THE DEVCAP SHARED RETURN FUND
CHANGING THE WAY THE WORLD WORKS
[PICTURE APPEARS HERE]
ANNUAL REPORT
JULY 31, 1997
[LOGO] DEVCAP DEVELOPMENT CAPITAL
GLOBALLY RESPONSIBLE INVESTMENTS
<PAGE>
September 19, 1997
Dear Shareholder:
We are pleased to present to you the DEVCAP Shared Return Fund's Annual Re-
port for the year ended July 31, 1997. The U.S. economy continued to grow in
strength and competitiveness on a global scale in this past year, bringing
about the greatest bull market in history. Shareholders in the DEVCAP Shared
Return Fund were able to participate in the rewards as the stock market broke
ever higher ground. For its fiscal year ended July 31, 1997, the DEVCAP Shared
Return Fund enjoyed a total return of 51.57%*. This figure very closely mir-
rors broad market behavior and [approaches] exceeds the return for the Standard
and Poor's 500 of 52.14% and [exceeds] average growth fund tracked by Lipper
Analytical Services, Inc. of 42.93% for the same period.
Assets in the Fund grew considerably in 1997, a result of both market appre-
ciation and strong growth in the number of first-time investors in the Fund.
In a demonstration of its continued confidence in DEVCAP, Catholic Relief
Services made a $3 Million investment in the Fund in July. Total assets in the
Fund now exceed $5.2 Million.
As assets under management increase, the amount of donations to the Fund's
nonprofit sponsors also increases. In December of last year the DEVCAP Shared
Return Fund collected over $74,000 in donations to support the businesses of
microentrepreneurs in developing regions over five continents. If the market
remains at its current level, we expect donations to more than double this
year.
The Fund maintains its commitment to pursuing higher standards of corporate
accountability through both its social screens and by actively voting its
proxies. In partnership with the Fund's advisor, Kinder, Lydenberg, and Domi-
ni, Inc. (KLD), the Fund supports shareholder resolutions to affect positive
changes in corporate policy and discourage any policies or practices that ap-
pear to threaten the common good. Through years of dialogue with corporate
management teams and the continued application of social criteria, sharehold-
ers have been able to help corporations understand the importance of a posi-
tive social and environmental agenda. We include in this report, KLD's review
of several socially responsible companies that are implementing ground-break-
ing strategies designed to benefit the communities they serve.
If you have any questions or comments about your investment in the DEVCAP
Shared Return Fund, please do not hesitate to contact us at (800) 371-2655. We
appreciate your continued support of DEVCAP and value your opinions. We be-
lieve that the next year holds much promise for the Fund, and look forward to
continuing our partnership with you to provide hope to an even greater number
of working poor.
Sincerely,
/s/ Joseph N. St. Clair
Mr. Joseph N. St. Clair
President
* The performance information quoted represents past performance and is not a
guarantee of future results. Investment return and principal value of an in-
vestment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
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COMPARISON OF $10,000 INVESTMENT IN THE
DEVCAP SHARED RETURN FUND/(1)/ AND S&P 500/(2)/
[LINE GRAPH]
[PLOT POINTS GENERATING GROWTH OF INVESTMENT AND INDUSTRY COMPARISON]
<TABLE>
<CAPTION>
DATE S&P 500 DEVCAP
MONTH/ DOLLARS DOLLARS
YEAR (THOUSANDS) (THOUSANDS)
- ----- ------- ------
<S> <C> <C>
6/91 10,000.00 10,000.00
7/91 10,465.70 10,498.53
10/91 10,674.88 10,556.57
1/92 11,203.28 11,205.11
4/92 11,454.23 11,177.12
7/92 11,801.92 11,678.43
10/92 11,736.87 11,912.80
1/93 12,386.89 12,693.70
4/93 12,510.53 12,397.75
7/93 12,829.98 12,720.76
10/93 13,486.75 13,334.55
1/94 13,978.90 13,597.40
4/94 13,174.70 12,839.45
7/94 13,491.02 12,964.12
10/94 14,007.09 13,401.20
1/95 14,052.53 13,487.83
4/95 15,472.00 14,646.36
7/95 17,008.21 16,072.30
10/95 17,706.34 16,697.44
1/96 19,479.20 17,998.76
4/96 20,142.09 18,556.47
7/96 19,823.67 18,100.17
10/96 21,970.19 20,043.69
1/97 24,607.55 22,562.85
4/97 25,202.21 23,239.40
7/97 30,153.87 27,433.99
</TABLE>
[TEXT WITHIN GRAPH:
AVERAGE ANNUAL TOTAL RETURN
1 Year ended 7/31/97: 51.57%
5 Years ended 7/31/97: 18.63%
Inception (6/3/91) to 7/31/97: 16.83%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.]
(1) The DEVCAP Shared Return Fund performance prior to October 19, 1995 (com-
mencement of investment operations) is the investment return of the Domini
Social Index Portfolio adjusted for the expenses of the Fund.
(2) The performance information in this chart represents past performance. The
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
The Portfolio began investing in the stocks comprising the Domini 400
Social Index on June 3, 1991. The above chart begins on June 30, 1991.
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COMMUNITY
Communities around the world are pressing for socially responsible corporate
policies with regard to environmental practices, labor agreements and working
conditions. But sustainable community development does not stop there. A
healthy community requires investment in its people, its places and its insti-
tutions. The text below is representative of the innovative community
initiatives which corporations are supporting throughout the country. It is by
no means all inclusive, but we hope it gives you a sense of what socially re-
sponsible companies can and are doing to improve the quality of life for their
surrounding communities as well as under served populations around the coun-
try.
All the companies whose stock is held by the Domini Social Equity Portfolio
meet multiple standards for corporate accountability. We avoid companies in
the business of manufacturing alcohol and tobacco products as well as those
that provide gambling services or equipment. We seek to avoid companies that
sell weapons or are in the nuclear power industry. In addition, we evaluate a
company's social profile by weighing both strengths and weaknesses in the
areas of community impact, employee relations, the environment, product safety
and usefulness, non-U.S. operations, and diversity.
The "bellwether" issues Kinder, Lydenberg, Domini & Co., Inc. (KLD) evalu-
ates to identify strengths and weaknesses within the area of Community follow.
AREAS OF STRENGTH:
A. GENEROUS GIVING
The company has consistently given over 1.5% of trailing three-year net
earnings before taxes (NEBT) to charity, or has otherwise been notably gen-
erous in its giving. Major Strength if over 5%.
B. INNOVATIVE GIVING
The company has a notably innovative giving program that supports non-
profit organizations such as those promoting self-sufficiency among the ec-
onomically disadvantaged. Companies that permit nontraditional federated
charitable giving drives in the workplace are often noted in this section
as well.
C. SUPPORT FOR HOUSING
The company is a prominent participant in public/private partnerships
that support housing initiatives for the economically disadvantaged, e.g.,
the National Equity Fund or the Enterprise Foundation.
D. SUPPORT FOR EDUCATION
The company has either been notably innovative in its support for prima-
ry- or secondary-school education, particularly for those programs that
benefit the economically disadvantaged, or the company has prominently sup-
ported job training programs for youth.
AREAS OF CONCERN:
A. INVESTMENT CONTROVERSIES
The company is a financial institution whose local investment practices
have led to controversies, particularly ones related to the Community Rein-
vestment Act.
B. NEGATIVE ECONOMIC IMPACT
The company's actions have resulted in major controversies concerning the
company's economic impact on the community. These controversies can include
issues related to plant closings, plant siting, "put-or-pay" contracts with
trash incinerators, or other company actions that adversely affect the
quality of life, tax base, or property values in the community.
Below are listed Domini 400 Social Index stocks which receive a major
strength for their contribution to the community and receive no major concern
in any of the other issue areas.
AMERITECH is a telephone holding company which serves Illinois, Indiana,
Michigan, Ohio, and
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Wisconsin. The company has a long history of supporting education through its
charitable giving programs. In 1995 it emphasized the connection of education
to technology with a $10 million program in Michigan to provide discount ac-
cess rates for public schools to the Internet and training for teachers and
students. A grant of $165,000 was given to Associated Colleges of Illinois to
explore new ways to use technology in education. Ameritech makes annual
$10,000 grants to 20 colleges to attract and support older students, minori-
ties, and disadvantaged students. In 1994 Ameritech estimated it made approxi-
mately $30 million of in kind donations, primarily telecommunications equip-
ment to schools for distance learning programs. In 1995 the company initiated
a program to donate up to $1,000 per organization where employees volunteer
eight or more hours per month. Ameritech requires that participants in some of
its management development programs do one half-day of community service.
AT&T is a provider of long distance telecommunications services. In November
1996, the company adopted a policy under which all of its approximately
128,000 employees became eligible to take one paid day off each year to volun-
teer with nonprofit organizations. Many companies provide time off for employ-
ees to volunteer, but it is unusual for a firm with such a large workforce as
AT&T's to actively encourage all employees to participate in volunteering.
Through its AT&T CARES (Community Awards Recognizing Employee Service) pro-
gram, the company allows employees who volunteer more than 50 hours per year
with nonprofit organizations to request a company grant of $250 for these or-
ganizations. This program was initiated in 1995, and during its first year
made 400 grants. Through a project dubbed the AT&T Learning Network, the com-
pany initiated a program in November 1995 to provide $150 million over five
years to help virtually all elementary and secondary schools in the U.S. ob-
tain free Internet access and voice-messaging services. The company is also a
notably strong supporter of the arts and made grants in 1996 to several re-
gional theaters.
