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October 28, 2002
Seven New SRI Mutual Funds Launched by Seminal Canadian Investment Firm
    by William Baue

Ethical Funds recently introduced seven new SRI mutual funds in response to investor requests and a poll that shows overwhelming support for shareowner action in Canada.

Vancouver-based Ethical Funds recently added to its list of "firsts" by introducing seven new socially responsible investment (SRI) mutual funds. In 1986, Ethical Funds offered the first Canadian SRI mutual fund, the Ethical Growth Fund. In 2000, Ethical Funds became the first mutual fund company in Canada to disclose its proxy voting guidelines and proxy voting record. With the new mutual fund offerings, which launched on the first of this month, Ethical Funds became the first Canadian investment firm to offer a fully diversified family of SRI mutual funds.

"For the first time, socially conscious investors can build a complete, globally diversified investment portfolio within a single mutual fund family," said Margaret Yee, Ethical Funds Vice President. "The family of Ethical Funds now covers fixed income, core equity, global equity funds, regional funds, as well as several specialty funds."

Ethical Funds' new SRI mutual funds cover a broad geographic and strategic spectrum. The Canadian Dividend Fund, managed by Canada-based Greystone Managed Investments, seeks to maximize returns from investment in Canadian companies through a combination of dividends and capital growth. The U.S. Special Equity Fund, managed by Chicago-based William Blair and Company, invests in equities of U.S. companies with small and mid-capitalization to generate long-term capital growth. William Blair and Company applies a similar strategy in managing the International Equity Fund, except it concentrates on companies located predominantly outside the U.S. and Canada.

The Global Growth Fund, managed by global equity specialist Marvin & Palmer Associates, resembles the International Equity Fund, except it does not avoid U.S. and Canadian investments. The European Equity Fund, managed by New York-based Clay Finlay Inc., invests in equities of companies that operate predominantly in Europe.

Two additional funds clone the International Equity Fund and the European Equity Fund, but are fully eligible for Registered Retirement Savings Plan (RRSP) status, a special category in Canada that mirrors Individual Retirement Accounts (IRAs) in the U.S. These clone funds allow RRSP investors to diversify their portfolios beyond the otherwise strict limitations imposed by Canadian law against non-Canadian investments.

Ethical Funds applies qualitative screens for environmental practices, human rights, worker relations, and community relations. It also applies exclusionary screens for tobacco, military weapons, and nuclear power generation.

Ethical Funds created the new products in answer to a call from Canadians for SRI mutual funds, as identified in a recent poll that Ethical Funds commissioned from the global marketing research and public opinion firm Ipsos-Reid.

According to the September 2002 omnibus survey, almost three-quarters of Canadians (73 percent) feel that mutual fund companies should practice shareowner action to encourage companies to practice socially and environmentally responsible behavior. And almost half of the Canadians polled (48 percent) said they would be more likely to invest in mutual funds that practice shareowner action.

"It's evident that many retail investors believe mutual fund companies have a responsibility to actively lobby companies they invest in to adopt higher standards of corporate behaviour," said Ms. Yee. "Shareholder action strategies championed by mutual fund companies, such as corporate dialogue, voting proxies and filing shareholder resolutions, give shareholders a voice where it counts: in the corporate boardroom," added Ethical Funds Vice President for SRI Policy and Research Robert Walker. Ethical Funds was the first Canadian investment firm to sponsor shareowner resolutions on social content.

Some observers may question the wisdom of launching a slew of new funds at a time when more money is flowing out of mutual funds than into them. However, Ethical Funds clearly has confidence in the market for socially responsible mutual funds, which are experiencing the opposite effect in the U.S., with net inflows exceeding net outflows. Ethical Funds, which currently has $2 billion under management, even hopes to increase this amount by ten percent over the next year.

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