I guess the return on cluster bombs and cancer sticks was just too tempting.

Pax has issued a statement in which CEO Joseph F. Keefe apologizes for the violation of its self-imposed rules. (He also makes it clear that it occurred before he became CEO). Keefe states that investors were not harmed financially.

By way of explanation, Pax cites the SEC's Settlement Order, which states that between 2001 and 2005, two of Pax's mutual funds bought stocks "that either were not socially screened prior to purchase or had failed a screen. Of these, 10 securities (out of approximately 650 purchased by Pax World Funds during that time period) actually failed the social screens and therefore should never have been purchased."

"Socially Responsible Investing (SRI) is no longer relegated to a tiny corner of the investment landscape; indeed, according to the Social Investment Forum, SRI now accounts for $2.7 trillion, up more than 18% since 2005," says Chuck Carlson.

Here, the editor of The DRIP Investor offers five stock that both rank high for their social responsibility and also stand out based on more traditional earnings and valuation analysis.

"The Social Investment Forum estimates that more than one in every 10 dollars under professional management in the U.S. is involved in SRI investing. What is driving the growth in SRI?

"One factor is the increasing numbers of women and younger investors among the investor populace have fueled demand for SRI investments.

"In addition, we see an increased focus on environment, social, and corporate governance issues. Further, widely publicized stories concerning global warming as well as various corporate governance issues, have caused many investors to reconsider how they deploy their investment capital.

Investors will want to take at least a quick read through Patricia Aburdene's recently revised book Megatrends 2010: The Rise of Conscious Capitalism. Aburdene has isolated seven trends she sees will drive business and investor behavior for the near future.

1) Power of Spirituality in individual lives. People do not want their work and their personal morality to be in opposition to one another.

2) Strengthening of Conscious Capitalism that is responsible to both shareholders AND stakeholders.

3) Leading from the Middle in which middle managers acquire more voice and moral authority over business decisions.

4) Spirituality in Business leading to a wider acceptance of faith at work.

5) Values Driven Consumers who shop with their values as well as their dollars.

Coming soon to investor email and mail boxes will be annual reports and proxy voting materials, complete with this year's shareholder resolutions. Hot topics this annual meeting season include the ever popular "say-on-pay." Shareholders are incensed that average or even sub-par executive performance and decision making is being handsomely rewarded with gigantic salaries and perks while they make due with crumbs. According to a recent article in CFO Magazine, 76 shareholder proposals dealing with executive compensation have made it onto the ballot.

Also on many ballots are shareholder resolutions dealing with socially responsible investing, particularly on matters revolving around the issue of global warming and/or climate change. So far, 56 shareholder resolutions have made it onto ballots. At least nine companies have taken steps to negate the need for such shareholder resolutions by rolling out policies addressing how the companies will cut back on greenhouses emissions and otherwise "go green."

As this is a presidential election year, there are at least 50 shareholder resolutions to force companies to disclose political contributions. These resolutions probably won't gain the necessary traction to force any action, but any resolution favoring greater corporate transparency is to shareholders' advantage.

New this year are numerous resolutions requesting senior management to disclose a company's exposure to subprime mortgage losses and secondary purchases in the mortgage market. This is a hot topic among investors right now, and many pension fund investors have taken hits. Look for union members to pressure their pension funds manangers on this one.

How will you vote on these subjects?

I like the idea of socially responsible investing (SRI). Many socially responsible funds have amassed terrific track records, and the values-based philosophy will appeal to many investors who otherwise might not be as interested in the market. But with the popularity of SRI on the rise, it's no surprise that some funds will use the SRI moniker to generate interest, although they really aren't providing a a good product for investors.

A case in point would appear to be Integrity Mutual Funds, discussed in a column by Lawrence Carrel over at TheStreet. The fund is tiny, with just $46 million in assets, and I am impressed with the manager's commitment to social justice. He even speaks with PETA to learn about how companies treat animals!

Here's the problem with the fund, summed up by Carrel: "The fund charges a steep front-end load of 5.75%, which tops Lipper's average maximum load of 5.28%. Its expense ratio is 1.56%, topping Lipper's median expense ratio of 1.21%."

Saturday's New York Times has an interesting piece on socially responsible investing, and investors who are successfully integrating their values into their investing without sacrificing their returns. While everyone is familiar with standard SRI funds like Paxworld and Parnassus Investments, there are a few really interesting ones that you probably haven't heard of:

Amana Mutual Funds: I'm Jewish, but I'm tempted to convert after taking a look at the jaw-dropping returns achieved by this fund, which screens out stocks that are not consistent with the principles of Islam. For the past 10 years, the Amana Growth Fund has earned an average annual return of 13.13%, compared to 8.42% for the S&P 500. This handily beats the vast majority of mutual funds, earning the company a coveted five-star rating from Morningstar, the leading evaluator of mutual fund performance. So what does Islamic investing mean? Amana won't invest in any company involved with liquor, pornography, gambling, or banks. Why banks? Under Islamic law, the lending or borrowing of money with interest is forbidden. Amana also avoids companies with heavy debt loads because of this. That practice helped the fund get out of Enron stock before the company imploded.

The Vice Fund: This one is the antisocial responsibility fund. They've invested, with tremendous success, in gambling, tobacco, pornography, and guns.