BEN & JERRY'S manufactures and markets premium ice cream, frozen yogurt, and
sorbet. The company's operations are located primarily in Vermont. The
company's record of charitable donations has been exceptionally generous, with
a target of 7.5% of pretax earnings. Employee teams at each of the company's
five Vermont sites contribute a day of company time to a community project
they choose. These include building a playground structure, a nature trail,
and a building for a community-run ski area. The firm's foundation is remark-
able in the corporate community for the innovation of its giving. Among 1995
recipients of its grants were the Ward Valley Project to stop the proposal for
a nuclear waste dump in Ward Valley, California, Black Workers for Justice in
Rocky Mountain, North Carolina; the Dakota Rural Action group, a grassroots
advocacy group seeking to reform government policies that lead to shipping
hazardous waste and radioactive waste to rural and impoverished communities
for disposal; and Pasture Management Outreach in Vermont, working for ecologi-
cally and economically beneficial farming. The company has an alliance with
the Children's Defense Fund to help raise awareness of children's needs. Ben &
Jerry's has given time off and training to its employees to work with the Ver-
mont Campaign to End Childhood Hunger. This organization promotes the imple-
mentation of school breakfasts in Vermont public schools.
In 1995 the company reorganized the foundation so that the nine-member board
is composed of company employees chosen by their peers. Fifty percent of foun-
dation giving is distributed nationally by the foundation board, 35% by em-
ployee-headed community action teams to programs in Vermont, and 15% by the
corporation to support groups such as Business for Social Responsibility.
Since 1991 the company has paid premium prices (based on a five-year average
of past prices) for milk and cream throughout the year to support Vermont
farmers, commenting that "we cannot, in good conscience, underpay our family
farm suppliers to the point that their livelihood is threatened."
COCA COLA manufactures and markets soft drinks for the U.S. and the interna-
tional markets and manufactures and distributes foods, primarily juices.
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The company is a supporter of the First Nations Development Institute, a com-
munity economic development organization that focuses on helping native Ameri-
cans build sound, sustainable reservation economies. In 1993 the company made
a $1 million grant to the United States Holocaust Memorial Museum in Washing-
ton, D.C. In 1989 the Coca Cola Foundation committed $50 million over ten
years to improve and support education. As of mid-1996, the foundation had ex-
ceeded this amount. The program focuses on arts and science, urban, and envi-
ronmental education, global education programs, minority scholarships, and
teacher preparatory programs. As of mid-1996, the foundation had committed $2
million to the Valued Youth Program, which trains young people at risk of
dropping out of high school to serve as tutors and mentors for middle school
students. The foundation planned to expand the program to six other cities in
1996 and 1997. The company is a major contributor to the Atlanta Neighborhood
Development Partnership (ANDP), one of several community development organiza-
tions established around the time Atlanta won its bid to host the 1996 Olym-
pics. In 1995 the company donated $300,000 to ANDP to identify and preserve
low-cost housing for low- to middle-income families.
WALT DISNEY is an entertainment company which produces and distributes
films, musical records and television programs; and operates the ABC televi-
sion network, theme parks and the Disney stores. While Disney does not dis-
close charitable giving figures, according to the Corporate Giving Watch news-
letter, the company contributes $20 million annually to local charities,
mainly focusing on children, families, education, environmental conservation,
and the arts. In early 1997, Disney announced its employees would provide one
million volunteer hours with nonprofit organizations through the year 2000. As
part of this program, employees of The Disney Store will work closely with the
Boys and Girls Clubs of America. In June 1996, Disney announced that it would
open a store in the Harlem USA Development Project shopping mall. The company
has agreed to hire store managers and staff from Harlem. In 1995 the company
agreed to work with five federal agencies to bring recreational equipment and
an outdoor camping experience to city youth as part of the Wonderful Outdoor
World (WOW) project. The company is a supporter of the Pediatric AIDS Founda-
tions. One of the company's ice hockey rinks in Anaheim facilitates an inner-
city youth program called Growth Opportunities through Athletics, Learning and
Service (GOALS). Established by Disney as a public charity in 1994, the pro-
gram works with several hundred underprivileged children each year. The
Disney-sponsored Challenge Program in Florida aims to keep at-risk youth in
school through a work/study arrangement based at the Magic Kingdom and Disney
University.
In 1996 Disney was a major contributor to the New York Public Library. The
company also pledged $2 million to the Orlando Performing Arts Center to build
a new complex in downtown Orlando. The company funds 20 four-year university
scholarships each year for high school seniors in Florida, and since 1990 it
has sponsored the annual American Teacher Awards, which are televised on The
Disney Channel.
FANNIE MAE (Federal National Mortgage Association) provides liquidity to the
home mortgage markets by buying mortgages from lending institutions and issu-
ing mortgage-backed securities, thereby creating a secondary market for these
mortgages. Since 1991, under the leadership of its director, Harriet Ivey,
Fannie Mae's foundation has initiated an innovative series of major multi-year
grants. In 1994 the company announced that it would commit $1 million over
five years to support preventative and primary clinical health services for
economically disadvantaged women. In 1994 the company contributed $1.7 million
toward the establishment of the National Center for Lead Safe Housing which is
dedicated to preventing lead poisoning in children. Also in 1994, the company
made $1.29 million in grants to housing counseling organizations and committed
$1 million to high school education programs examining the roles of racism and
tolerance in society. The company is a supporter of the First Nations Develop-
ment Institute, a community economic development organization that focuses on
helping native Ameri-
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cans build sound, sustainable reservation economies. In 1995 Fannie Mae was
one of twenty corporations to provide first-year funding for the Minority
Business Center. In December 1995, Fannie Mae announced plans to contribute
$350 million to its foundation as part of a broad plan to expand national af-
fordable housing and anti-discrimination programs. The foundation expects to
be able to donate between $50 million to $70 million a year as a result of
this new capital. In March 1995, Fannie Mae announced that it would commit $1
trillion in financing through the year 2000 to purchase mortgages from minor-
ity and low-income neighborhoods. According to a June 1994 Business Week arti-
cle, some $850 billion of this amount would already be available under the
company's current lending guidelines, but Fannie Mae planned to loosen its
criteria for other mortgages that it purchases. Some low-income home buyers
would only be required to make a 3% downpayment, for example.
Fannie Mae's foundation is one of few corporate foundations to make program
related investments (PRIs). PRIs are low-interest loans or investments with
below-market-rate returns made by foundations to nonprofit organizations whose
mission meets the foundation's goals. For example, a foundation PRI may con-
sist of a loan to help capitalize a revolving loan fund for affordable housing
run by a community organization. The foundation makes the PRI with its assets,
usually expects a modest return on this investment, and eventually expects the
investment to be returned to its asset base. In 1994 Fannie Mae made a commit-
ment to place some $9.7 million in PRIs through 1996. This is a highly unusual
decision within the corporate foundation world. The company's foundation had
approximately $22.1 million in assets at that time.
GENERAL MILLS processes and markets packaged foods. In FY 1996, the General
Mills Foundation donated 2.85% ($16 million) of trailing three-year net earn-
ings before taxes (NEBT) to charity. The foundation has as a giving target 3%
of domestic pretax earnings. Forty percent of foundation contributions go to
operating support of existing programs, which is unusual for foundations and
indicates the company's long-term commitment to communities. General Mills'
support for volunteerism includes a program at corporate headquarters that
links the skills of employees and retirees with the needs of community groups.
In 1997 General Mills plans to initiate an innovative educational grants pro-
gram. At certain secondary schools in Minneapolis, Minnesota, and Toledo,
Ohio, students from 8th through 12th grades will be able to apply each year
for up to $2,000 in scholarship funds which, when awarded, will be set aside
for their college education. At the same time, the secondary schools them-
selves will be eligible for comparable grants as part of this program. In 1996
over one-third of foundation giving went to pre-collegiate education, an in-
crease from 13% in 1994. Contributions included $100,000 to the Albuquerque
public schools and $30,000 to the Minneapolis Youth Trust school partnerships.
The company is supplying significant funding for a project of the Executive
Leadership Council, formed by leading African American corporate executives.
The key demonstration project provides information technology transfer to his-
torically black colleges and universities. The company also provides matching
grants for employee contributions to educational and other nonprofit
institutions.
HASBRO manufactures and markets toys and related items, including games and
preschool and infant products. Grants in 1995 included a program to create
safe children's play gardens within existing community gardens and a program
in Missouri providing services for homeless preschoolers and their families,
including day care and family therapy. In 1996 Hasbro's Children's Foundation
grants included $25,000 to a math and science program for elementary and mid-
dle school girls in East Harlem, New York, and $40,000 for remedial reading
specialist at Boys Harbor in New York. Grants in 1995 included funding for a
literacy project for Navajo youth and a program in the public schools of Eu-
gene, Oregon, providing computer training and family trips for low-income par-
ents to help their children succeed in school. In 1994 Hasbro added five new
schools to its program focused on community-centered education.
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The company has maintained its headquarters in Pawtucket, Rhode Island, a city
which has been economically depressed for several years. Hasbro's charitable
giving in Rhode Island has also been substantial. The firm is a member of
Businesses for Social Responsibility, a trade association in Washington, D.C.,
that seeks to increase corporate responsibility in the U.S. In 1996 Hasbro
joined an innovative private-public partnership in Rhode Island to encourage
businesses to offer employee benefits to adoptive or foster parents. Hasbro
has offered adoption benefits for several years.
