<PAGE>
THE DEVCAP SHARED RETURN FUND
CHANGING THE WAY THE WORLD WORKS
[PICTURE OF SCHOOL STUDENT APPEARS HERE]
SEMI-ANNUAL REPORT
JANUARY 31, 1998
[LOGO OF DEVCAP DEVELOPMENT CAPITAL]
Globally Responsible Investments
<PAGE>
LETTER TO SHAREHOLDERS
March 30, 1998
Dear Investor:
We continue to enjoy the journey on a bull market that is grounded upon a
thriving US economy. Factors that contributed to our investment return for the
six months ended January 31, 1998, remain positive elements that we hope will
continue to nourish the overall economic environment. Low interest rates, low
unemployment, new efficiencies in the business environment and an expanding
population base all suggest that long term growth may continue. A US work
force whose numbers increasingly look for investment opportunities to provide
for retirement years and for other major life events continues to generate de-
mand for quality investments in US equities. We continue to benefit from our
association with the Domini Social Index Portfolio whose unaudited financial
report is included within our report.
If your investment mindset mirrors the economic assessment expressed in the
opening paragraph, you have a positive correlation with an index fund such as
ours. Our investment goal remains consistent with our original intent; we ex-
pect to continue to closely track the S&P 500. We believe that our normal re-
sults should fall slightly behind this average since we will incur expenses in
servicing, trading and marketing our investments. The S&P 500 does not account
for these expenses in its performance statistics. The DEVCAP Trust may fall
below the S&P 500, especially in the startup years as we build our investor
base, attempting to grow in numbers of investors and in total assets invested.
To defray some of our necessary cost and to limit our exposure, we have the
benefit of the DEVCAP Trust sponsors' commitment until November of 1998 to pay
for expenses over and above 1.75%, our current ratio of expenses to average
net assets. (See page 4, DEVCAP Shared Return Fund Financial Highlights)
The DEVCAP Trust continues to apply the social screens to our investments that
conform to our original plan. The returns have not been negatively impacted by
investing with a social conscience and we do not anticipate that these inten-
tions will negatively impact our investing opportunities in the future.
Our investors made charitable contributions of $219,031 for 1997, through the
DEVCAP Trust which will be used in Small Enterprise Development. These funds
will be transferred as restricted donations that must be used to support
microentrepreneurs with loans or technical training in the world's developing
countries. During 1997, Catholic Relief Services contributed financial support
to provide the majority of the DEVCAP's operating costs and also continued to
inform its supporters of the merits of programs in Small Enterprise Develop-
ment. In the next few months, Catholic Relief Services will identify specific
programs that will receive the 1997 contributions. The DEVCAP Trust will con-
tinue its sponsorship of worthy programs and will provide its investors with
the success stories of programs that you support.
We are very fortunate to have done so well with our investments in the past.
We are most grateful for the support that our investors have contributed, and
we remain committed to helping poorer people in ways that allow them to work
and become self-sufficient microentrepreneurs. It is our hope that they will
prosper and that they too will become supporters of a thriving and socially
conscious world.
Sincerely,
/s/ Mr. Joseph N. St. Clair
Mr. Joseph N. St. Clair
President
<PAGE>
DEVCAP SHARED RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in Domini Social Index Portfolio, at value (Note 1) $5,991,737
Deferred organization expenses (Note 1) 30,184
Receivable from affiliate (Note 2) 50,924
Prepaid expenses 14,747
----------
Total Assets 6,087,592
----------
LIABILITIES:
Accrued expenses 15,281
----------
Total Liabilities 15,281
----------
NET ASSETS $6,072,311
==========
NET ASSETS CONSIST OF:
Paid-in capital $5,146,914
Accumulated net investment loss (21,750)
Accumulated net realized gain from Portfolio 41,398
Net unrealized appreciation from Portfolio 905,749
----------
NET ASSETS $6,072,311
==========
SHARES OUTSTANDING 356,339
==========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE ($6,072,311 + 356,339 SHARES) $ 17.04
==========
</TABLE>
See Notes to Financial Statements
1
<PAGE>
DEVCAP SHARED RETURN FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
NET INVESTMENT INCOME FROM PORTFOLIO:
Investment income from Portfolio $ 37,161
Expenses from Portfolio (5,539)
--------
Net investment income from Portfolio 31,622
EXPENSES (NOTES 1 AND 2):
Printing 34,620
Transfer agent fee 25,622
Professional fees 24,117
Registration fees 8,516
Servicing and fund accounting agent fee (Note 2) 6,169
Amortization of organization expenses (Note 1) 5,580
Administration fees (Note 2) 4,167
Insurance 3,760
-------
Total Expenses 112,551
Less: Reimbursement of expenses (Note 2) (63,654)
-------
Net Expenses 48,897
--------
NET INVESTMENT LOSS (17,275)
--------
NET REALIZED AND UNREALIZED GAIN FROM PORTFOLIO
Net realized gain from Portfolio 42,538
Net change in unrealized appreciation from Portfolio 275,283
--------
Net realized and unrealized gain from Portfolio 317,821
--------
NET INCREASE IN NET ASSETS FROM OPERATIONS $300,546
========
</TABLE>
See Notes to Financial Statements
2
<PAGE>
DEVCAP SHARED RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 1998 JULY 31,
(UNAUDITED) 1997
---------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss $ (17,275) $ (3,122)
Net realized gain from Portfolio 42,538 3,813
