DSI163D
STATEMENT OF ADDITIONAL INFORMATION
October 16, 1995
DEVCAP SHARED RETURN FUND
Table of Contents Page
The Trust............................................................. 2
Investment Objective, Policies and Restrictions....................... 2
Performance Information............................................... 9
Determination of Net Asset Value; Valuation of Portfolio Securities... 10
Management of the Trust and the Portfolio............................. 11
Independent Auditors.................................................. 19
Taxation.............................................................. 19
Portfolio Transactions and Brokerage Commissions...................... 21
Description of Shares, Voting Rights and Liabilities.................. 23
Financial Statements.................................................. 25
DEVCAP TRUST
6 St. James Avenue, Boston, Massachusetts 02116
(800) 371-2655
This Statement of Additional Information sets forth information which
may be of interest to investors but which is not necessarily included in the
Prospectus dated October 16, 1995, as amended from time to time, for DEVCAP
Shared Return Fund. This Statement of Additional Information should be read in
conjunction with the Prospectus, a copy of which may be obtained by an investor
without charge by contacting Signature Broker-Dealer Services, Inc., the Fund's
distributor, at (617) 423-0800.
This Statement of Additional Information is NOT a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by an effective prospectus and should be read only in conjunction
with such prospectus.
<PAGE>
THE TRUST
DEVCAP Trust (the "Trust") was organized as a business trust under the
laws of the Commonwealth of Massachusetts, with DEVCAP Shared Return Fund (the
"Fund") established as a separate series of the Trust, on June 29, 1995. The
Fund is a no-load diversified open-end management investment company. The Trust
offers to buy back (redeem) shares of the Fund from its shareholders at any time
at net asset value. References in this Statement of Additional Information to
the "Prospectus" are to the current Prospectus of the Fund, as amended or
supplemented from time to time.
Signature Broker-Dealer Services, Inc. ("Signature"), the Fund's
administrator (the "Administrator"), supervises the overall administration of
the Fund. The Board of Trustees provides broad supervision over the affairs of
the Fund. Shares of the Fund are continuously sold by Signature, the Fund's
distributor (the "Distributor"). The minimum initial investment is $1,000,
except that the minimum initial investment when selecting the Automatic
Investment Plan is $500. An investor should obtain from the Distributor, and
should read in conjunction with the Prospectus, the materials describing the
procedures under which Fund shares may be purchased and redeemed.
The Fund seeks to achieve its investment objective by investing all of
its assets in the Domini Social Index Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Fund. Kinder, Lydenberg, Domini & Co., Inc. ("KLD") is the Portfolio's
investment adviser (the "Adviser"). Mellon Equity Associates ("Mellon Equity")
is the Portfolio's investment manager (the "Manager"). The Adviser determines
the composition of the Domini Social IndexSM. The Manager manages the
investments of the Portfolio from day to day in accordance with the Portfolio's
investment objective and policies. "DominiSM" and "Domini Social IndexSM" are
service marks of Kinder, Lydenberg, Domini & Co., Inc.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Investment Objective
The investment objective of the Fund is to provide its shareholders
with long-term total return (reflecting both dividend and price performance of
the Fund) which corresponds to the performance of the Domini Social Index
(sometimes referred to herein as the "Index"). There can, of course, be no
assurance that the Fund will achieve its investment objective. The investment
objective of the Fund may be changed without approval by the Fund's
shareholders.
Investment Policies
The Fund seeks to achieve its investment objective by investing all its
assets in the Portfolio, which has the same investment objective as the Fund.
The Fund may withdraw its investment in the Portfolio at any time if the Board
of Trustees of the Fund determines that it is in the best interests of the Fund
to do so. Upon any such withdrawal, the Board of Trustees would consider what
action might be taken, including the investment of all the investable assets of
2
<PAGE>
the Fund in another pooled investment entity having the same investment
objective as the Fund, or the retaining of an investment adviser to manage the
Fund's assets in accordance with the investment policies described below with
respect to the Portfolio. The approval of the Fund's shareholders would not be
required to change any of the Fund's investment policies.
The following supplements the information concerning the Portfolio's
investment policies contained in the Prospectus and should only be read in
conjunction therewith.
A company which is not included in the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500") may be included in the Domini Social Index
primarily in order to afford representation to an industrial sector which would
otherwise be under-represented in the Index. Because of the social criteria
applied in the selection of stocks comprising the Domini Social Index, industry
sector weighting in the Domini Social Index may vary materially from the
industry weightings in other stock indices, including the S&P 500.
The Portfolio does not purchase securities which the Portfolio
believes, at the time of purchase, will be subject to exchange controls or
foreign withholding taxes; however, there can be no assurance that such laws may
not become applicable to certain of the Portfolio's investments. In the event
unforeseen exchange controls or foreign withholding taxes are imposed with
respect to any of the Portfolio's investments, the effect may be to reduce the
income received by the Portfolio on such investments.
Although neither the Fund nor the Portfolio has any current intention
to do so, the Fund and the Portfolio may invest in securities which may be
resold pursuant to Rule 144A under the Securities Act of 1933.
It is a fundamental policy of the Portfolio and the Fund that neither
the Portfolio nor the Fund may invest more than 25% of the total assets of the
Portfolio or the Fund, respectively, in any one industry, although the Fund will
invest all of its assets in the Portfolio, and the Portfolio may and would
invest more than 25% of its assets in an industry if stocks in that industry
were to comprise more than 25% of the Domini Social Index. Based on the current
composition of the Index, this is considered highly unlikely. If the Portfolio
were to concentrate its investments in a single industry, the Portfolio and the
Fund would be more susceptible to any single economic, political or regulatory
occurrence than would be another investment company which was not so
concentrated.
Loans of Securities: The Portfolio may lend its securities to brokers,
dealers and financial institutions, provided that (1) the loan is secured
continuously by collateral, consisting of U.S. Government securities or cash or
letters of credit, which is marked to the market daily to ensure that each loan
is fully collateralized at all times; (2) the Portfolio may at any time call the
loan and obtain the return of the securities loaned within five business days;
(3) the Portfolio will receive any interest or dividends paid on the securities
loaned; and (4) the aggregate market value of securities loaned will not at any
time exceed 30% of the total assets of the Portfolio.
3
<PAGE>
The Portfolio will earn income for lending its securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. Loans of securities involve a risk that the borrower may fail to
return the securities or may fail to provide additional collateral.
In connection with lending securities, the Portfolio may pay reasonable
finders, administrative and custodial fees. No such fees will be paid to any
person if it or any of its affiliates is affiliated with the Portfolio, the
Adviser or the Manager.
Although the Portfolio reserves the right to lend its securities, it
has no current intention of doing so in the foreseeable future.
Risk Factors Involved in Option Contracts: Although it has no current
intention to do so, the Portfolio may in the future enter into certain
transactions in stock options for the purpose of hedging against possible
increases in the value of securities which are expected to be purchased by the
Portfolio or possible declines in the value of securities which are expected to
be sold by the Portfolio. Generally, the Portfolio would only enter into such
transactions on a short-term basis pending readjustment of its holdings of
underlying stocks.
The purchase of an option on an equity security provides the holder
with the right, but not the obligation, to purchase the underlying security, in
the case of a call option, or to sell the underlying security, in the case of a
put option, for a fixed price at any time up to a stated expiration date. The
holder is required to pay a non-refundable premium, which represents the
purchase price of the option. The holder of an option can lose the entire amount
of the premium, plus related transaction costs, but not more. Upon exercise of
the option, the holder is required to pay the purchase price of the underlying
security in the case of a call option, or deliver the security in return for the
purchase price in the case of a put option.
Prior to exercise or expiration, an option position may be terminated
only by entering into a closing purchase or sale transaction. This requires a
secondary market on the exchange on which the position was originally
established. While the Portfolio would establish an option position only if
there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular option contract at
any specific time. In that event, it may not be possible to close out a position
held by the Portfolio, and the Portfolio could be required to purchase or sell
the instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. The inability to close out option
positions also could have an adverse impact on the Portfolio's ability
effectively to hedge its portfolio.
Each exchange on which option contracts are traded has established a
number of limitations governing the maximum number of positions which may be
held by a trader, whether acting alone or in concert with others. The Adviser
does not believe that these trading and position limits would have an adverse
impact on the possible use of hedging strategies by the Portfolio.
4
<PAGE>
The approval of the Fund and of the other investors in the Portfolio is
not required to change the investment objective or any of the investment
policies discussed above, including those concerning security transactions.
Investment Restrictions
The Trust (on behalf of the Fund) and the Portfolio have each adopted
the following policies which may not be changed without approval by holders of a
"majority of the outstanding shares" of the Fund or the Portfolio, respectively,
which as used in this Statement of Additional Information means the vote of the
lesser of (i) 67% or more of the outstanding "voting securities" of the Fund or
the Portfolio, respectively, present at a meeting, if the holders of more than
50% of the outstanding "voting securities" of the Fund or the Portfolio,
respectively, are present or represented by proxy, or (ii) more than 50% of the
outstanding "voting securities" of the Fund or the Portfolio, respectively. The
term "voting securities" as used in this paragraph has the same meaning as in
the Investment Company Act of 1940, as amended (the "1940 Act"). Whenever the
Trust is requested to vote on a change in the investment restrictions of the
Portfolio, the Trust will hold a meeting of the shareholders of the Fund and
will cast its vote as instructed by the Fund's shareholders.
