp...................................... 15,250 1,162,813
First Chicago NBD Corp. ................................. 29,106 2,172,035
Mellon Bank Corporation.................................. 25,500 1,539,563
Morgan (J.P.) & Co. Incorporated......................... 17,800 1,801,138
Norwest Corporation...................................... 76,000 2,774,000
PNC Bank Corp. .......................................... 30,500 1,572,656
SunTrust Banks, Inc. .................................... 21,100 1,461,175
Vermont Financial Services Corp. ........................ 1,300 35,344
Wachovia Corporation..................................... 20,400 1,586,100
Washington Mutual Inc. .................................. 25,780 1,656,365
Wells Fargo & Company.................................... 8,600 2,657,400
------------
30,517,660
------------
</TABLE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
COMMERCIAL PRODUCTS & SERVICES -- 1.8%
Avery Dennison Corporation............................... 10,300 $ 462,213
Cintas Corporation....................................... 9,700 404,975
Deluxe Corporation....................................... 7,900 260,700
DeVry Inc. (b)........................................... 3,600 108,900
Donnelley (R.R.) & Sons Company.......................... 14,600 544,763
Harland (John H.) Company................................ 2,800 43,050
Herman Miller, Inc. ..................................... 4,400 254,650
HON Industries, Inc. .................................... 3,000 183,000
Ikon Office Solutions.................................... 13,400 422,100
Interface Inc............................................ 2,300 81,363
Kelly Services, Inc...................................... 3,675 120,816
Moore Corporation........................................ 8,600 129,000
National Service Industries, Inc......................... 4,300 215,000
New England Business Service, Inc........................ 1,300 42,900
Pitney Bowes Inc......................................... 28,900 1,325,788
Standard Register Company................................ 2,800 96,075
Tennant Company.......................................... 1,000 35,500
Xerox Corporation........................................ 32,600 2,620,225
------------
7,351,018
------------
CONSTRUCTION -- 0.3%
Apogee Enterprises, Inc. ................................ 2,500 29,531
Centex Corporation....................................... 3,200 200,800
Champion Enterprises Inc. ............................... 4,500 88,031
Fleetwood Enterprises, Inc. ............................. 3,400 141,525
Granite Construction Incorporated........................ 1,600 37,600
Kaufman & Broad Home Corporation......................... 3,800 97,850
Rouse Company............................................ 6,500 218,563
Sherwin-Williams Company................................. 17,200 490,200
Skyline Corporation...................................... 900 24,975
TJ International, Inc. .................................. 1,700 41,863
------------
1,370,938
------------
</TABLE>
14
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
ENERGY -- 2.5%
Amoco Corporation....................................... 48,700 $ 3,962,963
Anadarko Petroleum Corporation.......................... 5,800 342,200
Apache Corporation...................................... 8,800 291,500
ARCO Chemical Company................................... 9,700 460,750
Atlantic Richfield Company.............................. 32,100 2,387,438
Consolidated Natural Gas Company........................ 9,500 515,969
Oryx Energy Company (b)................................. 10,700 256,800
Pennzoil Company........................................ 4,600 297,275
Santa Fe Energy Resources, Inc. (b)..................... 10,000 105,000
Sun Company, Inc. ...................................... 6,900 267,375
Union Pacific Resources Group, Inc. .................... 25,600 572,800
Williams Companies...................................... 32,000 912,000
------------
10,372,070
------------
FINANCIAL SERVICES -- 6.0%
Ahmanson (H.F.) & Company............................... 9,700 565,631
American Express Company................................ 46,500 3,891,469
Beneficial Corporation.................................. 5,300 411,413
Block (H & R), Inc. .................................... 10,400 456,300
Dime Bancorp............................................ 12,600 352,800
Edwards (A.G.), Inc. ................................... 9,487 359,320
Fannie Mae.............................................. 106,600 6,582,550
Federal Home Loan Mortgage Corporation.................. 69,500 3,092,750
FirstFed Financial Corp. (b)............................ 1,100 38,638
Golden West Financial................................... 5,700 481,294
Household International, Inc. .......................... 10,900 1,357,050
MBIA Inc................................................ 9,200 595,700
MBNA Corporation........................................ 50,100 1,556,231
Merrill Lynch & Co., Inc. .............................. 33,300 2,102,063
Piper Jaffray Companies Inc. ........................... 1,800 65,700
</TABLE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
FINANCIAL SERVICES -- CONTINUED
Schwab (Charles) Corporation............................ 26,600 $ 970,900
Student Loan Marketing Association...................... 17,700 745,613
Transamerica Corporation................................ 6,200 637,050
Value Line, Inc. ....................................... 1,000 39,438
Wesco Financial Corporation............................. 700 211,575
------------
24,513,485
------------
FOODS & BEVERAGES -- 8.3%
Ben & Jerry's Homemade, Inc. (b)........................ 600 9,375
Campbell Soup Company................................... 45,800 2,450,300
Coca-Cola Company....................................... 248,500 16,090,375
Fleming Companies, Inc. ................................ 3,700 55,731
General Mills Incorporated.............................. 15,800 1,176,113
Heinz (H.J.) Company.................................... 36,700 2,034,556
Hershey Foods Corporation............................... 14,600 929,838
Kellogg Company......................................... 41,100 1,898,306
Nature's Sunshine Products, Inc. ....................... 1,600 42,400
Nature's Sunshine Products, Inc. ....................... 0 15
Odwalla, Incorporated (b)............................... 500 4,063
PepsiCo, Inc. .......................................... 152,400 5,495,925
Quaker Oats Company..................................... 13,900 747,125
Ralston Purina Company.................................. 10,700 1,004,463
Smucker (J.M.) Company.................................. 2,600 66,625
SUPERVALU Inc. ......................................... 6,000 263,250
Sysco Corporation....................................... 17,100 765,225
Tootsie Roll Industries, Inc. .......................... 1,579 99,104
Wrigley (Wm.) Jr. Company............................... 11,600 857,675
------------
33,990,464
------------
</TABLE>
15
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