HOME DEPOT operates retail do-it-yourself home improvement stores. In 1995
the company's volunteer program, called Team Depot, received the 1995 Presi-
dent's Service award in recognition of innovation, mobilization of volunteers,
and ongoing community involvement to meet community needs. Suzanne Apple, as
director of community affairs, coordinates the teams that contribute to such
programs as City of Hope for cancer research, disaster relief programs, and
INROADS, an internship program for at-risk youth. In 1995 the company donated
$100,000 worth of merchandise for rescue efforts in the Oklahoma City bombing
in 1995. In August 1994, the company announced a donation of $2 million in
cash and $2 million in products and services to sponsor the August 1996
Paralympic Games for athletes with physical impairments. The company is also a
sponsor of City Year programs in Boston, Chicago, and San Jose. The company
has invested in several affordable housing public/private partnerships, in-
cluding Greater Miami Neighborhoods and the Long Island Housing Partnership.
As of 1995, the company's volunteers had participated in 60 Habitat for Human-
ity construction projects. In 1995 approximately 42% of the budget went to
housing and 25% to at-risk youth. The company matches employee charitable do-
nations dollar for dollar up to $500. In 1994 the company decentralized its
charitable giving program and allocated the funds to store managers, who in
turn decided what community endeavors to support.
MAY DEPARTMENT STORES COMPANY operates 346 department stores nationwide, in-
cluding eight regional chains. In FY 1995 the company donated 1.6% ($14 mil-
lion) of trailing three-year net earnings before taxes (NEBT) to charity. The
company is a national sponsor of the Older Adult Service and Information Sys-
tem (OASIS), an organization that services the elderly, and provides permanent
meeting areas in its department stores for OASIS centers. There are currently
43 centers throughout the country. In 1995 May contributed over $850,000 to
the OASIS Institute in St. Louis, Missouri, and $250,000 for the OASIS
intergenerational tutoring program in St. Louis. In 1995 company donations to
AIDS service organizations was approximately $250,000, including $200,000 to
the National Community AIDS Partnership in Washington, D.C. In 1995 the com-
pany reported that it contributed $140,000 to the St. Louis Equity Fund, a Lo-
cal Initiatives Support Coalition (LISC) fund that supports low-income housing
in the St. Louis metro area and $200,000 to the Regional Housing Alliance of
St. Louis. In addition, May contributed $190,000 to the Young Womens Christian
Association, $165,000 to INROADS, and $125,000 to the Make-A-Wish Foundation;
and $67,000 for breast cancer research in New York and Virginia.
MEDTRONIC manufactures and markets medical products for slow, irregular, and
fast heartbeats, vascular and cardiac surgery, including angioplasty catheters
and heart valves, and neurostimulation products and drug administration sys-
tems. In FY 1997, the company donated 1.5% ($7.1 million) of trailing three-
year net earnings before taxes (NEBT) to charity. Medtronic also made product
donations valued at $1.4 million. The majority of the company's donations are
directed toward education with a focus on science for pre-collegiate students.
Education is supported through the STAR (Science and Technology are Rewarding)
program which aims to improve K-12 science education. The program has expanded
from the Minneapolis and St. Paul, Minnesota, schools, and as of 1996 sup-
ported more than 100 projects involving over 128,000 students and teachers.
The program also targets economically disadvantaged, female, and minority stu-
dents. In 1995 the STAR program was recognized by the Confer-
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ence Board as the best in its class for innovative corporate-sponsored educa-
tion programs.
POLAROID designs, manufactures, and markets instant photographic cameras,
films, electronic imaging devices, and polarized filters and lenses. In 1995
the company donated approximately $2.3 million through grants, scholarships,
matching contributions, and in-kind gifts to charity. Historically, Polaroid's
charitable giving has consistently exceeded 1.5% of earnings. A committee of
50 employees from all levels of the company allocates its charitable dona-
tions. More than most other U.S. corporations, Polaroid has supported
initiatives to address domestic violence. Grants to community organizations
and programs in 1994 included $30,000 to Cambridge Community Services, $40,000
to Community Works, $25,000 to the Neighborhood Development Support Collabora-
tive of Boston, and $25,000 to People Acting in Community Endeavors. In 1993
it funded the start of the Jane Doe Safety Fund, a project of the Massachu-
setts Coalition of Battered Women's Service Group. It is participating in a
Harvard School of Public Health study of ten corporate Employee Assistance
Programs attempting to grapple with the effects of domestic violence in the
workplace. Polaroid's CEO project encourages local businesses to adopt women's
shelters. The company has also sponsored several educational symposia on do-
mestic violence. Polaroid has been a sponsor of KidCare, a children's safety
project of the National Center for Missing and Exploited Children. The company
contributes its film and cameras for the creation of photo IDs for children
and takes part in training events.
PROCTER & GAMBLE manufactures and markets laundry and cleaning products, pa-
per products, beauty care products food and beverages, and health care prod-
ucts. In FY 1995, the company donated 1.60% ($41.85 million) of trailing
three-year net earnings before taxes (NEBT) to charity, down from 2.17% the
previous year. That year Procter & Gamble also made in-kind donations it val-
ues at approximately $12.87 million. Contributions in FY 1996 included
$1,302,450 for Cincinnati K-12 Education Initiatives/Programs (up from
$707,150 the previous year) and $20,000 for the Leadership Conference on Edu-
cation Reform. Among its other education-related grants that year were
$460,000 to the United Negro College Fund, $60,000 to Tuskegee University, and
$50,000 to the National Action Council for Minorities in Engineering. The com-
pany is also a strong supporter of the Cincinnati Youth Collaborative. Among
the company's other FY 1996 grants were $365,000 to the National Council of
Negro Women, $50,000 to the Colorado's Children's Campaign, $40,000 to the
Children's Defense Fund, and $70,000 to Second Harvest. In August 1996, it
contributed $500,000 to the National Urban League's Youth Development Fund.
Its FY 1995 grants included $5 million to a job creation and community devel-
opment project in Norwich, New York, to support economic development in that
city and $215,000 to the Nature Conservancy. The company is a strong supporter
of the arts in its headquarters city of Cincinnati, Ohio.
TIMBERLAND manufactures and markets footwear and accessories and apparel un-
der the Timberland brand name. In 1995 Timberland became the largest private
contributor of funds to City Year, a Boston-based community service organiza-
tion for young adults, by pledging $5 million over five years. City Year has
been widely praised as an "urban peace corps" that recruits young people to
work on human service projects with city agencies. Timberland has also
launched a line of apparel and accessories labeled "City Year Gear." The prof-
its are divided between City Year and the company stores for a community serv-
ice fund. In addition to its financial support for City Year, Timberland has
developed a highly unusual relationship with this nonprofit organization. The
company has used City Year personnel to provide diversity training for Timber-
land's employees. The company provides City Year members with a full line of
clothing and footwear. Jeffrey Swartz serves on City Year's board of direc-
tors.
Timberland has a notably strong employee volunteer program. It allows all
full time and part time
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employees up to 32 hours annually to work on community service projects, half
of which are chosen by the company and half by the employee. The firm stresses
to all its employees that volunteerism is part of the company culture through
a number of means, including publication of a company newsletter that focuses
on its volunteer efforts. In 1992 the company initiated a worldwide ad cam-
paign aimed at counteracting a rising tide of racism, particularly in Germany.
The campaign had as its slogan "Give Racism The Boot."
VERMONT FINANCIAL SERVICES CORP is a holding company whose subsidiaries pro-
vide banking services in Vermont. In addition to traditional banking services,
the bank offers the Socially Responsible Banking Fund which accounted for ap-
proximately 10% of total FY 1995 deposits. In 1995 the company donated 1.93%
($225,000) of trailing three-year net earnings before taxes (NEBT) to charity.
In 1996 the bank's Socially Responsible Banking (SRB) Fund committed another
$2 million to support low-income housing in the Rutland area. It had already
committed $1.25 million for 17 units in the Rutland area in 1994. In 1995 the
SRB Fund provided a $925,000 loan as well as a grant of $325,000 to the Lake
Champlain Housing Development Corporation for construction of 28 low-to-moder-
ate-income housing units in Burlington. The project is structured as a cooper-
ative, so that each tenant assumes a portion of the mortgage. In 1989 Vermont
National Bank established the SRB Fund which enables depositors to earmark
their deposits for loans to local enterprises and projects that have positive
community impact. Flexible loans are made in five community areas, including
affordable housing, education, agricultural, conservation and environmental,
and small and dual bottom line businesses.
In 1996 the SRB Fund established a revolving loan fund for Vermont organic
farmers to obtain small, low interest loans for purchase of small equipment
and other needs. The SRB Fund also provided 0% loans for a specialty cheese
manufacturer, who in turn made 0% loans to local goat farmers. Other loans in-
cluded a mortgage for a parent child center. Funding in 1994 and 1995 included
financial advice and a mortgage that fostered the survival of an art therapy
program in North Bennington, Vermont, and loans to an organic dairy business.
Through its SRB Fund the bank provides significant support for low-income
housing in Vermont. The bank also offers two affinity credit cards. For one
card, a portion of each purchase made is donated to Coop America, a nonprofit
organization promoting cooperatively owned businesses in the U.S. and abroad.
For the other card, 1% of the users' purchases go to nonprofit organizations
providing a range of services to children in Vermont.
WACHOVIA is a regional banking company with operations in North Carolina,
Georgia, South Carolina. The bank provided retail banking for individuals,
small businesses, and corporations. According to a 1996 study by the Community
Reinvestment Performance Ratings of CANICCOR, a church-supported nonprofit
group specializing in the analysis of federal data on bank mortgages, the
company's federal Community Reinvestment Act (CRA) performance examinations
for 1994 were 50% above the industry average. CRA performance evaluations are
conducted each year by federal regulators to establish the banking industry's
record of meeting community credit needs. In 1994 CRA evaluations resulted in
"Outstanding" ratings at all Wachovia subsidiary banks. The Wachovia Bank of
North Carolina has received this rating for three consecutive years. Wachovia
has invested in low-income housing tax credits and equity financing for low-
income multifamily housing. In 1995 total investments in these properties
amounted to $12.6 million, including $500,000 to the Atlanta Housing Equity
Fund and $5 million to the North Carolina Equity Fund for similar investments.