Neither the Fund nor the Portfolio may:
(1) borrow money, except that as a temporary measure for extraordinary
or emergency purposes either the Fund or the Portfolio may borrow an amount not
to exceed 1/3 of the current value of the net assets of the Fund or the
Portfolio, respectively, including the amount borrowed (moreover, neither the
Fund nor the Portfolio may purchase any securities at any time at which
borrowings exceed 5% of the total assets of the Fund or the Portfolio,
respectively, taken in each case at market value) (it is intended that the
Portfolio would borrow money only from banks and only to accommodate requests
for the withdrawal of all or a portion of a beneficial interest in the Portfolio
while effecting an orderly liquidation of securities); for additional related
restrictions, see clause (i) under the caption "Non-Fundamental State and
Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on margin,
except that either the Fund or the Portfolio may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of securities and
except that either the Fund or the Portfolio may make deposits of initial
deposit and variation margin in connection with the purchase, ownership, holding
or sale of options;
(3) write any put or call option or any combination thereof, provided
that this shall not prevent (i) the purchase, ownership, holding or sale of
warrants where the grantor of the warrants is the issuer of the underlying
securities, or (ii) the purchase, ownership, holding or sale of options on
securities;
(4) underwrite securities issued by other persons, except that the Fund
may invest all or any portion of its assets in the Portfolio and except insofar
as either the Fund or the Portfolio may technically be deemed an underwriter
under the Securities Act of 1933 in selling a security;
5
<PAGE>
(5) make loans to other persons except (a) through the lending of
securities held by either the Fund or the Portfolio and provided that any such
loans not exceed 30% of its total assets (taken in each case at market value),
or (b) through the use of repurchase agreements or the purchase of short-term
obligations and provided that not more than 10% of its net assets will be
invested in repurchase agreements maturing in more than seven days; for
additional related restrictions, see paragraph (6) immediately following;
(6) invest in securities which are subject to legal or contractual
restrictions on resale (other than repurchase agreements maturing in not more
than seven days and other than securities which may be resold pursuant to Rule
144A under the Securities Act of 1933 if the Board of Trustees determines that a
liquid market exists for such securities) if, as a result thereof, more than 10%
of its net assets (taken at market value) would be so invested (including
repurchase agreements maturing in more than seven days), except that the Fund
may invest all or any portion of its assets in the Portfolio;
(7) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the Fund and Portfolio reserve the freedom of
action to hold and to sell real estate acquired as a result of the ownership of
securities by the Fund or the Portfolio);
(8) make short sales of securities or maintain a short position, unless
at all times when a short position is open the Fund or the Portfolio, as
applicable, owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities sold
short, and unless not more than 5% of the Fund's or the Portfolio's, as
applicable, net assets (taken in each case at market value) is held as
collateral for such sales at any one time (it is the present intention of the
Portfolio and the Fund to make such sales only for the purpose of deferring
realization of gain or loss for federal income tax purposes);
(9) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating paragraph (1) above;
(10) as to 75% of its assets, purchase securities of any issuer if such
purchase at the time thereof would cause more than 5% of the Portfolio's or the
Fund's, as applicable, assets (taken at market value) to be invested in the
securities of such issuer (other than securities or obligations issued or
guaranteed by the United States or any agency or instrumentality of the United
States), except that for purposes of this restriction the issuer of an option
shall not be deemed to be the issuer of the security or securities underlying
such contract and except that the Fund may invest all or any portion of its
assets in the Portfolio; or
(11) invest more than 25% of its assets in any one industry unless the
stocks in a single industry were to comprise more than 25% of the Domini Social
6
<PAGE>
Index, in which case the Portfolio or the Fund, as applicable, will invest more
than 25% of its assets in that industry, and except that the Fund may invest all
of its assets in the Portfolio.
Non-Fundamental State and Federal Restrictions: In order to comply with
certain state and federal statutes and regulatory policies, neither the Fund nor
the Portfolio will as a matter of operating policy:
(i) borrow money for any purpose in excess of 10% of the total
assets of the Fund or the Portfolio, respectively (taken in
each case at cost) (moreover, neither the Fund nor the
Portfolio will purchase any securities at any time at which
borrowings exceed 5% of its total assets (taken at market
value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of
10% of the net assets of the Fund or the Portfolio,
respectively (taken in each case at market value), provided
that collateral arrangements with respect to options,
including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this
restriction,
(iii) sell any security which it does not own unless by virtue of
its ownership of other securities it has at the time of sale a
right to obtain securities, without payment of further
consideration, equivalent in kind and amount to the securities
sold, and provided that if such right is conditional the sale
is made upon the same conditions,
(iv) invest for the purpose of exercising control or management, except
that all of the assets of the Fund may be invested in the Portfolio,
(v) purchase securities issued by any registered investment company,
except that the Fund may invest all its assets in the Portfolio and
except by purchase in the open market where no commission or profit
to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or
consolidation; provided, however, that (except for the Fund's
investment in the Portfolio) the Fund and the Portfolio will not
purchase the securities of any registered investment company if such
purchase at the time thereof would cause more than 10% of the total
assets of the Fund or the Portfolio, respectively (taken at the
greater of cost or market value) to be invested in the securities of
such issuers or would cause more than 3% of the outstanding voting
securities of any such issuer to be held by the Fund or the
Portfolio, respectively; and provided, further, that (except for the
Fund's investment in the Portfolio) the Fund and the Portfolio shall
not purchase securities issued by any open-end investment company,
(vi) invest more than 15% of the net assets of the Fund or the
Portfolio, respectively (taken at the greater of cost or
market value) in securities that are illiquid or not readily
marketable (defined as
7
<PAGE>
a security that cannot be sold in the ordinary course of
business within seven days at approximately the value at which
the Fund or the Portfolio, respectively, has valued the
security),
(vii) invest more than 10% of the net assets of the Fund or the
Portfolio, respectively (taken at the greater of cost or
market value) in securities that are restricted as to resale
by the Securities Act of 1933 (including Rule 144A
securities),
(viii) invest more than 5% of the net assets of the Fund or
the Portfolio respectively (taken at the greater of
cost or market value) in securities that are issued
by issuers which (including the period of operation
of any predecessor company or unconditional guarantor
of such issuer) have been in operation less than
three years (including predecessors),
(ix) purchase securities of any issuer if such purchase at the time
thereof would cause it to hold more than 10% of any class of
securities of such issuer, for which purposes all indebtedness
of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class, except that
option contracts shall not be subject to this restriction, and
except that the Fund may invest all or any portion of its
assets in the Portfolio,
(x) purchase or retain any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or
Trustee of the Fund or the Portfolio, as the case may be, or is an
officer or director of the Adviser or the Manager, if after the
purchase of the securities of such issuer by the Fund or the
Portfolio, as the case may be, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all
taken at market value, except that the Fund may invest all or any
portion of its assets in the Portfolio,
(xi) invest more than 5% of the Fund's or the Portfolio's net
assets in warrants (valued at the lower of cost or market),
but not more than 2% of the Fund's or the Portfolio's net
assets may be invested in warrants not listed on the New York
Stock Exchange Inc. ("NYSE") or the American Stock Exchange,
or
(xii) make short sales of securities or maintain a short position, unless
at all times when a short position is open, the Fund or the
Portfolio owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue and equal in amount
to the securities sold short, and unless not more than 10% of the
Fund's or the Portfolio's, respectively, net assets (taken at market
value) is represented by such securities, or securities convertible
into or exchangeable for such securities, at any one time (neither
8
<PAGE>
the Fund nor the Portfolio has any current intention to engage in
short selling).
Restrictions (i) through (xii) are not fundamental and may be changed
with respect to the Fund by the Trust without approval by the Fund's
shareholders or with respect to the Portfolio by the Portfolio without the
approval of the Fund or its other investors. The Fund will comply with the state
securities laws and regulations of all states in which it is registered. The
Portfolio will comply with the applicable investment limitations found in the
state securities laws and regulations of all states in which the Fund is
registered.
Percentage Restrictions: If a percentage restriction or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the securities held by the Fund or the Portfolio or a later change in
the rating of a security held by the Fund or the Portfolio will not be
considered a violation of policy; provided that if at any time the ratio of
borrowings of the Fund to the net asset value of the Fund exceeds the ratio
permitted by Section 18(f) of the 1940 Act, the Fund will take the corrective
action required by Section 18(f).
PERFORMANCE INFORMATION
The Fund will calculate its total rate of return for any period by (a)
dividing (i) the sum of the net asset value per share on the last day of the
period and the net asset value per share on the last day of the period of shares
purchasable with dividends and capital gains declared during such period with
respect to a share held at the beginning of such period and with respect to
shares purchased with such dividends and capital gains distributions, by (ii)
the public offering price per share (i.e., net asset value) on the first day of
such period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation will be calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result.
Any current "yield" quotation of the Fund shall consist of an annualized
historical yield, carried at least to the nearest hundredth of one percent,
based on a thirty calendar day period and shall be calculated by (a) raising to
the sixth power the sum of 1 plus the quotient obtained by dividing the Fund's
net investment income earned during the period by the product of the average
daily number of shares outstanding during the period that were entitled to
receive dividends and the maximum offering price per share on the last day of
the period, (b) subtracting 1 from the result, and (c) multiplying the result by
2.
Total rate of return and yield information with respect to the Domini
Social Index will be computed in the same fashion as set forth above with
respect to the Fund, except that for purposes of this computation an investment
will be assumed to have been made in a portfolio consisting of all of the stocks
comprising the Domini Social Index weighted in accordance with the weightings of
the stocks comprising the Index. Performance information with respect to the
Domini Social
9
<PAGE>
Index will not take into account brokerage commission and other transaction
costs which will be incurred by the Portfolio.
Historical performance information for any period or portion thereof
prior to the establishment of the Fund will be that of the Portfolio, adjusted
to assume that all charges, expenses and fees of the Fund and the Portfolio
which are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations. The table that follows sets forth
historical return information for the periods indicated:
Period Ended: 7/31/95
Average Annual Total Return --
1 Year: 24.26%
Commencement of Operations* to Period End: 8.70%
- -----------------------------------------------------------------------
* Domini Social Index Portfolio commenced operations on August 10, 1990.
DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES
The net asset value of each share of the Fund is determined each day on
which the NYSE is open for trading ("Fund Business Day"). (As of the date of
this Statement of Additional Information, the NYSE is open for trading every
weekday except for the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day). This determination of net asset value of shares of the Fund is
made once during each such day as of the close of the NYSE by dividing the value
of the Fund's net assets (i.e., the value of its investment in the Portfolio and
any other assets less its liabilities, including expenses payable or accrued) by
the number of shares outstanding at the time the determination is made.
Purchases and redemptions will be effected at the time of determination of net
asset value next following the receipt of any purchase or redemption order
deemed to be in good order. See "Purchases and Redemptions of Shares" in the
Prospectus.
The value of the Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same day as the Fund
determines its net asset value per share. The net asset value of the Fund's
investment in the Portfolio is equal to the Fund's pro rata share of the total
investment of the Fund and of other investors in the Portfolio less the Fund's
pro rata share of the Portfolio's liabilities. Equity securities held by the
Portfolio are valued at the last sale price on the exchange on which they are
primarily traded or on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities in which there were no sales during
the day or for unlisted securities not reported on the NASDAQ system. If the
Portfolio purchases option contracts, such option contracts which are traded on
commodities or securities exchanges are normally valued at the settlement price
on the exchange on which they are traded. Short-term obligations with remaining
maturities of less than sixty days are valued at amortized cost, which
constitutes fair value as
10
<PAGE>
determined by the Board of Trustees of the Portfolio. Portfolio securities
(other than short-term obligations with remaining maturities of less than sixty
days) for which there are no such quotations or valuations are valued at fair
value as determined in good faith by or at the direction of the Portfolio's
Board of Trustees.
A determination of value used in calculating net asset value must be a
fair value determination made in good faith utilizing procedures approved by the
Portfolio's Board of Trustees. While no single standard for determining fair
value exists, as a general rule, the current fair value of a security would
appear to be the amount which the Portfolio could expect to receive upon its
current sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investment; (ii) the nature and duration of restrictions on
disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the security, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
Interest income on short-term obligations held by the Portfolio is
determined on the basis of interest accrued less amortization of premium.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
The Trustees and officers of the Trust and the Portfolio and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust or the Portfolio, as applicable. Unless otherwise indicated below, the
address of each Trustee and officer is 6 St. James Avenue, Boston, Massachusetts
02116.
Trustees of the Trust
STEPHEN D. CASHIN -- Trustee of the Trust; Vice President (Corporate Finance),
Equator Bank (since 1993); Vice President (East Africa Representative), Equator
Bank (prior to 1993).
GILBERT H. CRAWFORD* -- Trustee of the Trust; Alternate Director, PROFUND (since
September, 1995); President, Development Capital Fund (since November, 1992);
Executive Director, Seed Capital Development Fund, Ltd. (since September, 1991);
Assistant Project Director, Africa Venture Capital Project-Harvey & Company
(prior to September, 1991).
