NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1999
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 May 1, 1999, 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. The
prospectus incorporates this Statement of Additional Information by reference.
TABLE OF CONTENTS
Page
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GENERAL INFORMATION AND HISTORY 3
INVESTMENT OBJECTIVE AND POLICIES 3
Money Market Investments 3
Short-Term Investments 4
Short Sales Against the Box 5
Additional Information Concerning Risks 6
DIRECTORS AND OFFICERS OF THE FUND 9
OFFICERS 11
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 12
THE INVESTMENT ADVISER, CUSTODIAN AND TRANSFER AGENT 12
THE DISTRIBUTOR 14
INDEPENDENT ACCOUNTANTS 14
BROKERAGE ALLOCATION AND OTHER PRACTICES 14
CAPITAL STOCK AND OTHER SECURITIES 16
DESCRIPTION OF SHARES 17
PURCHASE, REDEMPTION AND PRICING OF SHARES 18
TAXES 19
PERFORMANCE ADVERTISING 20
FINANCIAL STATEMENTS 22
APPENDIX 23
GENERAL INFORMATION AND HISTORY
The Fund is a corporation (organized under the laws of the State of Maryland on
February 28, 1997). The Growth Portfolio of the Fund commenced regular
investment operations on February 27, 1998.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Growth Portfolio are described
in the Prospectus. The following supplements the information contained in the
Prospectus.
MONEY MARKET INVESTMENTS
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.
SHORT-TERM INVESTMENTS
The Growth Portfolio may, for temporary defensive purposes or to maintain cash
or cash equivalents to meet anticipated redemptions, also invest in debt
securities and money market funds if, in the opinion of the Investment Adviser,
such investment will further the cash needs or temporary defensive needs of the
Portfolio. In addition, when the Investment Adviser feels that market or other
conditions warrant it, for temporary defensive purposes the Growth Portfolio may
retain cash or invest all or any portion of its assets in cash equivalents,
including money market mutual funds. Under normal conditions, the Growth
Portfolio's holdings in such non-equity securities should not exceed 35% of the
total assets of the Portfolio. If the Growth Portfolio's assets, or a portion
thereof, are retained in cash or money market funds or money market mutual
funds, such cash will, in all probability, be deposited in interest-bearing or
money market accounts or in Rushmore's money market mutual funds. Rushmore Trust
& Savings, FSB is also the Fund's Transfer Agent and Custodian. Cash deposits by
the Fund in interest bearing instruments issued by Rushmore Trust & Savings
("Transfer Agent") will only be deposited with the Transfer Agent if its
interest rates, terms, and security are equal to or better than could be
received by depositing such cash with another savings institution. Money market
investments have no FDIC protection and deposits in Rushmore Trust & Savings
accounts have only $100,000 protection.
It is anticipated that all of the Growth Portfolio's investments in corporate
debt securities (other than commercial paper) and preferred stocks will be
represented by debt securities and preferred stocks which have, at the time of
purchase, a rating within the four highest grades as determined by Moody's
Investors Service, Inc. (Aaa, Aa, A, Baa) or by Standard & Poor's Corporation
(AAA, AA, A, BBB; securities which are rated BBB/Baa have speculative
characteristics). Although investment-quality securities are subject to market
fluctuations, the risk of loss of income and principal is generally expected to
be less than with lower quality securities. In the event the rating of a debt
security or preferred stock in which the Growth Portfolio has invested drops
below investment grade, the Growth Portfolio will promptly dispose of such
investment. When interest rates go up, the market value of debt securities
generally goes down and long-term debt securities tend to be more volatile than
short term debt securities.
SHORT SALES AGAINST THE BOX
The Growth Portfolio is permitted to make short sales if at the time of the
short sale the Portfolio owns or has the right to acquire a security equal in
kind and amount to the security being sold short, at no additional cost. This
investment technique is known as a "short sale against the box."
In a short sale, the seller does not immediately deliver the securities sold and
is said to have a short position in those securities until delivery occurs. To
make delivery to the purchaser, the executing broker borrows the securities
being sold short on behalf of the seller. While the short position is
maintained, the seller collateralizes its obligation to deliver the securities
sold short in an amount equal to the proceeds of the short sale plus an
additional margin amount established by the Board of Governors of the Federal
Reserve. If the Fund engages in a short sale, the collateral account will be
maintained by the Fund's custodian. While the short sale is open, the Fund will
maintain, in a segregated custodial account, an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities at no additional cost. These
securities would constitute the Fund's long position.