Net change in unrealized appreciation from
Portfolio 275,283 628,098
---------- ----------
Net increase in net assets resulting from oper-
ations 300,546 628,789
---------- ----------
DIVIDENDS TO SHAREHOLDERS FROM NET REALIZED GAIN (5,944) (1,059)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares 737,450 4,167,358
Payments for shares redeemed (291,006) (113,074)
Net asset value of shares issued in reinvest-
ment of distributions 5,700 934
---------- ----------
Net increase in net assets from capital share
transactions 452,144 4,055,218
---------- ----------
Total Increase in Net Assets 746,746 4,682,948
NET ASSETS:
Beginning of period 5,325,565 642,617
---------- ----------
End of period (including accumulated net in-
vestment loss of $21,750 and $4,475, respec-
tively) $6,072,311 $5,325,565
========== ==========
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold 45,561 277,132
Redeemed (17,888) (8,894)
Reinvested 352 74
---------- ----------
Net increase 28,025 268,312
========== ==========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
DEVCAP SHARED RETURN FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX OCTOBER 19, 1995
MONTHS ENDED FOR THE YEAR (COMMENCEMENT OF
JANUARY 31, 1998 ENDED OPERATIONS) TO
(UNAUDITED) JULY 31, 1997 JULY 31, 1996
---------------- ------------- ----------------
<S> <C> <C> <C>
Net Asset Value, begin-
ning of period $ 16.22 $ 10.71 $ 10.00
------- ------- --------
Income from investment
operations:
Net investment loss (0.05) (0.03) (0.02)
Net realized and
unrealized gain on
investments 0.89 5.55 0.73
------- ------- --------
Total income from in-
vestment operations 0.84 5.52 0.71
------- ------- --------
Less distributions from
net realized gain (0.02) (0.01) --
------- ------- --------
Net Asset Value, end of
period $ 17.04 $ 16.22 $ 10.71
======= ======= ========
Ratios/supplemental data
Total return 5.16% 51.57% 7.10%
Net Assets, end of pe-
riod (in 000's) $ 6,072 $ 5,326 $ 643
Ratio of expenses to
average net assets 1.75%(/1/,/2/) 1.75%(/1/) 2.50%(/1/,/2/)
Ratio of net invest-
ment income to aver-
age net assets (0.61)%(/1/,/2/) (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
occurred, the ratios of expenses and net investment income to average net
assets would have been as follows:
Ratio of expenses to
average net assets 4.19% 5.93% 26.30%(/2/)
Ratio of net invest-
ment income to aver-
age net assets (2.87)% (4.39)% (24.34)%(/2/)
</TABLE>
(/2/)Annualized.
See Notes to Financial Statements
4
\
<PAGE>
DEVCAP SHARED RETURN FUND
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
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
"Act").
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 1.5% at January 31, 1998). The financial statements
of the Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The 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 annually from net investment in-
come. 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. Organization 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, Development Capital Fund ("DEVCAP -- Non-Profit"), the Fund's
sponsor, 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 Sunstone Financial Group, Inc.
("Sunstone"), effective November 4, 1997, to serve as Administrator. Sunstone
provides administrative services necessary for the operation of the Fund and
furnishes office space and facilities required for conducting the business of
the Fund. For its services under the Administrative Services Agreement,
Sunstone receives from the Fund a fee accrued daily at an annual rate equal to
0.175% of the Fund's average net assets, subject to a minimum annual fee of
$25,000. Prior to November 4, 1997, Signature Broker-Dealer Services, Inc.
("Signature") served as Administrator.
5
<PAGE>
DEVCAP SHARED RETURN FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
B. DISTRIBUTION. The Fund has adopted a Distribution Plan (the "Plan") in
accordance with Rule 12b-1 under the Act. Effective November 25, 1997, CBIS
Financial Services, Inc. ("CBIS") acts as agent of the Fund and principal un-
derwriter of shares of the Fund ("Distributor") pursuant to the Plan. Prior to
November 25, 1997, Signature served as Distributor. Under the Plan, the Fund
may pay the Distributor a fee not to exceed 0.25% per annum of the Fund's av-
erage 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 payments to broker-dealers who advise shareholders re-
garding the purchase, sale or retention of shares of the Fund, payments to em-
ployees of the Distributor, advertising used for sales purposes, expenses of
preparing and printing sales literature and other distribution-related ex-
penses. No expenses were incurred by the Fund in connection with the Plan for
the six months ended January 31, 1998.
C. REIMBURSEMENT OF EXPENSES. DEVCAP Non-Profit has agreed that it will re-
imburse the Fund to the extent necessary to maintain the Fund's total operat-
ing expenses (which include 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 $3,744,801 and $291,668, respectively, for the six
months ended January 31, 1998.
Approximately $210,000 of the reductions in the Fund's assets this period
were withdrawals made to effect the charitable contribution to DEVCAP Non-
Profit in December 1997 as described in the Fund prospectus. Upon a sharehold-
er's initial investment in the Fund, the shareholder declares an intention to
make an annual donation to DEVCAP Non-Profit of fifty percent, seventy-five
percent, or all of the Annual Contribution Basis derived from the sharehold-
er's investment in the Fund. DEVCAP Non-Profit will direct these shareholder
donations to non-profit organizations (primarily Catholic Relief Services)
working to improve the welfare of underprivileged persons in developing coun-
tries.
