No-Action Letter under:
Investment Company Act -
Section 12(d)(3)

Calvert Social Index Fund

September 4, 2001

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

Our Ref. No. 20007251725 Calvert Social Index Fund File No. 811-09877_______

By letter dated August 28, 2001, you request our assurance that we would not recommend enforcement action to the Commission under Section 12(d)(3) of the Investment Company Act of 1940 ("Investment Company Act") if, as described in your letter, the Calvert Social Index Fund ("Fund") invests in securities issued by Comerica Inc. ("Parent"), an affiliated person of World Asset Management L.L.C., the Fund's investment subadviser ("Subadviser").

Facts

The Fund is registered as an open-end investment company under the Investment Company Act. It commenced operations on June 30, 2000. You state that Calvert Asset Management Co. ("CAMCO"), a wholly owned subsidiary of Calvert Group, Ltd. ("Calvert"), is the Fund's investment adviser. You state that CAMCO has retained the Subadviser for the Fund. You state that the Subadviser is an indirect subsidiary of the Parent. You state that pursuant to its investment subadvisory agreement with CAMCO, the Subadviser makes all investment decisions and places all orders for the purchase and sale of portfolio securities for the Fund. You state that Calvert Administrative Services Company ("CASC"), a wholly owned subsidiary of Calvert and a sister company of CAMCO, provides administrative services to the Fund. (Calvert, CAMCO, and CASC are sometimes collectively referred to in this letter as the "Calvert Entities.") You state that none of the Calvert Entities is an affiliated person, or an affiliated person of an affiliated person, of the Subadviser or any of its affiliates, and that neither the Subadviser nor the Parent is an affiliated person, or an affiliated person of an affiliated person, of the Calvert Entities or any of their affiliates.

You state that the Fund's investment objective is to match the performance of the Calvert Social Index (the "Index"), which you represent is a broad-based index created and maintained by subsidiaries of Calvert.¹ You state that any decision by the Subadviser to purchase or sell a security for the Fund is non-volitional in nature in that the Subadviser's authority is limited to investing solely in the securities of issuers represented in the Index in approximately the same proportion as those issuers are represented in the Index itself. You state that, in most instances, the Fund will make direct purchases of securities, but it also may invest in issuers represented in the Index indirectly through derivative instruments, such as futures contracts on relevant securities. You explain that it would not be economical to pursue the Fund's strategy of investing directly or indirectly in all issuers in the Index if the Fund's assets decline below a certain level. You state that if at any time the Fund's assets decline below that level, the Subadviser may use a sampling method to invest the Fund's assets. You state that under this method the Fund would invest in securities issued by a representative sample of issuers in the Index that are expected to resemble the full Index in terms of various key investment characteristics.

You state that CASC compiles and creates the Index, with social screening input from Calvert Social Research Department ("CSRD"), a department within CAMCO. You explain that the Index is created in the following manner. First, CASC starts with an initial universe ("Total Index Universe") of all companies listed on the New York Stock Exchange and the Nasdaq-AMEX Stock Market. Second, CASC eliminates all companies that have certain pre-determined characteristics (the surviving companies are referred to as the "Calvert Index Universe").² Third, CASC identifies the 1,000 companies within the Calvert Index Universe that have the largest market capitalization ("Selection Base"). Fourth, CSRD eliminates certain companies in the Selection Base by performing a disciplined social screening process (the "Social Screening Process") on each company within the Selection Base based on the company's activities with respect to the environment, labor relations, product safety, animal welfare, military weapons, community relations, human rights, and indigenous peoples' rights. ³ You state that the remaining companies comprise the Index. You state that CASC transmits data relative to the Index to licensees of the Index.

