As filed with the Securities and Exchange Commission on April 20, 1999
1933 Act Registration No. 333-68105
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
Pre-Effective Amendment No. 1 [X]
----
Post-Effective Amendment No. [ ]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 [X]
----
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 Variable Fund LLC
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.
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>
JNLNY VARIABLE FUND LLC
REFERENCE TO ITEMS REQUIRED BY FORM N-1A
Caption in Prospectus or
Statement of Additional
Information relating to
N-1A Item each Item
- --------- ------------------------
Part A. Information Required in a Prospectus Prospectus
- ------- ------------------------------------ ----------
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investments, About the Series of the Fund
Risks, and Performance
3. Risk/Return Summary: Fee Table Not Applicable
4. Investment Objectives, Principal About the Series of the Fund
Investment Strategies, and Related Risks
5. Management's Discussion of Fund Not Applicable
Performance
6. Management, Organization and Capital Management of the Fund;
Structure About the Series of the Fund
7. Shareholder Information Investment in Fund Interests;
Redemption of Fund Interests;
Tax Status
8. Distribution Arrangements Not Applicable
9. Financial Highlights Information Financial Highlights
Information Required in a Statement of
Part B. Statement of Additional Information Additional Information
- ------- ----------------------------------- ----------------------
10. Cover Page and Table Of Contents Cover Page and Table of Contents
11. Fund History General Information and History
12. Descritpion of the Fund and Its Common Types of Investments and
Investments and Risks Management Practices; Additional
Risk Considerations; Investment
Restrictions Applicable to All
Series
13. Management of the Fund Management of the Fund
14. Control Persons and Principal Holders Management of the Fund
of Securities
15. Investment Advisory and Other Services Investment Advisory and Other
Services
16. Brokerage Allocation and Other Practices Investment Advisory and Other
Services
17. Capital Stock and Other Securities Purchases, Redemptions and
Pricing of Interests; Additional
Information
18. Purchase, Redemption and Pricing of Purchases, Redemptions and
Shares Pricing of Interests
19. Taxation of the Fund Tax Status
20. Underwriters Not Applicable
21. Calculation of Performance Data Performance
22. Financial Statements Financial Statements
Part C.
- -------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Amendment to the Registration Statement.
<PAGE>
JNL(R) VARIABLE FUND LLC
<PAGE>
PROSPECTUS
________________, 1999
JNL(R) VARIABLE FUND LLC
225 West Wacker Drive o Chicago,
Illinois 60606
This Prospectus provides you with the basic information you should know before
investing in the JNL Variable Fund LLC (Fund).
The interests of the Fund are sold to Jackson National Separate Account - I to
fund the benefits of variable annuity contracts. The Fund currently offers
interests in the following separate Series, each with its own investment
objective.
JNL/First Trust The Dow(SM) Target 5 Series
JNL/First Trust The Dow(SM) Target 10 Series
JNL/First Trust The S&P(R) 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 Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this prospectus is accurate or
complete. It is a criminal offense to state otherwise.
"Dow Jones Industrial Average(SM)", "DJIA(SM)", "Dow Industrials(SM)", "Dow
30(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 for use by JNL.
None of the Series, including, and in particular, JNL/First Trust The Dow(SM)
Target 5 Series and JNL/First Trust 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.
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500" and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Jackson National Life Insurance Company (JNL). Neither the Fund nor
any Series are sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Fund.
The Fund's Statement of Additional Information (SAI) contains additional
information about the Fund and the Series.
<PAGE>
TABLE OF CONTENTS
About the Series of the Fund
Management of the Fund
Administrative Fee
Investment in Fund Interests
Redemption of Fund Interests
Tax Status
Hypothetical Performance Data for Target Series
Financial Highlights
<PAGE>
ABOUT THE SERIES OF THE FUND
JNL/FIRST TRUST THE DOW(SM) TARGET 5 SERIES
Investment Objective. The investment objective of the JNL/First Trust The
Dow(SM) Target 5 Series (The Dow Target 5 Series) is a high total return through
a combination of capital appreciation and dividend income.
Principal Investment Strategies. The Dow Target 5 Series seeks to achieve its
objective by investing approximately equal amounts in the common stock of the
five companies included in the Dow Jones Industrial Average(sm) (DJIA) which
have the lowest per share price of the companies with the ten highest dividend
yields on or about the business day before each Stock Selection Date. The five
companies will be selected annually, beginning ________, 1999 and on each one
year anniversary thereof (Stock Selection Date). The sub-adviser generally uses
a buy and hold strategy, trading only on each Stock Selection Date and when cash
flow activity occurs in the Series.
Principal Risks of Investing in The Dow Target 5 Series. An investment in The
Dow Target 5 Series is not guaranteed. As with any mutual fund, the value of The
Dow Target 5 Series' shares will change and you could lose money by investing in
this Series. A variety of factors may influence its investment performance, such
as:
o Market risk. Because The Dow Target 5 Series invests in
U.S.-traded equity securities, it is subject to stock market
risk. Stock prices typically fluctuate more than the values of
other types of securities, typically in response to changes in a
particular company's financial condition and factors affecting
the market in general. For example, unfavorable or unanticipated
poor earnings performance of a company may result in a decline in
its stock's price, and a broad-based market drop may also cause a
stock's price to fall.
o Non-diversification. The Dow Target 5 Series is "non-diversified"
as such term is defined in the Investment Company Act of 1940, as
amended, which means that more than 5%, but not more than 25%, of
its total assets may be invested in securities of any one issuer.
Thus, The Dow Target 5 Series may hold a smaller number of
issuers than if it were "diversified." With a smaller number of
different issuers, The Dow Target 5 Series is subject to more
risk than another fund holding a larger number of issuers, since
changes in the financial condition or market status of a single
issuer may cause greater fluctuation in The Dow Target 5 Series'
total return and share price.
o Limited management. The Dow Target 5 Series' strategy of
investing in five companies according to criteria determined on a
Stock Selection Date prevents The Dow Target 5 Series from
responding to market fluctuations. As compared to other funds,
this could subject The Dow Target 5 Series to more risk if one of
the selected stocks declines in price or if, certain sectors of
the market, or the United States economy, experience downturns.
The investment strategy may also prevent The Dow Target 5 Series
from taking advantage of opportunities available to other funds.
In addition, the performance of The Dow Target 5 Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of The Dow Target 5 Series. The Dow Target 5 Series
invests in the common stock of five companies included in The DJIA. The five
common stocks will be chosen on or about the business day before each Stock
Selection Date by the following criteria:
o the sub-adviser will determine the dividend yield on each common
stock in The DJIA;
o the sub-adviser will determine the ten companies in The DJIA that
have the highest dividend yield;
<PAGE>
o the sub-adviser will allocate approximately equal amounts of The
Dow Target 5 Series to the common stocks of the five companies
with the lowest price per share of such ten companies;
o the sub-adviser will determine the percentage relationship
between the number of shares of each of the five common stocks
selected.
Between Stock Selection Dates, The Dow Target 5 Series will purchase and sell
common stocks according to the percentage relationship among the common stocks
established at the prior Stock Selection Date.
It is generally not possible for the sub-adviser to purchase round lots (usually
100 shares) of stocks in amounts that will precisely duplicate the prescribed
mix of securities. Also, it usually will be impossible for the Series to be 100%
invested in the prescribed mix of securities at any time. To the extent that the
Series is not fully invested, the interests of the interest holders may be
diluted and total return may not directly track the investment results of the
prescribed mix of securities. To minimize this effect, the sub-adviser will
generally try, as much as practicable, to maintain a minimum cash position at
all times. Normally, the only cash items held by the Series will be amounts
expected to be deducted as expenses and amounts too small to purchase additional
round lots of the securities.
The sub-adviser will attempt to replicate the percentage relationship of
securities when selling securities for the Series. The percentage relationship
among the number of securities in the Series should therefore remain relatively
stable. However, given the fact that the market price of such securities will
vary throughout the year, the value of the 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 the annual Stock Selection Date.
At the Stock Selection Date for the Series, new securities will be selected and
a new percentage relationship will be established among the number of securities
for the Series.
The stocks in The Dow Target 5 Series are not expected to reflect the entire
DJIA nor track the movements of The DJIA.
The SAI has more information about The Dow Target 5 Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for The Dow Target 5 Series. Investments are made
under the direction of a committee.
<PAGE>
JNL/FIRST TRUST THE DOW(SM) TARGET 10 SERIES
Investment Objective. The investment objective of the JNL/First Trust The
Dow(SM) Target 10 Series (The Dow Target 10 Series) is a high total return
through a combination of capital appreciation and dividend income.
Principal Investment Strategies. The Dow Target 10 Series seeks to achieve its
objective by investing approximately equal amounts in the common stock of the
ten companies included in the Dow Jones Industrial Average(SM) (DJIA) which have
the highest dividend yields on or about the business day before each Stock
Selection Date. The ten companies will be selected annually, beginning ________,
1999 and on each one year anniversary thereof (Stock Selection Date). The
sub-adviser generally uses a buy and hold strategy, trading only on each Stock
Selection Date and when cash flow activity occurs in the Series.
Principal Risks of Investing in The Target 10 Series. An investment in The Dow
Target 10 Series is not guaranteed. As with any mutual fund, the value of The
Dow Target 10 Series' shares will change and you could lose money by investing
in this Series. A variety of factors may influence its investment performance,
such as:
o Market risk. Because The Dow Target 10 Series invests in
U.S.-traded equity securities, it is subject to stock market
risk. Stock prices typically fluctuate more than the values of
other types of securities, typically in response to changes in a
particular company's financial condition and factors affecting
the market in general. For example, unfavorable or unanticipated
poor earnings performance of a company may result in a decline in
its stock's price, and a broad-based market drop may also cause a
stock's price to fall.
o Non-diversification. The Dow Target 10 Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, The Dow Target 10 Series may
hold a smaller number of issuers than if it were "diversified."
With a smaller number of different issuers, The Dow Target 10
Series is subject to more risk than another fund holding a larger
number of issuers, since changes in the financial condition or
market status of a single issuer may cause greater fluctuation in
The Dow Target 10 Series' total return and share price.
o Limited management. The Dow Target 10 Series' strategy of
investing in ten companies according to criteria determined on a
Stock Selection Date prevents The Dow Target 10 Series from
responding to market fluctuations. As compared to other funds,
this could subject The Dow Target 10 Series to more risk if one
of the selected stocks declines in price or if, certain sectors
of the market, or the United States economy, experience
downturns. The investment strategy may also prevent The Dow
Target 10 Series from taking advantage of opportunities available
to other funds.
In addition, the performance of The Dow Target 10 Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of The Dow Target 10 Series. The Dow Target 10 Series
invests in the common stock of ten companies included in The DJIA. The ten
common stocks will be chosen on or about the business day before each Stock
Selection Date as follows:
o the sub-adviser will determine the dividend yield on each common
stock in The DJIA on or about the business day before the Stock
Selection Date;
o the sub-adviser will allocate approximately equal amounts of The
Dow Target 10 Series to the ten companies in The DJIA that have
the highest dividend yield;
<PAGE>
o the sub-adviser will determine the percentage relationship
between the number of shares of each of the ten common stocks
selected.
Between Stock Selection Dates, The Dow Target 10 Series will purchase and sell
common stocks approximately according to the percentage relationship among the
common stocks established on the prior Stock Selection Date.
It is generally not possible for the sub-adviser to purchase round lots (usually
100 shares) of stocks in amounts that will precisely duplicate the prescribed
mix of securities. Also, it usually will be impossible for the Series to be 100%
invested in the prescribed mix of securities at any time. To the extent that the
Series is not fully invested, the interests of the interest holders may be
diluted and total return may not directly track the investment results of the
prescribed mix of securities. To minimize this effect, the sub-adviser will
generally try, as much as practicable, to maintain a minimum cash position at
all times. Normally, the only cash items held by the Series will be amounts
expected to be deducted as expenses and amounts too small to purchase additional
round lots of the securities.
The sub-adviser will attempt to replicate the percentage relationship of
securities when selling securities for the Series. The percentage relationship
among the number of securities in the Series should therefore remain relatively
stable. However, given the fact that the market price of such securities will
vary throughout the year, the value of the 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 the annual Stock Selection Date.
At the Stock Selection Date for the Series, new securities will be selected and
a new percentage relationship will be established among the number of securities
for the Series.
The stocks in The Dow Target 10 Series are not expected to reflect the entire
DJIA nor track the movements of The DJIA.
The SAI has more information about The Dow Target 10 Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for The Dow Target 10 Series. Investments are
made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST THE S&P(R) TARGET 10 SERIES
Investment Objective. The investment objective of the JNL/First Trust The S&P(R)
Target 10 Series (S&P Target 10 Series) is a high total return through a
combination of capital appreciation and dividend income.
Principal Investment Strategies. The S&P Target 10 Series seeks to achieve its
objective by investing approximately equal amounts in the common stocks of 10
companies selected from a pre-screened subset of the stocks listed in The S&P
500 Index. The ten companies will be selected annually, beginning ________, 1999
and on each one year anniversary thereof (Stock Selection Date), on or about the
last business day before each Stock Selection Date. The sub-adviser generally
uses a buy and hold strategy, trading only on each Stock Selection Date and when
cash flow activity occurs in the Series.
Principal Risks of Investing in The S&P Target 10 Series. An investment in The
S&P Target 10 Series is not guaranteed. As with any mutual fund, the value of
The S&P Target 10 Series' shares will change and you could lose money by
investing in this Series. A variety of factors may influence its investment
performance, such as:
o Market risk. Because The S&P Target 10 Series invests in
U.S.-traded equity securities, it is subject to stock market
risk. Stock prices typically fluctuate more than the values of
other types of securities, typically in response to changes in a
particular company's financial condition and factors affecting
the market in general. For example, unfavorable or unanticipated
poor earnings performance of a company may result in a decline in
its stock's price, and a broad-based market drop may also cause a
stock's price to fall.
o Non-diversification. The S&P Target 10 Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, The S&P Target 10 Series may
hold a smaller number of issuers than if it were "diversified."
With a smaller number of different issuers, The S&P Target 10
Series is subject to more risk than another fund holding a larger
number of issuers, since changes in the financial condition or
market status of a single issuer may cause greater fluctuation in
The S&P Target 10 Series' total return and share price.
o Limited management. The S&P Target 10 Series' strategy of
investing in ten companies according to criteria determined on a
Stock Selection Date prevents The S&P Target 10 Series from
responding to market fluctuations. As compared to other funds,
this could subject The S&P Target 10 Series to more risk if one
of the common stocks selected declines in price or if, certain
sectors of the market, or the United States economy, experience
downturns. The investment strategy may also prevent The S&P
Target 10 Series from taking advantage of opportunities available
to other funds.
In addition, the performance of The S&P Target 10 Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of The S&P Target 10 Series. The S&P Target 10 Series
consists of a portfolio of 10 common stocks selected on or about the business
day before each Stock Selection Date through the following process:
o first, the sub-adviser ranks the companies in The S&P 500 Index
by market capitalization;
o the sub-adviser selects half of the companies in The S & P 500
Index with the largest market capitalization;
o from the remaining companies, the sub-adviser selects the half
with the lowest price to sales ratio;
<PAGE>
o from the remaining companies, the sub-adviser selects the 10
common stocks with the greatest one year price appreciation;
o the sub-adviser will allocate approximately equal amounts of The
S&P Target Series to the selected 10 common stocks;
o the sub-adviser will determine the percentage relationship
between the number of shares of each of the 10 common stocks
selected.
Between Stock Selection Dates, The S&P Target Series will purchase and sell
common stocks according to the percentage relationship among the common stocks
established at the prior Stock Selection Date.
It is generally not possible for the sub-adviser to purchase round lots (usually
100 shares) of stocks in amounts that will precisely duplicate the prescribed
mix of securities. Also, it usually will be impossible for the Series to be 100%
invested in the prescribed mix of securities at any time. To the extent that the
Series is not fully invested, the interests of the interest holders may be
diluted and total return may not directly track the investment results of the
prescribed mix of securities. To minimize this effect, the sub-adviser will
generally try, as much as practicable, to maintain a minimum cash position at
all times. Normally, the only cash items held by the Series will be amounts
expected to be deducted as expenses and amounts too small to purchase additional
round lots of the securities.
The sub-adviser will attempt to replicate the percentage relationship of
securities when selling securities for the Series. The percentage relationship
among the number of securities in the Series should therefore remain relatively
stable. However, given the fact that the market price of such securities will
vary throughout the year, the value of the 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 the annual Stock Selection Date.
At the Stock Selection Date for the Series, new securities will be selected and
a new percentage relationship will be established among the number of securities
for the Series.
The stocks in The S&P Target 10 Series are not expected to reflect the entire
S&P 500 Index nor track the movements of The S & P 500 Index.
The SAI has more information about The S&P Target 10 Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for The S&P Target 10 Series. Investments are
made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST GLOBAL TARGET 15 SERIES
Investment Objective. The investment objective of the JNL/First Trust Global
Target 15 Series (Global Target 15 Series) is a high total return through a
combination of capital appreciation and dividend income.
Principal Investment Strategies. The Global Target 15 Series seeks to achieve
its objective by investing in the common stocks of certain companies which are
components of The Dow Jones Industrial Average(SM) (DJIA), 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 DJIA, the FT Index and
the Hang Seng Index, respectively, that have the highest dividend yields in the
respective index. The fifteen companies will be selected annually, beginning
________, 1999 and on each one year anniversary thereof (Stock Selection Date),
on or about the last business day before each Stock Selection Date. The
sub-adviser generally uses a buy and hold strategy, trading only on each Stock
Selection Date and when cash flow activity occurs in the Series.