6
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
APPAREL--0.3%
Brown Group, Inc. ......................................... 1,700 $ 24,650
Hartmarx Corporation (b)................................... 3,300 24,544
Liz Claiborne, Inc. ....................................... 6,500 263,250
Oshkosh B'Gosh............................................. 800 27,400
Phillips-Van Heusen Corporation............................ 2,500 30,156
Reebok International Ltd. (b).............................. 5,500 146,781
Russell Corporation........................................ 3,500 86,406
Springs Industries, Inc.................................... 2,000 105,250
Stride Rite Corporation.................................... 4,600 52,325
Timberland Company (The) (b)............................... 1,100 64,075
V. F. Corporation.......................................... 12,200 521,550
------------
1,346,387
------------
BANKING--7.5%
Banc One Corporation....................................... 59,195 3,307,521
BankAmerica Corporation.................................... 69,900 4,967,269
BankBoston Corporation..................................... 14,500 1,297,750
Bankers Trust New York Corporation......................... 9,700 1,011,831
CoreStates Financial Corp.................................. 19,800 1,514,700
Fifth Third Bancorp........................................ 15,250 1,162,813
First Chicago NBD Corp. ................................... 29,106 2,172,035
Mellon Bank Corporation.................................... 25,500 1,539,563
Morgan (J.P.) & Co. Incorporated........................... 17,800 1,801,138
Norwest Corporation........................................ 76,000 2,774,000
PNC Bank Corp. ............................................ 30,500 1,572,656
SunTrust Banks, Inc. ...................................... 21,100 1,461,175
Vermont Financial Services Corp. .......................... 1,300 35,344
Wachovia Corporation....................................... 20,400 1,586,100
Washington Mutual Inc. .................................... 25,780 1,656,365
Wells Fargo & Company...................................... 8,600 2,657,400
------------
30,517,660
------------
COMMERCIAL PRODUCTS & SERVICES--1.8%
Avery Dennison Corporation................................. 10,300 462,213
Cintas Corporation......................................... 9,700 404,975
Deluxe Corporation......................................... 7,900 260,700
DeVry Inc. (b)............................................. 3,600 108,900
Donnelley (R.R.) & Sons Company............................ 14,600 544,763
Harland (John H.) Company.................................. 2,800 43,050
Herman Miller, Inc. ....................................... 4,400 254,650
HON Industries, Inc. ...................................... 3,000 183,000
Ikon Office Solutions...................................... 13,400 422,100
Interface Inc.............................................. 2,300 81,363
Kelly Services, Inc........................................ 3,675 120,816
Moore Corporation.......................................... 8,600 129,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMERCIAL PRODUCTS & SERVICES--CONTINUED
National Service Industries, Inc.......................... 4,300 $ 215,000
New England Business Service, Inc......................... 1,300 42,900
Pitney Bowes Inc.......................................... 28,900 1,325,788
Standard Register Company................................. 2,800 96,075
Tennant Company........................................... 1,000 35,500
Xerox Corporation......................................... 32,600 2,620,225
------------
7,351,018
------------
CONSTRUCTION--0.3%
Apogee Enterprises, Inc. ................................. 2,500 29,531
Centex Corporation........................................ 3,200 200,800
Champion Enterprises Inc. ................................ 4,500 88,031
Fleetwood Enterprises, Inc. .............................. 3,400 141,525
Granite Construction Incorporated......................... 1,600 37,600
Kaufman & Broad Home Corporation.......................... 3,800 97,850
Rouse Company............................................. 6,500 218,563
Sherwin-Williams Company.................................. 17,200 490,200
Skyline Corporation....................................... 900 24,975
TJ International, Inc. ................................... 1,700 41,863
------------
1,370,938
------------
ENERGY--2.5%
Amoco Corporation......................................... 48,700 3,962,963
Anadarko Petroleum Corporation............................ 5,800 342,200
Apache Corporation........................................ 8,800 291,500
ARCO Chemical Company..................................... 9,700 460,750
Atlantic Richfield Company................................ 32,100 2,387,438
Consolidated Natural Gas Company.......................... 9,500 515,969
Oryx Energy Company (b)................................... 10,700 256,800
Pennzoil Company.......................................... 4,600 297,275
Santa Fe Energy Resources, Inc. (b)....................... 10,000 105,000
Sun Company, Inc. ........................................ 6,900 267,375
Union Pacific Resources Group, Inc. ...................... 25,600 572,800
Williams Companies........................................ 32,000 912,000
------------
10,372,070
------------
FINANCIAL SERVICES--6.0%
Ahmanson (H.F.) & Company................................. 9,700 565,631
American Express Company.................................. 46,500 3,891,469
Beneficial Corporation.................................... 5,300 411,413
Block (H & R), Inc. ...................................... 10,400 456,300
Dime Bancorp.............................................. 12,600 352,800
Edwards (A.G.), Inc. ..................................... 9,487 359,320
Fannie Mae................................................ 106,600 6,582,550
</TABLE>
7
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
FINANCIAL SERVICES--CONTINUED
Federal Home Loan Mortgage Corporation.................... 69,500 $ 3,092,750
FirstFed Financial Corp. (b).............................. 1,100 38,638
Golden West Financial..................................... 5,700 481,294
Household International, Inc. ............................ 10,900 1,357,050
MBIA Inc.................................................. 9,200 595,700
MBNA Corporation.......................................... 50,100 1,556,231
Merrill Lynch & Co., Inc. ................................ 33,300 2,102,063
Piper Jaffray Companies Inc. ............................. 1,800 65,700
Schwab (Charles) Corporation.............................. 26,600 970,900
Student Loan Marketing Association........................ 17,700 745,613
Transamerica Corporation.................................. 6,200 637,050
Value Line, Inc. ......................................... 1,000 39,438
Wesco Financial Corporation............................... 700 211,575
------------
24,513,485
------------
FOODS & BEVERAGES--8.3%
Ben & Jerry's Homemade, Inc. (b).......................... 600 9,375