11
<PAGE>
ALICE TEPPER MARLIN -- Trustee of the Trust; Executive Director, Council on
Economic Priorities (since prior to 1990); Trustee, Winston Foundation for World
Peace (since 1990); Trustee, Green Seal (since 1990); Trustee; Save the Earth
Trust (prior to 1994).
CAROLINE L. WILLIAMS -- Trustee of the Trust; Director, Argyle Television, Inc.
(since 1995); Director, Briar Funds Trust, The Stalwart Funds (since 1995);
Member of Advisory Board, Burton Design Consultants, Inc. (since 1995); Member
of Advisory Board, New School for Social Research (since 1995); Director, The
Franklin Group, Inc. (since 1994); Founding Director and Chairman, E&Co. (since
1994); Director and Treasurer, Fund for Private Assistance in International
Development (since 1994); Director, TechnoServe, Inc. (1991 to 1992, since
1994); Director, HealthInfusion, Inc. (1992 to 1994); Member of Advisory Board,
Glencoe Growth Closely-Held Business Fund, L.P. (since 1994); Member of Advisory
Board, Experiment in International Living (1992 to 1994); Director, Morse Shoe,
Inc. (1992 to 1993); Managing Director, Donaldson, Lufkin & Jenrette Securities
Corporation (prior to 1992); Deputy Administrator, Donaldson, Lufkin & Jenrette
Foundation (1991); Member of Alumni Board, University School of Milwaukee (prior
to 1991); Director, The Hammond Company (prior to 1990).
Trustees of the Portfolio
AMY LEE DOMINI* -- Chair and Trustee of the Portfolio; Officer of Kinder,
Lydenberg, Domini & Co., Inc.; Trustee, Loring, Wolcott & Coolidge (since prior
to 1990).
PHILIP W. COOLIDGE* -- President and Trustee of the Portfolio and President of
the Trust; Chairman, Chief Executive Officer and President, Signature Financial
Group, Inc. (since prior to December, 1989) and Signature (since prior to April,
1990).
ALLEN M. MAYES -- 7985 Willow Creek Drive, Beaumont, Texas 77707; Trustee of the
Portfolio; Senior Associate General Secretary of the General Board of Pensions
of the United Methodist Church (since prior to May, 1990); Member of the Board
of Directors of Investor Responsibility Research Center (since prior to January,
1990); Member of Board of Trustees of Wiley College (since prior to November,
1989).
TIMOTHY SMITH -- 475 Riverside Drive, New York, New York 10115; Trustee of the
Portfolio; Executive Director of the Interfaith Center on Corporate
Responsibility (since prior to 1990).
FREDERICK C. WILLIAMSON -- 5 Roger Williams Green, Providence, Rhode Island
02904; Trustee of the Portfolio; Rhode Island State Historic Preservation
Officer (since prior to 1990); Trustee, National Park Trust, (since April,
1992); Trustee, National Parks and Conservation Association (since prior to
1990); Chairman, Governor's Advisory Committee on Home Heating; Corporation
Board, Harvard Community Health Plan; President Emeritus, National Conference of
State Historic Preservation Officers; Trustee Emeritus, National Trust for
Historic Preservation; Treasurer and Past Chairman, R.I. Black Heritage Society.
12
<PAGE>
Officers
In addition to Mr. Coolidge, the following persons serve as officers of
the Trust and the Portfolio:
DAVID G. DANIELSON -- Assistant Treasurer of the Trust and the Portfolio;
Assistant Manager, Signature Financial Group, Inc. (since May, 1991); Graduate
Student, Northeastern University (from April, 1990 to March, 1991).
JOHN R. ELDER -- Treasurer of the Trust and the Portfolio; Vice President,
Signature Financial Group, Inc. (since April, 1995); Treasurer, Phoenix Family
of Mutual Funds (prior to April, 1995).
LINDA T. GIBSON -- Assistant Secretary of the Trust and the Portfolio; Legal
Counsel and Assistant Secretary, Signature Financial Group, Inc. (since June,
1991); Assistant Secretary, Signature (since November, 1992); law student,
Boston University School of Law (prior to May, 1992).
JAMES S. LELKO, JR. -- Assistant Treasurer of the Trust and the Portfolio;
Assistant Manager, Signature Financial Group, Inc. (since January, 1993); Senior
Tax Compliance Accountant, Putnam Companies (since prior to December, 1992).
THOMAS M. LENZ -- Secretary of the Trust and the Portfolio; Vice President and
Associate General Counsel, Signature Financial Group, Inc. (since November,
1989); Assistant Secretary, Signature (since February, 1991).
MOLLY S. MUGLER -- Assistant Secretary of the Trust and the Portfolio; Legal
Counsel and Assistant Secretary, Signature Financial Group, Inc. (since prior to
December, 1989); Assistant Secretary, Signature (since prior to April, 1990).
BARBARA M. O'DETTE -- Assistant Treasurer of the Trust and the Portfolio;
Assistant Treasurer, Signature Financial Group, Inc. (since prior to December,
1989) and Signature (since prior to April, 1990).
ANDRES E. SALDANA -- Assistant Secretary of the Trust and the Portfolio; Legal
Counsel and Assistant Secretary, Signature Financial Group, Inc. (since
November, 1992); Assistant Secretary, Signature (since September, 1993);
Attorney, Ropes & Gray (September, 1990 to November, 1992).
DANIEL E. SHEA -- Assistant Treasurer of the Trust and Portfolio; Assistant
Manager of Fund Administration, Signature Financial Group, Inc. (since November,
1993); Supervisor and Senior Technical Advisor, Putnam Investments (since prior
to 1990).
Messrs. Coolidge, Danielson, Elder, Lelko, Lenz, Saldana and Shea and
Mss. Gibson, Mugler and O'Dette also hold similar positions for other investment
companies for which Signature or an affiliate serves as the principal
underwriter. Each officer of the Trust holds the same position with the
Portfolio.
13
<PAGE>
The Trustees who are not "interested persons" (the "Disinterested
Trustees") of the Trust as defined by the 1940 Act are separate from the
Disinterested Trustees of the Portfolio. Any conflict of interest between the
Trust and the Portfolio will be resolved by the Trustees of the Trust and the
Portfolio in accordance with their fiduciary obligations and in accordance with
the 1940 Act.
As of October 6, 1995, the following persons owned of record and
beneficially the percentage of outstanding shares of beneficial interest of the
Fund indicated next to their names: Development Capital Fund - 52.5%, Sisters of
Mercy of the Americas - 25%, Missionary Oblates of Mary Immaculate - 10%,
Compton Consulting Group - 5.5%. However, it is expected that each of these
initial shareholders will own less than 25% of the Fund's outstanding shares
shortly after the commencement of the public offering of the Fund's shares. As
of the same date, the officers and Trustees of the Trust and the Portfolio as a
group owned less than 1% of the Fund's outstanding shares.
The Trustees of the Trust receive no compensation for serving as
trustees of the Trust. The Trustees of the Portfolio are paid annual fees as
follows for serving as trustees of the Portfolio. The Trustees of the Trust and
the Portfolio are reimbursed for expenses incurred in connection with service as
a trustee. The Trustees may hold various other directorships unrelated to these
funds.
Trust Trustees
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE ESTIMATED TOTAL
COMPENSATION COMPENSATION FROM THE
FROM THE TRUST PENSION OR RETIREMENT ESTIMATED TRUST AND THE PORTFOLIO
FOR THE FISCAL YEAR BENEFITS ACCRUED AS ANNUAL BENEFITS FOR THE FISCAL YEAR
ENDED JULY 31, 1996 PART OF FUND EXPENSES UPON RETIREMENT ENDED JULY 31, 1996
<S> <C> <C> <C> <C>
Stephen D. Cashin, Trustee None None None None
Gilbert H. Crawford, Trustee None None None None
Alice Tepper Marlin, Trustee None None None None
Caroline L. Williams, Trustee None None None None
</TABLE>
Portfolio Trustees
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION PENSION OR RETIREMENT TOTAL COMPENSATION FROM
FROM THE PORTFOLIO BENEFITS ESTIMATED ANNUAL THE TRUST AND THE PORTFOLIO
FOR THE FISCAL YEAR ACCRUED AS PART BENEFITS PAID TO TRUSTEES FOR THE
ENDED JULY 31, 1995 OF FUND EXPENSES UPON RETIREMENT FISCAL YEAR ENDED
JULY 31,1995
<S> <C> <C> <C> <C>
Amy L. Domini, Chair and Trustee None None None None
Philip W. Coolidge, President and Trust None None None None
Allen M. Mayes, Trustee $1,200 None None $1,200
Timothy Smith, Trustee $1,200 None None $1,200
Frederick C. Williamson, Trustee $1,200 None None $1,200
</TABLE>
14
<PAGE>
Adviser and Manager
KLD provides advice to the Portfolio pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). The services provided by the Adviser
consist of determination of the stocks to be included in the Index and
evaluating, in accordance with the Adviser's social criteria, debt securities
which may be purchased by the Portfolio. The Adviser furnishes at its own
expense all facilities and personnel necessary in connection with providing
these services. The Advisory Agreement will continue in effect if such
continuance is specifically approved at least annually by the Portfolio's Board
of Trustees or by a majority vote of the Fund and of the other investors in the
Portfolio at a meeting called for the purpose of voting on the Advisory
Agreement (with the vote of each being in proportion to the amount of their
investment), and, in either case, by a majority of the Portfolio's Trustees who
are not parties to the Advisory Agreement or interested persons of any such
party at a meeting called for the purpose of voting on the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others and may permit other investment companies in addition to the Portfolio to
use the name "DominiSM" or "Domini Social IndexSM" in their names. Pursuant to
an agreement with the Portfolio, if KLD ceases to be the investment adviser of
the Portfolio, the Portfolio will be required to discontinue the use of such
service marks. The Advisory Agreement is terminable without penalty on not more
than 60 days' nor less than 30 days' written notice by the Portfolio when
authorized either by majority vote of the Fund and of the other investors in the
Portfolio (with the vote of each being in proportion to the amount of their
investment) or by a vote of a majority of its Board of Trustees, or by the
Adviser, and will automatically terminate in the event of its assignment. The
Advisory Agreement provides that neither the Adviser nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in its services to the Portfolio,
except for wilful misfeasance, bad faith or gross negligence or reckless
disregard of its or their obligations and duties under the Advisory Agreement.
The Fund's Prospectus contains a description of fees payable to the
Adviser for services under the Advisory Agreement. For the fiscal years ended
July 31, 1992, 1993 and 1994, the Adviser voluntarily waived all of its advisory
fees.
Mellon Equity manages the assets of the Portfolio pursuant to an
Investment Management Agreement (the "Management Agreement"). The Manager
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Portfolio's investments and effecting securities
transactions for the Portfolio. The Management Agreement will continue in effect
if such continuance is specifically approved at least annually by the
Portfolio's Board of Trustees or by a majority vote of the Fund and of the other
investors in the Portfolio at a meeting called for the purpose of voting on the
Management Agreement (with the vote of each being in proportion to the amount of
their investment), and, in either case, by a majority of the Portfolio's
Trustees who are not parties to the Management Agreement or interested persons
of any such party at a meeting called for the purpose of voting on the
Management Agreement.