Principal Risks of Investing in the Global Target 15 Series. An investment in
the Global Target 15 Series is not guaranteed. As with any mutual fund, the
value of the Global Target 15 Series' shares will change and you could lose
money by investing in this Series. A variety of factors may influence its
investment performance, such as:
o Market risk. Because the Global Target 15 Series invests in
stocks of U.S. and foreign companies, it is subject to stock
market risk. Stock prices typically fluctuate more than the
values of other types of securities, typically in response to
changes in the particular company's financial condition and
factors affecting the market in general. For example, unfavorable
or unanticipated poor earnings performance of the company may
result in a decline in its stock's price, and a broad-based
market drop may also cause a stock's price to fall.
o Non-diversification. The Global Target 15 Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, the Global Target 15 Series
may hold a smaller number of issuers than if it were
"diversified." With a smaller number of different issuers, the
Global Target 15 Series is subject to more risk than another fund
holding a larger number of issuers, since changes in the
financial condition or market status of a single issuer may cause
greater fluctuation in the Global Target 15 Series' total return
and share price.
o Foreign investing risk. Because the Global Target 15 Series
invests in stocks of foreign companies, it is also subject to
foreign investing risk. Foreign investing involves risks not
typically associated with U.S. investments. These risks include,
among others, adverse fluctuations in foreign currency values as
well as adverse political, social and economic developments
affecting a foreign country. Particularly, the reversion of Hong
Kong to Chinese control on July 1, 1997 may adversely affect the
securities of Hong Kong issuers contained in the Global Target 15
Series. Investments in foreign countries could be affected by
factors not present in the U.S., such as restrictions on
receiving the investment proceeds from a foreign country, foreign
tax laws, and potential difficulties in enforcing contractual
obligations. Transactions in foreign securities may be subject to
less efficient settlement practices, including extended clearance
and settlement periods. Owning foreign securities could cause the
Global Target 15 Series' performance to fluctuate more than if it
held only U.S. securities.
o Currency risk. The value of the Global Target 15 Series' shares
may change as a result of changes in exchange rates reducing the
value of the U.S. dollar value of the Global Target 15 Series'
foreign investments. Currency exchange rates can be volatile and
affected by a number of factors, such as the general economics of
a country, the actions of U.S. and foreign governments or central
banks, the imposition of currency controls, and speculation.
<PAGE>
o Limited management. The Global Target 15 Series' strategy of
investing in fifteen companies according to criteria determined
on a Stock Selection Date prevents the Global Target 15 Series
from responding to market fluctuations. As compared to other
funds, this could subject the Global Target 15 Series to more
risk if one of the common stocks selected declines in price or
if, certain sectors of the market, or the United States economy,
experience downturns. The investment strategy may also prevent
the Global Target 15 Series from taking advantage of
opportunities available to other funds.
In addition, the performance of the Global Target 15 Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Global Target 15 Series. The Global Target 15
Series invests in the common stock of fifteen companies included in The DJIA,
the FT Index and the Hang Seng Index. The fifteen common stocks will be chosen
on or about the business day before each Stock Selection Date as follows:
o the sub-adviser will determine the dividend yield on each common
stock in The DJIA, the FT Index and the Hang Seng Index;
o the sub-adviser will determine the ten companies in each of The
DJIA, the FT Index and the Hang Seng Index that have the highest
dividend yield in the respective index;
o out of those companies, the sub-adviser will allocate
approximately equal amounts of the Global Target 15 Series to the
common stocks of the five companies in each index with the lowest
price per share;
o the sub-adviser will determine the percentage relationship
between the number of shares of each of the fifteen common stocks
selected.
Between Stock Selection Dates, the Global Target 15 Series will purchase and
sell common stocks according to the percentage relationship among the common
stocks established at the prior Stock Selection Date.
It is generally not possible for the sub-adviser to purchase round lots (usually
100 shares) of stocks in amounts that will precisely duplicate the prescribed
mix of securities. Also, it usually will be impossible for the Series to be 100%
invested in the prescribed mix of securities at any time. To the extent that the
Series is not fully invested, the interests of the interest holders may be
diluted and total return may not directly track the investment results of the
prescribed mix of securities. To minimize this effect, the sub-adviser will
generally try, as much as practicable, to maintain a minimum cash position at
all times. Normally, the only cash items held by the Series will be amounts
expected to be deducted as expenses and amounts too small to purchase additional
round lots of the securities.
In the event of discrepancies in the market, the sub-adviser may utilize
derivative instruments, such as options, futures contracts, warrants, indexed
securities and repurchase agreements, all of which involve special risks. The
value of derivatives may rise or fall more rapidly than other investments, which
may increase the volatility of the Series depending on the nature and extent of
the derivatives in the Series' portfolio. Additionally, if the sub-adviser uses
derivatives in attempting to manage or "hedge" the overall risk of the Series'
portfolio, the strategy might not be successful, for example, due to changes in
the value of the derivatives that do not correlate with prices movements in the
rest of the portfolio. The sub-adviser does not anticipate using such derivative
instruments with any frequency.
The SAI has more information about the Global Target 15 Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Target 15 Series. Investments are made
under the direction of a committee.
<PAGE>
JNL/FIRST TRUST TARGET 25 SERIES
Investment Objective. The investment objective of the JNL/First Trust Target 25
Series (Target 25 Series) is a high total return through a combination of
capital appreciation and dividend income.
Principal Investment Strategies. The Target 25 Series seeks to achieve its
objective by investing approximately equal amounts in the common stocks of 25
companies selected from a pre-screened subset of the stocks listed on the New
York Stock Exchange (NYSE). The twenty-five companies will be selected annually,
beginning ________, 1999 and on each one year anniversary thereof (Stock
Selection Date), on or about the last business day before each Stock Selection
Date. The sub-adviser generally uses a buy and hold strategy, trading only on
each Stock Selection Date and when cash flow activity occurs in the Series.
Principal Risks of Investing in the Target 25 Series. An investment in the
Target 25 Series is not guaranteed. As with any mutual fund, the value of the
Target 25 Series' shares will change and you could lose money by investing in
this Series. A variety of factors may influence its investment performance, such
as:
o Market risk. Because the Target 25 Series invests in U.S.-traded
equity securities, it is subject to stock market risk. Stock
prices typically fluctuate more than the values of other types of
securities, typically in response to changes in a particular
company's financial condition and factors affecting the market in
general. For example, unfavorable or unanticipated poor earnings
performance of a company may result in a decline in its stock's
price, and a broad-based market drop may also cause a stock's
price to fall.
o Small cap investing. Investing in smaller, newer companies
generally involves greater risks than investing in larger, more
established ones. Certain of or all of the companies in which the
Target 25 Series may invest may be small cap company stocks. Such
companies are likely to have limited product lines, markets or
financial resources and may be subject to more abrupt or erratic
market movements than securities of larger, more established
companies or the market averages in general. In addition, many
small capitalization companies may be in the early stages of
development. Accordingly, an investment in the Target 25 Series
may not be appropriate for all investors.
o Non-diversification. The Target 25 Series is "non-diversified" as
such term is defined in the Investment Company Act of 1940, as
amended, which means that more than 5%, but not more than 25%, of
its total assets may be invested in securities of any one issuer.
Thus, the Target 25 Series may hold a smaller number of issuers
than if it were "diversified." With a smaller number of different
issuers, the Target 25 Series is subject to more risk than
another fund holding a larger number of issuers, since changes in
the financial condition or market status of a single issuer may
cause greater fluctuation in the Target 25 Series' total return
and share price.
o Limited management. The Target 25 Series' strategy of investing
in twenty-five companies according to criteria determined on a
Stock Selection Date prevents the Target 25 Series from
responding to market fluctuations. As compared to other funds,
this could subject the Target 25 Series to more risk if one of
the selected stocks declines in price or if, certain sectors of
the market, or the United States economy, experience downturns.
The investment strategy may also prevent the Target 25 Series
from taking advantage of opportunities available to other funds.
In addition, the performance of the Target 25 Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Target 25 Series. The Target 25 Series consists of
a portfolio of 25 common stocks selected through the following four-step process
on or about the business day before each Stock Selection Date:
<PAGE>
o first, the sub-adviser selects all the dividend-paying common
stocks listed on the NYSE (excluding financial, transportation
and utility stocks, American Depositary Receipts, limited
partnerships and any stock included in the Dow Jones Industrial
Average(SM));
o those common stocks are then ranked from highest to lowest market
capitalization, and the sub-adviser selects the 400 highest
market capitalization stocks;
o those 400 common stocks are then ranked, in terms of dividend
yield, from highest to lowest, and the sub-adviser selects the 75
highest dividend-yielding stocks;
o from the remaining 75 stocks, the sub-adviser discards the 50
highest dividend-yielding stocks and selects the remaining 25
stocks;
o the sub-adviser will allocate approximately equal amounts of the
Target 25 Series to the common stocks selected for the portfolio;
o the sub-adviser will determine the percentage relationship
between the number of shares of each of the twenty-five common
stocks selected.
In addition, companies which, based on publicly available information as of the
Stock Selection Date, are the subject of an announced business combination which
is expected to be concluded within six months of the Stock Selection Date, will
be excluded from the Target 25 Series.
Between Stock Selection Dates, the Target 25 Series will purchase and sell
common stocks according to the percentage relationship among the common stocks
established at the Stock Selection Date.
It is generally not possible for the sub-adviser to purchase round lots (usually
100 shares) of stocks in amounts that will precisely duplicate the prescribed
mix of securities. Also, it usually will be impossible for the Series to be 100%
invested in the prescribed mix of securities at any time. To the extent that the
Series is not fully invested, the interests of the interest holders may be
diluted and total return may not directly track the investment results of the
prescribed mix of securities. To minimize this effect, the sub-adviser will
generally try, as much as practicable, to maintain a minimum cash position at
all times. Normally, the only cash items held by the Series will be amounts
expected to be deducted as expenses and amounts too small to purchase additional
round lots of the securities.
The sub-adviser will attempt to replicate the percentage relationship of
securities when selling securities for the Series. The percentage relationship
among the number of securities in the Series should therefore remain relatively
stable. However, given the fact that the market price of such securities will
vary throughout the year, the value of the 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 the annual Stock Selection Date.
At the Stock Selection Date for the Series, new securities will be selected and
a new percentage relationship will be established among the number of securities
for the Series.
The SAI has more information about the Target 25 Series' authorized investments
and strategies, as well as the risks and restrictions that may apply to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Target 25 Series. Investments are made
under the direction of a committee.
<PAGE>
JNL/FIRST TRUST TARGET SMALL-CAP SERIES
Investment Objective. The investment objective of the JNL/First Trust Target
Small-Cap Series (Target Small-Cap Series) is a high total return through
capital appreciation.
Principal Investment Strategies. The Target Small-Cap Series seeks to achieve
its objective by investing approximately equal amounts in a portfolio of common
stocks of 40 small capitalization (small cap) companies selected from a
pre-screened subset of the common stocks listed on the New York Stock Exchange
(NYSE), the American Stock Exchange (AMEX) or The Nasdaq Stock Market (Nasdaq).
These companies will be selected annually, beginning ________, 1999 and on each
one year anniversary thereof (Stock Selection Date), on or about the last
business day before each Stock Selection Date. The sub-adviser generally uses a
buy and hold strategy, trading only on each Stock Selection Date and when cash
flow activity occurs in the Series.
Principal Risks of Investing in the Target Small-Cap Series. An investment in
the Target Small-Cap Series is not guaranteed. As with any mutual fund, the
value of the Target Small-Cap Series' shares will change and you could lose
money by investing in this Series. A variety of factors may influence its
investment performance, such as:
o Market risk. Because the Target Small-Cap Series invests in
U.S.-traded equity securities, it is subject to stock market
risk. Stock prices typically fluctuate more than the values of
other types of securities, typically in response to changes in
the particular company's financial condition and factors
affecting the market in general. For example, unfavorable or
unanticipated poor earnings performance of the company may result
in a decline in its stock's price, and a broad-based market drop
may also cause a stock's price to fall.
o Small cap investing. Investing in smaller, newer companies
generally involves greater risks than investing in larger, more
established ones. The companies in which the Target Small-Cap
Series is likely to invest have limited product lines, markets or
financial resources and may be subject to more abrupt or erratic
market movements than securities of larger, more established
companies or the market averages in general. In addition, many
small capitalization companies may be in the early stages of
development. Accordingly, an investment in the Target Small-Cap
Series may not be appropriate for all investors.
o Non-diversification. The Target Small-Cap Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, the Target-Small Cap Series
may hold a smaller number of issuers than if it were
"diversified." With a smaller number of different issuers, the
Target Small-Cap Series is subject to more risk than another fund
holding a larger number of issuers, since changes in the
financial condition or market status of a single issuer may cause
greater fluctuation in the Target Small-Cap Series' total return
and share price.
o Limited management. The Target Small-Cap Series' strategy of
investing in certain companies according to criteria determined
on a Stock Selection Date prevents the Target Small-Cap Series
from responding to market fluctuations. As compared to other
funds, this could subject the Target Small-Cap Series to more
risk if one of the common stocks selected declines in price or
if, certain sectors of the market, or the United States economy,
experience downturns. The investment strategy may also prevent
the Target Small-Cap Series from taking advantage of
opportunities available to other funds.
In addition, the performance of the Target Small-Cap Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
<PAGE>
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Target Small-Cap Series. The Target Small-Cap
Series consists of a portfolio of 40 common stocks selected through the
following process on or about the business day before each Stock Selection Date:
o first, the sub-adviser 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);
o from those companies, the sub-adviser then selects only those
companies which 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 (these dollar
limitations will be adjusted periodically for inflation);
o from the remaining companies, the sub-adviser selects only the
stocks with positive three-year sales growth;
o next, from the remaining companies, the sub-adviser selects only
the stocks whose most recent annual earnings are positive;
o the sub-adviser then eliminates any stock whose price has
appreciated by more than 75% in the last 12 months;
o from the remaining list, the sub-adviser selects the 40 stocks
with the greatest price appreciation in the last 12 months on a
relative market capitalization basis (highest to lowest);
o the sub-adviser will allocate approximately equal amounts of the
Target Small-Cap Series to the selected 40 common stocks;
o the sub-adviser will determine the percentage relationship
between the number of shares of each of the 40 common stocks
selected.
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
Stock Selection Date, are the subject of an announced business combination which
is expected to be concluded within six months of the Stock Selection Date, will
be excluded from the Target Small-Cap Series.
Between Stock Selection Dates, the Target Small-Cap Series will purchase and
sell common stocks according to the percentage relationship among the common
stocks established at the prior Stock Selection Date.
It is generally not possible for the sub-adviser to purchase round lots (usually
100 shares) of stocks in amounts that will precisely duplicate the prescribed
mix of securities. Also, it usually will be impossible for the Series to be 100%
invested in the prescribed mix of securities at any time. To the extent that the
Series is not fully invested, the interests of the interest holders may be
diluted and total return may not directly track the investment results of the
prescribed mix of securities. To minimize this effect, the sub-adviser will
generally try, as much as practicable, to maintain a minimum cash position at
all times. Normally, the only cash items held by the Series will be amounts
expected to be deducted as expenses and amounts too small to purchase additional
round lots of the securities.
The sub-adviser will attempt to replicate the percentage relationship of
securities when selling securities for the Series. The percentage relationship
among the number of securities in the Series should therefore remain relatively
stable. However, given the fact that the market price of such securities will
vary throughout the year, the value of the 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 the annual Stock Selection Date.
At the Stock Selection Date for the Series, new securities will be selected and
a new percentage relationship will be established among the number of securities
for the Series.
<PAGE>
The SAI has more information about the Target Small-Cap Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Target Small-Cap Series. Investments are
made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST TECHNOLOGY SECTOR SERIES
Investment Objective. The objective of the JNL/First Trust Technology Sector
Series (Technology Sector Series) is a high total return through capital
appreciation and dividend income.
Principal Investment Strategies. The Technology Sector Series will invest in a
portfolio of common stocks issued by technology companies.
Principal Risks of Investing in the Technology Sector Series. An investment in
the Technology Sector Series is not guaranteed. As with any mutual fund, the
value of the Technology Sector Series' shares will change and you could lose
money by investing in this Series. A variety of factors may influence its
investment performance, such as:
o Market risk. Because the Technology Sector Series invests in
common stocks of U.S. and foreign companies, it is subject to
stock market risk. Stock prices typically fluctuate more than the
values of other types of securities, typically in response to
changes in a particular company's financial condition and factors
affecting the market in general. For example, unfavorable or
unanticipated poor earnings performance of a company may result
in a decline in its stock's price, and a broad-based market drop
may also cause a stock's price to fall.
o Non-diversification. The Technology Sector Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, the Technology Sector Series
may hold a smaller number of issuers than if it were
"diversified." With a smaller number of different issuers, the
Technology Sector Series is subject to more risk than another
fund holding a larger number of issuers, since changes in the
financial condition or market status of a single issuer may cause
greater fluctuation in the Technology Sector Series' total return
and share price.
o Industry concentration risk. Because the Technology Sector Series
is only investing in common stocks of technology related
companies, the Series' performance is closely tied to, and
affected by, the technology industry. Companies within an
industry are often faced with the same obstacles, issues or
regulatory burdens, and their common stock may react similarly
and move in unison to these and other market conditions. As a
result of these factors, stocks in which the Technology Sector
Series will invest may be more volatile than a mixture of stocks
of companies from a wide variety of industries.
o Foreign investing risk. Because the Technology Sector Series
invests in stocks of foreign companies, it is also subject to
foreign investing risk. Foreign investing involves risks not
typically associated with U.S. investment. These risks include,
among others, adverse fluctuations in foreign currency values as
well as adverse political, social and economic developments
affecting a foreign country. Investments in foreign countries
could be affected by factors not present in the U.S., such as
restrictions on receiving the investment proceeds from a foreign
country, foreign tax laws, and potential difficulties in
enforcing contractual obligations. Transactions in foreign
securities may be subject to less efficient settlement practices,
including extended clearance and settlement periods. Owning
foreign securities could cause the Technology Sector Series'
performance to fluctuate more than if it held only U.S.
securities.
o Currency risk. The value of the Technology Sector Series' shares
may change as a result of changes in exchange rates reducing the
value of the U.S. dollar value of the Technology Sector Series'
foreign investments. Currency exchange rates can be volatile and
affected by a number of factors, such as the general economics of
a country, the actions of U.S. and foreign governments or central
banks, the imposition of currency controls, and speculation.
<PAGE>
In addition, the performance of the Technology Sector Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Technology Sector Series. The companies selected
for the Technology Sector Series have been researched and evaluated using
database screening techniques, fundamental analysis, and the judgment of the
sub-adviser's research analysts. The companies in which the Technology Sector
Series will invest will generally have market capitalizations of at least $500
million and have been publicly traded for two years or more. The Technology
Sector Series avoids small market capitalization stocks, newly issued stocks and
stocks with little or no earnings. The technology industry is among the fastest
growing and fastest changing industries in the world. However, 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.
The Technology Sector Series may actively trade securities in seeking to achieve
its objective. Doing so may increase transaction costs, which may reduce
performance.
In the event of discrepancies in the market, the sub-adviser may utilize
derivative instruments, such as options, futures contracts, warrants, indexed
securities and repurchase agreements, all of which involve special risks. The
value of derivatives may rise or fall more rapidly than other investments, which
may increase the volatility of the Series depending on the nature and extent of
the derivatives in the Series' portfolio. Additionally, if the sub-adviser uses
derivatives in attempting to manage or "hedge" the overall risk of the Series'
portfolio, the strategy might not be successful, for example, due to changes in
the value of the derivatives that do not correlate with prices movements in the
rest of the portfolio. The sub-adviser does not anticipate using such derivative
instruments with any frequency.
