A Few Funds Invest ‘Moral Money’

QUESTION: I am not one to get involved in social causes. But I am really angry about companies that are still doing business in South Africa. I was talking to my neighbor about this the other night, and she suggested that we take our savings out of mutual funds that invest in companies still in South Africa. She thinks there are funds that specifically won’t invest in the securities of such companies. But we don’t know how to find them, and if this is something new, I don’t know if it would be a wise investment. What do you think?--L. S.

ANSWER: There are a few mutual funds that help social causes of this nature. Some, capitalizing on the mounting opposition to apartheid, are brand-new. But others have been in business for more than a decade.

Here is a list of the mutual funds known to do what is variously called socially responsible or human rights investing--and what the investment industry itself has dubbed “moral money”: Calvert Social Investment Fund of Washington, Dreyfus Third Century Fund of New York, Pax World Fund of Bethesda, Md., Working Assets Money Fund of San Francisco, Pioneer Fund of Boston, New Alternatives Fund of Great Neck, N.Y., and Colonial Advanced Strategies Gold Trust of Boston.

Together, they have assets approaching $500 million, up from about $100 million a year ago, and more than 66,000 investors.

Each of these funds has a different set of investment standards--most of them quite rigid. Also, their minimum investment requirements run the gamut from $250 to $2,650. So, before you transfer your money, you should check them out for yourself.

The addresses of these and other funds can be obtained from the Investment Company Institute, 1600 M St. N.W., Washington, D.C., 20036.

Another factor to consider is performance. By their very nature, these funds have typically offered slightly smaller yields in the long term than do mutual funds generally. That is because the pool of companies in which they can invest is much smaller than the pool available to mutual funds that only have securities’ financial performance to weigh.

But as the economic climate in South Africa has deteriorated because of the huge public outcry over apartheid, some funds that refuse to invest in companies doing business in that country have actually matched or even exceeded average money-fund yields.

The “moral money” fund thought to be the oldest is the Pax World Fund of Bethesda, which has been around since 1971 and has assets of about $53 million. But only about two years ago did it take an investment stand against companies doing business in South Africa. From the beginning, its main thrust has been to avoid investing in companies that make or sell weapons systems, liquor and tobacco or that run gambling establishments or nuclear power utilities.

Similarly, the Dreyfus family of mutual funds decided in 1972 that there were four areas of social concern shared by enough investors so that a separate fund boycotting these areas could thrive. So, the Dreyfus Third Century Fund was created for investors who wanted to help companies demonstrating their support for product safety, equal employment opportunities for women and minorities, occupational safety, and pollution control and environmental concerns.

In choosing companies that are “socially responsible” in these areas--companies such as Sears, Santa Fe and Scott Paper--Dreyfus examines such things as hiring and pollution-output records, analyzes the powers that nuclear plant managers have and the procedures that companies have for monitoring their minority hiring practices.

Dreyfus reviews these issues every three or four years. In doing so last year, it decided that this fund--which has assets of $165 million--would discontinue investments in companies with South African operations. The decision was partly based on moral concerns but also reflects the fund’s feeling that the number of companies operating there is likely to fall precipitously during the next few years, portfolio manager Jeffrey Friedman said.

Newer to the anti-South Africa movement are the Colonial Advanced Strategies Gold Trust of Boston and Working Assets of San Francisco. Colonial, 18 months old, boycotts South African securities in favor of Australian and North American gold stocks. And Working Assets, formed 3 1/2 years ago, has an investment policy against apartheid, missile makers, nuclear power operators and companies with proven records of job discrimination.