The Growth Portfolio may make a short sale against the box, when it believes
that the price of a security may decline, causing a decline in the value of a
security owned by the Portfolio (or a security convertible into or exchangeable
for such security), or when the Portfolio desires to sell the security it owns
at a current attractive price, but also wishes to defer recognition of gain or
loss for federal income tax purposes and for purposes of satisfying certain
tests applicable to regulated investment companies under the Internal Revenue
Code. In such a case, any future losses in the Growth Portfolio's long position
should be reduced by a gain in the short position. The extent to which such
gains or losses are reduced would depend upon the amount of the security sold
short relative to the amount the Growth Portfolio owns. There will be certain
additional transaction costs associated with short sales against the box, but
the Growth Portfolio will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
ADDITIONAL INFORMATION CONCERNING RISKS
Lack of Operating History and Experience
The Growth Portfolio is relatively newly organized and has a short history of
operations. The Adviser was organized on May 28, 1993 and has been managing the
assets of The Navellier Series Fund since January 3, 1994 and the publicly
invested assets of The Navellier Series Fund since April 1, 1994. The Adviser
also manages the assets of The Navellier Performance Funds which went effective
December 28, 1995. Although the Adviser sub-contracts a substantial portion of
its responsibilities for administrative services of the Fund's operations to
various agents, including the Transfer Agent and Custodian, the Adviser still
has overall responsibility for the administration of the Growth Portfolio and
oversees the administrative services performed by others as well as servicing
shareholder's needs and, along with the Fund's Board of Directors, is
responsible for the selection of such agents and their oversight. The Adviser is
also responsible for the selection of securities for investment. None of the
principals, officers, legal counsel, or directors of the Adviser (including such
of those persons who are also controlling persons of the Fund) had, before June
1993, ever registered, operated, or supervised the operations of investment
companies in the past, and there is no assurance that their past business
experiences or their experience with The Navellier Series Fund or The Navellier
Performance Funds will enable them to successfully manage the assets of the Fund
in the future. The owner of the Adviser has been in the business of rendering
advisory services to significant pools of capital such as retirement plans and
large investors since 1987.
The Adviser presently manages over $2 billion in investor funds. The owner of
the Adviser is also the owner of another investment advisory firm, Navellier
Fund Management, Inc., and controls other investment advisory entities which
manage assets and/or act as sub-advisors, all of which firms employ the same
basic modern portfolio theories and select many of the same over-the-counter
stocks and other securities which the Adviser intends to employ and invest in
while managing the Portfolio. Because many of the over-the-counter and other
securities which the Adviser intends to, or may, invest in have a smaller number
of shares available to trade than more conventional companies, lack of shares
available at any given time may result in the Portfolio not being able to
purchase or sell all shares which the Adviser desires to trade at a given time
or period of time, thereby creating a potential liquidity problem which could
adversely affect the performance of the Portfolio. Since the Adviser will be
trading on behalf of the Portfolio in some or all of the same securities at the
same time that the Adviser, Navellier Fund Management, Inc., other Navellier
controlled investment entities, The Navellier Series Fund and The Navellier
Performance Funds are trading, the potential liquidity problem could be
exacerbated. In the event the number of shares available for purchase or sale in
a security or securities is limited and therefore the trade order cannot be
fully executed at the time it is placed, i.e., where the full trade orders of
the Adviser, Navellier Fund Management, Inc., The Navellier Series Fund, The
Navellier Performance Funds and other Navellier controlled investment entities
and the Fund cannot be completed at the time the order is made, the Adviser, and
the other Navellier controlled investment entities will allocate their purchase
or sale orders in proportion to the dollar value of the order made by the other
Navellier entities, and the dollar value of the order made by the Fund. For
example, if the Adviser, and Navellier Fund Management, Inc., each place a
$25,000 purchase order and Adviser on behalf of the Fund places a $50,000
purchase order for the same stock and only $50,000 worth of stock is available
for purchase, the order would be allocated $12,500 each of the stock to the
Adviser, and Navellier Fund Management, Inc., and $25,000 of the stock to the
Fund. As the assets of the Portfolio increase, the potential for shortages of
buyers or sellers increases, which could adversely affect the performance of the
Portfolio. While the Adviser generally does not anticipate liquidity problems
(i.e., the possibility that the Portfolio cannot sell shares of a company and
therefore the value of those shares drops) unless the Fund has assets in excess
of two billion dollars (although liquidity problems could still occur when the
Fund has assets of substantially less than two billion dollars), each investor
is being made aware of this potential risk in liquidity and should not invest in
the Fund if it is not willing to accept this potentially adverse risk, and by
investing, acknowledges that it is aware of the risks.
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 Fund is organized as a Maryland corporation. The overall responsibility
for the supervision of the affairs of the Fund vests in the Directors. The
Directors have entered into an Investment Advisory Agreement with the Adviser
to handle the day-to-day affairs of the Fund. The Directors meet periodically
to review the affairs of the Fund and to establish certain guidelines which the
Adviser is expected to follow in implementing the investment policies and
objectives 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: 41 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.
Arjen Kuyper Treasurer Chief Operating Officer,
One East Liberty Navellier and Associates, Inc.
Third Floor Navellier Management, Inc.,
Reno, NV 89501 Navellier Fund Management, Inc.