15
<PAGE>
The Management Agreement provides that the Manager may render services
to others. The Management Agreement is terminable without penalty upon not more
than 60 days' nor less than 30 days' written notice by the Portfolio when
authorized either by majority vote of the Fund and of the other investors in the
Portfolio (with the vote of each being in proportion to the amount of their
investment) or by a vote of the majority of its Board of Trustees, or by the
Manager, and will automatically terminate in the event of its assignment. The
Management Agreement provides that neither the Manager nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in its services to the
Portfolio, except for wilful misfeasance, bad faith or gross negligence or
reckless disregard for its or their obligations and duties under the Management
Agreement.
The Fund's Prospectus contains a description of fees payable to the
Manager for services under the Management Agreement. Prior to November 21, 1994,
State Street Bank and Trust Company (the "Former Manager") served as investment
manager to the Portfolio. For the fiscal years ended July 31, 1992 and 1993, the
Former Manager voluntarily waived all of its management fees. For the fiscal
year ended July 31, 1994, the Portfolio incurred $16,986 in management fees to
the Former Manager.
Administrator
Pursuant to Administrative Services Agreements, Signature provides the
Trust and the Portfolio with general office facilities and supervises the
overall administration of the Trust and the Portfolio, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Trust or the Portfolio; the preparation and filing of all documents required for
compliance by the Trust and the Portfolio with applicable laws and regulations;
and arranging for the maintenance of books and records of the Trust and the
Portfolio. The Administrator provides persons satisfactory to the Board of
Trustees of the Trust or the Portfolio to serve as officers of the Trust or the
Portfolio. Such officers, as well as certain other employees and Trustees of the
Trust or the Portfolio, may be directors, officers or employees of the
Administrator or its affiliates.
The Fund's Prospectus contains a description of the fees payable to the
Administrator by the Trust (on behalf of the Fund) or payable to the Portfolio
Administrator by the Portfolio, as the case may be, under the Administrative
Services Agreements. For the fiscal years ended July 31, 1992, 1993 and 1994,
the Portfolio Administrator voluntarily waived all of its administrative
services fees from the Portfolio.
The Administrative Services Agreement with the Trust provides that
Signature may render administrative services to others. The Administrative
Services Agreement with the Trust also provides that neither the Administrator
nor its personnel shall be liable for any error of judgment or mistake of law or
for any act or omission in the administration or management of the Trust, except
for wilful misfeasance, bad faith or gross negligence in the performance of its
or their duties or by reason of reckless disregard of its or their obligations
and duties under the Trust's Administrative Services Agreement.
16
<PAGE>
The Administrative Services Agreement with the Portfolio provides that
Signature may render administrative services to others. The Administrative
Services Agreement with the Portfolio terminates automatically if it is assigned
and may be terminated without penalty by majority vote of the Fund and of the
other investors in the Portfolio (with the vote of each being in proportion to
the amount of their investment) or by either party on not more than 60 days' nor
less than 30 days' written notice. The Administrative Services Agreement with
the Portfolio also provides that neither Signature, as the Portfolio's
Administrator, nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Portfolio, except for wilful misfeasance, bad faith or gross negligence in
the performance of its or their duties or by reason of reckless disregard of its
or their obligations and duties under the Portfolio's Administrative Services
Agreement.
Signature is a wholly-owned subsidiary of Signature Financial Group,
Inc.
Distributor
The Trust has adopted a Distribution Plan which provides that the Trust
may pay the Distributor a fee not to exceed 0.25% per annum of the Fund's
average daily net assets in anticipation of, or as reimbursement for, expenses
incurred in connection with the sale of shares of the Fund, such as payments to
broker-dealers who advise shareholders regarding the purchase, sale or retention
of shares of the Fund, payments to employees of the Distributor, advertising
expenses and the expenses of printing and distributing prospectuses and reports
used for sales purposes, expenses of preparing and printing sales literature and
other distribution-related expenses. No payments under the Distribution Plan
will be made to Service Organizations, although Service Organizations may
receive payments under the Administrative Services Plan referred to below.
The Distribution Plan will continue in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
majority of the Trust's Trustees and a majority of the Trust's Trustees who are
not "interested persons of the Trust" and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in any agreement
related to such Plan ("Qualified Trustees"). The Distributor will provide to the
Trustees of the Trust a quarterly written report of amounts expended by it under
the Distribution Plan and the purposes for which such expenditures were made.
The Distribution Plan further provides that the selection and nomination of the
Trust's Qualified Trustees shall be committed to the discretion of the
disinterested Trustees of the Trust. The Distribution Plan may be terminated at
any time by a vote of a majority of the Trust's Qualified Trustees or by a vote
of the shareholders of the Fund. The Distribution Plan may not be amended to
increase materially the amount of permitted expenses thereunder without the
approval of shareholders and may not be materially amended in any case without a
vote of the majority of both the Trust's Trustees and the Trust's Qualified
Trustees. The Distributor will preserve copies of any plan, agreement or report
made pursuant to the Distribution Plan for a period of not less than six (6)
years from the date of the Distribution Plan, and for the first two (2) years
the Distributor will preserve such copies in an easily accessible place.
17
<PAGE>
The Trust has entered into a Distribution Agreement with the
Distributor. Under the Distribution Agreement, the Distributor acts as the agent
of the Trust in connection with the offering of shares of the Fund.
Administrative Services Plans; Transfer Agent,
Custodian and Service Organizations
The Trust has adopted an Administrative Services Plan (the
"Administrative Plan") which provides that the Trust may obtain the services of
an administrator, one or more service organizations, a transfer agent and a
custodian, and may enter into agreements providing for the payment of fees for
such services. The Administrative Plan will continue in effect indefinitely if
such continuance is specifically approved at least annually by a vote of both a
majority of the Trust's Trustees and a majority of the Trust's Trustees who are
not "interested persons" of the Trust and who have no direct or indirect
financial interest in the operation of the Administrative Plan or in any
agreement related to such Plan ("Qualified Trustees"). The Administrative Plan
requires that the Trust shall provide to the Trust's Board of Trustees and the
Trust's Board of Trustees shall review, at least quarterly, a written report of
the amounts expended (and the purposes therefor) under the Administrative Plan.
The Administrative Plan may be terminated at any time by a vote of a majority of
the Trust's Qualified Trustees or (with respect to the Fund) by a majority vote
of the Fund's shareholders. The Administrative Plan may not be amended to
increase materially the amount of permitted expenses thereunder (with respect to
the Fund) without the approval of a majority of the Fund's shareholders, and may
not be materially amended in any case without a vote of the majority of both the
Trust's Trustees and the Trust's Qualified Trustees.
The Trust has entered into a Transfer Agency Agreement with Fundamental
Shareholder Services, Inc. ("FSSI") pursuant to which FSSI acts as transfer
agent for the Fund. The Trust has entered into a Custodian Agreement with
Investors Bank & Trust Company ("IBT") pursuant to which IBT acts as custodian
for the Fund. The Portfolio has also entered into a Transfer Agency Agreement
with FSSI pursuant to which FSSI acts as transfer agent for the Portfolio. The
Portfolio has entered into a Custodian Agreement with IBT pursuant to which IBT
acts as custodian for the Portfolio. For additional information, see "Transfer
Agent and Custodian" in the Prospectus.
The Fund may from time to time enter into agreements with various
banks, trust companies (other than Mellon Equity), broker-dealers (other than
Signature) or other financial organizations to provide administrative services
for the Fund, such as maintaining shareholder accounts and records. For the
fiscal years ended July 31, 1992, 1993 and 1994, the Fund did not accrue any
service organization fees. For additional information, see "Purchases and
Redemptions of Shares -- Service Organizations" in the Prospectus.
The Portfolio has also adopted an Administrative Services Plan (the
"Portfolio Administrative Plan") which provides that the Portfolio may obtain
the services of an administrator, a transfer agent and a custodian, and may
enter into agreements providing for the payment of fees for such services. The
Portfolio Administrative Plan will continue in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
18
<PAGE>
majority of the Portfolio's Trustees and a majority of the Portfolio's Trustees
who are not "interested persons" of the Portfolio and who have no direct or
indirect financial interest in the operation of the Portfolio Administrative
Plan or in any agreement related to such Plan ("Qualified Trustees"). The
Portfolio Administrative Plan requires that the Portfolio shall provide to the
Portfolio's Board of Trustees and the Portfolio's Board of Trustees shall
review, at least quarterly, a written report of the amounts expended (and the
purposes therefor) under the Portfolio Administrative Plan. The Portfolio
Administrative Plan may be terminated at any time by a vote of a majority of the
Portfolio's Qualified Trustees or by a majority vote of the investors in the
Portfolio (with the vote of each being in proportion to the amount of their
investment). The Portfolio Administrative Plan may not be amended to increase
materially the amount of permitted expenses thereunder without the approval of a
majority of the investors in the Portfolio (with the vote of each being in
proportion to the amount of their investment) and may not be materially amended
in any case without a vote of the majority of both the Portfolio's Trustees and
the Portfolio's Qualified Trustees.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP are the independent auditors for the Trust and
the Portfolio, providing audit services, tax return preparation, and assistance
and consultation with respect to the preparation of filings with the Securities
and Exchange Commission.
TAXATION
Each year the Trust intends to qualify the Fund and elect that the Fund
be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), by meeting all
applicable requirements of Subchapter M, including requirements (applied through
the Fund's proportionate interest in the Portfolio) as to the nature of the
Fund's gross income, the amount of Fund distributions and the composition and
holding period of the Fund's portfolio assets. Because the Fund intends to
distribute all of its net investment income and net realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code, it
is not expected that the Fund will be required to pay any federal income or
excise taxes. If the Fund should fail to qualify as a "regulated investment
company" in any year, the Fund would incur a regular corporate federal income
tax upon its taxable income and Fund distributions would generally be taxable as
ordinary dividend income to the shareholders.
Under interpretations of the Internal Revenue Service, (1) the
Portfolio will be treated for federal income tax purposes as a partnership and
(2) for purposes of determining whether the Fund satisfies the income and
diversification requirements to maintain its status as a regulated investment
company, the Fund, as an investor in the Portfolio, will be deemed to own a
proportionate share of the Portfolio's assets and will be deemed to be entitled
to the Portfolio's income or loss attributable to that share. The Portfolio has
advised the Fund that it intends to conduct its operations so as to enable its
investors, including the Fund, to satisfy those requirements.
19
<PAGE>
Shareholders of the Fund will have to pay federal income taxes and any
state or local income taxes on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions from
net short-term capital gains are taxable to shareholders as ordinary income for
federal income tax purposes, whether the distributions are made in cash or in
additional shares. A portion of the Fund's ordinary income dividends is normally
eligible for the dividends received deduction for corporations if the recipient
otherwise qualifies for that deduction with respect to its holding of Fund
shares. Availability of the deduction for a particular shareholder is subject to
certain limitations, and deducted amounts may be subject to the alternative
minimum tax and result in certain basis adjustments. Distributions of net
capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses), whether made in cash or in additional shares, are
taxable to shareholders as long-term capital gains without regard to the length
of time the shareholders have held their shares.