HEALTH CARE -- 9.0%
Acuson
Corporation (b)........................................ 2,800 $ 47,250
Allergan, Inc. ......................................... 6,300 214,200
ALZA
Corporation (b)........................................ 8,300 295,688
Angelica Corporation.................................... 800 18,400
Becton Dickinson and Company............................ 12,200 770,125
Bergen Brunswig Corporation............................. 4,918 224,076
Biomet, Inc. ........................................... 11,300 323,463
Boston Scientific Corporation (b)....................... 19,800 1,004,850
Forest Laboratories, Inc. (b)........................... 3,900 231,563
Guidant Corp. .......................................... 14,800 950,900
Humana Health Plans, Inc. (b)........................... 16,500 331,031
Johnson & Johnson....................................... 135,100 9,043,256
Manor Care, Inc. ....................................... 6,200 215,063
Marquette Medical Systems, Inc. (b)..................... 1,500 40,125
Medtronic, Inc. ........................................ 46,900 2,394,831
Merck & Co., Inc. ...................................... 120,400 14,116,900
Mylan Laboratories, Inc. ............................... 12,300 220,631
Oxford Health Plans, Inc. (b)........................... 7,700 134,750
Schering-Plough Corporation............................. 73,700 5,334,038
St. Jude Medical
Inc. (b)............................................... 8,900 289,250
Stryker Corporation..................................... 9,800 361,988
Sunrise Medical
Inc. (b)............................................... 1,900 27,550
United American Healthcare Corporation (b).............. 800 2,100
------------
36,592,028
------------
HOUSEHOLD GOODS -- 5.8%
Alberto-Culver Company.................................. 5,300 157,013
Avon Products, Inc. .................................... 13,200 792,000
Bassett Furniture Industries............................ 1,300 37,375
Black & Decker Corp. ................................... 9,500 457,781
</TABLE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
HOUSEHOLD GOODS -- CONTINUED
Church & Dwight Co., Inc. .............................. 1,900 $ 53,081
Clorox Company.......................................... 10,300 789,238
Colgate-Palmolive Company............................... 29,600 2,168,200
Fedders Corporation..................................... 3,600 20,700
Fort James Corp. ....................................... 20,700 888,806
Handleman
Company (b)............................................ 3,100 18,988
Harman International Industries, Inc. .................. 1,730 67,686
Hasbro, Inc. ........................................... 12,650 436,425
Huffy Corporation....................................... 1,100 16,225
Kimberly-Clark Corporation.............................. 56,064 2,925,840
Leggett & Platt......................................... 9,600 433,800
Mattel, Inc. ........................................... 29,085 1,177,943
Maytag Corporation...................................... 9,300 357,469
Newell Co. ............................................. 15,900 652,894
Oneida Ltd. ............................................ 1,600 43,700
Procter & Gamble Company................................ 135,000 10,580,625
Rubbermaid Incorporated................................. 15,000 388,125
Shaw Industries, Inc. .................................. 13,600 150,450
Snap-On Incorporated.................................... 5,850 229,247
Stanhome Inc. .......................................... 1,600 43,400
Stanley Works........................................... 8,900 393,825
Thomas Industries Inc. ................................. 1,500 32,813
Whirlpool Corporation................................... 7,300 422,031
------------
23,735,680
------------
INSURANCE -- 6.7%
Aetna, Inc. ............................................ 15,170 1,114,995
American General Corporation............................ 24,362 1,373,408
American International Group, Inc. ..................... 70,500 7,777,031
Chubb Corporation....................................... 17,000 1,290,938
CIGNA Corporation....................................... 7,400 1,254,763
Cincinnati Financial Corporation........................ 5,395 687,863
General Re Corporation.................................. 7,800 1,623,375
</TABLE>
16
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
INSURANCE -- CONTINUED
Hartford Steam Boiler Inspection and Insurance.......... 1,900 $ 112,338
Jefferson-Pilot Corporation............................. 7,000 571,813
Lincoln National Corp. ................................. 10,200 772,013
Marsh & McLennan Companies, Inc. ....................... 17,000 1,255,875
Providian Corporation................................... 9,500 464,313
ReliaStar Financial Corporation......................... 9,000 373,500
SAFECO Corporation...................................... 14,100 704,119
St. Paul Companies, Inc. ............................... 8,400 730,800
Torchmark Corporation................................... 14,000 581,875
Travelers Group Inc. ................................... 115,200 5,702,400
UNUM Corporation........................................ 13,900 675,888
USF&G Corporation....................................... 11,400 271,463
------------
27,338,770
------------
MEDIA -- 3.9%
Banta Corporation....................................... 2,850 72,497
Comcast Corporation..................................... 34,900 1,092,806
Disney (Walt) Company................................... 67,800 7,224,938
Dow Jones & Company..................................... 9,800 492,450
Harcourt General........................................ 6,900 367,856
King World Productions, Inc. (b)........................ 3,600 213,075
Lee Enterprises, Inc.................................... 4,500 129,094
McGraw-Hill Companies................................... 9,900 691,144
Media General, Inc. .................................... 2,400 109,200
Meredith Corporation.................................... 5,100 199,856
Midas Inc. (b).......................................... 1,717 27,579
New York Times Company.................................. 9,600 624,600
Scholastic
Corporation (b)........................................ 1,600 56,000
Tele-Communications, Inc. (b)........................... 50,700 1,419,600
Times Mirror Company.................................... 8,900 512,863
</TABLE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
MEDIA -- CONTINUED
U S West Media Group..................................... 60,700 $ 1,802,031
Viacom, Inc. (b)......................................... 6,700 276,375
Washington Post Company.................................. 1,000 487,000
------------
15,798,964
------------
MISCELLANEOUS -- 1.7%
American Greetings Corporation........................... 7,100 307,519
Avnet, Inc. ............................................. 4,300 262,300
Bemis Company, Inc. ..................................... 5,300 228,563
Case Corporation......................................... 7,300 425,681
