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Sierra Club Stock Fund: Sierra Club's Stock Fund Seeing Green

Calling all environmentalists: If you're a fan of the Sierra Club-- America's oldest influential grassroots environmental organization---here's a little green fund with a first- year record that's worth crowing about.

Around for a tad more than one year, the Sierra Club Stock Fund (866-897-5982) has showed the investment community that green funds can pay off: The fund's total return in 2003 was up 32 percent ---that's about 7 percent ahead of the performance of the average large-cap growth fund, and 2 percent higher than the performance of the average U.S. diversified fund in Lipper's Universe. While some could call that performance beginners luck, there's more to this fund than luck.

To understand how the Sierra Club Stock Fund is managed, you'll need a little background. According to Gavin Jabusch, director of research at Forward Management, when the 112-year old, 700,000 member club choose to bring some mutual funds to market (their funds include a money market mutual fund, a balanced fund as well as stock fund) it selected Forward Management as the club's investment advisor. But Forward's portfolio managers don't manage the fund's assets. Those assets are split 50/50 and sub-advised by an outside growth manager and a value manager. Henry Dunlap Smith, of Harris Bretall Sullivan & Smith, manages the growth portion of the fund and Wesley G. McCain, of New York Life Investment Management, the value portion.

With about 72 stocks in its portfolio, here's more about The Sierra Club Stock Fund (SCFSX) from Jabusch:

Q: How are stocks for this fund selected?

A: Both managers submit a list of everything in their universe that they think might be of interest to us at Forward Management and then we apply the Sierra Club screens to those names. Then we submit all the companies that have passed the screening process to the Sierra Club investment advisory committee for a final say on which stocks may be included in the fund's portfolio.

Q: What are some of the screens used to weed out through the companies?

A: Most of them focus on the environment and one is the extraction of natural resources. That means we would not invest in things including mining, timber, petrol chemicals, fossil fuels, oils, natural gas, coal, anything involved with nuclear chemical waste or that generates nuclear chemical waste, and, for that matter, even just normal solid waste. We have a screen against military weaponry, high-density agricultural operations, or companies that do tests on animals. And, one thing we have in common with a lot of social funds is that we don't buy manufactures of wholesalers of tobacco products.

Q: How about alcohol?

A: Alcohol is okay to the extent that they (the companies) are green and meet all he other criteria.

Q: Can you give me an example?

A: Yes. Miller is part of RJR and they do tobacco, so forget about them.And, it's possible to be a pure play and still violate some of the screens. We don't particularly like Coors because they've not very environmentally sensitive, so they aren't in the portfolio. Just the process of brewing beer can be pretty dirty if you don't manage it correctly. So being an alcohol producer alone isn't a big deal to us as long as in other ways you are environmentally responsible.

Q: What about some of the other fund holdings?

A: Our biggest concentration is in financial services and even there you have to be very careful. Lehman Bros. is excluded because they have a majority ownership in Peabody Energy. What Peabody does is extract coal shale and burn it, which is like the dirtiest way to make electricity that there is.

We own one utility, American Power Conversion, they make uninterruptible power supply systems. Technology makes up about 18 percent of the fund and we own Dell but weren't able to pass Intel---they have a land use controversy going on in New Mexico at a placed called Rio Rancho and it's a big hot button with environmentalists.

Q: Whom is this fund ideally suited for?

A: People who are interested in getting a competitive return and investing with the values they share with environmentalists.

While this is a no-load fund, annual expenses are 1.86 percent, which is higher than the average fund of this type. A couple of reasons for those higher expenses---the cost of sub-advisors and the fact that the fund is a tiny one in terms of assets.

For more information about the Sierra Club Funds, visit their website at www.sierraclubfunds.com

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