NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 27, 1998
This Statement of Additional Information, which is not a prospectus, should be
read in conjunction with the Prospectus of the Navellier Variable Insurance
Series Fund, Inc. (the "Fund"), dated February 27, 1998, a copy of which
Prospectus may be obtained, without charge, by contacting the Fund, at its
mailing address: One East Liberty, Third Floor, Reno, Nevada 89501; Tel:
1-800-887-8671.
TABLE OF CONTENTS
Page
----
GENERAL INFORMATION AND HISTORY...........................................3
INVESTMENT OBJECTIVE AND POLICIES.........................................3
DIRECTORS AND OFFICERS OF THE FUND........................................6
OFFICERS .................................................................7
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................8
THE INVESTMENT ADVISER, CUSTODIAN AND TRANSFER AGENT......................9
THE DISTRIBUTOR..........................................................11
INDEPENDENT ACCOUNTANTS..................................................11
BROKERAGE ALLOCATION AND OTHER PRACTICES.................................11
CAPITAL STOCK AND OTHER SECURITIES.......................................13
PURCHASE, REDEMPTION, AND PRICING OF SHARES..............................13
TAXES ................................................................14
CALCULATION OF PERFORMANCE DATA..........................................16
FINANCIAL STATEMENTS.....................................................17
APPENDIX ................................................................21
GENERAL INFORMATION AND HISTORY
The Fund is a corporation (organized under the laws of the State of Maryland on
February 28, 1997) and has commenced regular investment operations as of the
date of the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Investment Policies. The investment objective and policies of the Growth
Portfolio are described in the "Investment Objective and Policies" section of
the Prospectus. The following general policies supplement the information
contained in that section of the Prospectus.
Certificates of Deposit. Certificates of deposit are generally short-term,
interest-bearing, negotiable certificates issued by banks or savings and loan
associations against funds deposited in the issuing institution.
Time Deposits. Time deposits are deposits in a bank or other financial
institution for a specified period of time at a fixed interest rate for which a
negotiable certificate is not received.
Banker's Acceptances. A banker's acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer, or storage of
goods). The borrower, as well as the bank, is liable for payment, and the bank
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining
maturity of less than one year tend to become liquid and can sometimes be traded
as money market securities.
United States Government Obligations. Securities issued or guaranteed as to
principal and interest by the United States government include a variety of
Treasury securities, which differ only in their interest rates, maturities, and
times of issuance. Treasury bills have a maturity of one year or less. Treasury
notes have maturities of one to seven years, and Treasury bonds generally have a
maturity of greater than five years.
Agencies of the United States government which issue or guarantee
obligations include, among others, export-import banks of the United States,
Farmers' Home Administration, Federal Housing Administration, Government
National Mortgage Association, Maritime Administration, Small Business
Administration, the Defense Security Assistance Agency of the Department of
Defense, and the Tennessee Valley Authority. Obligations of instrumentalities of
the United States government include securities issued or guaranteed by, among
others, the Federal National Mortgage Association, Federal Intermediate Credit
Banks, Banks for Cooperatives, and the United States Postal Service. Some of the
securities are supported by the full faith and credit of the United States
government; others are supported by the right of the issuer to borrow from the
Treasury, while still others are supported only by the credit of the
instrumentality.
Investment Restrictions. The Fund's fundamental policies as they affect a
Portfolio cannot be changed without the approval of a vote of a majority of the
outstanding securities of such Portfolio. A proposed change in fundamental
policy or investment objective will be deemed to have been effectively acted
upon with respect to any Portfolio if a majority of the outstanding voting
securities of that Portfolio votes for the matter. Such a majority is defined as
the lesser of (a) 67% or more of the voting shares of the Fund present at a
meeting of shareholders of the Portfolio, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy or (b)
more than 50% of the outstanding shares of the Portfolio. For purposes of the
following restrictions (except the percentage restrictions on borrowing and
illiquid securities -- which percentage must be complied with) and those
contained in the Prospectus: (i) all percentage limitations apply immediately
after a purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in the
amount of total assets does not require elimination of any security from the
Portfolio.
The following investment restrictions are fundamental policies of the Fund
with respect to the Growth Portfolio and may not be changed except as described
above. The Growth Portfolio may not:
1. Purchase any securities or other property on margin; provided, however,
that the Portfolio may obtain short-term credit as may be necessary for the
clearance of purchases and sales of securities.