CPI Corp. ............................................... 1,000 24,063
Cross (A.T.) Company..................................... 1,400 15,925
Deere & Company.......................................... 25,200 1,329,300
General Signal Corporation............................... 4,800 187,200
Gibson Greetings,
Inc. (b)................................................ 1,400 30,450
Hillenbrand Industries, Inc. ............................ 6,700 343,375
Hunt Manufacturing Co. .................................. 1,100 24,544
Hussmann International Inc. (b).......................... 5,150 70,169
Ionics, Inc. (b)......................................... 1,400 57,575
Jostens, Inc. ........................................... 3,800 85,738
Marriott International, Inc. ............................ 12,800 884,800
Omnicom Group Inc. ...................................... 16,200 657,113
Polaroid Corporation..................................... 4,300 176,569
Sealed Air
Corporation (b)......................................... 4,100 257,788
Service Corporation International........................ 25,200 982,800
Sonoco Products Company.................................. 9,305 330,328
Toro Company............................................. 1,200 46,725
Whitman Corporation...................................... 10,300 171,238
------------
6,899,763
------------
MISCELLANEOUS MANUFACTURING -- 1.0%
Applied Materials,
Inc. (b)................................................ 36,500 1,197,656
Brady (W.H.) Co. ........................................ 2,200 65,450
Cincinnati Milacron Inc. ................................ 3,900 99,450
</TABLE>
17
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
MISCELLANEOUS MANUFACTURING -- CONTINUED
CLARCOR Inc. ............................................ 1,400 $ 37,713
Crown Cork & Seal Company, Inc. ......................... 12,800 633,600
Dionex Corporation (b)................................... 1,200 66,000
Fastenal Company......................................... 3,700 162,569
Gerber Scientific Inc. .................................. 2,100 38,063
Graco Inc. .............................................. 1,450 60,628
Illinois Tool Works Inc. ................................ 24,900 1,386,619
Isco, Inc. .............................................. 300 2,625
Lawson Products, Inc. ................................... 1,100 33,000
Millipore Corporation.................................... 4,200 137,550
Nordson Corporation...................................... 1,500 73,688
Watts Industries......................................... 2,400 66,750
Wellman, Inc. ........................................... 3,000 53,813
Zurn Industries, Inc. ................................... 1,200 41,400
------------
4,156,574
------------
RESOURCE DEVELOPMENT -- 1.5%
Air Products & Chemicals, Inc. .......................... 11,000 880,688
Aluminum Company of America.............................. 17,200 1,313,650
Battle Mountain Gold Company............................. 23,200 130,500
Betz Laboratories........................................ 2,900 167,113
Cabot Corporation........................................ 6,700 189,275
Calgon Carbon Corporation................................ 3,800 39,663
Consolidated Papers, Inc. ............................... 4,700 264,375
Cyprus Amax Minerals Company............................. 9,100 143,325
Echo Bay Mines Ltd (b)................................... 14,000 27,125
Fuller (H.B.) Company.................................... 1,300 68,250
IMCO Recycling Inc. ..................................... 1,600 26,800
Inland Steel Industries, Inc. ........................... 4,700 93,706
Mead Corporation......................................... 10,200 331,500
Morton International, Inc. .............................. 13,300 438,900
Nalco Chemical Company................................... 6,400 240,000
Nucor Corporation........................................ 8,550 407,194
Praxair, Inc. ........................................... 15,800 654,713
Sigma-Aldrich Corporation................................ 10,200 395,250
</TABLE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
RESOURCE DEVELOPMENT -- CONTINUED
Westvaco Corporation..................................... 10,400 $ 337,350
Worthington Industries, Inc. ............................ 9,400 158,038
------------
6,307,415
------------
RETAIL -- 9.9%
Albertson's, Inc. ....................................... 24,600 1,173,113
American Stores Companies................................ 27,400 595,950
Bestfoods................................................ 14,400 1,404,000
Bob Evans Farms, Inc. ................................... 4,100 78,669
Charming Shoppes, Inc. (b)............................... 10,300 41,844
Circuit City Stores, Inc. ............................... 9,600 327,600
Claire's Stores, Inc. ................................... 4,700 83,425
Costco Companies Inc. (b)................................ 21,115 915,863
CVS Corporation.......................................... 17,500 1,147,344
Dayton Hudson Corporation................................ 21,800 1,568,238
Dillard Department Stores, Inc. ......................... 11,100 389,888
Dollar General Corporation............................... 11,548 420,059
Egghead, Inc. (b)........................................ 2,100 16,538
Gap, Inc. (The).......................................... 40,150 1,568,359
Giant Food Inc. ......................................... 5,800 188,863
Great Atlantic & Pacific Tea Company, Inc. .............. 3,700 105,450
Hannaford Bros. Co. ..................................... 4,000 155,750
Home Depot, Inc. ........................................ 73,649 4,441,956
Kmart Corporation (b).................................... 48,700 535,700
Kroger Co. (b)........................................... 25,500 997,688
Lands' End, Inc. (b)..................................... 3,100 121,869
Lillian Vernon Corporation............................... 1,000 16,813
Limited, Inc. (The)...................................... 27,300 723,450
Longs Drug Stores Corporation............................ 3,800 109,963
Lowe's Companies, Inc. .................................. 17,400 879,788
Luby's Cafeterias, Inc. ................................. 2,300 36,800
May Department Stores Company............................ 23,400 1,229,963
</TABLE>
18
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
RETAIL -- CONTINUED
McDonald's Corporation.................................. 68,800 $ 3,242,200
Mercantile Stores Company, Inc. ........................ 3,600 214,200
Nordstrom, Inc. ........................................ 8,000 407,000
Penney (J.C.) Company, Inc. ............................ 25,000 1,684,375
Pep Boys--Manny, Moe & Jack............................. 6,300 137,813
Ruby Tuesday, Inc. ..................................... 1,700 42,394
Ryan's Family Steakhouse, Inc. (b)...................... 4,600 38,238
Sears, Roebuck and Co. ................................. 39,200 1,805,650
Spec's Music, Inc. (b).................................. 200 250
