As a Sierra Club Mutual Funds shareholder, you indirectly participate in the shareholder advocacy initiatives we undertake to influence the corporate practices of our portfolio holdings. Over the past six months, we have focused on a wide array of topics ranging from sustainable land development and urban sprawl to toxic and chemical management. We believe in using the power of our ownership in companies to promote an environmental agenda.

In January 2005, a coalition of investors, including the Sierra Club Mutual Funds, presented a resolution at Costco's annual shareholder meeting, asking management to develop a global policy for Costco’s land procurement and usage practices. Costco has been involved in numerous local controversies regarding how Costco sites its retail warehouses and manages the social and environmental impacts of its stores. As Costco’s business relies on a membership model, Sierra Club Mutual Funds is particularly concerned that its real estate practices may negatively affect the company’s bottom line.

While the resolution did not receive a majority of votes at Costco, we were able to present Costco’s chairman with a Corporate Social Responsibility (CSR) report from rival Target, which included a section on “Sustainable Real Estate & Design” incorporating community buy-in, impacts on threatened/endangered species and biodiversity. Since then, we have supported the development of a best practices document, “Outside the Box: Guidelines for Retail Store Siting,” published in July by our partners in this campaign, Domini Social Investments and Christian Brothers Investment Services. We will continue to monitor Costco’s adoption of these practices, along with the other commercial and retail companies in the Sierra Club Mutual Funds’ portfolios.

We also have been working collaboratively with a coalition of NGOs and other shareholders to pressure companies to adopt safer, non-toxic substitutes in consumer products. Applying the recent European Union Directive 76/768/EEC on toxics management in cosmetics, we are insisting that companies eliminate toxic, mutagenic and carcinogenic chemicals in their global product lines. When and where appropriate, we will use our leverage as shareholders to demand compliance with the strictest standards governing global reformulation of cosmetic products. Additionally, we are reviewing our Funds’ holdings in the electronics, healthcare, home furnishings and retail industries for opportunities to apply a corporate toxics management framework.

We continue to be active with our partners under the Coalition for Environmentally Responsible Economies (CERES) umbrella, vetting corporate environmental reports as members of the CERES Financial Services and Consumer Products work teams. Finally, we are working with the Global Warming Shareholders Campaign (GWSC) this year on the Buildings working group, which encourages greater energy efficiency and limits to greenhouse gas emissions for homebuilders, hotel companies and REITs.

At Sierra Club Mutual Funds, we take our role as advocates for the environment in the corporate sector very seriously. We will continue to use our power as shareholders to advance sustainable corporate business practices across all of the companies we hold in our portfolios.

Sincerely,


Garvin Jabusch
Director of Sustainable Investing