The SAI has more information about the Technology Sector Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Technology Sector Series. Investments are
made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST PHARMACEUTICAL/HEALTHCARE SECTOR SERIES
Investment Objective. The objective of the JNL/First Trust
Pharmaceutical/Healthcare Sector Series (Pharmaceutical/Healthcare Sector
Series) is a high total return through capital appreciation and dividend income.
Principal Investment Strategies. The Pharmaceutical/Healthcare Sector Series
will invest in a portfolio of common stocks issued by pharmaceutical and/or
healthcare companies.
Principal Risks of Investing in the Pharmaceutical/Healthcare Sector Series. An
investment in the Pharmaceutical/Healthcare Sector Series is not guaranteed. As
with any mutual fund, the value of the Pharmaceutical/Healthcare Sector Series'
shares will change and you could lose money by investing in this Series. A
variety of factors may influence its investment performance, such as:
o Market risk. Because the Pharmaceutical/Healthcare Sector Series
invests in stocks of U.S. and foreign companies, it is subject to
stock market risk. Stock prices typically fluctuate more than the
values of other types of securities, typically in response to
changes in a particular company's financial condition and factors
affecting the market in general. For example, unfavorable or
unanticipated poor earnings performance of a company may result
in a decline in its stock's price, and a broad-based market drop
may also cause a stock's price to fall.
o Non-diversification. The Pharmaceutical/Healthcare Sector Series
is "non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, the Pharmaceutical/Healthcare
Sector Series may hold a smaller number of issuers than if it
were "diversified." With a smaller number of different issuers,
the Pharmaceutical/Healthcare Sector Series is subject to more
risk than another fund holding a larger number of issuers, since
changes in the financial condition or market status of a single
issuer may cause greater fluctuation in the
Pharmaceutical/Healthcare Sector Series' total return and share
price.
o Industry concentration risk. Because the
Pharmaceutical/Healthcare Sector Series is only investing in
common stocks of pharmaceutical/healthcare related companies, the
Series' performance is closely tied to, and affected by, the
pharmaceutical/healthcare industry. Companies within an industry
are often faced with the same obstacles, issues or regulatory
burdens, and their common stock may react similarly and move in
unison to these and other market conditions. As a result of these
factors, stocks in which the Pharmaceutical/Healthcare Sector
Series will invest may be more volatile than a mixture of stocks
of companies from a wide variety of industries.
o Foreign investing risk. Because the Pharmaceutical/Healthcare
Sector Series invests in stocks of foreign companies, it is also
subject to foreign investing risk. Foreign investing involves
risks not typically associated with U.S. investment. These risks
include, among others, adverse fluctuations in foreign currency
values as well as adverse political, social and economic
developments affecting a foreign country. Investments in foreign
countries could be affected by factors not present in the U.S.,
such as restrictions on receiving the investment proceeds from a
foreign country, foreign tax laws, and potential difficulties in
enforcing contractual obligations. Transactions in foreign
securities may be subject to less efficient settlement practices,
including extended clearance and settlement periods. Owning
foreign securities could cause the Pharmaceutical/Healthcare
Sector Series' performance to fluctuate more than if it held only
U.S. securities.
o Currency risk. The value of the Pharmaceutical/Healthcare Sector
Series' shares may change as a result of changes in exchange
rates reducing the value of the U.S. dollar value of the
Pharmaceutical/Healthcare Sector Series' foreign investments.
Currency exchange rates can be volatile and affected by a number
of factors, such as the general economics of a country, the
actions of U.S. and foreign governments or central banks, the
imposition of currency controls, and speculation.
<PAGE>
In addition, the performance of the Pharmaceutical/Healthcare Sector Series
depends on the sub-adviser's ability to effectively implement the investment
strategies of this Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Pharmaceutical/Healthcare Sector Series. The
companies selected for the Pharmaceutical/Healthcare Sector Series have been
researched and evaluated using database screening techniques, fundamental
analysis, and the judgment of the sub-adviser's research analysts. The
pharmaceutical and healthcare industries continue to evolve, and as a result,
pharmaceutical and healthcare companies need to keep pace with this constant
change, in order to be successful. However, 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.
The Pharmaceutical/Healthcare Sector Series may actively trade securities in
seeking to achieve its objective. Doing so may increase transaction costs, which
may reduce performance.
In the event of discrepancies in the market, the sub-adviser may utilize
derivative instruments, such as options, futures contracts, warrants, indexed
securities and repurchase agreements, all of which involve special risks. The
value of derivatives may rise or fall more rapidly than other investments, which
may increase the volatility of the Series depending on the nature and extent of
the derivatives in the Series' portfolio. Additionally, if the sub-adviser uses
derivatives in attempting to manage or "hedge" the overall risk of the Series'
portfolio, the strategy might not be successful, for example, due to changes in
the value of the derivatives that do not correlate with prices movements in the
rest of the portfolio. The sub-adviser does not anticipate using such derivative
instruments with any frequency.
The SAI has more information about the Pharmaceutical/Healthcare Sector Series'
authorized investments and strategies, as well as the risks and restrictions
that may apply to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Pharmaceutical/Healthcare Sector Series.
Investments are made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST FINANCIAL SECTOR SERIES
Investment Objective. The objective of the JNL/First Trust Financial Sector
Series (Financial Sector Series) is a high total return through capital
appreciation and dividend income.
Principal Investment Strategies. The Financial Sector Series invests in a
portfolio of common stocks of companies which may include money center banks,
major regional banks, financial and investment service providers and insurance
companies.
Principal Risks of Investing in the Financial Sector Series. An investment in
the Financial Sector Series is not guaranteed. As with any mutual fund, the
value of the Financial Sector Series' shares will change and you could lose
money by investing in this Series. A variety of factors may influence its
investment performance, such as:
o Market risk. Because the Financial Sector Series invests in
stocks of U.S. and foreign companies, it is subject to stock
market risk. Stock prices typically fluctuate more than the
values of other types of securities, typically in response to
changes in a particular company's financial condition and factors
affecting the market in general. For example, unfavorable or
unanticipated poor earnings performance of a company may result
in a decline in its stock's price, and a broad-based market drop
may also cause a stock's price to fall.
o Non-diversification. The Financial Sector Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended (1940 Act), which means that more
than 5%, but not more than 25%, of its total assets may be
invested in securities of any one issuer. Thus, the Financial
Sector Series may hold a smaller number of issuers than if it
were "diversified." With a smaller number of different issuers,
the Financial Sector Series is subject to more risk than another
fund holding a larger number of issuers, since changes in the
financial condition or market status of a single issuer may cause
greater fluctuation in the Financial Sector Series' total return
and share price. Notwithstanding the foregoing, and in compliance
with the 1940 Act, the Financial Sector Series does not intend to
invest more than 5% of the value of its total assets in the
common stock of any issuer that derives more than 15% of its
gross revenues from securities-related activities.
o Industry concentration risk. Because the Financial Sector Series
is only investing in common stocks of financial related
companies, the Series' performance is closely tied to, and
affected by, the financial industry. Companies within an industry
are often faced with the same obstacles, issues or regulatory
burdens, and their common stock may react similarly and move in
unison to these and other market conditions. As a result of these
factors, stocks in which the Financial Sector Series will invest
may be more volatile than a mixture of stocks of companies from a
wide variety of industries.
o Foreign investing risk. Because the Financial Sector Series
invests in stocks of foreign companies, it is also subject to
foreign investing risks. Foreign investing involves risks not
typically associated with U.S. investment. These risks include,
among others, adverse fluctuations in foreign currency values as
well as adverse political, social and economic developments
affecting a foreign country. Investments in foreign countries
could be affected by factors not present in the U.S., such as
restrictions on receiving the investment proceeds from a foreign
country, foreign tax laws, and potential difficulties in
enforcing contractual obligations. Transactions in foreign
securities may be subject to less efficient settlement practices,
including extended clearance and settlement periods. Owning
foreign securities could cause the Financial Sector Series'
performance to fluctuate more than if it held only U.S.
securities.
o Currency risk. The value of the Financial Sector Series' shares
may change as a result of changes in exchange rates reducing the
value of the U.S. dollar value of the Financial Sector Series'
foreign investments. Currency exchange rates can be volatile and
affected by a number of factors, such as the general economics of
a country, the actions of U.S. and foreign governments or central
banks, the imposition of currency controls, and speculation.
<PAGE>
In addition, the performance of the Financial Sector Series depends on the
sub-adviser's ability to effectively implement the investment strategies of the
Financial Sector Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Financial Sector Series. The companies selected for
the Financial Sector Series have been researched and evaluated using database
screening techniques, fundamental analysis and the judgment of the sub-adviser's
research analysts. To help reduce risk, the Financial Sector 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. However, it is
important to note that the financial services 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.
The Financial Sector Series may actively trade securities in seeking to achieve
its objective. Doing so may increase transaction costs, which may reduce
performance.
In the event of discrepancies in the market, the sub-adviser may utilize
derivative instruments, such as options, futures contracts, warrants, indexed
securities and repurchase agreements, all of which involve special risks. The
value of derivatives may rise or fall more rapidly than other investments, which
may increase the volatility of the Series depending on the nature and extent of
the derivatives in the Series' portfolio. Additionally, if the sub-adviser uses
derivatives in attempting to manage or "hedge" the overall risk of the Series'
portfolio, the strategy might not be successful, for example, due to changes in
the value of the derivatives that do not correlate with prices movements in the
rest of the portfolio. The sub-adviser does not anticipate using such derivative
instruments with any frequency.
The SAI has more information about the Financial Sector Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Financial Sector Series. Investments are
made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST ENERGY SECTOR SERIES
Investment Objective. The objective of the JNL/First Trust Energy Sector Series
(Energy Sector Series) is a high total return through capital appreciation and
dividend income.
Principal Investment Strategies. The Energy Sector Series will invest in a
portfolio of common stocks of energy industry companies. The Energy Sector
Series' portfolio will include companies from across various areas of the energy
industry, including integrated oil, oil field services and equipment, oil and
gas production, and natural gas.
Principal Risks of Investing in the Energy Sector Series. An investment in the
Energy Sector Series is not guaranteed. As with any mutual fund, the value of
the Energy Sector Series' shares will change and you could lose money by
investing in this Series. A variety of factors may influence its investment
performance, such as:
o Market risk. Because the Energy Sector Series invests in stocks
of U.S. and foreign companies, it is subject to stock market
risk. Stock prices typically fluctuate more than the values of
other types of securities, typically in response to changes in a
particular company's financial condition and factors affecting
the market in general. For example, unfavorable or unanticipated
poor earnings performance of a company may result in a decline in
its stock's price, and a broad-based market drop may also cause a
stock's price to fall.
o Non-diversification. The Energy Sector Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, the Energy Sector Series may
hold a smaller number of issuers than if it were "diversified."
With a smaller number of different issuers, the Energy Sector
Series is subject to more risk than another fund holding a larger
number of issuers, since changes in the financial condition or
market status of a single issuer may cause greater fluctuation in
the Energy Sector Series' total return and share price.
o Industry concentration risk. Because the Energy Sector Series is
only investing in common stocks of energy related companies, the
Series' performance is closely tied to, and affected by, the
energy industry. Companies within an industry are often faced
with the same obstacles, issues or regulatory burdens, and their
common stock may react similarly and move in unison to these and
other market conditions. As a result of these factors, stocks in
which the Energy Sector Series will invest are more volatile than
a mixture of stocks of companies from a wide variety of
industries.
o Foreign investing risk. Because the Energy Sector Series invests
in stocks of foreign companies, it is also subject to foreign
investing risk. Foreign investing involves risks not typically
associated with U.S. investment. These risks include, among
others, adverse fluctuations in foreign currency values as well
as adverse political, social and economic developments affecting
a foreign country. Investments in foreign countries could be
affected by factors not present in the U.S., such as restrictions
on receiving the investment proceeds from a foreign country,
foreign tax laws, and potential difficulties in enforcing
contractual obligations. Transactions in foreign securities may
be subject to less efficient settlement practices, including
extended clearance and settlement periods. Owning foreign
securities could cause the Energy Sector Series' performance to
fluctuate more than if it held only U.S. securities.
o Currency risk. The value of the Energy Sector Series' shares may
change as a result of changes in exchange rates reducing the
value of the U.S. dollar value of the Energy Sector Series'
foreign investments. Currency exchange rates can be volatile and
affected by a number of factors, such as the general economics of
a country, the actions of U.S. and foreign governments or central
banks, the imposition of currency controls, and speculation.
<PAGE>
In addition, the performance of the Energy Sector Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Energy Sector Series. The companies selected for
the Energy Sector Series have been researched and evaluated using database
screening techniques, fundamental analysis and the judgment of the sub-adviser's
research analysts. To help reduce risk, the Energy Sector Series avoids small
companies, newly-issued stocks and stocks with little or no earnings.
The Energy Sector Series may actively trade securities in seeking to achieve its
objective. Doing so may increase transaction costs, which may reduce
performance.
In the event of discrepancies in the market, the sub-adviser may utilize
derivative instruments, such as options, futures contracts, warrants, indexed
securities and repurchase agreements, all of which involve special risks. The
value of derivatives may rise or fall more rapidly than other investments, which
may increase the volatility of the Series depending on the nature and extent of
the derivatives in the Series' portfolio. Additionally, if the sub-adviser uses
derivatives in attempting to manage or "hedge" the overall risk of the Series'
portfolio, the strategy might not be successful, for example, due to changes in
the value of the derivatives that do not correlate with prices movements in the
rest of the portfolio. The sub-adviser does not anticipate using such derivative
instruments with any frequency.
The SAI has more information about the Energy Sector Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Energy Sector Series. Investments are
made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST LEADING BRANDS SECTOR SERIES
Investment Objective. The objective of the JNL/First Trust Leading Brands Sector
Series (Leading Brands Sector Series) is a high total return through capital
appreciation and dividend income.
Principal Investment Strategies. The Leading Brands Sector Series will invest in
a portfolio of common stocks of companies considered to be leaders in the
consumer goods industry.
Principal Risks of Investing in the Leading Brands Sector Series. An investment
in the Leading Brands Sector Series is not guaranteed. As with any mutual fund,
the value of the Leading Brands Sector Series' shares will change and you could
lose money by investing in this Series. A variety of factors may influence its
investment performance, such as:
o Market risk. Because the Leading Brands Sector Series invests in
stocks of U.S. and foreign companies, it is subject to stock
market risk. Stock prices typically fluctuate more than the
values of other types of securities, typically in response to
changes in a particular company's financial condition and factors
affecting the market in general. For example, unfavorable or
unanticipated poor earnings performance of a company may result
in a decline in its stock's price, and a broad-based market drop
may also cause a stock's price to fall.
o Non-diversification. The Leading Brands Sector Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, the Leading Brands Sector
Series may hold a smaller number of issuers than if it were
"diversified." With a smaller number of different issuers, the
Leading Brands Sector Series is subject to more risk than another
fund holding a larger number of issuers, since changes in the
financial condition or market status of a single issuer may cause
greater fluctuation in the Leading Brands Sector Series' total
return and share price.
o Industry concentration risk. Because the Leading Brands Sector
Series is only investing in common stocks of consumer goods
companies, the Series' performance is closely tied to, and
affected by, the consumer industry. Companies within an industry
are often faced with the same obstacles, issues or regulatory
burdens, and their common stock may react similarly and move in
unison to these and other market conditions. As a result of these
factors, stocks in which the Leading Brands Sector Series will
invest may be more volatile than a mixture of stocks of companies
from a wide variety of industries.
o Foreign investing risk. Because the Leading Brands Sector Series
invests in stocks of foreign companies, it is also subject to
foreign investing risk. Foreign investing involves risks not
typically associated with U.S. investment. These risks include,
among others, adverse fluctuations in foreign currency values as
well as adverse political, social and economic developments
affecting a foreign country. Investments in foreign countries
could be affected by factors not present in the U.S., such as
restrictions on receiving the investment proceeds from a foreign
country, foreign tax laws, and potential difficulties in
enforcing contractual obligations. Transactions in foreign
securities may be subject to less efficient settlement practices,
including extended clearance and settlement periods. Owning
foreign securities could cause the Leading Brands Sector Series'
performance to fluctuate more than if it held only U.S.
securities.
o Currency risk. The value of the Leading Brands Sector Series'
shares may change as a result of changes in exchange rates
reducing the value of the U.S. dollar value of the Leading Brands
Sector Series' foreign investments. Currency exchange rates can
be volatile and affected by a number of factors, such as the
general economics of a country, the actions of U.S. and foreign
governments or central banks, the imposition of currency
controls, and speculation.
<PAGE>
In addition, the performance of the Leading Brands Sector Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Leading Brands Sector Series. The companies
selected for the Leading Brands Sector Series have been researched and evaluated
using database screening techniques, fundamental analysis, and the judgment of
the sub-adviser's research analysts.
The Leading Brands Sector Series may actively trade securities in seeking to
achieve its objective. Doing so may increase transaction costs, which may reduce
performance.
In the event of discrepancies in the market, the sub-adviser may utilize
derivative instruments, such as options, futures contracts, warrants, indexed
securities and repurchase agreements, all of which involve special risks. The
value of derivatives may rise or fall more rapidly than other investments, which
may increase the volatility of the Series depending on the nature and extent of
the derivatives in the Series' portfolio. Additionally, if the sub-adviser uses
derivatives in attempting to manage or "hedge" the overall risk of the Series'
portfolio, the strategy might not be successful, for example, due to changes in
the value of the derivatives that do not correlate with prices movements in the
rest of the portfolio. The sub-adviser does not anticipate using such derivative
instruments with any frequency.
The SAI has more information about the Leading Brands Sector Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Leading Brands Sector Series. Investments
are made under the direction of a committee.
<PAGE>
JNL/FIRST TRUST COMMUNICATIONS SECTOR SERIES
Investment Objective. The objective of the JNL/First Trust Communications Sector
Series (Communications Sector Series) is a high total return through capital
appreciation and dividend income.
Principal Investment Strategies. The Communications Sector Series invests in a
portfolio of common stocks of companies in the communications industry. These
companies may include domestic and international companies involved in cable
television, computer networking, communications equipment, communications
services and wireless communications.