Wachovia also participates in the North Carolina Community Investment Corpora-
tion and the Delaware Community Investment Corporation, funds that provide
long-term mortgage loans for affordable multifamily properties. Charitable do-
nations in 1995 included a second payment of $300,000 to the Atlanta Neighbor-
hood Development Partnership for renovations of low-to-moderate-income neigh-
borhoods,
9
<PAGE>
$200,000 to the East Lake Community Foundation in Atlanta and $125,000 to At-
lanta projects, $425,000 to Greenville, South Carolina, $30,000 to the Local
Initiatives Support Corporation, and $200,000 to Habitat for Humanity.
WHIRLPOOL manufactures and markets major appliances including home laundry
appliances, home refrigerators and air conditioners, and other home appliances.
Among its major brand names are Whirlpool, Kenmore, KitchenAid, and Speed
Queen. In 1996 the company donated 1.5% ($4.6 million) of trailing three-year
net earnings before taxes (NEBT) to charity. In 1996 and 1995 Whirlpool made
substantial contributions to numerous innovative programs supporting women. In
1996 the company gave $20,000 to the Young Womens Christian Association for a
24-hour resource and referral line for women, $20,000 to the National Hispana
Leadership Institute to evaluate and duplicate a training program for Hispanic
women, and $24,000 over three years to the Raintree Girl Scout Council of Ev-
ansville, Indiana, to support anti-bias programs on cultural diversity for
young girls. In 1996 the company donated $73,950 to the Eleanor Roosevelt Fund
of the American Association of University Women Educational Foundation which
supports women schoolteachers nationwide who are committed to promoting gender
equity in the classroom. In 1996 and 1995, the company respectively donated
$75,100 and $129,000 to the Andrews University Center for Intercultural Rela-
tions to promote greater awareness and sensitivity to people from different
ethnic and cultural backgrounds in the Benton Harbor and St. Joseph, Michigan,
area. In 1995, the company donated $82,000 over three years to the 9-to-5 Work-
ing Women Education Fund in Milwaukee for the professional development of women
in non-management positions, $200,000 to the Families and Work Institute for
the research of social issues impacting women, and $100,000 over two years to
the Family Violence Prevention Fund.
10
<PAGE>
DEVCAP SHARED RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Domini Social Index Portfolio, at value (Note 1) $2,257,956
Receivable for Fund shares sold 3,001,650
Deferred organization expenses (Note 1) 35,764
Receivable from affiliate (Note 2) 34,816
----------
Total Assets 5,330,186
----------
LIABILITIES:
Payable for Fund shares redeemed 661
Accrued expenses 3,960
----------
Total Liabilities 4,621
----------
NET ASSETS $5,325,565
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,694,770
Accumulated net investment loss (4,475)
Accumulated net realized gain from Portfolio 4,804
Net unrealized appreciation from Portfolio 630,466
----------
NET ASSETS 5,325,565
==========
SHARES OUTSTANDING 328,314
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($5,325,565 / 328,314 SHARES) $ 16.22
==========
</TABLE>
See Notes to Financial Statements
11
<PAGE>
DEVCAP SHARED RETURN FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME FROM PORTFOLIO:
Investment income from Portfolio $ 22,693
Expenses from Portfolio (3,494)
--------
Net investment loss from Portfolio 19,199
EXPENSES (NOTES 1 AND 2):
Transfer agent fee 26,204
Registration fees 11,950
Amortization of organization expenses (Note 1) 11,129
Servicing and fund accounting agent fee (Note 2) 9,500
Insurance 8,060
Professional fees 10,500
Printing 2,500
Administration fees (Note 2) 2,910
Trustee fees and expenses 1,243
-------
Total Expenses 83,996
Less: Reimbursement of expenses (Note 2) (61,675)
-------
Net Expenses 22,321
--------
NET INVESTMENT INCOME (3,122)
--------
NET REALIZED AND UNREALIZED GAIN FROM PORTFOLIO
Net realized gain from Portfolio 3,813
Net change in unrealized appreciation from Portfolio 628,098
--------
Net realized and unrealized gain from Portfolio 631,911
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS $628,789
========
</TABLE>
See Notes to Financial Statements
12
<PAGE>
DEVCAP SHARED RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 19, 1995
FOR THE YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
JULY 31, 1997 JULY 31, 1996
------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss $ (3,122) $ (1,353)
Net realized gain from Portfolio 3,813 2,050
Net change in unrealized appreciation 628,098 2,368
---------- --------
Net increase in net assets from operations 628,789 3,065
---------- --------
Dividends to shareholders from net realized
gain (1,059) --
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares 4,167,358 641,519
Payments for shares redeemed (113,074) (1,967)
Net asset value of shares issued in
reinvestment of distributions 934
---------- --------
Net increase in net assets from capital
share transactions 4,055,218 639,552
---------- --------
Total Increase in net assets 4,682,948 642,617
NET ASSETS:
Beginning of period 642,617 --
---------- --------
End of period (including accumulated net
investment loss of $4,805 and $1,353,
respectively) $5,325,565 $642,617
========== ========
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold 277,132 21,845
Redeemed (8,894) (89)
Reinvested 74 --
---------- --------
Net increase 268,312 21,756
========== ========
</TABLE>
See Notes to Financial Statements
13
<PAGE>
DEVCAP SHARED RETURN FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 19, 1995
FOR THE YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO
JULY 31, 1997(/3/) JULY 31, 1996
------------------ ----------------
<S> <C> <C>
Net Asset Value, beginning of period $ 10.71 $ 10.00
------- --------
Income from investment operations:
Net investment income (0.03) (0.02)
Net realized and unrealized gain on
investments 5.55 0.73
------- --------
Total income from investment
operations 5.52 0.71
------- --------
Less distributions from net realized
gain (0.01) --
------- --------
Net Asset Value, end of period $ 16.22 $ 10.71
======= ========
Ratios/supplemental data
Total return 51.57% 7.10%
Net Assets, end of period (in 000's) $ 5,326 $ 643
Ratio of expenses to average net
assets 1.75%/(1)/ 2.50%/(1,2)/
Ratio of net investment income to
average net assets (0.21)/(1)/ (0.54)%/(1,2)/
- --------
/(1)/Reflects the Fund's proportionate share of the Portfolio's expenses as well
as reimbursements by agents of the Fund. Had the reimbursements not
occured, the ratios of expenses and net investment income to average net
assets would have been as follows:
Ratio of expenses to average net
assets 5.93% 26.3%/(2)/
Ratio of net investment income to
average net assets (4.39)% (24.34)%/(2)/
</TABLE>
/(2)/Annualized.
/(3)/Calculated based on average shares outstanding.
See Notes to Financial Statements
14
<PAGE>
DEVCAP SHARED RETURN FUND
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JULY 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. DEVCAP Shared Return Fund
(the "Fund") is a series of DEVCAP Trust and is registered as an open-end man-
agement investment company under the Investment Company Act of 1940.
The Fund invests substantially all of its assets in the Domini Social Index
Portfolio (the "Portfolio"), an open-end, diversified management investment
company having the same investment objective as the Fund. The value of such
investment reflects the Fund's proportionate interest in the net assets of the
Portfolio (approximately 0.8% at July 31, 1997). The financial statements of
the Portfolio are included elsewhere in this report and should be read in con-
junction with the Fund's financial statements. The Fund became effective on
September 13, 1995, and commenced investment operations on October 19, 1995.
The presentation of financial statements in conformity with generally ac-
cepted accounting principles requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and disclo-
sures of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Ac-
tual results could differ from those estimates. The following is a summary of
the Fund's significant accounting policies.
A. VALUATION OF INVESTMENTS. Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INVESTMENT INCOME AND DIVIDENDS TO SHAREHOLDERS. The Fund earns income
daily, net of Portfolio expenses, on its investment in the Portfolio. Divi-
dends to shareholders are declared and paid semiannually from net investment
income. Distributions to shareholders of realized capital gains, if any, are
made annually.
C. FEDERAL TAXES. The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to dis-
tribute substantially all of its taxable income, including net realized gains,
if any, within the prescribed time periods. Accordingly, no provision for fed-
eral income or excise tax is necessary.
D. DEFERRED ORGANIZATION EXPENSES. Organizational costs are being amortized
on a straight-line basis over a five-year period. The amount paid by the Fund
on any redemption of the Fund's initial shares will be reduced by the pro rata
portion of any unamortized organization expenses which the number of the ini-
tial shares redeemed bears to the total number of initial shares outstanding
immediately prior to such redemption. To the extent that the proceeds of the
redemptions are less than such pro rata portion of any unamortized organiza-
tion expenses, DEVCAP has agreed to reimburse the Fund for such difference.
E. OTHER. All net investment income of the Portfolio is allocated pro rata
among the Fund and other investors in the Portfolio.
2. TRANSACTIONS WITH AFFILIATES.
A. ADMINISTRATION. The Fund has retained Signature Broker-Dealer Services,
Inc. ("Signature") to serve as Administrator and Distributor. Signature pro-
vides administrative services necessary for the operations of the Fund, fur-
nishes office space and facilities required for conducting the business of the
Fund and pays the compensation of the Fund's officers. For its services under
the Administrative Services Agreement, Signature receives from the Fund a fee
accrued daily at an annual rate equal to 0.20% of the Fund's average daily net
assets.
