We analyzed our proxy voting record for 85 companies held in the Walden Social Equity Fund and Walden Social Balanced Fund for the 12-month period ending July 31, 2004. Key findings are summarized below.

Overall, Walden supported management recommendations approximately 60 percent of the time. We voted in favor of management-sponsored proposals 69 percent of the time, representing about three-quarters of all the ballot items. Walden supported 76 percent of the independent shareholder-sponsored proposals, which in almost every case were opposed by management.

• Each year, all companies nominate directors, either an entire slate or a subset thereof. Fifteen percent of the time, Walden did not support the director slate because it lacked female and minority representation and/or director independence on key board committees (audit, compensation, and nominating) was insufficient. Walden guidelines call for at least 75 percent of directors on those committees to be independent.

• We voted against management proposals seeking auditor ratification nearly one time out of five. Walden guidelines stipulate that non-audit services should not exceed 50 percent of total auditor fees in order to avoid conflict of interest concerns.
• Just under 40 percent of management-sponsored executive compensation resolutions were supported by Walden. While there are many reasons why we may vote against particular stock incentive plans, a primary reason is our concern about the potential for excessive stock dilution, where our threshold level for support is up to 15 percent. Walden agrees there are benefits to aligning executive interests with their shareholders through stock incentives, but excessive dilution caused by such plans would harm shareholder value.

• Walden regularly supported a number of corporate governance and executive compensation proposals that appeared on the company proxies, such as expensing of stock options, requiring performance based pay, increasing board independence, eliminating classified boards for annual elections, and calling for shareholder votes on golden parachutes.
• While we may be sympathetic to a shareholder concern that prompts a proxy resolution, it does not always translate into voting support. In a dozen instances, Walden did not support shareholder resolutions seeking to restrict or amend executive compensation because we did not agree with the proposed approach.
• Walden voted for social issue resolutions on a range of topics including equal employment opportunity policies and disclosure, climate change, labor standards in the supply chain, and the HIV/AIDS pandemic. In fact, Walden was a sponsor of six such proposals.
• Perhaps not surprising in this election year, disclosure of political contributions emerged as a significant shareholder issue (eight companies). Put forth primarily by union shareholders, Walden supported full transparency with respect to how companies use corporate resources for political purposes.

Walden’s proxy policies and guidelines, along with the proxy voting record for Walden Social Balanced Fund and Walden Social Equity Fund, can be found on our web site at www.waldenassetmgmt.com.

An investor should consider the fund's investment objectives, risks, and expenses carefully before investing or sending money.  This and other important information about the investment company can be found in the fund's prospectus.  To obtain a prospectus, please call 1-800-282-8782 ext. 7050.  Please read the prospectus carefully before investing.  Distributed by BISYS Fund Services.

—H.Soumerai