Campbell Soup Company..................................... 45,800 2,450,300
Coca-Cola Company......................................... 248,500 16,090,375
Fleming Companies, Inc. .................................. 3,700 55,731
General Mills Incorporated................................ 15,800 1,176,113
Heinz (H.J.) Company...................................... 36,700 2,034,556
Hershey Foods Corporation................................. 14,600 929,838
Kellogg Company........................................... 41,100 1,898,306
Nature's Sunshine Products, Inc. ......................... 1,600 42,400
Nature's Sunshine Products, Inc. ......................... 0 15
Odwalla, Incorporated (b)................................. 500 4,063
PepsiCo, Inc. ............................................ 152,400 5,495,925
Quaker Oats Company....................................... 13,900 747,125
Ralston Purina Company.................................... 10,700 1,004,463
Smucker (J.M.) Company.................................... 2,600 66,625
SUPERVALU Inc. ........................................... 6,000 263,250
Sysco Corporation......................................... 17,100 765,225
Tootsie Roll Industries, Inc. ............................ 1,579 99,104
Wrigley (Wm.) Jr. Company................................. 11,600 857,675
------------
33,990,464
------------
HEALTH CARE--9.0%
Acuson Corporation (b).................................... 2,800 47,250
Allergan, Inc. ........................................... 6,300 214,200
ALZA Corporation (b)...................................... 8,300 295,688
Angelica Corporation...................................... 800 18,400
Becton Dickinson and Company.............................. 12,200 770,125
Bergen Brunswig Corporation............................... 4,918 224,076
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
HEALTH CARE--CONTINUED
Biomet, Inc. ............................................. 11,300 $ 323,463
Boston Scientific Corporation (b)......................... 19,800 1,004,850
Forest Laboratories, Inc. (b)............................. 3,900 231,563
Guidant Corp. ............................................ 14,800 950,900
Humana Health Plans, Inc. (b)............................. 16,500 331,031
Johnson & Johnson......................................... 135,100 9,043,256
Manor Care, Inc. ......................................... 6,200 215,063
Marquette Medical Systems, Inc. (b)....................... 1,500 40,125
Medtronic, Inc. .......................................... 46,900 2,394,831
Merck & Co., Inc. ........................................ 120,400 14,116,900
Mylan Laboratories, Inc. ................................. 12,300 220,631
Oxford Health Plans, Inc. (b)............................. 7,700 134,750
Schering-Plough Corporation............................... 73,700 5,334,038
St. Jude Medical Inc. (b)................................. 8,900 289,250
Stryker Corporation....................................... 9,800 361,988
Sunrise Medical Inc. (b).................................. 1,900 27,550
United American Healthcare Corporation (b)................ 800 2,100
------------
36,592,028
------------
HOUSEHOLD GOODS--5.8%
Alberto-Culver Company.................................... 5,300 157,013
Avon Products, Inc. ...................................... 13,200 792,000
Bassett Furniture Industries.............................. 1,300 37,375
Black & Decker Corp. ..................................... 9,500 457,781
Church & Dwight Co., Inc. ................................ 1,900 53,081
Clorox Company............................................ 10,300 789,238
Colgate-Palmolive Company................................. 29,600 2,168,200
Fedders Corporation....................................... 3,600 20,700
Fort James Corp. ......................................... 20,700 888,806
Handleman Company (b)..................................... 3,100 18,988
Harman International Industries, Inc. .................... 1,730 67,686
Hasbro, Inc. ............................................. 12,650 436,425
Huffy Corporation......................................... 1,100 16,225
Kimberly-Clark Corporation................................ 56,064 2,925,840
Leggett & Platt........................................... 9,600 433,800
Mattel, Inc. ............................................. 29,085 1,177,943
Maytag Corporation........................................ 9,300 357,469
Newell Co. ............................................... 15,900 652,894
Oneida Ltd. .............................................. 1,600 43,700
Procter & Gamble Company.................................. 135,000 10,580,625
Rubbermaid Incorporated................................... 15,000 388,125
Shaw Industries, Inc. .................................... 13,600 150,450
Snap-On Incorporated...................................... 5,850 229,247
Stanhome Inc. ............................................ 1,600 43,400
Stanley Works............................................. 8,900 393,825
</TABLE>
8
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
HOUSEHOLD GOODS--CONTINUED
Thomas Industries Inc. ................................... 1,500 $ 32,813
Whirlpool Corporation..................................... 7,300 422,031
------------
23,735,680
------------
INSURANCE--6.7%
Aetna, Inc. .............................................. 15,170 1,114,995
American General Corporation.............................. 24,362 1,373,408
American International Group, Inc. ....................... 70,500 7,777,031
Chubb Corporation......................................... 17,000 1,290,938
CIGNA Corporation......................................... 7,400 1,254,763
Cincinnati Financial Corporation.......................... 5,395 687,863
General Re Corporation.................................... 7,800 1,623,375
Hartford Steam Boiler Inspection and Insurance............ 1,900 112,338
Jefferson-Pilot Corporation............................... 7,000 571,813
Lincoln National Corp. ................................... 10,200 772,013
Marsh & McLennan Companies, Inc. ......................... 17,000 1,255,875
Providian Corporation..................................... 9,500 464,313
ReliaStar Financial Corporation........................... 9,000 373,500
SAFECO Corporation........................................ 14,100 704,119
St. Paul Companies, Inc. ................................. 8,400 730,800
Torchmark Corporation..................................... 14,000 581,875
Travelers Group Inc. ..................................... 115,200 5,702,400
UNUM Corporation.......................................... 13,900 675,888
USF&G Corporation......................................... 11,400 271,463
------------
27,338,770
------------
MEDIA--3.9%
Banta Corporation......................................... 2,850 72,497
Comcast Corporation....................................... 34,900 1,092,806
Disney (Walt) Company..................................... 67,800 7,224,938
Dow Jones & Company....................................... 9,800 492,450
