From the Desk of Peter Kinder

The KLD LCSI and KLD BMSI, based respectively on the Frank Russell Company's Russell 1000^® Index and Russell 3000^® Index, define universes of companies appropriate for social investors, act as benchmarks for evaluating the financial performance of socially screened portfolios and serve as a basis for passive investment products.

The Russell 3000 Index consists of the 3,000 largest US-incorporated companies, measured by market capitalization. The Russell 1000 is made up of the 1,000 largest companies in the Russell 3000. In May, Russell recalculates total market capitalization, which is the basis for Russell Indexes’ annual reconstitution in June.

In conjunction with the reconstitution of the Russell indexes, KLD revises the KLD BMSI and LCSI. The reconstituted KLD Indexes reflect changes in the Russell Indexes and the most current KLD social and environmental ratings for companies.

The largest addition to the KLD BMSI and LCSI this year is Nike. Since the Indexes were launched in January 2001, Nike failed to qualify on social and environmental criteria. Nike's exclusion was due primarily to concerns about its contractors’ labor practices, such as the use of forced overtime, low wages, unsafe working conditions, suppression of protests using local military, and general physical abuse. In the past, Nike did not adequately address these concerns in KLD’s opinion.

The decision to add Nike to the KLD BMSI and LCSI is associated with the publication of Nike's 2004 Corporate Responsibility Report. The Report demonstrates a significant commitment to engage its critics and address in detail some of the key concerns that social investors, labor activists and others have underscored for several years. In particular, the report announced that Nike would disclose its entire factory base on its website, exhibiting leadership in an industry where companies have long resisted disclosing such information, in part for allegedly competitive reasons. Nike's reporting sets a higher standard for its peers and advances the debate on companies' role in labor compliance.

Overall, the company is relatively strong on diversity and community, and has an improving environmental record. While exhibiting positive developments on labor, the company still has significant and ongoing supply chain challenges typical of companies in the footwear and apparel industries.

	KLD BMSI	KLD LCSI
Total Market Cap*	8,407,240	7,489,945
Mean Market Cap*	3,689	10,887
Median Market Cap*	740	4,042
Smallest Market Cap*	27	216
Largest Market Cap*	230,002	230,002
Dividend Yield	1.32	1.34
P/E	31.23	24.40
P/B	4.38	4.44

KLD's Global Climate 100^SM Index (KLD GC 100 Index) is a global index designed to promote investment in public companies whose activities demonstrate the greatest potential for reducing the social and environmental impact from climate change.

The Index includes companies making meaningful contributions to the commercial development of renewable energies, future fuels, and clean technology & efficiency for purposes of reducing the gasses that lead to climate change. The diverse nature of these companies means that the Index includes some small companies in niche markets – such as Syntroleum Corp. with a $594 million market-cap – as well as some of the world's largest and best-known companies – such as Toyota Motor Corporation with a $129 billion market-cap – in industries that have the greatest impact on climate change.

While small niche companies often demonstrate focus and innovation in developing technologies to offset global warming, large companies with strong R&D, production and distribution capacities contribute greatly to commercializing new and alternative technologies. KLD recognizes these contributions and departs from other climate-related indexes by going beyond pure-play portfolios.

Most indexes are market-capitalization weighted, meaning that firms are weighted in proportion to their market value. The largest companies account for the greatest portion of cap-weighted indexes. For example, Microsoft is the largest company in KLD's Domini 400 Social^SM Index, a cap-weighted index of companies that pass multiple social screens, accounting for 4.5%.

KLD uses an equal weighting strategy in the Global Climate 100 Index to assure that large-cap companies do not unduly influence the performance of the index. The Global Climate 100 Index allocates 1% to each of the 100 securities in the index. Each quarter, the Index is rebalanced to bring each holding back to 1%. This provides higher exposure to small-cap companies and lower exposure to large-cap companies than a cap-weighted index, helping to channel capital to small companies committed to preventing global climate change.

KLD's equal weighted GC 100 Index responds to the growing market demand for non-cap weighted indexes. For example, the S&P Equal Weight Index has gained considerable attention as a counterpart to the cap-weighted S&P 500 Index. In June 2004, KLD launched the KLD Select Social^SM Index, the first index to weight companies based on their social and environmental scores. KLD's strategy and benchmark indexes are designed to provide useful and innovative index products to support the growing needs of social investors.