ACACIA CAPITAL CORPORATION
CALVERT RESPONSIBLY INVESTED
STRATEGIC GROWTH PORTFOLIO
Prospectus dated April 30, 1997
Date of Supplement: December 2, 1997
* Effective January 1, 1998, Acacia Capital Corporation will be
renamed Calvert Variable Series, Inc. and the Calvert
Responsibly Invested Strategic Growth Portfolio will be renamed
Calvert Social Small Cap Growth Portfolio. All references in the
prospectus to the Acacia Capital Corporation and Calvert
Responsibly Invested Strategic Growth Portfolio should be
changed to reflect the new name.
* At a Special Meeting of Shareholders held on December 2, 1997,
shareholders approved new investment objective, policies and
restrictions, new investment advisory and subadvisory
agreements, as well as approved Acacia Capital Corporation and
the Investment Advisor entering into and materially amending the
investment subadvisory agreement in the future without
shareholder approval, with respect to the Portfolio. These
changes are all effective as of the date of this supplement.
Accordingly, the following changes have been made to the
Portfolio pursuant to shareholder approval, and are made to the
Portfolio's Prospectus dated April 30, 1997:
Replace the 2nd paragraph on the cover page of the Prospectus
with the following:
The Portfolio seeks to achieve long-term capital
appreciation by investing primarily in the equity securities of
small companies1 publicly traded in the United States. In
seeking capital appreciation, the Portfolio invests primarily in
the equity securities of small capitalized growth companies
(including American Depositary Receipts ("ADRs")) that have
historically exhibited exceptional growth characteristics and
that, in the Adviser's opinion, have strong earnings potential
relative to the U.S. market as a whole. The Portfolio will take
reasonable risks in seeking to achieve its investment objective.
There is, of course, no assurance that the Portfolio will be
successful in meeting its objective since there is risk involved
in the ownership of all equity securities. See "Investment
Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
Replace the 2nd and 3rd paragraphs on page 3 of the Prospectus
with the following:
The investment objective of the Portfolio is to provide
long-term capital appreciation by investing primarily in equity
securities of companies that have small market capitalizations.
In seeking capital appreciation, the Portfolio invests primarily
in equity securities of small capitalized growth companies that
have historically exhibited exceptional growth characteristics
and that, in the Adviser's opinion, have strong earnings
potential relative to the U.S. market as a whole. The
Portfolio's investment objective is not fundamental and may be
changed without shareholder approval.
The Portfolio pursues the objective of capital
appreciation by investing primarily in equity securities of
primarily small companies with promising growth potential. These
companies typically are developing innovative products or
services to seize emerging opportunities.
Under normal circumstances, the Portfolio will invest at least
65% of its total assets in equity securities of companies
publicly traded in the United States (currently those with a
total market capitalization of under $1 billion at the time of
the Portfolio's initial investment).
The Portfolio considers issuers of all industries with
operations in all geographic markets, and does not seek interest
income or dividends. Equity securities may include common
stocks, preferred stocks, convertible securities and warrants.
The Portfolio may hold cash or cash equivalents for temporary
defensive purposes or to enable it to take advantage of buying
opportunities. There is, of course, no assurance that the
Portfolio will be successful in meeting its objective.
Companies whose capitalization increases or decreases
after initial purchase by the Portfolio continue to be
considered small-capitalized for purposes of the 65% policy.
Accordingly, less than 65% of the Portfolio's total assets may
be invested in securities of issuers of companies publicly
traded in the United States (currently those with a total market
capitalization of less than $1 billion).
The Portfolio will normally be as fully invested as
practicable in common stocks (including ADRs), but also may
invest in warrants and rights to purchase common stocks and in
debt securities and preferred stocks convertible into common
stocks (collectively, "equity securities").
While any investment in securities carries a certain
degree of risk, the approach of the Portfolio is designed to
maximize growth in relation to the risks assumed. The securities
of small cap issuers may be less actively traded than the
securities of larger issuers, may trade in a more limited
volume, and may change in value more abruptly than securities of
larger companies. Information concerning these securities may
not be readily available so that the companies may be less
actively followed by stock analysts. Small-cap issuers do not
usually participate in market rallies to the same extent as more
widely-known securities, and they tend to have a relatively
higher percentage of insider ownership.
Investing in smaller, new issuers generally involves
greater risk than investing in larger, established issuers.
Companies in which the Portfolio is likely to invest may have
limited product lines, markets or financial resources and may
lack management depth. The securities in such companies may also
have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more
established companies or the market averages in general.
Accordingly an investment in the Portfolio may not be appropriate
for all investors.
Delete the 5th and 6th paragraphs on page 3 and the 1st through
5th paragraphs on page 4 of the Prospectus as the Portfolio will
no longer employ the econometric forecasting model, the "Five
Market Principles."
Replace the last paragraph on page 4 of the Prospectus with the
following:
Under normal market conditions the Portfolio strives to
be fully invested in securities. However, for temporary
defensive purposes -- which may include a lack of adequate
purchase candidates or an unfavorable market environment -- the
Portfolio may invest up to 35% of its total assets in cash or
cash equivalents. Cash equivalents include instruments such as,
but not limited to, U.S. government and agency obligations,
certificates of deposit, bankers' acceptances, time deposits,
commercial paper, short-term corporate debt securities and
repurchase agreements.
Replace the last paragraph on page 4 with the following, also
deleting the last paragraph beginning on page 6, the entirety of
page 7, and the 1st through 5th paragraphs on page 8 of the
Prospectus:
In extraordinary circumstances, the Portfolio may use
options and futures contracts to increase or decrease its
exposure to changing security prices, interest rates, or other
factors that affect security values. These techniques may
involve derivative transactions such as buying and selling
options and futures contracts and leveraged notes, entering into
swap agreements, and purchasing indexed securities. The
Portfolio can use these practices only as protection against an
adverse move of the holdings in the Portfolio to adjust the risk
and return characteristics of the Portfolio. The decision to
invest in these instruments will be based on market conditions,
regulatory limits and tax considerations. If market conditions
are judged incorrectly, a strategy does not correlate well with
the Portfolio's investments, or if the counterparty to the
transaction does not perform as promised, these techniques could
result in a loss. These techniques may increase the volatility
of the Portfolio and may involve a small investment of cash
relative to the magnitude of the risk assumed. Any instruments
determined to be illiquid are subject to the Portfolio's
limitation on illiquid securities. See below and the Statement
of Additional Information for more details about these
strategies.
There can be no assurance that engaging in options,
futures, or any other investment strategy will be successful.
While defensive strategies are designed to protect the Portfolio
from potential declines, if market values or other economic
factors are misgauged, the Portfolio may be worse off than had
it not employed the defensive strategy. While an attempt is made
to assess market and equity risk and thereby prevent declines in
the value of the Portfolio's portfolio holdings, there is a risk
of imperfect or no correlation between price movements of
portfolio investments and instruments used as part of an
investment strategy, so that a loss may be incurred. While such
strategies can reduce the risk of loss, they can also reduce the
opportunity for gain since they can or may offset favorable
price movements. The use of these strategies may result in a
disadvantage to the Portfolio if the Portfolio is not able to
purchase or sell a portfolio holding at an optimal time due to
the need to cover its transaction in its segregated account, or
due to the inability of the Portfolio to liquidate its position
because of its relative illiquidity.
Replace the 3rd paragraph on page 5 of the Prospectus with the
following:
The Portfolio may lend its portfolio securities to
member firms of the New York Stock Exchange and commercial banks
with assets of one billion dollars or more, although it does not
currently intend to lend more than 5% of its portfolio
securities. The advantage of such loans is that the Portfolio
continues to receive the equivalent of the interest earned or
dividends paid by the issuers on the loaned securities while at
the same time earning interest on the cash or equivalent
collateral which may be invested in accordance with the
Portfolio's investment objective, policies and restrictions. As
with any extension of credit, there may be risks of delay in
recovery and possibly loss of rights in the loaned securities
should the borrower of the loaned securities fail financially.
Delete the 4th and 5th paragraphs on page 5 of the Prospectus as
the Portfolio will not engage in these types of investment
techniques.
Replace the last paragraph beginning on page 5 and the 1st
through 6th paragraphs on page 6 with the following, also
deleting the last paragraph beginning on page 8 and the 1st
through 4th paragraphs on page 9 of the Prospectus as the
Portfolio will not invest in foreign securities (other than
through ADRs) or conduct foreign currency exchange transactions:
ADRs
The Portfolio may invest up to 15% of its total assets
in ADRs which are traded in the U.S. on exchanges or over the
counter and are generally sponsored and issued by domestic
banks. ADRs represent the right to receive securities of foreign
issuers deposited in a domestic bank or a correspondent bank.
ADRs do not eliminate all the risk inherent in investing in the
securities of foreign issuers. However, by investing in ADRs
rather than directly in foreign issuers' stock, the Portfolio
may avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market
in the U.S. for many ADRs. The information available for ADRs is
subject to the accounting, auditing and financial reporting
standards of the domestic market or exchange on which they are
traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject.
Delete the 2nd paragraph on page 10 of the Prospectus as the
Portfolio is now diversified.
Insert the following after the 3rd paragraph on page 10 of the
Prospectus:
Real Estate Investment Trusts
The Portfolio also may invest in real estate investment
trusts ("REITs"), including equity REITs, which own real estate
properties, and mortgage REITs, which make construction,
development and long-term mortgage loans. The risks associated
with REITs include default by borrowers, self-liquidation,
failure to qualify as a pass-through entity under the Federal
tax law, failure to qualify as an exempt entity under the 1940
Act, and the fact that REITs are not diversified.
THE FUND AND ITS MANAGEMENT
Replace the, 4th and 5th paragraphs on page 11 of the Prospectus
with the following:
Investment Advisor and Subadvisor
The Subadvisor to the Portfolio is Awad & Associates
("AWAD"). AWAD is located at 477 Madison Avenue, New York, New
York 10022. AWAD had $947 million in assets under management as
of September 30, 1997. The Subadvisor manages the investment and
reinvestment of the assets of the Portfolio, although the
Advisor may screen potential investments for compatibility with
the Portfolio's social criteria.
The Portfolio will be managed by a team of investment
professionals. The senior investment officer is James D. Awad.
Mr. Awad has been in the investment business since 1965,
focusing on research and portfolio management. Prior to forming
AWAD, he was founder and President of BMI Capital, a successful
money management firm. In addition, he has managed assets at
Neuberger & Berman, Channing Management and First Investment
Corp. Mr. Awad earned an MBA from Harvard Business School and a
BS Cum Laude from Washington & Lee University.
Dennison T. Veru is President of AWAD. Mr. Veru joined
AWAD in 1992 coming from Smith Barney Harris Upham where he was
Senior Vice President of the firm's Whiffletree Capital
Management division specializing in small and medium
capitalization stocks. From 1988 through 1990, he was a Vice
President of Broad Street Investment Management. Prior to that,
he was an Assistant Vice President at Drexel Burnham Lambert.
Mr. Veru is a graduate of Franklin and Marshall College.
AWAD also manages the Calvert Strategic Growth Fund and
Calvert New Vision Small Cap Fund series both of The Calvert
Fund, an open-end investment company sponsored by Calvert Group,
Ltd.
The Portfolio has obtained an exemptive order from the
Securities and Exchange Commission to permit the Portfolio,
pursuant to approval by the Board of Trustees, to enter into and
materially amend contracts with the Portfolio's Subadvisor
without shareholder approval. See "Investment Advisory Agreement
" in the SAI for further details.
Replace the last paragraph on page 11 and the 1st and 2nd
paragraphs (including charts) on page 12 of the Prospectus with
the following:
Advisory Fee
Effective October 1, 1997, the Investment Advisor is
entitled to receive from the Portfolio a monthly base fee,
computed on a daily basis at an annual rate of 0.90% of the
average daily net assets of the Portfolio.
For fiscal year 1996, the Investment Advisor received
from the Portfolio a monthly base fee, computed on a daily basis
at an annual rate of 1.50% of the average daily net assets of
the Portfolio, plus a performance fee adjustment of 0.01%.
Effective October 1, 1997, the Advisor pays the
Subadvisor a base fee of 0.40% of the Portfolio's average daily
net assets. For fiscal year 1996, the Advisor paid the
Subadvisor a base fee of 0.95% of the Portfolio's average net
assets.
- --------
1 Currently those with a total capitalization of less than $1
billion at the time of the Fund's initial investment.