15
<PAGE>
DEVCAP SHARED RETURN FUND
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
YEAR ENDED JULY 31, 1997
B. DISTRIBUTION. The Fund has adopted a Distribution Plan in accordance with
Rule 12b-1 under the Act. Signature acts as agent of the Fund and principal un-
derwriter of shares of the Fund pursuant to the Plan. Under the Plan, the Fund
may pay Signature a fee not to exceed 0.25% per annum of the Fund's average
daily net assets in anticipation of, or in reimbursement for, expenses incurred
in connection with the sale of shares of the Fund. Such expenses include pay-
ments to broker-dealers who advise shareholders regarding the purchase, sale or
retention of shares of the Fund, payments to employees of the Distributor, ad-
vertising used for sales purposes, expenses of preparing and printing sales
literature and other distribution-related expenses. No expenses were incurred
by the Fund in connection with the distribution plan for the year ended July
31, 1997.
C. REIMBURSEMENT OF EXPENSES. DEVCAP has agreed that it will reimburse the
Fund to the extent necessary to maintain the Fund's total operating expenses
(which includes expenses of the Fund and Portfolio) at an annual rate of 1.75%
of the Fund's average daily net assets.
3. INVESTMENT TRANSACTIONS. Additions and reductions in the Fund's investment
in the Portfolio aggregated $1,168,238 and $289,745 respectively.
16
<PAGE>
[LOGO] KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
DEVCAP Shared Return Fund:
We have audited the accompanying statement of assets and liabilities of the
DEVCAP Shared Return Fund as of July 31, 1997, and the related statement of
operations for the year then ended and statements of changes in net assets and
financial highlights for the year then ended and the period from October 19,
1995 (commencement of operations) to July 31, 1996. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and fi-
nancial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the over-
all 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 DEVCAP Shared Return Fund as of July 31, 1997, the results of its opera-
tions for the year then ended and the changes in its net assets and financial
highlights for the year then ended and the period from October 19, 1995 to
July 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
September 19, 1997
17
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JULY 31, 1997
COMMON STOCKS -- 99.1%
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
APPAREL -- 0.9%
Brown Group, Inc. ......................................... 1,400 $ 24,500
Hartmarx Corp. (b)......................................... 2,300 17,394
Liz Claiborne.............................................. 5,300 253,738
Nike, Inc. ................................................ 21,900 1,364,644
Osh Kosh B'Gosh............................................ 800 17,100
Phillips-Van Heusen Corp. ................................. 1,900 26,600
Reebok International Ltd. (b).............................. 4,100 211,663
Russell Corp. ............................................. 2,700 78,806
Springs Industries, Inc. .................................. 1,600 77,400
Stride Rite Corp. ......................................... 3,400 46,113
Timberland Co. (b)......................................... 600 38,775
V.F. Corp. ................................................ 4,800 430,800
------------
2,587,533
------------
BANKING -- 7.8%
Banc One Corp. ............................................ 43,695 2,452,382
BankAmerica Corp. ......................................... 53,900 4,069,250
BankBoston Corp. .......................................... 11,100 942,806
Bankers Trust New York Corp. .............................. 5,800 586,888
Barnett Banks, Inc. ....................................... 15,000 854,063
CoreStates Financial Corp. ................................ 15,600 962,325
Fifth Third Bancorp........................................ 12,050 761,409
First Chicago NBD Corp. ................................... 23,606 1,791,105
J P Morgan & Co. Inc. ..................................... 13,900 1,610,663
Mellon Bank Corp. ......................................... 19,500 983,531
Norwest Corp. ............................................. 28,200 1,778,363
PNC Bank Corp. ............................................ 24,300 1,111,725
SunTrust Banks, Inc. ...................................... 16,600 1,065,512
Vermont Financial Services Corp. .......................... 200 10,100
Wachovia Corp. ............................................ 12,200 786,900
Washington Mutual, Inc. ................................... 18,880 1,305,080
Wells Fargo & Co. ......................................... 6,700 1,842,081
------------
22,914,183
------------
COMMERCIAL PRODUCTS & SERVICES -- 1.7%
Avery Dennison Corp. ...................................... 7,900 348,588
Cintas Corp. .............................................. 3,400 222,700
DeVry Inc (b).............................................. 2,700 79,313
Deluxe Corp. .............................................. 6,200 206,538
HON Industries, Inc. ...................................... 2,300 137,425
Harland (John H.) Co. ..................................... 2,300 45,138
Herman Miller, Inc. ....................................... 3,600 178,650
Ikon Office Solutions Inc. ................................ 10,000 291,875
Kelly Services............................................. 2,775 83,944
Moore Corp. Ltd. .......................................... 6,300 136,631
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMERCIAL PRODUCTS & SERVICES -- CONTINUED
National Service Industries................................. 3,600 $ 177,525
New England Business Services, Inc. ........................ 800 23,600
Pitney Bowes, Inc. ......................................... 11,000 826,375
Standard Register........................................... 2,000 64,750
Tennant Co. ................................................ 1,000 35,500
Xerox Corp. ................................................ 24,500 2,015,125
------------
4,873,677
------------
CONSTRUCTION -- 0.2%
Apogee Enterprises, Inc. ................................... 2,000 42,750
Centex Corp. ............................................... 2,400 133,800
Fleetwood Enterprises, Inc. ................................ 2,400 77,850
Granite Construction Inc. .................................. 1,100 22,825
Kaufman & Broad Home Corp. ................................. 2,700 57,713
Rouse Co. .................................................. 5,100 151,406
Skyline Corp. .............................................. 500 12,719
TJ International, Inc. ..................................... 3,500 85,750
------------
584,813
------------
ENERGY -- 3.0%
ARCO Chemical Co. .......................................... 7,400 334,850
Amoco Corp. ................................................ 37,400 3,515,600
Anadarko Petroleum Corp. ................................... 4,500 314,438
Apache Corp. ............................................... 6,800 239,700
Atlantic Richfield Co. ..................................... 24,400 1,825,426
Consolidated Natural Gas.................................... 7,000 405,125
Helmerich & Payne Inc. ..................................... 2,100 141,356
Louisiana Land & Exploration Co. ........................... 2,800 197,750
Monterey Resources Inc. .................................... 3,087 47,085
Oryx Energy Co. (b)......................................... 8,100 199,969
Pennzoil Co. ............................................... 3,300 257,813
Rowan Companies, Inc. (b)................................... 6,600 216,975
Santa Fe Energy Resources, Inc. (b)......................... 7,000 60,375
Sun Co., Inc. .............................................. 5,600 200,550
Western Atlas, Inc. (b)..................................... 4,100 326,206
Williams Companies, Inc .................................... 12,000 549,000
------------
8,832,218
------------
FINANCIAL SERVICES -- 5.7%
A.G. Edwards, Inc .......................................... 4,825 203,856
Ahmanson (H. F.) & Company.................................. 7,600 404,225
American Express Co......................................... 35,700 2,989,875
Beneficial Corp. ........................................... 4,000 290,000
Block (H. & R.), Inc. ...................................... 8,000 306,500
</TABLE>
18
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
COMMON STOCKS -- CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
FINANCIAL SERVICES -- CONTINUED
Dime Bancorp, Inc. ........................................ 8,000 $ 160,500
Federal Home Loan Mortgage Corporation..................... 52,600 1,896,888
Federal National Mortgage
Association............................................... 80,800 3,822,850
First Fed Financial Corp. (b).............................. 600 20,700
Golden West Financial Corp. ............................... 4,300 361,738
Household International Inc. .............................. 8,100 1,048,950
MBIA, Inc. ................................................ 3,200 377,600
MBNA, Corp. ............................................... 25,300 1,138,500
Merrill Lynch & Co., Inc. ................................. 25,000 1,760,937
Piper Jaffrey Inc. ........................................ 1,500 32,156
Schwab (Charles) & Co., Inc. .............................. 13,200 617,925
Student Loan Marketing Association......................... 4,300 644,731
Transamerica Corp. ........................................ 5,000 504,375
Value Line, Inc. .......................................... 500 20,250
Wesco Financial Corp. ..................................... 400 116,000
------------
16,718,556
------------
FOODS & BEVERAGES -- 9.3%
Ben & Jerry's (b).......................................... 700 9,013
CPC International, Inc. ................................... 10,900 1,045,718
Campbell Soup Co. ......................................... 35,100 1,820,813
Coca-Cola Co. ............................................. 188,500 13,053,625
Fleming Companies, Inc. ................................... 2,500 39,844
General Mills, Inc. ....................................... 12,200 843,325
Heinz (H. J.) Co. ......................................... 27,800 1,284,013
Hershey Foods Corp. ....................................... 11,600 640,900
Kellogg Co. ............................................... 15,700 1,442,438
Natures Sunshine Products, Inc. ........................... 1,100 22,550
Odwalla, Inc. (b).......................................... 1,300 13,163
Pepsico, Inc. ............................................. 116,500 4,463,406
Quaker Oats Co. ........................................... 10,500 537,469
Ralston-Purina Group....................................... 8,100 731,025
SUPERVALUE, Inc. .......................................... 4,600 186,300
Smucker (J.M.) Co. ........................................ 2,100 50,663
Sysco Corp. ............................................... 13,200 492,525
Tootsie Roll Industries, Inc. ............................. 1,779 87,188
Wrigley (Wm) Jr. Co. ...................................... 8,800 677,050
------------
27,441,028
------------
HEALTH CARE -- 8.3%
ALZA Corp. (b)............................................. 6,400 206,800
Acuson Corp. (b)........................................... 2,000 52,625
Allergan, Inc. ............................................ 4,800 153,300
Angelica Corp. ............................................ 800 15,400
Becton Dickinson & Co. .................................... 9,300 498,713
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
HEALTH CARE -- CONTINUED
Bergen Brunswig Corp. ..................................... 3,618 $ 107,636