Harcourt General.......................................... 6,900 367,856
King World Productions, Inc. (b).......................... 3,600 213,075
Lee Enterprises, Inc...................................... 4,500 129,094
McGraw-Hill Companies..................................... 9,900 691,144
Media General, Inc. ...................................... 2,400 109,200
Meredith Corporation...................................... 5,100 199,856
Midas Inc. (b)............................................ 1,717 27,579
New York Times Company.................................... 9,600 624,600
Scholastic Corporation (b)................................ 1,600 56,000
Tele-Communications, Inc. (b)............................. 50,700 1,419,600
Times Mirror Company...................................... 8,900 512,863
U S West Media Group...................................... 60,700 1,802,031
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
MEDIA--CONTINUED
Viacom, Inc. (b)........................................... 6,700 $ 276,375
Washington Post Company.................................... 1,000 487,000
------------
15,798,964
------------
MISCELLANEOUS--1.7%
American Greetings Corporation............................. 7,100 307,519
Avnet, Inc. ............................................... 4,300 262,300
Bemis Company, Inc. ....................................... 5,300 228,563
Case Corporation........................................... 7,300 425,681
CPI Corp. ................................................. 1,000 24,063
Cross (A.T.) Company....................................... 1,400 15,925
Deere & Company............................................ 25,200 1,329,300
General Signal Corporation................................. 4,800 187,200
Gibson Greetings, Inc. (b)................................. 1,400 30,450
Hillenbrand Industries, Inc. .............................. 6,700 343,375
Hunt Manufacturing Co. .................................... 1,100 24,544
Hussmann International Inc. (b)............................ 5,150 70,169
Ionics, Inc. (b)........................................... 1,400 57,575
Jostens, Inc. ............................................. 3,800 85,738
Marriott International, Inc. .............................. 12,800 884,800
Omnicom Group Inc. ........................................ 16,200 657,113
Polaroid Corporation....................................... 4,300 176,569
Sealed Air Corporation (b)................................. 4,100 257,788
Service Corporation International.......................... 25,200 982,800
Sonoco Products Company.................................... 9,305 330,328
Toro Company............................................... 1,200 46,725
Whitman Corporation........................................ 10,300 171,238
------------
6,899,763
------------
MISCELLANEOUS MANUFACTURING--1.0%
Applied Materials, Inc. (b)................................ 36,500 1,197,656
Brady (W.H.) Co. .......................................... 2,200 65,450
Cincinnati Milacron Inc. .................................. 3,900 99,450
CLARCOR Inc. .............................................. 1,400 37,713
Crown Cork & Seal Company, Inc. ........................... 12,800 633,600
Dionex Corporation (b)..................................... 1,200 66,000
Fastenal Company........................................... 3,700 162,569
Gerber Scientific Inc. .................................... 2,100 38,063
Graco Inc. ................................................ 1,450 60,628
Illinois Tool Works Inc. .................................. 24,900 1,386,619
Isco, Inc. ................................................ 300 2,625
Lawson Products, Inc. ..................................... 1,100 33,000
Millipore Corporation...................................... 4,200 137,550
Nordson Corporation........................................ 1,500 73,688
Watts Industries........................................... 2,400 66,750
</TABLE>
9
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
MISCELLANEOUS MANUFACTURING--CONTINUED
Wellman, Inc. ............................................. 3,000 $ 53,813
Zurn Industries, Inc. ..................................... 1,200 41,400
------------
4,156,574
------------
RESOURCE DEVELOPMENT--1.5%
Air Products & Chemicals, Inc. ............................ 11,000 880,688
Aluminum Company of America................................ 17,200 1,313,650
Battle Mountain Gold Company............................... 23,200 130,500
Betz Laboratories.......................................... 2,900 167,113
Cabot Corporation.......................................... 6,700 189,275
Calgon Carbon Corporation.................................. 3,800 39,663
Consolidated Papers, Inc. ................................. 4,700 264,375
Cyprus Amax Minerals Company............................... 9,100 143,325
Echo Bay Mines Ltd (b)..................................... 14,000 27,125
Fuller (H.B.) Company...................................... 1,300 68,250
IMCO Recycling Inc. ....................................... 1,600 26,800
Inland Steel Industries, Inc. ............................. 4,700 93,706
Mead Corporation........................................... 10,200 331,500
Morton International, Inc. ................................ 13,300 438,900
Nalco Chemical Company..................................... 6,400 240,000
Nucor Corporation.......................................... 8,550 407,194
Praxair, Inc. ............................................. 15,800 654,713
Sigma-Aldrich Corporation.................................. 10,200 395,250
Westvaco Corporation....................................... 10,400 337,350
Worthington Industries, Inc. .............................. 9,400 158,038
------------
6,307,415
------------
RETAIL--9.9%
Albertson's, Inc. ......................................... 24,600 1,173,113
American Stores Companies.................................. 27,400 595,950
Bestfoods.................................................. 14,400 1,404,000
Bob Evans Farms, Inc. ..................................... 4,100 78,669
Charming Shoppes, Inc. (b)................................. 10,300 41,844
Circuit City Stores, Inc. ................................. 9,600 327,600
Claire's Stores, Inc. ..................................... 4,700 83,425
Costco Companies Inc. (b).................................. 21,115 915,863
CVS Corporation............................................ 17,500 1,147,344
Dayton Hudson Corporation.................................. 21,800 1,568,238
Dillard Department Stores, Inc. ........................... 11,100 389,888
Dollar General Corporation................................. 11,548 420,059
Egghead, Inc. (b).......................................... 2,100 16,538
Gap, Inc. (The)............................................ 40,150 1,568,359
Giant Food Inc. ........................................... 5,800 188,863
Great Atlantic & Pacific Tea Company, Inc. ................ 3,700 105,450
Hannaford Bros. Co. ....................................... 4,000 155,750
Home Depot, Inc. .......................................... 73,649 4,441,956