You state that CASC will update the composition of the Total Index Universe, Calvert Index Universe and the Selection Base annually on the third Friday of each September. You also state that CSRD will apply the Social Screening Process to the then-current Selection Base on a quarterly basis, on the last trading day in the months of January, April, July, and October. At such times, you state that companies that newly qualify for the Index will be added to the Index and that companies that no longer qualify will be eliminated from the Index. You also state that more frequent adjustments may be made to the Index in order to reflect particular corporate activities of companies already included in the Index, such as mergers, acquisitions, and bankruptcies.

You state that the Index currently tracks the performance of 590 companies that met the social investment criteria established by CSRD as of July 31, 2001. You also state that the Parent currently is included in the Index, and represented approximately 0.2% of the total Index based on current market capitalization as of July 31, 2001.⁴ You state that the Fund does not currently invest in securities of the Parent because of the restrictions of Section 12(d)(3) of the Investment Company Act.

You state that the Fund proposes to purchase securities issued by the Parent in the same approximate percentage that the Parent is represented in the Index when the Fund is following its investment policy of investing in all companies within the Index, subject to the limitations set forth in Rule 12d3-1(a) and (b) under the Investment Company Act. You also represent that the Fund will not make any additional investment in securities issued by the Parent during any period that the Fund is investing in a representative sample of the Index.

Analysis

Section 12(d)(3) of the Investment Company Act generally prohibits a registered investment company from purchasing securities issued by a broker, dealer, registered investment adviser, or underwriter.⁵ Section 12(d)(3) thus prohibits the Fund from purchasing the securities of the Parent because the Parent is indirectly engaged in a securities-related business.

Rule 12d3-1 under the Investment Company Act exempts purchases of certain securities from the prohibitions of Section 12(d)(3) under certain circumstances.⁶ Paragraph (c) of Rule 12d3-1, however, explicitly excludes from the exemption provided under Rule 12d3-1 any purchase by an investment company of securities issued by its investment adviser, promoter or principal underwriter, or any affiliated person thereof. Accordingly, the Fund cannot rely on the exemption provided under Rule 12d3-1 to purchase securities issued by the Parent because the Parent is an affiliated person of the Subadviser.⁷

On several occasions, we have agreed not to recommend enforcement action to the Commission under Section 12(d)(3) against index funds that sought to purchase securities issued by certain affiliated persons of the funds' investment advisers or principal underwriters that were directly or indirectly engaged in a securities-related business.⁸ In Victory, our position was based on the facts and representations that:

the fund's investment objective was to match the investment performance of an unaffiliated, broad-based index; the fund would purchase securities issued by an affiliated person of the fund's investment adviser and maintain its position in such securities only in the approximate percentage that the affiliated person was represented in the index; and any purchase of securities issued by the affiliated person would be in compliance with Rule 12d3-1(a) and (b).

We explained in Victory that the non-volitional nature of the index fund's purchases reduced the likelihood that the selection of the fund's portfolio securities would be made in the interest of the fund's investment adviser or principal underwriter, rather than in the interest of the fund's shareholders.

We also stated in Victory that we would no longer respond to requests for no-action relief in this area unless they present novel or unusual issues. Your letter, however, presents a novel issue because, unlike Victory, the Fund's investment objective is to match the investment performance of an affiliated Index. The Fund and the Index may be "affiliates" of each other because they may be under the common control of Calvert.

You argue that the affiliation between the Fund and the Index does not raise the conflict of interest concerns that Section 12(d)(3), Rule 12d3-1, and Victory seek to address. You represent that neither the Subadviser nor any of its affiliates can cause a Calvert Entity to include the Parent in the Index when it would not have otherwise done so. You state that the Subadviser cannot add to, or eliminate from, the Index the companies selected by the four-step process outlined above. You state that neither the Subadviser nor any of its affiliates are, will be, or have ever been involved in the creation or maintenance of the Index nor have they ever influenced the composition of the Index.

