In joining the state of Pennsylvania's 529 plan last week, Calvert Group has become the second fund complex to offer a socially responsible mutual fund through the college savings programs. But, while some say 529s are a good fit for the so-called SRI funds, the products are expected to attract few assets through the state programs.

"Basically, having a social choice option in a 529 plan is like a restaurant having a vegetarian choice on the menu," said Stephen Ludwig, a spokesman at TIAA-CREF, which was the first to offer a social fund through California's 529 plan. "It doesn't cater to everyone's tastes, but for those it does, it's really important."

New York-based TIAA-CREF's Social Choice Fund became the first SRI product to join a state-sponsored college savings plan in 1999. As of last week, the Social Choice Fund accounted for only $9.3 million, or 2.7% of a total $341 million in California's 529 plan.

Fund researcher Cerulli Associates, meanwhile, estimates that the 529 business will grow to $51 billion in assets by 2006. Few of those gains will come from social funds, said Lisa Baird, a senior analyst at the Boston-based firm. Her projections for an average fund company's gains in providing socially responsible funds through 529s are far more modest than what even TIAA-CREF has achieved.

"You're talking about a million dollar asset gathering opportunity," she said.

Baird said demand for social products in the state plans might amount to even less than that in the larger retail fund market because parents are more likely to be risk-averse when it comes to their children's college funds.

"It's one thing if you're playing with a portion of your savings," she said, "but within the context of college savings you might want to hedge your bets."

Still, some analysts and proponents of socially screened investments say, despite the small gains they may produce for fund complexes, more SRI funds are likely to pop up in 529 plans as state programs increasingly try to differentiate themselves from their competitors.

Calvert, which is known for offering socially responsible investments, was selected by the state of Pennsylvania to provide two SRI products, a bond fund and a stock fund, through the state's plan. The funds will be available along with other funds from Delaware Investments, which was selected to participate in the program in January. The two Calvert funds in the 529 will be distributed through financial advisors.

Elizabeth Laurienzo, a spokeswoman for the Bethesda, Md.-based firm, said 529s are a good fit for the company because the assets are more likely to stick with the firm for longer periods of time as parents save for their children's educations.

Jay Falk, president of Vermont-based SRI World Group, which publishes several social investment-related Web publications, said SRI has made headway in the 401(k) market in the past two years and 529s are "the next logical place to be."

He said states that have experience investing in SRI funds through their pension plans, such as Vermont, New York, Wisconsin and Connecticut, are most likely to include social funds in their 529s because people there are familiar with the concept of socially screening the companies in which they invest.

And as 529s gain popularity, the plans are going to struggle to distinguish themselves from the savings programs offered in other states. So, states that add a socially screened option to their 529s are making a smart, competitive move, said Whitney Dow, an analyst at Financial Research Corp. of Boston, because they are more likely to set themselves apart.

Baird suggested that politics may also drive the inclusion of SRI products in 529s as politicians play out their agendas through their states' college savings plans. "Depending on the political winds of the day, there may be social policy agenda issues" that prompt state treasurers and legislators to contract SRI providers for 529s, she said.

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