2. Make cash loans, except that the Portfolio may purchase bonds, notes,
debentures, or similar obligations which are customarily purchased by
institutional investors whether publicly distributed or not.
3. Make securities loans, except that the Portfolio may make loans of its
portfolio securities, provided that the market value of the securities subject
to any such loans does not exceed 33-1/3% of the value of the total assets
(taken at market value) of the Portfolio.
4. Make investments in real estate or commodities or commodity contracts,
including futures contracts, although the Portfolio may purchase securities of
issuers which deal in real estate or commodities although this is not a primary
objective of the Portfolio.
5. Invest in oil, gas, or other mineral exploration or development
programs, although the Portfolio may purchase securities of issuers which engage
in whole or in part in such activities.
6. Purchase securities of companies for the purpose of exercising
management or control.
7. Participate in a joint or joint and several trading account in
securities.
8. Issue senior securities or borrow money, except that the Portfolio may
(i) borrow money only from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests, that might otherwise
require the untimely disposition of securities, provided that any such borrowing
does not exceed 10% of the value of the total assets (taken at market value) of
the Portfolio, and (ii) borrow money only from banks for investment purposes,
provided that (a) after each such borrowing, when added to any borrowing
described in clause (i) of this paragraph, there is an asset coverage of at
least 300% as defined in the Investment Company Act of 1940 (the "1940 Act"),
and (b) is subject to an agreement by the lender that any recourse is limited to
the assets of the Portfolio with respect to which the borrowing has been made.
As an operating policy, the Portfolio may not invest in portfolio securities
while the amount of borrowing of the Portfolio exceeds 5% of the total assets of
the Portfolio.
9. Pledge, mortgage, or hypothecate the assets of the Portfolio to an
extent greater than 10% of the total assets of the Portfolio to secure
borrowings made pursuant to the provisions of Item 8 above.
10. Purchase "restricted securities" (as defined in Rule 144(a)(3) of the
Securities Act of 1933), if, as a result of such purchase, more than 10% of the
net assets (taken at market value) of the Portfolio would then be invested in
such securities nor will the Portfolio invest in illiquid or unseasoned
securities if as a result of such purchase more than 5% of the net assets of the
Portfolio would be invested in either illiquid or unseasoned securities.
11. Invest more than 5% of the assets of the Portfolio in securities of any
single issuer.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values of portfolio securities or amount of net assets shall not be
considered a violation of the restrictions, except as to the 5%, 10% and 300%
percentage restrictions on borrowing specified in Restriction Number 8 above.
Portfolio Turnover. The Growth Portfolio's annual rate of portfolio
turnover is calculated by dividing the lesser of purchases or sales of portfolio
securities during the fiscal year by the monthly average of the value of the
Portfolio's securities (excluding from the computation all securities, including
options, with maturities at the time of acquisition of one year or less). A high
rate of portfolio turnover generally involves correspondingly greater expenses
to the Portfolio, including brokerage commission expenses, dealer mark-ups, and
other transaction costs on the sale of securities, which must be borne directly
by the Portfolio. Turnover rates may vary greatly from year to year as well as
within a particular year and may also be affected by cash requirements for
redemptions of the Portfolio's shares and by requirements which enable the Fund
to receive certain favorable tax treatment. Because the Growth Portfolio is a
new fund portfolio which has not been in operation for a year, no actual
turnover rate can be given at this time. The Fund will attempt to limit the
annual portfolio turnover rate of the Growth Portfolio to 300% or less, however,
this rate may be exceeded if in the Investment Adviser's discretion securities
are or should be sold or purchased in order to attempt to increase the
Portfolio's performance.
DIRECTORS AND OFFICERS OF THE FUND
The following information is provided with respect to each director and officer
of the Fund:
<TABLE>
<CAPTION>
<S> <C> <C>
Position(s) Held With Principal Occupation(s)
Name and Address Registrant and its Affiliates During Past Five Years
- ---------------- ----------------------------- ----------------------
Louis G. Navellier President CEO and President of
One East Liberty Navellier & Associates,
Third Floor Inc., an investment
Reno, NV 89501 management company since
Age: 40 1988; CEO and President
of Navellier Management,
Inc., one of the Portfolio
Managers for the Investment
Adviser to this Fund, The
Navellier Series Fund and
The Navellier Performance
Funds; President and CEO
of Navellier Securities
Corp., the principal
underwriter to The Navellier
Performance Funds and The
Navellier Series Fund; CEO
and President of Navellier
Fund Management, Inc.,
an investment advisory
company, since November
30, 1995.