<PAGE>
ACACIA CAPITAL CORPORATION'S
CALVERT RESPONSIBLY INVESTED PORTFOLIOS
Statement of Additional Information
April 30, 1997
Revised December 2, 1997
This Statement of Additional Information is not a
prospectus. Investors should read the Statement of
Additional Information in conjunction with each of the
separate Calvert Responsibly Invested Portfolio
Prospectuses, dated April 30, revised December 2, 1997,
which may be obtained free of charge by calling (800)
368-2748 or by writing to the Portfolio at 4550 Montgomery
Avenue, Bethesda, Maryland 20814.
TABLE OF CONTENTS
Investment Objectives and Policies 1
Investment Restrictions 9
Investment Selection Process 16
Portfolio Turnover 19
Purchase and Redemption of Shares 19
Determination of Net Asset Value 19
Taxes 20
Calculation of Yield and Total Return 21
Investment Advisory Agreement 22
Directors and Officers 24
Method of Distribution 26
Transfer Agent 26
General Information 26
Reports to Shareholders and Policyholders 27
Additional Information 27
Financial Statements 27
Independent Accountants and Custodians 27
Appendix 27
INVESTMENT OBJECTIVES AND POLICIES
Acacia Capital Corporation ("the Fund") offers
investors the opportunity to invest in several
professionally managed securities portfolios which may be
more diversified, stable and liquid than might be obtainable
by an investor on an individual basis. In addition, the
Fund's Calvert Responsibly Invested ("CRI") Portfolios offer
the opportunity for growth of capital or current income
through investment in enterprises that make a significant
contribution to society through their products and services
and through the way they do business. The Calvert
Responsibly Invested Portfolios offer investors a choice of
five separate portfolios selected with a concern for the
social impact of each investment: CRI Money Market,
Balanced, Capital Accumulation, Global and Small Cap
Portfolios. References to the "Investment Advisor" refer to
the advisor appropriate to the Portfolio being discussed.
(See "Investment Advisors")
Foreign Securities
CRI Global may invest all of its assets in foreign
securities, although it intends to invest part of its assets
in securities of U.S. issuers. CRI Money Market, Balanced
and Capital Accumulation may each invest up to 25%, and CRI
Balanced may invest up to 10% of its assets in the
securities of foreign issuers. CRI Money Market may purchase
only high quality, U.S. dollar-denominated instruments.
Investments in foreign securities may present risks not
typically involved in domestic investments. Foreign
securities may be affected by such circumstances as possible
adverse changes in exchange control or investment
regulations, expropriation or confiscatory taxation,
political or economic instability, and diplomatic or other
developments. In purchasing foreign securities, the
Portfolios may purchase American Depositary Receipts for
such securities. These are certificates issued by United
States banks evidencing the right to receive securities of
the foreign issuer deposited in that bank or its
correspondent bank.
It is contemplated that the Portfolios may trade
foreign securities on U.S. securities markets and stock
exchanges located in the countries in which the respective
principal offices of the issuers of the various securities
are located, if that is the best available market. Foreign
securities markets may not be as developed or efficient as
those in the United States. While growing in volume, they
usually have substantially less volume than U.S. securities
markets, and securities of some foreign companies are less
liquid and more volatile than securities of comparable
United States companies. Similarly, volume and liquidity in
most foreign bond markets is less than in the United States
and, at times, volatility of price can be greater than in
the United States.
Additional costs may be incurred which are related
to any international investment, since foreign brokerage
commissions and the custodial costs associated with
maintaining foreign portfolio securities are generally
higher than in the United States. Fee expense may also be
incurred on currency exchanges when the Portfolios change
investments from one country to another or convert foreign
securities holdings into U.S. dollars. Foreign companies and
foreign investment practices are not generally subject to
uniform accounting, auditing and financial reporting
standards and practices or regulatory requirements
comparable to those applicable to United States companies.
There may be less public information available about foreign
companies.
United States Government policies have at times, in
the past, through imposition of interest equalization taxes
and other restrictions, discouraged certain investments
abroad by United States investors. While such taxes or
restrictions are not presently in effect, they may be
reinstituted from time to time as a means of fostering a
favorable United States balance of payments. In addition,
foreign countries may impose withholding and taxes on
dividends and interest.
Since investments in securities of issuers
domiciled in foreign countries usually involve currencies of
the foreign countries, and since the Portfolios may
temporarily hold funds in foreign currencies during the
completion of investment programs, the value of the assets
of the Portfolios as measured in United States dollars may
be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations.
For example, if the value of the foreign currency in which a
security is denominated declines in relation to the value of
the U.S. dollar, the value of the security in U.S. dollars
will decline. Similarly, if the value of the foreign
currency in which a security is denominated appreciates in
relation to the value of the U.S. dollar, the value of the
security in U.S. dollars will appreciate. The Portfolios
will conduct foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A
forward foreign currency contract involves an obligation to
purchase or sell a specific currency at a future date which
may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders
(usually large, commercial banks) and their customers. A
forward foreign currency contract generally has no deposit
requirement, and no commissions are charged at any stage for
trades.
A Portfolio may enter into forward foreign currency
contracts for two reasons. First, the Portfolio may desire
to preserve the United States dollar price of a security
when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency. The Portfolio
will be able to protect itself against possible losses
resulting from changes in the relationship between the
United States dollar and foreign currencies during the
period between the date the security is purchased or sold
and the date on which payment is made or received by
entering into a forward contract for the purchase or sale,
for a fixed amount of dollars, of the amount of the foreign
currency involved in the underlying security transactions.
Second, when the Advisor or Subadvisor believes
that the currency of a particular foreign country may suffer
a substantial decline against the United States dollar, the
Portfolio enters into a forward foreign currency contract to
sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of the
Portfolio's investment securities denominated in such
foreign currency. The precise matching of the forward
foreign currency contract amounts and the value of the
portfolio securities involved will not generally be possible
since the future value of the securities will change as a
consequence of market movements between the date the forward
contract is entered into and the date it matures. The
projection of short-term currency market movement is
difficult, and the successful execution of this short-term
hedging strategy is uncertain. Although forward foreign
currency contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain which might
result should the value of such currency increase. The
Portfolios do not intend to enter into such forward
contracts under this circumstance on a regular or continuous
basis.
Foreign Money Market Instruments
CRI Money Market may invest without limitation in
money market instruments of banks, whether foreign or
domestic, including obligations of U.S. branches of foreign
banks ("Yankee" instruments) and obligations of foreign
branches of U.S. banks ("Eurodollar" instruments). All such
instruments must be high-quality, U.S. dollar-denominated
obligations. It is an operating (i.e., nonfundamental)
policy of CRI Money Market that it may invest only in
foreign money market instruments if they are of comparable
quality to the obligations of domestic banks. Although these
instruments are not subject to foreign currency risk since
they are U.S. dollar-denominated, investments in foreign
money market instruments may involve risks that are
different than investments in securities of U.S. issuers.
See "Foreign Securities" above.
Private Placements and Illiquid Securities
Due to the particular social objective of the
Portfolios, opportunities may exist to promote especially
promising approaches to social goals through
privately-placed investments. The private placement
investments undertaken by the Portfolios, if any, may be
subject to a high degree of risk. Such investments may
involve relatively small and untried enterprises that have
been selected in the first instance because of some
attractive social objectives or policies. The Investment
Advisors seek to structure the Portfolios' investments to
provide the greatest assurance of attaining the intended
investment return. It is an operating policy of the
Portfolios that no private placements shall be acquired
until the value of that Portfolio's investments exceeds $20
million.
Many private placement investments have no readily
available market and may therefore be considered illiquid.
It is an operating policy of the Portfolios not to purchase
illiquid securities if more than a certain percentage of the
value of its net assets would be invested in such
securities. Securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 may be determined by
the Board of Directors to be liquid. The Board may delegate
such determinations of liquidity to the Advisor, pursuant to
guidelines and oversight by the Board. Portfolio investments
in private placements and other securities for which market
quotations are not readily available are valued at fair
market value as determined by the Advisor under the
direction and control of the Board.
Repurchase Agreements
The Portfolios may purchase debt securities subject
to repurchase agreements, which are arrangements under which
the Portfolio buys a security and the seller simultaneously
agrees to repurchase the security at a specified time and
price. The Portfolios engage in repurchase agreements in
order to earn a higher rate of return than it could earn
simply by investing in the obligation which is the subject
of the repurchase agreement. Repurchase agreements are not,
however, without risk. In the event of the bankruptcy of a
seller during the term of a repurchase agreement, a legal
question exists as to whether the Portfolio would be deemed
the owner of the underlying security or would be deemed only
to have a security interest in and lien upon such security.
The Portfolios will only engage in repurchase agreements
with recognized securities dealers and banks determined to
present minimal credit risk by the Advisor under the
direction and supervision of the Board of Directors. In
addition, the Portfolios will only engage in repurchase
agreements reasonably designed to secure fully during the
term of the agreement the seller's obligation to repurchase
the underlying security and will monitor the market value of
the underlying security during the term of the agreement. If
the value of the underlying security declines and is not at
least equal to the repurchase price due the Portfolio
pursuant to the agreement, the Portfolio will require the
seller to pledge additional securities or cash to secure the
seller's obligations pursuant to the agreement. If the
seller defaults on its obligation to repurchase and the
value of the underlying security declines, the Portfolio may
incur a loss and may incur expenses in selling the
underlying security. Repurchase agreements are always for
periods of less than one year. Repurchase agreements not
terminable within seven days are considered illiquid.
Reverse Repurchase Agreements
The Portfolios may also engage in reverse
repurchase agreements. Under a reverse repurchase agreement,
a Portfolio sells securities to a bank or securities dealer
and agrees to repurchase those securities from such party at
an agreed upon date and price reflecting a market rate of
interest. The Portfolio invests the proceeds from each
reverse repurchase agreement in obligations in which it is
authorized to invest. The Portfolios intend to enter into a
reverse repurchase agreement only when the interest income
provided for in the obligation in which the Portfolio
invests the proceeds is expected to exceed the amount the
Portfolio will pay in interest to the other party to the
agreement plus all costs associated with the transactions.
The Portfolios do not intend to borrow for leverage
purposes. The Portfolios will only be permitted to pledge
assets to the extent necessary to secure borrowings and
reverse repurchase agreements.
During the time a reverse repurchase agreement is
outstanding, the Portfolio will maintain in a segregated
custodial account an amount of cash, U.S. Government
securities or other liquid, high-quality debt securities
equal in value to the repurchase price. The Portfolio will
mark to market the value of assets held in the segregated
account, and will place additional assets in the account
whenever the total value of the account falls below the
amount required under applicable regulations.
The Portfolios' use of reverse repurchase
agreements involves the risk that the other party to the
agreements could become subject to bankruptcy or liquidation
proceedings during the period the agreements are
outstanding. In such event, the Portfolio may not be able to
repurchase the securities it has sold to that other party.
Under those circumstances, if at the expiration of the
agreement such securities are of greater value than the
proceeds obtained by the Portfolio under the agreements, the
Portfolio may have been better off had it not entered into
the agreement. However, the Portfolio will enter into
reverse repurchase agreements only with banks and dealers
which the Advisor believes present minimal credit risks
under guidelines adopted by the Fund's Board of Directors.
In addition, the Portfolio bears the risk that the market
value of the securities sold by the Portfolio may decline
below the agreed-upon repurchase price, in which case the
dealer may request the Portfolio to post additional
collateral.
GNMA Certificates-CRI Balanced
The CRI Balanced Portfolio is not expected
generally to invest more than a small portion of its assets
in GNMA Certificates. GNMA Certificates are mortgage-backed
securities representing part ownership of a pool of mortgage
loans that are issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations and are
either insured by the Federal Housing Administration or
guaranteed by the Veterans Housing Administration. A "pool"
or group of such mortgages is assembled and, after being
approved by GNMA, is offered to investors through securities
dealers.
Once approved by GNMA, the timely payment of
interest and principal on each mortgage is guaranteed by
GNMA and backed by the full faith and credit of the U.S.
Government. GNMA Certificates differ from bonds in that
principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity.
GNMA Certificates are called "pass-through" securities
because both interest and principal payments (including
prepayments) are passed through to the holder of the
Certificate. Upon receipt, principal payments will be
reinvested by the Series in additional securities.
Because interest and principal payments on the
underlying mortgages pass through to holders, the average
life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments, which have maximum
maturities of 30 years. However, because unscheduled
principal payments on the underlying mortgages resulting
from prepayment, refinancing or foreclosure are also passed
through to holders, the average life of GNMA Certificates is
normally substantially shorter than the original maturity of
the underlying mortgage pools.