Amounts not distributed on a timely basis in accordance with the
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, the Fund must, and intends to,
distribute during each calendar year substantially all of its ordinary income
for that year and substantially all of its capital gain in excess of its capital
losses for that year, plus any undistributed ordinary income and capital gains
from previous years. Any Fund dividend that is declared in October, November, or
December of any calendar year, that is payable to shareholders of record in such
a month, and that is paid the following January will be treated as if received
by the shareholders on December 31 of the year in which the divided is declared.
The Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year.
Any Fund distribution will have the effect of reducing the per share
net asset value of shares in the Fund by the amount of the distribution.
Shareholders purchasing shares shortly before the record date of any
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of
shares of the Fund by a shareholder that holds such shares as a capital asset
will be treated as long-term capital gain or loss if the shares have been held
for more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales.
The Trust anticipates that the Portfolio will be treated as a
partnership for federal income tax purposes. As such, the Portfolio is not
subject to federal income taxation. Instead, the Fund must take into account, in
computing its federal income tax liability, its share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether it has received any cash distributions from the Portfolio. Withdrawals
by the Fund from the Portfolio generally will not result in the Fund recognizing
any gain or loss
20
<PAGE>
for federal income tax purposes, except that (1) gain will be recognized to the
extent that any cash distributed exceeds the basis of the Fund's interest in the
Portfolio prior to the distribution, (2) income or gain will be realized if the
withdrawal is in liquidation of the Fund's entire interest in the Portfolio and
includes a disproportionate share of any unrealized receivables held by the
Portfolio, and (3) loss will be recognized if the distribution is in liquidation
of that entire interest and consists solely of cash and/or unrealized
receivables. The basis of the Fund's interest in the Portfolio generally equals
the amount of cash and the basis of any property that the Fund invests in the
Portfolio, increased by the Fund's share of income from the Portfolio and
decreased by the Fund's share of losses from the Portfolio and the amount of any
cash distributions and the basis of any property distributed from the Portfolio.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. The investment by the Fund in the Portfolio does
not cause the Fund to be liable for any income or franchise tax in the State of
New York.
Fund shareholders may be subject to state and local taxes on Fund
distributions to them. Shareholders are advised to consult with their tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Portfolio are
made by a portfolio manager who is an employee of the Manager and who is
appointed and supervised by its senior officers. Changes in the Portfolio's
investments are reviewed by its Board of Trustees. The portfolio manager of the
Portfolio may serve other clients of the Manager in a similar capacity.
The Portfolio's primary consideration in placing securities
transactions with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most effective
manner possible. The Manager attempts to achieve this result by selecting
broker-dealers to execute transactions on behalf of the Portfolio and other
clients of the Manager on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Manager normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time, soliciting dealer fees are available to the Manager on the tender of the
Portfolio's securities in so-called tender or exchange offers. Such soliciting
dealer fees are in effect recaptured for the Portfolio by the Manager. At
present no other recapture arrangements are in effect. Consistent with the
foregoing primary consideration, the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Portfolio
21
<PAGE>
may determine, the Manager may consider sales of shares of the Fund and of
securities of other investors in the Portfolio as a factor in the selection of
broker-dealers to execute the Portfolio's securities transactions.
Under the Management Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Manager may cause the Portfolio to pay a
broker-dealer acting on an agency basis which provides brokerage and research
services to the Manager or the Adviser an amount of commission for effecting a
securities transaction for the Portfolio in excess of the amount other
broker-dealers would have charged for the transaction if the Manager determines
in good faith that the greater commission is reasonable in relation to the value
of the brokerage and research services provided by the executing broker-dealer
viewed in terms of either a particular transaction or the Manager's or the
Adviser's overall responsibilities to the Portfolio or to its other clients. Not
all of such services are useful or of value in advising the Portfolio.
The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto such as clearance and settlement. However, because of the
Portfolio's policy of investing in accordance with the Domini Social Index, the
Manager and the Adviser currently intend to make only a limited use of such
brokerage and research services.
Although commissions paid on every transaction will, in the judgment of
the Manager, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Portfolio and the Manager's or the Adviser's other clients, in part for
providing advice as to the availability of securities or of purchasers or
sellers of securities and services in effecting securities transactions and
performing functions incidental thereto such as clearance and settlement.
Certain broker-dealers may be willing to furnish statistical, research and other
factual information or services to the Manager or the Adviser for no
consideration other than brokerage or underwriting commissions.
The Manager and the Adviser attempt to evaluate the quality of research
provided by brokers. The Manager and the Adviser sometimes use evaluations
resulting from this effort as a consideration in the selection of brokers to
execute portfolio transactions. However, neither the Manager nor the Adviser is
able to quantify the amount of commissions which are paid as a result of such
research because a substantial number of transactions are effected through
brokers which provide research but which are selected principally because of
their execution capabilities.
The fees that the Portfolio pays to the Manager and the Adviser will
not be reduced as a consequence of the Portfolio's receipt of brokerage and
research services. To the extent the Portfolio's securities transactions are
used to obtain brokerage and research services, the brokerage commissions paid
by the
22
<PAGE>
Portfolio will exceed those that might otherwise be paid for such portfolio
transactions and research, by an amount which cannot be presently determined.
Such services may be useful and of value to the Manager or the Adviser in
serving both the Portfolio and other clients and, conversely, such services
obtained by the placement of brokerage business of other clients may be useful
to the Manager or the Adviser in carrying out its obligations to the Portfolio.
While such services are not expected to reduce the expenses of the Manager or
the Adviser, the Manager or the Adviser would, through use of the services,
avoid the additional expenses which would be incurred if it should attempt to
develop comparable information through its own staff. For the fiscal years ended
July 31, 1992, 1993 and 1994, the Portfolio paid brokerage commissions of
$4,000, $8,000 and $13,000, respectively.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Manager's or the Adviser's other
clients. Investment decisions for the Portfolio and for the Manager's or the
Adviser's other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the
Portfolio is concerned. However, it is believed that the ability of the
Portfolio to participate in volume transactions will produce better executions
for the Portfolio.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust is a Massachusetts business trust established under an
Amended and Restated Declaration of Trust dated as of September 15, 1995. Its
authorized capital consists of an unlimited number of shares of beneficial
interest of $0.01 par value, issued in separate series, or series. Each share of
each series represents an equal proportionate interest in that series with each
other share of that series.
The assets of the Trust received for the issue or sale of the shares of
each fund and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. If a series were unable to meet its obligations, the
assets of all other series might be available to creditors for that purpose, in
which case the assets of such other series could be used to meet liabilities
which are not otherwise properly chargeable to them. Expenses with respect to
23
<PAGE>
any two or more series are to be allocated in proportion to the asset value of
the respective series except where allocations of direct expenses can otherwise
be fairly made. The officers of the Trust, subject to the general supervision of
the Trustees, have the power to determine which liabilities are allocable to a
given series, or which are general or allocable to two or more series. In the
event of the dissolution or liquidation of the Trust or any series, the holders
of the shares of any series are entitled to receive as a class the value of the
underlying assets of such shares available for distribution to shareholders.
Shares of the Trust entitle their holder to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. The Trust's
Declaration of Trust provides that, at any meeting of shareholders of the Trust
or of any series, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing Agent is the agent of record and which are not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares otherwise represented at the
meeting in person or by proxy as to which such Shareholder Servicing Agent is
the agent of record. Any shares so voted by a Shareholder Servicing Agent will
be deemed represented at the meeting for purposes of quorum requirements.
The Trustees of the Trust have the authority to designate additional
series and to designate the relative rights and preferences as between the
different series. There is presently one series so designated. All shares issued
and outstanding will be fully paid and nonassessable by the Trust, and
redeemable as described in this Statement of Additional Information and in the
Prospectus.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust unless, as
to liability to Trust or Fund shareholders, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Trust. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Fund
and provides for indemnification and reimbursement of expenses out of Fund
24
<PAGE>
property for any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides for the maintenance, by or on
behalf of the Trust and the Fund, of appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Fund and its shareholders and the Trust's Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the Fund
itself was unable to meet its obligations.
FINANCIAL STATEMENTS
The Statements of Assets and Liabilities of the Fund dated as of
September 13, 1995 and the financial statements of the Portfolio dated as of
July 31, 1995 included herein have been so included in reliance upon the report
of KPMG Peat Marwick LLP, independent auditors, as experts in accounting and
auditing.
25
DSI163D
<PAGE>
DEVCAP SHARED RETURN FUND
STATEMENTS OF ASSETS AND LIABILITIES
September 13, 1995
ASSETS:
Cash...............................................................$100,000
Deferred organization expenses.................................... 56,062
Total assets...................................................... 156,062
LIABILITIES:
Accrued expenses................................................. 56,062
Net assets.........................................................$100,000
Net Asset Value Per Share (10,000 shares
of beneficial interest outstanding; unlimited
authorized shares of beneficial interest of
$0.01 par value).................................................. $10.00
=====
NOTES:
(1) DEVCAP Shared Return Fund (the "Fund") is a series of DEVCAP Trust (the
"Trust"), a Massachusetts business trust organized on June 29, 1995,
and has been inactive since that date except for matters relating to
its organization and registration as an investment company under the
Investment Company Act of 1940, and the sale of shares of the Fund (the
"Initial Shares") at $10.00 per share as follows:
INVESTOR NO. OF SHARES
- ------------------------------------------------- -------------
Development Capital Fund 5,250
Sisters of Mercy of the Americas 2,500
Missionary Oblates of Mary Immaculate 1,000
Compton Consulting Group 550
Mr. Gilbert H. Crawford 250
Mr. Didier Thys 300
Ms. Alice Quatrochi 100
Ms. Mardelle Cesar Feigenbaum 50
The Trust will invest all of the Fund's investable assets in the Domini Social
Index Portfolio (the "Portfolio"), an investment company registered under the
Investment Company Act of 1940. Organization expenses are being deferred and
will be amortized on a straight-line basis over a period not to exceed five
years beginning with the commencement of operations of the Fund. The amount paid
by the Fund on any redemption of the Initial Shares will be reduced by the pro
rata portion of any unamortized organization expenses of the Fund and the
Portfolio which the number of Initial Shares redeemed bears to the total number
of Initial Shares outstanding immediately prior to such redemption, and the
amount of such reduction in excess of the unamortized organization expenses of
the Fund shall be contributed by the Trust to the Portfolio.
