As filed with the Securities and Exchange Commission on November 30, 1998
1933 Act Registration No.
--------
1940 Act Registration No. 811-09121
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. [ ]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.
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JNL VARIABLE FUND LLC
(Exact Name of Registrant as Specified in Charter)
225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 338-5801
Thomas J. Meyer, Esq. with a copy to:
JNL Series Trust
Vice President & Counsel Blazzard, Grodd & Hasenauer P.C.
5901 Executive Drive P.O. Box 5108
Lansing, Michigan 48911 Westport, Connecticut 06881
(Name and Address of Agent for Service)
Approximate date of proposed public offering: (Upon the effective date of this
Registration Statement)
Title of Securities Being Registered: Membership interests
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
JNL VARIABLE FUND LLC
CROSS-REFERENCE SHEET
(as required by Rule 495)
Caption in Prospectus or
Statement of Additional
Information relating to
N-1A Item No. each Series
- ------------- --------------------------------
Part A Prospectus
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Item 1. Cover Page Front Cover Page
Item 2. Synopsis Fund Expenses
Item 3. Financial Highlights Financial Highlights; Performance
Advertising for the Series
Item 4. General Description of
Registrant Front Cover Page; Investment
Objectives and Policies; Common
Types of Securities and
Management Practices
Item 5. Management of the Fund Management of the Fund
Item 5A Management's Discussion
of Fund Performance Not Applicable
Item 6. Capital Stock and Other Additional Information;
Securities Performance Advertising for the
Series
Item 7. Purchase of Securities Investment in Fund Shares;
Being Offered Share Redemption
Item 8. Redemption or Repurchase Share Redemption
Item 9. Pending Legal Proceedings Not Applicable
Statement of Additional
Part B Information
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Item 10. Cover Page Front Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and
History General Information and History
Item 13. Investment Objectives Investment Restrictions
and Policies Applicable to All Series;
Common Types of Securities
Item 14. Management of the Fund Trustees and Officers of the Fund
Item 15. Control Persons and
Principal Holders of
Securities Trustees and Officers of the Fund
Item 16. Investment Advisory and
Other Services Investment Adviser and Other
Services
Item 17. Brokerage Allocation and
Other Practices Investment Adviser and Other
Services
Item 18. Capital Stock and Other
Securities Additional Information
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchases, Redemptions and
Pricing of Shares
Item 20. Tax Status Tax Status
Item 21. Underwriters Not Applicable
Item 22. Calculation of Performance
Data Performance
Item 23. Financial Statements Financial Statements
Part C
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Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Amendment to Registration Statement.
PROSPECTUS
________________, 1999
JNL(R) VARIABLE FUND LLC
225 West Wacker Drive
Chicago, Illinois 60606
This Prospectus provides you with the basic information you should know before
investing in the JNL Variable Fund LLC ("Fund"). You should read it and keep it
for future reference. A Statement of Additional Information, dated _________,
1999, has been filed with the Securities and Exchange Commission. You can obtain
a copy without charge by calling (800) 766-4683, or writing the JNL Variable
Fund LLC Service Center, P.O. Box 378002, Denver, Colorado 80237- 8002. The
Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Fund is a non-diversified, open-end management investment company organized
under the laws of Delaware as a limited liability company on October 13, 1998.
The Fund currently offers interests in eleven separate Series, each with its own
investment objective. The interests of the Fund are sold only to Jackson
National Separate Account-I, a segregated asset account of Jackson National Life
Insurance Company, to fund the benefits of variable annuity policies.
As a result of the market risk inherent in any investment, there is no assurance
that the investment objective of any of the Series will be realized. Investments
in a Series are neither insured nor guaranteed by the U.S. Government or any
other entity or person.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED _____________, 1999, IS
INCORPORATED HEREIN BY REFERENCE.
TABLE OF CONTENTS
PAGE
SUMMARY ...............................................................3
FUND EXPENSES...........................................................4
INVESTMENT OBJECTIVES AND POLICIES......................................6
INVESTMENT OBJECTIVES AND POLICIES - TARGET SERIES......................6
INVESTMENT STRATEGY - TARGET SERIES.....................................9
RISK FACTORS - TARGET SERIES............................................9
DESCRIPTION OF INDICES.................................................14
INVESTMENT OBJECTIVES AND POLICIES - SECTOR SERIES.....................18
RISK FACTORS - SECTOR SERIES...........................................22
MANAGEMENT OF THE FUND.................................................24
INVESTMENT IN FUND INTERESTS...........................................26
INTEREST REDEMPTION....................................................26
ADDITIONAL INFORMATION.................................................27
PERFORMANCE INFORMATION................................................28
TAX STATUS.............................................................33
SUMMARY
The Fund
The Fund is a non-diversified, open-end management investment company which
currently offers interests in eleven Series as follows: the JNL/First Trust The
Dow(SM) Target 5 Series, the JNL/First Trust The Dow(SM) Target 10 Series, the
JNL/First Trust Global Target 15 Series, the JNL/First Trust Target 25 Series,
the JNL/First Trust Target Small Cap Series, the JNL/First Trust Technology
Sector Series, the JNL/First Trust Pharmaceutical/Healthcare Sector Series, the
JNL/First Trust Financial Sector Series, the JNL/First Trust Energy Sector
Series, the JNL/First Trust Leading Brands Sector Series and the JNL/First Trust
Communications Sector Series. Each of the Series has distinct investment
objectives and policies. (See "Investment Objectives and Policies.") Additional
Series may be added to the Fund in the future. This Prospectus will be
supplemented or amended to reflect the addition of any new Series.
This summary, which provides basic information about the Series and the Fund, is
qualified in its entirety by reference to the more detailed information provided
elsewhere in this Prospectus and in the Statement of Additional Information.
Investment Adviser and Sub-Adviser
Subject to the authority of the Board of Managers of the Fund, Jackson National
Financial Services, LLC ("JNFSLLC") serves as the Fund's investment adviser and
has responsibility for the overall management of the investment strategies and
policies of the Series. JNFSLLC has engaged First Trust Advisors L.P. ("First
Trust") to serve as sub-adviser to each of the eleven Series of the Fund.
For additional information concerning JNFSLLC and First Trust, including a
description of advisory and sub-advisory fees, see "Management of the Fund."
The Series
The eleven Series of the Fund are comprised of two groups - Target Series and
Sector Series.
Target Series
The Target Series are: JNL/First Trust The Dow(SM) Target 5 Series, JNL/First
Trust The Dow(SM) Target 10 Series, JNL/First Trust Global Target 15 Series,
JNL/First Trust Target 25 Series and JNL/First Trust Target Small Cap Series.
The investment objective of each of these Series is to provide an above- average
total return. Each Series seeks to achieve its stated objective by investing in
common stocks issued by companies which provide income and are considered to
have the potential for capital appreciation.
Sector Series
The Sector Series are: JNL/First Trust Technology Sector Series, JNL/First Trust
Pharmaceutical/Healthcare Sector Series, JNL/First Trust Financial Sector
Series, JNL/First Trust Energy Sector Series, JNL/First Trust Leading Brands
Sector Series and JNL/ First Trust Communications Sector Series. The investment
objective of each Series is to provide for potential capital appreciation by
investing the Series' portfolios in common stocks of companies represented by
each Series' specific sector or investment focus. Each Series consists of
different issues of equity securities which are listed on a ational securities
exchange or the Nasdaq Stock Market or traded in the over- the-counter market.
The investment objectives, policies and practices of the Target Series and the
Sector Series are not fundamental and may be changed by the Board of Managers
without the approval of a majority of the outstanding voting interests of each
Series. Certain investment restrictions are fundamental and may not be changed
without approval of the interest holders. A complete list of such restrictions
is contained in the Statement of Additional Information. There is no assurance
that a Series will meet its stated objective.
Investment Risks
Each Series invests in securities that fluctuate in value, and investors should
expect each Series' net asset value per interest to fluctuate. Certain Series
may invest in stocks that may be traded in the over-the-counter market. Some of
these securities may not be as liquid as exchange-listed stocks. In addition,
certain Series may invest in the securities of small capitalization companies
which may experience greater price volatility than investment companies that
invest primarily in more established, larger capitalized companies.
Investments by a Series in foreign securities may be affected by adverse
political, diplomatic, and economic developments, changes in foreign currency
exchange rates, taxes or other assessments imposed on distributions with respect
to those investments, and other factors affecting foreign investments generally.
Each Series is classified as "non-diversified." As a result, each Series is
limited as to the percentage of its assets which may be invested in the
securities of any one issuer only by its own investment restrictions and by the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended. Since each Series may invest a relatively high percentage of its assets
in a limited number of issuers, each Series may be more susceptible to any
single economic, political or regulatory occurrence and to the financial
conditions of the issuers in which it invests. (See "Risk Factors - Target
Series" and "Risk Factors - Sector Series.")
Purchases and Redemptions
Individual investors may not purchase or redeem shares of the Series directly;
interests may be purchased or redeemed only through variable annuity policies
offered by Jackson National Separate Account-I. See "Investment in Fund
Interests."
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES LOAD IMPOSED ON PURCHASES NONE
MAXIMUM SALES LOAD IMPOSED ON REINVESTED DIVIDENDS NONE
DEFERRED SALES LOAD NONE
REDEMPTION FEES NONE
EXCHANGE FEE NONE
ANNUAL SERIES OPERATING EXPENSES
(As a percentage of average net assets.)
Management
and Total Series
Administrative Other Operating
Fee Expenses* Expenses
---------------------------------------
JNL/First Trust The Dow(SM) Target 5
Series .85% 0% .85%
JNL/First Trust The Dow(SM Target 10
Series .85% 0% .85%
JNL/First Trust Global Target 15 Series .85% 0% .85%
JNL/First Trust Target 25 Series .85% 0% .85%
JNL/First Trust Target Small Cap Series .85% 0% .85%
JNL/First Trust Technology Sector Series .85% 0% .85%
JNL/First Trust Pharmaceutical/
Healthcare Sector Series .85% 0% .85%
JNL/First Trust Financial Sector Series .85% 0% .85%
JNL/First Trust Energy Sector Series .85% 0% .85%
JNL/First Trust Leading Brands Sector
Series .85% 0% .85%
JNL/First Trust Communications Sector
Series .85% 0% .85%
* Estimated Expenses
The Series have not yet commenced operations, so estimated expenses for the
first fiscal year of operation are shown. Actual expenses may be greater or
lesser than those shown.
EXAMPLE:
The following example illustrates the expenses you would incur on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 Year 3 Years
__________________________
JNL/First Trust The Dow(SM) Target 5 Series $____ $____
JNL/First Trust The Dow(SM) Target 10 Series $____ $____
JNL/First Trust Global Target 15 Series $____ $____
JNL/First Trust Target 25 Series $____ $____
JNL/First Trust Target Small Cap Series $____ $____
JNL/First Trust Technology Sector Series $____ $____
JNL/First Trust Pharmaceutical/Healthcare
Sector Series $____ $____
JNL/First Trust Financial Sector Series $____ $____
JNL/First Trust Energy Sector Series $____ $____
JNL/First Trust Leading Brands Sector Series $____ $____
JNL/First Trust Communications Sector Series $____ $____
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly. The example assumes a 5%
annual rate of return pursuant to the requirements of the Securities and
Exchange Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of the Series.
INVESTMENT OBJECTIVES AND POLICIES
Generally (All Series)
Each Series of the Fund has an investment objective or objectives which it
pursues through separate investment policies as described below. While there is
careful selection of portfolio securities and constant supervision by a team of
professional investment managers, there can be no guarantee that the Series'
objectives will be achieved. Because of differences in investment objectives and
policies, as well as acceptable degrees of risk, the performance of a Series may
differ even though more than one Series may utilize the same securities
selection.
The investment objectives and policies set forth in this Prospectus are not
fundamental and may be changed by the Managers without interest holder approval.
Each Series is subject to additional investment policies and restrictions
described in the Statement of Additional Information, some of which are
fundamental and may not be changed without interest holder approval.
Interests of the Fund are sold only to Jackson National Separate Account -I
("Account I") to fund the benefits of variable annuity policies ("Policies")
issued by Jackson National Life Insurance Company ("Jackson National Life").
Account I purchases interests of the Fund in accordance with variable account
allocation instructions received from owners of the Policies. The Fund then uses
the proceeds to buy securities for its Series. JNFSLLC manages the Series from
day to day to accomplish the Fund's investment objectives. Account I, as an
interest holder, has an ownership in the Fund's investments. The Fund also
offers to buy back (redeem) interests of the Fund from Account I at any time at
net asset value.
Diversification
Each of the Series is "non-diversified" for purposes of the Investment Company
Act of 1940, as amended (the "1940 Act") because each invests in the securities
of a limited number of issuers. To the extent that any Series invests more than
5% of its assets in a particular issuer, its exposure to credit risks and/or
market risks associated with that issuer increases.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. Each Series intends to comply with
the diversification requirements currently imposed by the IRS on separate
accounts of insurance companies as a condition of maintaining the tax-deferred
status of variable contracts. More specific information is contained in the
prospectus of Account I.
INVESTMENT OBJECTIVES AND POLICIES - TARGET SERIES
The investment objective of each of the Target Series is to provide an above-
average total return by investing in common stocks issued by companies which
provide income and are considered to have the potential for capital appreciation
(the "Equity Securities"). Each Series seeks to achieve its stated objective
through a combination of capital appreciation and dividend income (except the
JNL/First Trust Target Small Cap Series which seeks to achieve its stated
objective through capital appreciation.) Each Target Series may also invest in
futures, options, warrants and repurchase agreements and may engage in
securities lending.
he JNL/First Trust The Dow(SM) Target 5 Series, the JNL/First Trust The Dow(SM)
Target 10 Series, the JNL/First Trust Target 25 Series and the JNL/First Trust
Target Small Cap Series may be referred to, collectively herein, as the
"Domestic Target Series."
The Equity Securities to be invested in by each Target Series will initially be
chosen on _______________, 1999 ("Initial Stock Selection Date") based on the
criteria described below for each Target Series. These Equity Securities will
then be held by each Series for the 12-month period following the Initial Stock
Selection Date.
JNL/First Trust The Dow(SM) Target 5 Series and JNL/First Trust The Dow(SM)
Target 10 Series
The JNL/First Trust The Dow(SM) Target 5 Series will invest in the common stocks
of the five companies with the lowest per share stock price of the ten companies
in the Dow Jones Industrial Average (SM) (the "Dow") that have the highest
dividend yield as of the close of business on or about the last business day
prior to the beginning of the Series' annual term ("The Dow(SM) Target 5 Series
Annual Stock Selection Date.")
The JNL/First Trust The Dow(SM) Target 10 Series will invest in the common
stocks of the ten companies in the Dow that have the highest dividend yield as
of the close of business on or about the last business day prior to the
beginning of the Series' annual term ("The Dow(SM) Target 10 Series Annual Stock
Selection Date.") These ten companies are popularly known as the "Dogs of the
Dow."
The stocks held in each Series are not expected to reflect the entire Dow index.
The prices of Series interests are not intended to track movements of the Dow.
The Dow consists of thirty stocks selected by Dow Jones & Company, Inc.
(publishers of The Wall Street Journal) as representing American industry and
the broader domestic stock market. (For additional information concerning the
Dow, see "Description of Indices - The Dow Jones Industrial Average.")
JNL/First Trust Global Target 15 Series
The JNL/First Trust Global Target 15 Series will invest in the common stocks of
companies which are components of the Dow, the Financial Times Industrial
Ordinary Share Index ("FT Index") and the Hang Seng Index. The Global Target 15
Series consists of common stocks of the five companies with the lowest per share
stock price of the ten companies in each of the Dow, FT Index and Hong Seng
Index, respectively, that have the highest dividend yield in the respective
index as of the close of business on or about the last business day prior to the
beginning of the Series' annual term ("Global Target 15 Series Annual Stock
Selection Date").
Investors in the Global Target 15 Series should note that an investment in a
portfolio which contains foreign equity securities involves risks in addition to
those normally associated with an investment in a portfolio consisting solely of
domestic equity securities. Also, the reversion of Hong Kong to Chinese control
on July 1, 1997 may adversely affect the Equity Securities of Hong Kong issuers
contained in the Global Target 15 Series.
JNL/First Trust Target 25 Series
The JNL/First Trust Target 25 Series will invest in the common stocks of 25
companies selected from a pre-screened subset of the stocks listed on the New
York Stock Exchange ("NYSE") as of the close of business on or about the last
business day prior to the beginning of the Series' annual term ("Target 25
Series Annual Stock Selection Date").
The Target 25 Series consists of a portfolio of 25 common stocks selected
through the following four-step process (the "Target 25 Strategy") from a pre-
screened subset of the stocks listed on the NYSE as of the Target 25 Series
Initial Stock Selection Date. The first step begins by selecting all the
dividend-paying stocks listed on the NYSE (excluding financial, transportation
and utility stocks, American Depositary Receipts, limited partnerships and any
stock included in the Dow). The second step ranks the stocks from highest to
lowest market capitalization, and the 400 highest market cap stocks are
selected. The third step then ranks the 400 stocks from highest to lowest
dividend yield, and the 75 highest dividend-yielding stocks are chosen. Step
four takes these remaining 75 stocks, discards the 50 highest dividend- yielding
stocks and the remaining 25 stocks are selected for the portfolio. In addition,
companies which, based on publicly available information as of the Target 25
Series Initial Stock Selection Date, are the subject of an announced business
combination which is expected to be concluded within six months of the Initial
Stock Selection Date have been excluded from the Target 25 Series.
JNL/First Trust Target Small Cap Series
The JNL/First Trust Target Small Cap Series will invest in a portfolio of common
stocks of small capitalization ("small cap") companies selected from a
pre-screened subset of the common stocks listed on the NYSE, the American Stock
Exchange ("AMEX") or The Nasdaq Stock Market ("Nasdaq") as of the close of
business on or about the last business day prior to the beginning of the Series'
annual term ("Target Small Cap Series Annual Stock Selection Date").
The Target Small Cap Series consists of a portfolio of 40 common stocks selected
on the Target Small Cap Series Initial Stock Selection Date through the
following six-step process (the "Target Small Cap Strategy"). The first step
selects all U.S. registered corporations which trade on the NYSE, AMEX or Nasdaq
(excluding limited partnerships, American Depositary Receipts and mineral and
oil royalty trusts). The second step selects only those companies which, based
on 1997 dollars, have a market capitalization of between $150 million and $1
billion and whose stock has an average daily dollar trading volume of at least
$500,000. The third step selects those stocks with positive three-year sales
growth. The fourth step selects those stocks whose most recent annual earnings
are positive. The fifth step eliminates any stock whose price has appreciated by
more than 75% in the last 12 months. Finally, from this list the 40 stocks with
the greatest price appreciation in the last 12 months are purchased on a
relative market capitalization basis (highest to lowest) for the Target Small
Cap Series. In each of the above steps, monthly and rolling quarterly data are
used in place of annual figures where possible. In addition, companies which,
based on publicly available information as of the Target Small Cap Series
Initial Stock Selection Date, are the subject of an announced business
combination which is expected to be concluded within six months of the Initial
Stock Selection Date, have been excluded from the Target Small Cap Series.