Principal Risks of Investing in the Communications Sector Series. An investment
in the Communications Sector Series is not guaranteed. As with any mutual fund,
the value of the Communications Sector Series' shares will change and you could
lose money by investing in this Series. A variety of factors may influence its
investment performance, such as:
o Market risk. Because the Communications Sector Series invests in
traded common stocks of U.S. and foreign companies, it is subject
to stock market risk. Stock prices typically fluctuate more than
the values of other types of securities, typically in response to
changes in a particular company's financial condition and factors
affecting the market in general. For example, unfavorable or
unanticipated poor earnings performance of a company may result
in a decline in its stock's price, and a broad-based market drop
may also cause a stock's price to fall.
o Non-diversification. The Communications Sector Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that more than 5%,
but not more than 25%, of its total assets may be invested in
securities of any one issuer. Thus, the Communications Sector
Series may hold a smaller number of issuers than if it were
"diversified." With a smaller number of different issuers, the
Communications Sector Series is subject to more risk than another
fund holding a larger number of issuers, since changes in the
financial condition or market status of a single issuer may cause
greater fluctuation in the Communications Sector Series' total
return and share price.
o Industry concentration risk. Because the Communications Sector
Series is only investing in common stocks of communication
industry companies, the Series' performance is closely tied to,
and affected by, the communication industry. Companies within an
industry are often faced with the same obstacles, issues or
regulatory burdens, and their common stock may react similarly
and move in unison to these and other market conditions. As a
result of these factors, stocks in which the Communication Sector
Series will invest may be more volatile than a mixture of stocks
of companies from a wide variety of industries.
o Foreign investing risk. Because the Communications Sector Series
invest in stocks of foreign companies, it is also subject to
foreign investing risk. Foreign investing involves risks not
typically associated with U.S. investment. These risks include,
among others, adverse fluctuations in foreign currency values as
well as adverse political, social and economic developments
affecting a foreign country. Investments in foreign countries
could be affected by factors not present in the U.S., such as
restrictions on receiving the investment proceeds from a foreign
country, foreign tax laws, and potential difficulties in
enforcing contractual obligations. Transactions in foreign
securities may be subject to less efficient settlement practices,
including extended clearance and settlement periods. Owning
foreign securities could cause the Communication Sector Series'
performance to fluctuate more than if it held only U.S.
securities.
o Currency risk. The value of the Communications Sector Series'
shares may change as a result of changes in exchange rates
reducing the value of the U.S. dollar value of the Communications
Sector Series' foreign investments. Currency exchange rates can
be volatile and affected by a number of factors, such as the
general economics of a country, the actions of U.S. and foreign
governments or central banks, the imposition of currency
controls, and speculation.
<PAGE>
In addition, the performance of the Communications Sector Series depends on the
sub-adviser's ability to effectively implement the investment strategies of this
Series.
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of the Communications Sector Series. The companies
selected for the Communications Sector Series have been researched and evaluated
using database screening techniques, fundamental analysis, and the judgment of
the sub-adviser's research analysts.
The Communications Sector Series may actively trade securities in seeking to
achieve its objective. Doing so may increase transaction costs, which may reduce
performance.
In the event of discrepancies in the market, the sub-adviser may utilize
derivative instruments, such as options, futures contracts, warrants, indexed
securities and repurchase agreements, all of which involve special risks. The
value of derivatives may rise or fall more rapidly than other investments, which
may increase the volatility of the Series depending on the nature and extent of
the derivatives in the Series' portfolio. Additionally, if the sub-adviser uses
derivatives in attempting to manage or "hedge" the overall risk of the Series'
portfolio, the strategy might not be successful, for example, due to changes in
the value of the derivatives that do not correlate with prices movements in the
rest of the portfolio. The sub-adviser does not anticipate using such derivative
instruments with any frequency.
The SAI has more information about the Communications Sector Series' authorized
investments and strategies, as well as the risks and restrictions that may apply
to them.
Portfolio Management. There is no one individual primarily responsible for
portfolio management decisions for the Communications Sector Series. Investments
are made under the direction of a committee.
<PAGE>
MORE ABOUT THE INVESTMENT OBJECTIVES AND RISKS OF ALL SERIES
Investment Objectives. The investment objectives and policies of each of the
Series are not fundamental and may be changed by the Board of Managers of the
Fund, without interest holder approval.
In the event of discrepancies in the market, the sub-adviser may, but will not
necessarily, utilize derivative instruments, such as options, futures contracts,
warrants, indexed securities and repurchase agreements, all of which involve
special risks. The value of derivatives may rise or fall more rapidly than other
investments, which may increase the volatility of the Series depending on the
nature and extent of the derivatives in the Series' portfolio. Additionally, if
the sub-adviser uses derivatives in attempting to manage or "hedge" the overall
risk of the Series' portfolio, the strategy might not be successful, for
example, due to changes in the value of the derivatives that do not correlate
with prices movements in the rest of the portfolio. The sub-adviser does not
anticipate using such derivative instruments with any frequency.
Description of Indices. The portfolios of certain of the Series consist of the
common stocks of companies listed on various indices. Except as previously
described, the publishers of the indices have not granted the Fund or the Fund's
investment adviser a license to use their respective index. None of the Series
are designed or intended to result in prices that parallel or correlate with the
movements in any particular index or a combination of indices and it is expected
that their prices will not parallel or correlate with such movements. The
publishers of the indices have not participated in any way in the creation of
the Fund or any of the Series or in the selection of stocks in the Series. A
description of certain of the indices is provided below:
The Dow Jones Industrial Average(SM). The stocks included in the DJIA
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.
The Financial Times Industrial Ordinary Share Index. 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. These companies are highly
capitalized and major factors in their industries. In addition, their stocks are
widely held by individuals and institutional investors.
The Hang Seng Index. The Hang Seng Index presently consists of 33 of
the 358 stocks currently listed on the Stock Exchange of Hong Kong Ltd. (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.
The Nasdaq-100 Index. The Nasdaq-100 Index represents the largest and
most active nonfinancial domestic and international issues listed on the Nasdaq
Stock Market(R). The index is calculated based on a modified capitalization
weighted methodology. The Nasdaq Stock Market lists nearly 5,400 companies and
trades more shares per day than any other major U.S. market.
The Standard & Poor's 500 Index. Widely regarded as the standard for
measuring large-cap U.S. stock market performance, the S&P 500 Index includes a
representative sample of leading U.S. companies in leading industries. The S&P
500 Index consists of 500 stocks chosen for market size, liquidity and industry
group representation. It is a market-value weighted index with each stocks'
weight in the Index proportionate to its market value.
Year 2000 and Euro Issues. Apart from the particular risks described above for
each Series, the Fund could be adversely affected if the computer systems used
by the Fund's investment adviser, sub-adviser or its other service providers 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."
<PAGE>
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.
Similarly, the companies and other issuers in which a Series invests could be
adversely affected by year 2000 computer-related problems, and there can be no
assurance that the steps taken, if any, by these issuers will be sufficient to
avoid any adverse impact on the Series.
Also, to the extent that the Fund invests in foreign securities, the Fund could
be adversely affected by the conversion of certain European currencies into the
Euro. This conversion, which is underway, is scheduled to be completed in 2002.
However, problems with the conversion process and delays could increase
volatility in world capital markets and affect European capital markets in
particular.
Legislation. At any time after the date of the Prospectus, legislation may be
enacted that could negatively affect the common stock in the Series or the
issuers of such common stock. Further, changing approaches to regulation 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 common stock held in the Series to achieve their business
goals.
<PAGE>
MANAGEMENT OF THE FUND
Investment Adviser
Under Delaware law and the Fund's Certificate of Formation and Operating
Agreement, 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 (JNFS), 5901 Executive Drive, Lansing,
Michigan 48911, is the investment adviser to the Fund and provides the Fund with
professional investment supervision and management. JNFS is a wholly owned
subsidiary of JNL, which is in turn wholly owned by Prudential Corporation plc,
a life insurance company in the United Kingdom. JNFS is a successor to Jackson
National Financial Services, Inc. which served as an investment adviser to the
JNL Series Trust, a registered investment company, from its inception until July
1, 1998, when it transferred its duties as investment adviser and its
professional staff for investment advisory services to JNFS.
JNFS 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. JNFS
monitors the compliance of the sub-adviser with the investment objectives and
related policies of each Series and reviews the performance of the sub-adviser
and reports periodically on such performance to the Board of Managers of the
Fund.
As compensation for its services, JNFS 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 fee, which is accrued daily and
payable monthly, is 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 fee:
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 partners. Nike Securities Corporation is an
Illinois corporation controlled by Robert Donald Van Kampen.
As of the date of this Prospectus, the Series had 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 certain of the Series in that they have the
same investment objectives as those 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.
<PAGE>
Under the terms of the Sub-Advisory Agreement between First Trust and JNFS,
First Trust manages the investment and reinvestment of the assets of each
Series, subject to the oversight and supervision of JNFS and the Board of
Managers of the Fund. First Trust formulates a continuous investment program for
each 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 JNFS and the Board of Managers of the Fund
with respect to the implementation of such programs.
As compensation for its services, First Trust receives a fee from JNFS computed
separately for each Series, stated as an annual percentage of the net assets of
such Series. The SAI contains a schedule of the management fees JNFS currently
is obligated to pay First Trust out of the advisory fee it receives from each
Series.
ADMINISTRATIVE FEE
In addition to the investment advisory fee, each Series pays to JNFS an
Administrative Fee. Each Series, except the JNL/First Trust Global Target 15
Series, pays JNFS an Administrative Fee of .10% of the average daily net assets
of the Series. The JNL/First Trust Global Target 15 Series pays JNFS an
Administrative Fee of .20% of the average daily net assets of the Series. In
return for the fee, JNFS provides or procures all necessary administrative
functions and services for the operation of the Series. In addition, JNFS, 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
Interests in the Fund are currently sold to Jackson National Separate Account -
I, a separate account of JNL, 5901 Executive Drive, Lansing, Michigan 48911, to
fund the benefits under certain variable annuity contracts (Contracts). The
Separate Account purchases interests in the Series at net asset value using
premiums received on Contracts issued by JNL. Purchases are effected at net
asset value next determined after the purchase order, in proper form, is
received by the Fund's transfer agent. There is no sales charge.
Interests in the Fund are not available to the general public directly. The
Series are managed by a sub-adviser who manages publicly available unit
investment trusts having similar names and investment objectives. While some of
the Series may be similar to, and may in fact be modeled after publicly
available unit investment trusts, Contract purchasers should understand that the
Series are not otherwise directly related to any publicly available unit
investment trusts. Consequently, the investment performance of publicly
available unit investment trusts and any corresponding Series may differ
substantially.
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. Generally, the value of exchange-listed or -traded securities is
based on their respective market prices, bonds are valued based on prices
provided by an independent pricing service and short-term debt securities are
valued at amortized cost, which approximates market value. A Series may invest
in securities primarily listed on foreign exchanges and that trade on days when
the Series does not price its interests. As a result, a Series' net asset value
may change on days when shareholders are not able to purchase or redeem the
Series' interests.
All investments in the Fund are credited to the interest holder's account in the
form of full and fractional shares of the designated Series (rounded to the
nearest 1/1000 of a share). The Fund does not issue interest certificates.
<PAGE>
REDEMPTION OF FUND INTERESTS
Jackson National Separate Account - I redeems shares to make benefit or
withdrawal payments under the terms of its Contracts. Redemptions are processed
on any day on which the Fund is open for 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:
o when the New York Stock Exchange is closed (other than weekends
and holidays) or trading is restricted;
o when an emergency exists, making disposal of portfolio securities
or the valuation of net assets not reasonably practicable; or
o during any period when the SEC has by order permitted a
suspension of redemption for the protection of shareholders.
TAX STATUS
General
The Fund is a limited liability company with all of its interests owned by a
single entity, Jackson National Separate Account I. Accordingly, the Fund is
taxed as part of the operations of JNL 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 Jackson National Separate 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 Jackson National Separate 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 SAI for more specific information.
<PAGE>
HYPOTHETICAL PERFORMANCE DATA FOR TARGET SERIES
As of the date of this Prospectus, the Series had not commenced investment
operations. However, certain aspects of the investment strategies for The Dow
Target 5 Series, The Dow Target 10 Series, the S&P Target 10 Series, the Global
Target 15 Series, the Target 25 Series, and the Target Small-Cap Series (Target
Series) can be demonstrated using historical data. The following table
illustrate the hypothetical performance of the investment strategies used by
each Target Series and the actual performance of the DJIA, the S&P 500 Index,
the FT Index, the Hang Seng Index, the Ibbotson Small Cap Index and a
combination index made up of one-third of the total returns of each of the DJIA,
the Hang Sang and the FT Indices. The table also shows how performance varies
from year to year.
The information for the Target Series assumes that each Series was fully
invested as of the beginning of each year and that each Stock Selection Date was
the first of the year. In addition, the performance information does not take
into consideration any sales charges, commissions, insurance fees or charges
imposed on the sale of the variable annuity policies, expenses or taxes.
Any of such charges will lower the returns shown.
The information provided below has been stated in U.S. dollars and therefore has
been adjusted to reflect currency exchange rate fluctuations. Also, the
information provided for the Target 25 Series and the Target Small-Cap Series
excludes common stocks of companies which on a Stock Selection Date were party
to a publicly announced business combination which was expected to have been
completed within six months.
The returns shown below for the Target Series are not a guarantee of future
performance and should not be used to predict the expected returns on a Target
Series. In fact, each hypothetical Target Series underperformed its respective
index in certain years.
<PAGE>
COMPARISON OF TOTAL RETURN
<TABLE>
<CAPTION>
Year Target 25 Target 10 Target 5 Global Target S&P S&P 500 FT Index Hang Seng
---- --------- ---------- --------- ------ ------ --- ------- -------- ---------
Series Series Series Target 15 Small-Cap Target Index Index
------ ------ ------ ---------- --------- ------ ----- -----
Series Series Series
------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1978 6.49% 0.03% 1.23% 4.23% 17.53% TBD 6.49% 9.92% 23.10%
1979 27.68% 13.01% 9.84% 44.70% 40.78% TBD 18.22% 3.59% 77.99%
1980 26.45% 27.90% 41.69% 52.51% 61.97% TBD -4.92% -5.30% -12.34%
1981 8.52% 7.46% 3.19% 0.03% -9.46% TBD -4.92% -5.30% -12.34%
1982 30.83% 27.12% 43.37% -2.77% 51.26% TBD 21.14% 0.42% -48.01%
1983 32.09% 39.07% 36.38% 15.61% 31.04% TBD 22.28% 21.94% -2.04%
1984 5.55% 6.22% 11.12% 29.88% -1.10% TBD 6.22% 2.15% 42.61%
1985 41.89% 29.54% 38.34% 54.06% 50.81% TBD 31.77% 54.74% 50.95%
1986 25.01% 35.63% 30.89% 38.11% 23.35% TBD 18.31% 24.36% 51.16%
1987 14.41% 5.59% 10.69% 17.52% 14.94% TBD 5.33% 37.13% -6.84%
1988 27.18% 24.75% 21.17% 24.26% 23.19% TBD 16.64% 9.00% 21.04%
1989 22.98% 26.97% 10.55% 15.98% 26.10% TBD 31.35% 20.07% 10.59%
1990 -0.82% -7.82% -15.74% 3.19% 1.08% TBD -3.30% 11.03% 11.71%
1991 37.67% 34.20% 62.03% 40.40% 59.55% TBD 30.40% 8.77% 50.68%
1992 15.14% 7.69% 22.90% 26.64% 27.81% TBD 7.62% -3.13% 34.73%
1993 15.22% 27.08% 34.01% 65.65% 22.47% TBD 9.95% 19.22% 124.95%
1994 9.73% 4.21% 8.27% -7.26% 2.11% TBD 1.34% 1.97% -29.34%
1995 36.69% 36.85% 30.50% 13.45% 41.65% TBD 37.22% 16.21% 27.52%
1996 28.53% 28.35% 26.20% 21.00% 34.96% TBD 22.82% 18.35% 37.86%
1997 30.69% 21.68% 19.97% -6.38% 16.66% TBD 33.21% 17.78% -17.69%
1998 2.09% 7.70% 9.67% 1.72% 10.11% TBD 17.66% 16.81% 18.30%
</TABLE>
<TABLE>
<CAPTION>
Year DJIA Ibbotson Cumulative
---- ---- -------- ----------
Small-Cap Index Returns
--------- -------------
Index (3)
----- ---
<S> <C> <C> <C>
1978 2.66% 23.46% 11.89%
1979 10.60% 43.46% 30.73%
1980 -3.61% 13.88% -7.08%
1981 -3.61% 13.88% -7.08%
1982 26.85% 28.01% -6.91%
1983 25.82% 39.67% 15.24%
1984 1.29% -6.67% 15.35%
1985 33.28% 24.66% 46.32%
1986 27.00% 6.85% 34.18%
1987 5.66% -9.30% 11.99%
1988 16.03% 22.87% 15.36%
1989 32.09% 10.18% 20.92%
1990 -0.73% -21.56% 7.34%
1991 24.19% 44.63% 27.88%
1992 7.39% 23.35% 12.99%
1993 16.87% 20.98% 53.68%
1994 5.03% 3.11% -7.45%
1995 36.67% 34.66% 26.80%
1996 28.71% 17.62% 28.31%
1997 24.82% 22.78% 7.30%
1998 14.11% 5.01% 7.21%
</TABLE>
(1) The Target 25 Series and the Target Small-Cap Series for any given period
were selected by applying the respective strategy as of the beginning of the
period. The Target 10 and Target 5 Series 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 Global
Target 15 Series 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 Series achieved an average annual total return of 21.52%,
the Target Small-Cap Series achieved an average annual total return of 25.29%,
the Target 10 Series achieved an average annual total return of 18.97%, and the
Target 5 Series achieved an average annual total return of 21.06% and the Global
Target 15 Series achieved an average annual total return of 20.87%. 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. 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 better
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.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights information for the Fund is not included in the
prospectus because the Fund had not commenced operations as of the effective
date of this prospectus.
<PAGE>
PROSPECTUS
________________, 1999
JNL(R) VARIABLE FUND LLC
You may find more information about the Fund in the Fund's SAI dated _________,
1999, which contains further information about the Fund and the Series,
particularly their investment practices and restrictions. The current SAI is on
file with the Securities and Exchange Commission (SEC) and is incorporated into
the Prospectus by reference (which means the SAI is legally part of the
Prospectus).
You may obtain a copy of the current SAI or the most recent Annual and
Semi-Annual Reports without charge, or make other inquiries, by calling (800)
766-4683, or writing the JNL Variable Fund LLC Service Center, P.O. Box 378002,
Denver, Colorado 80237-8002.
You may also obtain information about the Fund (including its current SAI and
most recent Annual and Semi-Annual Reports) from the SEC's Internet site
(http://www.sec.gov) and from the SEC's Public Reference Room in Washington,
D.C. You can find out about the operation of the Public Reference Room and
copying charges by calling (800) SEC-0330.
File No.: 811-09121
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
________________, 1999
JNL VARIABLE FUND LLC
================================================================================
This Statement of Additional Information (SAI) 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 this 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............................................. 2
Common Types of Investments and Management Practices........................ 2
Additional Risk Considerations..............................................
Investment Restrictions Applicable to All Series............................
Management of the Fund......................................................
Performance.................................................................
Investment Advisory and Other Services......................................
