The Rewards of Socially Responsible Investing

Many people today want their investments to benefit not only themselves, but the world around them as well. Socially conscious investors are concerned about how the principles of the companies in which they invest affect people’s lives and our environment.

In 1997, the Social Investment Forum found that assets under management in the United States that take into account social principles topped the $1 trillion mark. This nonprofit organization also found that the number of socially and environmentally responsible mutual funds grew from 55 in 1995 to 144 in 1997, a jump of 162 percent.* What Socially Responsible Investing Is

Socially responsible investing is a process of applying ethical values to the investment decision-making process. When an individual, or an investment manager, screens companies for social responsibility, they may look at one or more of the following criteria:

Products – companies that earn little or no revenue from manufacturing or promoting certain products or activities such as alcohol, tobacco, gambling, nuclear power or military weapons.

Environmental concerns – companies with a commitment to pollution control, recycling or other environmental programs.

Commitment to diversity – companies that hire and promote women, minorities and the disabled. have them as senior executives or on their board of directors, that contract out work to women- or minority-owned businesses. and set family-friendly employee policies.

Good corporate citizenship – companies that respond swiftly to crises. support their communities and have generous charitable-giving programs.

Positive employee relations – companies with a track record of dealing fairly with employees and labor unions, including attractive benefits programs, day care and elder care assistance, and a high level of workplace safety. What About Return?

Many investors fear that investing with social considerations will force them to settle for lower returns. But sticking to your principles doesn’t have to mean sacrificing return. The Domini 400 Social Index, a leading measure of socially responsible investing compiled by Kinder, Lydenberg, Domini & Co., Inc. and used by Merrill Lynch, has outperformed the S&P 500 in five of the last seven years. Returns represent price changes plus reinvested dividends. The Domini 400 Social Index, which has not had a loss since its inception, is only one of several screens used in choosing stocks for socially responsible portfolios; the use of other screens as well as sales charges and expenses would have materially affected results, Index performance is no indicator of future results. Choosing Your Investments

Many companies may meet social criteria, but at the same time not make sound investments. You may not be confident that you can evaluate companies for their investment merit according to standard measures such as price performance, price to earnings ratio, dividend yield and future earnings projections.

That’s why investors may choose mutual funds or defined asset funds to accomplish their socially responsible investing objectives. Mutual funds are actively managed portfolios of investments, while defined asset funds purchase a relatively fixed portfolio of securities that are held for a period of time, often a year. With mutual funds and defined asset funds, your research and evaluation is done for you by professional managers. In addition, they offer the added benefit of built-in diversification. Diversification gives you the opportunity for gains from any one investment to make up for any losses from another. (It may also reduce your overall return when some stocks perform well.) Put Your Convictions Into Action

If you’d like your investments to mirror your social convictions, talk with your financial consultant about how investments that match your ethical standards can fit into your overall financial plan. You’ll have the opportunity not only to improve your financial bottom line, but also enjoy the added dividend of knowing you’ve put your convictions into action.

For more complete information about socially responsible portfolios including sales charges and expenses, ask your financial consultant for a free prospectus. Read the prospectus carefully before you invest.

Allen N. Jones is Senior Vice President and Director of the Merrill Lynch Private Client Marketing Group.

The Social Investment Forum 1997 Report on Responsible Investing Trends (Nov. 1997) The Domini 400 Social Index is a servicemark of its publisher, Kinder, Lydenberg, Domini & Co. Inc.