The occurrence of mortgage prepayments is affected
by factors including the level of interest rates, the degree
of the increase or decrease in interest rates over time,
general economic conditions, the location and age of the
mortgage, and social and demographic conditions. Prepayments
generally occur when interest rates have fallen; thus,
reinvestments of principal prepayments will usually be at
lower rates. Prepayments also tend to occur more frequently
in mortgage pools with rates significantly higher than
prevailing mortgage rates. The coupon rate of GNMA
Certificates is lower than the interest rate paid on the
underlying mortgages only by the amount of the fee paid to
GNMA and the issuer, usually 1/2 of 1%. Therefore, GNMA
Certificates trading at a premium, which are usually
Certificates with coupon rates significantly higher than the
rates of Certificates being issued at the time of purchase,
are subject to greater risk of prepayment at par.
The Investment Advisor will attempt, through
careful evaluation of available GNMA issues and prevailing
market conditions, to invest in GNMA Certificates which
provide a high income return but are not subject to
substantial risk of loss of principal. Accordingly, the
Advisor may forego the opportunity to invest in certain
issues of GNMA Certificates which would provide a high
current income yield if the Advisor determines that such
issues would be subject to a risk of prepayment and loss of
principal over the long term that would outweigh the
short-term increment in yield.
Noninvestment-grade Debt Securities
CRI Balanced may invest in lower quality debt
securities (generally those rated BB or lower by S&P or Ba
or lower by Moody's). Subject to the Portfolio's investment
policy provides that it may not invest more than 20% of its
assets in securities rated below B by either rating service,
or in unrated securities determined by the Advisor to be
comparable to securities rated below B by either rating
service. CRI Global may invest up to 5% of its assets in
lower quality debt securities, and CRI Small Cap may invest
up to 35% of its assets in debt securities, excluding money
market instruments. These debt securities may consist of
investment-grade and noninvestment-grade options.
Noninvestment-grade securities have moderate to poor
protection of principal and interest payments and have
speculative characteristics. (See Appendix for a description
of the ratings.) These securities involve greater risk of
default or price declines due to changes in the issuer's
creditworthiness than investment-grade debt securities.
Because the market for lower-rated securities may be thinner
and less active than for higher-rated securities, there may
be market price volatility for these securities and limited
liquidity in the resale market. Market prices for these
securities may decline significantly in periods of general
economic difficulty or rising interest rates. Unrated debt
securities may fall into the lower quality category. Unrated
securities usually are not attractive to as many buyers as
rated securities are, which may make them less marketable.
The quality limitation set forth in the Portfolios'
investment policy is determined immediately after a
Portfolio's acquisition of a given security. Accordingly,
any later change in ratings will not be considered when
determining whether an investment complies with the
Portfolio's investment policy.
When purchasing high-yielding securities, rated or
unrated, the Advisors prepare their own careful credit
analysis to attempt to identify those issuers whose
financial condition is adequate to meet future obligations
or is expected to be adequate in the future. Through
portfolio diversification and credit analysis, investment
risk can be reduced, although there can be no assurance that
losses will not occur.
Options and Futures Contracts
CRI Global and Capital Accumulation may, in pursuit
of their investment objectives, purchase put and call
options and engage in the writing of covered call options
and secured put options on securities which meet the
Portfolios' social criteria, and employ a variety of other
investment techniques. Specifically, these Portfolios may
also engage in the purchase and sale of stock index future
contracts, foreign currency futures contracts, interest rate
futures contracts, and options on such futures, as described
more fully below. Only in extraordinary circumstances may
Small Cap use options and futures contracts to increase or
decrease its exposure to changing security prices, interest
rates, or other factors that affect security values.
These Portfolios will engage in such transactions
only to hedge the existing positions in the respective
Portfolios. They will not engage in such transactions for
the purposes of speculation or leverage. Such investment
policies and techniques may involve a greater degree of risk
than those inherent in more conservative investment
approaches.
These Portfolios will not engage in such options or
futures transactions unless they receive appropriate
regulatory approvals permitting them to engage in such
transactions. CRI Global, Small Cap and Capital Accumulation
may not write options on more than 50% of their total
assets. These Portfolios may write "covered options" on
securities in standard contracts traded on national
securities exchanges. These Portfolios will write such
options in order to receive the premiums from options that
expire and to seek net gains from closing purchase
transactions with respect to such options.
Put and Call Options - These Portfolios may
purchase put and call options, in standard contracts traded
on national securities exchanges, on securities of issuers
which meet the Portfolios' social criteria. These Portfolios
will purchase such options only to hedge against changes in
the value of securities the Portfolios hold and not for the
purposes of speculation or leverage. In buying a put, a
Portfolio has the right to sell the security at the exercise
price, thus limiting its risk of loss through a decline in
the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying
security will be partially offset by the amount of the
premium paid for the put option and any related transaction
costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and any profit or loss from the
sale will depend on whether the amount received is more or
less than the premium paid for the put option plus the
related transaction costs.
These Portfolios may purchase call options on
securities that they may intend to purchase and that meet
the Portfolios' social criteria. Such transactions may be
entered into in order to limit the risk of a substantial
increase in the market price of the security which the
Portfolio intends to purchase. Prior to its expiration, a
call option may be sold in a closing sale transaction. Any
profit or loss from such a sale will depend on whether the
amount received is more or less than the premium paid for
the call option plus the related transaction costs.
Covered Options - These Portfolios may write only
covered options on equity and debt securities in standard
contracts traded on national securities exchanges. For call
options, this means that so long as a Portfolio is obligated
as the writer of a call option, that Portfolio will own the
underlying security subject to the option and, in the case
of put options, that Portfolio will, through its custodian,
deposit and maintain either cash or securities with a market
value equal to or greater than the exercise price of the
option.
When a Portfolio writes a covered call option, the
Portfolio gives the purchaser the right to purchase the
security at the call option price at any time during the
life of the option. As the writer of the option, the
Portfolio receives a premium, less a commission, and in
exchange foregoes the opportunity to profit from any
increase in the market value of the security exceeding the
call option price. The premium serves to mitigate the effect
of any depreciation in the market value of the security.
Writing covered call options can increase the income of the
Portfolio and thus reduce declines in the net asset value
per share of the Portfolio if securities covered by such
options decline in value. Exercise of a call option by the
purchaser, however, will cause the Portfolio to forego
future appreciation of the securities covered by the option.
When a Portfolio writes a secured put option, it
will gain a profit in the amount of the premium, less a
commission, so long as the price of the underlying security
remains above the exercise price. However, the Portfolio
remains obligated to purchase the underlying security from
the buyer of the put option (usually in the event the price
of the security funds below the exercise price) at any time
during the option period. If the price of the underlying
security falls below the exercise price, the Portfolio may
realize a loss in the amount of the difference between the
exercise price and the sale price of the security, less the
premium received.
These Portfolios may purchase securities that may
be covered by call options solely on the basis of
considerations consistent with the investment objectives and
policies of the Portfolios. The Portfolio turnover rate may
increase through the exercise of a call option; this will
generally occur if the market value of a "covered" security
increases and the portfolio has not entered into a closing
purchase transaction.
To preserve the Portfolio's status as a regulated
investment company under Subchapter M of the Internal
Revenue Code, it is the Portfolio's policy to limit any
gains on put or call options and other securities held less
than three months to less than 30% of a Portfolio's annual
gross income.
Risks Related to Options Transactions - The
Portfolios can close out their respective positions in
exchange-traded options only on an exchange which provides a
secondary market in such options. Although these Portfolios
intend to acquire and write only such exchange-traded
options for which an active secondary market appears to
exist, there can be no assurance that such a market will
exist for any particular option contract at any particular
time. This might prevent the Portfolios from closing an
options position, which could impair the Portfolios' ability
to hedge effectively. The inability to close out a call
position may have an adverse effect on liquidity because the
Portfolio may be required to hold the securities underlying
the option until the option expires or is exercised.
Futures Transactions - These Portfolios may
purchase and sell futures contracts ("futures contracts")
but only when, in the judgment of the Advisor, such a
position acts as a hedge against market changes which would
adversely affect the securities held by the Portfolios.
These futures contracts may include, but are not limited to,
market index futures contracts and futures contracts based
on U.S. Government obligations.
A futures contract is an agreement between two
parties to buy and sell a security on a future date which
has the effect of establishing the current price for the
security. Although futures contracts by their terms require
actual delivery and acceptance of securities, in most cases
the contracts are closed out before the settlement date
without the making or taking of delivery of securities. Upon
buying or selling a futures contract, the Portfolio deposits
initial margin with its custodian, and thereafter daily
payments of maintenance margin are made to and from the
executing broker. Payments of maintenance margin reflect
changes in the value of the futures contract, with the
Portfolio being obligated to make such payments if its
futures position becomes less valuable and entitled to
receive such payments if its positions become more valuable.
These Portfolios may only invest in futures
contracts to hedge their respective existing investment
positions and not for income enhancement, speculation or
leverage purposes. Although some of the securities
underlying the futures contract may not necessarily meet the
Portfolios' social criteria, any such hedge position taken
by these Portfolios will not constitute a direct ownership
interest in the underlying securities.
Futures contracts have been designed by boards of
trade which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"). As series of
a registered investment company, the Portfolios are eligible
for exclusion from the CFTC's definition of "commodity pool
operator," meaning that the Portfolios may invest in futures
contracts under specified conditions without registering
with the CFTC. Among these conditions are requirements that
each Portfolio invest in futures only for hedging purposes
and that the aggregate initial margin on futures contracts
and premium on options relating to futures shall not exceed
5% of the Portfolio's assets. Futures contracts trade on
contracts markets in a manner that is similar to the way a
stock trades on a stock exchange and the boards of trade,
through their clearing corporations, guarantee performance
of the contracts.
Options on Futures Contracts - These Portfolios may
purchase and write put or call options and sell call options
on futures contracts in which a Portfolio could otherwise
invest and which are traded on a U.S. exchange or board of
trade. The Portfolios may also enter into closing
transactions with respect to such options to terminate an
existing position; that is, to sell a put option already
owned and to buy a call option to close a position where the
Portfolio has already sold a corresponding call option.
The Portfolios may only invest in options on
futures contracts to hedge their respective existing
investment positions and not for income enhancement,
speculation or leverage purposes. Although some of the
securities underlying the futures contract underlying the
option may not necessarily meet the Portfolios' social
criteria, any such hedge position taken by these Portfolios
will not constitute a direct ownership interest in the
underlying securities.
An option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a
position in a futures contract-a long position if the option
is a call and a short position if the option is a put-at a
specified exercise price at any time during the period of
the option. The Portfolios will pay a premium for such
options purchased or sold. In connection with such options
bought or sold, the Portfolios will make initial margin
deposits and make or receive maintenance margin payments
which reflect changes in the market value of such options.
This arrangement is similar to the margin arrangements
applicable to futures contracts described above.
Put Options on Futures Contracts - The purchase of
put options on futures contracts is analogous to the sale of
futures contracts and is used to protect the portfolio
against the risk of declining prices. These Portfolios may
purchase put options and sell put options on futures
contracts that are already owned by that Portfolio. The
Portfolios will only engage in the purchase of put options
and the sale of covered put options on market index futures
for hedging purposes.
Call Options on Futures Contracts - The sale of
call options on futures contracts is analogous to the sale
of futures contracts and is used to protect the portfolio
against the risk of declining prices. The purchase of call
options on futures contracts is analogous to the purchase of
a futures contract. These Portfolios may only buy call
options to close an existing position where the Portfolio
has already sold a corresponding call option, or for a cash
hedge. The Portfolios will only engage in the sale of call
options and the purchase of call options to cover for
hedging purposes.
Writing Call Options on Futures Contracts - The
writing of call options on futures contracts constitutes a
partial hedge against declining prices of the securities
deliverable upon exercise of the futures contract. If the
futures contract price at expiration is below the exercise
price, the Portfolio will retain the full amount of the
option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's securities
holdings.
Risks of Options and Futures Contracts - If one of
these Portfolios has sold futures or takes options positions
to hedge its portfolio against decline in the market and the
market later advances, the Portfolio may suffer a loss on
the futures contracts or options which it would not have
experienced if it had not hedged. Correlation is also
imperfect between movements in the prices of futures
contracts and movements in prices of the securities which
are the subject of the hedge. Thus the price of the futures
contract or option may move more than or less than the price
of the securities being hedged. Where a Portfolio has sold
futures or taken options positions to hedge against decline
in the market, the market may advance and the value of the
securities held in the Portfolio may decline. If this were
to occur, the Portfolio might lose money on the futures
contracts or options and also experience a decline in the
value of its portfolio securities. However, although this
might occur for a brief period or to a slight degree, the
value of a diversified portfolio will tend to move in the
direction of the market generally.