INVESTMENT STRATEGY - TARGET SERIES
At the Initial Stock Selection Date for each Series, a percentage relationship
among the number of Equity Securities in a Series will be established. When
additional funds are deposited into the Series, additional Equity Securities
will be purchased in such numbers reflecting as nearly as practicable the
percentage relationship of the number of Equity Securities established at the
initial purchase. Sales of Equity Securities by a Series will likewise attempt
to replicate the percentage relationship of Equity Securities. The percentage
relationship among the number of Equity Securities in a Series should therefore
remain stable. However, given the fact that the market price of such Equity
Securities will vary throughout the year, the value of the Equity Securities of
each of the companies as compared to the total assets of the Series will
fluctuate during the year, above and below the proportion established on a Stock
Selection Date. At the Annual Stock Selection Date for each Series, a new
percentage relationship will be established among the number of Equity
Securities for each Series on such date. Thus the Series may or may not hold
Equity Securities of the same companies as the previous year. Any purchase or
sale of additional Equity Securities during the year will duplicate, as nearly
as practicable, the percentage relationship among the number of Equity
Securities as of the Annual Stock Selection Date since the relationship among
the value of the Equity Securities on the date of any subsequent transactions
may be different that the original relationship among their value.
It is generally not possible for Fund management to purchase round lots (usually
100 shares) of stocks in amounts that will precisely duplicate the prescribed
mix of Equity Securities. Also, it usually is impossible for a Series to be 100%
invested in the prescribed mix of Equity Securities at any time. To the extent
that a Series is not fully invested, the interests of variable annuity Policy
owners may be diluted and total return may not directly track the investment
results of the prescribed mix of Equity Securities (i.e., the five stocks held
in the Dow Target 5 Series). To minimize this effect, Fund management will try,
as much as practicable, to maintain a minimum cash position at all times.
Normally, the only cash items held by a Series are amounts expected to be
deducted as expenses and amounts too small to purchase additional round lots of
the Equity Securities.
The Target Series have not been designed so that their prices will parallel or
correlate with movements in the Dow or any other index, and it is not expected
that their prices will do so.
RISK FACTORS - TARGET SERIES
Generally
An investment in a Target Series should be made with an understanding of the
risks associated therewith, including, among other factors, the possible
deterioration of either the financial condition of the issuers or the general
condition of the applicable stock market (which, although being at historically
high levels, have recently experienced substantial volatility and significant
declines), governmental, political, economic and fiscal policies of the
representative countries (especially Hong Kong following the July 1, 1997
reversion to Chinese control) volatile interest rates, economic recession, the
lack of adequate financial information concerning an issuer and exchange control
restrictions impacting foreign issuers.
The Equity Securities selected for certain Target Series (with the exception of
the Target Small Cap Series) generally share attributes that have caused them to
have lower prices or higher yields relative to other stocks in their respective
index or Exchange. The Equity Securities may, for example, be experiencing
financial difficulty, or be out of favor in the market because of weak
performance, poor earnings forecasts or negative publicity; or they may be
reacting to general market cycles. There can be no assurance that the market
factors that caused the relatively low prices and high dividend yields of the
Equity Securities will change, that any negative conditions adversely affecting
the stock prices will not deteriorate, that the dividend rates on the Equity
Securities will be maintained or that share prices will not decline further
during the life of the Series, or that the Equity Securities will continue to be
included in the respective indices or Exchanges.
Investing in stocks with the highest dividend yields amounts to a contrarian
strategy because these shares are often out of favor. Such strategy may be
effective in achieving a Target Series' investment objective because regular
dividends are common for established companies and dividends have often
accounted for a substantial portion of the total return on stocks of the index
as a group. However, there is no guarantee that either a Series' objective will
be achieved or that a Series will provide for capital appreciation in excess of
such Series' expenses. Because of the contrarian nature of the Target Series and
the attributes of the common stocks which caused inclusion in the portfolio, the
Series may not be appropriate for investors seeking either preservation of
capital or high current income.
Equity Securities from time to time may be sold under certain circumstances
described herein. Equity Securities, however, will not be sold by a Series to
take advantage of market fluctuations or changes in anticipated rates of
appreciation or depreciation or if the Equity Securities no longer meet the
criteria by which they were selected for a Series. However, Equity Securities
will be sold on or about each Annual Stock Selection Date in accordance with the
stock selection strategy.
Whether or not the Equity Securities are listed on a securities exchange, the
principal trading market for the Equity Securities may be in the over-the-
counter market. As a result, the existence of a liquid trading market for the
Equity Securities may depend on whether dealers will make a market in the Equity
Securities. There can be no assurance that a market will be made for any of the
Equity Securities, that any market for the Equity Securities will be maintained
or that there will be sufficient liquidity of the Equity Securities in any
markets made. The price at which the Equity Securities may be sold to meet
transfers, partial withdrawals or surrenders and the value of a Series will be
adversely affected if trading markets for the Equity Securities are limited or
absent.
Investors should be aware of certain other considerations before making a
decision to invest in a Series. The value of common stocks is subject to market
fluctuations for as long as the common stocks remain outstanding, and thus, the
value of the Equity Securities will fluctuate over the life of a Series and may
be more or less than the price at which they were purchased by such Series. The
Equity Securities may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting these
securities, including the impact of the Series' purchase and sale of the Equity
Securities and other factors.
An investment in a Target Series should be made with an understanding of the
risks which an investment in common stocks entails. The Series may not be
appropriate investments for those who are unable or unwilling to assume the
risks involved generally with any equity investment. In general, the value of
your investment will decline if the financial condition of the issuers of the
common stocks becomes impaired or if the general condition of the relevant stock
market worsens. Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value, as market confidence
in and perceptions of the issuers change. These perceptions are based on
unpredictable factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion
or contraction, and global or regional political, economic or banking crises. In
addition, due to the objective nature of the investment selection criteria, the
Series may be for certain periods considered concentrated in various industries.
Neither JNFSLLC nor First Trust can predict the direction or scope of any of
these factors. Common stocks have generally inferior rights to receive payments
from the issuer in comparison with the rights of creditors of, or holders of
debt obligations or preferred stocks issued by, the issuer. Moreover, common
stocks do not represent an obligation of the issuer and therefore do not offer
any assurance of income or provide the degree of protection of capital provided
by debt securities. Each Target Series is not actively managed and Equity
Securities will not be sold to take advantage of market fluctuations or changes
in anticipated rates of appreciation. Each strategy has underperformed the Dow
in recent years.
Neither JNFSLLC nor First Trust shall be liable in any way for any default,
failure or defect in any Equity Security.
Small Capitalization Companies
Certain or all of the Equity Securities in the Target Small Cap Series and the
Target 25 Series may be small cap company stocks. While, historically, small cap
company stocks have outperformed the stocks of large companies, the former have
customarily involved more investment risk as well. Small cap companies may have
limited product lines, markets or financial resources; may lack management depth
or experience; and may be more vulnerable to adverse general market or economic
developments than large companies. Some of these companies may distribute, sell
or produce products which have recently been brought to market and may be
dependent on key personnel.
The prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information. Also, because small cap companies normally have fewer shares
outstanding and these shares trade less frequently than large companies, it may
be more difficult for the Series which contain these Equity Securities to buy
and sell significant amounts of such shares without an unfavorable impact on
prevailing market prices.
Lack of Diversification
The Target Series are not diversified. This can expose each Series to
potentially greater market fluctuations than might be experienced by a
diversified fund. An investment in The Dow(SM) Target 5 Series may subject an
investor to additional risk due to the relative lack of diversity in its
portfolio since the portfolio contains only five stocks. Therefore, The Dow(SM)
Target 5 Series may be subject to greater market risk than other Series which
may contain a more diversified portfolio of securities. The Target Series are
not designed to be a complete investment program for an investor. Variable
annuity Policy owners, in light of their own financial situations and goals,
should consider other additional funding options in order to diversify the
allocations of their Policy assets.
Year 2000
There is concern that some computer systems used today are unable to process and
calculate date-related information because they are not programmed to
distinguish between the year 2000 and the year 1900. This is commonly known as
the "Year 2000 Problem."
The Fund relies entirely on outside service providers for the processing of its
business. To the extent that a service provider utilizes computers to process
the Fund's business, the smooth operation of the Fund depends on the ability of
those computers to continue to function properly.
The Fund has contacted each of its service providers to ascertain the service
provider's state of readiness for the year 2000. Each of the service providers
has indicated to the Fund that, at this time, it is either Year 2000 compliant
or that it has identified its systems which are not currently Year 2000
compliant and that it intends to make such systems compliant before December 31,
1999. The Fund intends to continue to monitor the Year 2000 status of its
service providers.
Based on the information currently available, the Fund does not anticipate any
material impact on the delivery of services to and by the Fund. However, since
the Fund must rely on the information provided to it by its service providers,
there can be no assurance that the steps taken by the service providers in
preparation for the Year 2000 will be sufficient to avoid any adverse impact on
the Fund.
The Year 2000 Problem is expected to impact corporations, which may involve
issuers of the Equity Securities contained in the Target Series, to varying
degrees based upon various factors, including, but not limited to, their
industry sector and degree of technological sophistication. Neither JNFSLLC nor
First Trust is able to predict what impact, if any, the Year 2000 Problem will
have on issuers of the Equity Securities contained in the Series.
Litigation
Certain of the issuers of Equity Securities in certain Series may be involved in
the manufacture, distribution and sale of tobacco products. Pending litigation
proceedings against such issuers in the United States and abroad cover a wide
range of matters including product liability and consumer protection. Damages
claimed in such litigation alleging personal injury (both individual and class
actions), and in health cost recovery cases brought by governments, labor unions
and similar entities seeking reimbursement for health care expenditures,
aggregate many billions of dollars.
In June 1997, companies in the U.S. tobacco industry entered into a negotiated
settlement which would result in the resolution of significant litigation and
regulatory issues affecting the tobacco industry generally. The proposed
settlement, while extremely costly to the tobacco industry, would significantly
reduce uncertainties facing the industry and increase stability in business and
capital markets. However, legislation pending or proposed in the United States
Congress threatens this negotiated settlement, substantially changing many
aspects of it and increasing the uncertainty surrounding the proposed resolution
of issues. This legislation could adversely affect the value, operating revenues
and financial position of tobacco companies. The Fund is unable to predict the
outcome of litigation pending against tobacco companies or how the current
uncertainty concerning regulatory and legislative measures will ultimately be
resolved. These and other possible developments may have a significant impact
upon the price of such Equity Securities and the value of the Series containing
such Equity Securities.
To the best of JNFSLLC's knowledge, other than tobacco litigation, there is no
litigation pending as of the date of the Prospectus with respect to any Equity
Security which might reasonably be expected to have a material adverse effect on
the Series. At any time after the date of the Prospectus, litigation may be
instituted on a variety of grounds with respect to the Equity Securities.
JNFSLLC is unable to predict whether any such litigation will be instituted, or
if instituted, whether such litigation might have a material adverse effect on
the Series.
Legislation
At any time after the date of the Prospectus, legislation may be enacted that
could negatively affect the Equity Securities in the Series or the issuers of
the Equity Securities. Changing approaches to regulation, particularly with
respect to the environment or with respect to the petroleum industry, may have a
negative impact on certain companies represented in the Series. There can be no
assurance that future legislation, regulation or deregulation will not have a
material adverse effect on the Series or will not impair the ability of the
issuers of the Equity Securities to achieve their business goals.
Foreign Securities
Since certain of the Equity Securities included in the Global Target 15 Series
consist of common stocks of foreign issuers, an investment in such Series
involves certain investment risks that are different in some respects from an
investment in a Series which invests entirely in common stocks of domestic
issuers. These investment risks include the possible imposition of future
political or governmental restrictions which might adversely affect the payment
or receipt of dividends on the relevant Equity Securities, the possibility that
the financial condition of the issuers of the Equity Securities may become
impaired or that the general condition of the relevant stock market may
deteriorate, the limited liquidity and relatively small market capitalization of
the relevant securities market, the imposition of expropriation or confiscatory
taxation, economic uncertainties, the lack of the quantity and quality of
publicly available information concerning the foreign issuers as such issuers
are generally not subject to the same reporting and accounting requirements as
domestic issuers, and the effect of foreign currency devaluations and
fluctuations on the value of the common stocks and dividends of foreign issuers
in terms of U.S. dollars. In addition, fixed brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher than in
the United States and there is generally less government supervision and
regulation of exchanges, brokers and issuers in foreign countries than there is
in the United States.
On the basis of the best information available to First Trust at the present
time, none of the Equity Securities in the Global Target 15 Series are subject
to exchange control restrictions under existing law which would materially
interfere with payment to such Series of dividends due on, or proceeds from the
sale of, the Foreign Equity Securities. The adoption of such restrictions or
other legal restrictions could adversely impact the marketability of the Foreign
Equity Securities and may impair the ability of such Series to satisfy
redemptions or could cause delays or increase the costs associated with the
purchase and sale of the Foreign Equity Securities.
The purchase and sale of the Foreign Equity Securities will generally be
effected only in foreign securities markets. Although First Trust does not
believe that the Global Target 15 Series will encounter obstacles in acquiring
or disposing of the Foreign Equity Securities, investors should be aware that in
certain situations it may not be possible to purchase or sell a Foreign Equity
Security in a timely manner for any number of reasons, including lack of
liquidity in the relevant market, the unavailability of a seller or purchaser of
the Foreign Equity Securities, and restrictions on such purchases or sales by
reason of federal securities laws or otherwise.
An investment in the Global Target 15 Series will also be subject to the risks
of currency fluctuations associated with investments in foreign Equity
Securities trading in non-U.S. currencies.
More detailed information concerning the risks involved in investing in the
securities of foreign issuers is contained in the Statement of Additional
Information.
DESCRIPTION OF INDICES
The portfolio of the Global Target 15 Series consists of common stocks of the
five companies with the lowest per share stock price of the ten companies in
each of the Dow, FT Index and the Hang Seng Index, respectively, that have the
highest dividend yield in the respective index as of the Domestic Stock
Selection Date in the case of the Dow stocks and the Foreign Stock Selection
Date in the case of the FT Index stocks and Hang Seng Index Stocks.
The yield for each Equity Security contained in a Domestic Target Series (with
the exception of the Target Small Cap Series, for which dividend yield is not a
criterion for stock selection) or listed on the Dow is calculated by annualizing
the last quarterly or semi-annual ordinary dividend declared and dividing the
result by the market value of such Equity Security as of the close of business
on the Domestic Stock Selection Date (or the Target 25 Series Stock Selection
Date in the case of the Target 25 Series). The yield for each Equity Security
listed on the FT Index or the Hang Seng Index is calculated by adding together
the most recent interim and final dividend declared and dividing the result by
the market value of such Equity Security as of the close of business on the
Foreign Stock Selection Date.
"Dow Jones Industrial Average(SM)", "DJIA(SM)", "Dow Industrials(SM)", "Dow
30(SM)," "The Dow(SM)" and "The Dow 10(SM)" are service marks of Dow Jones &
Company, Inc. ("Dow Jones") and have been licensed for use for certain purposes
by First Trust. None of the Series, including, and in particular, The Dow(SM)
Target 5 Series and The Dow(SM) Target 10 Series, are endorsed, sold, or
promoted by Dow Jones, and Dow Jones makes no representation regarding the
advisability of investing in such products.
In addition, the publishers of the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500 Index"), Ibbotson Small-Cap Index, FT Index and the Hang Seng
Index are not affiliated with JNFSLLC or First Trust and have not participated
in the creation of the Series or the selection of the Equity Securities included
therein. There is, of course, no guarantee that the objective of any Series will
be achieved.
Any changes in the components of any of the respective indices or in the
composition of the stocks listed on the NYSE, AMEX or Nasdaq made after the
respective Stock Selection Date will not cause a change in the identity of the
common stocks included in a Series, including any additional Equity Securities
deposited thereafter.
Investors should note that the above criteria were applied and will in the
future be applied to the Equity Securities selected for inclusion in the Series
as of the respective Stock Selection Date. Additional Equity Securities which
were originally selected through this process may be purchased throughout the
year, as investors may continue to invest in the Series, even though the yields
on these Equity Securities may have changed subsequent to the previous Stock
Selection Date. These Equity Securities may no longer be included in the index,
or may not meet a Series' selection criteria at that time, and therefore, such
Equity Securities would no longer be chosen for inclusion in the Series if the
selection process were to be performed again at that time. The Equity Securities
selected and the percentage relationship among the number of shares will not
change for purchases or sales by a Series until the next Annual Stock Selection
Date.
The Dow Jones Industrial Average(SM)
The Dow was first published in The Wall Street Journal in 1896. Initially
consisting of just 12 stocks, the Dow expanded to 20 stocks in 1916 and to its
present size of 30 stocks on October 1, 1928. The stocks are chosen by the
editors of The Wall Street Journal as representative of the broad market and of
American industry. The companies are major factors in their industries and their
stocks are widely held by individuals and institutional investors. Changes in
the components of the Dow are made entirely by the editors of The Wall Street
Journal without consultation with the companies, the stock exchange or any
official agency. For the sake of continuity, changes are made rarely. Most
substitutions have been the result of mergers, but from time to time, changes
may be made to achieve a better representation. The components of the Dow may be
changed at any time for any reason. Any changes in the components of the Dow
made after the Initial Stock Selection Date will not cause a change in the
identity of the Equity Securities involved in a Target Series, including any
Equity Securities deposited in a Target Series, except on an Annual Stock
Selection Date. The following is a list of the companies which currently
comprise the Dow.
AT&T Corporation Hewlett-Packard Co.
Allied Signal International Business Machines Corporation
Aluminum Company of America International Paper Company
American Express Company Johnson & Johnson
Boeing Company McDonald's Corporation
Caterpillar Inc. Merck & Company, Inc.
Chevron Corporation Minnesota Mining & Manufacturing Company
Citigroup J.P. Morgan & Company, Inc.
Coca-Cola Company Philip Morris Companies, Inc.
Walt Disney Company Proctor & Gamble Company
E.I. du Pont de Nemours & Company Sears, Roebuck & Company
Eastman Kodak Company Union Carbide Corporation
Exxon Corporation United Technologies Corporation
General Electric Company Wal-Mart Stores, Inc.