Purchases, Redemptions and Pricing of Interests.............................
Additional Information......................................................
Tax Status..................................................................
Financial Statements .......................................................
<PAGE>
GENERAL INFORMATION AND HISTORY
JNL Variable Fund LLC (Fund) is a non-diversified, open-end management company
organized as a Delaware limited liability company on October 13, 1998. The Fund
offers interests in separate Series (collectively, Series), which are comprised
of two groups - Target Series and Sector Series.
COMMON TYPES OF INVESTMENTS AND MANAGEMENT PRACTICES
This section describes some of the types of securities a Series may hold in its
portfolio and the various kinds of investment practices that may be used in
day-to-day portfolio management. A Series may invest in the following securities
or engage in the following practices to the extent that such securities and
practices are consistent with the Series' investment objective(s) and policies
described in the Prospectus and in this SAI.
BANK OBLIGATIONS. A Series may invest in bank obligations, which include
certificates of deposit, bankers' acceptances, and other short-term debt
obligations. Certificates of deposit are short-term obligations of commercial
banks. A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with international commercial transactions.
Certificates of deposit may have fixed or variable rates. The Series may invest
in U.S. banks, foreign branches of U.S. banks, U.S. branches of foreign banks,
and foreign branches of foreign banks.
BORROWING AND LENDING. A Series may borrow money from banks for temporary or
emergency purposes in amounts up to 25% of its total assets. To secure
borrowings, a Series may mortgage or pledge securities in amounts up to 15% of
its net assets.
CASH POSITION. A Series may hold a certain portion of its assets in repurchase
agreements and money market securities maturing in one year or less that are
rated in one of the two highest rating categories by a nationally recognized
statistical rating organization. For temporary, defensive purposes, a Series may
invest without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments,
and serves as a short-term defense during periods of unusual market volatility.
COMMERCIAL PAPER. A Series may invest in commercial paper. Commercial paper are
short-term promissory notes issued by corporations primarily to finance
short-term credit needs. Such notes may have fixed or variable rates.
COMMON AND PREFERRED STOCKS. A Series may invest in common and/or preferred
stocks. Stocks represent shares of ownership in a company. Generally, preferred
stock has a specified dividend and ranks after bonds and before common stocks in
its claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate in
company profits on a pro rata basis; profits may be paid out in dividends or
reinvested in the company to help it grow. Increases and decreases in earnings
are usually reflected in a company's stock price, so common stocks generally
have the greatest appreciation and depreciation potential of all corporate
securities. While most preferred stocks pay a dividend, a Series may purchase
preferred stock where the issuer has omitted, or is in danger of omitting,
payment of its dividend. Such investments would be made primarily for their
capital appreciation potential. Although common and preferred stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
CONVERTIBLE SECURITIES. A Series may invest in debt or preferred stock
convertible into or exchangeable for common stock. Traditionally, convertible
securities have paid dividends or interest at rates higher than common stocks
but lower than non-convertible securities. They generally participate in the
appreciation or depreciation of the underlying stock into which they are
convertible, but to a lesser degree. In recent years, convertibles have been
developed which combine higher or lower current income with options and other
features.
FOREIGN CURRENCY TRANSACTIONS. A Series will normally conduct its foreign
currency exchange transactions either on a spot (i.e., cash), basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A Series will
generally not enter into a forward contract with a term of greater than one
year.
There are certain markets where it is not possible to engage in effective
foreign currency hedging. This may be true, for example, for the currencies of
various countries where the foreign exchange markets are not sufficiently
developed to permit hedging activity to take place.
FOREIGN SECURITIES. A Series may invest in foreign securities. These include
non-U.S. dollar-denominated securities traded principally outside the U.S. and
dollar-denominated securities traded in the U.S. (such as American Depositary
Receipts). Such investments increase a Series' diversification and may enhance
return, but they also involve some special risks such as exposure to potentially
adverse local political and economic developments; nationalization and exchange
controls; potentially lower liquidity and higher volatility; possible problems
arising from accounting, disclosure, settlement, and regulatory practices that
differ from U.S. standards; and the chance that fluctuations in foreign exchange
rates will decrease the investment's value (favorable changes can increase its
value). Foreign government securities are issued or guaranteed by a foreign
government, province, instrumentality, political subdivision or similar unit
thereof.
FUTURES AND OPTIONS. Futures contracts are often used to manage risk, because
they enable the investor to buy or sell an asset in the future at an agreed upon
price. Options give the investor the right, but not the obligation, to buy or
sell an asset at a predetermined price in the future. A Series may buy and sell
futures contracts (and options on such contracts) to manage its exposure to
changes in securities prices and foreign currencies and as an efficient means of
adjusting overall exposure to certain markets. A Series may purchase or sell
call and put options on securities, financial indices, and foreign currencies,
and may invest in futures contracts on foreign currencies and financial indices,
including interest rates or an index of U.S. Government securities, foreign
government securities or equity or fixed-income securities.
Futures contracts and options may not always be successful hedges; their prices
can be highly volatile; using them could lower a Series' total return; and the
potential loss from the use of futures can exceed the Series' initial investment
in such contracts. These instruments may also be used for non-hedging purposes
such as increasing a Series' income.
The Series' use of commodity futures and commodity options trading should not be
viewed as providing a vehicle for shareholder participation in a commodity pool.
Rather, in accordance with regulations adopted by the Commodity Futures Trading
Commission (CFTC), a Series will employ such techniques only for (1) hedging
purposes, or (2) otherwise, to the extent that aggregate initial margin and
required premiums do not exceed 5 percent of the Series' net assets.
HYBRID INSTRUMENTS. A Series may purchase hybrid instruments, which combine the
elements of futures contracts or options with those of debt, preferred equity or
a depository instrument. Often these hybrid instruments are indexed to the price
of commodity, a particular currency, or a domestic or foreign debt or common
stock index. Hybrid instruments may take a variety of forms, including, but not
limited to, debt instruments with interest or principal payments or redemption
terms determined by reference to the value of a currency or commodity or
securities index at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity.
ILLIQUID SECURITIES. A Series may hold illiquid investments. Illiquid
investments are investments that cannot be sold or disposed of in the ordinary
course of business within seven days at approximately the price at which they
are valued. Illiquid investments generally include: repurchase agreements not
terminable within seven days; securities for which market quotations are not
readily available; restricted securities not determined to be liquid in
accordance with guidelines established by the fund's Board of managers;
over-the-counter (OTC) options and, in certain instances, their underlying
collateral; and securities involved in swap, cap, collar and floor transactions.
MONEY MARKET FUNDS. Each Fund may invest in shares of money market funds to the
extent permitted by the Investment Company Act of 1940, as amended.
PORTFOLIO TURNOVER. To a limited extent, a Series may engage in short-term
transactions if such transactions further its investment objective. A Series may
sell one security and simultaneously purchase another of comparable quality or
simultaneously purchase and sell the same security to take advantage of
short-term differentials in bond yields or otherwise purchase individual
securities in anticipation of relatively short-term price gains. The rate of
portfolio turnover will not be a determining factor in the purchase and sale of
such securities. Increased portfolio turnover necessarily results in
correspondingly higher costs including brokerage commissions, dealer mark-ups
and other transaction costs on the sale of securities and reinvestment in other
securities, and may result in the acceleration of taxable gains.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. A Series may invest in
repurchase or reverse repurchase agreements. A repurchase agreement involves the
purchase of a security by a Series and a simultaneous agreement (generally by a
bank or dealer) to repurchase that security from the Series at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A repurchase agreement may be considered a loan collateralized by the
underlying security. The Series must take physical possession of the security or
receive written confirmation of the purchase and a custodial or safekeeping
receipt from a third party or be recorded as the owner of the security through
the Federal Reserve Book Entry System.
The Series may invest in open repurchase agreements which vary from the typical
agreement in the following respects: (1) the agreement has no set maturity, but
instead matures upon 24 hours' notice to the seller; and (2) the repurchase
price is not determined at the time the agreement is entered into, but is
instead based on a variable interest rate and the duration of the agreement. In
addition, a Series, together with other registered investment companies having
management agreements with a common 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.
When a Series invests in a reverse repurchase agreement, it sells a portfolio
security to another party, such as a bank or a broker-dealer, in return for
cash, and agrees to buy the security back at a future date and price. Reverse
repurchase agreements may be used to provide cash to satisfy unusually heavy
redemption requests or for other temporary or emergency purposes without the
necessity of selling portfolio securities or to earn additional income on
portfolio securities, such as Treasury bills and notes.
SECURITIES LENDING. Each Series may also lend common stock to broker-dealers and
financial institutions to realize additional income. As a fundamental policy, a
Series will not lend common stock 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 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.
SECURITY-RELATED ISSUERS. The Fund is seeking exemptive relief from the
Securities and Exchange Commission to allow certain Series to invest more than
5% of their assets in the securities of any issuer that derives more than 15
percent of its gross revenue from "securities related activities" (as defined in
rule 12d3-1 under the Investment Company Act of 1940). Until such relief is
received, despite any investment strategy, the applicable Series will not be
able to invest more than 5% of their assets in such issuers.
SHORT SALES. A Series may sell securities short. A short sale is the sale of a
security the Series does not own. It is "against the box" if at all times when
the short position is open the Series owns an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. To the extent that a
Series engages in short sales that are not "against the box," it must maintain
asset coverage in the form of assets determined to be liquid by the sub-adviser
in accordance with procedures established by the Board of Managers, in a
segregated account, or otherwise cover its position in a permissible manner.
SHORT-TERM CORPORATE DEBT SECURITIES. A Series may invest in short-term
corporate debt securities. These are non-convertible corporate debt securities
(e.g., bonds and debentures) which have one year or less remaining to maturity.
Corporate notes may have fixed, variable, or floating rates.
STANDARD & POOR'S DEPOSITORY RECEIPTS. Standard & Poor's Depository Receipts
(SPDRs) are American Stock Exchange-traded securities that represent ownership
in the SPDR Trust, a trust which has been established to accumulate and hold a
portfolio of equity securities that is intended to track the price performance
and dividend yield of the S&P 500 Index. This trust is sponsored by a subsidiary
of the American Stock Exchange. SPDRs may be used for several reasons including
but not limited to: facilitating the handling of cash flows or trading, or
reducing transaction costs. The use of SPDRs would introduce additional risk to
a Series as the price movement of the instrument does not perfectly correlate
with the price action of the underlying index.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are issued or guaranteed
as to principal and interest by U.S. Government agencies or instrumentalities.
These include securities issued by the Federal National Mortgage Association
(Fannie Mae), Government National Mortgage Association (Ginnie Mae), Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm
Credit Banks, the Small Business Association, Student Loan Marketing
Association, and the Tennessee Valley Authority. Some of these securities, such
as those issued by Ginnie Mae, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of Fannie Mae, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government agencies or instrumentalities in the future, other than as
set forth above, since it is not obligated to do so by law.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government obligations include bills, notes,
bonds, and other debt securities issued by the U.S. Treasury. These are direct
obligations of the U.S. Government and differ mainly in the length of their
maturities.
VARIABLE RATE SECURITIES. Variable rate securities provide for a periodic
adjustment in the interest rate paid on the obligations. The terms of such
obligations must provide that interest rates are adjusted periodically based
upon some appropriate interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular and range from
daily up to annually, or may be event based, such as on a change in the prime
rate.
WARRANTS. A Series may invest in warrants. Warrants have no voting rights, pay
no dividends and have no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase common stock at a
specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. Warrants differ
from call options in that warrants are issued by the issuer of the security
which may be purchased on their exercise, whereas call options may be written or
issued by anyone. The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS. A Series may purchase
securities on a when-issued or delayed delivery basis (When-Issueds) and may
purchase securities on a forward commitment basis (Forwards). Any or all of the
Series' investments in debt securities may be in the form of When-Issueds and
Forwards. The price of such securities, which may be expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
payment take place at a later date. Normally, the settlement date occurs within
90 days of the purchase for When-Issueds, but may be substantially longer for
Forwards. During the period between purchase and settlement, no payment is made
by the Series to the issuer and no interest accrues to the Series. The purchase
of these securities will result in a loss if their value declines prior to the
settlement date. This could occur, for example, if interest rates increase prior
to settlement. The longer the period between purchase and settlement, the
greater the risks. At the time the Series makes the commitment to purchase these
securities, it will record the transaction and reflect the value of the security
in determining its net asset value. The Series will maintain cash and/or liquid
assets with its custodian bank at least equal in value to commitments for them
during the time between the purchase and the settlement. Therefore, the longer
this period, the longer the period during which alternative investment options
are not available to the Series (to the extent of the securities used for
cover). Such securities either will mature or, if necessary, be sold on or
before the settlement date.
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 the sub-adviser determines is
appropriate in seeking to attain a 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.
ADDITIONAL RISK CONSIDERATIONS
EMERGING MARKETS. The considerations noted below under "Foreign Securities" may
be intensified in the case of investment in developing countries. Investments in
securities of issuers in emerging markets may involve a high degree of risk and
many may be considered speculative. These investments carry all of the risks of
investing in securities of foreign issuers to a heightened degree. These
heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) limitations on daily price changes and the small current size of the
markets for securities of emerging markets issuers and the currently low or
nonexistent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict a Series'
investment opportunities including limitations on aggregate holdings by foreign
investors and restrictions on investing in issuers or industries deemed
sensitive to relevant national interests; and (iv) the absence of developed
legal structures governing private or foreign investment and private property.
FOREIGN SECURITIES. Investments in foreign securities, including those of
foreign governments, involve risks that are different in some respects from
investments in securities of U.S. issuers, such as the risk of fluctuations in
the value of the currencies in which they are denominated, a heightened risk of
adverse political and economic developments and, with respect to certain
countries, the possibility of expropriation, nationalization or confiscatory
taxation or limitations on the removal of funds or other assets of a Series.
Securities of some foreign issuers in many cases are less liquid and more
volatile than securities of comparable domestic issuers. There also may be less
publicly available information about foreign issuers than domestic issuers, and
foreign issuers generally are not subject to the uniform accounting, auditing
and financial reporting standards, practices and requirements applicable to
domestic issuers. Certain markets may require payment for securities before
delivery. A Series may have limited legal recourse against the issuer in the
event of a default on a debt instrument. Delays may be encountered in settling
securities transactions in certain foreign markets and a Series will incur costs
in converting foreign currencies into U.S. dollars. Bank custody charges are
generally higher for foreign securities. The Series which invest primarily in
foreign securities are particularly susceptible to such risks. American
Depositary Receipts do not involve the same direct currency and liquidity risks
as foreign securities.
The share price of a Series that invests in foreign securities will reflect the
movements of both the prices of the portfolio securities and the currencies in
which such securities are denominated. A Series' foreign investments may cause
changes in a Series' share price that have a low correlation with movement in
the U.S. markets. Because most of the foreign securities in which a Series
invests will be denominated in foreign currencies, or otherwise will have values
that depend on the performance of foreign currencies relative to the U.S.
dollar, the relative strength of the U.S. dollar may be an important factor in
the performance of a Series, depending on the extent of the Series' foreign
investments.
A Series may employ certain strategies in order to manage exchange rate risks.
For example, a Series may hedge some or all of its investments denominated in or
exposed to a foreign currency against a decline in the value of that currency. A
Series may enter into contracts to sell that foreign currency for U. S. dollars
(not exceeding the value of a Series' assets denominated in or exposed to that
currency) or by participating in options or futures contracts with respect to
such currency (position hedge). A Series could also hedge that position by
selling a second currency, which is expected to perform similarly to the
currency in which portfolio investments are denominated, for U.S. dollars (proxy
hedge). A Series may also enter into a forward contract to sell the currency in
which the security is denominated for a second currency that is expected to
perform better relative to the U.S. dollar if the sub-adviser believes there is
a reasonable degree of correlation between movements in the two currencies
(cross hedge). A Series may also enter into a forward contract to sell a
currency in which portfolio securities are denominated in exchange for a second
currency in order to manage its currency exposure to selected countries. In
addition, when a Series anticipates purchasing securities denominated in or
exposed to a particular currency, the Series may enter into a forward contract
to purchase or sell such currency in exchange for the dollar or another currency
(anticipatory hedge).
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may adversely impact a Series' performance if the sub-adviser's projection of
future exchange rates is inaccurate.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. The use of futures, options,
forward contracts, and swaps (derivative instruments) exposes a Series to
additional investment risks and transaction costs. If a sub-adviser seeks to
protect a Series against potential adverse movements in the securities, foreign
currency or interest rate markets using these instruments, and such markets do
not move in a direction adverse to the Series, that Series could be left in a
less favorable position than if such strategies had not been used. Risks
inherent in the use of futures, options, forward contracts and swaps include:
(1) the risk that interest rates, securities prices and currency markets will
not move in the directions anticipated; (2) imperfect correlation between the
price of derivative instruments and movements in the prices of the securities,
interest rates or currencies being hedged; (3) the fact that skills needed to
use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; and (5) the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences.
HYBRID INSTRUMENTS. The risks of investing in hybrid instruments reflect a
combination of the risks of investing in securities, options, futures and
currencies, including volatility and lack of liquidity. Reference is made to the
discussion of "Futures, Options, and Other Derivative Instruments" herein for a
discussion of these risks. Further, the prices of the hybrid instrument and the
related commodity or currency may not move in the same direction or at the same
time. Hybrid instruments may bear interest or pay preferred dividends at below
market (or even relatively nominal) rates. Alternatively, hybrid instruments may
bear interest at above market rates but bear an increased risk of principal
loss. In addition, because the purchase and sale of hybrid instruments could
take place in an over-the-counter or in a private transaction between the Series
and the seller of the hybrid instrument, the creditworthiness of the
counter-party to the transaction would be a risk factor which the Series would
have to consider. Hybrid instruments also may not be subject to regulation of
the Commodity Futures Trading Commission, which generally regulates the trading
of commodity futures by U.S. persons, the Securities and Exchange Commission,
which regulates the offer and sale of securities by and to U.S. persons, or any
other governmental regulatory authority.
INSURANCE LAW RESTRICTIONS. In connection with the Fund's agreement to sell
interests in the Fund to Jackson National Separate Account - I (Separate
Account), Jackson National Financial Services, LLC (JNFS) and Jackson National
Life Insurance Company (JNL) may enter into agreements with the Fund, required
by certain state insurance departments, under which JNFS may agree to use its
best efforts to assure and to permit JNL 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, JNL would take appropriate action, which might
include ceasing to make investments in the Fund and/or 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.