Dennis A. Holtorf/1/ Treasurer
One East Liberty
Third Floor
Reno, NV 89501
Age: 50
Dean H. Hamilton Director Managing Director, BHJ, LLC,
BHJ, LLC Consultant, Navellier a consulting firm, since July,
30 Stanford Drive & Associates, Inc. 1992.
Farmington, CT 06032
Age: 57
Robert S. Hardy Director President, Zephyr Associates,
Zephyr Associates a financial software company,
312 Dorla Court from April 1994 to present;
Suite 204 prior thereto, Vice President,
Zephyr Cove, NV 89448 Balch, Hardy, et al., a
Age: 55 money management company
from 1973 - April 1994.
Robert G. Sharp Director Director, JMC Corp., a
843 Knapp Drive marketing company for
Santa Barbara, CA 93108 annuities and mutual
Age: 62 funds, May 1995 to present:;
President and Chief
Executive Officer, Keyport
Life Insurance Company
from 1979 until his retirement
in 1993.
</TABLE>
/1/ This person is an interested person affiliated with the Investment
Adviser.
OFFICERS
The officers of the Fund are affiliated with the Investment Adviser and receive
no salary or fee from the Fund. The Fund's disinterested Directors are each
compensated by the Fund with $1,500 for each Board meeting attended and $250 for
attendance of any Committee meeting held on a day on which no Board meeting is
held. The Directors' fees may be adjusted according to increased
responsibilities if the Fund's assets exceed one billion dollars. In addition,
each disinterested Director receives reimbursement for actual expenses of
attendance at Board of Directors meetings.
The Fund does not expect, in its current fiscal year, to pay aggregate
remuneration in excess of $60,000 for services in all capacities to any (a)
Director, (b) officer, (c) affiliated person of the Fund (other than the
Investment Adviser), (d) affiliated person of an affiliate or principal
underwriter of the Fund, or (e) all Directors and officers of the Fund as a
group.
The Board of Directors is permitted by the Fund's By-Laws to appoint an advisory
committee which shall be composed of persons who do not serve the Fund in any
other capacity and which shall have no power to dictate corporate operations or
to determine the investments of the Fund. The Fund currently has no advisory
committee. The Audit Committee of the Board of Directors is composed of Messrs.
Sharp and Hardy. The Pricing Committee is composed of Messrs. Hardy and Holtorf.
Remuneration Table
<TABLE>
<CAPTION>
Capacity In Which Aggregate Remuneration/*/
Remuneration Aggregate Remuneration/*/ From Registrant
Received From Registrant and Fund Complex
-------- --------------- ----------------
<S> <C> <C> <C>
Dean H. Hamilton/**/ Director N/A N/A
Robert S. Hardy Director $6,000 $6,000
Robert G. Sharp Director $6,000 $6,000
</TABLE>
/*/ Based on projections for fiscal year 1998.
/**/ Mr. Hamilton may be deemed to be an "interested person" of the Fund,
as that term is defined in the 1940 Act, and consequently will be receiving no
compensation from the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On January 15, 1998, in order to fulfill the requirements of Section 14(a)(1) of
the 1940 Act, one hundred percent (100%) of the issued and outstanding shares of
the Growth Portfolio was purchased by Louis G. Navellier under a subscription
agreement dated January 15, 1998. Such subscription for acquisition was made for
an aggregate of $100,000 allocated 100% to the Growth Portfolio (to purchase
10,000 shares).
THE INVESTMENT ADVISER, CUSTODIAN AND TRANSFER AGENT
(a) The Investment Adviser
The offices of the Investment Adviser (Navellier & Associates, Inc.) are
located at One East Liberty, Third Floor, Reno, Nevada 89501. The Investment
Adviser began operation in May 1993 and advises this Fund, The Navellier Series
Fund and The Navellier Performance Funds.
(i) The following individual owns the enumerated shares of outstanding
stock of the Investment Adviser and, as a result, maintains control over
the Investment Adviser:
<TABLE>
<CAPTION>
Shares of Outstanding Stock Percentage of Outstanding
Name of the Investment Adviser Shares
- ---- ------------------------- ------
<S> <C> <C>
Louis G. Navellier 1,000 100%
</TABLE>
(ii) The following individual is affiliated with the Investment Adviser:
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Louis G. Navellier Trustee, President, and Treasurer of The Navellier
Series Fund and The Navellier Performance Funds;
Director, CEO, President, Secretary, and Treasurer of
Navellier Management, Inc.; Director, President, CEO,
Secretary, and Treasurer of Navellier Securities Corp.;
one of the Portfolio Managers of the Navellier Series
Fund and The Navellier Performance Funds.