General Motors Corporation
Goodyear Tire & Rubber Company
The Fund is not sponsored, endorsed, sold or promoted by Dow Jones. Dow Jones
makes no representation or warranty, express or implied, to the Fund's interest
holders or any member of the public regarding the advisability of purchasing the
Fund. Dow Jones' only relationship to the Fund, Jackson National Life, JNFSLLC
or First Trust is the licensing of certain copyrights, trademarks, servicemarks
and service names of Dow Jones. Dow Jones has no obligation to take the needs of
Jackson National Life, JNFSLLC, First Trust or variable annuity owners into
consideration in determining, composing or calculating the Dow. Dow Jones is not
responsible for and has not participated in the determination of the terms and
conditions of the Fund, including the pricing of Fund interests or the amount
payable under variable annuity contracts. Dow Jones has no obligation or
liability in connection with the administration or marketing of the Fund or any
variable annuity contracts.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DOW
JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA INCLUDED THEREIN AND DOW JONES SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSION, OR INTERRUPTIONS THEREIN. DOW JONES
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND,
JACKSON NATIONAL LIFE, JNFSLLC, FIRST TRUST OR VARIABLE ANNUITY OWNERS OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE DOW JONES INDUSTRIAL AVERAGE(SM) OR
ANY DATA INCLUDED THEREIN. DOW JONES MAKES NO EXPRESS OR IMPLIED WARRANTIES AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DOW JONES INDUSTRIAL AVERAGE(SM)
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
The Financial Times Industrial Ordinary Share Index
The FT Index began as the Financial News Industrial Ordinary Share Index in
London in 1935 and became the Financial Times Industrial Ordinary Share Index in
1947. The Financial Times Ordinary Index is calculated by FTSE International Ltd
("FTSE") . All copyright in the Index Constituent list vests in FTSE. The FT
Index is comprised of 30 common stocks chosen by the editors of The Financial
Times as representative of the British industry and commerce. This index is an
unweighted average of the share prices of selected companies, which are highly
capitalized, major factors in their industries and their stocks are widely held
by individuals and institutional investors. Changes in the components of the FT
Index are made entirely by the editors of The Financial Times without
consultation with the companies, the stock exchange or any official agency. For
the sake of continuity, changes are made rarely. However, on December 16, 1997
Diageo PLC and Scottish Power PLC replaced Guinness PLC and Grand Metropolitan
PLC. Most substitutions have been the result of mergers or because of poor share
performance, but from time to time, changes may be made to achieve a better
representation. The components of the FT Index may be changed at any time for
any reason. The following stocks are currently represented in the FT Index:
ASDA Group Glaxo Wellcome Plc
Allied Domecq Plc Granada Group Plc
BG Plc Guest Keen & Nettlefolds (GKN) Plc
BOC Group Imperial Chemical Industries Plc
BTR Plc Lloyds TSB Group Plc
Blue Circle Industries Plc Lucas Varity Plc
Boots Company Plc Marks & Spencer Plc
British Airways Plc National Westminster Bank
British Petroleum Plc Peninsular & Oriental Steam Navigation Company
British Telecommunications PLC Reuters Holdings
Cadbury Schweppes Plc Royal & Sun Alliance Insurance Group
Courtaulds Plc Scottish Power Plc
Diageo Plc SmithKline Beecham
EMI Group Plc Tate & Lyle Plc
General Electric Company Plc Vodafone Plc
The Hang Seng Index
The Hang Seng Index was first published in 1969 and presently consists of 33 of
the 358 stocks currently listed on the Stock Exchange of Hong Kong Ltd. (the
"Hong Kong Stock Exchange"), and it includes companies intended to represent
four major market sectors: commerce and industry, finance, properties and
utilities. The Hang Seng Index is a recognized indicator of stock market
performance in Hong Kong. It is computed on an arithmetic basis, weighted by
market capitalization, and is therefore strongly influenced by stocks with large
market capitalizations. The Hang Seng Index represents approximately 70% of the
total market capitalization of the stocks listed on the Hong Kong Stock
Exchange. On January 27, 1998, China Telecom Ltd. and Shanghai Industrial
Holdings Ltd. were added to the Hang Seng Index replacing Shun Tak Holdings Ltd.
and South China Morning Post Holdings Ltd. The Hang Seng Index is currently
comprised of the companies on the following list:
Amoy Properties Ltd. Hong Kong and China Gas
Bank of East Asia Hong Kong Electric Holdings Ltd.
Cathay Pacific Airways Hong Kong & Shanghai Hotels, Limited
Cheung Kong Hong Kong Telecommunications Ltd.
Cheung Kong Infrastructure Holdings Ltd. Hopewell Holdings
China Light & Power Hutchison Whampoa
China Resources Enterprise Ltd. Hysan Development Company Ltd.
China Telecom Ltd. New World Development Co. Ltd.
Citic Pacific Shanghai Industrial Holdings Ltd.
First Pacific Company Ltd. Shangri-La Asia Ltd.
Great Eagle Holdings Ltd. Sino Land Co. Ltd.
Guangdong Investment Sun Hung Kai Properties Ltd.
HSBC Holdings Plc Swire Pacific (A)
Hang Lung Development Company Television Broadcasts
Hang Seng Bank Wharf Holdings Ltd.
Henderson Investment Ltd. Wheelock & Co.
Henderson Land Development Co. Ltd.
Except as previously described, neither the publishers of the S&P 500 Index,
Ibbotson Small-Cap Index, Dow, FT Index nor the Hang Seng Index have granted the
Series or Jackson National Life, JNFSLLC or First Trust a license to use their
respective Index. The Series are not designed so that prices will parallel or
correlate with the movements in any particular index or a combination thereof
and it is expected that their prices will not parallel or correlate with such
movements. The publishers of the S&P 500 Index, Ibbotson Small-Cap Index, Dow,
FT Index and the Hang Seng Index have not participated in any way in the
creation of the Series or in the selection of stocks in the Series and have not
approved any information related thereto.
INVESTMENT OBJECTIVES AND POLICIES - SECTOR SERIES
The investment objective of each of the Sector Series is to provide for
potential capital appreciation by investing each Series' portfolio in common
stocks of companies represented by each Series' specific sector or investment
focus. Each Series will invest in different issues of equity securities which
are listed on a national securities exchange or The Nasdaq Stock Market or
traded in the over-the-counter markets ("Equity Securities"). The Sector Series
will be actively managed. Each Sector Series may also invest in futures,
options, warrants and repurchase agreements and may engage in securities
lending. For a discussion of the risks involved in investing in each Series, see
"Risk Factors - Sector Series."
JNL/First Trust Leading Brands Sector Series
The objective of the Leading Brands Sector Series is to provide investors with
the potential for above-average capital appreciation through an investment in a
diversified portfolio of common stocks of companies considered to be leaders in
their industries.
The Series consists of a portfolio of companies involved in the consumer goods
industry. This type of diversification can help offset risk, although it does
not eliminate it entirely. Furthermore, to achieve this type of diversification
on your own would require substantial time and capital commitments.
Almost every American is familiar with brand name companies like "Coca-Cola,"
"Walt Disney," "Gillette" and "McDonalds." They are household names, and their
products can be found in almost every home across the country. Increasingly,
such companies are becoming household names overseas as well. Many of these
companies already have a strong presence in international markets; and they
stand to benefit even more from the increasing demands of growing populations,
rising standards of living, more relaxed foreign trade agreements, and improved
political climates in many countries around the world. In addition, leading
brands companies have large advertising budgets, as well as strong research and
development areas which enable them to further expand into new markets.
Furthermore, these companies have strong financial positions and market
dominance, competitive advantages, skilled management, and essential products
and services. Generally, consumer goods companies with these attributes perform
strongly, even during uncertain economic times.
In general, First Trust believes these companies have above-average growth
prospects for sales and earnings, established market shares for their products
and services, and lower than average debt.
JNL/First Trust Communications Sector Series
The objective of the Communications Sector Series is to provide investors with
potential for above-average capital appreciation through an investment in a
diversified portfolio of common stocks of communications companies which First
Trust believes are positioned to take advantage of the convergence of many types
of communications around the world. The Series' portfolio is diversified across
domestic and international companies involved in cable television, computer
networking, communications equipment, communications services and wireless
communications. A diversified portfolio helps to offset the risks normally
associated with such an investment, although it does not eliminate them
entirely. The companies selected for the Series have been researched and
evaluated using database screening techniques, fundamental analysis and the
judgment of First Trust's research analysts. In general, First Trust believes
these companies have above-average growth prospects for sales and earnings,
established market shares for their services and lower- than-average levels of
debt.
In First Trust's opinion, the communications industry is expected to benefit
from the convergence of a variety of industries including entertainment, media
and publishing. Companies well-positioned within the communications industry are
poised for both increased revenue and earnings growth potential over the next
several years. The Telecommunications Act of 1996 broke down many regulatory
barriers in the United States, making it possible for companies once precluded
from offering multiple communication services to do so now. Cable television
companies, for instance, can now offer telephone services while telephone
companies can offer video services. Increased competition and opportunities will
arise as telephone companies are able to offer both long- distance and local
services. Foreign markets are opening at a rapid pace. In fact, 69 countries
representing more than 90% of world telecommunications revenue recently signed
an agreement to move to deregulation and privatization. This worldwide
deregulation is likely to accelerate global demand for communications services.
Due to the fast pace of technological advances, domestic and global demand for
communications services and equipment is increasing. Recent advances, such as
wireless phones, fiber optics and the Internet, are allowing businesses,
individuals and governments greater access to a variety of communications
services at lower costs. This increased access, in turn, is fueling the demand
for products from manufacturers of communications equipment and computer
networks. In addition, future technological advances will only serve to further
reduce communications- related costs and to stimulate demand.
JNL/First Trust Energy Sector Series
The objective of the Energy Sector Series is to provide investors with the
potential for above-average capital appreciation through an investment in a
diversified portfolio of common stocks of energy companies which First Trust
believes are positioned to take advantage of the world's increasing demand for
energy. The Series' portfolio will be diversified across many energy sectors,
including integrated oil, oil field services and equipment, oil and gas
production, and natural gas. The companies selected for the Series have been
researched and evaluated using database screening techniques, fundamental
analysis and the judgment of First Trust's research analysts. To help reduce
risk, the Series avoids small companies, newly-issued stocks and stocks with
little or no earnings. In general, First Trust believes the companies selected
for the Series have above-average growth prospects for both sales and earnings
and lower-than-average levels of debt.
Worldwide demand for energy continues to increase daily, driven primarily by the
rapid developments in newly-industrialized countries in Asia, Eastern Europe and
Latin America. Energy prices are expected to rise by decade's end because
currently energy supplies are being drained by the world's demands for energy.
By the year 2020, it is projected that the world will consume three times as
much energy as it did 25 years ago. Most of the added consumption is attributed
to the developing countries of Asia, where it is estimated that their
consumption will exceed all of North America by 36% in the year 2020. Industry
overcapacity and declining energy prices in the 1980s forced energy companies to
become more competitive under difficult conditions. As a result, energy
companies have greatly improved their operating efficiencies through cost
cutting, consolidation and new technologies as discussed below:
* Consolidation and the divestiture of non-core assets has reduced industry
capacity and allowed companies to focus on their core operations.
* New technologies are expected to lead to the discovery of additional energy
reserves and lower the cost of developing these reserves. Given these
measures, energy companies are positioned for significantly improved
profitability when energy prices increase, as analysts expect.
JNL/First Trust Financial Sector Series
The objective of the Financial Sector Series is to provide for the potential for
above-average capital appreciation through an investment in a diversified
portfolio of common stocks of companies which are money center banks, major
regional banks, financial and investment service providers and insurance
companies. The companies selected for the Series have been researched and
evaluated using database screening techniques, fundamental analysis and the
judgment of First Trust's research analysts. To help reduce risk, the Series
avoids small companies, newly-issued stocks and stocks with little or no
earnings.
The financial services industry continues to evolve as banks and insurers expand
their businesses through innovative products and services. First Trust believes
the companies in the Series are ideally positioned to benefit from the rapid
changes in this industry. The following factors support the positive outlook for
financial services companies:
* The banking, financial services and insurance industries continue to
experience significant consolidation.
* Given their high level of profitability and earnings growth, the companies
included in the portfolio trade at attractive valuation levels relative to
the S&P 500 and their historic trading range.
* Baby boomers are becoming heirs and heiresses. Some studies indicate that
more than $1 trillion may transfer from one American generation to another
before the year 2000.
* Liquid financial assets of U.S. households rose to over $10.9 billion in
1995.
It is important to note that the financial institutions industry is subject to
the adverse effect of volatile interest rates, economic recession, increased
competition from new entrants in the field and potential increased regulation.
JNL/First Trust Pharmaceutical/Healthcare Sector Series
The objective of the Pharmaceutical/Healthcare Sector Series is to provide
investors with the potential for above-average capital appreciation through an
investment in a diversified portfolio of common stocks issued by pharmaceutical
and/or healthcare companies. The companies selected for the Series have
been researched and evaluated using database screening techniques,
fundamental analysis, and the judgment of First Trust's research analysts.
The pharmaceutical industry continues to evolve, and as a result, pharmaceutical
companies need to keep pace with this constant change, in order to be
successful. First Trust believes that the companies selected for the Series are
leaders within this dynamic industry and are ideally positioned for growth.
Several factors support this belief. First, in 1998, pharmaceutical companies
are expected to spend 19.6% of their domestic revenues on the research and
development of new medications. Research-based pharmaceutical companies continue
to invest record-setting amounts on research and development. Spending in this
area is expected to increase by 10.7% in 1998 to a new record level of $20.6
billion. Second, as in many other industries, consolidation and cost cutting
have resulted in more stabilized profit margins. Finally companies are improving
unit volume growth by working more closely with managed care providers who
frequently see pharmaceuticals as a cost-effective alternative to other more
expensive treatments.
It is important to note that companies engaged in the pharmaceutical industry
are subject to fierce competition, stringent government regulation and the risk
that their products and services are subject to rapid obsolescence. First Trust
believes this above-average level of risk and volatility is more than offset by
the potential for above-average returns.
JNL/First Trust Technology Sector Series
The objective of the Technology Sector Series is to provide investors with the
potential for above-average capital appreciation through an investment in a
diversified portfolio of common stocks issued by companies involved in
computers, computer networking, software, semiconductor equipment and
semiconductors. To help reduce high risk, the Series avoids small market
capitalization stocks, newly-issued stocks and stocks with little or no
earnings. The companies will generally have market capitalizations of at
least $500 million and have been publicly traded for two years or more.
The technology industry is among the fastest growing and fastest changing
industries in the world. First Trust believes that the industry will continue to
grow and the companies selected for the Series have above-average growth
prospects. The companies selected for the Series have been researched and
evaluated using database screening techniques, fundamental analysis, and the
judgment of First Trust's research analysts.
Technology companies continue to make advancements. In the last several years,
the development and/or improvement of personal computers, fax machines, cellular
phones, online data services and Internet-related products and services has led
to tremendous growth in technology companies. Corporations continue to invest in
technology to enhance their productivity and to keep ahead of the competition.
In addition, consumer demand continues to increase as education and
entertainment technology becomes more affordable and accessible.
It is important to note that companies engaged in the technology industry are
subject to fierce competition and their products and services may be subject to
rapid obsolescence. First Trust believes the above-average levels of risk and
volatility in technology stocks are more than offset by the potential for
above-average returns.
RISK FACTORS - SECTOR SERIES
Generally
An investment in a Series should be made with an understanding of the risks
which an investment in common stocks entails, including the risk that the
financial condition of the issuers of the Equity Securities or the general
condition of the common stock market may worsen and the value of the Equity
Securities and therefore the value of the Series may decline. The past market
and earnings performance of any of the Equity Securities included in the Series
is not predictive of their future performance. Common stocks are especially
susceptible to general stock market movements and to volatile increases and
decreases of value as market confidence in and perceptions of the issuers
change. These perceptions are based on unpredictable factors including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global or
regional political economic or banking crises. Shareholders of common stocks
have rights to receive payments from the issuers of those common stocks that are
generally subordinate to those of creditors of, or holders of debt obligations
or preferred stocks of, such issuers. Shareholders of common stocks of the type
held by a Series have a right to receive dividends only when and if, and in the
amounts, declared by the issuer's board of directors and have a right to
participate in amounts available for distribution by the issuer only after all
other claims on the issuer have been paid or provided for. Common stocks do not
represent an obligation of the issuer and, therefore, do not offer any assurance
of income or provide the same degree of protection of capital as do debt
securities. The issuance of additional debt securities or preferred stock will
create prior claims for payment of principal, interest and dividends which could
adversely affect the ability and inclination of the issuer to declare or pay
dividends on its common stock or the rights of holders of common stock with
respect to assets of the issuer upon liquidation or bankruptcy. The value of
common stocks is subject to market fluctuations for as long as the common stocks
remain outstanding, and thus the value of the Equity Securities in the Series
may be expected to fluctuate over the life of a Series to values higher or lower
than those prevailing on the Initial Date of Deposit.
Holders of common stocks incur more risk than holders of preferred stocks and
debt obligations because common stockholders, as owners of the entity, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors of, or holders of debt obligations or preferred stocks
issued by, the issuer. Cumulative preferred stock dividends must be paid before
common stock dividends and any cumulative preferred stock dividend omitted is
added to future dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on liquidation
which are senior to those of common stockholders.
Foreign Securities
Certain of the Equity Securities in one or more of the Series are of foreign
issuers and therefore, an investment in such a Series involves some investment
risks that are different in some respects from an investment in a Series that
invests entirely in securities of domestic issuers. Those investment risks
included future political and governmental restrictions which might adversely
affect the payment or receipt of payment of dividends on the relevant Equity
Securities, currency exchange rate fluctuations, exchange control policies, and
the limited liquidity and small market capitalization of such foreign countries'
securities markets. In addition, for foreign issuers that are not subject to the
reporting requirements of the Securities Exchange Act of 1934, there may be less
publicly available information than is available from a domestic issuer. Also,
foreign issuers are not necessarily subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic issuers. However, due to the nature of the issuers of the
Equity Securities included in the Series, First Trust believes that adequate
information will be available to allow it to provide portfolio surveillance.
Certain of the Equity Securities in one or more of the Series are in ADR or GDR
form. ADRs, which evidence American Depositary Receipts and GDRs, which evidence
Global Depositary Receipts, represent common stock deposited with a custodian in
a depositary. American Depositary Shares and Global Depositary Shares
(collectively, the "Depositary Receipts") are issued by a bank or trust company
to evidence ownership of underlying securities issued by a foreign corporation.
These instruments may not necessarily be denominated in the same currency as the
securities into which they may be converted. For purposes of the discussion
herein, the terms ADR and GDR generally include American Depositary Shares and
Global Depositary Shares, respectively.
Depositary Receipts may be sponsored or unsponsored. In an unsponsored facility,
the depositary initiates and arranges the facility at the request of market
makers and acts as agent for the Depositary Receipts holder, while the company
itself is not involved in the transaction. In a sponsored facility, the issuing
company initiates the facility and agrees to pay certain administrative and
shareholder-related expenses. Sponsored facilities use a single depositary and
entail a contractual relationship between the issuer, the shareholder and the
depositary; unsponsored facilities involve several depositaries with no
contractual relationship to the company. The depositary bank that issues
Depositary Receipts generally charges a fee, based on the price of the
Depositary Receipts, upon issuance and cancellation of the Depositary Receipts.