You also assert that none of the Calvert Entities or any of their affiliates has an economic incentive or other motive to favor or disfavor the inclusion of the Parent in the Index. You state that, other than the subadvisory arrangement between CAMCO and the Subadviser, none of the Calvert Entities or any of their affiliates has an economic or other relationship with the Subadviser or any of the Subadviser's affiliates, including the Parent. You state that none of the Calvert Entities created the Index for the purpose of including the Parent in it. You further represent that the relationship between the Subadviser and the Parent has not been and will not be a factor in determining the composition of the Index.

Based on the facts and representations described in your letter, we would not recommend that the Commission take enforcement action under Section 12(d)(3) if the Fund purchases the securities of the Parent, as described in your letter. This position is based particularly on your representations that:

(i) the Fund's investment objective is to match the investment performance of the Index;

(ii) the Fund will purchase securities issued by the Parent and maintain its position in such securities only in the approximate percentage that the Parent is represented in the Index, subject to the limitations: (x) set forth in Rule 12d3-1(a) and (b); and (y) that during any period that the Fund is investing in a representative sample of the Index, the Fund will not make any additional investment in securities issued by the Parent;

(iii) neither the Subadviser nor any of its affiliates are, will be, or have ever been involved in the creation or maintenance of the Index nor have they ever influenced the composition of the Index;

(iv) the relationship between the Subadviser and the Parent has not been and will not be a factor in determining the composition of the Index;

(v) the Calvert Entities did not create the Index for the purpose of including the Parent in it; and

(vi) none of the Calvert Entities is an affiliated person, or an affiliated person of an affiliated person, of the Subadviser or any of its affiliates and neither the Subadviser nor the Parent is an affiliated person, or an affiliated person of an affiliated person, of the Calvert Entities or any of their affiliates.

This response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. Because this position is based on the facts and representations in your letter, you should note that any different facts or circumstances might require a different conclusion.

Daphne Tippens
Senior Counsel

Footnotes

1	You have not asked us to concur with your conclusion that the Index is broad-based and we take no position on that point.
2	You state that, for example, Calvert eliminates "flow though" entities (such as closed-end investment companies), foreign issuers (unless those issuers are listed only on a U.S. exchange), companies that have had an initial public offering within the past six months, and companies whose stocks are trading below one dollar per share.
3	In telephone conversations with members of the staff, counsel to the Fund stated that on rare occasions Calvert may modify the criteria used to screen companies during the Social Screening Process. Counsel also stated that any such modifications would affect the categories on which the Social Screening Process is based, but would not relate to specific companies.
4	You also state that as of July 31, 2001, the Parent had a market capitalization of approximately $11 billion and an average daily trading volume of 685,692 shares. In telephone conversations with members of the staff, counsel to the Fund stated that the Parent's average daily trading volume is calculated on the basis of trades occurring on the New York Stock Exchange.
5	Section 12(d)(3) is one of several provisions which, taken together, were designed to prevent investment companies from being organized, operated, managed, or their portfolio securities selected in the interest of brokers, dealers, underwriters, and investment advisers, irrespective of whether those entities are affiliated persons of the companies. See Exemption for Acquisition by Registered Investment Companies of Securities Issued by Persons Engaged Directly or Indirectly in Securities Related Businesses, Investment Company Act Release No. 13725 (Jan. 17, 1984) (proposing amendments to Rule 12d-1, renumbered as 12d3-1). The Commission has construed Section 12(d)(3) to apply to the purchase or acquisition of any security issued by or any interest in the business of any person engaged directly or indirectly in a securities-related business. Id.
6	Rule 12d3-1(a) generally permits a fund to acquire any security issued by any person that, in its most recent fiscal year, derived 15 percent or less of its gross revenues from securities-related activities unless the fund would control such person after the acquisition. Rule 12d3-1(b) generally permits a fund to acquire any security issued by a person that, in its most recent fiscal year, derived more than 15 percent of its gross revenues from securities-related activities if the fund meets certain conditions relating to the percentage of securities that may be acquired and the percentage of the fund's assets that may be invested in the securities.
7	See Section 2(a)(3) of the Investment Company Act, which defines "affiliated person" of another person to include, among others, any person directly or indirectly controlling, controlled by, or under common control with, such other person.
8	See Division of Investment Management no-action letters: The Victory Stock Index Fund (Feb. 7, 1995) ("Victory"); Kidder Peabody Investment Trust (May 14, 1993); Dreyfus Index Fund, et al. (Mar. 31, 1992); and IBM Mutual Funds (May 18, 1990).