Biomet, Inc. .............................................. 8,400 167,475
Boston Scientific Corp. (b)................................ 14,700 1,054,725
Forest Laboratories, Inc. (b).............................. 2,900 131,950
Humana, Inc. (b)........................................... 12,300 299,813
Johnson & Johnson.......................................... 101,300 6,312,256
Manor Care, Inc. .......................................... 4,700 155,100
Marquette Medical Systems, Inc. --Class A (b).............. 1,500 38,625
Medtronic, Inc. ........................................... 18,000 1,570,500
Merck & Co., Inc. ......................................... 91,700 9,531,069
Mylan Labs, Inc. .......................................... 9,700 163,688
Oxford Health Plans, Inc. (b).............................. 5,900 495,969
Schering-Plough Corp. ..................................... 55,400 3,022,763
St. Jude Medical, Inc. (b)................................. 6,900 281,606
Stryker Corp. ............................................. 7,400 288,600
Sunrise Medical, Inc. (b).................................. 1,500 22,500
United American Healthcare Corp. (b)....................... 300 2,063
------------
24,573,176
------------
HOUSEHOLD GOODS -- 5.0%
Alberto Culver Co. -- Class B.............................. 4,300 120,669
Avon Products, Inc. ....................................... 10,000 725,625
Bassett Furniture Industries, Inc. ........................ 900 27,000
Black & Decker Corp. ...................................... 7,400 311,725
Church & Dwight Co., Inc. ................................. 4,400 130,625
Clorox Co. ................................................ 3,900 544,538
Colgate-Palmolive Co. ..................................... 22,300 1,689,225
Fedders Corp. ............................................. 2,700 16,369
Handleman Co. (b).......................................... 2,500 16,094
Harman International Industries............................ 1,230 48,893
Hasbro Inc. ............................................... 9,850 302,272
Huffy Corp. ............................................... 700 10,325
Leggett & Platt, Inc. ..................................... 7,000 317,625
Mattel, Inc. .............................................. 22,085 767,454
Maytag Corp. .............................................. 7,400 215,988
Newell Co. ................................................ 12,100 507,444
Oneida Ltd. ............................................... 800 23,600
Procter & Gamble Co. ...................................... 51,300 7,804,012
Rubbermaid, Inc. .......................................... 11,300 294,506
Shaw Industries............................................ 10,000 106,875
Snap-On Inc. .............................................. 4,450 183,563
Stanhome, Inc. ............................................ 1,100 36,231
Stanley Works.............................................. 6,700 303,594
Thomas Industries Inc. .................................... 800 23,700
Whirlpool Corp. ........................................... 5,700 285,000
------------
14,812,952
------------
</TABLE>
19
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
COMMON STOCKS -- CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
INSURANCE -- 6.6%
Aetna, Inc. ................................................ 11,370 $ 1,295,469
American General Corp. ..................................... 18,162 967,127
American International Group................................ 52,400 5,580,600
Chubb Corp. ................................................ 13,200 930,600
Cigna Corp. ................................................ 5,600 1,117,200
Cincinnati Financial Corp. ................................. 3,995 330,087
General Re Corp. ........................................... 6,100 1,274,138
Hartford Steam Boiler, Inc. ................................ 1,600 89,200
Jefferson Pilot Corp. ...................................... 5,500 390,844
Lincoln National Corp. ..................................... 7,800 554,775
Marsh & McLennan Companies, Inc. ........................... 12,500 967,969
Providian Financial Corp. .................................. 7,100 278,231
ReliaStar Financial Corp. .................................. 2,800 214,725
SAFECO Corp. ............................................... 9,800 469,175
St. Paul Cos. .............................................. 6,300 494,156
Torchmark Corp. ............................................ 5,200 414,050
Travelers, Inc. ............................................ 48,500 3,488,969
UNUM Corp. ................................................. 10,700 476,150
USF&G Corp. ................................................ 8,400 206,325
------------
19,539,790
------------
MEDIA -- 3.4%
Disney (Walt) Co. .......................................... 51,400 4,153,763
BET Holdings, Inc. -- Class A (b)........................... 900 36,000
Banta Corp. ................................................ 2,350 64,919
Comcast Corp. .............................................. 26,500 601,219
Dow Jones & Co., Inc. ...................................... 7,300 315,269
Harcourt General Inc. ...................................... 5,200 245,700
King World Productions Inc. ................................ 2,700 109,013
Lee Enterprises, Inc. ...................................... 3,500 89,688
McGraw-Hill Companies....................................... 7,800 528,938
Media General, Inc.--Class A................................ 1,900 67,450
Meredith Corp. ............................................. 3,900 107,981
New York Times Co. ......................................... 7,300 366,825
R.R. Donnelley & Sons....................................... 11,100 446,081
Scholastic Corp. (b)........................................ 2,200 77,550
Tele-Communications, Inc. --
Series A (b)............................................... 50,100 857,962
Times Mirror Co. -- Class A................................. 7,500 409,687
U S West Media Group........................................ 45,900 1,012,669
Viacom Inc. -- Class A (b).................................. 4,900 149,756
Washington Post Co. ........................................ 800 331,000
------------
9,971,470
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
MISCELLANEOUS -- 1.8%
Cross (A.T.)................................................ 900 $ 7,988
American Greetings Corp. ................................... 5,800 194,300
Avnet, Inc. ................................................ 3,400 223,763
Bemis Co. .................................................. 3,900 179,156
CPI Corp. .................................................. 600 12,225
Case Corp. ................................................. 5,600 349,650
Deere & Co. ................................................ 19,200 1,092,000
General Signal.............................................. 4,000 196,750
Gibson Greetings Inc. (b)................................... 900 20,363
Hillenbrand Industries Inc. ................................ 5,300 243,138
Hunt Manufacturing, Inc. ................................... 600 12,713
Ionics, Inc. (b)............................................ 1,400 59,325
Jostens Inc. ............................................... 2,600 67,113
Marriott International, Inc. ............................... 9,600 660,000
Omnicom Group............................................... 6,200 432,838
Polaroid Corp. ............................................. 3,400 202,300
Sealed Air Corp. (b)........................................ 3,400 159,375
Service Corp. International................................. 18,100 615,400
Sonoco Products Co. ........................................ 6,805 226,692
Toro Co. ................................................... 800 29,200
Whitman Corp. .............................................. 7,700 194,425
------------
5,178,714
------------
MISCELLANEOUS MANUFACTURING -- 2.2%
Applied Materials, Inc. (b)................................. 13,700 1,258,687
CLARCOR Inc. ............................................... 900 23,344
Cincinnati Milacron......................................... 2,800 78,400
Crown Cork & Seal, Inc. .................................... 9,800 495,513
Dionex, Corp. (b)........................................... 800 36,500
Fastenal Co. ............................................... 2,700 151,031
Gerber Scientific Inc. ..................................... 1,700 35,913
Graco Inc. ................................................. 1,450 47,759
Illinois Tool Works Inc. ................................... 18,800 975,250
Isco, Inc. ................................................. 300 2,438
James River Corp. .......................................... 6,300 259,481
Kimberly-Clark Corp. ....................................... 42,564 2,157,463
Lawson Prods, Inc. ......................................... 800 21,000
Millipore Corp. ............................................ 3,300 145,819
Nordson Corp. .............................................. 1,500 91,500
Philip Services (b)......................................... 1,527 22,722
Thermo Electron Corp. ...................................... 11,330 387,344
WH Brady Co. -- Class A..................................... 1,400 41,475
Watts Industries Inc. -- Class A............................ 1,900 47,975
Wellman, Inc. .............................................. 2,200 50,050
Zurn Industries, Inc. ...................................... 700 20,694
------------
6,350,358
------------
</TABLE>
20
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
COMMON STOCKS -- CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
RESOURCE DEVELOPMENT -- 1.9%
Air Products & Chemicals.................................... 8,300 $ 731,956
Aluminum Company Of America................................. 13,100 1,159,350
Battle Mountain Gold Co. ................................... 17,300 96,231
BetzDearborn Inc............................................ 2,000 131,000
Cabot Corp. ................................................ 5,200 147,225
Calgon Carbon Corp. ........................................ 2,700 36,450
Consolidated Papers, Inc. .................................. 3,400 202,725
Cyprus Amax Minerals Co. ................................... 7,000 177,625
Echo Bay Mines Ltd (b)...................................... 10,600 53,000
Fuller H. B. Co. ........................................... 1,300 67,113
Inland Steell Industries, Inc. ............................. 3,600 82,575
Mead Corp. ................................................. 3,700 266,400
Morton International Inc. -- New............................ 10,700 357,781
Nalco Chemical.............................................. 4,900 199,981
Nucor Corp. ................................................ 6,650 412,716
Praxair, Inc. .............................................. 11,900 655,987
Sigma-Aldrich Corp. ........................................ 7,800 270,075
Westvaco Corp. ............................................. 7,900 264,156
Worthington Industries...................................... 7,300 144,632
------------
5,456,978
------------
RETAIL -- 9.6%
Albertson's, Inc. .......................................... 18,900 700,481
American Stores Co. ........................................ 20,900 527,725
Bob Evans Farms............................................. 3,000 49,875
CVS Corp. .................................................. 12,600 716,625
Charming Shoppes Inc. (b)................................... 7,900 46,413
Circuit City Stores......................................... 7,500 271,875
Claire's Stores Inc. ....................................... 3,200 68,800