This fee would be in addition to the brokerage commissions paid upon the
acquisition or surrender of the security. In addition, the depositary bank
incurs expenses in connection with the conversion of dividends or other cash
distributions paid in local currency into U.S. dollars and such expenses are
deducted from the amount of the dividend or distribution paid to holders,
resulting in a lower payout per underlying share represented by the Depositary
Receipts than would be the case if the underlying share were held directly.
Certain tax considerations, including tax rate differentials and withholding
requirements, arising from applications of the tax laws of one nation to
nationals of another and from certain practices in the Depositary Receipts
market may also exist with respect to certain Depositary Receipts. In varying
degrees, any or all of these factors may affect the value of the Depositary
Receipts compared with the value of the underlying shares in the local market.
In addition, the rights of holders of Depositary Receipts may be different than
those of holders of the underlying shares, and the market for Depositary
Receipts may be less liquid than that for the underlying shares. Depositary
Receipts are registered securities pursuant to the Securities Act of 1933 and
may be subject to the reporting requirements of the Securities Exchange Act of
1934.
For the Equity Securities that are Depositary Receipts, currency fluctuations
will affect the U.S. dollar equivalent of the local currency price of the
underlying domestic shares and, as a result, are likely to affect the value of
the Depositary Receipts and consequently the value of the Equity Securities. The
foreign issuers of securities that are Depositary Receipts may pay dividends in
foreign currencies which must be converted into dollars. Most foreign currencies
have fluctuated widely in value against the United States dollar for many
reasons, including supply and demand of the respective currency, the soundness
of the world economy and the strength of the respective economy as compared to
the economies of the United States and other countries. Therefore, for any
securities of issuers (whether or not they are in Depositary Receipt form) whose
earnings are stated in foreign currencies, or which pay dividends in foreign
currencies or which are traded in foreign currencies, there is a risk that their
United States dollar value will vary with fluctuations in the United States
dollar foreign exchange rates for the relevant currencies.
Other Risks
There are certain risk factors described under "Risk Factors - Target Series"
which are equally applicable to the Sector Series. Please refer to that section
of the Prospectus for a discussion of these risk factors which are found under
the headings "Lack of Diversification", "Year 2000", "Litigation" and
"Legislation".
Sector-Specific Risks
A discussion of sector-specific risks is contained in the Statement of
Additional Information.
MANAGEMENT OF THE FUND
Investment Adviser
The management of the business and affairs of the Fund is the responsibility of
the Board of Managers of the Fund.
Jackson National Financial Services, LLC ("JNFSLLC"), 5901 Executive Drive,
Lansing, Michigan 48911, is the investment adviser to the Fund and provides the
Fund with professional investment supervision and management. JNFSLLC is a
wholly owned subsidiary of Jackson National Life, which is in turn wholly owned
by Prudential Corporation plc, a life insurance company in the United Kingdom.
JNFSLLC has selected First Trust Advisors L.P. as sub-adviser to manage the
investment and reinvestment of the assets of the Series of the Fund. JNFSLLC
monitors the compliance of such sub-adviser with the investment objectives and
related policies of each Series and reviews the performance of such sub- adviser
and reports periodically on such performance to the Board of Managers of the
Fund.
As compensation for its services, JNFSLLC receives a fee from the Fund computed
separately for each Series. The fee for each Series is stated as an annual
percentage of the net assets of the Series. The fees, which are accrued daily
and payable monthly, are calculated on the basis of the average net assets of
each Series. Once the average net assets of a Series exceed specified amounts,
the fee is reduced with respect to such excess.
Each Series is obligated to pay JNFSLLC the following fees (the fee percentages
are identical for each Series):
Assets Fees
$0 to $500 million .75%
$500 million to $1 billion .70%
Over $1 billion .65%
Investment Sub-Adviser
First Trust Advisors L.P. ("First Trust"), an Illinois limited partnership
formed in 1991 and an investment adviser registered with the SEC under the
Investment Advisers Act of 1940, is the sub-adviser for each Series of the Fund.
First Trust's address is 1001 Warrenville Road, Lisle, Illinois 60532. First
Trust is a limited partnership with one limited partner, Grace Partners of
Dupage L.P., and one general partner, Nike Securities Corporation. Grace
Partners of Dupage L.P. is a limited partnership with one general partner, Nike
Securities Corporation, and a number of limited partner. Nike Securities
Corporation is an Illinois corporation controlled by Robert Donald Van Kampen.
Pursuant to a Sub- Advisory Agreement with JNFSLLC, First Trust is responsible
for selecting the investments of each Series consistent with the investment
objectives and policies of that Series, and will conduct securities trading for
the Series. First Trust discharges its responsibilities subject to the policies
of the Board of Managers of the Fund and the oversight and supervision of
JNFSLLC, which pays First Trust's sub-advisory fees.
As of the date of this Prospectus, the Series have not commenced investment
operations. However, First Trust is also the portfolio supervisor of certain
unit investment trusts sponsored by Nike Securities L.P. ("Nike Securities")
which are substantially similar to the Target Series in that they have the same
investment objectives as the Series but have a life of approximately one year.
Nike Securities specializes in the underwriting, trading and distribution of
unit investment trusts and other securities. Nike Securities, an Illinois
limited partnership formed in 1991, acts as sponsor for successive series of The
First Trust Combined Series, The First Trust Special Situations Trust, the First
Trust Insured Corporate Trust, The First Trust of Insured Municipal Bonds and
the First Trust GNMA. First Trust introduced the first insured unit investment
trust in 1974 and to date more than $11 billion in First Trust unit investment
trusts have been deposited.
There is no one individual primarily responsible for portfolio management
decisions for the Series. Investments are made according to the prescribed
strategy under the direction of a committee.
Under the terms of the Sub-Advisory Agreement, First Trust manages the
investment and reinvestment of the assets of each Series, subject to the
supervision of the Board of Managers of the Fund. First Trust formulates a
continuous investment program for each such Series consistent with its
investment objectives and policies outlined in this Prospectus. First Trust
implements such programs by purchases and sales of securities and regularly
reports to JNFSLLC and the Board of Managers of the Fund with respect to the
implementation of such programs.
As compensation for its services, First Trust receives fees from JNFSLLC
computed separately for each Series. The fee for each Series is stated as an
annual percentage of the net assets of such Series. The fees are calculated
based on the average net assets of each Series. Once the average net assets of a
Series exceed specified amounts, the fee is reduced with respect to such excess.
JNFSLLC is obligated to pay First Trust out of the advisory fee it receives from
each Series the following fees (the fee percentages are identical for each
Series):
Assets Fees
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
Administrative Fee
In addition to the investment advisory fee, each Series pays to JNFSLLC an
Administrative Fee of .10% of the average daily net assets of the Series. In
return for the fee, JNFSLLC provides or procures all necessary administrative
functions and services for the operation of the Series. In addition, JNFSLLC, at
its own expense, arranges for legal, audit, fund accounting, custody, printing
and mailing, and all other services necessary for the operation of each Series.
Each Series is responsible for trading expenses including brokerage commissions,
interest and taxes, and other non-operating expenses.
INVESTMENT IN FUND INTERESTS
Jackson National Life purchases the interests of the Series at their net asset
value using premiums received on Policies issued by Account I. Account I is
funded by interests of the Fund. There is no sales charge. All interests are
sold at net asset value.
The net asset value per interest of each Series is determined at the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
time) each day that the New York Stock Exchange is open. The net asset value per
interest is calculated by adding the value of all securities and other assets of
a Series, deducting its liabilities, and dividing by the number of interests
outstanding.
Interests of the Fund are sold only to Account I to fund the benefits under
variable annuity Policies.
All investments in the Fund are credited to the interest holder's account in the
form of full and fractional interests of the designated Series (rounded to the
nearest 1/1000 of a share). The Fund does not issue interest certificates.
INTEREST REDEMPTION
Account I redeems interests to make benefit or surrender payments under the
terms of its Policies. Redemptions are processed on any day on which the Fund is
open or business and are effected at net asset value next determined after the
redemption order, in proper form, is received by the Fund's transfer agent.
The Fund may suspend the right of redemption only under the following unusual
circumstances:
* when the New York Stock Exchange is closed (other than weekends and
holidays) or trading is restricted;
* when an emergency exists, making disposal of portfolio securities or the
valuation of net assets not reasonably practicable; or
* during any period when the SEC has by order permitted a suspension of
redemption for the protection of interest holders.
ADDITIONAL INFORMATION
Fund Organization
The Fund is organized as a Delaware limited liability company. Its Board of
Managers is responsible for the Fund's overall management and direction. The
Board elects the Fund's officers. The Board approves all significant agreements
including those with the investment adviser, sub-adviser, custodian and fund
accounting agent. Board members are elected by owners of Fund interests.
Under Delaware law, a limited liability company does not issue shares of stock.
Instead, ownership rights are contained in "membership interests". Each Fund
interest represents an undivided interest in the Equity Securities held in a
Series' portfolio. The Fund is not offered directly to the public. The only
direct owner is Account I, the sole member of the Fund. Account I's variable
annuity owners who have Policy values allocated to any of the Fund's Series have
indirect beneficial rights in the Fund's interests.
Voting Rights
All Fund interests have equal voting rights. However, only interests of a
particular Series are entitled to vote on matters affecting only that Series.
Each issued and outstanding Fund interest is entitled to one vote and to
participate equally in dividends and distributions declared by its corresponding
Series, and in the net assets of the Series remaining upon liquidation or
dissolution after outstanding liabilities are satisfied. The interests of each
Series, when issued, are fully paid and non-assessable. They have no pre-
emptive, conversion, cumulative dividend or similar rights. They are freely
transferable. Fund interests do not have cumulative rights. This means that
owners of more than half of the Fund's interests voting for election of Managers
can elect all the Managers if they so choose. Then, the remaining interest
owners would not be able to elect any Managers.
Fund interests held in connection with Account I are voted by Jackson National
Life in accordance with instructions received from the owners of variable
annuity Policies issued in connection with Account I.
Series Transactions
The Fund's portfolio transactions are executed through brokers who are
considered by First Trust as able to provide execution at the most favorable
prices and in the most effective manner. Portfolio security transactions may be
executed through brokers who are affiliated with the Fund, JNFSLLC or First
Trust. In addition, brokers may be selected taking into account such brokers'
assistance in the purchase of variable annuity Policies funded by the Fund
(although such assistance or absence thereof is neither a qualifying nor a
disqualifying factor in such selection). See the Statement of Additional
Information for more detailed information.
Reporting
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Series. The Fund also furnishes periodic
reports and, as necessary, proxy statements to interest holders of record.
Shareholder Inquiries
All inquiries regarding the Fund should be directed to the Fund at the telephone
number or address shown on the cover page of this Prospectus.
PERFORMANCE INFORMATION
The Fund may from time to time advertise several types of historical performance
for the Series. The performance advertised will be based on historical results
and is not intended to indicate future performance. Any charges that are imposed
under a variable annuity Policy that is funded by the Fund will have the effect
of reducing the performance described below. Such charges will be described in
the variable annuity prospectus. If the Fund advertises performance that does
not reflect the effect of charges imposed under a variable annuity Policy, it
will accompany the performance with the applicable performance which does
reflect the effect of such charges.
Each Series may advertise standardized average annual total return, calculated
in a manner prescribed by the Securities and Exchange Commission, and non-
standardized total return. Standardized average annual total return will show
the percentage rate of return of a hypothetical initial investment of $1,000 for
the most recent one, five and ten year periods, or for a period covering the
time the Series has been in existence if the Series has not been in existence
for one of the prescribed periods. Because average annual total returns tend to
smooth out variations in the Series' returns, you should recognize that they are
not the same as actual year-by-year results. Non-standardized total return may
be for periods other than those required to be presented or may otherwise differ
from standardized average annual total return.
Each Series may also advertise yield. Yield, as calculated by each Series,
refers to the annualized income generated by an investment in the Series over a
specified thirty-day period. The yield is calculated by assuming that the income
generated by the investment during that thirty-day period is generated each
thirty-day period over a twelve-month period and is shown as a percentage of the
investment. The yield is an annualized figure, which means that it is assumed
that the Series generates the same level of net income over a 52-week period.
Because yield accounting methods differ from the methods used for financial
reporting and tax accounting purposes, a Series' yield may not equal its
distribution rate, the income paid to an interest holder's account, or the
income reported in the Series' financial statements.
The performance of the Series may be compared to the performance of other mutual
funds or mutual fund indices with similar objectives and policies as reported by
Lipper Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). Lipper and CDA performance calculations are based upon changes in net
asset value with all dividends reinvested and do not include the effect of any
sales charges. The Series' performance may also be compared to that of the
Consumer Price Index or various unmanaged stock and bond indices including, but
not limited to, Salomon Brothers Broad Investment Grade Index, Lehman Brothers
High Yield Index, Lehman Brothers Aggregate Bond Index, Lehman Brothers
Intermediate Government/Corporate Bond Index, Salomon Brothers Treasury Index,
S&P MidCap 400 Index, Morgan Stanley Capital International World Index, Morgan
Stanley Capital International Europe and Australasia, Far East Equity Index,
Russell 2000 Index, Russell Midcap Index, and S&P 500 Stock Index.
From time to time, a Series also may quote information from publications
including, but not limited to, the following: Morningstar, Inc., The Wall Street
Journal, Money Magazine, Forbes, Barron's, The New York Times, USA Today,
Institutional Investor and Registered Representative. Also, investors may want
to compare the historical returns of various investments, performance indices of
those investments or economic indicators, including but not limited to stocks,
bonds, certificates of deposit and other bank products, money market funds and
U.S. Treasury obligations. Certain of these alternative investments may offer
fixed rates of return and guaranteed principal, and may be insured. Economic
indicators may include, without limitation, indicators of market rate trends and
cost of funds, such as Federal Home Loan Bank Board 11th District Cost of Funds
Index (COFI).
Each Series' interests are sold at net asset value. Each Series' returns will
fluctuate. Interests of a Series are redeemable by an investor at the then
current net asset value, which may be more or less than original cost.
Additional information concerning each Series' performance appears in the
Statement of Additional Information, and in the Fund's Annual Report which may
be obtained, without charge, by writing or calling the Fund.
Performance Data
As of the date of this Prospectus, the Target Series had not yet commenced
investment operations. However, certain aspects of the investment strategies can
be demonstrated using historical data.
The following tables and charts show hypothetical performance and information
for the strategies employed by each Series and the actual performance of the S&P
500 Index, the FT Index, the Hang Seng Index, the Dow, the Ibbotson Small Cap
Index and a combination of the Index, Hang Seng Index and the Dow (the
"Cumulative Index Returns"). All of the figures set forth below have been
adjusted to take into account the effect of currency exchange rate fluctuations
of the U.S. dollar, where applicable (i.e., returns are stated in U.S. dollar
terms). The Cumulative Index Returns are calculated by adding one-third of the
total returns of each of the FT Index, the Hang Seng Index and the DJIA. It
should be noted that in calculating hypothetical performance information for
both the Target 25 Strategy and the Target Small-Cap Strategy, companies which,
based on publicly available information at the time the respective strategy is
applied, were the subject of an announced business combination expected to have
been completed within six months of the calculation were excluded from the
respective Strategy Stocks. The returns shown in the following tables and graphs
are not guarantees of future performance and should not be used as a predictor
of returns to be expected in connection with a Series' portfolio. Both stock
prices (which may appreciate or depreciate) and dividends (which may be
increased, reduced or eliminated) will affect the returns. Each strategy
underperformed its respective index in certain years. Accordingly, there can be
no assurance that a Series' portfolio will outperform its respective index (or
combination thereof, where applicable).
The following table compares the hypothetical performance of the Target 25
Strategy Stocks; the Ten Highest Dividend Yielding Stocks Strategy for the Dow;
the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks
Strategies for the Dow; a combination of the Five Lowest Priced Stocks of the
Ten Highest Dividend Yielding Stocks Strategies in the FT Index, Hang Seng Index
and the Dow (the "Combined 15 Strategy"); the Target Small-Cap Strategy Stocks;
and the performance of the S&P 500 Index, the FT Index, the Hang Seng Index, the
Dow, the Ibbotson Small-Cap Index and the Cumulative Index Returns in each of
the 20 years listed below, as of December 31 in each of those years (and as of
the most recent quarter).
An investor in a Series would not necessarily realize as high a total return on
an investment in the stocks upon which the hypothetical returns are based for
the following reasons: the total return figures shown do not reflect brokerage
commissions, expenses or taxes; the Series are established at different times of
the year; and the Series may not be fully invested at all times or equally
weighted in all stocks comprising a strategy. Further, the returns also do not
reflect the deduction of any insurance fees or charges which are imposed by
Jackson National Life in connection with the sale of variable annuity Policies.
Investors should refer to the prospectus for Account I for a description of
those fees and charges which have a detrimental effect on the performance of the
Series. If the above-mentioned charges were reflected in the hypothetical
returns, the returns would be lower than those presented here.
These figures are for calendar years; the Series may use different 12-month
periods.