</TABLE>
(iii) The management fee payable to the Investment Adviser under the terms
of the Investment Advisory Agreement (the "Advisory Agreement") between the
Investment Adviser and the Fund is payable monthly and is based upon .85%
of the Growth Portfolio's average daily net assets. The Investment Adviser
has the right, but not the obligation, to waive any portion or all of its
management fee, from time to time.
Expenses not expressly assumed by the Investment Adviser under the Advisory
Agreement are paid by the Fund. The Advisory Agreement lists examples of
expenses paid by the Fund for the account of the Growth Portfolio, the major
categories of which relate to taxes, fees to Directors, legal, accounting, and
audit expenses, custodian and transfer agent expenses, certain printing and
registration costs, and non-recurring expenses, including litigation.
The Advisory Agreement provides that the Investment Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
or its investors except for losses (i) resulting from the willful misfeasance,
bad faith, or gross negligence on its part, (ii) resulting from reckless
disregard by it of its obligations and duties under the Advisory Agreement, or
(iii) a loss for which the Investment Adviser would not be permitted to be
indemnified under the Federal Securities laws.
Pursuant to an Administrative Services Agreement, the Investment Adviser
receives an annual fee of .25% of the value of the assets under management and
provides or is responsible for the provision of certain administrative services
to the Fund, including, among others, the preparation and maintenance of certain
books and records required to be maintained by the Fund under the Investment
Company Act of 1940. The Administrative Services Agreement permits the
Investment Adviser to contract out for all of its duties thereunder; however, in
the event of such contracting, the Investment Adviser remains responsible for
the performance of its obligations under the Administrative Services Agreement.
The Investment Adviser has entered into an agreement with Rushmore Trust &
Savings, FSB, to perform, in addition to custodian and transfer agent services,
some or all administrative services and may contract in the future with other
persons or entities to perform some or all of its administrative services. All
of these contracted services are and will be paid for by the Investment Adviser
out of its fees or assets.
In exchange for its services under the Administrative Services Agreement, the
Fund reimburses the Investment Adviser for certain expenses incurred by the
Investment Adviser in connection therewith but does not reimburse Investment
Adviser (over the amount of the 0.25% annual Administrative Services Fee) to
reimburse it for fees Investment Adviser pays to others for administrative
services. The agreement also allows Investment Adviser to pay to its delegate
part or all of such fees and reimbursable expense payments incurred by it or its
delegate.
The Advisory Agreement permits the Investment Adviser to act as investment
adviser for any other person, firm, or corporation, and designates the
Investment Adviser as the owner of the name "Navellier" or of any use or
derivation of the word Navellier. If the Investment Adviser shall no longer act
as investment adviser to the Fund, the right of the Fund to use the name
"Navellier" as part of its title may, solely at the Investment Adviser's option,
be withdrawn.
The Fund's organizational expenses have been paid by the Adviser.
(b) The Custodian and Transfer Agent
Rushmore Trust & Savings, FSB, 4922 Fairmont Avenue, Bethesda, Maryland
20814, serves as the custodian of the Fund's portfolio securities and as the
Fund's transfer agent and, in those capacities, maintains certain accounting and
other records of the Fund and processes requests for the purchase or the
redemption of shares, maintains records of ownership for shareholders, and
performs certain other shareholder and administrative services on behalf of the
Fund.
(c) Legal Counsel
Blazzard, Grodd & Hasenauer, P.C., is legal counsel to the Fund.
THE DISTRIBUTOR
The Fund's Distributor is Navellier Securities Corp., a Delaware corporation
organized and incorporated on May 10, 1993. The Fund's shares will be
continuously distributed by the Distributor, located at One East Liberty, Third
Floor, Reno, Nevada 89501, pursuant to a Distribution Agreement, dated February
27, 1998.
INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker, Philadelphia, Pennsylvania, serves as the independent
accountants of the Fund and, in such capacity, audits and reports on the Fund's
annual financial statements, assists in the preparation of the Fund's federal
tax returns and performs other professional accounting, auditing and advisory
services when engaged to do so by the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
In effecting portfolio transactions for the Fund, the Investment Adviser adheres
to the Fund's policy of seeking best execution and price, determined as
described below, except to the extent it is permitted to pay higher brokerage
commissions for "brokerage and research services," as defined herein. The
Investment Adviser may cause the Fund to pay a broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission which another broker or dealer would have charged for effecting the
transaction if the Investment Adviser determines in good faith that such amount
of commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer or that any offset of direct
expenses of a Portfolio yields the best net price. As provided in Section 28(e)
of the Securities Exchange Act of 1934, "brokerage and research services"
include giving advice as to the value of securities, the advisability of
investing in, purchasing, or selling securities, and the availability of
securities; furnishing analysis and reports concerning issuers, industries,
economic facts and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). Brokerage and research services
provided by brokers to the Fund or to the Investment Adviser are considered to
be in addition to and not in lieu of services required to be performed by the
Investment Adviser under its contract with the Fund and may benefit both the
Fund and other clients of the Investment Adviser or customers of or affiliates
of the Investment Adviser. Conversely, brokerage and research services provided
by brokers to other clients of the Investment Adviser or its affiliates may
benefit the Fund.
If the securities in which a particular Portfolio of the Fund invests are traded
primarily in the over-the-counter market, where possible, the Fund will deal
directly with the dealers who make a market in the securities involved unless
better prices and execution are available elsewhere. Such dealers usually act as
principals for their own account. There is generally no stated commission in the
case of securities traded in the over-the-counter market, but the price paid by
a Portfolio usually includes an undisclosed dealer commission or mark-up. On
occasion, securities may be purchased directly from the issuer. There may be
customary mark-ups on principal transactions. Bonds and money market instruments
are generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any net
commissions and other costs paid), the efficiency with which the transaction is
effected, the ability to effect the transaction at all where a large block is
involved, the availability of the broker to stand ready to execute possibly
difficult transactions in the future, and the financial strength and stability
of the broker. Such considerations are judgmental and are weighed by the
Investment Adviser in determining the overall reasonableness of brokerage
commissions paid by the Fund. Some portfolio transactions are subject to the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
and subject to obtaining best prices and executions, effected through dealers
who sell shares of the Fund and/or possibly the VA Contracts and/or VLI
Policies.
The Board of Directors of the Fund will periodically review the performance of
the Investment Adviser of its respective responsibilities in connection with the
placement of portfolio transactions on behalf of the Fund and review the
commissions paid by the Fund over representative periods of time to determine if
they are reasonable in relation to the benefits to the Fund.
The Board of Directors will periodically review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
At present, no recapture arrangements are in effect. The Board of Directors will
review whether recapture opportunities are available and are legally
permissible, and, if so, will determine, in the exercise of their business
judgment, whether it would be advisable for the Fund to seek such recapture.
CAPITAL STOCK AND OTHER SECURITIES
The rights and preferences attached to the shares of each Portfolio are
described in the Prospectus. (See "Description of Shares".) The 1940 Act
requires that where more than one class or series of shares exists, each class
or series must be preferred over all other classes or series in respect of
assets specifically allocated to such class or series. Rule 18f-2 under the 1940
Act provides that any matter required to be submitted by the provisions of the
1940 Act or applicable state law, or otherwise, to the holders of the
outstanding voting securities of an investment company such as the Fund shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each series affected by such matter.
Rule 18f-2 further provides that a series shall be deemed to be affected by a
matter unless the interests of each series in the matter are substantially
identical or that the matter does not affect any interest of such series.
However, the Rule exempts the selection of independent public accountants, the
approval of principal distribution contracts, and the election of Directors from
the separate voting requirements of the Rule.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
Redemption of Shares. The Prospectus, under "Purchases and Redemptions"
describes the requirements and methods available for effecting redemption. The
Fund may suspend the right of redemption or delay payment more than seven days
(a) during any period when the New York Stock Exchange or any other applicable
exchange, is closed (other than a customary weekend and holiday closing), (b)
when trading on the New York Stock Exchange, or any other applicable exchange,
is restricted, or an emergency exists as determined by the Securities and
Exchange Commission ("SEC") or the Fund so that disposal of the Fund's
investments or a fair determination of the net asset values of the Portfolios is
not reasonably practicable, or (c) for such other periods as the SEC by order
may permit for protection of the Portfolio's shareholders.