The Portfolios can close out futures positions only
on an exchange or board of trade which provides a secondary
market in such futures. Although the Portfolios intend to
purchase or sell only such futures for which an active
secondary market appears to exist, there can be no assurance
that such a market will exist for any particular futures
contract at any particular time. This might prevent the
Portfolios from closing a futures position, which could
require a Portfolio to make daily cash payments with respect
to its position in the event of adverse price movements.
Options on futures transactions bear several risks
apart from those inherent in options transactions generally.
The Portfolios' ability to close out their options positions
in futures contracts will depend upon whether an active
secondary market for such options develops and is in
existence at the time the Portfolios seek to close their
positions. There can be no assurance that such a market will
develop or exist. Therefore, the Portfolios might be
required to exercise the options to realize any profit.
Foreign Currency Transactions (Not applicable to CRI Small
Cap or Money Market Portfolios)
Forward Foreign Currency Exchange Contracts. A
forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days ("Term")
from the date of the contract agreed upon by the parties, at
a price set at the time of the contract. These contracts are
traded directly between currency traders (usually large
commercial banks) and their customers.
The Portfolios will not enter into such forward
contracts or maintain a net exposure in such contracts where
it would be obligated to deliver an amount of foreign
currency in excess of the value of its portfolio securities
and other assets denominated in that currency. The Advisors
and Subadvisors believes that it is important to have the
flexibility to enter into such forward contract when it
determines that to do so is in a Portfolio's best interests.
Foreign Currency Options (Not applicable to CRI
Money Market, Small Cap or Balanced Portfolios).
A foreign currency option provides the option buyer with the
right to buy or sell a stated amount of foreign currency at
the exercise price on or before a specified date. A call
option gives its owner the right, but not the obligation, to
buy the currency, while a put option gives its owner the
right, but not the obligation, to sell the currency. The
option seller buyer may close its position any time prior to
expiration of the option period. A call rises in value if
the underlying currency appreciates. Conversely, a put rises
in value if the underlying currency depreciates. Purchasing
a foreign currency option can protect a Portfolio against
adverse movement in the value of a foreign currency.
Foreign Currency Futures Transactions. The
Portfolio may use foreign currency futures contracts and
options on such futures contracts. Through the purchase or
sale of such contracts, it may be able to achieve many of
the same objectives attainable through the use of foreign
currency forward contracts, but more effectively and
possibly at a lower cost.
Unlike forward foreign currency exchange contracts,
foreign currency futures contracts and options on foreign
currency futures contracts are standardized as to amount and
delivery period and are traded on boards of trade and
commodities exchanges. It is anticipated that such contracts
may provide greater liquidity and lower cost than forward
foreign currency exchange contracts.
INVESTMENT RESTRICTIONS
CRI BALANCED
Fundamental Investment Restrictions
The Portfolio has adopted the following investment
restrictions which, together with the foregoing investment
objectives and fundamental policies, cannot be changed
without the approval of the holders of a majority of the
outstanding shares of the Portfolio. As defined in the
Investment Company Act of 1940, this means the lesser of the
vote of (a) 67% of the shares of the Portfolio at a meeting
where more than 50% of the outstanding shares are present in
person or by proxy or (b) more than 50% of the outstanding
shares of the Portfolio. Shares have equal rights as to
voting, except that only shares of a Portfolio are entitled
to vote on matters affecting only that Portfolio (such as
changes in investment objective, policies or restrictions).
The Portfolio may not:
1. Issue senior securities (except
that it may borrow money as described in
restriction 11 below).
2. With respect to at least 75% of
the value of its total assets, invest more
than 5% of its total assets in the
securities (other than securities issued
or guaranteed by the United States
Government or its agencies or
instrumentalities) of any one issuer
(including repurchase agreements with any
one bank).
3. Purchase more than either (1) 10%
in principal amount of the outstanding
debt securities of an issuer, or (ii) 10%
of the outstanding voting securities of an
issuer, except that such restrictions
shall not apply to securities issued or
guaranteed by the United States Government
or its agencies or instrumentalities.
4. Invest more than 25% of its total
assets in the securities of issuers
primarily engaged in the same industry.
For purposes of this restriction, gas, gas
transmission, electric, water, and
telephone utilities each will be
considered a separate industry. This
restriction does not apply to obligations
of domestic branches of domestic banks or
savings and loan associations or to
obligations issued or guaranteed by the
United States Government, its agencies or
instrumentalities.
5. Invest in companies for the
purpose of exercising control (along or
together with the other Portfolios).
6. Purchase securities of other
investment companies, [except in
connection with a trustee's/director's
deferred compensation plan, as long as
there is no duplicaton of advisory fees;
or] except in connection with a merger,
consolidation, acquisition or
reorganization, or by purchase in the open
market of securities of closed-end
investment companies where no underwriter
or dealer's commission or profit, other
than customary broker's commission, is
involved, if immediately thereafter the
Portfolio would own: (a) securities of
investment companies having an aggregate
value in excess of 10% of such Portfolio's
total assets; (b) more than 3% of the
outstanding voting stock of the investment
company; or (c) securities of the
investment company having an aggregate
value in excess of 5% of the Portfolio's
total assets.
7. Purchase or sell interests in oil,
gas or other mineral exploration or
development programs, commodities,
commodity contracts, real estate mortgage
loans, except that each Portfolio may
purchase securities of issuers which
invest or deal in any of the above, and
except that each Portfolio may invest in
securities that are secured by real estate
or real estate mortgages. This restriction
does not apply to obligations issued or
guaranteed by the United States
Government, its agencies or
instrumentalities.
8. Purchase any securities on margin
(except that the Portfolio may obtain such
short-term credit as may be necessary for
the clearance of purchases and sales of
portfolio securities) or make short sales
of securities or maintain a short position.
9. Make loans, except as provided in
(10) below or through the purchase of
obligations in private placements or by
entering into repurchase agreements (the
purchase of publicly-traded obligations
are not to be considered the making of a
loan).
10. Lend its securities in excess of
10% of its total assets, provided that
such loan shall be made in accordance with
the guidelines set forth below under
"Lending of Portfolio Securities."
11. Borrow amounts in excess of 10% of
its total assets taken at market value at
the time of the borrowing, and then only
from banks as a temporary measure for
extraordinary or emergency purposes, or to
meet redemption requests that might
otherwise require the untimely disposition
of securities, and not for investment or
leveraging, except by entering into
reverse repurchase agreements. Borrowings
and reverse repurchase agreements combined
will not exceed 1/3 of a Portfolio' total
assets, and additional investments will
not be made by a Portfolio if borrowings
exceed 5% of its total assets.
12. Mortgage, pledge, hypothecate or
in any manner transfer, as security for
indebtedness, any securities owned or held
by such Portfolio except as may be
necessary in connection with reverse
repurchase agreements or borrowings
mentioned in (11) above, and then such
mortgaging, pledging or hypothecating may
not exceed 10% of such Portfolio' total
assets. In order to comply with certain
state statutes, such Portfolio will not,
as a matter of operating policy, mortgage,
pledge or hypothecate its securities to
the extent that at any time the percentage
of the value of pledged securities plus
the maximum sales charge will exceed 10%
of the value of such Portfolio shares at
the maximum offering price.
13. Underwrite securities of other
issuers except insofar as the Portfolio
may be deemed an underwriter under the
Securities Act of 1933 in selling shares
of each Portfolio, and except as it may be
deemed such in a sale of restricted
securities.
14. Write, purchase or sell puts,
calls or combinations thereof, except in
connection with when-issued securities.
15. Invest in securities of foreign
issuers if at the time of acquisition more
than 10% of its total assets taken at
market value at the time of the
investment, would be invested in such
securities.
16. Participate on a joint (or a joint
and several) basis in any trading account
in securities (but this does not prohibit
the "bunching" of orders for the sale or
purchase of Portfolio securities with the
other Portfolio or with other accounts
advised or sponsored by the Investment
Advisor or any of its affiliates to reduce
brokerage commissions or otherwise to
achieve best overall execution; see
"Investment Advisor," below):
17. Purchase or retain the securities
of any issuer, if, to the knowledge of the
Portfolio, officers and directors of the
Portfolio, the Investment Advisor, or any
subsidiary thereof, each owning
beneficially more than 1/2 of 1% of the
securities of such issuer, own in the
aggregate more than 5% of the securities
of such issuer.
18. Invest more than 10% of its total
assets in repurchase agreements maturing
in more than seven days and other illiquid
investments.
To comply with certain state investment
restrictions, the Portfolio will not, as a matter of
operating policy, permit any Portfolio to purchase or
otherwise acquire the securities of any issuer, other than
securities issued or guaranteed as to principal and interest
by the United States, if immediately after such purchase or
acquisition the value of such investment, together with
prior investments of that Portfolio in the securities of
such issuer, would exceed 10% of the value of the
Portfolio's assets. The Portfolio may change or modify this
policy only if the Portfolio obtains a waiver of the
applicable requirement from the commissioner of insurance of
the state imposing the requirement.
CRI MONEY MARKET AND GLOBAL
Fundamental Investment Restrictions
The Portfolios have adopted the following
investment restrictions which, together with the foregoing
investment objectives and fundamental policies, cannot be
changed without the approval of the holders of a majority of
the outstanding shares of the Portfolio. As defined in the
Investment Company Act of 1940, this means the lesser of the
vote of (a) 67% of the shares of the Portfolio at a meeting
where more than 50% of the outstanding shares are present in
person or by proxy or (b) more than 50% of the outstanding
shares of the Portfolio. Shares have equal rights as to
voting, except that only shares of a Portfolio are entitled
to vote on matters affecting only that Portfolio (such as
changes in investment objective, policies or restrictions).
The Portfolios may not:
1. With respect to 75% of assets,
purchase securities of any issuer (other
than obligations of, or guaranteed by, the
United States Government, its agencies or
instrumentalities) if, as a result, more
than 5% of the value of its total assets
would be invested in securities of that
issuer.
2. Concentrate more than 25% of the
value of its assets in any one industry;
provided, however, that there is no
limitation with respect to investments in
obligations issued or guaranteed by the
United States Government or its agencies
and instrumentalities, and repurchase
agreements secured thereby or with respect
to investments in money market instruments
of banks.
3. Purchase more than 10% of the
outstanding voting securities of any
issuer.
4. Make loans other than through the
purchase of money market instruments and
repurchase agreements or by the purchase
of bonds, debentures or other debt
securities. The purchase by the Portfolio
of all or a portion of an issue of
publicly or privately distributed debt
obligations in accordance with its
investment objective, policies and
restrictions, shall not constitute the
making of a loan.
5. Underwrite the securities of other
issuers, except to the extent that in
connection with the disposition of its
portfolio securities, the Portfolio may be
deemed to be an underwriter.
6. Purchase from or sell to any of
the Fund's officers or Directors, or firms
of which any of them are members, any
securities (other than capital stock of
the Portfolio), but such persons or firms
may act as brokers for the Portfolio for
customary commissions.
7. Borrow money, except from banks
for temporary or emergency purposes and
then only in an amount up to 10% of the
value of the Portfolio's total assets and
except by engaging in reverse repurchase
agreements; provided, however, that it may
only engage in reverse repurchase
agreements so long as, at the time it
enters into a reverse repurchase
agreement, the aggregate proceeds from
outstanding reverse repurchase agreements,
when added to other outstanding borrowings
permitted by this section, do not exceed
33 1/3% of the Portfolio's total assets.
In order to secure any permitted
borrowings and reverse repurchase
agreements under this section, the
Portfolio may pledge, mortgage or
hypothecate its assets.
8. Make short sales of securities or
purchase any securities on margin except
that the Portfolio may obtain such
short-term credits as may be necessary for
the clearance of purchases and sales of
securities. The deposit or payment by the
Portfolio of initial or maintenance margin
in connection with financial futures
contracts or related options transactions
is not considered the purchase of a
security on margin.
9. Write, purchase or sell puts,
calls or combinations thereof except that
the Portfolio may (a) write
exchange-traded covered call options on
portfolio securities and enter into
closing purchase transactions with respect
to such options, and the Portfolio may
write exchange-traded covered call options
on foreign currencies and secured put
options on securities and foreign
currencies and write covered call and
secured put options on securities and
foreign currencies traded over the
counter, and enter into closing purchase
transactions with respect to such options,
(b) purchase exchange-traded call options
and put options and purchase call and put
options traded over the counter, provided
that the premiums on all outstanding call
and put options do not exceed 5% of its
total assets, and enter into closing sale
transaction with respect to such options,
and (c) engage in financial futures
contracts and related options
transactions, provided that the sum of the
initial margin deposits on the Portfolio's
existing futures and related options
positions and the premiums paid for
related options would not exceed 5% of its
total assets.