<PAGE>
KPMG Peat Marwick LLP
99 High Street Telephone 617 988 1000 Telefax 617 988 0800
Boston, MA 02110-2371
Independent Auditors' Report
The Board of Trustees and Shareholders
DEVCAP Shared Return Fund:
We have audited the accompanying statement of assets and liabiliities of the
DEVCAP Shared Return Fund (the "Fund") as of September 13, 1995. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. Our
procedures included confirmation of cash by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the DEVCAP Shared Return Fund
as of September 13, 1995 in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 13, 1995
<PAGE>
[FINANCIALS FOR PORTFOLIO]
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
COMMON STOCKS -- 97.9%
APPAREL -- 0.9%
Brown Group Inc............ 400 $ 9,950
Hartmarx Corp*............. 600 3,675
Lands' End Inc............. 800 12,300
Liz Claiborne, Inc......... 2,000 45,750
Nike Inc. (Class B)........ 1,900 171,713
Oshkosh B' Gosh, Inc....... 300 5,100
Phillips-Van Heusen
Corp...................... 600 9,450
Reebok International
Ltd....................... 2,200 78,925
Russell Corp............... 1,000 28,250
Stride Rite Corp........... 1,200 13,350
VF Corp.................... 1,600 88,400
-----------
466,863
-----------
COMMERCIAL PRODUCTS & SERVICES -- 1.9%
Autodesk Inc............... 1,200 54,300
Cintas Corp................ 1,200 45,000
Deluxe Corp................ 2,000 64,250
Donnelley, R.R. & Sons
Co........................ 3,900 145,762
Harland (J.H.) Co.......... 900 19,912
HON Industries Inc......... 800 21,800
Kelly Services (Class A)... 975 26,568
Miller, (Herman) Inc....... 800 19,200
Moore Corp., Ltd........... 2,400 52,800
National Service
Industries, Inc........... 1,300 38,350
New England Business
Service Inc............... 300 6,412
Pitney Bowes Inc........... 3,800 152,475
Standard Register Co. ..... 700 14,962
Wallace Computer Services,
Inc....................... 500 29,188
Xerox Corp................. 2,700 321,634
-----------
1,012,613
-----------
CONSTRUCTION -- 0.3%
Centex Corp................ 900 25,200
Fleetwood Enterprises
Inc....................... 1,300 26,813
Graco Inc.................. 200 5,800
Kaufman & Broad Home
Corp...................... 800 11,500
Rouse Co................... 1,200 25,200
Sherwin-Williams Co. ...... 2,200 80,300
TJ International Inc....... 400 8,350
-----------
183,163
-----------
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
CONSUMER PRODUCTS & SERVICES -- 0.2%
Avery Dennison Corp........ 1,400 $ 56,175
C C H Inc.................. 700 14,875
ISCO Inc. ................. 200 2,050
Tennant Co................. 200 5,000
Zurn Industries Inc........ 200 4,375
-----------
82,475
-----------
ENERGY -- 4.0%
Amoco Corp................. 12,600 847,350
Anadarko Petroleum Corp.... 1,600 68,000
Apache Corp................ 1,900 52,013
Atlantic Richfield Co...... 4,100 472,525
Consolidated Natural Gas
Co. ...................... 2,400 90,000
ENERGEN Corp............... 300 6,600
Enron Corp................. 6,550 227,612
Helmerich & Payne Inc...... 600 17,250
Louisiana Land &
Exploration Co. .......... 900 35,775
Oryx Energy Co.*........... 2,600 37,375
Pennzoil Co. .............. 1,300 60,938
Rowan Companies Inc.*...... 1,800 13,050
Santa Fe Energy Resources
Inc.*..................... 2,500 23,438
Sun Company................ 3,000 88,125
Williams Companies Inc.
(The)..................... 2,800 103,600
-----------
2,143,651
-----------
FINANCIAL -- 10.6%
Ahmanson (H.F.) & Co....... 3,000 67,125
American Express Co. ...... 12,700 488,950
Banc One Corporation....... 10,223 324,587
Bank of Boston Corp........ 2,850 123,619
BankAmerica Corp........... 9,600 518,400
Bankers Trust (N.Y.)
Corp...................... 2,000 129,000
Barnett Banks Inc.......... 2,500 138,750
Beneficial Corp............ 1,400 66,325
Block (H. & R.), Inc....... 2,800 105,000
Cincinnati Financial
Corp...................... 1,305 70,470
CoreStates Financial
Corp...................... 3,700 135,050
Dime Bancorp Inc.*......... 2,600 27,625
Edwards (A.G.), Inc........ 1,525 37,362
Federal National Mortgage
Association............... 6,900 646,013
Fifth Third Bancorp........ 1,700 96,900
</TABLE>
13
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
FINANCIAL -- CONTINUED
<S> <C> <C>
First Chicago Corp......... 2,300 $ 139,725
First Fed Financial
Corp.*.................... 200 3,000
First Fidelity
Bancorporation............ 2,050 129,150
Golden West Financial
Corp...................... 1,500 70,125
Great Western Financial
Corp...................... 3,600 76,950
Household International
Inc....................... 2,500 131,250
Mellon Bank Corp........... 3,750 150,469
Merrill Lynch & Co.,
Inc....................... 4,550 252,525
Morgan (J.P.) & Co.,
Inc....................... 4,700 343,687
NBD Bancorp Inc............ 4,100 139,400
Norwest Corp............... 8,400 237,300
PNC Bank Corp.............. 5,800 142,825
Piper Jaffray Inc.......... 300 5,063
ReliaStar Financial
Corp...................... 900 34,312
Shawmut National Corp...... 3,350 103,431
Student Loan Marketing
Association............... 1,950 105,056
SunTrust Banks, Inc........ 3,000 181,125
Transamerica Corp.......... 1,750 108,281
Value Line Inc............. 300 8,925
Vermont Financial Services
Corp...................... 100 2,750
Wachovia Corp.............. 4,400 167,750
Wells Fargo & Co........... 1,250 227,969
Wesco Financial Corp....... 150 19,350
-----------
5,755,594
-----------
FOOD & BEVERAGES -- 10.2%
Archer-Daniels-Midland
Co........................ 13,425 221,512
Ben & Jerry's (Class A)*... 100 1,400
CPC International Inc...... 3,800 234,650
Campbell Soup Co........... 6,450 301,537
Coca-Cola Company.......... 32,400 2,134,350
Fleming Cos., Inc.......... 1,200 31,650
General Mills, Inc......... 4,150 216,837
Heinz (H.J.) Company....... 6,200 268,926
Hershey Foods Corp......... 2,300 132,537
Kellogg Co................. 5,600 402,501
PepsiCo, Inc............... 20,200 946,833
Quaker Oats Co............. 3,500 121,625
Ralston Purina Group....... 2,550 136,425
Smucker (J.M.) Co. (Class
A)........................ 1,000 21,875
Super Valu Inc............. 1,900 58,425
Sysco Corp................. 4,700 146,288
TCBY Enterprises, Inc...... 500 2,938
Tootsie Roll Industries,
Inc....................... 618 22,254
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
FOOD & BEVERAGES -- CONTINUED
Wrigley, (Wm.) Jr. Co...... 3,000 $ 133,500
-----------
5,536,063
-----------
HEALTHCARE -- 8.0%
Acuson Corp.*.............. 1,000 11,500
Allergan Inc............... 1,700 51,425
Alza Corp.*................ 2,400 61,800
Angelica Corp.............. 300 7,575
Apogee Enterprises, Inc.... 300 5,194
Becton Dickinson &
Company................... 1,800 105,975
Bergen Brunswig Corp.
(Class A)................. 945 20,436
Biomet Inc.*............... 2,900 44,225
Community Psychiatric
Centers*.................. 1,000 12,750
Forest Laboratories,
Inc.*..................... 1,250 55,468
Humana Inc.*............... 4,000 77,500
Johnson & Johnson.......... 16,500 1,183,867
Manor Care Inc............. 1,550 50,181
Medtronic Inc.............. 2,900 237,800
Merck & Co., Inc........... 31,600 1,631,350
Mylan Laboratories Inc..... 2,200 66,275
Schering-Plough Corp....... 9,600 446,400
St. Jude Medical Inc....... 1,100 60,225
Stryker Corp............... 1,200 52,500
Sunrise Medical Inc.*...... 600 16,425
United American
Healthcare*............... 200 3,550
US Health Care Inc......... 4,300 135,988
-----------
4,338,409
-----------
HOUSEHOLD GOODS -- 4.8%
Alberto Culver Co. (Class
B)........................ 700 21,175
Avon Products, Inc......... 1,700 115,600
Bassett Furniture
Industries, Inc........... 300 7,500
Church & Dwight Co.,
Inc....................... 400 8,400
Clorox Co.................. 1,400 91,875
Colgate-Palmolive Co....... 3,700 259,000
Handleman Co............... 700 7,262
Harman International
Industries, Inc. ......... 600 23,625
Hasbro Inc................. 2,150 66,919
Leggett & Platt Inc........ 1,050 48,694
Mattel, Inc................ 5,669 160,149
Maytag Corp................ 2,900 47,488
Newell Co.................. 4,200 106,575
</TABLE>
14
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
HOUSEHOLD GOODS -- CONTINUED
<S> <C> <C>
Oneida, Ltd................ 200 $ 3,000
Procter & Gamble Co. ...... 17,600 1,212,200
Rubbermaid Inc............. 4,100 121,975
Shaw Industries............ 3,400 57,375
Snap-On Tools Corp......... 1,000 41,750
Springs Industries, Inc.
(Class A)................. 600 23,550
Stanhome, Inc.............. 400 12,850
Stanley Works (The)........ 1,200 47,550
Thomas Industries.......... 200 3,525
Whirlpool Corp............. 1,900 109,725
Zenith Electronics
Corp.*.................... 1,600 14,000
-----------
2,611,762
-----------
INSURANCE -- 6.0%
Aetna Life & Casualty
Co........................ 2,900 179,438
Alexander & Alexander
Services Inc. ............ 1,100 25,300
Allstate Corp.............. 1 20
American General Corp...... 5,200 189,150
American International
Group, Inc................ 12,100 907,541
Chubb Corp................. 2,200 184,800
CIGNA Corp................. 1,900 153,188
GEICO Corp................. 1,700 94,775
General Re Corp............ 2,100 278,513
Hartford Steam Boiler...... 600 26,700
Jefferson-Pilot Corp....... 1,300 72,637
Lincoln National Corp...... 2,400 98,700
Marsh & McLennan Companies,
Inc....................... 1,900 150,100
Providian Corp............. 2,500 89,688
SAFECO Corp................ 1,600 93,600
St. Paul Companies......... 2,100 102,375
Torchmark Corp............. 1,800 69,300
Travelers Corp............. 8,209 388,859
UNUM Corp.................. 1,900 91,912
USF&G Corp................. 2,600 42,900
USLIFECorp................. 500 20,875
-----------
3,260,371
-----------
MANUFACTURING -- 1.6%
Applied Materials, Inc.*... 2,300 237,800
Briggs & Stratton Corp..... 800 26,700
Cincinnati Milacron Inc.... 900 28,125
Clarcor Inc................ 300 6,937
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
MANUFACTURING -- CONTINUED
Dionex Corp.*.............. 200 9,625
Fastenal Co................ 1,200 $ 40,200
Goulds Pumps, Inc.......... 600 13,200
Hunt Manufacturing Co...... 400 5,600
Illinois Tool Works Inc.... 2,850 168,150
James River Corp. of
Virginia.................. 2,000 66,750
Lawson Products, Inc. ..... 300 8,063
Millipore Corp............. 1,200 41,400
Modine Manufacturing Co.... 800 25,000
Nordson Corp............... 500 27,875
Thermo Electron Corp....... 2,250 96,188
Watts Industries Inc.