<TABLE>
<CAPTION>
COMPARISON OF TOTAL RETURN(2)
Strategy Total Returns Index Total Returns
10 Highest Dividend 5 Lowest Priced of the
Yielding Stocks(1) 10 Highest Stocks(1)
----------------------------------------------- Target Ibbotson
Target 25 Combined Small-Cap S&P 500 Hang Seng Small-Cap
Year Strategy DJIA DJIA 15 Strategy Strategy Index FT Index Index DJIA Index
- ------ ---------- ------ ----- ----------- -------- ------- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1978 6.49% 0.03% 1.23% 5.23% 17.53% 6.49% 9.92% 23.10% 2.66% 23.46%
1979 27.68% 13.01% 9.84% 44.70% 40.78% 18.22% 3.59% 77.99% 10.60% 43.46%
1980 26.45% 27.90% 41.69% 52.51% 61.97% 32.11% 31.77% 65.48% 21.90% 38.88%
1981 8.52% 7.46% 3.19% 0.03% -9.46% -4.92% -5.30% -12.34% -3.61% 13.88%
1982 30.83% 27.12% 43.37% -2.77% 51.26% 21.14% 0.42% -48.01% 26.85% 28.01%
1983 32.09% 39.07% 36.38% 15.61% 31.04% 22.28% 21.94% -2.04% 25.82% 39.67%
1984 5.55% 6.22% 11.12% 29.88% -1.10% 6.22% 2.15% 42.61% 1.29% -6.67%
1985 41.89% 29.54% 38.34% 54.06% 50.81% 31.77% 54.74% 50.95% 33.28% 24.66%
1986 25.01% 35.63% 30.89% 38.11% 23.35% 18.31% 24.36% 51.16% 27.00% 6.85%
1987 14.41% 5.59% 10.69% 17.52% 14.94% 5.33% 37.13% -6.84% 5.66% -9.30%
1988 27.18% 24.57% 21.47% 24.26% 23.19% 16.64% 9.00% 21.04% 16.03% 22.87%
1989 22.98% 26.97% 10.55% 15.98% 26.10% 31.35% 20.07% 10.59% 32.09% 10.18%
1990 -0.82% -7.82% -15.74% 3.19% 1.08% -3.30% 11.03% 11.71% -0.73% -21.56%
1991 37.67% 34.20% 62.03% 40.40% 59.55% 30.40% 8.77% 50.68% 24.19% 44.63%
1992 15.14% 7.69% 22.90% 26.64% 27.81% 7.62% -3.13% 34.73% 7.39% 23.35%
1993 15.22% 27.08% 34.01% 65.65% 22.47% 9.95% 19.22% 124.95% 16.87% 20.98%
1994 9.73% 4.21% 8.27% -7.26% 2.11% 1.34% 1.97% -29.34% 5.03% 3.11%
1995 36.69% 36.85% 30.50% 13.45% 41.65% 37.22% 16.21% 27.52% 36.67% 34.66%
1996 28.53% 28.35% 26.20% 21.00% 34.96% 22.82% 18.35% 37.86% 28.71% 17.62%
1997 30.69% 21.68% 19.97% -6.38% 16.66% 33.21% 14.78% -17.69% 24.82% 22.78%
1998 thru 6/30 2.09% 7.70% 9.67% 1.72% 10.11% 17.66% 16.81% -18.30% 14.11% 5.01%
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Index
Year Returns(3)
- ------ - ---------
<S> <C>
1978 11.89%
1979 30.73%
1980 39.72%
1981 -7.08%
1982 -6.91%
1983 15.24%
1984 15.35%
1985 46.32%
1986 34.18%
1987 11.99%
1988 15.36%
1989 20.92%
1990 7.34%
1991 27.88%
1992 12.99%
1993 53.68%
1994 -7.45%
1995 26.80%
1996 28.31%
1997 7.30%
1998 thru 4.21%
<FN>
(1) The Target 25 Strategy Stocks and the Target Small-Cap Strategy Stocks for
any given period were selected by applying the respective Strategy as of the
beginning of the period. The Ten Highest Dividend Yielding Stocks and the Five
Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks for any given
period were selected by ranking the dividend yields for each of the stocks as of
the beginning of the period and dividing by the stock's market value on the
first trading day on the exchange where that stock principally trades in the
given period. The Combined 15 Strategy merely averages the Total Return of the
stocks which comprise the Five Lowest Priced Stocks of the Ten Highest Dividend
Yielding Stocks in the FT Index, Hang Seng Index and the DJIA, respectively.
(2) Total Return represents the sum of the percentage change in market value of
each group of stocks between the first trading day of a period and the total
dividends paid on each group of stocks during the period divided by the opening
market value of each group of stocks as of the first trading day of a period.
Total Return does not take into consideration any sales charges, commissions,
expenses or taxes. Total Return assumes that all dividends are reinvested
semi-annually (with the exception of the FT Index and the Hang Seng Index from
12/31/77 through 12/31/86, during which time annual reinvestment was assumed),
and all returns are stated in terms of the United States dollar. Based on the
year-by-year returns contained in the table, over the 20 full years listed
above, the Target 25 Strategy Stocks achieved an average annual total return of
21.52%, the Target Small-Cap Strategy achieved an average annual total return of
25.29%, the Ten Highest Dividend Yielding Stocks in the DJIA achieved an average
annual total return of 18.97%, and the Five Lowest Priced Stocks of the Ten
Highest Dividend Yielding Stocks in the DJIA and Combined 15 Strategy achieved
an average annual total return of 21.06% and 20.87%, respectively. In addition,
over this period, each individual strategy achieved a greater average annual
total return than that of its corresponding index, the S&P 500 Index, Ibbotson
Small-Cap Index, the DJIA or a combination of the FT Index, Hang Seng Index and
DJIA, which were 16.51%, 17.68%, 16.47% and 18.09%, respectively. For the five
year period between January 1, 1973 and December 31, 1977, the Ten Highest
Dividend Yielding Stocks in the DJIA achieved an annual total return of 4.01% in
1973, -1.02% in 1974, 56.10% in 1975, 35.18% in 1976 and -1.95% in 1977; the
Five Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks in the
DJIA achieved an annual total return of 20.01% in 1973, -5.40% in 1974, 65.77%
in 1975, 40.96% in 1976 and 5.49% in 1977; the DJIA achieved an annual total
return of -13.20% in 1973, 23.64% in 1974, 44.46% in 1975, 22.80% in 1976 and
- -12.91% in 1977; the Target 25 Stragegy Stocks achieved an annual total return
of -6.99% in 1973, -9.54% in 1974, 76.02% in 1975, 44.31% in 1976 and -4.58% in
1977; the S&P 500 Index achieved an annual total return of -14.57% in 1983,
- -26.33% in 1974, 36.84% in 1975, 23.64% in 1976 and -7.25% in 1977; the Target
Small-Cap Strategy Stocks achieved an annual total return of -25.02% in 1973,
- -34.85% in 1974, 40.13% in 1975, 45.70% in 1976 and 16.22% in 1977; and the
Ibbotson Small-Cap Index achieved an annual total return of -30.90% in 1973,
- -19.95% in 1974, 52.82% in 1975, 57.38% in 1976 and 25.38% in 1977. Although
each Series seeks to achieve a better performance than its respective index as a
whole, there can be no assurance that a Series will achieve a beteter
performance.
(3) Cumulative Index Returns represent the average of the annual returns of the
stocks contained in the FT Index, Hang Seng Index and DJIA. Cumulative Index
Returns do not represent an actual index.
</FN>
</TABLE>
The chart above represents past performance. There can be no assurance that any
Target Series will outperform the Dow or any other index shown. Investors should
not rely on the preceding financial information as an indication of the past or
future performance of the Target Series.
TAX STATUS
General
The Fund is a limited liability company with all of its interests owned by a
single entity (Account I). Accordingly, the Fund is taxed as part of the
operations of Jackson National Life and is not taxed separately. Under current
tax law, interest, dividend income and capital gains of the Fund are not
currently taxable when left to accumulate within a variable annuity contract.
For a discussion of the tax status of the variable annuity Policy, please refer
to the prospectus for Account I.
Internal Revenue Service Diversification Requirements
The Series intend to comply with the diversification requirements currently
imposed by the Internal Revenue Service on separate accounts of insurance
companies as a condition of maintaining the tax deferred status of the variable
annuity Policies issued by Account I. The Sub-Advisory Agreement requires the
Series to be operated in compliance with these diversification requirements.
First Trust, as sub-adviser, reserves the right to depart from the investment
strategy of a Series in order to meet these diversification requirements. See
the Statement of Additional Information for more specific information.
Custodian
Independent Accountants
PricewaterhouseCoopers LLP
200 East Randolph Drive
Chicago, Illinois 60601
Legal Counsel
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, Connecticut 06880
Investment Adviser and Transfer Agent
Jackson National Financial Services, LLC
5901 Executive Drive
Lansing, Michigan 48911
PART B
STATEMENT OF ADDITIONAL INFORMATION
________________, 1999
JNL VARIABLE FUND LLC
This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the Prospectus
and should be read in conjunction with the JNL Variable Fund LLC Prospectus,
dated ___________, 1999. Not all Series described in the Statement of Additional
Information may be available for investment. The Prospectus may be obtained by
calling (800) 766-4683, or writing P.O. Box 378002, Denver, Colorado 80237-8002.
TABLE OF CONTENTS
General Information and History
Investment Policies
Investment Risks - Global Target 15 Series
Investment Risks - Sector Series
Fund Management
Investment Advisory and Other Services
Purchases, Redemptions and Pricing of Interests
Additional Information
Tax Status
Financial Statements
GENERAL INFORMATION AND HISTORY
JNL Variable Fund LLC ("Fund") is a non-diversified, open-end management company
currently comprised of eleven distinct Series. The Fund was organized as a
Delaware limited liability company on October 13, 1998.
INVESTMENT POLICIES
Generally
The Prospectus describes the investment strategies and objectives of each of the
Fund's Series. Each Series of the Fund may, without limit as to percentage of
assets, purchase U.S. government securities or short-term debt securities (a)
pending the orderly purchase of the Equity Securities or (b) for temporary
defensive purposes.
Fundamental Policies Applicable to All Series
The following fundamental policies may not be changed without the affirmative
vote of the majority of the outstanding voting securities of the Fund (or of a
particular Series, if appropriate). The Investment Company Act of 1940
("1940 Act") defines a majority vote as the vote of the lesser of
(i) 67% of the Fund interests represented at a meeting at which more
than 50% of the outstanding interests are represented or (ii) more
than 50% of the outstanding voting interests. With respect to the submission
of a change in an investment policy to the holders of outstanding voting
interests of a particular Series, such matter shall be deemed to have been
effectively acted upon with respect to such Series if a majority of the
outstanding voting interests of such Series vote for the
approval of such matter, notwithstanding that (1) such matter has not been
approved by the holders of a majority of the outstanding voting interests of any
other Series affected by such matter, and (2) such matter has not been approved
by the vote of a majority of the outstanding voting Fund interests.
Fundamental Policies:
1. A Series may not issue senior securities.
2. A Series will not borrow money, except for temporary or emergency purposes,
from banks. The aggregate amount borrowed shall not exceed 5% of the value
of a Series' assets. In the case of any borrowing, a Series may pledge,
mortgage or hypothecate up to 5% of its assets.
3. A Series will not underwrite the securities of other issuers except to the
extent the Fund may be considered an underwriter under the Securities Act
of 1933 when selling portfolio securities.
4. A Series will not purchase or sell real estate or interests therein.
5. A Series will not lend any security or make any other loan if, as a result,
more than 33 1/3% of the Series' total assets would be lent to other
parties (but this limitation does not apply to purchases of commercial
paper, debt securities or repurchase agreements).
In addition, as a matter of fundamental policy, each Series may invest in
repurchase agreements and warrants and engage in futures and options
transactions and securities lending.
Insurance Law Restrictions
In connection with the Fund's agreement to sell shares to Account I, Jackson
National Financial Services, LLC ("JNFSLLC") and Jackson National Life may enter
into agreements, required by certain state insurance departments, under which
JNFSLLC may agree to use its best efforts to assure and to permit Jackson
National Life to monitor that each Series of the Fund complies with the
investment restrictions and limitations prescribed by state insurance laws and
regulations applicable to the investment of separate account assets in shares of
mutual funds. If a Series failed to comply with such restrictions or
limitations, Jackson National Life would take appropriate action which might
include ceasing to make investments in the Series or withdrawing from the state
imposing the limitation. Such restrictions and limitations are not expected to
have a significant impact on the Fund's operations.
Repurchase Agreements
Under a repurchase agreement, a Series purchases a security and obtains a
simultaneous commitment from the seller (a member bank of the Federal Reserve
system or a government securities dealer recognized by the Federal Reserve
Board) to repurchase the security at a mutually agreed upon price and date. It
may also be viewed as a loan of money by the Series to the seller. The resale
price is normally in excess of the purchase price and reflects an agreed upon
market rate. The rate is effective for the period of time the Series is invested
in the agreement and unrelated to the coupon rate on the purchased security. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will a Series invest in repurchase agreements for more
than one year. These transactions afford an opportunity for a Series to earn a
return on temporarily available cash. Although repurchase agreements carry
certain risks not associated with direct investments in securities, the Fund
intends to enter into repurchase agreements only with financial institutions
believed by First Trust to present minimal credit risks in accordance with
criteria established by the Fund's Board. First Trust will review and monitor
the creditworthiness of such institutions under the Board's general supervision.
The Fund will only enter into repurchase agreements pursuant to a master
repurchase agreement that provides that all transactions be fully collateralized
and that the collateral be in the actual or constructive possession of the Fund.
The agreement must also provide that the Fund will always receive as collateral
securities whose market value, including accrued interest, will be at least
equal to 100% of the dollar amount invested by a Series in each agreement, and
the Series will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian. If the seller
were to default, the Series might incur a loss if the value of the collateral
securing the repurchase agreement declines and may incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Series may be delayed or limited and a
loss may be incurred if the collateral securing the repurchase agreement
declines in value during the bankruptcy proceedings.
A Series, together with other registered investment companies having management
agreements with an investment adviser or its affiliates, may transfer uninvested
cash balances into a single joint account, the daily aggregate balance of which
will be invested in one or more repurchase agreements.
Warrants
Warrants acquired by a Series entitle it to buy common stock from the issuer at
a specified price and time. Warrants are subject to the same market risks as
stocks, but may be more volatile in price. A Series' investment in warrants will
not entitle it to receive dividends or exercise voting rights and will become
worthless if the warrants cannot be profitably exercised before their expiration
date.
Securities Lending
Each Series may also lend Equity Securities to broker-dealers and financial
institutions to realize additional income. As a fundamental policy, a Series
will not lend Equity Securities or other assets, if as a result, more than 33
1/3% of the Series' total assets would be lent to other parties. Under
applicable regulatory requirements (which are subject to change), the following
conditions apply to securities loans: (a) the loan must be continuously secured
by liquid assets maintained on a current basis in an amount at least equal to
the market value of the securities loaned; (b) each Series must receive any
dividends or interest paid by the issuer on such securities; (c) each Series
must have the right to call the loan and obtain the securities loaned at any
time upon notice of not more than five business days, including the right to
call the loan to permit voting of the securities; and (d) each Series must
receive either interest from the investment of collateral or a fixed fee from
the borrower.
Securities loaned by a Series remain subject to fluctuations in market value. A
Series may pay reasonable finders, custodian and administrative fees in
connection with a loan. Securities lending, as with other extensions of credit,
involves the risk that the borrower may default. Although securities loans will
be fully collateralized at all times, a Series may experience delays in, or be
prevented from, recovering the collateral. During the period that the Series
seeks to enforce its rights against the borrower, the collateral and the
securities loaned remain subject to fluctuations in market value. A Series does
not have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if it were considered important with respect to the
investment. A Series may also incur expenses in enforcing its rights. If a
Series has sold a loaned security, it may not be able to settle the sale of the
security and may incur potential liability to the buyer of the security on loan
for its costs to cover the purchase.
Options and Futures Strategies
A Series may at times seek to hedge against either a decline in the value of its
portfolio securities or an increase in the price of securities which First Trust
plans to purchase through the writing and purchase of options and the purchase
or sale of futures contracts and related options. Expenses and losses incurred
as a result of such hedging strategies will reduce a Series' current return.
The ability of a Series to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore no assurance can be
given that a Series will be able to utilize these instruments effectively for
the purposes stated below.
Writing Covered Options on Securities. A Series may write covered call options
and covered put options on optionable securities of the types in which it is
permitted to invest from time to time as First Trust determines is appropriate
in seeking to attain the Series' investment objective. Call options written by a
Series give the holder the right to buy the underlying security from the Series
at a stated exercise price; put options give the holder the right to sell the
underlying security to the Series at a stated price.
A Series may only write call options on a covered basis or for cross-hedging
purposes and will only write covered put options. A put option would be
considered "covered" if the Series owns an option to sell the underlying
security subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all times while the put option is
outstanding. A call option is covered if the Series owns or has the right to
acquire the underlying securities subject to the call option (or comparable
securities satisfying the cover requirements of securities exchanges) at all
times during the option period. A call option is for cross- hedging purposes if
it is not covered, but is designed to provide a hedge against another security
which the Series owns or has the right to acquire. In the case of a call written
for cross-hedging purposes or a put option, the Series will maintain in a
segregated account at the Series' custodian bank cash or short-term U.S.
government securities with a value equal to or greater than the Series'
obligation under the option. A Series may also write combinations of covered
puts and covered calls on the same underlying security.
A Series will receive a premium from writing an option, which increases the
Series' return in the event the option expires unexercised or is terminated at a
profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, a Series will limit
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a Series will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds the
market price plus the amount of the premium received.
A Series may terminate an option which it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. The Series will realize a profit
(or loss) from such transaction if the cost of such transaction is less (or
more) than the premium received from the writing of the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option may be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Series.
Purchasing Put and Call Options on Securities. A Series may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. This protection is provided during the life of the put option
since the Series, as holder of the put, is able to sell the underlying security
at the exercise price regardless of any decline in the underlying security's
market price. For the purchase of a put option to be profitable, the market
price of the underlying security must decline sufficiently below the exercise
price to cover the premium and transaction costs. By using put options in this
manner, any profit which the Series might otherwise have realized on the
underlying security will be reduced by the premium paid for the put option and
by transaction costs.
A Series may also purchase a call option to hedge against an increase in price
of a security that it intends to purchase. This protection is provided during
the life of the call option since the Series, as holder of the call, is able to
buy the underlying security at the exercise price regardless of any increase in
the underlying security's market price. For the purchase of a call option to be
profitable, the market price of the underlying security must rise sufficiently
above the exercise price to cover the premium and transaction costs. By using
call options in this manner, any profit which the Series might have realized had
it bought the underlying security at the time it purchased the call option will
be reduced by the premium paid for the call option and by transaction costs.
No Series intends to purchase put or call options if, as a result of any such
transaction, the aggregate cost of options held by the Series at the time of
such transaction would exceed 5% of its total assets.
Limitations. A Series will not purchase or sell futures contracts or options on
futures contracts for non-hedging purposes if, as a result, the sum of the
initial margin deposits on its existing futures contracts and related options
positions and premiums paid for options on futures contracts would exceed 5% of
the net assets of the Series unless the transaction meets certain "bona fide
hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on a Series' ability to
terminate options and futures positions at times when First Trust deems it
desirable to do so. Although a Series will not enter into an option or futures
position unless First Trust believes that a liquid market exists for such option
or future, there can be no assurance that a Series will be able to effect
closing transactions at any particular time or at an acceptable price. First
Trust generally expects that options and futures transactions for the Series
will be conducted on recognized exchanges. In certain instances, however, a
Series may purchase and sell Options in the over-the-counter market. The staff
of the Securities and Exchange Commission considers over- the-counter options to
be illiquid. A Series' ability to terminate option positions established in the
over-the-counter market may be more limited than in the case of exchange traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Series.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
the securities that are the subject of the hedge. The successful use of these
strategies also depends on the ability of First Trust to forecast correctly
interest rate movements and general stock market price movements. The risk
increases as the composition of the securities held by the Series diverges from
the composition of the relevant option or futures contract.
INVESTMENT RISKS - GLOBAL TARGET 15 SERIES
The information provided below details certain important factors which impact
the economies of both the United Kingdom and Hong Kong. This information has
been extracted from various governmental and private publications, but no
representation can be made as to its accuracy; furthermore, no representation is
made that any correlation exists between the economies of the United Kingdom and
Hong Kong and the value of the Equity Securities held by the Global Target 15
Series.
