Ariel Goodman walked into a meeting of the board of directors of The Rainbow Fund last October and told her fellow board members that she was gay. After the surprise announcement, she also told them of a plan to re-energize their ailing fund.

Now, a year later, Goodman, a partner with Furman, Anderson & Co., the fund's adviser, has redesigned the fund - tying it to the gay community -- and is setting out to aggressively market the product for the first time.

While the so-called "Rainbow Flag" is a symbol of gay pride developed in the late 1970s, The Rainbow Fund was never a gay-conscious fund. In fact, it got its name from a different cause. The fund was launched in 1967 as the Mates Investment Fund. In 1974, investment manager Robert Furman acquired the fund and it was renamed The Rainbow Fund after an annual fund-raiser for the New York City chapter of the Juvenile Diabetes Foundation, which Furman helped found.

Now the word Rainbow has come to mean something different for the fund's directors. The fund has filed documents with the Securities and Exchange Commission outlining plans to incorporate new social goals and an advisory board made up of prominent gays and lesbians. That advisory board will help dispense 10 percent of Furman, Anderson's advisory fees to charitable gay and lesbian organizations.

The fund, which currently has $1.1 million in assets, is sold directly and so has no sales load. Advisory fees are six basis points, while the fund's total annual expenses are 3.67 percent.

According to the social goals, the fund is "determined" to invest in companies that have "progressive policies" toward gays, SEC documents say. Such policies include extending health insurance to gay partners and organizing gay support groups. Otherwise, the fund will try to invest in companies that are not openly hostile to the gay community. Companies that do not have progressive gay policies will not necessarily be excluded from the fund.

Because of the latitude the social goals give, the fund's investment style will essentially remain the same as it has always been -- that of a growth fund -- and Furman will still manage the fund the way he has for years. Goodman, however, will be involved when it comes to meeting the social goals.

"I'm not bound to it (the social goals)," said Goodman, "so it wouldn't be to the detriment to the fund."

Goodman says that she will be looking specifically not to invest in companies that have been involved in documented cases of open discrimination against gays.

The new social objectives of the fund are expected to help market the fund to both homosexuals and heterosexuals alike, and bring the fund back to life. When it was called the Mates Fund, it had nearly $24 million in assets under management.

Goodman believes that none of the existing shareholders, many of whom are older investors and have held the fund for a long time, will exit the fund due to its new social objective and its affiliation with the gay community. In fact, Goodman says she said she was surprised by the warm response she received from the board of directors, most of whom are in their 60s and had no idea that she was gay.

"If I had tried it 10 years ago, I don't think it would have worked," said Goodman, who is now president of the fund.

The idea of a gay-focused fund is not new. Another gay-conscious fund is the Meyers Pride Value Fund, a value fund started by Meyers Capital Management in June of 1996 that currently has $3.4 million in assets. That fund is different than The Rainbow Fund in that it invests exclusively in companies that have anti-discriminatory policies for gays and lesbians. That, at a minimum, means having stated policies against discrimination in hiring and promotion based on sexual orientation. There are about 400 companies that meet that criteria, Meyers fund officials said.

Meyers fund officials believe homosexuals will not be the only ones to invest in the fund. They say that only 10 states have laws banning work-place discrimination based on sexual preference and that many people believe they can make a difference in this area by investing in the fund.

"We hope that every gay, lesbian and straight friend who believes that discrimination in the work-place based on sexual orientation is wrong would invest in the Meyers Pride Value Fund," said Elaine Noble, managing director of Meyers Capital Management.

Both The Rainbow Fund and Meyers Pride Value Fund plan to market themselves aggressively for the first time, including on the Internet. Meyers is just stepping up its marketing now because BankBoston in June invested $250,000 in the fund's adviser, Meyers Capital Management, providing the resources needed to devote to marketing. The Meyers Pride Value Fund is also available through E*Trade and Jack White and will soon be available through Charles Schwab.

Other, smaller gay-oriented funds exist, says William Michael Cunningham, president of Creative Investment Research of Washington, D.C., which tracks and creates socially-responsible financial products. He says that the target audience for gay and lesbian mutual funds is primarily the gay and lesbian community and perhaps those with close ties - for instance a mother whose daughter is gay and has experienced discrimination.

Large mutual fund companies should take note of these small, targeted funds because they represent new, untapped markets, Cunningham says.

"They (large fund companies) basically tapped every market out there," he said. "They have to look at other market sectors. They've hit all the easy targets. Where are you going to go next?"

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