10. Invest for the purpose of
exercising control or management of
another issuer.
11. Invest in commodities, commodities
futures contracts, or real estate,
although it may invest in securities which
are secured by real estate or real estate
mortgages and securities of issuers which
invest or deal in commodities, commodity
futures, real estate or real estate
mortgages and provided that it may
purchase or sell stock index futures,
foreign currency futures, interest rate
futures and options thereon.
12. Purchase or retain securities
issued by investment companies except to
the extent permitted by the Investment
Company Act of 1940, as amended; or in
connection with a trustee's/director's
deferred compensation plan, as long as
there is no duplication of advisory fees.
Nonfundamental Investment Restrictions
CRI Money Market and Global have adopted the
following operating (i.e., non-fundamental) investment
policies and restrictions which may be changed by the Board
of Directors without shareholder approval. None of these
Portfolios may:
1. Purchase the securities of any
issuer with less than three years'
continuous operation if, as a result, more
than 5% of the value of its total assets
would be invested in securities of such
issuers.
2. Purchase illiquid securities if
more than 10% (15% for Global) of the
value of a Portfolio's net assets would be
invested in such securities. A Portfolio
may buy and sell securities outside the
U.S. that are not registered with the SEC
or marketable in the U.S.
3. Purchase or retain securities of
any issuer if the officers, directors of
the Portfolio or its Advisors, owning
beneficially more than 1/2 of 1% of the
securities of such issuer, together own
beneficially more than 5% of such issuer's
securities.
4. Invest in warrants if more than 5%
of the value of the Portfolio's net assets
would be invested in such securities.
5. Invest in interests in oil, gas,
or other mineral exploration or
development programs or leases although it
may invest in securities of issuers which
invest in or sponsor such programs.
Any investment restriction that involves a maximum
percentage of securities or assets will not be considered to
be violated unless an excess over the applicable percentage
occurs immediately after an acquisition of securities or
utilization of assets, and the excess is attributable to
that event.
CRI SMALL CAP
Fundamental Investment Restrictions
The Portfolio has adopted the following investment
restrictions which cannot be changed without the approval of
the holders of a majority of the outstanding shares of the
Portfolio. As defined in the Investment Company Act of 1940,
this means the lesser of the vote of (a) 67% of the shares
of the Fund at a meeting where more than 50% of the
outstanding shares are present in person or by proxy or (b)
more than 50% of the outstanding shares of the Portfolio.
The Portfolio may not:
1. With respect to 75% of its total
assets, purchase securities of any
issuer (other than obligations of, or
guaranteed by, the United States
Government, its agencies or
instrumentalities) if, as a result,
more than 5% of the value of its total
assets would be invested in securities
of that issuer.
2. Concentrate 25% or more of the value
of its total assets in any one
industry; provided, however, that
there is no limitation with respect to
investments in obligations issued or
guaranteed by the United States
Government or its agencies and
instrumentalities, and repurchase
agreements secured thereby.
3. Make loans of more than one-third of
the total assets of the Fund, other
than through the purchase of money
market instruments and repurchase
agreements or by the purchase of
bonds, debentures or other debt
securities, or the lending of
portfolio securities as detailed in
the prospectus, or as permitted by
law. The purchase by the Fund of all
or a portion of an issue of publicly
or privately distributed debt
obligations in accordance with its
investment objective, policies and
restrictions, shall not constitute the
making of a loan
4. Underwrite the securities of other
issuers, except as permitted by the
Board of Trustees within applicable
law, and except to the extent that in
connection with the disposition of its
portfolio securities, the Fund may be
deemed to be an underwriter.
5. Issue senior securities or borrow
money in an amount exceeding one-third
of the Fund's total assets, or as
permitted by law. In order to secure
any permitted borrowings under this
section, the Fund may pledge, mortgage
or hypothecate its assets.
6. Except as required in connection with
permissible options, futures and
commodity activities of the Fund,
invest in commodities, commodity
futures contracts, or real estate,
although it may invest in securities
which are secured by real estate or
real estate mortgages and securities
of issuers which invest or deal in
commodities, commodity futures, real
estate or real estate mortgages and
provided that it may purchase or enter
into futures contracts and options on
futures contracts, foreign currency
futures, interest rate futures and
options thereon.
Nonfundamental Investment Restrictions
The Portfolio has adopted the following operating
(i.e., non-fundamental) investment policies and restrictions
which may be changed by the Board of Trustees without
shareholder approval. The Portfolio may not:
7. Purchase the securities of any issuer
with less than three years' continuous
operation if, as a result, more than
5% of the value of its total assets
would be invested in securities of
such issuers.
8. Invest, in the aggregate, more than
15% of its net assets in illiquid
securities. Purchases of securities
outside the U.S. that are not
registered with the SEC or marketable
in the U.S. are not per se illiquid.
9. Purchase or retain securities of any
issuer if the officers, Trustees of
the Fund, or its Advisors, owning
beneficially more than 1/2 of 1% of
the securities of such issuer,
together own beneficially more than 5%
of such issuer's securities.
10. Invest in warrants if more than 5% of
the value of the Fund's net assets
would be invested in such securities.
11. Invest in interests in oil, gas, or
other mineral exploration or
development programs or leases,
although it may invest in securities
of issuers which invest in or sponsor
such programs.
12. Purchase from or sell to any of the
Fund's officers or trustees, or
companies of which any of them are
directors, officers or employees, any
securities (other than shares of
beneficial interest of the Fund), but
such persons or firms may act as
brokers for the Fund for customary
commissions.
13. Invest in the shares of other
investment companies, except as
permitted by the 1940 Act or other
applicable law, or pursuant to
Calvert's non-qualified deferred
compensation plan adopted by the Board
of Trustees, in any event, not to
exceed 5% of the Fund's net assets.
14. With respect to 75% of its total
assets, invest 10% or more of its
assets in the voting securities of any
one issuer.
Any investment restriction (with the exception of
borrowings and illiquid holdings) which involves a maximum
percentage of securities or assets shall not be considered
to be violated unless an excess over the applicable
percentage occurs immediately after an acquisition of
securities or utilization of assets and results therefrom.
CRI CAPITAL ACCUMULATION
Fundamental Investment Restrictions
The Portfolio has adopted the following investment
restrictions which cannot be changed without the approval of
the holders of a majority of the outstanding shares of the
Portfolio. As defined in the Investment Company Act of 1940,
this means the lesser of the vote of (a) 67% of the shares
of the Fund at a meeting where more than 50% of the
outstanding shares are present in person or by proxy or (b)
more than 50% of the outstanding shares of the Portfolio.
The Portfolio may not:
1. With respect to 50% of its assets,
purchase securities of any issuer (other
than obligations of, or guaranteed by, the
United States Government, its agencies or
instrumentalities) if, as a result, more
than 5% of the value of its total assets
would be invested in securities of that
issuer. The remaining 50% of its total
assets may be invested without
restriction, except as disclosed elsewhere
in the Prospectus or SAI and except that
no more than 25% may be invested in the
securities of any one issuer.
2. Concentrate 25% or more of the
value of its assets in any one industry;
provided, however, that there is no
limitation with respect to investments in
obligations issued or guaranteed by the
United States Government or its agencies
and instrumentalities, and repurchase
agreements secured thereby.
3. Make loans of more than one-third
of the assets of the Portfolio, or as
permitted by law. The purchase by the
Portfolio of all or a portion of an issue
of publicly or privately distributed debt
obligations in accordance with its
investment objective, policies and
restrictions, shall not constitute the
making of a loan.
4. Underwrite the securities of other
issuers, except as permitted by the Board
of Directors within applicable law, and
except to the extent that in connection
with the disposition of its portfolio
securities, the Fund may be deemed to be
an underwriter.
5. Purchase from or sell to any of
the Fund's officers or directors, or
companies of which any of them are
directors, officers or employees, any
securities (other than shares of
beneficial interest of the Portfolio), but
such persons or firms may act as brokers
for the Fund for customary commissions.
6. Except as required in connection
with permissible options, futures and
commodity activities of the Portfolio,
invest in commodities, commodity futures
contracts, real estate or real estate
limited partnerships, although it may
invest in securities which are secured by
real estate or real estate mortgages and
securities of issuers which invest or deal
in commodities, commodity futures, real
estate or real estate mortgages and
provided that it may purchase or sell
stock index futures, foreign currency
futures, interest rate futures and options
thereon.
7. Invest in the shares of other
investment companies, except as permitted
by the 1940 Act or other applicable law,
or pursuant to Calvert's nonqualified
deferred compensation plan adopted by the
Board of Directors in an amount not to
exceed 10% or as permitted by law.
8. Purchase more than 10% of the
outstanding voting securities of any
issuer.
Nonfundamental Investment Restrictions
Capital Accumulation has adopted the following
operating (i.e., nonfundamental) investment policies and
restrictions which may be changed by the Board of Directors
without shareholder approval. The Fund may not:
9. Purchase the securities of any
issuer with less than three years'
continuous operation if, as a result, more
than 5% of the value of its total assets
would be invested in securities of such
issuers.
10. Invest, in the aggregate, more
than 15% of its net assets in illiquid
securities. Purchases of securities
outside the U.S. that are not registered
with the SEC or marketable in the U.S. are
not per se illiquid.
11. Invest, in the aggregate, more
than 5% of its net assets in the
securities of issuers restricted from
selling to the public without registration
under the Securities Act of 1933,
excluding restricted securities eligible
for resale pursuant to Rule 144A under
that statute. Purchases of securities
outside the U.S. that are not registered
with the SEC or marketable in the U.S. are
not per se restricted.
12. Make short sales of securities or
purchase any securities on margin except
that the Fund may obtain such short-term
credits as may be necessary for the
clearance of purchases and sales of
securities. The depositor payment by the
Fund of initial or maintenance margin in
connection with financial futures
contracts or related options transactions
is not considered the purchase of a
security on margin.
13. Purchase or retain securities of
any issuer if the officers, Directors of
the Fund or its Advisors, owning
beneficially more than 1/2 of 1% of the
securities of such issuer, together own
beneficially more than 5% of such issuer's
securities.
14. Invest in warrants if more than 5%
of the value of the Portfolio's net assets
would be invested in such securities.
15. Invest in interests in oil, gas,
or other mineral exploration or
development programs or leases although it
may invest in securities of issuers which
invest in or sponsor such programs.
16. Borrow money, except from banks
for temporary or emergency purposes, and
then only in an amount not to exceed
one-third of the Portfolio's total assets,
or as permitted by law. In order to secure
any permitted borrowings under this
section, the Portfolio may pledge,
mortgage or hypothecate its assets.
17. Invest for the purpose of
exercising control or management of
another issuer.
For purposes of the Portfolio's concentration
policy contained in restriction (2), above, the Fund intends
to comply with the SEC staff position that securities issued
or guaranteed as to principal and interest by any single
foreign government are considered to be securities of
issuers in the same industry.
Any investment restriction which involves a maximum
percentage of securities or assets shall not be considered
to be violated unless an excess over the applicable
percentage occurs immediately after an acquisition of
securities or utilization of assets and results therefrom.
Virginia Law Restrictions
In addition to the investment restrictions
described above, the Portfolios will comply with
restrictions contained in the current Virginia Insurance
Laws in order that the assets of the Variable Accounts may
be invested in Portfolio shares. The Virginia Insurance Laws
currently permit the Variable Accounts to invest in
Portfolio shares without restricting the Portfolios'
investments. However, those laws or their interpretation may
change.
Lending of Portfolio Securities
Subject to the investment restrictions above, a
Portfolio may lend its securities to brokers, dealers and
financial institutions and receive as collateral cash or
United States Treasury securities. At all times while the
loan is outstanding, collateral will be maintained in
amounts equal to at least 100% of the current market value
of the loaned securities. Any cash collateral will be
invested in short-term securities, which will increase the
current income the Portfolio lending its securities. Such
loans will be terminable by the Portfolio at any time and
will not be made to affiliates of the Portfolio. The
Portfolio will have the right to regain record ownership of
loaned securities to exercise beneficial rights such as
voting rights, subscription rights and rights to dividends,
interest or other distributions. The Portfolio may pay
reasonable fees to persons unaffiliated with the Portfolio
for arranging loans. The dividends, interest and other
distributions received by the Portfolio on loaned
securities, for tax purposes, may be treated as income other
than qualified income for purposes of the 90% test discussed
below under "Taxes." The Portfolios intend to lend their
securities only to the extent that such activity does not
jeopardize their qualification as a regulated investment
company under certain provisions of the Internal Revenue
Code. Loans of securities will be made only to firms that
the Investment Advisor deems creditworthy. However, as with
any extensions of credit, there are risks of delay in
recovery and even loss of rights in the collateral should
the borrower of securities fail financially.