United Kingdom. The emphasis of the United Kingdom's economy is in the private
services sector, which includes the wholesale and retail sector, banking,
finance, insurance and tourism. Services as a whole account for a majority of
the Untied Kingdom's gross national product and make a significant contribution
to the country's balance of payments. The United Kingdom experienced a recovery
of output in 1993 - 1994 accompanied by falling rates of inflation despite
expectations to the contrary. Quarterly changes in real gross domestic product
("GDP") in the United Kingdom grew moderately during 1994 and 1995 with an
approximate .5% increase in the last quarter of 1995 over the previous quarter.
The average quarterly rate of GDP growth in the United Kingdom (as well as in
Europe generally) has been decelerating since 1994. The United Kingdom is a
member of the European Union (the "EU"), formerly known as the European Economic
Community (the "EEC"). The EU was created through the formation of the
Maastricht Treaty on European Union in late 1993. It is expected that the Treaty
will have the effect of eliminating most remaining trade barriers between the 15
member nations and make Europe one of the largest common markets in the world.
The EU has the potential to become a powerful trade bloc with a population of
over 350 million people and an annual gross national product of more than $4
trillion. However, the effective implementation of the treaty provisions and the
rate at which trade barriers are eliminated is uncertain at this time.
Furthermore, the recent rapid political and social change throughout Europe make
the extent and nature of future economic development in the United Kingdom and
Europe and the impact of such development upon the value of the Equity
Securities in the Global Target 15 Series impossible to predict. Volatility in
oil prices could slow economic development throughout Western Europe. Moreover,
it is not possible to accurately predict the effect of the current political and
economic situation upon long-term inflation and balance of trade cycles and how
these changes would affect the currency exchange rate between the U.S. dollar
and the British pound sterling.
Hong Kong. Hong Kong, established as a British colony in the 1840's, reverted to
Chinese sovereignty effective July 1, 1997. On such date, Hong Kong became a
Special Administrative Region ("SAR") of China. Hong Kong's new constitution is
the Basic Law (promulgated by China in 1990). Prior to July 1, 1997, the Hong
Kong government followed a laissez-faire policy toward industry. There were no
major import, export or foreign exchange restrictions. Regulation of business
was generally minimal with certain exceptions, including regulated entry into
certain sectors of the economy and a fixed exchange rate regime by which the
Hong Kong dollar has been pegged to the U.S. dollar. Over the ten-year period
between 1983 and 1993, real gross domestic product increased at an average
annual rate of approximately 6%.
Although China has committed by treaty to preserve for 50 years the economic and
social freedoms enjoyed in Hong Kong prior to the reversion, the continuation of
the economic system in Hong Kong after the reversion will be dependent on the
Chinese government, and there can be no assurances that the commitment made by
China regarding Hong Kong will be maintained. Prior to the reversion,
legislation was enacted in Hong Kong designed to extend democratic voting
procedures for Hong Kong's legislature. China has expressed disagreement with
this legislation, which it states is in contravention of the principles
evidenced in the Basic Law of the Hong Kong SAR. The National Peoples' Congress
of China has passed a resolution to the effect that the Legislative Council and
certain other councils and boards of the Hong Kong Government were to be
terminated on June 30, 1997. Such bodies have subsequently been reconstituted in
accordance with China's interpretation of the Basic Law. Any increase in
uncertainty as to the future economic and political status of Hong Kong could
have a materially adverse effect on the value of the Global Target 15 Series.
First Trust is unable to predict the level of market liquidity or volatility
which may occur as a result of the reversion to sovereignty, both of which may
negatively impact such Series.
China currently enjoys a most favored nation status ("MFN Status") with the
United States. MFN Status is subject to annual review by the President of the
United States and approval by Congress. As a result of Hong Kong's reversion to
Chinese control, U.S. lawmakers have suggested that they may review China's MFN
status on a more frequent basis. Revocation of the MFN status would have a
severe effect on China's trade and thus could have a materially adverse effect
on the value of the Global Target 15 Series. The performance of certain
companies listed on the Hong Kong Stock Exchange is linked to the economic
climate of China. For example, between 1985 and 1990, Hong Kong businesses
invested $20 billion in the nearby Chinese province of Guangdong to take
advantage of the lower property and labor costs than were available in Hong
Kong. Recently, however, high economic growth in this area (industrial
production grew at an annual rate of about 20% in 1991, 24% in 1992, and 36.5%
in 1993) has been associated with rising inflation and concerns about the
devaluation of the Chinese currency. The currency crisis which has affected a
majority of Asian markets since mid-1997 has forced Hong Kong leaders to address
whether to devalue the Hong Kong dollar or maintain its peg to the U.S. dollar.
Any downturn in economic growth or increase in the rate of inflation in China or
Hong Kong could have a materially adverse effect on the value of the Global
Target 15 Series.
Securities prices on the Hong Kong Stock Exchange, and specifically the Hang
Seng Index, can be highly volatile and are sensitive to developments in Hong
Kong and China, as well as other world markets. For example, the Hang Seng Index
declined by approximately 31% in October, 1997 as a result of speculation that
the Hong Kong dollar would become the next victim of the Asian currency crisis,
and in 1989, the Hang Seng Index dropped 1,216 points (approximately 58%) in
early June following the events at Tiananmen Square. The Hang Seng Index
gradually climbed subsequent to the events at Tiananmen Square but fell by 181
points on October 13, 1989 (approximately 6.5%) following a substantial fall in
the U.S. stock markets. During 1994, the Hang Seng Index lost approximately 31%
of its value. The Hang Seng Index is subject to change, and delisting of any
issues may have an adverse impact on the performance of the Global Target 15
Series, although delisting would not necessarily result in the disposal of the
stock of these companies, nor would it prevent such Series from purchasing
additional Equity Securities. In recent years, a number of companies, comprising
approximately 10% of the total capitalization of the Hang Seng Index, have
delisted. In addition, as a result of Hong Kong's reversion to Chinese
sovereignty, an increased number of Chinese companies could become listed on the
Hong Kong Stock Exchange, thereby changing the composition of the stock market
and, potentially, the composition of the Hang Seng Index.
Exchange Rate. The Global Target 15 Series is comprised substantially of Equity
Securities that are principally traded in foreign currencies and as such,
involve investment risks that are substantially different from an investment in
a fund which invests in securities that are principally traded in United States
dollars. The United States dollar value of the Series' portfolios and of the
distributions from the portfolios will vary with fluctuations in the United
States dollar foreign exchange rates for the relevant currencies. Most foreign
currencies have fluctuated widely in value against the United States dollar for
many reasons, including supply and demand of the respective currency, the rate
of inflation in the respective economies compared to the United States, the
impact of interest rate differentials between different currencies on the
movement of foreign currency rates, the balance of imports and exports of goods
and services, the soundness of the world economy and the strength of the
respective economy as compared to the economies of the United States and other
countries.
Exchange rate fluctuations are partly dependent on a number of economic factors
including economic conditions within countries, the impact of actual and
proposed government policies on the value of currencies, interest rate
differentials between the currencies and the balance of imports and exports of
goods and services and transfers of income and capital from one country to
another. These economic factors are influenced primarily by a particular
country's monetary and fiscal policies (although the perceived political
situation in a particular country may have an influence as well--particularly
with respect to transfers of capital). Investor psychology may also be an
important determinant of currency fluctuations in the short run. Moreover,
institutional investors trying to anticipate the future relative strength or
weakness of a particular currency may sometimes exercise considerable
speculative influence on currency exchange rates by purchasing or selling large
amounts of the same currency or currencies. However, over the long term, the
currency of a country with a low rate of inflation and a favorable balance of
trade should increase in value relative to the currency of a country with a high
rate of inflation and deficits in the balance of trade.
The following table sets forth, for the periods indicated, the range of
fluctuation concerning the equivalent U.S. dollar rates of exchange and end of
month equivalent U.S. dollar rates of exchange for the United Kingdom pound
sterling and the Hong Kong dollar:
<TABLE>
<CAPTION>
Foreign Exchange Rates
Range of Fluctuations in Foreign Currencies
Annual Period United Kingdom Pound Hong Kong/U.S. Dollar
Sterling/U.S. Dollar
<S> <C> <C> <C> <C>
1983 0.616 - 0.707 6.480 - 8.700
1984 0.671 - 0.864 7.774 - 8.050
1985 0.672 - 0.951 7.729 - 7.990
1986 0.643 - 0.726 7.768 - 7.819
1987 0.530 - 0.680 7.751 - 7.822
1988 0.525 - 0.601 7.764 - 7.912
1989 0.548 - 0.661 7.775 - 7.817
1990 0.504 - 0.627 7.740 - 7.817
1991 0.499 - 0.624 7.716 - 7.803
1992 0.498 - 0.667 7.697 - 7.781
1993 0.630 - 0.705 7.722 - 7.766
1994 0.610 - 0.684 7.723 - 7.750
1995 0.610 - 0.653 7.726 - 7.763
1996 0.583 - 0.670 7.732 - 7.742
1997 0.584 - 0.633 7.708 - 7.751
</TABLE>
Source: Bloomberg L.P.
First Trust will estimate current exchange rates for the relevant currencies
based on activity in the various currency exchange markets. However, since these
markets are volatile and are constantly changing, depending on the activity at
any particular time of the large international commercial banks, various central
banks, large multi-national corporations, speculators and other buyers and
sellers of foreign currencies, and since actual foreign currency transactions
may not be instantly reported, the exchange rates estimated by First Trust may
not be indicative of the amount in United States dollars the Series would
receive had the Series sold any particular currency in the market. The foreign
exchange transactions of the Series will be conducted by the Series with foreign
exchange dealers acting as principals on a spot (i.e., cash) buying basis.
Although foreign exchange dealers trade on a net basis, they do realize a profit
based upon the difference between the price at which they are willing to buy a
particular currency (bid price) and the price at which they are willing to sell
the currency (offer price).
INVESTMENT RISKS - SECTOR SERIES
Leading Brands Sector Series. An investment in this Series should be made with
an understanding of the problems and risks inherent in an investment in the
consumer products industry in general. These include the cyclicality of revenues
and earnings, changing consumer demands, regulatory restrictions, product
liability litigation and other litigation resulting from accidents, extensive
competition (including that of low-cost foreign competition), unfunded pension
fund liabilities and employee and retiree benefit costs and financial
deterioration resulting from leveraged buy-outs, takeovers or acquisitions. In
general, expenditures on consumer products will be affected by the economic
health of consumers. A weak economy with its consequent effect on consumer
spending would have a adverse effect on consumer products companies. Other
factors of particular relevance to the profitability of the industry are the
effects of increasing environmental regulation on packaging and on waste
disposal, the continuing need to conform with foreign regulations governing
packaging and the environment, the outcome of trade negotiations and the effect
on foreign subsidies and tariffs, foreign exchange rates, the price of oil and
its effect on energy costs, inventory cutbacks by retailers, transportation and
distribution costs, health concerns relating to the consumption of certain
products, the effect of demographics on consumer demand, the availability and
cost of raw materials and the ongoing need to develop new products and to
improve productivity.
Communications Sector Series. An investment in this Series should be made with
an understanding of the problems and risks inherent in an investment in the
communications industry in general.
The market for high-technology communications products and services is
characterized by rapidly changing technology, rapid product obsolescence,
cyclical market patterns, evolving industry standards and frequent new product
introductions. The success of the issuers of the Equity Securities depends in
substantial part on the timely and successful introduction of new products and
services. An unexpected change in one or more of the technologies affecting an
issuer's products or in the market for products based on a particular technology
could have a material adverse affect on an issuer's operating results.
Furthermore, there can be no assurance that the issuer of the Equity Securities
will be able to respond in a timely manner to compete in the rapidly developing
marketplace.
The communications industry is subject to governmental regulation. However, as
market forces develop, the government will continue to deregulate the
communications industry, promoting vigorous economic competition and resulting
in the rapid development of new communications technologies. The products and
services of communications companies may be subject to rapid obsolescence. These
factors could affect the value of the Series' interests. For example, while
telephone companies in the United States are subject to both state and federal
regulations affecting permitted rates of returns and the kinds of services that
may be offered, the prohibition against phone companies delivering video
services has been lifted. This creates competition between phone companies and
cable operators and encourages phone companies to modernize their communications
infrastructure. Certain types of companies represented in the Series' portfolio
are engaged in fierce competition for a share of the market of their products.
As a result, competitive pressures are intense and the stocks are subject to
rapid price volatility.
Many communications companies rely on a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect their proprietary
rights in their products and technologies. There can be no assurance that the
steps taken by the issuers of the Equity Securities to protect their proprietary
rights will be adequate to prevent misappropriation of their technology or that
competitors will not independently develop technologies that are substantially
equivalent or superior to such issuers' technology.
Energy Sector Series. An investment in this Series should be made with an
understanding of the problems and risks such an investment may entail.
The Energy Sector Series invests in Equity Securities of companies involved in
the energy industry. The business activities of companies held in this Series
may include: production, generation, transmission, marketing, control, or
measurement of energy or energy fuels; providing component parts or services to
companies engaged in the above activities; energy research or experimentation;
and environmental activities related to the solution of energy problems, such as
energy conservation and pollution control. Companies participating in new
activities resulting from technological advances or research discoveries in the
energy field were also considered for this Series.
The securities of companies in the energy field are subject to changes in value
and dividend yield which depend, to a large extent, on the price and supply of
energy fuels. Swift price and supply fluctuations may be caused by events
relating to international politics, energy conservation, the success of
exploration projects, and tax and other regulatory policies of various
governments. As a result of the foregoing, the Equity Securities in this Series
may be subject to rapid price volatility. First Trust is unable to predict what
impact the foregoing factors will have on the Equity Securities during the life
of this Series.
According to the U.S. Department of Commerce, the factors which will most likely
shape the energy industry include the price and availability of oil from the
Middle East, changes in United States environmental policies and the continued
decline in U.S. production of crude oil. Possible effects of these factors may
be increased U.S. and world dependence on oil from the Organization of Petroleum
Exporting Countries ("OPEC") and highly uncertain and potentially more volatile
oil prices. Factors which First Trust believes may increase the profitability of
oil and petroleum operations include increasing demand for oil and petroleum
products as a result of the continued increases in annual miles driven and the
improvement in refinery operating margins caused by increases in average
domestic refinery utilization rates. The existence of surplus crude oil
production capacity and the willingness to adjust production levels are the two
principal requirements for stable crude oil markets. Without excess capacity,
supply disruptions in some countries cannot be compensated for by others.
Surplus capacity in Saudi Arabia and a few other countries and the utilization
of that capacity prevented, during the Persian Gulf crisis, and continues to
prevent, severe market disruption. Although unused capacity contributed to
market stability in 1990 and 1991, it ordinarily creates pressure to overproduce
and contributes to market uncertainty. The restoration of a large portion of
Kuwait and Iraq's production and export capacity could lead to such a
development in the absence of substantial growth in world oil demand. Formerly,
OPEC members attempted to exercise control over production levels in each
country through a system of mandatory production quotas. Because of the
1990-1991 crisis in the Middle East, the mandatory system has since been
replaced with a voluntary system. Production under the new system has had to be
curtailed on at least one occasion as a result of weak prices, even in the
absence of supplies from Kuwait and Iraq. The pressure to deviate from mandatory
quotas, if they are reimposed, is likely to be substantial and could lead to a
weakening of prices. In the longer term, additional capacity and production will
be required to accommodate the expected large increases in world oil demand and
to compensate for expected sharp drops in U.S. crude oil production and exports
from the Soviet Union. Only a few OPEC countries, particularly Saudi Arabia,
have the petroleum reserves that will allow the required increase in production
capacity to be attained. Given the large-scale financing that is required, the
prospect that such expansion will occur soon enough to meet the increased demand
is uncertain.
Declining U.S. crude oil production will likely lead to increased dependence on
OPEC oil, putting refiners at risk of continued and unpredictable supply
disruptions. Increasing sensitivity to environmental concerns will also pose
serious challenges to the industry over the coming decade. Refiners are likely
to be required to make heavy capital investments and make major production
adjustments in order to comply with increasingly stringent environmental
legislation, such as the 1990 amendments to the Clean Air Act. If the cost of
these changes is substantial enough to cut deeply into profits, smaller refiners
may be forced out of the industry entirely. Moreover, lower consumer demand due
to increases in energy efficiency and conservation, gasoline reformulations that
call for less crude oil, warmer winters or a general slowdown in economic growth
in this country and abroad could negatively affect the price of oil and the
profitability of oil companies. No assurance can be given that the demand for or
prices of oil will increase or that any increases will not be marked by great
volatility. Some oil companies may incur large cleanup and litigation costs
relating to oil spills and other environmental damage. Oil production and
refining operations are subject to extensive federal, state and local
environmental laws and regulations governing air emissions and the disposal of
hazardous materials. Increasingly stringent environmental laws and regulations
are expected to require companies with oil production and refining operations to
devote significant financial and managerial resources to pollution control.
General problems of the oil and petroleum products industry include the ability
of a few influential producers to significantly affect production, the
concomitant volatility of crude oil prices, increasing public and governmental
concern over air emissions, waste product disposal, fuel quality and the
environmental effects of fossil-fuel use in general.
In addition, any future scientific advances concerning new sources of energy and
fuels or legislative changes relating to the energy industry or the environment
could have a negative impact on the petroleum products industry. While
legislation has been enacted to deregulate certain aspects of the oil industry,
no assurances can be given that new or additional regulations will not be
adopted. Each of the problems referred to could adversely affect the financial
stability of the issuers of any petroleum industry stocks in this Series.
Financial Sector Series. An investment in this Series should be made with an
understanding of the problems and risks inherent in the bank and financial
services sector in general.
Banks, thrifts and their holding companies are especially subject to the adverse
effects of economic recession, volatile interest rates, portfolio concentrations
in geographic markets and in commercial and residential real estate loans, and
competition from new entrants in their fields of business. Banks and thrifts are
highly dependent on net interest margin. Recently, bank profits have come under
pressure as net interest margins have contracted, but volume gains have been
strong in both commercial and consumer products. There is no certainty that such
conditions will continue. Bank and thrift institutions had received significant
consumer mortgage fee income as a result of activity in mortgage and refinance
markets. As initial home purchasing and refinancing activity subsided, this
income diminished. Economic conditions in the real estate markets, which have
been weak in the past, can have a substantial effect upon banks and thrifts
because they generally have a portion of their assets invested in loans secured
by real estate. Banks, thrifts and their holding companies are subject to
extensive federal regulation and, when such institutions are state-chartered, to
state regulation as well. Such regulations impose strict capital requirements
and limitations on the nature and extent of business activities that banks and
thrifts may pursue. Furthermore, bank regulators have a wide range of discretion
in connection with their supervisory and enforcement authority and may
substantially restrict the permissible activities of a particular institution if
deemed to pose significant risks to the soundness of such institution or the
safety of the federal deposit insurance fund. Regulatory actions, such as
increases in the minimum capital requirements applicable to banks and thrifts
and increases in deposit insurance premiums required to be paid by banks and
thrifts to the Federal Deposit Insurance Corporation ("FDIC"), can negatively
impact earnings and the ability of a company to pay dividends. Neither federal
insurance of deposits nor governmental regulations, however, insures the
solvency or profitability of banks or their holding companies, or insures
against any risk of investment in the securities issued by such institutions.