Incoming Letter:

Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036-1800
rzutz@kl.com
202-778-9059
202-778-9100 - Facsimile

Investment Company Act
Section 12(d)(3) and Rule 12d3-1

August 28, 2001

VIA HAND DELIVERY

Mr. Douglas J. Scheidt
Associate Director and Chief Counsel
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W., Room 5007
Washington, D.C. 20549

Re: Calvert Social Index Fund Request for No-Action Relief

Dear Mr. Scheidt:

On behalf of the Calvert Social Index Fund (the "Fund"), and under the circumstances described below, I hereby request assurance that the Commission's staff would not recommend enforcement action to the Commission under Section 12(d)(3) of the Investment Company Act of 1940 ("1940 Act") if the Fund invests in securities issued by Comerica Inc., an affiliated person of World Asset Management L.L.C., the Fund's sub-adviser.

The Fund's Investment Objective

The Fund is registered as an investment company under the 1940 Act. It commenced operations on June 30, 2000. Its investment objective is to match the performance of the Calvert Social Index (the "Index"), a new broad-based index created and maintained by subsidiaries of the Calvert Group, Ltd. ("Calvert"). No attempt will be made to manage the Fund using traditional economic, financial and market analysis. Rather, assuming that the Fund maintains sufficient assets to make it economical to do so, the Fund will employ a passive management strategy to track as closely as possible the performance of the Index by investing in each stock in the Index in approximately the same proportion as represented in the Index itself.

In most instances, the Fund will make direct investments in stocks, but it also may invest in stocks indirectly with derivative instruments, such as futures contracts regarding relevant stocks. If at any time it is not economical to pursue the Fund's policy because the Fund does not have sufficient assets,¹ the Fund may use a sampling method to invest in a representative sample of stocks from the Index that are expected to resemble the full Index in terms of various key investment characteristics.

The Fund's Investment Adviser and Subadviser

Calvert is the sponsor of, and its wholly owned subsidiary, Calvert Asset Management Co. ("CAMCO"), is the investment adviser for, 27 mutual funds that currently have combined net assets of over $7 billion. Seventeen of these mutual funds, including the Fund, are "socially screened." Social screening is provided by the Calvert Social Research Department ("CSRD"), which is a department within CAMCO.

CAMCO has retained World Asset Management L.L.C. as the Fund's investment subadviser ("Subadviser"). Pursuant to the investment subadvisory agreement between CAMCO and the Subadviser, the Subadviser makes all investment decisions and places all orders for the purchase and sale of portfolio securities for the Fund. Any decision by the Subadviser to purchase or sell a security for the Fund is non-volitional in nature in that the Subadviser's authority is limited to purchasing or selling securities so that the Fund's portfolio holdings track as closely as possible to the Index.

CAMCO and Subadviser are completely independent of each other, and Subadviser has played no role in any decisions regarding the formation of the Index or the Fund. Other than the subadvisory arrangement described herein, neither CAMCO nor any of its affiliates has any economic interest in the Subadviser or any of its affiliates.

Subadviser is an indirect subsidiary of Comerica Inc. ("Parent"). By virtue of its current market capitalization and business practices, Parent is in the Index. As of July 31, 2001, Parent represented approximately 0.2% (two-tenths of one percent) of the total Index based on its market capitalization as of that date. As of that same day, parent had a market capitalization of approximately $11 billion and an average daily trading volume of 685,692 shares. Parent is not currently a portfolio holding in the Fund solely for the reasons stated below.