INVESTMENT STRATEGY RISKS. The common stock selected for the Target 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
common stock 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 common stock will change, that any negative
conditions adversely affecting the stock prices will not deteriorate, that the
dividend rates on the common stock will be maintained or that share prices will
not decline further during the life of the Target Series, or that the common
stock 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 the respective strategy-based 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
Target Series objection will be achieved or that a Target Series will provide
for capital appreciation in excess of such Target Series' expenses. Because of
the contrarian nature of such Funds and the attributes of the common stock which
caused inclusion in the portfolio, such Target Series may not be appropriate for
investors seeking either preservation of capital or high current income. In
addition, the strategies for all of the Target Series have underperformed their
respective index or indices in certain years.
LITIGATION. Certain of the issuers of common stock in certain Funds 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
case expenditures, aggregate many billions of dollars.
In November 1998, certain companies in the U.S. tobacco industry, including
Philip Morris, entered into a negotiated settlement with several states 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. Future litigation and/or legislation could adversely affect the value,
operating revenues and financial position of tobacco companies.
To the best of the Fund's knowledge, other than tobacco litigation, there is no
litigation pending as of the date of this Statement of Additional Information
with respect to any common stock which might reasonably be expected to have a
material adverse effect on a Fund. At any time after the date of this Statement
of Additional Information, litigation may be instituted on a variety of grounds
with respect to the common stock held in a Series portfolio. The Fund 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 Fund or any
Series.
SPECIFIC COUNTRY ECONOMIC RISK. The information provided below details certain
important factors which impact the economies of both the United Kingdom and Hong
Kong and may impact the Global Target 15 series, as well as other Series of the
Fund which invest in foreign securities. 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 common stock 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 United Kingdom's gross national product and make a significant
contribution to the country's balance of payments. The portfolio of the Global
Target 15 Series may contain common stocks of British companies engaged in such
industries as banking, chemicals, building and construction, transportation,
telecommunications and insurance. Many of these industries may be subject to
government regulation, which may have a materially adverse effect on the
performance of their stock. In the first quarter of 1998, gross domestic product
(GDP) of the United Kingdom grew to a level 3.0% higher than in the first
quarter of 1997, however, the overall rate of GDP growth has slowed since the
third quarter of 1997. The slow down largely reflects a deteriorating trade
position and higher indirect taxes. 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 (EU), which was
created through the formation of the Maastricht Treaty on European Union
(Treaty) 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. 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 common stock in the Global Target 15 Series
impossible to predict. A majority of the EU members converted their existing
sovereign currencies to a common currency (euro) on January 1, 1999. The United
Kingdom did not participate in this conversion on January 1, 1999 and it is not
possible to predict if or when the United Kingdom will convert to the euro.
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, as well as the implementation of a common currency
throughout a majority of EU countries, would affect the currency exchange rate
between the U.S. dollar and the British pound sterling. In addition, United
Kingdom companies with significant markets or operations in other European
countries (whether or not such countries are participating) face strategic
challenges as these entities adapt to a single trans-national currency. The euro
conversion may have a material impact on revenues, expenses or income from
operations; increase competition due to the increased price transparency of the
EU market; affect issuers' currency exchange rate risk and derivatives exposure;
disrupt current contracts; cause issuers to increase spending on information
technology updates required for the conversion; and result in potential adverse
tax consequences. It is not possible to predict what impact, if any, the euro
conversion will have on any of the common stock issued by United Kingdom
companies in the Global Target 15 Series.
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 past two
decades through 1996, the GDP has tripled in real terms, equivalent to an
average annual growth rate of 6%. However, Hong Kong's recent economic data has
not been encouraging. The full impact of the Asian financial crisis, as well as
current international economic instability, is likely to continue to have a
negative impact on the Hong Kong economy in the near future.
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.
The Fund 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
China's MFN status on a more frequent basis. Revocation of the MFN Status would
have a severe 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. The renewal of China's MFN Status in
May of 1996 has helped reduce the uncertainty for Hong Kong in conducting
Sino-U.S. trade, and the signing of the agreement on copyright protection
between the U.S. and Chinese governments in June of 1996 averted a trade war
that would have affected Hong Kong's re-export trade. In 1997, China and the
U.S. reached a four year bilateral agreement on textiles, again avoiding a
Sino-U.S. trade war. More recently, the currency crisis which has affected a
majority of Asian markets since mid-1997 has forced Hong Kong leaders to address
whether to devaluate the Hong Kong dollar or maintain its peg to the U.S.
dollar. During the volatile markets of 1998, the Hong Kong Monetary Authority
(HKMA) acquired the common stock of certain Hong Kong issuers listed on the Hong
Kong Stock Exchange in an effort to stabilize the Hong Kong dollar and thwart
currency speculations. Government intervention may hurt Hong Kong's reputation
as a free market and increases concerns that authorities are not willing to let
Hong Kong's currency system function autonomously. This may undermine confidence
in the Hong Kong dollar's 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. From January through August of 1998, during a period marked by
international economic instability and a global crisis, the Hang Seng Index
declined by nearly 27%. 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 common stock. 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 Risk. The Global Target 15 Series is comprised
substantially of common stock 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:
Foreign Exchange Rates: Range of Fluctuations in Foreign Currencies
- --------------------------------------------------------------------------------
ANNUAL PERIOD UNITED KINGDOM POUND HONG KONG/U.S. DOLLAR
STERLING/U.S. DOLLAR
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
1998 0.584 - 0.620 7.735 - 7.749
- --------------------------------------------------------------------------------
Source: Bloomberg L.P.
The sub-adviser 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 the sub-adviser
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).
SECTOR SERIES RISKS
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 could have an 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 common stock 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 common stock will
be able to respond in a timely manner to compete in the rapidly developing
marketplace.
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 common stock 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 common stock 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 are 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 common stock in this Series may be subject to rapid price volatility. The
Fund is unable to predict what impact the foregoing factors will have on the
common stock in 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 the sub-adviser 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 common stock in the Series' portfolio cannot be predicted with certainty.
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, and there can be no
certainty as to the effect, if any, that such changes would have on the common
stock 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. The Fund 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 Reserve Board (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. The Fund makes no prediction as to the effect, if any,
such laws will have on the common stock 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 computers. 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.
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. 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 benefitted 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 Common stock included in this
Series will be able to respond in a timely manner to compete in the rapidly
developing marketplace.
Pharmaceutical/Healthcare Sector Series. An investment in this Series
should be made with an understanding of the characteristics of the
pharmaceutical and healthcare 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. Pharmaceutical 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. 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. Such companies may also have
persistent losses during a new product's transition from development to
production, and revenue patterns may be erratic.
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.
The Fund is unable to predict the effect of any of these proposals, if enacted,
on the issuers of common stock 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 common stock 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 common stock 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 Common stock.
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 common stock 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 common stock.
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 common stock 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 common stock in the Series. Like many
areas of technology, the semiconductor business environment is highly
competitive, notoriously cyclical and subject to rapid and often unanticipated
change. Recent industry downturns have resulted, in part, from weak pricing,
persistent overcapacity, slowdown in Asian demand and a shift in retail personal
computer sales toward the low end, or "sub-$1000" segment. Industry growth is
dependent upon several factors, including: the rate of global economic
expansion; demand for products such as personal computers and networking and
communications equipment; excess productive capacity and the resultant effect on
pricing; and the rate of growth in the market for low-price personal computers.
INVESTMENT RESTRICTIONS APPLICABLE TO ALL SERIES
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.
(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).
(6) A Series may invest in repurchase agreements and warrants and
engage in futures and options transactions and securities
lending.
None of the Series is a "diversified company," as that term is defined in the
Investment Company Act of 1940, as amended. There are no limitations on the
concentration of the investments held by any Series in any particular industry
or group of industries. However, because each Sector Series is only investing in
common stocks of companies within specific industries, the Series' performance
is closely tied to, and affected by, those specific industries. Companies within
an industry are often faced with the same obstacles, issues or regulatory
burdens, and their common stock may react similarly and move in unison to these
and other market conditions. As a result of these factors, stocks in which the
Sector Series will invest may be more volatile than a mixture of stocks of
companies from a wide variety of industries.
MANAGEMENT OF THE FUND
The officers of the Fund manage its day to day operations and are responsible to
the Fund's Board of Managers. The Board of Managers of the Fund sets broad
policies for each Series and chooses 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.
For purposes of this section, the term "Fund Complex" includes each of the
following investment companies: JNL Series Trust, JNL Variable Fund LLC, JNL
Variable Fund III LLC, JNL Variable Fund V LLC, JNLNY Variable Fund I LLC, and
JNLNY Variable Fund II LLC. Each of the Fund's Managers is also a Trustee or
Manager of each of the other funds in the Fund Complex and each of the Fund's
officers is also an officer of one or more of the funds in the Fund Complex.
ANDREW B. HOPPING* (Age 40), 5901 Executive Drive, Lansing, Michigan 48911
Member of the Board of Managers of the Fund and each of the other funds in the
Fund Complex President and Chief Executive Officer of the Fund and each of the
other funds in the Fund Complex
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)
JOSEPH FRAUENHEIM (Age 64), 1405 Cambridge, Lansing, MI 48911
Member of the Board of Managers of the Fund and each of the other funds in the
Fund Complex Consultant (1991 to present)
ROBERT A. FRITTS* (Age 50) 5901 Executive Drive, Lansing, Michigan 48911
Member of the Board of Managers of the Fund and each of the other funds in the
Fund Complex Vice President, Treasurer and Chief Financial Officer of the Fund
and each of the other funds in the Fund Complex
JNL Series Trust, Assistant Treasurer (2/96 to August 1997)
JNL Series Trust, Assistant Secretary (12/94 to 2/96)
JNL, Vice President and Controller
THOMAS J. MEYER (Age 51) 5901 Executive Drive, Lansing, Michigan 48911
Vice President, Secretary and Counsel of the Fund and each of the other funds in
the Fund Complex
Jackson National Life Insurance Company, Senior Vice President (7/98 to present)
Jackson National Life Insurance Company, Secretary (9/94 to present)
Jackson National Life Insurance Company, General Counsel (3/85 to present)
Jackson National Life Insurance Company, Vice President (3/85 to 7/98)
RICHARD MCLELLAN (Age 56), 1191 Carriageway North, East Lansing, MI 48823
Member of the Board of Managers of the Fund and each of the other funds in the
Fund Complex Dykema Gossett PLLC, Attorney
PETER MCPHERSON (Age 57), 1 Abbott Road, East Lansing, MI 48824
Member of the Board of Managers of the Fund and each of the other funds in the
Fund Complex
Michigan State University, President (10/93 to present)
MARK D. NERUD (Age 32) 225 West Wacker Drive, Suite 1200, Chicago, IL 60606
Vice President and Assistant Treasurer of the Fund and each of the other funds
in the Fund Complex
Jackson National Financial Services, LLC, Chief Financial Officer
(3/98 to present)
Jackson National Financial Services, LLC, Managing Board Member
(3/98 to present)
National Planning Corporation, Vice President (5/98 to present)
Jackson National Financial Services, Inc., Director (1/98 to 5/98)
Jackson National Financial Services, Inc., Chief Operating Officer
(6/97 to 5/98)
Jackson National Financial Services, Inc., Treasurer (6/97 to 5/98)
Jackson National Life Insurance Company, Assistant Vice President - Mutual Fund
Operations (5/97 to present)
Jackson National Life Insurance Company, Assistant Vice President
(10/96 to 4/97)
Jackson National Life Insurance Company, Assistant Controller (10/96 to 4/97)
Jackson National Life Insurance Company, Senior Manager - Mutual Fund Operations
(4/96 to 10/96)
Voyageur Asset Management Company, Manager - Mutual Fund Accounting
(5/93 to 4/96)
AMY D. EISENBEIS (Age 34) 5901 Executive Drive, Lansing, Michigan 48911
Vice President and Assistant Secretary of the Fund and each of the other funds
in the Fund Complex
Jackson National Financial Services, LLC, Vice President (3/98 to present)
Jackson National Financial Services, LLC, Secretary (3/98 to present)
National Planning Corporation, Vice President (1/98 to 7/98)
National Planning Corporation, Secretary (1/98 to 7/98)
National Planning Corporation, Chief Legal Officer (1/98 to 7/98)
Jackson National Life Insurance Company, Assistant Vice President
(4/99 to present)
Jackson National Life Insurance Company, Associate General Counsel
(7/95 to present)
Waddell & Reed, Inc., Staff Attorney (1/94 to 7/95)
*Managers who are interested persons as defined in the 1940 Act.
As of April 15, 1999, the officers and managers of the Fund, as a group, owned
less than 1% of the then outstanding shares of the Fund. To the extent required
by applicable law, JNL will solicit voting instructions from owners of variable
insurance or variable annuity contracts. All shares of each Series of the Fund
will be voted by JNL in accordance with voting instructions received from such
variable contract owners. JNL will vote all of the shares which it is entitled
to vote in the same proportion as the voting instructions given by variable
contract owners, on the issues presented, including shares which are
attributable to JNL's interest in the Fund.
The Fund does not pay compensation to Managers who are "interested persons" and
officers, as designated above. The funds in the Fund Complex pay to each
disinterested Manager a total of $4,000 for each meeting of the Board of
Managers/Trustees attended. The fees to the disinterested Managers are divided
among the funds in the Fund Complex based on their relative size.
During the Fund's fiscal year ended December 31, 1999, it is estimated that the
Fund's disinterested Managers will receive the following fees from the Fund for
service as a Manager:
PENSION OR RETIREMENT
DISINTERESTED MANAGER AGGREGATE COMPENSATION BENEFITS ACCRUED AS PART
MANAGER FROM FUND OF FUND EXPENSES
- ------- --------- ----------------
Joseph Frauenheim 0
Richard McLellan 0
Peter McPherson 0
PERFORMANCE
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 contract (Contract) that is funded by the Fund. Such
charges, described in the prospectus for the Contract, 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
share 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 (SEC). Standardized average annual total return shows 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. 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' shares 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 the 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 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 applicable Series 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. The yield is calculated by assuming that the
income generated by the investment during that 30-day period is generated each
30-day period over a 12-month period and is shown as a percentage of the
investment. Under this method, yield is computed by dividing the net investment
income per share earned during the specified one month or 30-day period by the
offering price per share 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' shares are sold at
net asset value. Returns and net asset value will fluctuate. Shares of a Series
are redeemable at the then current net asset value, which may be more or less
than original cost.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER. JNFS, 5901 Executive Drive, Lansing, Michigan 48911, is the
investment adviser to the Fund. As investment adviser, JNFS 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. JNFS is a wholly owned subsidiary of JNL,
which is in turn wholly owned by Prudential Corporation plc, a life insurance
company in the United Kingdom.
JNFS 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 JNFS 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 JNFS in the performance of its obligations and duties,
or by reason of its reckless disregard of its obligations and duties under the
agreement. Each Series is obligated to pay JNFS 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%
SUB-ADVISER. JNFS 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 JNFS' supervision.
First Trust is 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 partners. Nike Securities Corporation is an Illinois corporation
controlled by Robert Donald Van Kampen. Pursuant to a Sub-Advisory Agreement
with JNFS, 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 JNFS, which pays First Trust's sub-advisory
fees.
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 JNFS. The Sub-Advisory Agreement also provides
that First Trust, 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 JNFS and the Series. Additional
Series may be subject to a different agreement. The Sub-Advisory Agreement also
provides that 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). JNFS 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%
SUB-LICENSE AGREEMENT. JNFS, JNL and the Fund have also entered into a
Sub-License Agreement with First Trust under the terms of which the Fund and JNL
are permitted to use and refer to certain copyright, trademark and proprietary
rights and trade secrets of Dow Jones & Company. Additionally, "Standard &
Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500" and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
JNL (JNLI). Neither the Fund nor any Series are sponsored, endorsed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the Fund.
ADMINISTRATIVE FEE. Each Series pays to JNFS an Administrative Fee. Each Series,
except the JNL/First Trust Global Target 15 Series, pays an Administrative Fee
of .10% of the average daily net assets of the Series. The JNL/First Trust
Global Target 15 Series pays an Administrative Fee of .20% of the average daily
net assets of the Series. In return for the fee, JNFS provides or procures all
necessary administrative functions and services for the operation of the Series.
In addition, JNFS, 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. Boston Safe Deposit & Trust Company, One Boston
Place, Boston, Massachusetts 02108, acts as custodian for each Series of the
Fund. In general, the custodian is responsible for holding the Fund's cash and
securities and attends to the collection of principal and income and payment for
and collection of proceeds of securities bought and sold by the Fund.
JNFS 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. Purchases and sales of newly issued portfolio
securities are usually principal transactions without brokerage commissions
effected directly with the issuer or with an underwriter acting as principal.
Other purchases and sales may be effected on a securities exchange or
over-the-counter, depending on where it appears that the best price or execution
will be obtained. The purchase price paid by a Series to underwriters of newly
issued securities usually includes a concession paid by the issuer to the
underwriter, and purchases of securities from dealers, acting as either
principals or agents in the after market, are normally executed at a price
between the bid and asked price, which includes a dealer's mark-up or mark-down.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. There is
generally no stated commission in the case of securities traded in domestic or
foreign over-the-counter markets, but the price of securities traded in
over-the-counter markets includes an undisclosed commission or mark-up. U.S.
Government Securities are generally purchased from underwriters or dealers,
although certain newly issued U.S. Government Securities may be purchased
directly from the U.S. Treasury or from the issuing agency or instrumentality.
No brokerage commissions are typically paid on purchases and sales of U.S.
Government Securities.
Transactions for a Series may be effected on foreign securities exchanges. In
transactions for securities not actively traded on a foreign securities
exchange, a Series will deal directly with the dealers who make a market in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such portfolio securities are generally traded on a net basis and do
not normally involve brokerage commissions. Securities firms may receive
brokerage commissions on certain portfolio transactions, including options,
futures and options on futures transactions and the purchase and sale of
underlying securities upon exercise of options.
Each Series may participate, if and when practicable, in bidding for the
purchase of securities for the Series' portfolio directly from an issuer in
order to take advantage of the lower purchase price available to members of such
a group. A Series will engage in this practice, however, only when the
sub-adviser, in its sole discretion, believes such practice to be otherwise in
the Series' interest.
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. JNFS 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 JNFS or
First Trust. In placing orders with such broker/dealers, JNFS and First Trust
will, where possible, take into account the comparative usefulness of such
information. Such information is useful to JNFS and First Trust even though its
dollar value may be indeterminable and its receipt or availability generally
does not reduce JNFS's or First Trust's normal research activities or expenses.
JNFS and First Trust are authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for a Series with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes (a) advice as to (i) the value of securities, (ii) the advisability of
investing in, purchasing or selling securities, and (iii) the availability of
securities or purchasers or sellers of securities and (b) furnishing analysis
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. Higher commissions
may be paid to firms that provide research services to the extent permitted by
law. JNFS and First Trust may use this research information in managing the
Fund's assets, as well as the assets of other clients.