The statutory requirements applicable to and regulatory supervision of banks,
thrifts and their holding companies have increased significantly and have
undergone substantial change in recent years. To a great extent, these changes
are embodied in the Financial Institutions Reform, Recovery and Enforcement Act;
enacted in August 1989, the Federal Deposit Insurance Corporation Improvement
Act of 1991, the Resolution Trust Corporation Refinancing, Restructuring, and
Improvement Act of 1991 and the regulations promulgated under these laws. Many
of the regulations promulgated pursuant to these laws have only recently been
finalized and their impact on the business, financial condition and prospects of
the Equity Securities in the Series' portfolio cannot be predicted with
certainty. Periodic efforts by recent Administrations to introduce legislation
broadening the ability of banks to compete with new products have not been
successful, but if enacted could lead to more failures such as a result of
increased competition and added risks. Failure to enact such legislation, on the
other hand, may lead to declining earnings and an inability to compete with
unregulated financial institutions. Efforts to expand the ability of federal
thrifts to branch on an interstate basis have been initially successful through
promulgation of regulations, and legislation to liberalize interstate banking
has recently been signed into law. Under the legislation, banks will be able to
purchase or establish subsidiary banks in any state, one year after the
legislation's enactment. Since mid-1997, banks have been allowed to turn
existing banks into branches. Consolidation is likely to continue. The
Securities and Exchange Commission and the Financial Accounting Standards Board
require the expanded use of market value accounting by banks and have imposed
rules requiring market accounting for investment securities held in trading
accounts or available for sale. Adoption of additional such rules may result in
increased volatility in the reported health of the industry, and mandated
regulatory intervention to correct such problems. Additional legislative and
regulatory changes may be forthcoming. For example, the bank regulatory
authorities have proposed substantial changes to the Community Reinvestment Act
and fair lending laws, rules and regulations, and there can be no certainty as
to the effect, if any, that such changes would have on the Equity Securities in
the Series' portfolio. In addition, from time to time the deposit insurance
system is reviewed by Congress and federal regulators, and proposed reforms of
that system could, among other things, further restrict the ways in which
deposited moneys can be used by banks or reduce the dollar amount or number of
deposits insured for any depositor. Such reforms could reduce profitability such
as investment opportunities available to bank institutions become more limited
and as consumers look for savings vehicles other than bank deposits. Banks and
thrifts face significant competition from other financial institutions such as
mutual funds, credit unions, mortgage banking companies and insurance companies,
and increased competition may result from legislative broadening of regional and
national interstate banking powers as has been recently enacted. Among other
benefits, the legislation allows banks and bank holding companies to acquire
across previously prohibited state lines and to consolidate their various bank
subsidiaries into one unit. First Trust makes no prediction as to what, if any,
manner of bank and thrift regulatory actions might ultimately be adopted or what
ultimate effect such actions might have on the Series' portfolio.
The Federal Bank Holding Company Act of 1956 generally prohibits a bank holding
company from (1) acquiring, directly or indirectly, more than 25% of the
outstanding shares of any class of voting securities of a bank or bank holding
company, (2) acquiring control of a bank or another bank holding company, (3)
acquiring all or substantially all the assets of a bank, or (4) merging or
consolidating with another bank holding company, without first obtaining Federal
Reserve Board ("FRB") approval. In considering an application with respect to
any such transaction, the FRB is required to consider a variety of factors,
including the potential anti-competitive effects of the transaction, the
financial condition and future prospects of the combining and resulting
institutions, the managerial resources of the resulting institution, the
convenience and needs of the communities the combined organization would serve,
the record of performance of each combining organization under the Community
Reinvestment Act and the Equal Credit Opportunity Act, and the prospective
availability to the FRB of information appropriate to determine ongoing
regulatory compliance with applicable banking laws. In addition, the federal
Change In Bank Control Act and various state laws impose limitations on the
ability of one or more individuals or other entities to acquire control of banks
or bank holding companies.
The FRB has issued a policy statement on the payment of cash dividends by bank
holding companies. In the policy statement, the FRB expressed its view that a
bank holding company experiencing earnings weaknesses should not pay cash
dividends which exceed its net income or which could only be funded in ways that
would weaken its financial health, such as by borrowing. The FRB also may impose
limitations on the payment of dividends as a condition to its approval of
certain applications, including applications for approval of mergers and
acquisitions. First Trust makes no prediction as to the effect, if any, such
laws will have on the Equity Securities or whether such approvals, if necessary,
will be obtained.
Some of the nation's largest banks, working to upgrade their own computer
systems to meet the Year 2000 deadline, are concerned that some borrowers may
fail to upgrade their computers in time, creating problem loans and increasing
overall loan losses. Banks considered most vulnerable by analysts include those
lending primarily to small businesses, which are not as likely as large
businesses to have a plan for upgrading their computer. Also at risk are banks
with significant exposure overseas, where many foreign businesses are not moving
as quickly to resolve this problem. Analysts warn that it will be difficult for
banks to determine their potential loan losses related to Year 2000 credit risk.
Companies involved in the insurance industry are engaged in underwriting,
reinsuring, selling, distributing or placing of property and casualty, life or
health insurance. Other growth areas within the insurance industry include
brokerage, reciprocals, claims processors and multiline insurance companies.
Insurance company profits are affected by interest rate levels, general economic
conditions, and price and marketing competition. Property and casualty insurance
profits may also be affected by weather catastrophes and other disasters. Life
and health insurance profits may be affected by mortality and morbidity rates.
Individual companies may be exposed to material risks including reserve
inadequacy and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Proposed or potential tax law changes may also adversely affect
insurance companies' policy sales, tax obligations, and profitability. In
addition to the foregoing, profit margins of these companies continue to shrink
due to the commoditization of traditional businesses, new competitors, capital
expenditures on new technology and the pressures to compete globally.
In addition to the normal risks of business, companies involved in the insurance
industry are subject to significant risk factors, including those applicable to
regulated insurance companies, such as : (i) the inherent uncertainty in the
process of establishing property-liability loss reserves, particularly reserves
for the cost of environmental, asbestos and mass tort claims, and the fact that
ultimate losses could materially exceed established loss reserves which could
have a material adverse effect on results of operations and financial condition;
(ii) the fact that insurance companies have experienced, and can be expected in
the future to experience, catastrophe losses which could have a material adverse
impact on their financial condition, results of operations and cash flow; (iii)
the inherent uncertainty in the process of establishing property-liability loss
reserves due to changes in loss payment patterns caused by new claims settlement
practices; (iv) the need for insurance companies and their subsidiaries to
maintain appropriate levels of statutory capital and surplus, particularly in
light of continuing scrutiny by rating organizations and state insurance
regulatory authorities, and in order to maintain acceptable financial strength
or claims-paying ability rating; (v) the extensive regulation and supervision to
which insurance companies' subsidiaries are subject, various regulatory
initiatives that may affect insurance companies, and regulatory and other legal
actions; (vi) the adverse impact that increases in interest rates could have on
the value of an insurance company's investment portfolio and on the
attractiveness of certain of its products; (vii) the need to adjust the
effective duration of the assets and liabilities of life insurance operations in
order to meet the anticipated cash flow requirements of its policyholder
obligations, and (vii) the uncertainty involved in estimating the availability
of reinsurance and the collectibility of reinsurance recoverables.
The state insurance regulatory framework has, during recent years, come under
increased federal scrutiny, and certain state legislatures have considered or
enacted laws that alter and, in many cases, increase state authority to regulate
insurance companies and insurance holding company systems. Further, the National
Association of Insurance Commissioners ("NAIC") and state insurance regulators
are re-examining existing laws and regulations, specifically focusing on
insurance companies, interpretations of existing laws and the development of new
laws. In addition, Congress and certain federal agencies have investigated the
condition of the insurance industry in the United States to determine whether to
promulgate additional federal regulations. First Trust is unable to predict
whether any state or federal legislation will be enacted to change the nature or
scope of regulation of the insurance industry, or what effect, if any, such
legislation would have on the industry.
All insurance companies are subject to state laws and regulations that require
diversification of their investment portfolios and limit the amount of
investments in certain investment categories. Failure to comply with these laws
and regulations could cause non-conforming investments to be treated as
non-admitted assets for purposes of measuring statutory surplus and, in some
instances, would require divestiture.
Environmental pollution clean-up is the subject of both federal and state
regulation. By some estimates, there are thousands of potential waste sites
subject to clean up. The insurance industry is involved in extensive litigation
regarding coverage issues. The Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("Superfund") and comparable state statutes
("mini-Superfund") govern the clean-up and restoration by "Potentially
Responsible Parties" ("PRP's"). Superfund and the mini- Superfunds
("Environmental Clean-up Laws" or "ECLs") establish a mechanism to pay for
clean-up of waste sites if PRPs fail to do so, and to assign liability to PRPs.
The extent of liability to be allocated to a PRP is dependent on a variety of
factors. Further, the number of waste sites subject to clean-up is unknown. Very
few sites have been subject to clean-up to date. The extent of clean-up
necessary and the assignment of liability has not been established. The
insurance industry is disputing many such claims. Key coverage issues include
whether Superfund response costs are considered damages under the policies, when
and how coverage is triggered, applicability of pollution exclusions, the
potential for joint and several liability and definition of an occurrence.
Similar coverage issues exist for clean up and waste sites not covered under
Superfund. To date, courts have been inconsistent in their rulings on these
issues. An insurer's exposure to liability with regard to its insureds which
have been, or may be, named as PRPs is uncertain. Superfund reform proposals
have been introduced in Congress, but none have been enacted. There can be no
assurance that any Superfund reform legislation will be enacted or that any such
legislation will provide for a fair, effective and cost-efficient system for
settlement of Superfund related claims.
Proposed federal legislation which would permit banks greater participation in
the insurance business could, if enacted, present an increased level of
competition for the sale of insurance products. In addition, while current
federal income tax law permits the tax-deferred accumulation of earnings on the
premiums paid by an annuity owner and holders of certain savings-oriented life
insurance products, no assurance can be given that future tax law will continue
to allow such tax deferrals. If such deferrals were not allowed, consumer demand
for the affected products would be substantially reduced. In addition, proposals
to lower the federal income tax rates through a form of flat tax or otherwise
could have, if enacted, a negative impact on the demand for such products.
Companies engaged in investment banking/brokerage and investment management
include brokerage firms, broker/dealers, investment banks, finance companies and
mutual fund companies. Earnings and share prices of companies in this industry
are quite volatile, and often exceed the volatility levels of the market as a
whole. Recently, ongoing consolidation in the industry and the strong stock
market has benefited stocks which investors believe will benefit from greater
investor and issuer activity. Major determinants of future earnings of these
companies are the direction of the stock market, investor confidence, equity
transaction volume, the level and direction of long-term and short-term interest
rates, and the outlook for emerging markets. Negative trends in any of these
earnings determinants could have a serious adverse effect on the financial
stability, as well as on the stock prices, of these companies. Furthermore,
there can be no assurance that the issuers of the Equity Securities included in
this Series will be able to respond in a timely manner to compete in the rapidly
developing marketplace. In addition to the foregoing, profit margins of these
companies continue to shrink due to the commoditization of traditional
businesses, new competitors, capital expenditures on new technology and the
pressures to compete globally.
Pharmaceutical/Healthcare Sector Series. An investment in this Series should be
made with an understanding of the characteristics of the pharmaceutical and
medical industries and the risks which such investment may entail.
Pharmaceutical companies are companies involved in drug development and
production services. Such companies have potential risks unique to their sector
of the healthcare field. Such companies are subject to governmental regulation
of their products and services, a factor which could have a significant and
possibly unfavorable effect on the price and availability of such products or
services. Furthermore, such companies face the risk of increasing competition
from generic drug sales, the termination of their patent protection for drug
products and the risk that technological advances will render their products or
services obsolete. The research and development costs of bring a drug to market
are substantial and include lengthy government review processes, with no
guarantee that the product will ever come to market. Many of these companies may
have losses and not offer certain products for several years. Such companies may
also have persistent losses during a new product's transition from development
to production, and revenue patterns may be erratic.
The medical sector has historically provided investors with significant growth
opportunities. One of the industries included in the sector is pharmaceutical
companies. Such companies develop, manufacture and sell prescription and
over-the-counter drugs. In addition, they are well known for the vast amounts of
money they spend on world-class research and development. In short, such
companies work to improve the quality of life for millions of people and are
vital to the nation's health and well-being.
As the population of the United States ages, the companies involved in the
pharmaceutical field will continue to search for and develop new drugs through
advanced technologies and diagnostics. On a worldwide basis, such companies are
involved in the development and distribution of drugs and vaccines. These
activities may make the pharmaceutical sector very attractive for investors
seeking the potential for growth in their investment portfolio. However, there
are no assurances that the Series' objectives will be met.
Legislative proposals concerning healthcare are considered from time to time.
These proposals span a wide range of topics, including cost and price controls
(which might include a freeze on the prices of prescription drugs), national
health insurance, incentives for competition in the provisions of healthcare
services, tax incentives and penalties related to healthcare insurance premiums
and promotion of prepaid healthcare plans. First Trust is unable to predict the
effect of any of these proposals, if enacted, on the issuers of Equity
Securities in the Series.
Technology Sector Series. An investment in this Series should be made with an
understanding of the characteristics of the technology industry and the risks
which such an investment may entail.
Technology companies generally include companies involved in the development,
design, manufacture and sale of computers, computer-related equipment, computer
networks, communications systems, telecommunications products, electronic
products and other related products, systems and services. The market for these
products, especially those specifically related to the Internet, is
characterized by rapidly changing technology, rapid product obsolescence,
cyclical market patterns, evolving industry standards and frequent new product
introductions. The success of the issuers of the Equity Securities depends in
substantial part on the timely and successful introduction of new products. An
unexpected change in one or more of the technologies affecting an issuer's
products or in the market for products based on a particular technology could
have a material adverse affect on an issuer's operating results. Furthermore,
there can be no assurance that the issuers of the Equity Securities will be able
to respond in a timely manner to compete in the rapidly developing marketplace.
Based on trading history of common stock, factors such as announcements of new
products or development of new technologies and general conditions of the
industry have caused and are likely to cause the market price of high-
technology common stocks to fluctuate substantially. In addition, technology
company stocks have experienced extreme price and volume fluctuations that often
have been unrelated to the operating performance of such companies. This market
volatility may adversely affect the market price of the Equity Securities.
Some key components of certain products of technology issuers are currently
available only from single sources. There can be no assurance that in the future
suppliers will be able to meet the demand for components in a timely and cost
effective manner. Accordingly, an issuer's operating results and customer
relationships could be adversely affected by either an increase in price for, or
an interruption or reduction in supply of, any key components. Additionally,
many technology issuers are characterized by a highly concentrated customer base
consisting of a limited number of large customers who may require product
vendors to comply with rigorous industry standards. Any failure to comply with
such standards may result in a significant loss or reduction of sales. Because
many products and technologies of technology companies are incorporated into
other related products, such companies are often highly dependent on the
performance of the personal computer, electronics and telecommunications
industries. There can be no assurance that these customers will place additional
orders, or that an issuer of Equity Securities will obtain orders of similar
magnitude such as past orders from other customers. Similarly, the success of
certain technology companies is tied to a relatively small concentration of
products or technologies. Accordingly, a decline in demand of such products,
technologies or from such customers could have a material adverse impact on
issuers of Equity Securities.
Many technology companies rely on a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect their proprietary
rights in their products and technologies. There can be no assurance that the
steps taken by the issuers of the Equity Securities to protect their proprietary
rights will be adequate to prevent misappropriation of their technology or that
competitors will not independently develop technologies that are substantially
equivalent or superior to such issuers' technology. In addition, due to the
increasing public use of the Internet, it is possible that other laws and
regulations may be adopted to address issues such as privacy, pricing,
characteristics, and quality of Internet products and services. For example,
recent proposals would prohibit the distribution of obscene, lascivious or
indecent communications on the Internet. The adoption of any such laws could
have a material adverse impact on the Equity Securities in the Series.
FUND MANAGEMENT
The officers of the Fund manage its day to day operations and are responsible to
the Fund's Board of Managers. The Managers set broad policies for each Series
and choose the Fund's officers. The following is a list of the Managers and
officers of the Fund and a statement of their present positions and principal
occupations during the past five years. The mailing address of the officers and
Managers, unless otherwise noted, is 5901 Executive Drive, Lansing, Michigan
48911.
ANDREW B. HOPPING* (Age 40)
JNL Variable Fund LLC, Sole Managing Board Member (October, 1998 to present)
JNL Series Trust, Trustee (8/97 to present)
JNL Series Trust, President (8/97 to present)
JNL Series Trust, Chief Executive Officer (8/97 to present)
JNL Series Trust, Vice President (8/96 to 8/97)
JNL Series Trust, Treasurer (8/96 to 8/97)
JNL Series Trust, Chief Financial Officer (8/96 to 8/97)
Jackson National Financial Services, LLC, President (3/98 to present)
Jackson National Financial Services, LLC, Managing Board Member (3/98 to
present)
Jackson National Life Insurance Company, Executive Vice President (7/98 to
present)
Jackson National Life Insurance Company, Chief Financial Officer (12/97 to
present)
Jackson National Life Insurance Company, Senior Vice President (6/94 to 7/98)
National Planning Corporation, Vice President (5/98 to 7/98)
National Planning Corporation, Director (6/97 to present)
Jackson National Financial Services, Inc., CEO (7/97 to 5/98)
Jackson National Financial Services, Inc., President (7/97 to 5/98)
Countrywide Credit, Executive Vice President (3/92 to 6/94)
*Managers who are interested persons as defined in the 1940 Act.
To the extent required by applicable law, Jackson National Life will solicit
voting instructions from owners of variable annuity Policies. All interests in
each Series of the Fund will be voted by Jackson National Life in accordance
with voting instructions received from such variable Policy owners. Jackson
National Life will vote all of the interests which it is entitled to vote in the
same proportion as the voting instructions given by variable Policy owners, on
the issues presented.
The Managers who are "interested persons" and officers as designated above
receive no compensation from the Trust. Disinterested Managers will be paid
$_______ for each meeting they attend.
PERFORMANCE
As described in the Prospectus, a Series' historical performance may be shown in
the form of total return and yield. These performance measures are described
below. Performance advertised for a Series may or may not reflect the effect of
any charges that are imposed under a variable annuity Policy that is funded by
the Fund. Such charges, described in the variable annuity prospectus, will have
the effect of reducing a Series' performance.