The Fund normally redeems shares for cash. However, the Board of Directors can
determine that conditions exist making cash payments undesirable. If they should
so determine (and if a proper election pursuant to Rule 18f-1 of the 1940 Act
has been made by the Fund), redemption payments could be made in securities
valued at the value used in determining net asset value. There generally will be
brokerage and other costs incurred by the redeeming shareholder in selling such
securities.
Determination of Net Asset Value. As described in the Prospectus under
"Purchases and Redemptions - Valuation of Shares," the net asset value of shares
of each Portfolio of the Fund is determined once daily as of 4 p.m. New York
time on each day during which the New York Stock Exchange, or other applicable
exchange, is open for trading. The New York Stock Exchange is scheduled to be
closed for trading on the following days: New Year's Day, Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. The Board of Directors of the Exchange reserves the right to
change this schedule. In the event that the New York Stock Exchange or the
national securities exchanges on which small cap equities are traded adopt
different trading hours on either a permanent or temporary basis, the Board of
Directors of the Fund will reconsider the time at which net asset value is to be
computed.
Valuation of Assets. In determining the value of the assets of any Portfolio of
the Fund, the securities for which market quotations are readily available are
valued at market value, which is currently determined using the last reported
sale price, or, if no sales are reported - as is the case with many securities
traded over-the-counter - the last reported bid price. Debt securities (other
than short-term obligations, i.e., obligations which have 60 days or less left
to maturity, which are valued on the basis of amortized cost) are normally
valued on the basis of valuations provided by a pricing service when such prices
are believed to reflect the fair value of such securities. Prices provided by a
pricing service may be determined without exclusive reliance on quoted prices
and take into account appropriate factors such as institution-size trading in
similar groups of securities, yield, quality of issue, trading characteristics,
and other market data. All other securities and assets are valued at their fair
value as determined in good faith by the Board of Directors, although the actual
calculations may be made by persons acting pursuant to the direction of the
Board of Directors.
TAXES
In the case of a "series fund" (that is, a regulated investment company having
more than one segregated portfolio of investments the beneficial interests in
which are owned by the holders of a separate series of stock), each investment
portfolio is treated as a separate corporation for federal income tax purposes.
The Fund will be deemed a series fund for this purpose and, thus, each Portfolio
will be deemed a separate corporation for such purpose.
Each Portfolio of the Fund intends to qualify as a regulated investment company
for federal income tax purposes. Such qualification requires, among other
things, that each Portfolio (a) make a timely election to be a regulated
investment company, (b) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities (including options and futures) or
foreign currencies, and (c) diversify its holdings so that at the end of each
fiscal quarter (i) 50% of the market value of its assets is represented by cash,
government securities, securities of other regulated investment companies, and
securities of one or more other issuers (to the extent the value of the
securities of any one such issuer owned by the Portfolio does not exceed 5% of
the value of its total assets and 10% of the outstanding voting securities of
such issuer) and (ii) not more than 25% of the value of its assets is invested
in the securities (other than government securities and securities of other
regulated investment companies) of any one industry. These requirements may
limit the ability of the Portfolios to engage in transactions involving options
and futures contracts.
If each Portfolio qualifies as a regulated investment company, it will not be
subject to federal income tax on its "investment company taxable income"
(calculated by excluding the amount of its net capital gain, if any, and by
excluding the dividends-received and net operating loss deductions) or "net
capital gain" (the excess of its long-term capital gain over its net short-term
capital loss) which is distributed to shareholders. In determining taxable
income, however, a regulated investment company holding stock on the record date
for a dividend is required to include the dividend in income on the later of the
ex-dividend date or the date of acquisition.
Section 817 Diversification Requirements
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
VA Contracts and VLI Policies (that is, the assets of the Portfolios), which are
in addition to the diversification requirements imposed on the Portfolios by the
1940 Act and Subchapter M. Failure to satisfy those standards would result in
imposition of Federal income tax on a VA Contract or VLI Policy owner with
respect to the increase in the value of the VA Contract or VLI Policy. Section
817(h)(2) provides that a segregated asset account that funds contracts such as
the VA Contracts and VLI Policies is treated as meeting the diversification
standards if, as of the close of each calendar quarter, the assets in the
account meet the diversification requirements for a regulated investment company
and no more than 55% of those assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality shall be treated as a
separate issuer.