(Class A)................. 1,000 23,250
Wellman Inc................ 1,000 26,875
-----------
851,738
-----------
MEDIA -- 7.6%
BET Holdings Inc. (Class
B)*....................... 400 7,100
CBS, Inc................... 1,600 124,200
Capital Cities/ABC, Inc.... 3,900 455,325
Comcast Corp. (Class A).... 5,900 119,475
Disney (Walt) Company
(The)..................... 13,300 779,716
Dow Jones & Co. Inc........ 2,600 92,300
Frontier Corp.............. 2,300 61,813
Gannett Co., Inc........... 3,700 202,575
King World Productions
Inc.*..................... 900 37,688
Knight-Ridder Inc.......... 1,250 70,312
Lee Enterprises Inc........ 500 18,875
McGraw-Hill Inc............ 1,300 99,937
Media General Inc. (Class
A)........................ 600 20,400
Meredith Corp.............. 600 17,250
New York Times Co. (The)
(Class A)................. 2,500 63,750
Nynex Corp................. 10,800 445,500
SBC Communications......... 15,500 745,937
Scholastic Inc.*........... 500 32,875
Tele-Communications, Inc.
(Class A)*................ 16,400 410,000
Times Mirror Co. (Class
A)........................ 3,100 89,125
Turner Broadcasting System
Inc. (Class A)............ 2,200 47,850
Viacom, Inc.*.............. 1,800 91,575
Washington Post Co. (The)
(Class B)................. 300 81,300
-----------
4,114,878
-----------
</TABLE>
15
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
MISCELLANEOUS -- 2.0%
<S> <C> <C>
Alco Standard Corp......... 1,350 $ 109,856
Allwaste, Inc.*............ 1,200 6,750
American Greetings Corp.
(Class A)................. 2,050 62,013
Avnet, Inc................. 1,000 52,000
Bemis Co., Inc............. 1,400 39,725
CPI Corp................... 400 8,700
Cross, A.T. Co. (Class
A)........................ 500 7,875
DeVRY INC.*................ 400 9,100
Fedders Corp............... 750 5,063
Fuller (H.B.) Co........... 500 17,625
General Signal Corp........ 1,250 46,094
Groundwater Technology,
Inc.*..................... 200 2,650
Harcourt General Inc....... 1,900 85,500
Hillenbrand Industries
Inc....................... 1,700 50,575
Ionics Inc.*............... 400 15,250
Jostens Inc................ 1,400 31,850
KENETECH Corp.*............ 900 10,800
Marriott International
Inc....................... 3,100 112,375
National Education
Corp.*.................... 600 3,225
Omnicom Group, Inc......... 1,000 60,375
Polaroid Corporation....... 1,150 49,306
Premier Industrial Corp.... 2,350 58,162
Sealed Air Corp.*.......... 500 25,375
Service Corp.
International............. 2,350 80,194
Sonoco Products Co......... 2,205 56,228
Toro Co. (The)............. 300 8,587
Whitman Corp............... 2,600 50,700
-----------
1,065,953
-----------
RESOURCE DEVELOPMENT -- 3.2%
Air Products & Chemicals,
Inc....................... 2,900 162,400
Aluminum Co. of America.... 4,600 261,625
ARCO Chemical Co........... 2,450 117,600
Battle Mountain Gold
Co. ...................... 1,800 17,100
Betz Laboratories, Inc..... 700 31,588
Cabot Corp................. 1,200 67,650
Calgon Carbon Corp......... 1,200 14,250
Consolidated Papers Inc.... 1,100 65,313
Cyprus Amax Minerals Co. .. 2,600 72,475
Echo Bay Mines Ltd......... 3,000 27,562
Inland Steel Industries
Inc....................... 1,200 34,500
Mead Corp.................. 1,400 82,425
Morton International
Inc....................... 3,900 117,000
Nalco Chemical Co.......... 1,650 58,781
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
RESOURCE DEVELOPMENT -- CONTINUED
Nucor Corp................. 2,300 $ 123,625
Praxair Inc. .............. 3,700 103,600
Scott Paper Company........ 3,800 174,325
Sigma-Aldrich
Corporation............... 1,300 65,325
Westvaco Corp.............. 1,800 81,450
Worthington Industries,
Inc....................... 2,250 46,969
-----------
1,725,563
-----------
RETAIL -- 11.6%
Albertson's, Inc........... 6,400 190,400
American Stores Co......... 3,800 111,625
Bob Evans Farms, Inc....... 1,200 23,400
Charming Shoppes Inc. ..... 2,000 9,750
Circuit City Stores Inc.... 2,500 92,813
Claire's Stores Inc. ...... 500 10,000
Dayton-Hudson Corp. ....... 1,800 136,125
Dillard Department
Stores.................... 2,900 89,900
Dollar General Corp. ...... 1,656 55,898
Egghead Inc.*.............. 300 3,938
Gap, Inc. (The)............ 3,800 132,525
Giant Food Inc. (Class
A)........................ 1,400 42,700
Gibson Greetings Inc....... 500 7,375
Great Atlantic & Pacific
Tea Co., Inc.............. 1,200 33,450
Hannaford Brothers Co...... 1,300 34,938
Hechinger Co. (Class A).... 800 5,300
Home Depot, Inc. (The)..... 12,033 528,030
Huffy Corp................. 300 3,750
International Dairy Queen,
Inc. (Class A)*........... 600 12,600
K-Mart Corp................ 11,400 179,550
Kroger Company*............ 2,800 87,150
Lillian Vernon Corp........ 200 3,700
Limited, Inc. (The)........ 8,950 183,475
Longs Drug Stores, Inc..... 500 18,312
Lowe's Companies, Inc...... 4,000 147,500
Luby's Cafeterias, Inc..... 500 9,875
May Department Stores Co... 6,300 273,263
McDonald's Corp............ 17,800 687,608
Melville Corp.............. 2,650 95,400
Mercantile Stores Co.,
Inc....................... 1,000 46,625
Morrison Restaurants
Inc....................... 750 17,531
Nordstrom Inc.............. 2,100 84,525
Penney, J.C. Co., Inc...... 5,950 287,831
Pep Boys - Manny, Moe &
Jack...................... 1,450 40,781
Petrie Stores Corp. ....... 1,200 8,400
</TABLE>
16
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
RETAIL -- CONTINUED
<S> <C> <C>
Price/Costco Inc.*......... 4,765 $ 85,472
Ryan's Family Steak Houses,
Inc.*..................... 1,300 9,100
Sears Roebuck & Co......... 9,900 322,987
Skyline Corp............... 200 3,350
Specs Music Inc.*.......... 200 700
TJX Companies Inc. (The)... 2,000 29,250
Tandy Corp................. 1,900 112,813
Toys 'R' Us, Inc.*......... 6,950 194,600
Wal-Mart Stores, Inc....... 58,800 1,565,550
Walgreen Co................ 3,200 165,600
Whole Foods Market*........ 300 4,575
Woolworth (F.W.) Co........ 3,500 54,688
-----------
6,244,728
-----------
TECHNOLOGIES -- 14.9%
Advanced Micro Devices,
Inc.*..................... 2,650 86,456
Amdahl Corp.*.............. 3,000 29,813
American Power Conversion
Corp.*.................... 2,400 45,000
Analog Devices, Inc.*...... 1,850 67,062
Apple Computer, Inc........ 3,200 144,000
Automatic Data Processing,
Inc....................... 3,700 236,800
Baldor Electric Co......... 400 13,050
Borland International,
Inc.*..................... 600 7,500
Cisco Systems, Inc.*....... 7,000 390,250
Compaq Computer Corp.*..... 6,700 340,025
Computer Assoc.
International Inc......... 4,100 300,837
Cooper Industries Inc. .... 2,900 108,388
DSC Communications Corp.*.. 3,050 163,937
Digital Equipment Corp.*... 3,800 145,825
Grainger, (W.W.) Inc. ..... 1,300 76,213
Hewlett-Packard Co......... 13,100 1,020,163
Hubbell Inc. (Class B)..... 830 48,762
Intel Corp................. 21,300 1,384,563
International Business
Machines Inc.............. 15,000 1,633,125
MCI Communications Corp.... 17,200 412,800
Micron Technology, Inc..... 5,300 331,229
Novell Inc.*............... 9,300 168,562
Perkin-Elmer Corp.......... 1,100 37,262
Quarterdeck Corp.*......... 400 5,875
Raychem Corp............... 1,200 45,600
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
TECHNOLOGIES -- CONTINUED
Shared Medical Systems
Corp...................... 600 $ 24,975
Solectron Corp.*........... 1,200 43,650
Sprint Corp................ 8,900 304,825
Stratus Computer Inc.*..... 700 18,200
Sun Microsystems Inc.*..... 2,400 115,500
Tandem Computers Inc.*..... 2,900 38,063
Tektronix, Inc............. 850 40,906
Tellabs, Inc.*............. 2,300 102,350
Thomas & Betts Corp........ 500 33,813
Xilinx Inc.*............... 600 71,925
-----------
8,037,304
-----------
TRANSPORTATION -- 2.5%
AMR Corp.*................. 2,000 150,000
Airborne Freight Corp...... 400 8,550
Alaska Air Group, Inc.*.... 300 5,775
CSX Corp................... 2,700 226,463
Conrail Inc................ 2,100 129,675
Consolidated Freightways,
Inc....................... 1,100 26,263
Delta Air Lines, Inc....... 1,300 103,025
Federal Express Corp.*..... 1,450 97,875
GATX Corp.................. 600 30,225
Norfolk Southern Corp...... 3,400 246,925
Roadway Services........... 1,100 55,550
Ryder System, Inc.......... 1,950 48,506
Santa Fe Pacific Corp...... 2,656 75,696
Southwest Airlines Inc..... 3,800 109,250
UAL Corp.*................. 350 52,281
Yellow Corp................ 600 9,075
-----------
1,375,134
-----------
UTILITIES -- 7.0%
American Water Works Co.,
Inc....................... 900 27,563
Ameritech Corp............. 14,100 682,087
Atlanta Gas & Light Co. ... 700 24,500
Bell Atlantic Corp......... 11,200 641,200
BellSouth Corp............. 12,700 860,425
Brooklyn Union Gas Company
(The)..................... 1,250 30,469
California Energy Co.,
Inc.*..................... 1,200 22,950
Citizens Utilities Co.
