TWST: Mr. McKenna, won't you tell us something about Principle Profits Asset Management?

Mr. McKenna: We are a registered investment advisory firm, located in Amherst, Massachusetts. We work mostly for individuals, but we also manage money for a few institutional clients. We manage both portfolios of mutual funds, and also portfolios of micro-cap domestic equities. The process of socially responsible investing is integrated into the management of all our portfolios.

TWST: Socially responsible investing has many critics as well as proponents. What do you feel is the value added to your investors in this investment approach?

Mr. McKenna: Responsible companies tend to have management that have a vision for the future; they can see that their actions have impact past immediate quarter-to-quarter results. And when a company is responsible in its conduct, I think that bodes well for the value of a company's stock in the long term, and that will ultimately benefit all stakeholders. Of course, it's how a company translates that vision into actions that makes a difference.

TWST: What would be some of the social issues that your clients would give you as guidelines? Are there universal ones?

Mr. McKenna: Well, some of the more common concerns that we find among our clientele is wanting to avoid certain companies that are involved in things like weapons production; companies that are known to be polluters; companies that create a product or service that's considered unsafe or unhealthy; companies that are known to be operating in countries that are considered to be repressive regimes, such as Burma; companies that do not treat their stakeholders well, stakeholders being defined as their host communities, their employees, their suppliers and distributors, their stockholders, basically anyone who is affected by the actions of the company. So there are a lot of very common categories of avoidance. But we also try to help our clients define, in a more pro-active stance, the type of companies that they'd like to have their money be invested in: companies that are producing a safe and a valuable product or service, are supportive of their stakeholders, and are basically responsible corporate citizens.

I think a lot of corporate America is sitting up and taking notice. Social responsibility ranks very high among the factors that people use to make their consumer choices.

TWST: What's the trend Mr. McKenna? Are corporations becoming more or less socially responsible, in your experience?

Mr. McKenna: I think the overall trend is positive. An example of this is the emergence of an organization called Business for Social Responsibility, of which Principle Profits is a member. BSR began in New England in the late '80s is now nationwide. BSR has grown to over 1,000 companies, including memberships in affiliated organizations and international partners, and members include some of the largest companies in the United States. Now, some would say that this is just a form of green marketing. And for some companies that's probably the case. Even still, I think that there are a growing number of companies that are looking at not just how they do business, and are coming to the conclusion that it makes sense for them to be responsible. So I think we are heading in the right direction. And of course, it's important to keep a skeptical eye in identifying the companies that are just looking to green-wash themselves.

TWST: When you say microcap, will you look at initial public offerings? How large a company?

Mr. McKenna: We don't do initial public offerings. We try to have at least 12 months worth of trading history on a company before we would consider investing in it, so that the shakeout from the initial public offering and the restrictive shares is played through. And in terms of size, we're looking at companies of less than $500 million in market capitalization, although typically our companies are less than $500 million in market capitalization, although typically our companies are less than $100 million in market capitalization. I can give you a portfolio statistic here. For our total equity composite, the average market cap is just over $100 million.

TWST: Mr. McKenna, is there a company that you've put through your grading process, you've examined closely and then decided to pass on?

Mr. McKenna: The universe of stocks that we have available to include in portfolios usually numbers somewhere between 70 and 100, when we get through the process of grading and ranking them We try to have somewhere between 70 and 100 potential candidates at any given time. We re-rank our entire universe on a quarterly basis, and re-rank our current holdings on a monthly basis. We make sure that each one of our holdings is still exhibiting the characteristics that made it attractive to us in the first place. Our clients' portfolios typically hold between 25 and 35 stocks. There are many companies that may be in our universe of stocks, but may never be a portfolio holding, in that they might end up falling out of the universe by not making the grade when they are re-ranked. We don't have any particular industry or type of company that we look for. We do manage diversified portfolios, which we define as not investing any more than 5 percent of a portfolio in any one stock. So it is possible that a company could come into our universe as a potential candidate, but because of the strength of the current holdings, never actually get included in the client's portfolio. It wouldn't be for any other reason other than that.

TWST: And how about the capitalization side of it, supposing the company grows into a large cap?

Mr. McKenna: We won't sell strictly based upon capitalization. We are constantly evaluating our holdings, we keep a very careful eye on them. And as long as the story is continuing to play out, we will hold the stock. We will usually trim back a bit and take some gains, but we don't automatically sell a stock just because it reaches a certain market capitalization.