Starbucks Corporation (b)............................... 7,600 277,875
Tandy Corporation....................................... 10,500 406,875
TCBY Enterprises, Inc. ................................. 2,300 17,250
TJX Companies, Inc. .................................... 16,300 552,163
Toys "R' Us, Inc. (b)................................... 28,720 770,055
Wal-Mart Stores, Inc. .................................. 226,400 9,027,700
Walgreen Company........................................ 49,200 1,629,750
Wendys International Inc. .............................. 13,100 292,294
Whole Foods Market, Inc. (b)............................ 2,400 120,600
Woolworth Corporation (b)............................... 13,600 295,800
------------
40,237,425
------------
TECHNOLOGY -- 23.1%
3Com Corporation (b).................................... 34,600 1,143,963
Advanced Micro Devices, Inc. (b)........................ 14,200 284,888
American Power Conversion (b)........................... 9,700 254,019
Analog Devices, Inc. (b)................................ 16,100 474,950
Apple Computer, Inc. (b)................................ 12,800 234,400
AT&T Corporation........................................ 163,200 10,220,400
Autodesk, Inc. ......................................... 5,000 193,125
Automatic Data Processing, Inc. ........................ 29,200 1,746,525
</TABLE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
TECHNOLOGY -- CONTINUED
Baldor Electric Company................................... 3,500 $ 79,844
Borland International, Inc. (b)........................... 4,000 30,000
Broderbund Software Inc. (b).............................. 1,900 40,138
Cisco Systems, Inc. (b)................................... 101,100 6,375,619
Citizens Utilities Company................................ 9,267 88,037
Compaq Computer Corporation............................... 152,140 4,573,709
Computer Associates International, Inc. .................. 54,700 2,909,356
Cooper Industries, Inc. .................................. 12,100 642,055
Dell Computer Corp. (b)................................... 32,600 3,241,662
Digital Equipment Corporation (b)......................... 14,600 825,812
DSC Communications Corporation (b)........................ 11,900 238,000
Grainger (W.W.), Inc. .................................... 4,800 462,000
Hewlett-Packard Company................................... 104,500 6,270,000
Hubbell Incorporated...................................... 6,960 348,435
Hutchinson Technology (b)................................. 1,700 42,712
Intel Corporation......................................... 164,400 13,316,400
International Business Machines Corporation............... 97,700 9,641,768
LSI Logic (b)............................................. 14,100 338,400
MCI Communications Corporation............................ 69,700 3,236,693
Merix Corporation (b)..................................... 600 8,250
Micron Technology, Inc. (b)............................... 21,000 727,125
Microsoft Corporation (b)................................. 121,200 18,081,525
Molex Incorporated........................................ 15,737 428,832
National Semiconductor Corporation (b).................... 16,300 458,437
Novell Inc. (b)........................................... 34,900 246,480
Perkin-Elmer Corporation.................................. 4,800 283,200
Quarterdeck Corporation (b)............................... 4,200 9,187
</TABLE>
19
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
TECHNOLOGY -- CONTINUED
QuickResponse Services, Inc. (b)......................... 700 $ 25,505
Raychem Corporation...................................... 8,300 309,693
Shared Medical Systems Corporation....................... 2,400 157,200
Solectron Corporation (b)................................ 11,500 497,375
Sprint Corporation....................................... 43,000 2,553,125
Stratus Computer, Inc. (b)............................... 2,300 97,030
Sun Microsystems, Inc. (b)............................... 37,500 1,797,655
Tektronix, Inc. ......................................... 5,200 219,700
Tellabs, Inc. (b)........................................ 18,100 926,493
Thomas & Betts Corporation............................... 5,500 271,562
Xilinx, Inc. (b)......................................... 7,200 273,150
------------
94,624,434
------------
TRANSPORTATION -- 1.7%
Airborne Freight Corporation............................. 2,300 163,587
Alaska Air Group, Inc. (b)............................... 1,800 87,412
AMR Corporation (b)...................................... 9,300 1,174,125
Consolidated Freightways Corporation (b)................. 2,100 31,105
CSX Corporation.......................................... 22,100 1,171,300
Delta Air Lines, Inc. ................................... 7,400 844,525
FDX Holding Corporation (b).............................. 11,400 741,712
GATX Corporation......................................... 2,400 174,150
Norfolk Southern Corporation............................. 37,700 1,189,905
Roadway Express, Inc. ................................... 2,000 43,750
Ryder System, Inc. ...................................... 7,400 247,900
Southwest Airlines Co. .................................. 21,700 565,555
UAL Corporation (b)...................................... 5,700 506,587
Yellow Corporation (b)................................... 2,800 73,150
------------
7,014,763
------------
</TABLE>
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
UTILITIES -- 8.5%
AGL Resources Inc. ..................................... 5,500 $ 108,968
American Water Works, Inc. ............................. 7,700 207,900
Ameritech............................................... 110,000 4,723,125
Bell Atlantic Corporation............................... 78,011 7,220,892
BellSouth Corporation................................... 99,700 6,038,080
CalEnergy Company, Inc. (b)............................. 8,300 213,205
Central Lousiana Electric Inc. ......................... 2,200 68,337
Connecticut Energy Corporation.......................... 1,000 27,187
Eastern Enterprises..................................... 2,000 82,750
El Paso Energy Corporation.............................. 5,800 370,837
Energen Corporation..................................... 1,400 54,600
Enron Corp. ............................................ 31,800 1,317,712
Equitable Resources, Inc. .............................. 3,400 111,775
Frontier Corporation.................................... 16,400 427,425
Helmerich & Payne, Inc. ................................ 4,800 122,700
Idaho Power Company..................................... 3,600 124,875
Keyspan Energy Corporation.............................. 4,900 166,905
LG&E Energy Corp. ...................................... 6,700 156,612
MCN Corporation......................................... 7,600 281,200
New Century Energies, Inc. ............................. 11,100 505,743
NICOR Inc. ............................................. 4,700 189,175
Northwest Natural Gas Co. .............................. 2,200 58,575
Northwestern Public Service Company..................... 1,500 33,280