Calvert Administrative Services Company ("CASC") is a wholly owned subsidiary of Calvert and a sister company to CAMCO. CASC provides administrative services to Calvert-sponsored mutual funds. In addition, with social screening input from CSRD, CASC compiles and creates the Index as described below, and then transmits data relative to the Index to licensees of the Index. (Calvert, CAMCO and CASC are sometimes collectively referred to in this letter as the "Calvert Entities.")

The Calvert Social Index

As of July 31, 2001, the Index measured the performance of 590 companies that met the social investment criteria established by CSRD as selected from a universe of approximately the top 90% of the largest U.S. companies, based on total market capitalization. The Index is created as follows.

First, CASC starts with an initial universe of all companies listed on the New York Stock Exchange ("NYSE") and the Nasdaq-AMEX Stock Market ("Nasdaq"), which is referred to as the "Total Index Universe". Second, CASC eliminates all companies that have certain pre-determined characteristics,² and the surviving companies are known as the "Calvert Index Universe". Third, CASC identifies the 1,000 NYSE and Nasdaq companies within the Calvert Index Universe that have the highest market capitalization, which is referred to as the "Calvert Index Selection Base." Fourth, CSRD performs a disciplined social screening process on each issuer within the Calvert Index Selection Base, based on the issuer's activities with respect to the environment, labor relations, product safety, animal welfare, military weapons, community relations, human rights, and indigenous peoples rights. The remaining companies are those that comprise the Index.

There is no mechanism for any party other than CSRD to add to or eliminate the issuers selected by this social screening process, and only CSRD can modify the social screening process. Thus, for example, neither the Subadviser nor any of its affiliates can cause a Calvert Entity to include the Parent in the Index when it would not have otherwise done so. The Subadviser cannot add to, or eliminate from, the Index the companies selected by the four-step process outlined above. In addition, neither the Subadviser nor any of its affiliates are, will be, or have ever been involved in the creation or maintenance of the Index nor have they ever influenced the composition of the Index. Moreover, the relationship between Subadviser and Parent has not been and will not be a factor in determining the composition of the Index, and none of the Calvert Entities created the Index for the purpose of including the Parent in it.

CASC will update the Total Index Universe, the Calvert Index Universe, and the Calvert Index Selection Base annually on the third Friday of each September. In addition, CSRD will apply its social screening process to the then current Index Selection Base on a quarterly basis, as of the last trading day in the months of January, April, July, and October. Companies that newly qualify for the Index will be added to the Index, and companies that no longer qualify will be deleted from the Index. More frequent adjustments may be made to the Index in order to reflect particular corporate activities of companies already in the Index, such as mergers, acquisitions and bankruptcies.

Section 12(d)(3), Rule 12d3-1(c) and Related No-Action Letters

An investment decision by Subadviser to acquire for the Fund common stock of Parent may be prohibited by Section 12(d)(3) and Rule 12d3-1(c) thereunder. As a result, pending resolution of this no-action letter request, the Fund has not considered or purchased stock issued by Parent. However, the Commission staff has granted no-action relief to other index investment companies with respect to these 1940 Act provisions on several occasions, most recently in The Victory Stock Fund ("Victory") on February 7, 1995. At that time, the staff stated as follows:

Having stated our views with respect to the ability of an index fund to make certain non-volitional purchases of securities issued by an affiliated person of the fund's investment adviser ... to replicate the performance of an unaffiliated, broad-based index such as the S & P 500 Index, we will no longer respond to requests for no-action relief in this area unless they present novel or unusual issues.³

The staff's relief in Victory was premised on compliance with the following three key conditions: (1) the fund's objective is to match the investment performance of a stated index, which was an unaffiliated, broad-based index; (2) the fund will purchase securities of the affiliated company at issue only in the approximate percentage that the company represents in the stated index, and (3) any such purchase will comply with Rule 12d3-1(a) and (b).