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
RETAIL--CONTINUED
Kmart Corporation (b)..................................... 48,700 $ 535,700
Kroger Co. (b)............................................ 25,500 997,688
Lands' End, Inc. (b)...................................... 3,100 121,869
Lillian Vernon Corporation................................ 1,000 16,813
Limited, Inc. (The)....................................... 27,300 723,450
Longs Drug Stores Corporation............................. 3,800 109,963
Lowe's Companies, Inc. ................................... 17,400 879,788
Luby's Cafeterias, Inc. .................................. 2,300 36,800
May Department Stores Company............................. 23,400 1,229,963
McDonald's Corporation.................................... 68,800 3,242,200
Mercantile Stores Company, Inc. .......................... 3,600 214,200
Nordstrom, Inc. .......................................... 8,000 407,000
Penney (J.C.) Company, Inc. .............................. 25,000 1,684,375
Pep Boys--Manny, Moe & Jack............................... 6,300 137,813
Ruby Tuesday, Inc. ....................................... 1,700 42,394
Ryan's Family Steakhouse, Inc. (b)........................ 4,600 38,238
Sears, Roebuck and Co. ................................... 39,200 1,805,650
Spec's Music, Inc. (b).................................... 200 250
Starbucks Corporation (b)................................. 7,600 277,875
Tandy Corporation......................................... 10,500 406,875
TCBY Enterprises, Inc. ................................... 2,300 17,250
TJX Companies, Inc. ...................................... 16,300 552,163
Toys "R' Us, Inc. (b)..................................... 28,720 770,055
Wal-Mart Stores, Inc. .................................... 226,400 9,027,700
Walgreen Company.......................................... 49,200 1,629,750
Wendys International Inc. ................................ 13,100 292,294
Whole Foods Market, Inc. (b).............................. 2,400 120,600
Woolworth Corporation (b)................................. 13,600 295,800
------------
40,237,425
------------
TECHNOLOGY--23.1%
3Com Corporation (b)...................................... 34,600 1,143,963
Advanced Micro Devices, Inc. (b).......................... 14,200 284,888
American Power Conversion (b)............................. 9,700 254,019
Analog Devices, Inc. (b).................................. 16,100 474,950
Apple Computer, Inc. (b).................................. 12,800 234,400
AT&T Corporation.......................................... 163,200 10,220,400
Autodesk, Inc. ........................................... 5,000 193,125
Automatic Data Processing, Inc. .......................... 29,200 1,746,525
Baldor Electric Company................................... 3,500 79,844
Borland International, Inc. (b)........................... 4,000 30,000
Broderbund Software Inc. (b).............................. 1,900 40,138
Cisco Systems, Inc. (b)................................... 101,100 6,375,619
Citizens Utilities Company................................ 9,267 88,037
Compaq Computer Corporation............................... 152,140 4,573,709
Computer Associates International, Inc. .................. 54,700 2,909,356
</TABLE>
10
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
TECHNOLOGY--CONTINUED
Cooper Industries, Inc. .................................. 12,100 $ 642,055
Dell Computer Corp. (b)................................... 32,600 3,241,662
Digital Equipment Corporation (b)......................... 14,600 825,812
DSC Communications Corporation (b)........................ 11,900 238,000
Grainger (W.W.), Inc. .................................... 4,800 462,000
Hewlett-Packard Company................................... 104,500 6,270,000
Hubbell Incorporated...................................... 6,960 348,435
Hutchinson Technology (b)................................. 1,700 42,712
Intel Corporation......................................... 164,400 13,316,400
International Business Machines Corporation............... 97,700 9,641,768
LSI Logic (b)............................................. 14,100 338,400
MCI Communications Corporation............................ 69,700 3,236,693
Merix Corporation (b)..................................... 600 8,250
Micron Technology, Inc. (b)............................... 21,000 727,125
Microsoft Corporation (b)................................. 121,200 18,081,525
Molex Incorporated........................................ 15,737 428,832
National Semiconductor Corporation (b).................... 16,300 458,437
Novell Inc. (b)........................................... 34,900 246,480
Perkin-Elmer Corporation.................................. 4,800 283,200
Quarterdeck Corporation (b)............................... 4,200 9,187
QuickResponse Services, Inc. (b).......................... 700 25,505
Raychem Corporation....................................... 8,300 309,693
Shared Medical Systems Corporation........................ 2,400 157,200
Solectron Corporation (b)................................. 11,500 497,375
Sprint Corporation........................................ 43,000 2,553,125
Stratus Computer, Inc. (b)................................ 2,300 97,030
Sun Microsystems, Inc. (b)................................ 37,500 1,797,655
Tektronix, Inc. .......................................... 5,200 219,700
Tellabs, Inc. (b)......................................... 18,100 926,493
Thomas & Betts Corporation................................ 5,500 271,562
Xilinx, Inc. (b).......................................... 7,200 273,150
------------
94,624,434
------------
TRANSPORTATION--1.7%
Airborne Freight Corporation.............................. 2,300 163,587
Alaska Air Group, Inc. (b)................................ 1,800 87,412
AMR Corporation (b)....................................... 9,300 1,174,125
Consolidated Freightways Corporation (b).................. 2,100 31,105
CSX Corporation........................................... 22,100 1,171,300
Delta Air Lines, Inc. .................................... 7,400 844,525
FDX Holding Corporation (b)............................... 11,400 741,712
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
TRANSPORTATION--CONTINUED
GATX Corporation.......................................... 2,400 $ 174,150
Norfolk Southern Corporation.............................. 37,700 1,189,905
Roadway Express, Inc. .................................... 2,000 43,750
Ryder System, Inc. ....................................... 7,400 247,900
Southwest Airlines Co. ................................... 21,700 565,555
UAL Corporation (b)....................................... 5,700 506,587
Yellow Corporation (b).................................... 2,800 73,150
------------
7,014,763
------------
UTILITIES--8.5%
AGL Resources Inc. ....................................... 5,500 108,968
American Water Works, Inc. ............................... 7,700 207,900
Ameritech................................................. 110,000 4,723,125