Oklahoma Gas and Electric Company....................... 3,900 204,018
ONEOK Inc. ............................................. 3,000 102,562
Pacific Enterprises..................................... 8,300 299,318
Peoples Energy Corporation.............................. 3,400 128,350
Potomac Electric Power Company.......................... 12,000 298,500
Rowan Companies, Inc. .................................. 8,700 229,462
</TABLE>
20
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
UTILITIES -- CONTINUED
SBC Communications Inc. .................................. 92,159 $ 7,165,392
Sonat Inc. ............................................... 8,600 375,712
Southern New England Telecommunications Corporation....... 6,900 449,362
Telephone and Data Systems, Inc. ......................... 5,800 255,200
U S West Communications Group (b)......................... 48,300 2,324,437
Washington Gas Light Company.............................. 4,200 111,300
Western Atlas Inc. ....................................... 5,300 330,255
------------
34,885,726
------------
VEHICLE COMPONENTS -- 0.5%
Cooper Tire and Rubber Company............................ 7,600 182,875
Cummins Engine Company, Inc............................... 3,700 197,950
Dana Corporation.......................................... 10,500 526,312
Federal-Mogul Corporation................................. 3,900 175,500
Genuine Parts Company..................................... 17,900 594,056
</TABLE>
See Notes to Financial
Statements
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- ------ ------ -----
<S> <C> <C>
VEHICLE COMPONENTS -- CONTINUED
Modine Manufacturing Company............................. 2,900 $ 101,137
Smith (A.O.) Corporation................................. 1,500 63,000
Spartan Motors, Inc. (b)................................. 1,200 8,475
SPX Corporation.......................................... 1,200 87,600
------------
1,936,905
------------
TOTAL INVESTMENTS(A) -- 100.0%.................................. $408,990,469
OTHER ASSETS, LESS LIABILITIES.................................. 2,499,557
------------
NET ASSETS...................................................... $411,490,026
============
</TABLE>
- --------
(a) The aggregate cost for federal income tax purposes is $299,126,134, the
aggregate gross unrealized appreciation is $112,492,160, and the aggregate
gross unrealized depreciation is $2,627,825, resulting in net unrealized
appreciation of $109,864,335.
(b) Non-income producing security.
21
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (Cost $299,126,134)........................ $408,990,469
Cash............................................................ 4,192,809
Dividends receivable............................................ 496,631
------------
Total assets................................................... 413,679,909
------------
LIABILITIES:
Payable for securities purchased................................ 1,971,177
Accrued expenses (Note 2)....................................... 218,706
------------
Total liabilities.............................................. 2,189,883
------------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS.......... $411,490,026
============
NET ASSETS CONSIST OF:
Paid-in capital................................................. $411,490,026
============
</TABLE>
See Notes to Financial Statements
22
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding tax of
$518)............................................ $ 2,276,431
-----------
EXPENSES:
Management fee (Note 2)........................... 199,249
Sub management fee (Note 2)....................... 186,707
Professional fees................................. 48,667
Custody fees (offset by compensating balances).... 65,252
Trustee fees...................................... 1,325
Printing.......................................... 5,000
Miscellaneous..................................... 1,955
-----------
Total expenses.................................... 503,155
Fees paid indirectly............................ (60,429)
Management fee waived........................... (103,679)
-----------
Net expenses.................................... 339,047
-----------
NET INVESTMENT INCOME............................... 1,937,383
NET REALIZED GAIN ON INVESTMENTS
Proceeds from sales............................... $ 8,580,631
Cost of securities sold........................... 5,738,294
------------
Net realized gain on investments................ 2,842,337
NET CHANGES IN UNREALIZED APPRECIATION OF
INVESTMENTS
Beginning of year................................. $ 91,161,408
End of year....................................... 109,864,335
------------
Net change in unrealized appreciation........... 18,702,927
-----------
NET INCREASE OF NET ASSETS RESULTING FROM
OPERATIONS......................................... $23,482,648
===========
</TABLE>
See Notes to Financial Statements
23
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31, 1998 YEAR ENDED
(UNAUDITED) JULY 31, 1997
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income......................... $ 1,937,384 $ 2,240,276
Net realized gain on investments.............. 2,842,337 433,417
Net change in unrealized appreciation of
investments.................................. 18,702,927 74,540,873
------------ ------------
Net Increase in Net Assets Resulting from
Operations................................. 23,482,648 77,214,566
------------ ------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Additions..................................... 105,727,597 137,135,556
Reductions.................................... (10,079,189) (22,391,710)
------------ ------------
Net Increase in Net Assets from Transactions
in Investors' Beneficial Interests......... 95,648,408 114,743,846
------------ ------------
Total Increase in Net Assets.............. 119,131,056 191,958,412
NET ASSETS:
Beginning of period........................... 292,358,970 100,400,558
------------ ------------
End of period................................. $411,490,026 $292,358,970
============ ============
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 1998
(UNAUDITED) JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 JULY 31, 1994
---------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
Ratio of net investment
income to average net
assets................. 1.13%(/1/)(/5/) 1.34% 1.48%(/3/) 1.85%(/4/) 2.13%(/4/)
Ratio of expenses to
average net assets..... 0.23%(/1/)(/2/)(/5/) 0.29%(/2/) 0.59%(/2/)(/3/) 0.43%(/4/) 0.29%(/4/)
Portfolio turnover
rate................... 3% 1% 5% 6% 8%
Average commission rate
paid per share......... $0.0408 $0.0512 $0.0496 -- --
</TABLE>
- -------------------------------------------------------------------------------
(/1/) Reflects a waiver of 0.06% of fees by the Manager due to limitations set
forth in the Management Agreement. Had the Manager not waived their fees,
the ratios of net investment income and expenses to average net assets for
the six months ended January 31, 1998 would have been 1.07% and 0.26%,
respectively.