TWST: How much would the firm's outlook for the economy, for GDP, impact your outlook for these small microcap companies?

Mr. McKenna: An interesting aspect of the universe of micro-cap companies is that their price movements don't correlate, like that of the larger companies, in terms of reacting to the economic statistic-du-jour. Many large cap stocks have benefitted greatly from the healthy economy we are experiencing, and have been rewarded with rich multiples by investors. However, micro-cap stocks tend to move much more in direct correlation to company specific events. That's not to say that the overall health of the economy doesn't affect these stocks, it obviously does, but not to the same degree.

There is an awareness of the growth of socially responsible investing. As more and more investors vote their social-issues concerns with their investment dollars, corporate America will realize that they need to be responsive to this growing trend.

TWST: What do you consider to be your challenges as a professional money manager who focuses on social issues? What's the hard part of your job if any?

Mr. McKenna: The hardest part is being able to find a reliable sources of information. When you are managing widely-held, larger company stocks, they are usually followed by many analysts and are heavily scrutinized. If Bill Gates sneezes, 30 analysts write a report about it! A lot of the stocks that we are looking at as potential investment candidates don't have any financial coverage at all, let alone social-issues analysis.

So you have to dig harder. You have to make sure that you get the company reports and read them and you have to scratch harder to find whatever information there is available. We also call every company, and talk to the management directly. We make sure that we are in contact with them on a regular basis, to get some insight on how business is going and what salient issues they are confronting. The nice thing about small companies is that you often can get the CEO or the CFO of the company to speak with you directly. They don't have six levels of gatekeepers and spin-meisters keeping you at bay. Often, if you call early enough in the morning or in the early evening, some of these CEO's will even answer the phone! That's because a lot of these companies are not that far past the entrepreneurial stage, and upper management is very hands-on. Also, a lot of these companies are single product or single product realm companies, so you don't find layers of horizontal/vertical integration. That makes it easier to get your arms around the corporate culture, how the company operates, how it sees itself in terms of its growth, and how it sees itself in terms of being a responsible corporate citizen. We also make sure to be diligent in verifying the information we receive directly from the company, by utilizing every source of social-issues data available today.

TWST: What concerns or questions do investors bring to you, and how do you reply? What's on their minds about these stocks?

Mr. McKenna: What they want to make sure of is that the companies that they're investing in reflect their personal values and beliefs. That's a very important part of the work we do. The goal of socially responsible investing is not to try to identify the angels among us, because just like all people are shades of gray, companies are also shades of gray. We all have positive aspects and negative aspects. What matters is to identify the elements that are most crucial and critical to each investor, and to incorporate these concerns into the investment process.

A common concern among our clients is that the companies they are investing in have a commitment to not only growing their business, but to take heed in how they go about it. Our clients want to see the value of their holdings increase, but not at the expense of the environment, or unfair treatment of company employees. It's very important to them to know that the companies are good stewards of the resources in their care, both human and natural.

TWST: What kind of impact do you think you've had on corporate America as socially responsible investors?

Mr. McKenna: I think a lot of corporate America is sitting up and taking notice. They see the results of surveys and research studies that consistently show that consumers would more likely choose a product or service from a company that they feel gives a hoot, over one that they feel doesn't. Social responsibility ranks very high among the factors that people use to make their consumer choices. So from that viewpoint, I think companies are becoming increasingly aware that their image, and even more importantly their actions, are vital to their long-term financial health. There is also an awareness of the growth of socially responsible investing. As more and more investors vote their social-issue concerns with their investment dollars, corporate America will realize that they need to be responsive to this growing trend.

Looking past this reactive type of response, there are also a lot of major societal problems in this country today that need to be pro-actively addressed within the corporate sphere. Although the government will continue to try to lead the way, the government in a large sense is really no longer able to effectively battle the myriad of issues that we grapple with as a nation. Companies themselves need to take a more active role in helping to solve some of these problems. An example of such is the decline in educational standards. A growing number of companies are investing in the furthering of their employees' education, as well as playing an active role in supporting primary and secondary schools on a local level. This not only benefits the employees and the community immediately, but it also consequently benefits the company in the long run by having a better educated workforce. This is just one example of how companies are looking at new approaches that work out to be a win/win for both them and society as a whole.

TWST: Thank you.