Letter from the President

Dear Fellow Shareholders:

The six months ending January 31, 2013 were really quite extraordinary in a number of ways. Stock and bond markets had a very good year, the economy of the United States continued to recover, and in spite of political shambles, we muddled through a Presidential election.

The period also brought its share of tragedy. During the period covered by this Semi-Annual Report there were four mass-shootings in America, not including the shooting at the midnight screening of Batman in Aurora, Colorado, which occurred a week earlier.

One of these events spoke directly to me. I have been blessed in my life to have grown up secure and in the bosom of a large and loving family. My early years were spent going to school, singing patriotic songs and pledging allegiance to the flag. Mine was a childhood where a girl of nine could rush off in the morning with a peanut butter and jelly sandwich and spend the day bike-riding with friends or exploring the woods, without fear. That was my childhood in Newtown, Connecticut.

We have all read about the events of December 14, 2012, which are too horrible to retell here or even bring to mind. I don’t know exactly where the shootings took place. I don’t know if it happened in the classrooms I attended in second grade, third grade, fourth or fifth. I do know that they had once been safe places, places of fun and learning and of forming personalities.

During the weeks that followed, we saw a number of pension funds and educational institutions begin a discussion over whether investing in firearms manufacturers was either necessary or appropriate. Most gun manufacturers are private — they are owned by private equity firms, which pump money into expanding their markets, often by lobbying for lax gun laws. Some of these private equity investments were made with teachers’ retirement funds. I call this process of evaluation ‘connecting the dots.’

I myself grew up with guns. I was taught at a young age to take aim at a ground hog and rid the meadow of the pest. I enjoyed heading over to a local skeet-shooting facility to take aim at the clay pigeons. But I always had to stop and reload. Stop and reload. It takes time. Perhaps at Sandy Hook Elementary School that time would have saved some of the lives lost. We’ll never know.

At some level, I can still understand the national affection for guns, but we must recognize that this industry has brought our nation tremendous misery and has transformed our safest areas into war zones. In this report, we spend some time discussing our policy to avoid investments in lethal weapons and the role of investors in addressing gun violence in our society.

I find some evidence that the nation is swinging towards a more pragmatic approach to achieving personal liberty and happiness. Recent polls tell us that the right to marry, an issue that arguably cost John Kerry the White House in 2004, is rapidly becoming a non-issue. Over the course of the past six months we saw several states modify laws to allow for same-sex marriage and other states vote to de-criminalize marijuana. And now, we can add gun control to this list of previously unmentionable issues. While it is too early to say that there is a shift towards a more peaceful, live-and let-live attitude amongst Americans, these signs seem to indicate that this may be so.

Meanwhile, these events are taking place during a near-universal improvement in world stock markets. Corporate profits have continued to rise, and historically stock prices have generally followed that trend. There is always the potential for an illogical relationship between markets and corporate outlooks for a time, but in the past they have eventually come together. Adding to the argument that stocks are still fairly priced is the fact that interest rates are so very low. Such low capital costs encourage companies to borrow, grow and stimulate the economy.

We thank you for your continued investment with us and for your support for socially responsible investing.

Amy Domini
amy@domini.com