KLD & Co., of Boston, a provider of social research for institutional investors, has created the KLD Broad Market Social Index, a new socially-responsible index that is based on the Russell 3000 index of stocks. The Russell 3000 index includes stocks that constitute 98 percent of the U.S. equity market capitalization. KLD announced the new index last week.

KLD is currently talking to fund industry participants in hopes of licensing its newly created index for mutual fund or fund-type products.

The ultimate investment vehicle could be a passive or actively-managed index fund or even an exchange-traded fund, said Zoe van Schyndel, index services manager at KLD.

KLD is already known as a socially-responsible investment pioneer. In May 1990, it created the Domini 400 Social Index, the industry's first social investment equity index which was based on the S&P 500 Index of stocks. The index was named after Amy Domini, one of KLD's three partners.

In June 1991, the firm launched the Domini Social Equity Fund, a no-load mutual fund that tracks the firm's proprietary Domini Social Index. The four-star fund had $1.3 billion under management as of Dec. 8, according to Morningstar of Chicago.

In June, KLD launched its second no-load socially-responsible mutual fund, the Domini Social Bond Fund. The fund invests in intermediate-term investment-grade fixed-income securities that undergo the same screening process as the Domini Social Equity Fund. KLD applies various screens to both funds including eliminating companies from investment consideration whose business involve alcohol, tobacco, firearms, gambling, nuclear power or military weapons. It also evaluates companies based on issues such as their citizenship, diversity of workforce and employee relations.

The Domini Social Bond Fund invests up to 10 percent of its assets in other fixed-income securities of companies that benefit communities by providing affordable housing or economic help to low to middle income entrepreneurs.

While KLD's 10-year-old Domini Social Index of 400 common stocks are drawn from the larger universe of 500 stocks that comprise the S&P, the new KLD Broad Market Social Index will select about 2,300 of the 3,000 stocks of the Russell 3000 index and will change them periodically, said van Schyndel.

The Russell 3000 was taken as the starting point because of the evolution and maturation of the equity markets, said van Schyndel. While investors once relied on the S&P 500 as the standard model for the equity market, the Russell 3000 has increasingly become the focus of investors' attention, she said.

"As investors have become more sophisticated and technology has allowed for more stock analysis, we have moved from the S&P 500 to the Russell 3000 as the model," she said.

In May, Calvert Group, a socially-conscious investment manager of Baltimore, Md., launched a proprietary social equity index, the Calvert Social Index, and one month later launched the Calvert Social Index Fund, which tracks the index.

Also in May, under a licensing agreement with Calvert, Vanguard Group of Malvern, Pa. launched its first socially-responsible no-load mutual fund, the Vanguard Calvert Social Index Fund which tracks the newly created Calvert index.

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