Although Teachers Insurance & Annuity Association-College Retirement Equities Fund of New York, the country's largest pension fund, has said it will not change its policies, shareholder activists are continuing to campaign to persuade TIAA-CREF to invest in companies that work for social improvement.

About 300 shareholder activists in TIAA-CREF's $4.2 billion Social Choice Account, the nation's largest socially-responsible fund, have been campaigning for nearly five years to persuade the Social Choice Account to adopt positive social screens for five percent to ten percent of the fund's assets. The group is led by Neil Wollman, a psychology professor at Manchester College of North Manchester, Ind. Wollman wants the fund to invest in companies that are improving their workplaces, environments or local communities.

John Biggs, CEO of TIAA-CREF, on two occasions, first in 1997 and again in July of this year, has told Wollman in a letter that the company would not make the requested changes in the fund.

Despite the company's response, Wollman said he would not consider soliciting a shareholder vote on the issue because the bylaws of the fund would require a 50 percent majority to make any change.

"It is extremely rare and unusual for a fund to get a 50 percent approval," Wollman said.

The amount the group wants the fund to invest in positively-screened companies is such a small percentage of the fund that it would barely impact the fund's overall returns, Wollman said.

"There is reasonable evidence that positive investments do not bring lower returns," Wollman said.

His evidence is that if a fund returning 15 percent were to invest five percent of its assets in a community-development program that, in a worst-case scenario, returned zero percent, the fund would still deliver a 14.25 percent return, Wollman said.

Some socially-responsible funds, including those offered by the Calvert Group of Bethesda, Md., Pax World Fund of Portsmouth, N.H., and Domini Social Investments of New York, have been investing small portions of their funds in companies working for social causes. These companies are referred to as positively-screened companies. Most socially-responsible funds primarily invest in companies selected because they do not engage in a number of practices deemed socially irresponsible.

TIAA-CREF says it is enough for its fund to screen out unacceptable practices.

Positive social screens are too "complex" and would "necessitate hiring outside managers and consultants to define [positive] standards. . . . We do not believe we would provide any additional service or benefit by instituting a positive screening process," TIAA-CREF said in a statement early this year.

The company declined to comment on the controversy. A spokesperson said the shareholder activists of the Social Choice Account have drawn so much media attention that the company had already spent too much time on the subject.

The $4.2 billion fund uses standard, negative social screens to avoid investments in companies that harm the environment or that manufacture or sell tobacco, alcohol, weapons, nuclear energy or gambling services. The fund also will not invest in companies in Northern Ireland that have not adopted the MacBride principles against religious discrimination in employment.

A TIAA-CREF spokesperson said in published reports in The Wall Street Journal and other publications that positive social screens would hamper Social Choice Account's return. Year-to-date through Aug. 21, the fund has returned 4.94 percent.

Wollman says he and about 300 of the fund's 200,000 shareholders are willing to forego double-digit returns of a small portion of the fund's investments for the single-digit returns that positively-screened investments would bring.

"We are calling for five percent to ten percent of assets in the Social Choice Account - $200 million to $400 million - to be invested in companies and other financial institutions, such as community-development corporations, that are models of social and environmental responsibility," Wollman said. "On a personal level, I and others would like to feel good about where our money goes, to help build homes or to help businesses in low-income societies. We think it could have a potentially big impact."

Wollman said that the fund's return this year, as in years past, has been similar to those of other TIAA-CREF funds.

The Social Investment Forum of Washington, D.C., a trade association of investment companies that promote investing in socially-active companies, said that the time and cost of setting up positive screens to invest in communities or ventures that can help society, are not prohibitive, particularly for a large fund company like TIAA-CREF.

Calvert Group began doing positive socially-responsible investing 15 years ago and now has two vehicles through which such investing can be done, said Elizabeth Laurienzo, a spokesperson for Calvert. These are the Calvert Social Investment Foundation and the venture-capital Calvert Special Equities Portfolio.

Shareholders like knowing that their money is being used to do good and do not mind the single-digit returns that positive screening may yield, said Stephen H. Moody, the portfolio manager of the Special Equities Portfolio. This fund invests in companies striving "to change the world," Moody said. The portfolio's investments have included biotech, pollution-control and clean energy companies, Moody said.

He declined to disclose the returns of the nine-year-old fund but said they were probably in the single digits.

The Calvert socially-responsible venture capital fund has the potential for high returns although this is not the focus, said Moody. Before investing in any venture, Moody applies the same standards that he would if the investment were being made in any company, he said.

"It just so happens that looking for companies that could make the world a better place shakes out into some fairly conventional New Economy areas," Moody said.

The Calvert Social Investment Foundation lends between one percent and three percent of the Calvert socially-responsible funds to non-profit organizations at below-market rates, said Tim Freundlich, program manager of the foundation. The return on these assets is pegged at three percent, Freundlich said.

"Return is secondary," he said.

However, Calvert has found that its positively-screened investments have not impaired fund returns, said Laurienzo. For example, the Calvert Social Investment Equity Fund, which invests up to three percent of its assets in the Calvert Foundation, has delivered an average 17.38 percent return in the five years ended July 31, Laurienzo said. This is on par with its benchmark, the Lipper average for multi-cap core funds, which delivered 17.95 percent in that period, Laurienzo said.

The foundation has grown in popularity beyond the confines of Calvert fund portfolio managers, Freundlich said. Currently, 1,250 retail and institutional investors are invested in the foundation, which currently has $30 million invested in 120 community groups worldwide, he said.

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