Bell Atlantic Corporation................................. 78,011 7,220,892
BellSouth Corporation..................................... 99,700 6,038,080
CalEnergy Company, Inc. (b)............................... 8,300 213,205
Central Lousiana Electric Inc. ........................... 2,200 68,337
Connecticut Energy Corporation............................ 1,000 27,187
Eastern Enterprises....................................... 2,000 82,750
El Paso Energy Corporation................................ 5,800 370,837
Energen Corporation....................................... 1,400 54,600
Enron Corp. .............................................. 31,800 1,317,712
Equitable Resources, Inc. ................................ 3,400 111,775
Frontier Corporation...................................... 16,400 427,425
Helmerich & Payne, Inc. .................................. 4,800 122,700
Idaho Power Company....................................... 3,600 124,875
Keyspan Energy Corporation................................ 4,900 166,905
LG&E Energy Corp. ........................................ 6,700 156,612
MCN Corporation........................................... 7,600 281,200
New Century Energies, Inc. ............................... 11,100 505,743
NICOR Inc. ............................................... 4,700 189,175
Northwest Natural Gas Co. ................................ 2,200 58,575
Northwestern Public Service Company....................... 1,500 33,280
Oklahoma Gas and Electric Company......................... 3,900 204,018
ONEOK Inc. ............................................... 3,000 102,562
Pacific Enterprises....................................... 8,300 299,318
Peoples Energy Corporation................................ 3,400 128,350
Potomac Electric Power Company............................ 12,000 298,500
Rowan Companies, Inc. .................................... 8,700 229,462
SBC Communications Inc. .................................. 92,159 7,165,392
Sonat Inc. ............................................... 8,600 375,712
Southern New England Telecommunications Corporation....... 6,900 449,362
Telephone and Data Systems, Inc. ......................... 5,800 255,200
</TABLE>
11
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
UTILITIES--CONTINUED
U S West Communications Group (b).......................... 48,300 $ 2,324,437
Washington Gas Light Company............................... 4,200 111,300
Western Atlas Inc. ........................................ 5,300 330,255
------------
34,885,726
------------
VEHICLE COMPONENTS--0.5%
Cooper Tire and Rubber Company............................. 7,600 182,875
Cummins Engine Company, Inc................................ 3,700 197,950
Dana Corporation........................................... 10,500 526,312
Federal-Mogul Corporation.................................. 3,900 175,500
Genuine Parts Company...................................... 17,900 594,056
Modine Manufacturing Company............................... 2,900 101,137
Smith (A.O.) Corporation................................... 1,500 63,000
Spartan Motors, Inc. (b)................................... 1,200 8,475
SPX Corporation............................................ 1,200 87,600
------------
1,936,905
------------
Total Investments(a)--100.0%...................................... $408,990,469
Other Assets, less liabilities.................................... 2,499,557
------------
NET ASSETS........................................................ $411,490,026
============
</TABLE>
- --------
(a) The aggregate cost for federal income tax purposes is $299,126,134, the ag-
gregate gross unrealized appreciation is $112,492,160, and the aggregate
gross unrealized depreciation is $2,627,825, resulting in net unrealized
appreciation of $109,864,335.
(b) Non-income producing security.
See Notes to Financial Statements
12
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at value (Cost $299,126,134) $408,990,469
Cash 4,192,809
Dividends receivable 496,631
------------
Total assets 413,679,909
------------
LIABILITIES:
Payable for securities purchased 1,971,177
Accrued expenses (Note 2) 218,706
------------
Total liabilities 2,189,883
------------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS $411,490,026
============
NET ASSETS CONSIST OF:
Paid-in capital $411,490,026
============
</TABLE>
See Notes to Financial Statements
13
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding
tax of $518) $ 2,276,430
-----------
EXPENSES:
Management fee (Note 2) 199,249
Sub management fee (Note 2) 186,707
Professional fees 48,667
Custody fees (offset by compensating
balances) 65,252
Trustee fees 1,325
Miscellaneous 1,955
-----------
Total expenses 503,155
Fees paid indirectly (60,429)
Management fee waived (103,679)
-----------
Net expenses 339,047
-----------
NET INVESTMENT INCOME 1,937,383
NET REALIZED GAIN ON INVESTMENTS
Proceeds from sales $ 8,580,631
Cost of securities sold 5,738,294
-------------
Net realized gain on investments 2,842,337
NET CHANGES IN UNREALIZED APPRECIATION
OF INVESTMENTS
Beginning of period 91,161,408
End of period 109,864,335
-------------
Net change in unrealized apprecia-
tion 18,702,927
-----------
NET INCREASE OF NET ASSETS RESULTING
FROM OPERATIONS $23,482,647
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 1998 JULY 31, 1997
---------------- -------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income $ 1,937,384 $ 2,240,276
Net realized gain on investments 2,842,337 433,417
Net change in unrealized appreciation of in-
vestments 18,702,927 74,540,873
------------ ------------
Net Increase in Net Assets Resulting from Op-
erations 23,482,648 77,214,566
------------ ------------
Transactions in Investors' Beneficial Interest:
Additions 105,727,597 137,135,556
Reductions (10,079,189) (22,391,710)
------------ ------------
Net Increase in Net Assets from Transactions
in Investors' Beneficial Interests 95,648,408 114,743,846
------------ ------------
Total Increase in Net Assets 119,131,056 191,958,412
NET ASSETS:
Beginning of period 292,358,970 100,400,558
------------ ------------
End of period $411,490,026 $292,358,970
============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR ENDED JULY 31,
SIX MONTHS ENDED ------------------------------------------------
JANUARY 31, 1998 1997 1996 1995 1994
---------------- ------- ------- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Ratio of net investment
income to average net
assets 1.13%/(1)//(5)/ 1.34% 1.48%/(3)/ 1.85%/(4)/ 2.13%/(4)/
Ratio of expenses to
average net assets 0.23%/(1)//(2)//(3)/ 0.29%/(2)/ 0.59%/(2)//(3)/ 0.43%/(4)/ 0.29%/(4)/
Portfolio turnover rate 3% 1% 5% 6% 8%
Average commission rate
paid per share $0.0408 $0.0512 $0.0496 -- --
</TABLE>
- --------
/(1)/ Reflects a waiver of 0.06% of fees by the Manager due to limitations set
forth in the Management Agreement. Had the Manager not waived their fees,
the ratios of net investment income and expenses to average net assets for
the six months ended January 31, 1998 would have been 1.07% and 0.26%, re-
spectively.