Why the Staff Should Consider a Request for No-Action Relief

The Fund will satisfy all but one of the requirements set forth in Victory. First, the Fund's objective is to match the performance of a broad-based index. Second, the Fund proposes to purchase securities of Parent only in the same approximate percentage that Parent represents in the broad-based index when the Fund is following its investment policy of investing in all companies in the Index. Third, all such purchases will comply with Rule 12d3-1(a) and (b). Thus, we believe that the Fund can rely on Victory and similar earlier no-action letters⁴ but for the fact that the Index is not "unaffiliated" with CAMCO. For these reasons, we believe that the Fund presents a sufficiently "novel" issue so as to warrant consideration by the Commission staff of a no-action letter request by the Fund. For the following reasons, we also believe that no-action relief is warranted for the Fund, notwithstanding CAMCO's affiliation with the Index.

We believe that CAMCO's affiliation with the Index through CSRD creates no conflict of interest that is intended to be addressed by Section 12(d)(3), by Rule 12d3-1, or by the Victory requirement now at issue. Quite simply, the Index is "affiliated" with CAMCO, whose sister company (CASC) creates and maintains the Index, but CAMCO has no affiliation with Parent. In addition, Subadviser, which is affiliated with Parent, has no affiliation with the Index.

None of the Calvert Entities is an affiliated person, or an affiliated person of an affiliated person, of the Subadviser or any of its affiliates. Furthermore, neither the Subadviser nor the Parent is an affiliated person, or an affiliated person of an affiliated person, of the Calvert Entities or any of their affiliates. None of the Calvert Entities or any of their affiliates has an economic or other relationship with the Subadviser or any of the Subadviser's affiliates, including the Parent, other than as described herein. The decision to add or delete particular issuers to or from the Index rests exclusively with CASC and CSRD. None of the Calvert Entities or any of their affiliates has an economic incentive or other motive to favor or disfavor the inclusion of Parent in the Index. Subadviser, which could have such an incentive,⁵ has no authority or ability to participate in this process, and will not do so. Rather, Subadviser's authority with respect to shares issued by Parent is non-volitional in nature and is limited to acquiring those shares in the same approximate proportion that the Parent is represented in the Index.

As noted in Victory, it has been "the staff's view that the non-volitional nature of the index fund's purchases reduced the likelihood that the selection of the fund's portfolio securities would be made in the interest of the fund's investment adviser ...rather than the fund's shareholders." Similarly, in describing the relief that it granted in IBM Mutual Funds, Inc., the staff stated in Dreyfus Index Fund that the "non-volitional nature of the IBM Index Fund's purchases of IBM common stock eliminated the abuse that Section 12(d)(3) was designed ... to address...." Thus, the primary basis for relief in these prior letters was the non-volitional and limited nature of the purchases at issue.

As noted above, if the Fund's assets decline below a certain level, it will not be economical to pursue the Fund's primary investment policy of investing directly or indirectly in the stocks of each issuer listed on the Index. Rather, in such event, the Fund will invest in a representative sample of the Index. During any periods that the Fund employs this representative sample process, the Fund will not make any additional investment in securities issued by the Parent. Rather, securities of Parent would be purchased only if Parent is included in the Index and the Fund is pursuing its policy of investing in all issuers within the Index. In such circumstances, securities of Parent would be purchased only in the approximate proportion to their representation in the Index and in compliance with Rule 12d3-1(a) and (b).

* * * *

Accordingly, the Fund respectfully requests that the Commission staff advise it that the staff will not recommend enforcement action based on Section 12(d)(3) or Rule 12d3-1 under the circumstances described above.

Please call me at (202) 778-9059 if you have any questions regarding the relief requested herein. I look forward to hearing from you or from a member of staff.

Sincerely,

Robert J. Zutz

cc: William M. Tartikoff
Senior Vice President and General Counsel
Calvert Group, Ltd.

Footnotes