Costco Companies Inc. (b)................................... 15,915 602,781
Dayton-Hudson Corp. ........................................ 16,400 1,059,850
Dillards Inc. -- Class A Stock.............................. 8,600 325,188
Dollar General.............................................. 6,659 292,996
Egghead Inc. (b)............................................ 1,500 9,563
Gap, Inc. (The)............................................. 20,600 915,413
Giant Food Inc. ............................................ 4,400 147,675
Great Atlantic & Pacific Tea Co. ........................... 2,900 79,569
Hannaford Brothers Co. ..................................... 3,000 102,375
Hechinger Co. -- Class A (b)................................ 3,000 7,875
Home Depot Inc ............................................. 55,449 2,765,519
International Dairy Queen, Inc. (b)......................... 1,800 44,550
Kmart Corp. (b)............................................. 36,800 437,000
Kroger Co. (b).............................................. 19,200 567,600
Land's End, Inc. (b)........................................ 2,200 65,175
Lillian Vernon Corp. ....................................... 1,000 16,750
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
RETAIL -- (CONTINUED)
Longs Drugstores Corp. .................................... 2,900 $ 78,119
Lowe's Companies, Inc. .................................... 13,100 492,888
Luby's Cafeterias, Inc. ................................... 1,800 35,438
May Department Stores Co................................... 17,900 1,000,163
McDonald's Corp. .......................................... 52,500 2,821,875
Mercantile Stores Company, Inc. ........................... 2,600 174,688
Nordstrom, Inc ............................................ 5,800 328,788
Penney (J.C.) Company, Inc. ............................... 18,600 1,088,100
Ruby Tuesday, Inc. ........................................ 1,400 35,613
Ryans Family Steakhouse (b)................................ 3,600 31,050
Sears Roebuck.............................................. 29,600 1,874,050
Sherwin Williams Co. ...................................... 13,000 416,813
Spec's Music, Inc. (b)..................................... 200 125
Starbucks Corp. (b)........................................ 6,100 249,719
TCBY Enterprises, Inc. .................................... 1,900 13,063
TJX Cos., Inc. ............................................ 11,800 352,525
Tandy Corp. ............................................... 4,300 255,581
The Limited, Inc. ......................................... 20,400 455,175
The Pep Boys............................................... 4,400 146,300
Toys 'R' Us, Inc. (b)...................................... 21,520 733,025
Wal-Mart Stores, Inc. ..................................... 172,400 6,475,775
Walgreen Co. .............................................. 18,600 1,050,900
Wholefoods Market, Inc. (b)................................ 3,300 113,850
Woolworth Corp. (b)........................................ 10,200 288,788
------------
28,334,084
------------
TECHNOLOGY -- 22.5%
3 Com Corp. (b)............................................ 25,100 1,372,656
AT & T Corp. .............................................. 123,700 4,553,706
Advanced Micro Devices (b)................................. 10,800 378,675
Amdahl Corp. (b)........................................... 9,300 109,856
American Power Conversion Corp. (b)........................ 6,900 171,638
Analog Devices (b)......................................... 12,100 380,394
Apple Computer, Inc. (b)................................... 9,600 168,000
Autodesk, Inc. ............................................ 3,500 148,313
Automatic Data Processing, Inc. ........................... 22,200 1,098,900
Baldor Electric Co. ....................................... 1,900 59,375
Borland International Inc. (b)............................. 2,400 19,800
Broderbund Software, Inc. (b).............................. 1,400 30,363
Cisco Systems, Inc. (b).................................... 50,400 4,009,950
Compaq Computer (b)........................................ 51,900 2,964,788
Computer Associates International ......................... 27,400 1,864,913
Cooper Industries, Inc. ................................... 9,000 500,063
DSC Communications (b)..................................... 8,900 262,550
Digital Equipment Corp. (b)................................ 11,600 477,775
Grainger (W.W.), Inc. ..................................... 3,900 374,400
</TABLE>
21
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
COMMON STOCKS -- CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
TECHNOLOGY -- CONTINUED
Hewlett-Packard Company.................................... 77,200 $ 5,408,825
Hubbell Inc.--Class B...................................... 5,160 245,423
Hutchinson Technology Inc. (b)............................. 1,200 36,975
Intel Corp. ............................................... 124,600 11,439,838
International Business Machines............................ 75,500 7,984,125
MCI Communications Corp. .................................. 52,000 1,836,250
Merix Corp. (b)............................................ 300 5,250
Micron Technology, Inc. ................................... 15,900 774,131
Microsoft Corp. (b)........................................ 91,100 12,890,650
Molex Inc. ................................................ 9,650 375,747
National Semiconductor Corp. (b)........................... 10,700 337,050
Novell Inc. (b)............................................ 26,200 198,546
Perkin-Elmer Corp. ........................................ 3,300 269,363
Quarterdeck Corp. (b)...................................... 2,900 8,338
Raychem Corp. ............................................. 3,100 300,700
Shared Medical Systems Corp. .............................. 1,900 102,600
Solectron Corp. (b)........................................ 4,300 339,163
Sprint Corp. .............................................. 32,500 1,608,750
Stratus Computer, Inc. (b)................................. 1,900 103,550
Sun Microsystems, Inc. (b)................................. 27,900 1,274,681
Tandem Computers, Inc. (b)................................. 8,800 258,500
Tektronix, Inc. ........................................... 2,500 154,375
Tellabs, Inc. (b).......................................... 13,600 814,300
Thomas & Betts Corp. ...................................... 4,200 239,925
Xilinx, Inc. (b)........................................... 5,600 265,300
------------
66,218,470
------------
TRANSPORTATION -- 1.8%
AMR Corp. (b).............................................. 6,800 731,425
Airborne Freight Corp. .................................... 1,700 83,406
Alaska Air Group, Inc. (b)................................. 800 23,650
CSX Corp. ................................................. 16,400 1,012,700
Consolidated Freightways Corp. (b)......................... 1,700 25,819
Delta Air Lines, Inc. ..................................... 5,300 471,038
Federal Express Corp. (b).................................. 8,700 561,694
GATX Corp. ................................................ 1,700 104,656
Norfolk Southern Corp. .................................... 9,500 1,052,125
Roadway Express Inc. ...................................... 1,600 36,625
Ryder System............................................... 5,600 200,550
Southern New England Telecommunication Corp. .............. 4,900 194,775
Southwest Airlines, Inc. .................................. 11,000 321,062
UAL Corp. (b).............................................. 4,500 369,281
Yellow Corp. (b)........................................... 2,000 54,000
------------
5,242,806
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
UTILITIES -- 6.9%
AGLResources Inc. .......................................... 4,100 $ 85,844
American Water Works Co. ................................... 5,900 127,956
Ameritech Corp. ............................................ 41,800 2,818,888
Bell Atlantic Corp. ........................................ 33,300 2,416,331
BellSouth Corp. ............................................ 75,500 3,576,813
Brooklyn Union Gas Co. ..................................... 3,900 117,244
CalEnergy, Inc. (b)......................................... 4,800 193,500
Citizens Utilities--Class A (b)............................. 13,966 117,846
Connecticut Energy Corp. ................................... 700 15,969
Eastern Enterprises......................................... 1,600 57,300
El Paso Natural Gas Co. .................................... 4,600 265,938
Energen Corp. .............................................. 1,100 39,875
Enron Corp. ................................................ 23,100 876,356
Equitable Resources, Inc. .................................. 2,400 71,550
Frontier Corp. ............................................. 12,400 255,750
Idaho Power Co. ............................................ 2,700 87,581
LG&E Energy Corp. .......................................... 4,700 102,519
MCN Corp. .................................................. 5,800 183,788
NICOR, Inc. ................................................ 3,900 142,838
NYNEXCorp. ................................................. 33,200 1,840,525
Northwestern Public Service Co. ............................ 1,500 28,125
OGE Energy Corp. ........................................... 3,100 141,825
Oneok Inc. ................................................. 2,000 70,000
Pacific Enterprises......................................... 6,300 210,656
Peoples Energy Corp. ....................................... 2,400 92,100
Potomac Electric Power...................................... 9,000 200,813
Public Service Co. of Colorado.............................. 4,800 199,800
SBC Communications, Inc. ................................... 69,459 4,111,093
Sonat, Inc. ................................................ 6,500 324,188
Telephone and Data Systems, Inc. ........................... 4,400 168,850
U S West, Inc. (b).......................................... 36,100 1,319,906
Washington Gas Light........................................ 3,300 85,800
------------
20,347,567
------------
VEHICLE COMPONENTS -- 0.5%
Cooper Tire & Rubber Co. ................................... 5,700 142,144
Cummins Engine Co., Inc. ................................... 2,900 227,650
Dana Corp. ................................................. 8,000 363,500
Federal-Mogul Corp. ........................................ 2,400 84,900
Genuine Parts............................................... 13,600 443,700
Modine Mfg Co. ............................................. 2,100 65,625
SPX Corp. (b)............................................... 800 41,600
</TABLE>
22
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS -- CONTINUED
JULY 31, 1997
COMMON STOCKS -- CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
VEHICLE COMPONENTS -- CONTINUED
Smith (A.O.) Corp. ........................................ 1,200 $ 42,975
Spartan Motors, Inc. ...................................... 700 6,213
------------
1,418,307
------------
Total Common Stock (cost $200,235,272) (a)........................ 291,396,680
Other Assets Less Liabilities -- 0.9%............................. 962,290
------------
NET ASSETS -- 100.0%.............................................. $292,358,970
============
</TABLE>
- --------
(a) The aggregate cost for federal income tax purposes is $200,235,272, the ag-
gregate gross unrealized appreciation is $92,193,207, and the aggregate
gross unrealized depreciation is $1,031,799, resulting in net unrealized
appreciation of $91,161,408.
(b) Non-income producing security.