Standardized average annual total return and non-standardized total return
measure both the net investment income generated by, and the effect of any
realized and unrealized appreciation or depreciation of, the underlying
investments of a Series. Yield is a measure of the net investment income per
interest earned over a specific one month or 30-day period expressed as a
percentage of the net asset value.
A Series' standardized average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the Securities and
Exchange Commission. The standardized average annual total return for a Series
for a specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in the Series' interests on the first day of the period,
adjusting to deduct the applicable charges, if any, and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value is then divided by the initial investment, and this quotient is taken to
the Nth root (N representing the number of years in the period) and 1 is
subtracted from the result, which is then expressed as a percentage. The
calculation assumes that all income and capital gains dividends paid by the
Series have been reinvested at net asset value on the reinvestment dates during
the period.
The standardized average annual total return quotations will be current to the
last day of the calendar quarter preceding the date on which an advertisement is
submitted for publication. The standardized average annual total return will be
based on rolling calendar quarters and will cover at least periods of one, five
and ten years, or a period covering the time the Series has been in existence,
if it has not been in existence for one of the prescribed periods.
Non-standardized total return may also be advertised. Non-standardized total
return may be for periods other than those required to be presented or may
otherwise differ from standardized average annual total return. Non-standardized
total return for a specific period is calculated by first taking an investment
("initial investment") in the Series' interests on the first day of the period
and computing the "end value" of that investment at the end of the period. The
total return percentage is then determined by subtracting the initial investment
from the ending value and dividing the remainder by the initial investment and
expressing the result as a percentage. The calculation assumes that all income
and capital gains dividends paid by the Series have been reinvested at net asset
value on the reinvestment dates during the period. Non-standardized total return
may also be shown as the increased dollar value of the hypothetical investment
over the period.
Quotations of standardized average annual total return and non-standardized
total return are based upon historical earnings and will fluctuate. Any
quotation of performance, therefore, should not be considered a guarantee of
future performance. Factors affecting the performance of a Series include
general market conditions, operating expenses and investment management.
The yield for a Series is computed in accordance with a standardized method
prescribed by the rules of the SEC. Under that method, yield is computed by
dividing the net investment income per interest earned during the specified one
month or 30-day period by the offering price per interest on the last day of the
period, according to the following formula:
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of interests outstanding during the
period that were entitled to receive dividends
d = the offering price (net asset value) per interest on the last day of
the period.
In computing the yield, the Series follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily consistent
with those that the Series use to prepare annual and interim financial
statements in accordance with generally accepted accounting principles.
A Series' performance quotations are based upon historical results and are not
necessarily representative of future performance. The Series' interests are sold
at net asset value. Returns and net asset value will fluctuate. Factors
affecting a Series' performance include general market conditions, operating
expenses and investment management. Interests of a Series are redeemable at the
then current net asset value, which may be more or less than original cost.
The performance of the Series may be compared to various other selected
recognized market indicators. There are differences and similarities between the
investments which a Series may purchase and the investments measured by the
market indicators. Each Series may compare its performance to one or more of the
Consumer Price Index, the Standard & Poor's 500 Index, the Standard & Poor's
MidCap 400 Index, the Morgan Stanley Capital International World Index, the
Lehman Brothers Aggregate Bond Index, the Lehman Brothers High Yield Index, the
Salomon Brothers Broad Investment Grade Index, the Salomon Brothers Treasury
Index, the Russell 2000 Index, the Russell Midcap Index, or the Morgan Stanley
Europe and Australasia, Far East Equity Index The foregoing bond indexes are
unmanaged. The market prices and yields of corporate and government bonds will
fluctuate. Lipper and CDA are widely recognized independent mutual fund
reporting services. Lipper and CDA indexes are weighted performance averages of
other mutual funds with similar investment objectives. The net asset values and
returns of the Series will also fluctuate. No adjustments are made for taxes
payable on dividends.
A Series may periodically advertise tax-deferred compounding charts and other
hypothetical illustrations.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
JNFSLLC, 5901 Executive Drive, Lansing, Michigan 48911, is the investment
adviser to the Fund. As investment adviser, JNFSLLC provides the Fund with
professional investment supervision and management and permits any of its
officers or employees to serve without compensation as Managers or officers of
the Fund if elected to such positions. JNFSLLC is a wholly owned subsidiary of
Jackson National Life Insurance Company, which is in turn wholly owned by
Prudential Corporation plc, a life insurance company in the United Kingdom.
JNFSLLC acts as investment adviser to the Fund pursuant to an Investment
Advisory and Management Agreement.
The Investment Advisory and Management Agreement continues in effect for each
Series from year to year after its initial two-year term so long as its
continuation is approved at least annually by (i) a majority of the Managers who
are not parties to such agreement or interested persons of any such party except
in their capacity as Managers of the Fund, and (ii) the interest holders of each
Series or the Board of Managers. It may be terminated at any time upon 60 days
notice by either party, or by a majority vote of the outstanding interests of a
Series with respect to that Series, and will terminate automatically upon
assignment. Additional Series may be subject to a different agreement. The
Investment Advisory and Management Agreement provides that JNFSLLC shall not be
liable for any error of judgment, or for any loss suffered by the Series in
connection with the matters to which the agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
JNFSLLC in the performance of its obligations and duties, or by reason of its
reckless disregard of its obligations and duties under the agreement. As
compensation for its services, the Trust pays JNFSLLC a fee as described in the
Prospectus.
Sub-Adviser
JNFSLLC has entered into a Sub-Advisory Agreement with First Trust Advisors L.P.
("First Trust") to manage the investment and reinvestment of the assets of each
Series, subject to JNFSLLC's supervision.
Under the Sub-Advisory Agreement, First Trust provides each Series with
discretionary investment services. Specifically, First Trust is responsible for
supervising and directing the investments of each Series in accordance with each
Series' investment objective, program, and restrictions as provided in the
Prospectus and this Statement of Additional Information. First Trust is also
responsible for effecting all security transactions on behalf of each Series.
As compensation for its services, First Trust receives a fee, as disclosed in
the Prospectus, which is paid by JNFSLLC. The Sub-Advisory Agreement also
provides that JNFSLLC, its directors, officers, employees, and certain other
persons performing specific functions for the Series will only be liable to the
Series for losses resulting from willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.
The Sub-Advisory Agreement continues in effect for each Series from year to year
after its initial two-year term so long as its continuation is approved at least
annually by a majority of the Managers who are not parties to such agreement or
interested persons of any such party except in their capacity as Managers of the
Series and by the interest holders of each Series or the Board of Managers. It
may be terminated at any time upon 60 days' notice by either party, or by a
majority vote of the outstanding interests of a Series with respect to that
Series, and will terminate automatically upon assignment or upon the termination
of the investment management agreement between JNFSLLC and the Series.
Additional Series may be subject to a different agreement. First Trust is
responsible for compliance with the provisions of Section 817(h) of the Internal
Revenue Code of 1986, as amended ("Code"), applicable to each Series (relating
to the diversification requirements applicable to investments in underlying
variable annuity contracts).
Sub-License Agreement
JNFSLLC, Jackson National Life and the Fund have also entered into a Sub-License
Agreement with First Trust under the terms of which the Fund and Jackson
National Life are permitted to use and refer to certain copyright, trademark and
proprietary rights and trade secrets of Dow Jones & Company.
Administrative Fee
Each Series pays to JNFSLLC an Administrative Fee of .10% of the average daily
net assets of the Series. In return for the fee, JNFSLLC provides or procures
all necessary administrative functions and services for the operation of the
Series. In addition, JNFSLLC, at its own expense, will arrange for legal, audit,
fund accounting, custody, printing and mailing, and all other services necessary
for the operation of each Series. Each Series is responsible for trading
expenses including brokerage commissions, interest and taxes, and other non-
operating expenses.
Custodian and Transfer Agent
The custodian has custody of all securities and cash of the Fund maintained in
the United States and attends to the collection of principal and income and
payment for and collection of proceeds of securities bought and sold by the
Fund.
_______________ acts as custodian for each Series of the Fund. JNFSLLC is the
transfer agent and dividend-paying agent for each Series of the Fund.
Independent Accountants
The Series' independent accountants, PricewaterhouseCoopers LLP, 200 East
Randolph Drive, Chicago, Illinois 60601, audit and report on the Series' annual
financial statements, and perform other professional accounting, auditing and
advisory services when engaged to do so by the Series.
Series Transactions and Brokerage
The primary consideration in portfolio security transactions is "best
execution," i.e., execution at the most favorable prices and in the most
effective manner possible. JNFSLLC and First Trust always attempt to achieve
best execution and have complete freedom as to the markets in and the
broker/dealers through which they seek this result. Subject to the requirement
of seeking best execution, securities may be bought from or sold to
broker/dealers who have furnished statistical, research, and other information
or services to JNFSLLC or First Trust. In placing orders with such
broker/dealers, JNFSLLC and First Trust will, where possible, take into account
the comparative usefulness of such information. Such information is useful to
JNFSLLC and First Trust even though its dollar value may be indeterminable and
its receipt or availability generally does not reduce JNFSLLC's or First Trust's
normal research activities or expenses.
Fund portfolio transactions may be effected with broker/dealers who have
assisted investors in the purchase of policies. However, neither such assistance
nor sale of other investment company shares is a qualifying or disqualifying
factor in a broker/dealer's selection, nor is the selection of any broker/dealer
based on the volume of interests sold.
There may be occasions when portfolio transactions for the Fund are executed as
part of concurrent authorizations to purchase or sell the same security for
trusts or other accounts served by affiliated companies of JNFSLLC or First
Trust. Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the Fund, they are effected only when JNFSLLC
and First believe that to do so is in the interest of the Fund. When such
concurrent authorizations occur the executions will be allocated in an equitable
manner.
Code of Ethics
To mitigate the possibility that a Series will be adversely affected by personal
trading of employees, the Fund, JNFSLLC and First Trust have adopted Codes of
Ethics under Rule 17j-1 of the 1940 Act. These Codes contain policies
restricting securities trading in personal accounts of the portfolio managers
and others who normally come into possession of information on portfolio
transactions. These Codes comply, in all material respects, with the
recommendations of the Investment Company Institute.
PURCHASES, REDEMPTIONS AND PRICING OF INTERESTS
Account I may purchase interests of the Series at their net asset value.
Interests are purchased using premiums received on Policies issued by Account I.
Account I is funded by interests of the Fund.
All investments in the Fund are credited to the interest holder's account in the
form of full and fractional interests of the designated Series (rounded to the
nearest 1/1000 of an interest). The Fund does not issue interest certificates.
As stated in the Prospectus, the net asset value ("NAV") of Series' interests is
determined once each day on which the New York Stock Exchange (the "NYSE") is
open ("Business Day") at the close of the regular trading session of the
Exchange (normally 4:00 p.m., Eastern Time, Monday through Friday). The NAV of
Series' interests is not determined on the days the NYSE is closed, which days
generally are New Year's Day, Martin Luther King Jr. holiday, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The per interest NAV of a Series is determined by dividing the total value of
the securities and other assets, less liabilities, by the total number of
interests outstanding. In determining NAV, securities listed on the national
securities exchanges, the NASDAQ National Market and foreign markets are valued
at the closing prices on such markets, or if such price is lacking for the
trading period immediately preceding the time of determination, such securities
are valued at their current bid price. Securities that are traded on the
over-the- counter market are valued at their closing bid prices. Foreign
securities and currencies are converted to U.S. dollars using exchange rates in
effect at the time of valuation. A Series will determine the market value of
individual securities held by it, by using prices provided by one or more
professional pricing services which may provide market prices to other funds,
or, as needed, by obtaining market quotations from independent broker-dealers.
Short-term securities maturing within 60 days are valued on the amortized cost
basis. Securities for which quotations are not readily available, and other
assets, are valued at fair values determined in good faith under procedures
established by and under the supervision of the Managers.
Trading in securities on European and Far Eastern securities exchanges and over-
the-counter markets is normally completed well before the close of business on
each Business Day. In addition, European and Far Eastern securities trading
generally or in a particular country or countries may not take place on all
Business Days. Furthermore, trading takes place in Japanese markets on certain
Saturdays and in various foreign markets on days which are not Business Days and
on which a Series' net asset value is not calculated. A Series calculates net
asset value per interest, and therefore effects sales, redemptions and
repurchases of its interests, as of the close of the NYSE once on each day on
which the NYSE is open. Such calculation does not take place contemporaneously
with the determination of the prices of the majority of the foreign portfolio
securities used in such calculation.
The Fund may suspend the right of redemption for any Series only under the
following unusual circumstances: (a) when the New York Stock Exchange is closed
(other than weekends and holidays) or trading is restricted; (b) when an
emergency exists, making disposal of portfolio securities or the valuation of
net assets not reasonably practicable; or (c) during any period when the
Securities and Exchange Commission has by order permitted a suspension of
redemption for the protection of interest holders.
ADDITIONAL INFORMATION
Voting Rights
Interest holders are entitled to one vote for each interest held. Interest
holders may vote on the election of Managers and on other matters submitted to
meetings of interest holders. In regard to termination, sale of assets, or
change of investment restrictions, the right to vote is limited to the holders
of interests of the particular Series affected by the proposal. When a majority
is required, it means the lesser of 67% or more of the interests present at a
meeting when the holders of more than 50% of the outstanding interests are
present or represented by proxy, or more than 50% of the outstanding interests.
Shareholder Inquiries
All inquiries regarding the Fund should be directed to the Fund at the telephone
number or address shown on the cover page of the Prospectus.
TAX STATUS
The Fund is not a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund nonetheless
does not pay federal income tax on its interest, dividend income or capital
gains. As a limited liability company whose interests are sold only to Account
I, the Fund is disregarded as an entity for purposes of federal income taxation.
Jackson National Life, through Account I, is treated as owning the assets of the
Series directly and its tax obligations thereon are computed pursuant to
Subchapter L of the Code (which governs the taxation of insurance companies).
Under current tax law, interest, dividend income and capital gains of the Fund
are not taxable to the Fund, and are not currently taxable to Jackson National
Life or to Policy owners, when left to accumulate within a variable annuity
Policy. Tax disclosure relating to the variable annuity Policies that offer the
Fund as an investment alternative is contained in the prospectuses for those
Policies.
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
variable annuity Policies (that is, the assets of the Series). Failure to
satisfy those standards would result in imposition of Federal income tax on a
variable annuity Policy owner with respect to the increase in the value of the
variable annuity Policy. Section 817(h)(2) provides that a segregated asset
account that funds contracts such as the variable annuity 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 Series 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 could affect
the investment performance of a Series.
FINANCIAL STATEMENTS
No financial statements for the Fund are included in the prospectus or in this
Statement of Additional Information because the Fund had not commenced
operations as of the effective date of this prospectus and Statement of
Additional Information.
JNL VARIABLE FUND LLC
PART C
OTHER INFORMATION
Note: Items 24-32 have been answered with respect to all investment portfolios
(Series) of the Registrant.
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Not Applicable
(b) Exhibits
Exhibit
Number Description
- ------ -----------
1. Certificate of Formation of the Registrant, attached hereto.
2. Operating Agreement of the Registrant, to be filed by Amendment.
3. Not Applicable
4. Not Applicable
5. (a) Investment Advisory and Management Agreement between
Registrant and Jackson National Financial Services, LLC, to be
filed by Amendment.
(b) Investment Sub-Advisory Agreement between Jackson National
Financial Services, LLC and First Trust Advisers L.P., to be
filed by Amendment.
6. Fund Participation Agreement between Registrant, Jackson National Life
Insurance Company and Jackson National Separate Account - I, to be
filed by Amendment.
7. Not Applicable
8. Custodian Contract, to be filed by Amendment.
9. Transfer Agency and Service Agreement between Registrant and Jackson
National Financial Services, LLC, to be filed by Amendment.
10. Opinion of counsel, to be filed by Amendment.
11. Consent of independent auditors, to be filed by Amendment.
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
17. Not Applicable
18. Not Applicable
Item 25. Persons controlled by or under Common Control with Registrant.
Not Applicable.
Item 26. Number of Holders of Securities.
NUMBER OF
HOLDERS AS OF
SERIES November 27, 1998
------ -----------------
JNL/First Trust The Dow Target 5 Series 0
JNL/First Trust The Dow Target 10 Series 0
JNL/First Trust Global Target 15 Series 0
JNL/First Trust Target 25 Series 0
JNL/First Trust Target Small-Cap Series 0
JNL/First Trust Technology Sector Series 0
JNL/First Trust Pharmaceutical/Healthcare Sector Series 0
JNL/First Trust Financial Sector Series 0
JNL/First Trust Energy Sector Series 0
JNL/First Trust Leading Brands Sector Series 0
JNL/First Trust Communications Sector Series 0
Item 27. Indemnification.
To be filed by Pre-Effective Amendment.
Item 28. Business and Other Connections of Investment Adviser.
Incorporated herein by reference from the Prospectus and Statement of
Additional Information relating to the Fund are the following: the
description of the business of Jackson National Financial Services, LLC
contained in the sections entitled "Management of the Fund" and
"Investment Adviser and Other Services" and the biographical
information pertaining to Mr. Hopping contained in the section entitled
"Members of Management Board" of the Statement of Additional
Information.
First Trust Advisers L.P. (File No. 801-39950), the sub-adviser of the
Fund, is primarily engaged in the business of rendering investment
advisory services. Reference is made to the most recent Form ADV and
schedules thereto on file with the Commission for a description of the
names and employment of the directors and officers of the sub-adviser
and other required information.
Item 29. Principal Underwriters.
Not Applicable
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained
pursuant to Rule 31a-1 will be kept in the physical possession of the
Registrant at 225 West Wacker Drive, Suite 1200, Chicago, Illinois
60606.
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Lansing and the State of Michigan on the 30th day of
November, 1998.
JNL VARIABLE FUND LLC
By: /s/ Andrew B. Hopping
--------------------------
Andrew B. Hopping
Sole Managing Board Member
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
/s/ Andrew B. Hopping Sole Managing Board November 30, 1998
- --------------------------- Member -----------------
Andrew B. Hopping
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
- ------ -----------
(1) Certificate of Formation of JNL Variable Fund LLC, attached
hereto as EX-99.B1
Exhibit EX-99.B1
CERTIFICATE OF FORMATION
OF
JNL VARIABLE FUND LLC
The undersigned, an authorized natural person, for the purpose of
forming a limited liability company, under the provisions and subject to the
requirements of the State of Delaware (particularly Chapter 18, Title 6 of the
Delaware Code and the acts amendatory thereof and supplemental thereto, and
known, identified, and referred to as the "Delaware Limited Liability Company
Act"), hereby certifies that:
FIRST, The name of the limited liability company (hereinafter called
the "limited liability company") is: JNL VARIABLE FUND LLC
SECOND, The address of the registered office and the name and address
of the registered agent of the limited liability company required to be
maintained by Section 18-104 of the Delaware Limited Liability Company Act are
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19805.
Executed on October 13, 1998
/s/ Andrew B. Hopping
---------------------
Andrew B. Hopping,
Authorized Person