Age: 43 and Navellier Securities Corp.
since 1992.
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.
Christopher Schrobilgen/1/ Director Marketing Director, Navellier
One East Liberty and Associates, Inc. since
Third Floor 1994.
Reno, NV 89501
Age: 50
</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 Kuyper.
Remuneration Table
<TABLE>
<CAPTION>
Capacity In Which Aggregate Remuneration/*/
Remuneration Aggregate Remuneration/*/ From Registrant
Received From Registrant and Fund Complex
-------- --------------- ----------------
<S> <C> <C> <C>
Christopher M. Schrobilgen* Director N/A N/A
Robert S. Hardy Director $ 6,250 $ 6,250
Robert G. Sharp Director $ 6,250 $ 6,250
</TABLE>
* Mr. Schrobilgen 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
Only the life insurance companies that issue the variable annuity contracts or
variable life insurance policies that use the Portfolio for investment can own
shares in the Portfolio. The shares are usually held in a separate account of
the life insurance company on behalf of the holders of the variable annuity
contracts or variable life insurance policies who invest assets in the
Portfolio. As of December 31, 1998, shares of the Portfolio were held by
American General Life Insurance Company and Navellier (in the form of seed
money).
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 Adviser waived all of its management fees for the period ended December 31,
1998.
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 cash 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., One East Liberty, Third
Floor, Reno, Nevada 89501, a Delaware corporation organized and incorporated on
May 10, 1993. The Fund's shares will be continuously distributed by the
Distributor, pursuant to a Distribution Agreement, dated February 27, 1998. The
Distributor is a corporation wholly-owned by Louis G. Navellier, who also owns
100% of the Adviser.
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.
When selecting broker-dealers for Fund portfolio transactions, the Adviser may
consider the record of such broker-dealers with respect to the sale of shares of
the Fund or the sale of Contracts.
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.
Brokerage Commissions
The Portfolio paid $ 3,628 in brokerage commissions for the period ended
December 31, 1998.
Code of Ethics
To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Fund and the Adviser have adopted a Code of
Ethics under Rule 17j-1 of the 1940 Act. This Code contains policies restricting
securities trading in personal accounts of the portfolio managers and others who
normally come into possession of information on portfolio transactions. This
Code complies, in all material respects, with the recommendations of the
Investment Company Institute.
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.
DESCRIPTION OF SHARES
The Fund is a Maryland corporation organized on February 28, 1997. The Fund is
authorized to issue 500,000,000 shares of the Growth Portfolio and to create
additional portfolios of the Fund. Each share of the Growth Portfolio represents
an equal proportionate interest in that Portfolio with each other share. Shares
are entitled upon liquidation to a pro rata share in the net assets of the
Growth Portfolio available for distribution to shareholders. Shareholders have
no preemptive rights. All consideration received by the Fund for shares of any
Portfolio and all assets in which such consideration is invested would belong to
that Portfolio and would be subject to the liabilities related thereto.
The Fund reserves the right to create classes of shares.
Voting Rights
Each share held entitles the shareholder of record to one vote. Shareholders of
each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Fund will be voted on only by
shareholders of the affected Portfolios. Shareholders of all Portfolios of the
Fund will vote together in matters affecting the Fund generally, such as the
election of Directors or selection of accountants. As a Maryland corporation,
the Fund is not required to hold annual meetings of shareholders but shareholder
approval will be sought for certain changes in the operation of the Fund and for
the election of Directors under certain circumstances. In addition, a Director
may be removed by the remaining Directors or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Fund. In the event that such a meeting is requested,
the Fund will provide appropriate assistance and information to the shareholders
requesting the meeting. Under current law, a life insurance company is required
to request voting instructions from Contract owners and must vote all shares
held in the Separate Account in proportion to the voting instructions received.
For a more complete discussion of voting rights, refer to the life insurance
company Separate Account prospectus.
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
Contracts (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 Contract owner with respect to the increase in the value
of the Contract. Section 817(h)(2) provides that a segregated asset account that
funds contracts such as the Contracts 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.
PERFORMANCE ADVERTISING
Performance information for the 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.
From time to time, the Portfolio may advertise its total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. No representation can be made regarding actual future returns.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. The Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
The Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. The Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
The average annual total return on the Portfolio represents an annualization of
the 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, the 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 Portfolio shall reflect only the performance of
a hypothetical investment in the Portfolio 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 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.
The 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.
FINANCIAL STATEMENTS
The Fund's Financial Statements and notes thereto for the period ended December
31, 1998 and the report of Tait, Weller & Baker, Independent Auditors, with
respect thereto, appear in the Fund's Annual Report for the year ended December
31, 1998, which is incorporated by reference into this Statement of Additional
Information. The Fund delivers a copy of the Annual Report to investors along
with the Statement of Additional Information. In addition, the Fund will
furnish, without charge, additional copies of such Annual Report to investors
which may be obtained without charge by calling 1-800-887-8671.
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.