Any portfolio transaction for a Series may be executed through brokers that are
affiliated with the Fund, investment adviser and/or sub-adviser, if, in the
investment adviser's judgment, the use of such affiliated brokers is likely to
result in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, the affiliated broker charges the Series a
commission rate consistent with those charged by the affiliated broker to
comparable unaffiliated customers in similar transactions.
All transactions with affiliated brokers will comply with Rule 17e-1 under the
1940 Act.
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 a Series are executed as
part of concurrent authorizations to purchase or sell the same security for
trusts or other accounts served by affiliated companies of JNFS or First Trust.
Although such concurrent authorizations potentially could be either advantageous
or disadvantageous to the Fund, they are effected only when JNFS and First Trust
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, JNFS 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
The Separate Account may purchase interests of the Series at their net asset
value. Interests are purchased using premiums received on policies issued by
JNL. The Separate Account 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 (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
DESCRIPTION OF SHARES. The Fund may issue an unlimited number of full and
fractional shares of beneficial interest of each Series and divide or combine
such shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Fund. Each interest of a Series
represents an equal proportionate interest in that Series with each other
interest. The Fund reserves the right to create and issue any number of series
of interests. In that case, the interests of each series would participate
equally in the earnings, dividends, and assets of the particular Series. Upon
liquidation of a Series, interest holders are entitled to share pro rata in the
net assets of such Series available for distribution to interest holders. Each
issued and outstanding interest in a Series is entitled to participate equally
in dividends and distributions declared by its corresponding Series, and in the
net assets of the Series remaining upon liquidations or dissolution after
outstanding liabilities are satisfied. The interests of each Series, when
issued, are fully paid and nonassessable. They have no preemptive, conversion,
cumulative dividend or similar rights. They are freely transferable. Interests
in a Series do not have cumulative rights. This means that owners of more than
half of the registrant'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.
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 (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 Separate Account, the
Fund is disregarded as an entity for purposes of federal income taxation.
Jackson National Life, through Separate Account, 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 JNL 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.
<PAGE>
JNL VARIABLE FUND LLC
PART C
OTHER INFORMATION
Note: Items 23-30 have been answered with respect to all investment portfolios
(Series) of the Registrant.
Item 23. Exhibits
(a) Certificate of Formation of Registrant dated October 15, 1998, incorporated
by reference to Registrant's Registration Statement filed with the
Securities and Exchange Commission on November 30, 1998.
(b) Operating Agreement of Registrant, attached hereto.
(c) Not Applicable
(d) (1) Form of Investment Advisory and Management Agreement between
Registrant and Jackson National Financial Services, LLC, attached
hereto.
(2) Form of Investment Sub-Advisory Agreement between Jackson National
Financial Services, LLC and First Trust Advisors L.P., attached
hereto.
(e) Not Applicable
(f) Not Applicable
(g) Custodian Contract, to be filed by Amendment.
(h) Form of Administration Agreement between Registrant and Jackson National
Financial Services, LLC, attached hereto.
(i) Opinion of Counsel, to be filed by Amendment.
(j) Consent of Independent Auditors, to be filed by Amendment.
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
Item 24. Persons controlled by or under Common Control with Registrant.
Jackson National Separate Account - I
Item 25. Indemnification.
Article IV of the Registrant's Operating Agreement provides that each
of its Managers and Officers (including persons who serve at the
Registrant's request as managers, directors, officers or trustees of
another organization in which the Registrant has any interest as a
shareholder, creditor or otherwise) (each, a "Covered Person") shall
be indemnified by the Registrant against all liabilities and expenses
that may be incurred by reason of being or having been such a Covered
Person, except that no Covered Person shall be indemnified against any
liability to the Registrant or its shareholders to which such Covered
Person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
The foregoing indemnification arrangements are subject to the
provisions of Section 17(h) of the Investment Company Act of 1940.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to managers,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a manager, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
manager, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
In addition to the above indemnification, Jackson National Life
Insurance Company extends its indemnification of its own officers,
directors and employees to cover such persons' activities as officers,
managers or employees of the Registrant, and by separate agreement
Jackson National Life Insurance Company has agreed to indemnify
managers of the Registrant who are not interested persons of the
Registrant or its investment adviser.
Item 26. Business and Other Connections of Investment Adviser.
Incorporated herein by reference from the Prospectus and Statement of
Additional Information relating to the Trust are the following: the
description of the business of Jackson National Financial Services,
LLC (JNFS) contained in the section entitled "Management of the Fund"
of the Prospectus, and the biographical information pertaining to
Messrs. Hopping, Meyer, Fritts and Nerud and Ms. Eisenbeis, contained
in the section entitled "Management of the Fund" and the description
of JNFS contained in the section entitled "Investment Advisory and
Other Services" of the Statement of Additional Information.
First Trust Advisors L.P., file No. 801-39950, the sub-adviser of the
series 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-advisers and other required information
Item 27. Principal Underwriters.
Not Applicable.
Item 28. Location of Accounts and Records
Certain accounts, books and other documents required to be maintained
pursuant to Rule 31a-1(b)(4), (5), (6), (7), (9), (10), and (11) are
in the physical possession of the Registrant at 5901 Executive Drive,
Lansing, Michigan 48911; certain accounts, books and other documents
required to be maintained pursuant to Rule 31a-1(b)(4), (5), (6), (7),
(9), (10), and (11) are in the physical possession of the Registrant
at 225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606; all
other books, accounts and other documents required to be maintained
under Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the physical possession of Boston
Safe Deposit and Trust Company, One Boston Place, Boston,
Massachusetts 02108.
Item 21. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund has duly caused this Pre-Effective Amendment to be signed
on its behalf by the undersigned, duly authorized, in the City of Lansing and
the State of Michigan on the 20th day of April, 1999.
JNL VARIABLE FUND LLC
By: /s/ Andrew B. Hopping
by Thomas J. Meyer*
---------------------------------
Andrew B. Hopping
President, CEO and Manager
Pursuant to the requirements of the Securities Act, this Pre-Effective
Amendment has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Andrew B. Hopping President, CEO and April 20, 1999
by Thomas J. Meyer* Manager --------------
- -------------------------------
Andrew B. Hopping
/s/ Robert A. Fritts Vice President, April 20, 1999
by Thomas J. Meyer* Treasurer, CFO --------------
- ------------------------------- and Manager
Robert A. Fritts
/s/ Joseph Frauenheim Manager April 20, 1999
by Thomas J. Meyer* --------------
- -------------------------------
Joseph Frauenheim
/s/ Richard McLellan Manager April 20, 1999
by Thomas J. Meyer* --------------
- -------------------------------
Richard McLellan
/s/ Peter McPherson Manager April 20, 1999
by Thomas J. Meyer* --------------
- -------------------------------
Peter McPherson
/s/ Thomas J. Meyer April 20, 1999
- ------------------------------- --------------
* Attorney In Fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as managers of JNL
VARIABLE FUND LLC, a Delaware limited liability company, which has filed or will
file with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933 and Investment Company Act of 1940, as amended, various
Registration Statements and amendments thereto for the registration under said
Acts of the sale of shares of beneficial interest of JNL Variable Fund LLC,
hereby constitute and appoint Andrew B. Hopping, Thomas J. Meyer and Robert P.
Saltzman, his attorney, with full power of substitution and resubstitution, for
and in his name, place and stead, in any and all capacities to approve and sign
such Registration Statements and any and all amendments thereto and to file the
same, with all exhibits thereto and other documents, granting unto said
attorneys, each of them, full power and authority to do and perform all and
every act and thing requisite to all intents and purposes as he might or could
do in person, hereby ratifying and confirming that which said attorneys, or any
of them, may lawfully do or cause to be done by virtue hereof. This instrument
may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names as of the
dates set forth below.
/s/ Andrew B. Hopping February 11, 1999
- --------------------------------- -----------------------
Andrew B. Hopping Date
/s/ Robert A. Fritts February 11, 1999
- --------------------------------- -----------------------
Robert A. Fritts Date
/s/ Joseph Frauenheim February 11, 1999
- --------------------------------- -----------------------
Joseph Frauenheim Date
/s/ Richard McLellan February 11, 1999
- --------------------------------- -----------------------
Richard McLellan Date
/s/ Peter McPherson February 11, 1999
- --------------------------------- -----------------------
Peter McPherson Date
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
23. (b) Operating Agreement of Registrant, attached hereto as EX-99.23b.
23. (d)(1) Form of Investment Advisory and Management Agreement between
Registrant and Jackson National Financial Services, LLC,
attached hereto as EX-99.23d1.
23. (d)(2) Form of Investment Sub-Advisory Agreement between Jackson National
Financial Services, LLC and First Trust Advisors L.P., attached
hereto as EX-99.23d2.
23. (h) Form of Administration Agreement between Registrant and Jackson
National Financial Services, LLC, attached hereto as EX-99.23h.
EX-99.23b
JNL VARIABLE FUND LLC
OPERATING AGREEMENT
ARTICLE I
GENERAL
Section 1. NAME. The name of this limited liability company shall be
JNL Variable Fund LLC. This limited liability company is established and
maintained under the laws of the State of Delaware.
Section 2. OFFICE. The principal office of the Fund shall be at 225
West Wacker Drive, Suite 1200, Chicago, Illinois. The Fund also shall have
offices at such other locations as the Board of Managers of the Fund, from time
to time, may determine.
Section 3. PURPOSES. The fund is a no-load mutual fund consisting of
eleven separate investment portfolios.
ARTICLE II
BOARD OF MANAGERS
Section 1. MANAGEMENT OF THE FUND. The Board shall have power to
conduct the business of the Fund and carry on the Fund's operations in any and
all of its branches and maintain offices both within and without the State of
Delaware, and in any and all other States of the United States of America, in
any and all commonwealths, territories, dependencies, colonies, or possessions
of the United States of America, and in any foreign jurisdiction, and to do all
such other things and execute all such instruments as the Board deems necessary,
proper, or desirable in order to promote the interests of the Fund although such
things are not herein specifically mentioned. Any determination as to what is in
the interests of the Fund made by the Board in good faith shall be conclusive.
The powers of the Board may be exercised without order of or resort to any
court.
Section 2. POWERS. The Board shall have the following duties,
responsibilities, and power:
a. To select and approve annually an independent public
accountant.
b. To authorize and approve agreements providing for investment
management and advisory services, and related matters, and to
approve the continuance of such an agreement.
c. To authorize and approve agreements providing for sales and
administrative services, and related matters, and to approve
the continuance of such an agreement.
d. To authorize and approve agreements providing for
administrative services for a Portfolio, and related matters,
and to approve the continuance of such an agreement.
e. To authorize and approve agreements providing for custodian
services, and related matters, and to approve the continuance
of such an agreement.
f. To authorize and approve agreements providing for accounting
services for a Portfolio, and related matters, and to approve
the continuance of such an agreement.
g. To authorize and approve agreements providing for underwriting
services, and related matters, and to approve the continuance
of such an agreement.
h. To authorize and approve any and all other material agreements
or contracts pertaining to the operation of the Fund,
including, but not limited to, fidelity bond premium
allocation agreements and joint account agreements to permit
the Portfolios to deposit their daily uninvested cash balances
into a single joint account to be used in order to enter into
joint repurchase agreements, and to approve the continuance of
such agreements or contracts.
i. To recommend from time to time any changes deemed appropriate
in the fundamental investment objective or fundamental
investment policies, practices, or limitations of the Fund or
any Portfolios of the Fund, and to make such changes in those
investment policies, practices, and limitations of the Fund or
any Portfolio not requiring approval by the shareholders as
the Board deems appropriate.
j. To supervise the investment of the assets of the Fund and any
Portfolio in accordance with the investment objectives,
policies, practices, and limitations of the Fund and
Portfolios, and to review periodically the investment
portfolios of the Fund and the Portfolios to ascertain that
these investment portfolios are being managed in accordance
with the investment objectives, policies, practices, and
limitations of the Fund and the Portfolios, as appropriate,
and the interests of the shareholders, and to take such
corrective action as may be necessary.
k. To enter into such other agreements and to take any and all
actions necessary or proper in connection with the operation
and management of the Fund and the Portfolios and the assets
thereof.
l. To delegate such authority as the Board considers desirable to
any officers of the Fund and to any investment adviser,
manager, administrator, custodian, underwriter, or other agent
or independent contractor.
m. To create and establish, and to change in any manner, separate
and distinct Portfolios with separately defined investment
objectives and policies and distinct investment purposes, and
to fix the preferences, voting powers, rights, and privileges
of these Portfolios, in accordance with the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"),
and other federal securities laws, and to establish classes of
such Portfolios having relative rights, powers, and duties as
the Board may provide consistent with applicable law.
n. In general, to carry on any other business in connection with
or incidental to any of the foregoing powers, to do everything
necessary, suitable, or proper for the accomplishment of any
purpose or the attainment of any object or the furtherance of
any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing
incidental or appurtenant to or growing out of or connected
with the aforesaid business or purposes, objects or powers.
Any action by one or more of the members of the Board in their capacity
as such hereunder shall be deemed an action on behalf of the Fund or the
applicable Portfolio, and not an action in an individual capacity.
Section 3. NUMBER AND TENURE. The initial Board shall consist of Andrew
B. Hopping. The number of members of the Board which thereafter shall constitute
the entire Board may be increased or decreased by a vote of a majority of the
entire Board from time to time; provided, that this number shall not be less
than three or more than nine. Each member of the Board shall hold office until
his or her successor is elected and qualified or until his or her earlier death,
resignation, or removal. Members of the Board need not be shareholders.
Section 4. VACANCIES. Vacancies in the Board for any cause, including
an increase in the authorized number of members of the Board, may be filled by a
majority of the members of the Board then in office, subject to any requirements
under the 1940 Act or other applicable law.
Section 5. PLACE OF MEETINGS. Meetings of the Board may be held at any
place within or without the State of Illinois, or as the Board may determine.
Section 6. REGULAR MEETINGS. Regular meetings of the Board shall be
held at any time and place fixed by the Board. Notice of a meeting shall be
given by mail, personal delivery, telephone, telefax, telegram, or other means
at any time preceding the meeting. Notice of a meeting of the Board may be
waived before or after any meeting by signed written waiver. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board need
be stated in the notice or waiver of notice of such meeting, and no notice need
be given of action proposed to be taken by written consent. The attendance of a
member at a meeting shall constitute a waiver of notice of such meeting, except
where a member attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened.
Section 7. SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by one or more members of the Board.
Section 8. QUORUM. A majority of the total number of members of the
Board shall constitute a quorum for the transaction of business, provided that a
quorum shall in no case be less than three members. If at any meeting of the
Board there shall be less than a quorum present, a majority of those present may
adjourn the meeting until a quorum shall have been obtained. Except as otherwise
provided by law, or any contract or agreement to which the Fund is a party, the
act of a majority of the members of the Board present at any meeting at which
there is a quorum shall be the act of the Board.
Section 9. COMMITTEES. The Board may, by resolution, designate an
executive committee and other committees composed of two or more members, and
the members thereof, to the extent permitted by law, and each subcommittee shall
have the powers, authority, and duties specified in the resolution creating the
same and permitted by law. Each committee may make rules for the notice and
conduct of its meetings and the keeping of the records thereof. The term of any
member of any committee shall be fixed by the Board.
Section 10. COMPENSATION OF MANAGERS. The Board may authorize
reasonable compensation to members for their services as members of the Board
and as members of the committees of the Board and may authorize the
reimbursement of reasonable expenses incurred by members in connection with
rendering those services.
Section 11. RESIGNATIONS. Any member of the Board may resign his or her
membership at any time by mailing or delivering his or her resignation in
writing to the Chairman of the Board or to a meeting of the Board. No member of
the board who resigns shall have any right to compensation for any period
following his or her resignation. Any resignation shall take effect at the time
specified therein or, if the time be not specified, upon receipt thereof.
Section 12. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all the members of the Board or committee thereof, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of the proceedings of the Board or committee thereof.
Section 13. ACTION BY THE BOARD. Any meeting of the Board conducted by
telephone shall be deemed to take place at the principal office of the Fund or
any other place, as determined by the Board. Subject to the requirements of the
1940 Act, the Board by majority vote may delegate to any one or more of the
Board's members the authority of the Board to approve particular matters or take
particular actions on behalf of the Fund. Written consents or waivers of the
Board may be executed in one or more counterparts. Execution of a written
consent or wavier and delivery thereof to the Fund may be accomplished by
telefax.
Section 13. LIMITATION OF LIABILITY. The members of the Board shall not
be responsible or liable in any event for any neglect or wrongdoing of any
officer, agent, employee, adviser or principal underwriter of the Fund, nor
shall any member be responsible for the act or omission of any other member, but
nothing herein contained shall protect any member against any liability to which
he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by on
behalf of the Fund or the Board or any of them in connection with the Fund shall
be conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as members or a member, and such members or member
shall not be personally liable thereon.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The officers of the Fund shall consist of a
president, a secretary, a treasurer, and such other officers or assistant
officers, including vice-presidents, as may be elected by the Board. Any two or
more of the offices may be held by the same person, except that the same person
may not be both president and secretary. The Board may designate a
vice-president as an executive vice-president and may designate the order in
which the other vice-presidents may act. The Board shall appoint and terminate
such Officers as the Board shall consider appropriate.
Section 2. ELECTION AND TENURE. At the initial organizational meeting
and at least once a year thereafter, the Board shall elect the president,
secretary, treasurer, and other such officers as the Board shall deem necessary
or appropriate in order to carry out the business of the Fund. Each officer
shall hold the office until his or her successors have been duly elected and
qualified.
Section 3. PRESIDENT AND VICE-PRESIDENTS. The President shall be the
chief executive officer of the Fund and, subject to the control of the Board,
shall have general supervision, direction, and control of the business of the
Fund and shall exercise such general powers of management as are usually vested
in the office of President of a corporation or a business trust. The president
shall preside at all meetings of the Board, and, in the absence of the
President, the next-highest ranking officer shall preside or such other person
designated by the members. Subject to the direction of the Board, the President
shall have power in the name and of behalf of the Fund to execute any and all
loan documents, contracts, agreements, deeds, mortgages, applications for
Commission orders, and other instruments in writing, and to employ and discharge
employees and agents of the Fund. The President shall have such further
authorities and duties as the Board shall from time to time determine. In the
absence or disability of the President, the Vice-Presidents in order of their
rank as fixed by the Board or, if more than one and not ranked, the
Vice-Presidents designated by the Board, or, if not so designated, designated by
the President, shall perform all the duties of the President, and when so acting
shall have all of the powers of and be subject to all of the restrictions upon
the President. Subject to the direction of the name and on behalf of the Fund to
execute any and all loan documents, contracts, agreements, deeds, mortgages, and
other instruments in writing, and, in addition, shall have such other duties and
powers as shall be designated from time to time by the Board or by the
President.