When-Issued and Delayed Delivery Securities
From time to time, in the ordinary course of
business, each Portfolio may purchase securities on a
when-issued or delayed delivery basis -- that is, delivery
and payment can take place a month or more after the date of
the transactions. The securities purchased in this manner
are subject to market fluctuation and no interest accrues to
the purchaser during this period. At the time a Portfolio
makes a commitment to purchase securities on a when-issued
or delayed delivery basis, the price is fixed and the
Portfolio will record the transaction and thereafter reflect
the value, each day, of the security in determining the net
asset value of the Portfolio. At the time of delivery of the
securities, the value may be more or less than the purchase
price.
The Portfolio will enter commitments for
when-issued or delayed delivery securities only when it
intends to acquire the securities. Accordingly, each
Portfolio will establish a segregated account with the
Portfolio's custodian bank in which it will maintain cash or
cash equivalents or other portfolio securities equal in
value to commitments for such when-issued or delayed
delivery securities. Subject to this restriction, a
Portfolio may purchase these securities without limit.
INVESTMENT SELECTION PROCESS
Investments in the Portfolios are selected on the
basis of their ability to contribute to the dual objective
of the Portfolios. The Subadvisors have each developed a
number of techniques for evaluating the performance of
issuers in each of these areas. The primary sources of
information are reports published by the issuers themselves,
the reports of public agencies, and the reports of groups
which monitor performance in particular areas. These sources
of information are sometimes augmented with direct
interviews or written questionnaires addressed to the
issuers. It should be recognized, however, that there are
few generally accepted measures by which achievement in
these areas can be readily distinguished; therefore, the
development of suitable measurement techniques is largely
within the discretion and judgment of the Advisors and
Subadvisors of the Portfolio.
In making investment selections, each Portfolio
Manager determines and evaluates the appropriate portfolio
composition on the basis of asset prices and the perceived
consequences and probabilities of various economic outcomes
that it deems possible. It then evaluates numerous
individual securities as candidates to fulfill the
Portfolio's investment objective and policies. Securities
remain candidates for inclusion in the Portfolios only if
their prices and other characteristics indicate that they
have the potential to perform in a way that is
representative of their class of securities under the
different economic outcomes considered more probable by the
Advisor or Subadvisor.
Candidates for inclusion in any particular class of
assets are then examined according to the social criteria.
The issuers are classified into three categories of
suitability under the social criteria. In the first category
are those issuers which exhibit unusual positive
accomplishment with respect to some of the criteria and do
not fail to meet minimum standards with respect to the
remaining criteria. To the greatest extent possible,
investment selections are made from this group. In the
second category are those issuers which meet minimum
standards with respect to all the criteria but do not
exhibit outstanding accomplishment with respect to any
criterion. This category includes issuers which may lack an
affirmative record of accomplishment in these areas but
which are not known by the Advisor or Subadvisor to violate
any of the social criteria. The third category under the
social criteria consists of issuers which flagrantly
violate, or have violated, one or more of those values, for
example, a company which repeatedly engages in unfair labor
practices. The Portfolios will not knowingly purchase the
securities of issuers in this third category.
It should be noted that the Portfolios' social
criteria tend to limit the availability of investment
opportunities more than is customary with other investment
companies. The Advisor and Subadvisors, however, believe
that within the first and second categories there are
sufficient investment opportunities to permit full
investment among issuers that satisfy the Portfolios' social
investment objective.
To the greatest extent possible, the same social
criteria is applied to the purchase of non-equity securities
as to equity investments. Bank certificates of deposit,
commercial paper, repurchase agreements, and corporate bonds
are judged in the same way as a prospective purchase of the
bank's or issuing company's common stock. The Portfolios may
invest, however, in certificates of deposit of banks and
savings and loan associations in which the Portfolios would
not otherwise invest because such institutions have assets
of $1 billion or less, but generally only to the extent all
such investments are fully insured as to principal by the
Federal Deposit Insurance Corporation.
Obligations issued by the U.S. Treasury, such as
U.S. Treasury bills, notes and bonds, are supported by the
full faith and credit of the U.S. Government. Certain
obligations issued or guaranteed by a U.S. Government agency
or instrumentality are supported by the full faith and
credit of the U.S. Government. These include obligations
issued by the Export-Import Bank, Farmers Home
Administration, Government National Mortgage Association,
Postal Service, Merchant Marine, and Washington Metropolitan
Area Transit Authority. The Portfolios may also invest in
other U.S. Government agency or instrumentality obligations
which are supported only by the credit of the agency or
instrumentality and may be further supported by the right of
the issuer to borrow from the U.S. Treasury. Such
obligations include securities issued by the Bank for
Cooperatives, Federal Intermediate Credit Bank, Federal Land
Bank, Federal Home Loan Bank, Federal Home Loan Mortgage
Corporation, and Federal National Mortgage Association.
PORTFOLIO TURNOVER
Each Portfolio has a different expected annual rate
of portfolio turnover. Portfolio turnover is defined as the
lesser of annual purchases or sales of portfolio securities
divided by the monthly average of the value of the
Portfolios' securities (excluding from the computation all
securities, including options, with maturities or expiration
dates at the time of acquisition of one year or less). A
high rate of portfolio turnover generally involves
correspondingly greater brokerage commission expenses, which
must be borne directly by the Portfolio. Notwithstanding
increased brokerage commission expenses, particular holdings
may be sold at any time if investment judgment or Portfolio
operations make a sale advisable.
For the fiscal years 1994, 1995, and 1996, the
portfolio turnover rates for CRI Balanced were 43%, 163%,
and 99%, respectively. For the same time periods, the
portfolio turnover rates for CRI Capital Accumulation were
79%, 135%, and 124%, respectively. For the same time
periods, the portfolio turnover rates for the Global Equity
series were 84%, 90%, and 85%, respectively. For the period
from inception (March 1, 1995) through December 31, 1995,
and for fiscal year 1996, the portfolio turnover rates for
Small Cap were 223% and 120%, respectively.
No Portfolio turnover rate can be calculated for
CRI Money Market due to the short maturities of the
instruments purchased. Portfolio turnover should not affect
the income or net asset value of CRI Money Market because
brokerage commissions are not normally charged on the
purchase or sale of money market instruments.
PURCHASE AND REDEMPTION OF SHARES
The Portfolios continuously offer their shares at
prices equal to the respective net asset values of the
Portfolios determined in the manner set forth below under
"Determination of Net Asset Value." The Portfolios offer
their shares, without sales charge, only for purchase by
various Insurance Companies for allocation to their Variable
Accounts. It is conceivable that in the future it may be
disadvantageous for both annuity Variable Accounts and life
insurance Variable Accounts of different Insurance
Companies, to invest simultaneously in the Portfolios,
although currently neither the Insurance Companies nor the
Portfolio foresee any such disadvantages to either variable
annuity or variable life insurance policy holders of any
Insurance Company. The Portfolio's Board of Directors
intends to monitor events in order to identify any material
conflicts between such policyholders and to determine what
action, if any, should be taken in response to any conflicts.
The Portfolios are required to redeem all full and
fractional shares for cash. The redemption price is the net
asset value per share, which may be more or less than the
original cost, depending on the investment experience of the
Portfolio. Payment for shares redeemed will generally be
made within seven days after receipt of a proper notice of
redemption. The right to redeem shares or to receive payment
with respect to any redemption may only be suspended for any
period during which (a) trading on the New York Stock
Exchange is restricted as determined by the Securities and
Exchange Commission, or the Exchange is closed for other
than weekends and holidays; (b) an emergency exists, as
determined by the Securities and Exchange Commission, as a
result of which disposal of Portfolio securities or
determination of the net asset value of a Portfolio is not
practicable; or (c) the Securities and Exchange Commission
by order permits postponement for the protection of
shareholders.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Portfolio
of the Fund is determined by adding the values of all
securities and other assets of the Portfolio, subtracting
liabilities and expenses, and dividing by the number of
shares of the Portfolio outstanding. Expenses are accrued
daily, including the investment advisory fee. CRI Money
Market attempts to maintain a constant net asset value of
$1.00 per share; the net asset values of CRI Balanced,
Global, Small Cap and Capital Accumulation fluctuate based
on the respective market value of the Portfolio's
investments. The net asset value per share of each of the
Portfolios is determined every business day as of the close
of the regular session of the New York Stock Exchange
(generally 4:00 p.m. Eastern time), and at such other times
as may be necessary or appropriate. The Portfolios do not
determine net asset value on certain national holidays or
other days on which the New York Stock Exchange is closed:
New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day. Each Portfolio's net asset value per share is
determined by dividing that Portfolio's total net assets
(the value of its assets net of liabilities, including
accrued expenses and fees) by the number of shares
outstanding.
The assets of CRI Balanced, Global Equity, Capital
Accumulation and Small Cap are valued as follows: (a)
securities for which market quotations are readily available
are valued at the most recent closing price, mean between
bid and asked price, or yield equivalent as obtained from
one or more market makers for such securities; (b)
securities maturing within 60 days may be valued at cost,
plus or minus any amortized discount or premium, unless the
Board of Directors determines such method not to be
appropriate under the circumstances; and (c) all other
securities and assets for which market quotations are not
readily available will be fairly valued by the Advisor in
good faith under the supervision of the Board of Directors.
Securities primarily traded on foreign securities exchanges
are generally valued at the preceding closing values on
their respective exchanges where primarily traded. Equity
options are valued at the last sale price unless the bid
price is higher or the asked price is lower, in which event
such bid or asked price is used. Exchange traded fixed
income options are valued at the last sale price unless
there is no sale price, in which event current prices
provided by market makers are used. Over-the-counter fixed
income options are valued based upon current prices provided
by market makers. Financial futures are valued at the
settlement price established each day by the board of trade
or exchange on which they are traded. Because of the need to
obtain prices as of the close of trading on various
exchanges throughout the world, the calculation of the
Portfolio's net asset value does not take place for
contemporaneously with the determination of the prices of
U.S. portfolio securities. For purposes of determining the
net asset value all assets and liabilities initially
expressed in foreign currency values will be converted into
United States dollar values at the mean between the bid and
offered quotations of such currencies against United States
dollars at last quoted by any recognized dealer. If an event
were to occur after the value of an investment was so
established but before the net asset value per share was
determined which was likely to materially change the net
asset value, then the instrument would be valued using fair
value consideration by the Directors or their delegates.
CRI Money Market's assets, including securities
subject to repurchase agreements, are normally valued at
their amortized cost which does not take into account
unrealized capital gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method
provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is
higher or lower than the price that would be received upon
sale of the instrument.
Rule 2a-7 under the Investment Company Act of 1940
permits CRI Money Market's assets to be valued at amortized
cost if the Portfolio maintains a dollar-weighted average
maturity of 90 days or less and only purchases obligations
having remaining maturities of thirteen months or less. Rule
2a-7 requires, as a condition of its use, that CRI Money
Market invest only in obligations determined by the
Directors to be of good quality with minimal credit risks
and requires the Directors to establish procedures designed
to stabilize, to the extent reasonably possible, the
Portfolio's price per share as computed for the purpose of
sales and redemptions at $1.00. Such procedures include
review of the Portfolio's investment holdings by the
Directors, at such intervals as they may deem appropriate,
to determine whether the Portfolio's net asset value
calculated by using available market quotations or
equivalents deviates from $1.00 per share based on amortized
cost. If such deviation exceeds 0.50%, the Directors will
promptly consider what action, if any, will be initiated. In
the event the Directors determine that a deviation exists
which may result in material dilution or other unfair
results to investors or existing shareholders, the Directors
will take such corrective action as they regard as necessary
and appropriate, including: the sale of portfolio
instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; the
withholding of dividends or payment of distributions from
capital or capital gains; redemptions of shares in kind; or
the establishment of a net asset value per share based upon
available market quotations.
TAXES
In 1996 the Portfolios qualified, and in 1997 the
Portfolios intend to qualify, as a "regulated investment
company" under the provisions of Subchapter M of the
Internal Revenue Code (the "Code"). To qualify for treatment
as a regulated investment company, each Portfolio must,
among other things, have assets that meet certain
requirements specified in the Code and (i) derive in each
taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities
loans, and gains (without deduction for losses) from the
sale or other disposition of stock or securities, and (ii)
derive less than 30% of its gross income in each taxable
year from gains (without deduction for losses) from the sale
or other disposition of stock or securities held less than
three months. If the Portfolio distributes substantially all
of its net ordinary and capital gains income, the Portfolio
qualifies as a regulated investment company and is relieved
from paying federal income tax on amounts distributed. Each
Portfolio will be taxed as a separate entity.