(/2/) Ratio of total expenses to average net assets for the period ended January
31, 1998, July 31, 1997 and 1996 include indirectly paid expenses.
Excluding indirectly paid expenses, the expense ratios would have been
0.20%, 0.25% and 0.50% for the year ended July 31, 1997 and 1996,
respectively.
(/3/) Had the Expense Payment Agreement and Sponsor Arrangement not been in
place, the ratios of net investment income and expense for the year ended
July 31, 1996 would have been 1.14% and 0.85% respectively.
(/4/) 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.
(/5/) Annualized.
See Notes to Financial Statements
24
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. Domini Social Index Port-
folio (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 port-
folio as closely as is practicable with the Domini 400 Social index (the "In-
dex"), which is a common stock index developed and maintained by Kinder,
Lydenberg, Domini & Co., Inc. ("KLD"). 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 Au-
gust 10, 1990 and began investment operations on June 3, 1991.
The preparation of financial statements in conformity with generally ac-
cepted accounting principles requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and disclo-
sure of contingent assets and liabilities at the date of the financial state-
ments 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 reported on the ex-dividend date.
(C) FEDERAL TAXES: The Index Portfolio will be treated as a partnership for
U.S. federal income tax purposes and is therefore not subject to U.S. federal
income tax. As such, each investor in the Index Portfolio will be taxed on its
share of the Index Portfolio's ordinary income and capital gains. It is in-
tended that the Portfolio will be managed in such a way that an investor will
be able to satisfy the requirements of the Internal Revenue Code applicable to
regulated investment companies.
(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) MANAGER. Domini Social Investments LLC (DSIL or the Manager) is a regis-
tered as an investment adviser under the Investment Advisers Act of 1940. The
services provided by the Manager consist of investment supervisory services,
overall operational support and administrative services. The administrative
services include the provision of general office facilities and supervising
the overall administration of the Index Portfolio. For its services under the
Management Agreement, the Manager receives from the Index Portfolio a fee ac-
crued daily and paid monthly at an annual rate equal to 0.20% of the Index
Portfolio's average daily net assets, subject to reduction to the extent nec-
essary to keep the aggregate annual operating expenses of the Index Portfolio
(excluding brokerage fees and commissions, interest, taxes and other extraor-
dinary expenses) at no greater than 0.20% of the average daily net assets of
the Index Portfolio through October 22, 1998.
25
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
(B) SUBMANAGER. Mellon Equity provides investment submanagement services to
the Index Portfolio on a day-to-day basis pursuant to a Submanagement Agree-
ment with DSIL. Mellon Equity does not determine the composition of the Domini
Social Index. Under the Submanagement Agreement, DSIL pays Mellon Equity an
investment submanagement fee equal on an annual basis to 0.10% of the average
daily net assets of the Portfolio.
(C) PRIOR ADVISORY, MANAGEMENT, SPONSORSHIP AND ADMINISTRATIVE
AGREEMENTS. Prior to October 22, 1997, pursuant to an investment advisory
agreement (the KLD "Advisory Agreement"), KLD served as investment adviser to
the Index Portfolio and furnished continuously an investment program by deter-
mining the stocks to be included in the Domini Social Index. KLD received from
the Index Portfolio a fee accrued daily and paid monthly at an annual rate
equal to 0.025% of the Index Portfolio's average daily net assets. Addition-
ally, prior to October 22, 1997, pursuant to a management agreement (the
"Mellon Equity Management Agreement"), Mellon Equity served as investment man-
ager and managed the assets of the Index Portfolio on a daily basis. Prior to
October 22, 1997, pursuant to a sponsorship agreement (the "KLD Sponsorship
Agreement") , KLD furnished administrative services for the Index Portfolio.
KLD received from the Portfolio a fee accrued daily and paid monthly at an an-
nual rate equal to 0.025% of the average daily net assets of the Portfolio for
administrative services. Prior to November 6, 1996, pursuant to an administra-
tive services agreement (the "Signature Administration Agreement"), Signature
Broker-Dealer Services, Inc. ("Signature") served as the administrator of the
Index Portfolio. Prior to October 22, 1997, the aggregate investment manage-
ment and administration fees under the prior agreement with respect to the In-
dex Portfolio were equal to 0.15% of the Index Portfolio's average daily net
assets for its then current fiscal year.
3. INVESTMENT TRANSACTIONS. Purchase and sales of investments, other than U.S.
Government securities and short-term obligations, aggregated $104,647,537.62
and $8,580,631, respectively. Custody fees of the Portfolio were reduced by
$60,429 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.