The Ave Maria Catholic Values Fund: This is another very successful fund which invests based on Catholic principles. They don't touch the traditional sin stocks, but also avoid companies that grant marriage benefits to same-sex couples.

So as you can see, values-based investing isn't just about labor practices or the environment. Whatever your values happen to be, there is probably a mutual fund to match them!

Many investors are concerned with corporate social responsibility, the precise meaning of which is ambiguous as are methods to analyze and evaluate such responsibilities. The late Milton Friedman and his followers have argued that the term "corporate social responsibility" is meaningless. Businesses are profit making entities, no more, no less. They are responsible only to their shareholders. Such a position is increasingly hard to defend. Today most companies want to be considered good corporate citizens concerned for the environment, for their workers, and for the communities in which they operate.

Concerned investors will want to read Kate O'Sullivan's article "Virtue Rewarded" in the October issue of CFO (www.cfo.com). O'Sullivan interviews CFOs from various companies, all of whom are concerned about minimizing risk, staying ahead of negative publicity, and maintaining a positive reputation while not sacrificing bottom line profitability.

After reading this article, investors may want to read "Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility" by Michael Porter and Mark Kramer in Harvard Business Review, December 2006 (www.hbr.org -- subscription required). Porter and Kramer argue that the attitude of CFOs reflected in O'Sullivan's article is exactly what is WRONG with current thinking of corporate social responsibility. Company executives set up a business vs. society model in which long-term sustainability is sacrificed to quarterly profit figures. Companies waste literally millions of dollars each year supporting feel-good, positive publicity projects of dubious long-term benefit that have nothing to do with the strategic mission of the companies. Companies need to consider their social responsibilities from an operational and strategic standpoint, as a vital component of their value chain. What does a company already produce? Where in its operational structure are negative social impacts generated? What can the company do to reduce or even eliminate those negative social impacts? When a company ceases to react defensively to perceived negative publicity or activist shareholder proposals and integrates social responsibility into its operational processes, that company generates an enormous competitive advantage because it integrates the health of the business into the health of the society in which it operates.

Porter and Kramer argue that strategic corporate social responsibility responses must create shared value for both the company and society simultaneously. A company must focus on a small number of large impact initiatives integral to its own core operations. Management must measure potential social rather than stakeholder satisfaction. Generic social do-good programs do not have a measurable long-term impact on either the company's competitive position or the health of the society. One company that practices strategic corporate social responsibility as part of their operational structure is Whole Foods Market (NASDAQ: WFMI), which not only sells high-quality organic foods, but also uses environmentally safe cleaning products, recycled materials in store construction, wind energy credits equal to 100% of its electrical use, and biofuels in its trucks. Other companies mentioned are Toyota (NYSE: TM), due to its concentration on hybrid auto technology; Sysco (NYSE: SYY), which supports family farms and locally grown produce in its stores; General Electric (NYSE:GE) for "ecomagination" that focuses on water-purification technology; and Unilever (NYSE: UN), which is concentrating on products to serve the needs of the poorest populations. Corporate social responsibility is an idea that will only grow in importance. Investors may wish to consider it as an integral part of their due diligence investigation.

This weekend's Financial Times featured an interesting piece by Chris Brown-Humes entitled "Global warming means climate of change for companies." The author suggests that companies like airlines and cement-makers will suffer, although "an airline that markets itself as using a climate-friendlier fuel might benefit." He further predicts that climate change funds and climate change indices will develop.

Saturday's New York Times offered up a list of Sites for the Socially Conscious (http://www.nytimes.com/2007/02/03/technology/03online.html?_r=1&oref=slogin). Investors may want to take a look at dotherighthing.com, which works like Digg.com, allowing users to vote on the social responsibility of various corporations. At sustainability-indexes.com, you can look at the Dow Jones list of socially responsible/environmentally friendly companies.

Advances in technology and solutions to global warming may offer compelling opportunities for socially responsible investors. I expect that we'll be seeing a lot more about it in the financial press in the months and years to come.

Socially Responsible Investing (SRI) has skyrocketed over the past ten years. 10% of all investments, approximately $229 trillion, qualify as SRI. There are currently 221 SRI mutual funds available for individual investors. So what, more specifically, is SRI -- other than an attempt to combine money and morals, not always an easy mix? All SRI options agree upon three broad requirements.

1. There must be some sort of screening process that examines a company's business practices to see if it meets with the social agenda of investors. Social research is just as important as fundamental financial research in SRI. One of the more common screens is to examine companies in terms of their environmental records, as well as their human rights records. Companies marketing themselves as SRI companies generally have a positive gender equity policy, and are heavily involved in social welfare programs in the communities in which they operate. There are no agreed-upon criteria for SRI other than those imposed by potential investors.

Discovered this little item in Motley Fool's S.J. Caplan article, Stocks With Scruples: "Starbucks (SBUX) and Pepsi (PEP) signed an agreement to distribute Ethos Water, a company acquired by Starbucks last year and founded to focus attention on the world water crisis and to assist children around the world in obtaining clean water." Company site, Ethos Water, explains their mission which should please investors seeking socially-responsible investment opportunities, and also the many critics that continue to challenge large US companies to do more good as global Corporate Citizens.