Since the shareholders of the Portfolios are
Insurance Companies, this Statement of Additional
Information does not contain a discussion of the federal
income tax consequences at the shareholder level. For
information concerning the federal tax consequences to
purchasers of annuity or life insurance policies, see the
prospectus for the policies.
CALCULATION OF YIELD AND TOTAL RETURN
CRI Money Market: Yield
From time to time CRI Money Market advertises its
"yield" and "effective yield." Both yield figures are based
on historical earnings and are not intended to indicate
future performance. The "yield" of CRI Money Market refers
to the actual income generated by an investment in the
Portfolio over a particular base period of time. If the base
period is less than one year, the yield is then
"annualized." That is, the net change, exclusive of capital
changes, in the value of a share during the base period is
divided by the net asset value per share at the beginning of
the period, and the result is multiplied by 365 and divided
by the number of days in the base period. Capital changes
excluded from the calculation of yield are: (1) realized
gains and losses from the sale of securities, and (2)
unrealized appreciation and depreciation. CRI Money Market's
"effective yield" for a seven-day period is its annualized
compounded yield during the period, calculated according to
the following formula:
Effective yield = [(base period return) + 1]365/7- 1
For the seven-day period ended December 31, 1996,
CRI Money Market's yield was 4.88% and its effective yield
was 5.00%.
The yield of the Money Market Portfolio will
fluctuate in response to changes in interest rates and
general economic conditions, portfolio quality, portfolio
maturity, and operating expenses. Yield is not fixed or
insured and therefore is not comparable to a savings or
other similar type of account. Yield during any particular
time period should not be considered an indication of future
yield. It is, however, useful in evaluating a Portfolio's
performance in meeting its investment objective.
CRI Balanced, Global, Capital Accumulation and Small Cap:
Total Return and Other Quotations
CRI Balanced, Global, Capital Accumulation and
Small Cap may each advertise "total return." Total return is
computed by taking the total number of shares purchased by a
hypothetical $1,000 investment, adding all additional shares
purchased within the period with reinvested dividends and
distributions, calculating the value of those shares at the
end of the period, and dividing the result by the initial
$1,000 investment. For periods of more than one year, the
cumulative total return is then adjusted for the number of
years, taking compounding into account, to calculate average
annual total return during that period.
Total return is computed according to the following
formula:
P(1 + T)n = ERV
where P = a hypothetical initial payment of $1,000; T =
total return; n = number of years; and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at
the beginning of the period. Total return is historical in
nature and is not intended to indicate future performance.
Total return for the Series for the periods indicated are as
follows:
Periods Ended
December 31, 1996 SEC Average Annual Return
============================================================================
CRI Balanced
One Year 12.62%
Five Years 10.45%
Ten Years 11.11%
CRI Global Equity
One Year 14.99%
From Inception1 10.71%
CRI Capital Accumulation (formerly
known as CRI Ariel)
One Year 7.40%
Five Years 10.55%
From Inception2 11.10%
CRI Small Cap
(formerly known as CRI Strategic
Growth)
One Year 34.46%
From Inception3 24.04%
Total return, like yield and net asset value per
share, fluctuates in response to changes in market
conditions. Neither total return nor yield for any
particular time period should be considered an indication of
future return.
INVESTMENT ADVISORY AGREEMENT
The Investment Advisory agreement between the
Fund's original investment advisor, Acacia Investment
Management Corporation, and the Fund regarding CRI Balanced
was approved by the Fund's Board of Directors, including a
majority of the Directors who were not interested persons of
Acacia Investment Management Corporation, and by the
shareholder of the Portfolio. The Investment Advisory
Agreement was also approved on July 9, 1986, by Acacia
National pursuant to the instructions of variable annuity
and variable life insurance policyowners. On February 29,
1988, Calvert Asset Management Company, Inc. acquired all
the assets and liabilities of Acacia Investment Management
Corporation, including the rights and duties under the
Advisory Agreement, pursuant to merger (see "Investment
Advisor"). An amendment to the Investment Agreement adding
CRI Money Market and Global were presented to the Fund's
Board for approval in May 1992. Unless earlier terminated as
described below, the Agreement will remain in effect
indefinitely if approved annually (a) by the Board of
Directors of the Fund or by a majority of the outstanding
shares of the Portfolio, including a majority of the
outstanding shares of each Portfolio, and (b) by a majority
of the Directors who are not parties to such contract or
interested persons (as defined by the Investment Company Act
of 1940) of any such party. The Agreement is not assignable
and may be terminated without penalty on 60 days' written
notice at the option of either party or by the vote of the
shareholders of the Portfolio.
The Fund has received an exemptive order to permit
the Fund and the Advisor to enter into and materially amend
the Investment Subadvisory Agreement without shareholder
approval. Within 90 days of the hiring of any Subadvisor or
the implementation of any proposed material changed in the
Investment Subadvisory Agreement, the Fund will furnish its
shareholders information about the new Subadvisor or
Investment Subadvisory Agreement that would be included in a
proxy statement. Such information will include any change in
such disclosure caused by the addition of a new Subadvisor
or any proposed material change in the Investment
Subadvisory Agreement of the Fund. The Fund will meet this
condition by providing shareholders, within 90 days of the
hiring of the Subadvisor or implementation of any material
change to the terms of an Investment Subadvisory Agreement,
with an information statement to this effect.
The investment advisory fee described in the
Prospectus will be accrued daily and allocated to the
various Portfolios on the basis of the size of the
respective Portfolio, as determined each day. There is no
assurance that the Portfolio will reach a net asset level
high enough to realize reduction to each Portfolio
regardless of size on a "uniform percentage" basis.
Determination of the portion of the net assets of each
Portfolio to which a reduced rate is applicable is made by
multiplying the net assets of that Portfolio by the "uniform
percentage," which is derived by dividing the amount of the
combined assets of all Portfolios to which such rate applies
by such combined assets.
The Investment Advisory Agreement provides that the
Advisor will not be liable to the Portfolio or to any
shareholder or policy owner for any error of judgment or
mistake of law or for any loss suffered by the Portfolio or
by any shareholder or policy owner in connection with
matters to which the Investment Advisory Agreement relates,
except a loss resulting from willful misfeasance, bad faith,
gross negligence, or reckless disregard on the part of the
advisor in the performance of its duties thereunder.
For the Fund's fiscal years ended December 31,
1994, 1995, and 1996, respectively, CRI Balanced paid CAM
fees of $425,429, $610,216, and $963,829. For 1994, 1995,
and 1996, respectively, CRI Money Market paid investment
adviser fees of $14,484, $27,591, and $24,348, respectively.
For 1994, CRI Global paid investment advisory fees of
$46,185, and received expense reimbursements from CAM of
$307. In 1995, CRI Global paid CAM $93,418, and received
expense reimbursements from CAM of $36,720. In 1996, CRI
Global paid CAM $122,600, and received expense
reimbursements from CAM of $27,740. For 1994, 1995, and
1996, CRI Capital Accumulation (formerly CRI Ariel) paid
investment advisory fees of $39,358, $55,003, and $126,374.
For fiscal year 1996, CRI Small Cap paid CAM $28,564, and
received expense reimbursements from CAM of $3,794.
Securities Activities of the Investment Advisor
Securities held by the Portfolios may also be held
by the Insurance Companies, their separate accounts or
mutual funds for which the Investment Advisor or a
Subadvisor acts as an investment advisor. Because of
different investment objectives or other factors, any of
these parties may buy shares of the Portfolios when one or
more other clients are selling the same security. Such
transactions will be done in a manner deemed equitable to
all parties. To the extent that such transactions increase
the demand for a Portfolio's shares, there may be an effect
on share prices.
When deemed to be in the best interest of the
Portfolios, the Investment Advisors or Subadvisors may
aggregate the securities with those to be sold or purchased
for other accounts or companies in order to obtain favorable
execution and low brokerage commissions. In that event,
allocation of the securities purchased or sold, as well as
the expenses incurred in the transaction, will be made by
the Investment Advisor or Subadvisor in the manner it
considers to be most equitable and consistent with its
fiduciary obligations to the Portfolios and to the other
accounts or companies involved. In some cases this procedure
may adversely affect the size of the position obtainable for
a Portfolio.
Payment of Expenses
In addition to the portfolio management and
investment advice described above, CAM also is obligated to
perform certain administrative and management services and
to provide all executive, administrative, clerical and other
personnel necessary to operate the Portfolio and to pay the
salaries of all these persons. CAM will furnish the
Portfolio with office space, facilities, and equipment and
pay the day-to-day expenses related to the operation and
maintenance of such office space, facilities and equipment.
Legal, accounting and all other expenses incurred in the
organization of the Portfolio, including costs of
registering under federal and state securities laws, will
also be paid by CAM except with respect to those
administrative services provided by Calvert Administrative
Services Company to CRI Global, CRI Capital Accumulation,
and CRI Small Cap pursuant to their Administrative Services
Agreements.
Expenses of the Fund will be accrued daily.
Expenses that the respective Portfolios of the Fund will pay
individually include, but are not limited to the following:
brokerage commissions, dealer markups and other expenses
incurred in the acquisition or disposition of any
securities, printing costs (including the daily calculation
of net asset value), interest, certain taxes, charges of the
custodian and transfer agent, and other expenses
attributable to a particular Portfolio. Expenses which will
be allocated to the various Portfolios on the basis of the
size of the respective portfolio, determined each day,
include legal and auditing fees, expenses of shareholder and
director meetings, independent director fees, bookkeeping
expenses related to shareholder accounts, insurance charges,
cost of printing and mailing shareholder reports and proxy
statements, the cost to pay dividends and capital gain
distributions, the costs of printing and mailing
registration statements, the cost to pay dividends and
capital gain distributions, the costs of printing and
mailing registration statements and updated prospectuses to
current shareholders, and the fees of any trade association
of which the Portfolio is a member. Expenses resulting form
legal actions involving the Portfolio and any amount for
which it may be obligated to indemnify its officers,
directors and employees, may either be directly applicable
to particular Portfolios or allocated on the basis of the
size of the respective Portfolios, depending on the nature
of the legal action.
Securities Transactions and Brokerage
The Investment Advisor, and in some cases the
Subadvisor, is primarily responsible for the investment
decisions of each Portfolio, including decisions to buy and
sell securities, the selection of brokers and dealers to
effect the transactions, the placing of investment
transactions, and the negotiation of brokerage commissions,
if any. No Portfolio has any obligation to deal with any
dealer or group of dealers in the execution of transactions
in Portfolio securities. In placing orders, it is the policy
of each Portfolio to obtain the most favorable net results,
taking into account various factors, including price, dealer
spread or commission, the size of the transaction, and
difficulty of execution. While the Investment Advisor and
Subadvisors generally seek reasonably competitive spreads or
commissions, the Portfolios will not necessarily be paying
the lowest spread or commission available.
If the securities in which a particular Portfolio
invests are traded primarily in the over-the-counter market,
the Portfolio will deal, where possible, with the dealers
who make a market in the securities involved unless better
prices and execution are available elsewhere. These "market
makers" usually act as principals for their own account. On
occasion, the Portfolios may purchase securities directly
from the issuer. Bonds and money market securities are
generally traded on a net basis and do not normally involve
either brokerage commission or transfer taxes. The cost of
Portfolio securities transactions will consist primarily of
brokerage commissions or dealer or underwriter spreads.
Portfolio transactions are undertaken on the basis
of their desirability from an investment standpoint.
Investment decisions and the choice of brokers and dealers
are made by the Advisor and Subadvisors under the direction
and supervision of the Board of Directors. The Advisor and
Subadvisors select broker-dealers on the basis of their
professional capability and the value and quality of their
services. The Advisor and Subadvisor reserve the right to
place orders for the purchase or sale of portfolio
securities with broker-dealers that have sold shares of the
Portfolios or that provide the Portfolios with statistical,
research, or other information and services. Although any
statistical research or other information and services
provided by broker-dealers may be useful to the Advisor and
the Subadvisors, the dollar value of such information and
services is generally indeterminable, and its availability
or receipt does not serve materially to reduce the Advisor's
or Subadvisor's normal research activities or expenses.
The Advisors and Subadvisors may also execute
portfolio transactions with or through broker-dealers that
have sold shares of the Portfolio. However, such sales will
not be a qualifying or disqualifying factor in a
broker-dealer's selection nor will the selection of any
broker-dealer be based on the volume of Portfolio shares
sold. The Advisors or Subadvisors may compensate such
broker-dealers at their own expense in consideration of
their promotional and administrative services.
DIRECTORS AND OFFICERS
The directors and officers of the Fund and their
principal occupations are set forth below. Directors and
Officers who are active employees of the Investment Advisor
or its affiliates will not receive any additional
compensation for their services to the Fund.