26
<PAGE>
DOMINI SOCIAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in Domini Social Index Portfolio, at value (Note
1)............................................................ $313,136,019
Receivable for fund shares sold................................ 222,236
------------
Total assets................................................. 313,358,255
------------
LIABILITIES:
Accrued expenses............................................... 469,081
------------
NET ASSETS...................................................... $312,889,174
============
NET ASSETS CONSIST OF:
Paid-in capital................................................ $222,166,737
Distributions in excess of net investment income............... (195,280)
Accumulated net realized gain from Portfolio................... 2,003,541
Net unrealized appreciation from Portfolio..................... 88,914,176
------------
$312,889,174
============
Shares outstanding.............................................. 11,699,552
------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($312,889,174 / 11,699,552).................................... $26.74
======
</TABLE>
DOMINI SOCIAL EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income from Portfolio.................................. $ 1,678,102
Expenses from Portfolio........................................... (250,101)
-----------
Net investment income from Portfolio............................ 1,428,001
EXPENSES:
Sponsor fee (Note 2).............................................. 377,265
Administration fee (Note 2)....................................... 108,657
Sub-management fee (Note 2)....................................... 26,993
12b-1 fees (Note 2)............................................... 149,079
Trustees fees..................................................... 10,239
Printing.......................................................... 47,994
Professional fees................................................. 53,867
Transfer agent and custody fees................................... 67,978
Shareholder communication......................................... 52,453
Registration fees................................................. 27,034
Miscellaneous..................................................... 39,573
Agreement termination expense (Note 4)............................ 650,000
-----------
1,623,416
-----------
NET INVESTMENT INCOME/(LOSS)....................................... (195,414)
NET REALIZED AND UNREALIZED GAIN FROM PORTFOLIO:
Net realized gain from Portfolio.................................. 2,139,320
Net change in unrealized appreciation from Portfolio.............. 14,134,175
-----------
Net realized and unrealized gain from Portfolio................... 16,273,695
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $16,078,281
===========
</TABLE>
See Notes to Financial Statements
27
<PAGE>
DOMINI SOCIAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JANUARY 31, 1998 YEAR ENDED
(UNAUDITED) JULY 31, 1997
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ (195,414) $ 793,666
Net realized gain from Portfolio.............. 2,139,320 313,391
Net change in unrealized appreciation from
Portfolio.................................... 14,134,175 57,365,930
------------ ------------
Net Increase in Net Assets from Operations.. 16,078,281 58,472,987
------------ ------------
DISTRIBUTIONS AND DIVIDENDS:
Dividends to shareholders from net investment
income....................................... (133,341) (734,467)
Distributions to shareholders from net
realized gain................................ (361,622) (665,632)
------------ ------------
Net Decrease in Net Assets from
Distributions and Dividends................ (494,963) (1,400,099)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares.................. 103,672,526 91,114,168
Net asset value of shares issued in
reinvestment of distributions and dividends.. 428,780 1,170,272
Payments for shares redeemed.................. (19,105,042) (17,962,957)
------------ ------------
Net increase in Net Assets from Capital
Share Transactions......................... 84,996,264 74,321,483
------------ ------------
Total increase in Net Assets............... 100,579,582 131,394,371
NET ASSETS:
Beginning of period........................... 212,309,592 80,915,221
------------ ------------
End of period (including (distributions in
excess of) undistributed net investment
income of $(195,280) and $133,474,
respectively)................................ $312,889,174 $212,309,592
============ ============
OTHER INFORMATION
SHARE TRANSACTIONS:
Sold.......................................... 4,092,878 4,298,608
Issued in reinvestment of distributions and
dividends.................................... 16,888 57,225
Redeemed...................................... (759,516) (850,791)
------------ ------------
Net increase.................................. 3,350,250 3,505,042
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
28
<PAGE>
DOMINI SOCIAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 1998
(UNAUDITED) 1997 1996 1995 1994
---------------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period................ $ 25.43 $ 16.70 $ 14.85 $ 12.13 $ 12.00
-------- -------- ------- ------- -------
Income from investment
operations:
Net investment income
(loss)................. (0.02) 0.11 0.16 0.17 0.17
Net realized and
unrealized gain on
investments............ 1.39 8.85 1.93 2.83 0.18
-------- -------- ------- ------- -------
Total income from
investment operations.... 1.37 8.96 2.09 3.00 0.35
-------- -------- ------- ------- -------
Less distributions and
dividends:
Dividends to
shareholders from net
investment income...... (0.01) (0.11) (0.16) (0.20) (0.15)
Distributions to
shareholders from net
realized gain.......... (0.05) (0.12) (0.08) (0.08) (0.07)
-------- -------- ------- ------- -------
Total distributions....... (0.06) (0.23) (0.24) (0.28) (0.22)
-------- -------- ------- ------- -------
Net asset value, end of
period................... $ 26.74 $ 25.43 $ 16.70 $ 14.85 $ 12.13
======== ======== ======= ======= =======
Ratios/supplemental data
Total return............ 5.34% 54.01% 14.11% 25.10% 2.90%
Net assets, end of year
(in 000's)............. $312,889 $212,310 $80,915 $54,638 $31,369
Ratio of expenses to
average net assets..... 1.23%(/1/)(/2/) 0.98%(/3/) 0.98%(/3/) 0.90%(/4/) 0.75%(/4/)
Ratio of net investment
income to average net
assets................. (0.16)%(/1/) 0.62%(/3/) 1.01%(/3/) 1.38%(/4/) 1.67%(/4/)
</TABLE>
- -------------------------------------------------------------------------------
(/1/) Annualized.
(/2/) Reflects a non-recurring payment to Signature by the Fund of $650,000 in
connection with the termination of the expense payment arrangements with
Signature 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 to average net assets would have been 0.98%.
(/3/) 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.
(/4/) Reflects a voluntary waiver of fees by the Administrator and Adviser due
to the 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
29
<PAGE>
DOMINI SOCIAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
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 in-
vests substantially all of its assets in the Domini Social Index Portfolio
(the "Portfolio"), an open-end, diversified management investment company hav-
ing the same investment objectives as the Fund. The value of such investment
reflects the Fund's proportionate interest in the net assets of the Portfolio
(approximately 76.1% at January 31, 1998). The financial statements of the
Portfolio are included elsewhere in this report and should be read in conjunc-
tion with the Fund's financial statements.