(Class A)*................ 5,695 64,074
Connecticut Energy Corp.... 200 3,900
Eastern Enterprises........ 500 15,125
</TABLE>
17
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1995
(SHOWING PERCENTAGE OF INVESTMENTS TO NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
UTILITIES -- CONTINUED
<S> <C> <C>
El Paso Natural Gas Co..... 1,000 $ 25,375
Equitable Resources Inc.... 800 22,200
Idaho Power Co............. 1,000 24,250
LG & E Energy Corp......... 900 34,762
MCN Corp. ................. 1,700 32,300
NICOR Inc. ................ 1,200 30,450
Noram Energy Corp.......... 3,400 23,375
Northwestern Public Service
Co. ...................... 200 5,200
Oklahoma Gas & Electric
Co........................ 1,000 34,000
ONEOK Inc.................. 700 16,275
Pacific Enterprises........ 2,200 53,075
Pacific Telesis Group...... 10,800 305,100
Peoples Energy Corp........ 900 23,625
Potomac Electric Power
Co........................ 2,800 58,100
Public Service Co. of
Colorado.................. 1,600 50,600
Southern New England
Telecom................... 1550 53,087
Telephone & Data Systems... 1,500 58,125
US West Inc................ 11,900 510,213
Washington Gas Light Co.... 1,200 21,900
-----------
3,754,305
-----------
VEHICLE COMPONENTS -- 0.6%
Cooper Tire & Rubber Co.... 2,150 55,363
Cummins Engine Co., Inc.... 1,150 48,300
Dana Corp.................. 2,600 76,700
Federal-Mogul Corp. ....... 800 17,100
Genuine Parts.............. 3,200 120,800
SPX Corp................... 200 2,875
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------- ---------- -----------
<S> <C> <C>
VEHICLE COMPONENTS -- CONTINUED
Smith, A.O................. 400 $ 10,900
Spartan Motors Inc.*....... 300 3,038
Worldway Corp.*............ 200 2,175
-----------
337,251
-----------
Total Common Stocks (Cost
$43,200,668)....................... 52,897,818
-----------
PREFERRED STOCK -- 0.6%
FEDERAL SPONSORED CREDIT -- 0.6%
Federal Home Loan Mortgage
Corp...................... 4,600 301,300
-----------
Total Preferred Stock (Cost
239,422)........................... 301,300
-----------
TOTAL INVESTMENTS -- 98.5%
(COST, $43,440,090)(A)................. 53,199,118
OTHER ASSETS, LESS LIABILITIES --
1.5%................................... 803,670
-----------
NET ASSETS -- 100.0%.................... $54,002,788
-----------
-----------
</TABLE>
- ------------
*Non-income producing security.
(a)The aggregate cost for federal income tax purposes is $43,453,725, the
aggregate gross unrealized appreciation is $10,474,465, and the aggregate
gross unrealized depreciation is $729,072, resulting in net unrealized
appreciation of $9,745,393.
See Notes to Financial Statements
18
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (Cost $43,440,090) (Note 1).......................... $53,199,118
Cash...................................................................... 813,520
Dividends receivable...................................................... 99,082
Deferred organization expenses (Note 1)................................... 8,657
-----------
Total Assets.......................................................... 54,120,377
-----------
LIABILITIES:
Expenses payable (Note 2)................................................. 21,045
Payable for securities purchased.......................................... 96,544
-----------
Total Liabilities..................................................... 117,589
-----------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS...................... $54,002,788
-----------
-----------
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $54,002,788
-----------
-----------
</TABLE>
See Notes to Financial Statements
19
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................................. $ 902,936
EXPENSES (NOTES 1 AND 2):
Investment management fee...................................... $ 39,589
Investment advisory fee........................................ 19,795
Administration fee............................................. 19,795
Expense reimbursement fee...................................... 118,532
Amortization of organization expenses.......................... 10,359
----------
Total Expenses............................................. 208,070
Less: Waiver of expenses....................................... (39,590)
----------
Net Expenses........................................................... 168,480
----------
NET INVESTMENT INCOME.......................................................... 734,456
NET REALIZED GAIN ON INVESTMENTS (NOTE 3):
Proceeds from sales............................................ 2,483,407
Cost of securities sold........................................ 2,077,980
----------
Net realized gain on investments....................................... 405,427
NET UNREALIZED APPRECIATION OF INVESTMENTS:
Beginning of year.............................................. 1,029,594
End of year.................................................... 9,759,028
----------
Net change in unrealized appreciation.................................. 8,729,434
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................... $9,869,317
----------
----------
</TABLE>
See Notes to Financial Statements
20
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31,1995 JULY 31, 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income....................................................... $ 734,456 $ 545,816
Net realized gain on investments............................................ 405,427 207,560
Net change in unrealized appreciation....................................... 8,729,434 (216,317)
-------------- --------------
Net Increase in Net Assets Resulting from Operations.................... 9,869,317 537,059
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Additions................................................................... 14,888,452 14,967,462
Reductions.................................................................. (2,076,641) (1,377,702)
-------------- --------------
Net increase in Net Assets from Transactions in Investors'
Beneficial Interests................................................... 12,811,811 13,589,760
-------------- --------------
Total Increase in Net Assets........................................ 22,681,128 14,126,819
NET ASSETS:
Beginning of year........................................................... 31,321,660 17,194,841
-------------- --------------
End of year................................................................. $ 54,002,788 $ 31,321,660
-------------- --------------
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
FOR THE PERIOD
AUGUST 10,
YEAR ENDED 1990***
---------------------------------------------------------- TO JULY 31,
JULY 31, 1995 JULY 31, 1994 JULY 31, 1993 JULY 31, 1992 1991
------------- ------------- ------------- ------------- ---------------
FINANCIAL HIGHLIGHTS:
<S> <C> <C> <C> <C> <C>
Net investment
income to average
net assets*........ 1.85% 2.13% 1.88% 1.99% 1.85%**
Expenses to average
net assets*........ 0.43% 0.29% 0.29% 0.29% 0.29%**
Portfolio turnover
rate............... 6% 8% 4% 3% --
</TABLE>
- --------------------------------------------------------------------------------
*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 as stated would not have changed
for the periods ended July 31, 1993, 1992 and 1991. For the years ended July
31, 1995 and 1994, the ratios of net investment income and expenses to
average net assets would have been 1.75% and 0.53% and 2.00% and 0.42%,
respectively. (See Note 2.)
**Annualized.
***Commencement of operations.
See Notes to Financial Statements
21
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES. Domini Social Index Portfolio (the
"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 Portfolio intends to correlate its investment portfolio as closely as is
practicable with the Domini Social Index (the "Index"), which is a common stock
index developed and maintained by Kinder, Lydenberg, Domini & Co., Inc. ("KLD"),
the Portfolio's Adviser. The Declaration of Trust permits the Trustees to issue
an unlimited number of beneficial interests in the Portfolio. The Portfolio
commenced operations upon effectiveness on August 10, 1990 and began investment
operations on June 3, 1991. The following is a summary of the significant
accounting policies of the Portfolio:
A. VALUATION OF INVESTMENTS. The Portfolio values securities at the last
reported sale price, or at the last reported bid price if no sales are reported.
B. DIVIDEND INCOME. Dividend income is recorded on the ex-dividend date.
C. FEDERAL TAXES. The Portfolio's policy is to comply with the applicable
provisions of the Internal Revenue Code. Accordingly, no provision for Federal
taxes is necessary.
D. DEFERRED ORGANIZATION EXPENSE. Expenses incurred by the Portfolio in
connection with its organization are being amortized by the Portfolio on a
straight-line basis over a five-year period.
E. OTHER. Investment transactions are accounted for on the trade date.
Gains and losses are determined on the basis of identified cost.
2. TRANSACTIONS WITH AFFILIATES.
A. INVESTMENT ADVISORY FEES. The Portfolio has retained KLD as the
Investment Adviser of the Portfolio. The services provided by KLD consist of the
determination of the stocks to be included in the Index and evaluating, in
accordance with KLD's criteria, debt securities which may be purchased by the
Portfolio. For its services under the Investment Advisory Agreement, KLD
receives from the Portfolio a fee accrued daily at an annual rate equal to 0.05%
of the Portfolio's average daily net assets. For the year ended July 31, 1995,
KLD voluntarily waived all of its fees.
B. INVESTMENT MANAGEMENT FEES. For the period August 1, 1994 through
November 20, 1994, the Portfolio retained State Street Bank and Trust Company
("State Street") as the Investment Manager of the Portfolio. State Street did
not determine the composition of the Index. For its services under the prior
Management Agreement, State Street received from the Portfolio a fee accrued
daily at an annual rate equal to 0.10% of the Portfolio's average daily net
assets. For the period August 1, 1994 through November 20, 1994, the Portfolio
accrued and paid investment management fees of $10,180 to State Street.
On October 5, 1994, the Board of Trustees of the Portfolio voted to
terminate the investment management agreement between the Portfolio and State
Street. Termination was effective as of November 21, 1994, at which time Mellon
Equity Associates ("MEA") assumed responsibility for the management of the
Portfolio's assets. MEA does not determine the composition of the Index. Under
the new Management Agreement, the Portfolio pays MEA an investment management
fee equal on an annual basis to the following percentages of the Portfolio's
average daily net assets for its then-current fiscal year: 0.10% of assets up to
$50 million; 0.30% of assets between $50 million and $100 million; 0.20% of
assets between $100 million and $500 million; and 0.15% of assets over $500
million. For the period November 21, 1994 through July 31, 1995, the Portfolio
accrued and paid investment management fees of $29,409 to MEA.
C. ADMINISTRATION FEES. The Portfolio has retained Signature Broker-Dealer
Services, Inc. ("Signature") to serve as Administrator of the Portfolio. Certain
officers of Signature serve as officers and trustee to the Portfolio. Under the
Administrative Services Agreement, Signature provides management and
administrative services necessary for the operations of the Portfolio, furnishes
office space and facilities required for conducting the business of the
Portfolio and pays the compensation of the Portfolio's officers and Trustee
affiliated with Signature. For these services, Signature receives from the
Portfolio a fee accrued daily at an annual rate equal to 0.05% of the
Portfolio's average daily net assets. For the year ended July 31, 1995,
Signature voluntarily waived all of its fees.
D. REIMBURSEMENT OF EXPENSES. The Administrator has agreed to pay certain
expenses of the Domini Social Equity Fund (the "Fund"), formerly the Domini
Social Index Trust, and the Portfolio subject to reimbursement. To accomplish
such reimbursement, the Administrator may either receive an expense
reimbursement fee from the Fund and the
22
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1995
- --------------------------------------------------------------------------------
Portfolio or may reimburse the Fund and the Portfolio directly for expenses
incurred such that after such reimbursement the aggregate expenses of the Fund
and the Portfolio will not exceed 0.98% of the average daily net assets of the
Fund. For the period August 1, 1994 through December 31, 1994, the aggregate
expenses of the Fund and the Portfolio were limited to 0.75% of the average
daily net assets of the Fund. The expense reimbursement fee agreement will
terminate on the earlier of April 30, 2000, or the date on which the cumulative
reimbursement fee equals the cumulative payments of such reimbursable expenses
made by the Administrator. For the year ended July 31, 1995, the Administrator
incurred approximately $90,542 in expenses on behalf of the Portfolio.
3. INVESTMENT TRANSACTIONS. Purchase and sales of investments, other than U.S.
Government securities and short-term obligations, aggregated $15,541,954 and
$2,483,407, respectively.
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Trustees and Shareholders
Domini Social Index Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Domini Social Index Portfolio as
of July 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the four-year period then ended and for the period from August 10, 1990
(commencement of operations) to July 31, 1991. These financial statements and
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1995 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Domini Social Index Portfolio as of July 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended and financial highlights for each of the years in
the four-year period then ended and for the period from August 10, 1990 to July
31, 1991, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
August 25, 1995