/(2)/ Ratio of total expenses to average net assets for the period ended January
31, 1998, July 31, 1997 and 1996 include indirectly paid expenses. Exclud-
ing indirectly paid expenses, the expense ratios would have been 0.20%,
0.25% and 0.50% for the year ended July 31, 1997 and 1996, respectively.
/(3)/ Had the Expense Payment Agreement and Sponsor Arrangement not been in
place, the ratios of net investment income and expense for the year ended
July 31, 1996 would have been 1.14% and 0.85% respectively.
/(4)/ Reflects a voluntary waiver of fees by the Administrator and Adviser due
to the limitations set forth in the Expense Reimbursement Agreement. Had
the Administrator and Adviser not waived their fees, the ratios of net 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.
/(5)/ Annualized.
See Notes to Financial Statements
16
s
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
(UNAUDITED)
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 Declara-
tion 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 reported on the ex-dividend date.
(C) FEDERAL TAXES: The Index Portfolio will be treated as a partnership for
U.S. federal income tax purposes and is therefore not subject to U.S. federal
income tax. As such, each investor in the Index Portfolio will be taxed on its
share of the Index Portfolio's ordinary income and capital gains. It is in-
tended that the Portfolio will be managed in such a way that an investor will
be able to satisfy the requirements of the Internal Revenue Code applicable to
regulated investment companies.
(D) OTHER: Investment transactions are accounted for on the trade date.
Gains and losses are determined on the basis of identified cost.
NOTE 2--TRANSACTIONS WITH AFFILIATES
(A) MANAGER. Domini Social Investments LLC (DSIL or the Manager) is a regis-
tered as an investment adviser under the Investment Advisers Act of 1940. The
services provided by the Manager consist of investment supervisory services,
overall operational support and administrative services. The administrative
services include the provision of general office facilities and supervising
the overall administration of the Index Portfolio. For its services under the
Management Agreement, the Manager receives from the Index Portfolio a fee ac-
crued daily and paid monthly at an annual rate equal to 0.20% of the Index
Portfolio's average daily net assets, subject to reduction to the extent nec-
essary to keep the aggregate annual operating expenses of the Index Portfolio
(excluding brokerage fees and commissions, interest, taxes and other extraor-
dinary expenses) at no greater than 0.20% of the average daily net assets of
the Index Portfolio through October 22, 1998.
(B) SUBMANAGER. Mellon Equity provides investment submanagement services to
the Index Portfolio on a day-to-day basis pursuant to a Submanagement Agree-
ment with DSIL. Mellon Equity does not determine the composition of the Domini
Social Index. Under the Submanagement Agree-
17
<PAGE>
DOMINI SOCIAL INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JANUARY 31, 1998
(UNAUDITED)
ment, DSIL pays Mellon Equity an investment submanagement fee equal on an an-
nual basis to 0.10% of the average daily net assets of the Portfolio.
(C) PRIOR ADVISORY, MANAGEMENT, SPONSORSHIP AND ADMINISTRATIVE
AGREEMENTS. Prior to October 22, 1997, pursuant to an investment advisory
agreement (the KLD "Advisory Agreement"), KLD served as investment adviser to
the Index Portfolio and furnished continuously an investment program by deter-
mining the stocks to be included in the Domini Social Index. KLD received from
the Index Portfolio a fee accrued daily and paid monthly at an annual rate
equal to 0.025% of the Index Portfolio's average daily net assets. Addition-
ally, prior to October 22, 1997, pursuant to a management agreement (the
"Mellon Equity Management Agreement"), Mellon Equity served as investment man-
ager and managed the assets of the Index Portfolio on a daily basis. Prior to
October 22, 1997, pursuant to a sponsorship agreement (the "KLD Sponsorship
Agreement") , KLD furnished administrative services for the Index Portfolio.
KLD received from the Portfolio a fee accrued daily and paid monthly at an an-
nual rate equal to 0.025% of the average daily net assets of the Portfolio for
administrative services. Prior to November 6, 1996, pursuant to an administra-
tive services agreement (the "Signature Administration Agreement"), Signature
Broker-Dealer Services, Inc. ("Signature") served as the administrator of the
Index Portfolio. Prior to October 22, 1997, the aggregate investment manage-
ment and administration fees under the prior agreement with respect to the In-
dex Portfolio were equal to 0.15% of the Index Portfolio's average daily net
assets for its then current fiscal year.
NOTE 3--INVESTMENT TRANSACTIONS
Purchase and sales of investments, other than U.S. Government securities and
short-term obligations, aggregated $104,647,537.62 and $8,580,631, respective-
ly. Custody fees of the Portfolio were reduced by $60,429 which was compensa-
tion for uninvested cash left on deposit with the custodian. Cash balances
could have been employed to earn additional income for the Portfolio.
18