See Notes to Financial Statements
23
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value (Cost $200,235,272) (Note 1) $291,396,680
Cash 3,566,465
Dividends receivable 378,347
------------
Total assets 295,341,492
------------
LIABILITIES:
Payable for securities purchased 2,932,971
Expense payment fee payable (Note 2) 49,551
------------
Total liabilities 2,982,522
------------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS $292,358,970
============
NET ASSETS CONSIST OF:
Paid-in capital $292,358,970
============
</TABLE>
See Notes to Financial Statements
24
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$536) $ 2,657,798
EXPENSES (NOTES 1 AND 2):
Expense payment and sponsorship fees 417,522
Custody fees offset by compensating balances 70,377
-----------
Total expenses 487,899
Fees paid indirectly (70,377)
-----------
Net expenses 417,522
-----------
NET INVESTMENT INCOME 2,240,276
NET REALIZED GAIN ON INVESTMENTS (NOTE 3):
Proceeds from sales $ 2,468,457
Cost of securities sold 2,035,040
-----------
Net realized gain on investments 433,417
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS:
Beginning of year 16,620,535
End of year 91,161,408
-----------
Net change in unrealized appreciation of
investments 74,540,873
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $77,214,566
===========
</TABLE>
See Notes to Financial Statements
25
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JULY 31, 1997 JULY 31, 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $ 2,240,276 $ 1,132,780
Net realized gain on investments 433,417 697,337
Net change in unrealized appreciation of
investments 74,540,873 6,861,507
------------ ------------
Net increase in net assets resulting from
operations 77,214,566 8,691,624
------------ ------------
Transactions in Investors' Beneficial Interest:
Additions 137,135,556 52,533,365
Reductions (22,391,710) (14,827,219)
------------ ------------
Net increase in net assets from transactions in
investors' beneficial interests 114,743,846 37,706,146
------------ ------------
Total Increase in Net Assets 191,958,412 46,397,770
NET ASSETS:
Beginning of year 100,400,558 54,002,788
------------ ------------
End of year $292,358,970 $100,400,558
============ ============
</TABLE>
See Notes to Financial Statements
26
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of net investment
income to average net
assets 1.34%(/1/) 1.48%(/1/) 1.85%(/2/) 2.13%(/2/) 1.88%
Ratio of total expenses
to average net assets 0.29%(/1/)(/3/) 0.59%(/1/)(/3/) 0.43%(/2/) 0.29%(/2/) 0.29%
Portfolio turnover 1% 5% 6% 8% 4%
Average commission rate
paid per share $ 0.05 $ 0.05 -- -- --
</TABLE>
- --------
(/1/)Had the Expense Payment Agreement and Sponsor Arrangement not been in
place, the ratios of net investment income and total expenses to average
net assets for the years ended July 31, 1997 and July 31, 1996 would have
been 1.34% and 0.25% and 1.14% and 0.85%, respectively.
(/2/)Reflects a voluntary waiver of fees by the Administrator and Adviser due
to the limitations set forth in the Expense Reimbursement Agreement. Had
the Administrator and Adviser not waived their fees, the ratios of net in-
vestment income and expenses to average net assets for the years ended
July 31, 1995 and 1994 would have been 1.75% and 0.53% and 2.00% and
0.42%, respectively.
(/3/)Ratioof total expenses to average net assets for the years ended July 31,
1997 and 1996 include indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratios would have been 0.25% and 0.50% for the years
ended July 31, 1997 and 1996, respectively.
See Notes to Financial Statements
27
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS [-- CONTINUED]
JULY 31, 1997
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Domini Social Index Portfolio (the "Index Portfolio") is registered under
the Investment Company Act of 1940 (the "Act") as a no-load, diversified,
open-end management investment company which was organized as a trust under
the laws of the State of New York on June 7, 1989. The Index Portfolio intends
to correlate its investment portfolio as closely as is practicable with the
Domini 400 Social Index (the "Index"), which is a common stock index developed
and maintained by Kinder, Lydenberg, Domini & Co., Inc. ("KLD"), the Index
Portfolio's Adviser. The Declaration of Trust permits the Trustees to issue an
unlimited number of beneficial interests in the Index Portfolio. The Index
Portfolio commenced operations upon effectiveness on August 10, 1990 and began
investment operations on June 3, 1991.
The preparation of financial statements in conformity with generally ac-
cepted accounting principles requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and disclo-
sure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the re-
porting period. Actual results could differ from those estimates. The follow-
ing is a summary of the Index Portfolio's significant accounting policies.
(A) VALUATION OF INVESTMENTS: The Index Portfolio values securities at the
last reported sale price, or at the last reported bid price if no sales are
reported.
(B) DIVIDEND INCOME: Dividend income is recorded on the ex-dividend date.
(C) FEDERAL TAXES: The Index Portfolio's policy is to comply with the appli-
cable provisions of the Internal Revenue Code. Accordingly, no provision for
Federal taxes is deemed necessary.
(D) OTHER: Investment transactions are accounted for on the trade date.
Gains and losses are determined on the basis of identified cost.
NOTE 2 -- TRANSACTIONS WITH AFFILIATES
(A) INVESTMENT ADVISORY FEES: The Index Portfolio has retained KLD as the
Investment Adviser of the Index Portfolio. The services provided by KLD con-
sist of the determination of the stocks to be included in the Index and evalu-
ating, in accordance with KLD's criteria, debt securities which may be pur-
chased by the Index Portfolio. For its services under the Investment Advisory
Agreement, KLD receives from the Index Portfolio a fee accrued daily at an an-
nual rate equal to 0.025% of the Index Portfolio's average daily net assets.
Prior to October 4, 1996, KLD received an investment advisory fee accrued
daily at an annual rate equal to 0.050% of the Index Portfolio's average daily
net assets.
(B) INVESTMENT MANAGEMENT FEES: The Index Portfolio has retained Mellon Eq-
uity Associates ("MEA") as the Investment Manager of the Index Portfolio. MEA
does not determine the composition of the Index. Under the Management Agree-
ment, the Index Portfolio pays MEA an investment management fee equal on an
annual basis to 0.10% of the Index Portfolio's average daily net assets. Prior
to October 4, 1996 MEA received a fee based on the following percentages of
the Index Portfolio's average daily net assets; 0.10% of assets up to $50 mil-
lion; 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.
(C) SPONSOR FEES: Pursuant to a Sponsorship Agreement dated November 6,
1996, KLD agreed to pay all of the ordinary operating expenses of the Index
Portfolio except the sponsorship fee and excluding brokerage fees and commis-
sions, interest, taxes and extraordinary expenses. Under this arrangement,
28
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JULY 31, 1997
KLD receives sponsorship fees from the Index Portfolio at an annual rate equal
to 0.20% of the average daily net assets of the Index Portfolio. From October
4, 1996 to November 5, 1996 the Administrator, Signature Broker-Dealer Servic-
es, Inc. ("Signature"), received expense payment fees from the Index Portfolio
at an annual rate equal to 0.20% of the average daily net assets of the Index
Portfolio, and prior to October 4, 1996, at an annual rate equal to 0.50% of
the average daily net assets of the Index Portfolio. The Sponsorship Arrange-
ment is scheduled to terminate on December 31, 1999. For the year ended
July 31, 1997, the Sponsor and Administrator incurred approximately $370,950
in expenses on behalf of the Index Portfolio.
(D) ADMINISTRATION FEES: Pursuant to an Administrative Services Agreement
between KLD and Signature, Signature serves as Administrator of the Index
Portfolio. Certain officers of Signature serve as officers and trustees to the
Index Portfolio. Under the Administrative Services Agreement, Signature pro-
vides management and administrative services necessary for the operations of
the Index Portfolio, furnishes office space and facilities required for con-
ducting the business of the Index Portfolio and pays the compensation of the
Index Portfolio's officers and trustees affiliated with Signature. For these
services Signature receives from KLD a fee accrued daily at an annual rate
equal to 0.025% of the Index Portfolio's average daily net assets.
NOTE 3 -- INVESTMENT TRANSACTIONS
Purchase and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $119,258,928 and $2,468,458, respectively.
Custody fees of the Portfolio were reduced by $70,377 which was compensation
for uninvested cash left on deposit with the custodian. Cash balances could
have been employed to earn additional income for the Portfolio.
NOTE 4 -- MANAGEMENT RESTRUCTURING
On June 30, 1997, the Board of Trustees (the "Board") of the Index Portfolio
voted to approve certain management changes (the "Management Restructuring")
in order to provide for a more centralized management structure. The Manage-
ment Restructuring includes the Index Portfolio, subject to shareholder ap-
proval, entering into a new management agreement with Domini Social Invest-
ments LLC to provide investment supervisory and administrative services and a
new submanagement agreement with MEA to manage the investments of the Index
Portfolio on a day to day basis.
In connection with the Management Restructuring, the Board has also approved
the termination of the existing Sponsorship Agreement with KLD, including the
expense payment arrangements.
29
<PAGE>
[LOGO] KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
Domini Social Index Portfolio:
We have audited the accompanying statement of assets and liabilities, in-
cluding the portfolio of investments, of the Domini Social Index Portfolio as
of July 31, 1997, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the two-
year period then ended and financial highlights for each of the years in the
five-year period then ended. These financial statements and financial high-
lights are the responsibility of the Portfolio's management. Our responsibil-
ity is to express an opinion on these financial statements and financial high-
lights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. 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 and financial highlights. Our procedures included confirmation of
securities owned by the Portfolio as of July 31, 1997 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as eval-
uating the overall financial statement presentation. We believe that our au-
dits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Domini Social Index Portfolio as of July 31, 1997, the results of its op-
erations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and financial highlights for each
of the years in the five-year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
August 22, 1997
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