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January 15, 2003

Sierra Club Launches SRI Mutual Funds
    by William Baue

The Sierra Club is harnessing its name recognition and expertise on corporate environmental performance with its launching of an SRI equity mutual fund and an SRI balanced mutual fund.

SocialFunds.com -- The Sierra Club is best known for its environmental activism, but the century-old organization is promoting corporate environmental responsibility in a new way by offering two socially responsible investing (SRI) mutual funds.

The Sierra Club Stock Fund and the Sierra Club Balanced Fund were launched earlier this month and are managed by San Francisco-based Forward Management. Both funds use screens, which were originally developed for use with the Sierra Club endowment's equity investments, to exclude companies with poor environmental performance. Forward Management will pay a portion of its management fees to the Sierra Club for identifying securities that meet the established environmental screening guidelines. The Sierra Club will use this monetary infusion to support its ongoing environmental activism. This arrangement between the two organizations provides another way for these funds to promote a healthier environment.

"The Sierra Club created the environmental and social guidelines that the funds use to determine what investment opportunities they will consider," said Forward Management Director of Marketing Craig Lamson. "Few organizations or individuals can claim they are more qualified for that task."

The Sierra Club is no stranger to socially responsible investing. For the last half-dozen years, Harris Bretall Sullivan & Smith has applied the club's exclusionary environmental screens to the equity portion of the club's endowment investments.

"We believe in exclusionary screening and do not accept 'best-in-class' companies," Mr. Lamson told SocialFunds.com.

The best-in-class approach identifies companies with the best environmental performance in a particular sector. The Sierra Club Mutual Funds operate from the belief that some sectors, such as the oil and automobile sectors, inherently are environmental spoilers and, therefore, should be entirely excluded from investment.

The Sierra Club Mutual Funds will apply a total of 19 screening criteria. The criteria relate to areas such as the production of nonrenewable energy, nuclear and chemical waste management, contribution to global warming, and manufacture or distribution of military weaponry.

However, the screens are not airtight. For example, the Sierra Club Balanced Fund invests in U.S. Treasury Bonds, which many social investors avoid because such bonds fund the Department of Defense. The Sierra Club defends its inclusion of U.S. Treasury Bonds in its balanced fund.

"The U.S. government plays a critical and unique role in protecting our environment, including the air we all breathe, our drinking water and our national parks," Sierra Club Director of Conservation Bruce Hamilton told SocialFunds.com. "All Americans rely on our government to crack down on polluters and enforce our environmental laws, and we think it is important to invest in those efforts. The Sierra Club doesn't agree with many of the current Administration's policies, and we're working every single day to change the policies that are harmful to the environment."

Sierra Club's name lends brand recognition to the new funds. In fact, the Sierra Club designation may be more familiar to investors than any other brand identification in the SRI field. Green Century Funds, which similarly focuses its SRI efforts on environmental issues, is predominantly owned by Public Interest Research Groups (PIRGs) but does not highlight that fact.

The Sierra Club Stock Fund has a head start on the Sierra Club Balanced Fund in terms of assets. That is because Forward Management is reincarnating its Forward Garzarelli U.S. Equity Fund as the Sierra Club Stock Fund. The fund, formerly managed by Elaine Garzarelli, brings with it about $20 million in assets and invests at least 80 percent of its assets in stocks. The Sierra Club Balanced Fund, which started from scratch, will allocate approximately 60 percent of its assets to stocks and 40 percent of its assets to fixed income securities (such as bonds) and cash equivalents.

Forward Management may charge fund shareowners a management fee of 2.36 percent of assets per year, though the rate has been capped initially at 1.84 percent. A portion of this capped fee will be plowed back into environmental action. Forward Management now returns 0.12 percent of assets to the Sierra Club as recompense for the use of its name and screening services, and this rate could rise to as high as 0.20 percent.

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