Courting Investors Whose Higher Aims Are the Bottom Line : Money: A growing number of religious mutual funds are targeting people who want their finances to reflect their beliefs--even if it means forgoing some profit.

In God we invest.

But not in pornography, weapons or “sin” stocks such as alcohol, tobacco and gambling.

That’s the guiding principle for a growing number of religious mutual funds that rely on godly guidelines to invest millions.

As more Americans are drawn to religion for spiritual comfort, they are taking its influence beyond the confines of church, synagogue or mosque. Some investors are turning to God for guidance on where to put their savings.

A growing number of mutual funds are matching religious principles with socially and morally correct investments--or at the very least, targeting members of religious communities who are hungry to invest but overwhelmed by choices.

Muslims have the Amana funds; evangelical Christians, the Timothy Plan, and Mennonites, the MMA Praxis funds. Jews have the Leadership funds; Catholics, the Aquinas funds; Lutherans, the Lutheran Brotherhood and the Aid Association for Lutherans. Methodists have the Pax World Fund, founded by two United Methodist ministers.

“I’m surprised these kinds of funds haven’t evolved earlier,” said Laura Lallos, who tracks socially responsible mutual funds for Morningstar in Chicago. “Some of these traditionally progressive funds have been around 25 years. Only recently has there been talk of investing . . . using traditional religious values.”

Many devout religious disciples want their investments to mirror their beliefs--even if it means forgoing higher returns on their money. Although success in the marketplace varies by fund, balancing politics with profits generally has not been a good strategy during the past few years.

The average socially responsible stock fund was down 5% in the first 11 months of 1994, compared to a 1% decline for the S&P; 500, according to the February issue of Mutual Funds magazine.

For many, matching investment choices with their Christian or Islamic beliefs provides peace of mind. If ministers preach against drinking, some religious people do not want to appear greedy or hypocritical by investing in a company that makes whiskey.

Take the Amana mutual funds (the name comes from the Arabic word for trust). The Amana Mutual Funds Trust was founded in 1986 by non-Muslims in Bellingham, Wash., who saw a business opportunity. They opened two funds specially designed for observant Muslims, whose religion prohibits putting money in many standard profit-making investments.

Managers invest according to the Koran, the Islamic scripture. Islamic principles prohibit investing in banking, distilling and gambling. Because Islamic law forbids earning interest, Muslims cannot buy Treasury bills, bonds or certificates of deposit.

“Islam believes the intrinsic value of money is nil,” said Phelps S. McIlvaine, vice president of marketing for Amana. “There’s no reason to charge for the use of a worthless commodity.”

If the fund is holding cash between stock purchases, rather than put the money into an interest-bearing account--what most managers would do--the money just sits, McIlvaine said.

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Amana’s managers must choose investments that are halal , or permissible under Islamic law. Companies involved in drinking, gambling or pornography are not halal. And because Islamic law prohibits eating pork, managers do not invest in the manufacture, distribution or sale of the taboo meat.

A similar philosophy is followed by the Timothy Plan, a mutual fund started in April by Arthur Ally in Winter Park, Fla., after some evangelical pastors in Florida challenged him to find investments that wouldn’t contradict their Christian beliefs.

“I preach one thing and then spend a lot of time worrying about owning hypocritical stocks,” one preacher told Ally.

“There are funds that screen for pornography, and they don’t invest in Playboy magazine,” said Stephen Ally, Arthur’s son and marketing director for the Timothy Plan. “But we’re different because we won’t invest in companies that advertise in Playboy. If you’re going to do it, do it right.”

The fund’s name is drawn from Christian scripture--specifically, St. Paul’s first letter to Timothy, which contains an admonition to provide for one’s family.

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Managers won’t invest in many insurance companies, saying they indirectly support abortion by paying for the procedure through health insurance. Nor will they invest in a company that contributes to Planned Parenthood because it provides abortion services.

Only about 150 stocks meet Timothy’s strict criteria.

While the Timothy Plan shuns stocks that investors believe violate biblical teachings, the Catholic-based Aquinas Funds go after all but those stocks directly related to abortion.

“We take a proactive approach to working with companies,” said Bernard DiFiore, president of the Aquinas Funds in Texas. “Rather than blacklist, we want to find out what we can do with the company to convince them what they’re doing is morally or socially irresponsible.

“If you own the stock, you can communicate with management,” he said. “Just boycotting the company and products you don’t like means there’s no way you will change management’s mind.”

Aquinas and the Leadership funds--which serve B’nai B’rith’s 500,000 members--have found a way to profit from the funds by plowing their management fees back into their nonprofit foundations.

“The marketers share management fees with us and that becomes part of our charitable programs, such as the Youth Services,” said B’nai B’rith executive director Burton Lazarow. “Simultaneously, investors are helping themselves and us.”

The Lutheran and Jewish Leadership funds were set up primarily to serve church and synagogue members who may be more comfortable investing in mutual funds that have goals consistent with their religion. These two funds avoid “sin” stocks but do not blacklist them altogether. Maximizing returns for the flock is the goal.

“This may sound crass, but the way our funds are invested is to help Lutherans to meet their objectives for financial security and be in a better position to support the Lutheran Church,” said Dave Rustad, a spokesman for the Lutheran Brotherhood Mutual funds in Minneapolis.

The Mennonite mutual funds also offer a way to make money and share it with the 500,000-member church.

“In starting the funds we wanted to do something that had a clearly church and religious base to it,” said J.B. Miller, president of MMA Praxis mutual funds. So investors can tithe part or all their fund income to a Mennonite charitable foundation.

Because Mennonites are pacifists, their MMA Praxis does not invest in war-related industries. “We would steer away from Boeing stocks--even though Boeing might be a good investment--because of its strong military contracts,” says Miller.

Boycotting weapons manufacturers is what got Pax World Fund Inc. started 23 years ago. Although not church-related, the fund was founded after the United Methodist Church was deluged with letters during the Vietnam War asking for investment advice. Church members did not want to invest in companies making nuclear bombs, napalm or weapons. Two United Methodist clergy founded Pax, which is the Latin word for peace.

“We saw a need for the Christian community to have an option to invest with a clear conscience,” said retired Methodist minister Jack Corbett, a Pax co-founder.

Of course, it’s not always easy to invest with a conscience.

“We cringe sometimes because we know every company we’re invested in does something wrong,” said Corbett. “We always choose better over worse rather than perfect over utterly terrible.”