The preparation of financial statements in conformity with generally ac-
cepted accounting principles requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and disclo-
sure 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. Divi-
dends 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 dis-
tribute substantially all of its taxable income, including net realized gains,
if any, within the prescribed time periods. Accordingly, no provision for fed-
eral 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. MANAGER. The Index Portfolio has retained Domini Social Investments LLC
("DSIL" or the Manager) to serve as investment manager and administrator. The
services provided by DSIL consist of investment supervisory services, overall
operational support and administrative services, including the provision of
general office facilities and supervising the overall administration of the
Portfolio. For its services under the Management Agreement, the Manager re-
ceives from the Portfolio a fee accrued daily and paid monthly at an annual
rate equal to 0.20% of the Index Portfolio's average daily net assets, subject
to a reduction to the extent necessary to keep the aggregate annual operating
expenses of the Index Portfolio (excluding brokerage fees and commissions, in-
terest, taxes, and other extraordinary expenses) at no greater than 0.20% of
the average daily net assets of the Index Portfolio through October 22, 1998.
B. SUBMANAGER. Mellon Equity provides investment submanagement services to
the Portfolio on a day-to-day basis pursuant to a Submanagement Agreement with
DSIL. Mellon Equity does not
30
<PAGE>
DOMINI SOCIAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JANUARY 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
determine the composition of the Domini Social Index. Under the Submanagement
Agreement, DSIL pays Mellon Equity an investment submanagement fee equal on an
annual basis to 0.10% of the average daily net assets of the Portfolio.
C. SPONSOR. Pursuant to a Sponsorship Agreement, DSIL provides the Fund with
the administrative personnel and services necessary to operate the Fund. In
addition to general administrative services and facilities for the Fund simi-
lar to those provided by DSIL to the Index Portfolio under the Management
Agreement, DSIL answers questions from the general public and the media re-
garding the composition of the Domini Social Index and the securities holdings
of the Index Portfolio. For these services and facilities, DSIL receives fees
computed and paid monthly from the Fund at an annual rate equal to 0.50% of
the average daily net assets of the Fund, subject to reduction to the extent
necessary to keep the aggregate annual operating expenses of the Fund (includ-
ing the Fund's share of the Portfolio's expenses but excluding brokerage fees
and commissions, interest, taxes and other extraordinary expenses) at no
greater than 0.98% of the average daily net assets of the Fund.
D. DISTRIBUTION. The Trustees of the Fund have adopted a Distribution Plan
in accordance with Rule 12b-1 under the Act. Signature Broker-Dealer Services,
Inc. (the Distributor) acts as agent of the Fund in connection with the offer-
ing of shares of the Fund pursuant to a Distribution Agreement. The Distribu-
tor acts as the principal underwriter of shares of the Fund and bears the com-
pensation of personnel necessary to provide such services and all costs of
travel, office expense (including rent and overhead) and equipment. Under the
Distribution Plan, the Distributor may receive a fee from the Fund at an an-
nual rate not to exceed 0.25% of the Fund's average daily net assets in antic-
ipation of, or reimbursement for, costs and expenses incurred in connection
with the sale of shares of the Fund.
E. PRIOR ADVISORY AND MANAGEMENT AGREEMENTS. Prior to October 22, 1997,
Kinder, Lydenberg, Domini & Co. ("KLD"), as the Index Portfolio's former in-
vestment adviser, received from the Portfolio a fee accrued daily and paid
monthly at annual rate equal to 0.025% of the Index Portfolio's average daily
net assets. Additionally, prior to October 22, 1997, KLD received from the In-
dex Portfolio a fee accrued daily and paid monthly at an annual rate equal to
0.025% of the average daily net assets of the Index Portfolio. Prior to Octo-
ber 22, 1997, the Index Portfolio paid Mellon Equity an investment management
fee equal on an annual basis to 0.10% of the average daily net assets of the
Portfolio. Prior to October 22, 1997, Signature, as the Fund's former Adminis-
trator, received a fee accrued daily and paid monthly at an annual rate equal
to 0.20% of the average daily net assets of the Fund.
3. INVESTMENT TRANSACTIONS. Additions and reductions in the Fund's investment
in the Portfolio aggregated $250,404,205 and $150,860,260, respectively.
4. AGREEMENT TERMINATION EXPENSE. On August 20, 1997, the Trustees of the Fund
approved a plan to terminate the Fund's expense payment agreement with Signa-
ture. In consideration of the early termination of that agreement the Fund
agreed to pay a one time fee to Signature and other such expenses associated
with the termination. On August 20, 1997, the Fund accrued this nonrecurring
expense of approximately $650,000.
31
<PAGE>
DOMINI [LOGO]
SOCIAL INVESTMENTS
P.O. BOX 959
NEW YORK, NY 10159-0959
800-782-4165
HTTP://WWW.DOMINI.COM
PORTFOLIO INVESTMENT
MANAGER
AND FUND SPONSOR:
Domini Social
Investments, LLC
11 West 25th Street, 7th Floor
New York, NY 10010
PORTFOLIO INVESTMENT
SUBMANAGER:
Mellon Equity Associates
Pittsburgh, PA
DISTRIBUTOR:
Signature Broker-Dealer
Services, Inc.
6 St. James Avenue
Boston, MA 02116
800-762-6814
CUSTODIAN:
Investors Bank &
Trust Company
Boston, MA
INDEPENDENT AUDITORS:
KPMG Peat Marwick LLP
Boston, MA
LEGAL COUNSEL:
Bingham Dana LLP
Boston, MA
TRANSFER AGENT:
FSSI
New York, NY
SEMIANNUAL REPORT
(UNAUDITED)
JANUARY 31, 1998
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."
Printed on Recycled Paper
THE DOMINI SOCIAL EQUITY FUND