Each Portfolio will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply with these
requirements, less desirable investment decisions may be made which would affect
the investment performance of a Portfolio. CALCULATION OF PERFORMANCE DATA
Performance information for each Portfolio may appear in advertisements, sales
literature, or reports to shareholders or prospective shareholders. Performance
information in advertisements and sales literature may be expressed as total
return on the applicable Portfolio.
The average annual total return on such Portfolios represents an annualization
of each Portfolio's total return ("T" in the formula below) over a particular
period and is computed by finding the current percentage rate which will result
in the ending redeemable value ("ERV" in the formula below) of a $1,000 payment
("P" in the formula below) made at the beginning of a one-, five-, or ten-year
period, or for the period from the date of commencement of the Portfolio's
operation, if shorter ("n" in the formula below). The following formula will be
used to compute the average annual total return for the Portfolio:
n
P (1 + T) = ERV
In addition to the foregoing, each Portfolio may advertise its total return over
different periods of time by means of aggregate, average, year-by-year, or other
types of total return figures.
Performance information for the Portfolios shall reflect only the performance of
a hypothetical investment in the Portfolios during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the particular Portfolio, and the market conditions during the given time
period, and should not be considered as a representation of what may be achieved
in the future.
Each Portfolio may, from time to time, include in advertisements containing
total return the ranking of those performance figures relative to such figures
for groups of mutual funds categorized by Lipper Analytical Services, or other
services, as having the same investment objectives. The total return may also be
used to compare the performance of the Portfolio against certain widely
acknowledged outside standards or indices for stock and bond market performance.
The Standard & Poor's Composite Stock Price Index of 500 stocks ("S&P 500") is a
market value-weighted and unmanaged index showing the changes in the aggregate
market value of 500 stocks relative to the base period 1941-43. The S&P 500 is
composed almost entirely of common stocks of companies listed on the New York
Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over-the-counter are included.
As summarized in the Prospectus under the heading "Performance Advertising", the
total return and/or yield of a Portfolio may be quoted in advertisements and
sales literature.
FINANCIAL STATEMENTS
A Statement of Assets and Liabilities of the Growth Portfolio as of January 15,
1998, and the report of Tait, Weller & Baker, Independent Accountants, with
respect thereto, is set forth below.
TAIT, WELLER & BAKER
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Directors
Navellier Growth Portfolio
Reno, Nevada
We have audited the accompanying statement of assets and liabilities of the
Navellier Growth Portfolio, a series of shares of Navellier Variable Insurance
Series Fund, Inc. (the "Fund") as of January 15, 1998. This financial statement
is the responsibility of the Fund's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the statement of
assets and liabilities provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Navellier Growth Portfolio as of January 15, 1998 in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 16, 1998
NAVELLIER GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
January 15, 1998
- --------------------------------------------------------------------------------
ASSETS
Cash $100,000
--------
Total assets 100,000
LIABILITIES --
________
NET ASSETS
(500,000,000 shares authorized; 10,000 shares
outstanding) $100,000
========
Net asset value and redemption price per share
$100,000 / 10,000 shares $10.00
------
See notes to statement of assets and liabilities
NAVELLIER GROWTH PORTFOLIO
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
January 15, 1998
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Navellier Growth Portfolio (the "Portfolio") is a series of The
Navellier Variable Insurance Series Fund, Inc. (the "Fund"), a diversified,
open-end investment company. The Fund was incorporated on February 28, 1997
as a Maryland Corporation. The Fund and the Portfolio have had no
operations through January 15, 1998 other than those relating to
organizational matters and the sale and issuance of 10,000 shares at $10.00
per share to the initial shareholder.
APPENDIX
A-1 and P-1 Commercial Paper Ratings
The Growth Portfolio will invest only in commercial paper which, at the date of
investment, is rated A-1 by Standard & Poor's Corporation ("S&P") or P- 1 by
Moody's Investors Services, Inc. ("Moody's"), or, if not rated, is issued or
guaranteed by companies which at the date of investment have an outstanding debt
issue rated AA or higher by Standard & Poor's or Aa or higher by Moody's.
Commercial paper rated A-1 by S&P has the following characteristics: (1)
liquidity ratios are adequate to meet cash requirements; (2) long-term senior
debt is rated "A" or better; (3) the issuer has access to at least two
additional channels of borrowing; (4) basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; (5) typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and (6) the reliability and quality of management are
unquestioned.
The rating P-1 is the highest commercial paper rating assigned by Moody's. Among
the factors considered by Moody's in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationship which exists with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