1 CHARLES E. DIEHL, Director. Mr. Diehl is Vice
President and Treasurer Emeritus of the George Washington
University, and has retired from University Support
Services, Inc. of Herndon, Virginia. He is also a Director
of Acacia Mutual Life Insurance Company. Address: 1658 Quail
Hollow Court, McLean, Virginia 22101. DOB: 10/13/22.
ARTHUR J. PUGH, Director. Mr. Pugh also serves as a
Director of Acacia Federal Savings Bank. Address: 4823
Prestwick Drive, Fairfax, Virginia 22030. DOB: 09/24/37.
SOUTH TRIMBLE, III, Director. Mr. Trimble has been
a partner in the law firm of Reasoner, Davis & Fox since
1956. Address: 888 17th Street, N.W., Suite 800, Washington,
DC 20006. DOB: 06/25/25.
FRANK H. BLATZ, JR., Esq., Director. Mr. Blatz is a
partner in the law firm of Abrams, Blatz, Gran, Hendricks, &
Reina, P.A. He is also a director/trustee of The Calvert
Fund, Calvert Cash Reserves d/b/a Money Management Plus,
First Variable Rate Fund, Calvert Tax-Free Reserves, and
Calvert Municipal Fund, Inc. Address: 900 Oak Tree Road,
South Plainfield, New Jersey 07080. DOB: 10/29/35.
1 RONALD M. WOLFSHEIMER, Treasurer. Mr. Wolfsheimer
is an officer of each of the Calvert Group Funds. He is also
Senior Vice President and Controller of Calvert Group, Ltd.
and its affiliated companies. Mr. Wolfsheimer is Vice
President and Treasurer of Calvert-Sloan Advisers, L.L.C.
1 WILLIAM M. TARTIKOFF, Esq., Vice President and
Secretary. Mr. Tartikoff is General Counsel, Secretary, and
Senior Vice President of Calvert Group, Ltd., and its
subsidiaries, and is an officer of each of the other
investment companies in the Calvert Group of Funds. Mr.
Tartikoff is Vice President and Secretary of Calvert-Sloan
Advisers, L.L.C., and is an officer of Acacia National Life
Insurance Company.
1 RENO J. MARTINI, Senior Vice President. Mr.
Martini is Senior Vice President of Calvert Group, Ltd., and
Senior Vice President and Chief Investment Officer of
Calvert Asset Management Company, Inc. Mr. Martini is also a
director and officer of Calvert-Sloan Advisers, L.L.C.
1 DANIEL K. HAYES, Vice President. Mr. Hayes is
Vice President of Calvert Asset Management Company, Inc.,
and is an officer of each of the other investment companies
in the Calvert Group of Funds.
1 SUSAN WALKER BENDER, Esq., Assistant Secretary.
Ms. Bender is Associate General Counsel of Calvert Group,
Ltd. and an officer of each of its subsidiaries and
Calvert-Sloan Advisers, L.L.C. She is also an officer of
each of the other investment companies in the Calvert Group
of Funds. DOB: 01/29/59.
1 KATHERINE STONER, Esq., Assistant Secretary. Ms.
Stoner is Assistant Counsel of Calvert Group and an officer
of each of its subsidiaries and Calvert-Sloan Advisers,
L.L.C. She is also an officer of each of the other
investment companies in the Calvert Group of Funds. DOB:
10/21/56.
1 LISA CROSSLEY, Esq., Assistant Secretary and
Compliance Officer. Ms. Crossley is Assistant Counsel of
Calvert Group and an officer of each of its subsidiaries and
Calvert-Sloan Advisers, L.L.C. She is also an officer of
each of the other investment companies in the Calvert Group
of Funds. DOB: 12/31/61.
1 IVY WAFFORD DUKE, Esq., Assistant Secretary. Ms.
Duke is Assistant Counsel of Calvert Group and an officer of
each of its subsidiaries and Calvert-Sloan Advisers, L.L.C.
She is also an officer of each of the other investment
companies in the Calvert Group of Funds. DOB: 09/07/68..
The address of Directors and Officers, unless
otherwise noted, is 4550 Montgomery Avenue, Suite 1000N,
Bethesda, Maryland 20814. Directors and Officers as a group
beneficially own less than 1% of the outstanding shares of
the Fund.
During fiscal 1996, directors of the Fund not
affiliated with the Fund's Advisor were paid $435 by CRI
Money Market, $11,108 by CRI Balanced, $40,000 by CRI Global
Equity, $1,259 by CRI Capital Accumulation and $150 by CRI
Small Cap. Each Director of the Fund who is not affiliated
with the Advisor receives a meeting fee of $750 for each
Board meeting attended; such fees are allocated among the
Series based upon their relative net assets. Directors not
on any other Calvert Group Fund Boards receive an annual fee
of $3,000.
Directors of the Fund not affiliated with the
Fund's Advisor ("noninterested persons") may elect to defer
receipt of all or a percentage of their annual fees and
invest them in any fund in the Calvert Family of Funds
through the Directors/Trustees Deferred Compensation Plan
(shown as "Pension or Retirement Benefits Accrued as part of
Fund Expenses," below). Deferral of the fees is designed to
maintain the parties in the same position as if the fees
were paid on a current basis. Management believes this will
have a negligible effect on the Fund's assets, liabilities,
net assets, and net income per share, and will ensure that
there is no duplication of advisory fees.
Director Compensation Table - Fiscal Year 1996
Aggregate Pension or Total Compensation
Compensation Retirement Benefits from Registrant and
from Fund for Accrued as part of Fund Complex paid to
Name of Director service as Fund Expenses5 Directors6
Director
- ------------------------------------------------------------------------------
Frank H. Blatz, $2,575 $2,575 $37,875
Jr.
Charles E. Diehl $2,500 $2,500 $35,475
Arthur J. Pugh $2,639 $2,639 $36,736
South Trimble, $5,750 $5,750 $ 5,750
III
METHOD OF DISTRIBUTION
The Fund has entered into an agreement with Calvert
Distributors, Inc. ("CDI") whereby CDI, acting as principal
underwriter for the Fund, makes a continuous offering of the
Fund's securities on a "best efforts" basis. Under the terms
of the agreement, CDI is entitled to receive a fee from the
Fund of $15,000 per year. However, in the past CDI has
waived this fee. No associated person or broker-dealer may
have an interest in the fees payable to CDI. CDI is
responsible for paying (i) all commissions or other fees to
its associated persons which are due for the sale of the
Policies, and (ii) any compensation to other broker-dealers
and their associated persons due under the terms of any
sales agreement between CDI and the broker-dealers.
TRANSFER AGENT
Calvert Shareholder Services, Inc., an affiliate of
the Advisor, serves as transfer agent. It receives a fee,
from the Fund, of 0.03% of average annual assets of the
Portfolio, payable monthly.
GENERAL INFORMATION
The Fund was incorporated in Maryland on September
27, 1982. The authorized capital stock of the Fund consists
of three hundred fifty million shares of stock, par value of
$1.00 per share. The Fund's Board of Directors may, from
time to time, authorize the issuance of additional shares
having the descriptions, powers and rights, and the
qualifications, limitations, and restrictions thereof, as
the Board of Directors may determine. The Board of Directors
may also change the designation of any portfolio and may
increase or decrease the number of shares of any portfolio,
but may not decrease the number of shares of any Portfolio
below the number of shares of that portfolio then
outstanding. All shares of common stock have equal voting
rights (regardless of the net asset value per share) except
that only shares of the respective portfolio are entitled to
vote on matters concerning only that portfolio. Pursuant to
the Investment Company Act of 1940 and the rules and
regulations thereunder, certain matters approved by a vote
of all shareholders of the Fund may not be binding on a
portfolio whose shareholders have not approved that matter.
Each issued and outstanding share is entitled to one vote
and to participate equally in dividends and distributions
declared by the respective portfolio and, upon liquidation
or dissolution, in net assets of such portfolio remaining
after satisfaction of outstanding liabilities. The shares of
each portfolio, when issued, will be fully paid and
non-assessable and have no preemptive or conversion rights.
Holders of shares of any portfolio are entitled to redeem
their shares as set forth above under "Purchase and
Redemption of Shares." The shares do not have cumulative
voting rights and the holders of more than 50% of the shares
of the Fund voting for the election of directors can elect
all of the directors of the Fund if they choose to do so and
in such event the holders of the remaining shares would not
be able to elect any directors.
The Fund's Board of Directors has adopted a
"proportionate voting" policy, meaning that Insurance
Companies will vote all of the Fund's shares, including
shares the Insurance Companies hold, in return for providing
the Fund with its capital and in payment of charges made
against the variable annuity or variable life separate
accounts, in proportion to the votes received from
contractholders or policyowners.
REPORTS TO SHAREHOLDERS AND POLICYHOLDERS
The Fund will issue unaudited semi-annual reports
showing the Fund's investments and other information, and it
will issue annual reports containing financial statements
audited by independent certified public auditors.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional
Information do not contain all the information set forth in
the registration statement and exhibits relating thereto,
which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C. under the Securities Act of
1933 and the Investment Company Act of 1940, to which
reference is hereby made.
FINANCIAL STATEMENTS
The audited financial statements for the Fund
included in the Annual Report to Shareholders dated December
31, 1996, are expressly incorporated by reference and made a
part of this Statement of Additional Information. Copies of
the Annual Report may be obtained free of charge by writing
or calling the Fund.
INDEPENDENT ACCOUNTANTS AND CUSTODIANS
The Board of Directors has appointed Coopers &
Lybrand, L.L.P. as the Fund's independent accountants for
fiscal year 1997. State Street Bank and Trust Company of
Boston, Massachusetts is custodian of the Fund's assets.
First National Bank of Maryland acts as custodian of certain
of the Fund's cash assets.
APPENDIX
Corporate Bond Ratings
Description of Moody's Investors Service Inc.'s/Standard &
Poor's municipal bond ratings:
Aaa/AAA: Best quality. These bonds carry the
smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and
principal is secure. This rating indicates an extremely
strong capacity to pay principal and interest.
Aa/AA: Bonds rated AA also qualify as high-quality
debt obligations. Capacity to pay principal and interest is
very strong, and in the majority of instances they differ
from AAA issues only in small degree. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other
elements present which make long-term risks appear somewhat
larger than in Aaa securities.
A/A: Upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate,
but elements may be present which make the bond somewhat
more susceptible to the adverse effects of circumstances and
economic conditions.
Baa/BBB: Medium grade obligations; adequate
capacity to pay principal and interest. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and
interest for bonds in this category than for bonds in the A
category.
Ba/BB, B/B, Caa/CCC, Ca/CC: Debt rated in these
categories is regarded as predominantly speculative with
respect to capacity to pay interest and repay principal.
There may be some large uncertainties and major risk
exposure to adverse conditions. The higher the degree of
speculation, the lower the rating.
C/C: This rating is only for no-interest income
bonds.
D: Debt in default; payment of interest and/or
principal is in arrears.
Commercial Paper Ratings
Moody's Investors Services, Inc.
A Prime rating is the highest commercial paper
rating assigned by Moody's Investors Service, Inc. Issuers
rated Prime are further referred to by use of numbers 1, 2,
and 3 to denote relative strength within this highest
classification. Among the factors considered by Moody's in
assigning ratings for an issuer are the following: (1)
management; (2) economic evaluation of the inherent
uncertain areas; (3) competition and customer acceptance of
products; (4) liquidity; (5) amount and quality of long-term
debt; (6) ten year earnings trends; (7) financial strength
of a parent company and the relationships which exist with
the issuer; and (8) recognition by management of obligations
which may be present or may arise as a result of public
interest questions and preparations to meet such obligations.
Standard & Poor's Corporation
Commercial paper rated A by Standard & Poor's
Corporation has the following characteristics: Liquidity
ratios are better than the industry average. Long term
senior debt rating is "A" or better. In some cases BBB
credits may be acceptable. The issuer has access to at least
two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowance made for
unusual circumstances. Typically, the issuer's industry is
well established, the issuer has a strong position within
its industry and the reliability and quality of management
is unquestioned. Issuers rated A are further referred to by
use of numbers 1, 2, and 3 to denote relative strength
within this classification.
- --------
1Average annual total return from June 30, 1992.
2Average annual total return from July 16, 1991.
3Average annual total return from March 15, 1995.
1 Directors or Officers deemed to be "interested persons" of
the fund, as defined in the Investment Company Act of 1940.
5 No Directors have chosen to defer a portion of their
compensation.
6 As of December 31, 1996, the Fund Complex consists of nine
(9) registered investment companies.