Section 4. SECRETARY. The Board may select a Secretary and an Assistant
Secretary who need not be members of the Board. The Secretary and the Assistant
Secretary shall have the power to certify the minutes of the proceedings of the
Board and portions thereof and shall perform such duties and have such other
powers as these Rules and Regulations or the Board shall designate from time to
time. In the absence of the Secretary and Assistant Secretary, an appointee of
the Board shall perform such duties and have such powers.
Section 5. TREASURER. Except as otherwise directed by the Board, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable, and other valuable papers and documents of the Fund, and shall
have and exercise under the supervision of the Board and of the President all
powers and duties incident to his office. The Treasurer may endorse for deposit
or collection all notes, checks, and other instruments payable to the Fund or to
its order. The Treasurer shall deposit all funds of the Fund in such
depositories as the Board shall designate. The Treasurer shall be responsible
for such disbursement of the funds of the Fund as may be ordered by the Board or
the President. The Treasurer shall keep accurate separate account of the books
of the Fund's transactions, which shall be the property of the Fund and,
together with all other property in his possession, shall be subject at all
times to the inspection and control of the Board. Unless the Board shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Fund and shall also be the principal financial officer of the Fund. The
Treasurer shall have such other duties and authorities as the Board shall from
time to time determine. Notwithstanding anything to the contrary herein
contained, the Board may authorize any adviser, administrator, manager, or agent
to maintain bank accounts and deposit and disburse funds of the Fund or any
Portfolio thereof.
Section 6. VACANCIES AND REMOVAL. The Board may fill any vacancy which
may occur in any office. Officers shall hold office at the pleasure of the Board
and any officer may be removed from office at any time with or without cause by
the vote of a majority of the entire Board whenever, in the judgment of the
Board, the best interests of the Fund will be served thereby.
Section 7. RESIGNATIONS. Any officer may resign his office at any time
by mailing or delivering his or her resignation in writing to a meeting of the
Board. No officer of the Fund who resigns shall have any right to compensation
for any period following his or her resignation. Any resignation shall take
effect at the time specified therein or, if the time be not specified, upon
receipt thereof.
ARTICLE IV
INDEMNIFICATION
Section 1. MEMBERS OF THE BOARD, OFFICERS, ETC. The Fund shall
indemnify each member of its Board and each of its officers (including persons
who serve at the Fund's request as directors, officers or trustees of another
organization in which the Fund has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees reasonably incurred by any Covered Person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil, criminal,
administrative or investigative, and any appeal therefrom, before any court or
adminstrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office or thereafter, by reason of being or
having been such a Covered Person, except that no Covered Person shall be
indemnified against any liability to the Fund or its Shareholders to which such
Covered Person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by the Fund in advance of the
final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Fund if it is ultimately determined that indemnification of such expenses is
not authorized under this Article, provided that (a) such Covered Person shall
provide security for his undertaking, (b) the Fund shall be insured against
losses arising by reason of such Covered Person's failure to fulfill his
undertaking or (c) a majority of the members of the Board who are disinterested
persons and who are not Interested Persons (provided that a majority of such
members of the Board then in office act on the matter), or independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts (but not a full trial-type inquiry), that there is reason to
believe such Covered Person ultimately will be entitled to indemnification.
Section 2. COMPROMISE PAYMENT. As to any matter disposed of (whether by
a compromise payment, pursuant to a consent decree or otherwise) without an
adjudication in a decision on the merits by a court, or by any other body before
which the proceeding was brought, that such Covered Person is liable to the Fund
or holders of Fund interests by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office, indemnification shall be provided if (a) approved as in
the best interest of the Fund, after notice that it involves such
indemnification, by at least a majority of the members of the Board who are
disinterested persons and are not Interested Persons (provided that a majority
of such members of the Board then in office act on the matter), upon a
determination, based upon a review of readily available facts (but not a full
trial-type inquiry) that such Covered Person is not liable to the Fund or
holders of Fund interests by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office, or (b) there has been obtained an opinion in writing of
independent legal counsel, based upon a review of readily available facts (but
not a full-trial type inquiry) to the effect that such indemnification would not
protect such Covered Person against any liability to the Fund to which such
Covered Person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to such Covered Person in accordance
with this Section as jurisdiction to have been liable to the Fund of its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.
Section 3. INDEMNIFICATION NOT EXCLUSIVE; DEFINITIONS. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which any such Covered Person may be entitled. As used in this
Article, the term "Covered Person" shall include such person's heirs, executors
and administrators, and a "disinterested person" is a person against whom none
of the actions, suits or other proceedings in question or another action, suit
or other proceeding on the same or similar grounds is then or has been pending.
Nothing contained in this Article shall affect any rights to indemnification to
which personnel of the Fund, other than members of the Board and officers, and
other persons may be entitled by contract or otherwise under law, not the power
of the Fund to purchase and maintain liability insurance on behalf of such
persons.
Section 4. SHAREHOLDERS. In case any holder of Fund interests or former
holder of Fund interests shall be held to be personally liable solely by reason
of his or her being or having been a holder of Fund interests and not because of
his or her acts or omissions or for some other reason, the holder of Fund
interests or former holder of Fund interests (or his or her heirs, executors,
administrators or other legal representative or, in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of which he
or she is or was a holder.
Section 5. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE.
All persons extending credit to, contracting with or having any claim against
the Fund or a particular series shall look only to the assets of the Fund or the
assets of that particular series for payment under such credit, contract or
claim; and neither the holder of Fund interests nor the members of the Board,
nor any of the Fund's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Operating Agreement
shall protect any members of the Board against any liability to which such
members of the Board would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of member of the Board.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the members of the Board or by any officers or officer shall recite
that the same was executed or made by or on behalf of the Fund or by them as a
member of the Board or members of the Board or as officers or officer and not
individually and that the obligations of such instrument are not binding upon
any of them or the holders of Fund interests individually but are binding only
upon the assets and property of the Fund, and may contain such further recital
as he or she or they may deem appropriate, but the omission thereof shall not
operate to bind any members of the Board or member of the Board or officers or
officer or holder or holders of Fund interests individually.
Section 6. GOOD FAITH ACTION BY MEMBERS OF THE BOARD, EXPERT ADVICE, NO
BOND OR SURETY. The exercise by the members of the Board of their powers and
discretions hereunder shall be binding upon everyone interested. A member of the
Board shall be liable for his or her own willful misfeasance, bad faith, gross
negligence of reckless disregard of the duties involved in the conduct of the
office of member of the Board, and for nothing else, and shall not be liable for
errors of judgment or mistakes of fact or law. The members of the Board may take
advice of counsel or other experts with respect to the meaning and operation of
this Operating Agreement, and shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The members of the Board shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 7. LIABILITY OF THIRD PERSONS DEALING WITH MEMBERS OF THE
BOARD. No person dealing with the members of the Board shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by the
members of the Board or to see to the application of any payments made or
property transferred to the Fund or upon its order.
ARTICLE V
CUSTODY OF ASSETS
Securities comprising the Fund's portfolios and cash representing the
proceeds from sales of portfolio securities and of payment of principal and
interest upon portfolio securities shall be held by a custodian or trustee which
shall be a bank or trust company having the qualifications prescribed in the
1940 Act. The Fund shall, upon the resignation or inability to serve of the
custodian or trustee, (1) use its best efforts to obtain a successor custodian
or trustee, and (2) require that the cash and securities owned by the Fund be
delivered to the successor custodian or trustee.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Fund shall end on such date as the members of
the Board from time to time shall determine.
ARTICLE VII
AMENDMENTS
Except as otherwise provided by law, the Operating Agreement of the
Fund may be amended or repealed by the Board.
The provisions of this Operating Agreement are intended to satisfy the
requirements of the 1940 Act. In the event that federal law should be amended or
rules, regulations, rulings, or exemptions thereunder should be adopted, with
the result that any or all of the provisions of the Operating Agreement shall
not be required by federal law, such provisions of the Operating Agreement may
be amended or repealed by the Board of the Fund or by any committee thereof so
authorized by such Board.
Adopted: February 11, 1999
EX-99.23d1
INVESTMENT ADVISORY
AND
MANAGEMENT AGREEMENT
THIS INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT is dated as of
__________________ between JNL Variable Fund LLC, a Delaware limited liability
company, (the "Fund") and Jackson National Financial Services, LLC a Michigan
limited liability company (the "Adviser").
WHEREAS, the Fund is authorized to issue separate series, each series
having its own investment objective or objectives, policies and limitations; and
WHEREAS, the Fund on behalf of its investment series listed on Schedule
A hereto ("Series") desires to retain Adviser to perform investment advisory
services, on the terms and conditions set forth herein; and
WHEREAS, the Adviser agrees to serve as the investment adviser and
business manager for the Series on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the Fund and the Adviser
agree as follows:
1. APPPOINTMENT
The Fund hereby appoints the Adviser to provide certain investment
advisory services to the Series for the period and on the terms set forth in
this Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
In the event the Fund designates one or more series other than the
Series with respect to which the Fund wishes to retain the Adviser to render
investment advisory services hereunder, it shall notify the Adviser in writing.
If the Adviser is willing to render such services, it shall notify the Fund in
writing, whereupon such series shall become a Series hereunder, and be subject
to this Agreement.
2. DUTIES
The Adviser shall manage the affairs of the Fund including, but not
limited to, continuously providing the Fund with investment advice and business
management, including investment research, advice and supervision, determining
which securities shall be purchased or sold by each Series, effecting purchases
and sales of securities on behalf of each Series (and determining how voting and
other rights with respect to securities owned by each Series shall be
exercised). The management of the Series by the Adviser shall be subject to the
control of the Board of Managers of the Fund (the "Board of Managers") and in
accordance with the objectives, policies and principles for each Series set
forth in the Fund's Registration Statement and its current Prospectus and
Statement of Additional Information, as amended from time to time, the
requirements of the Investment Company Act of 1940, as amended (the "Act") and
other applicable law, as well as to the factors affecting the Fund's status as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, (the "Code") and the regulations thereunder and the status of variable
contracts under the diversification requirements set forth in Section 817(h) of
the Code and the regulations thereunder. In performing such duties, the Adviser
shall (i) provide such office space, bookkeeping, accounting, clerical,
secretarial, and administrative services (exclusive of, and in addition to, any
such service provided by any others retained by the Fund or any of its Series)
and such executive and other personnel as shall be necessary for the operations
of each Series, (ii) be responsible for the financial and accounting records
required to be maintained by each Series (including those maintained by the
Fund's custodian), and (iii) oversee the performance of Services provided to
each Series by others, including the custodian, transfer agent, shareholder
servicing agent and sub-adviser, if any. The Fund acknowledges that the Adviser
also acts as the investment adviser of other investment companies.
The Adviser may delegate certain of its duties under this Agreement
with respect to a Series to a sub-adviser or sub-advisers, subject to the
approval of the Board of Managers and a Series' shareholders, as required by the
Act. The Adviser is solely responsible for payment of any fees or other charges
arising from such delegation and the Fund shall have no liability therefore.
To the extent required by the laws of any state in which the Fund is
subject to an expense guarantee limitation, if the aggregate expenses of any
Series in any fiscal year exceed the specified expense limitation ratios for
that year (calculated on a daily basis), Adviser agrees to waive such portion of
its advisory fee in excess of the limitation, but such waiver shall not exceed
the full amount of the advisory fee for such year except as may be elected by
Adviser and all other normal expenses and charges, but shall exclude interest,
taxes, brokerage fees on Series transactions, fees and expenses incurred in
connection with the distribution of Fund shares, and extraordinary expenses
including litigation expenses. In the event any amounts are so contributed by
Adviser to the Fund, the Fund agrees to reimburse Adviser, provided that such
reimbursement does not result in increasing the Fund's aggregate expenses above
the aforementioned expense limitation ratios.
3. EXPENSES
The Adviser shall pay all if its expenses arising from the performance
of its obligations under this Agreement and shall pay any salaries, fees and
expenses of the Board of Managers and any officers of the Fund who are employees
of the Adviser. The Adviser shall not be required to pay any other expenses of
the Fund, including, but not limited to direct charges relating to the purchase
and sale of Series securities, interest charges, fees and expenses of
independent attorneys and auditors, taxes and governmental fees, cost of stock
certificates and any other expenses (including clerical expenses) of issue, sale
repurchase or redemption of shares, expenses of registering and qualifying
shares for sale, expenses of printing and distributing reports and notices to
shareholders, expenses of data processing and related services, shareholder
recordkeeping and shareholder account service, expenses of printing and filing
reports and other documents filed with governmental agencies, expenses of
printing and distributing Prospectuses, fees and disbursements of transfer
agents and custodians, expenses of disbursing dividends and distributions, fees
and expenses of members of the Board of Managers who are not employees of the
Adviser or its affiliates, membership dues in the investment company trade
association, insurance premium and extraordinary expenses such as litigation
expenses.
4. COMPENSATION
As compensation for services performed and the facilities and personnel
provided by the Adviser under this Agreement, the Fund will pay the Adviser, and
the Adviser agrees to accept as full compensation therefor, a fee, accrued daily
and payable monthly on the average daily net assets in the Series, in accordance
with Schedule B hereto.
For the purposes of accruing compensation, the net assets of the Series
shall be determined in the manner and on the dates set forth in the Prospectus
of the Fund and, on days on which the net assets are not determined, the net
asset figure to be used shall be as determined on the last preceding day on
which the net assets shall have been determined.
Upon any termination of this Agreement on a day other than the last day
of the month, the fee for the period from the beginning of the month in which
termination occurs to the date of termination shall be prorated according to the
proportion which such period bears to the full month.
5. PURCHASE AND SALE OF SECURITIES
The Adviser shall purchase securities from or through and sell
securities to or through such persons, brokers or dealers as the Adviser shall
deem appropriate to carry out the policies with respect to Series transactions
as set forth in the Fund's Registration Statement and its current Prospectus or
Statement of Additional Information, as amended from time to time, or as the
Board of Managers may direct from time to time.
Nothing herein shall prohibit the Board of Managers from approving the
payment by the Fund of additional compensation to others for consulting
services, supplemental research and security, and economic analysis.
6. TERM OF AGREEMENT
This Agreement shall continue in full force and effect with respect to
each Series of the Fund from the later of the effective date of the Registration
Statement under the Securities Act of 1933 for the variable annuity contracts
funded in Jackson National Separate Account - I or the date the contract is
approved by the shareholders of such Series as required by the Act. If approved
by the affirmative vote of a majority of the outstanding voting securities (as
defined by the Act) of a Series with respect to such Series, voting separately
from any other Series of the Fund, this Agreement shall continue in full force
and effect with respect to such Series for two years from the date thereof and
thereafter from year to year provided such continuance is approved at least
annually (i) by the Board of Managers by vote cast in person at a meeting called
for the purpose of voting on such renewal, or by the vote of a majority of the
outstanding voting securities (as defined by the Act) of such Series with
respect to which renewal is effected, and (ii) by a majority of the
non-interested members of the Board of Managers by a vote cast in person at a
meeting called for the purpose of voting on such renewal. Any approval of this
Agreement or the renewal thereof with respect to a Series by the vote of a
majority of the outstanding voting securities of that Series, or by the Board of
Managers which shall include a majority of the non-interested members of the
Board of Managers, shall be effective to continue this Agreement with respect to
that Series notwithstanding (a) that this Agreement or the renewal thereof has
not been so approved as to any other Series, or (b) that this Agreement or the
renewal thereof has not been so approved by the vote of a majority of the
outstanding voting securities of the Fund as a whole.
7. TERMINATION
This Agreement may be terminated at any time as to a Series, without
payment of any penalty, by the Board of Managers or by the vote of a majority of
the outstanding voting securities (as defined in the Act) of such Series on
sixty (60) days' written notice to the Adviser. Similarly, the Adviser may
terminate this Agreement without penalty on like notice to the Fund provided,
however, that this Agreement may not be terminated by the Adviser unless another
investment advisory agreement has been approved by the Fund in accordance with
the Act, or after six months' written notice, whichever is earlier. This
Agreement shall automatically terminate in the event of its assignment (as
defined in the Act).
8. REPORTS
The Adviser shall report to the Board of Managers, or to any committee
or officers of the Fund acting pursuant to the authority of the Board of
Managers, at such times and in such detail as shall be reasonable and as the
Board of Managers may deem appropriate in order to enable the Board of Managers
to determine that the investment policies of each Series are being observed and
implemented and that the obligations of the Adviser under this Agreement are
being fulfilled. Any investment program undertaken by the Adviser pursuant to
this Agreement and any other activities undertaken by the Adviser on behalf of
the Fund shall at all times be subject to any directives of the Board of
Managers or any duly constituted committee or officer of the Fund acting
pursuant to the authority of the Board of Managers.
The Adviser shall furnish all such information as may reasonably be
necessary for the Board of Managers to evaluate the terms of this Agreement.
9. RECORDS
The Fund is responsible for maintaining and preserving for such period
or periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books and other documents that constitute the
records forming the basis for all reports, including financial statements
required to be filed pursuant to the Act and for the Fund's auditor's
certification relating thereto. The Fund and the Adviser agree that in
furtherance of the recordkeeping responsibilities of the Fund under Section 31
of the Act and the rules thereunder, the Adviser will maintain records and
ledgers and will preserve such records in the form and for the period prescribed
in Rule 31a-2 of the Act for each Series.
The Adviser and the Fund agree that all accounts, book and other
records maintained and reserved by each as required hereby shall be subject at
any time, and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, the Fund's auditors, the
Fund or any representative of the Fund, or any governmental agency or other
instrumentality having regulatory authority over the Fund. It is expressly
understood and agreed that the books and records maintained by the Adviser on
behalf of each Series shall, at all times, remain the property of the Fund.
10. LIABILITY AND INDEMNIFICATION
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties ("disabling conduct") hereunder on
the part of the Adviser (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity affiliated with
Adviser), Adviser shall not be subject to liability to the Fund or to any
shareholder of the Fund for any act or omission in the course of, or connected
with, rendering services hereunder including, without limitation, any error of
judgment or mistake of law or for any loss suffered by any of them in connection
with the matters to which this Agreement relates, except to the extent specified
in Section 36(b) of the Act concerning loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services. Except for such
disabling conduct or liability incurred under Section 36(b) of the Act, the Fund
shall indemnify Adviser (and its officer, directors, agents, employees,
controlling person, shareholders and any other person or entity affiliated with
Adviser) from any liability arising from Adviser's conduct under this Agreement.
Indemnification to Adviser or any of its personnel or affiliates shall
be made when (i) a final decision on the merits is rendered by a court or other
body before whom the proceeding was brought, that the person to be indemnified
was not liable by reason of disabling conduct or Section 36(b) or, (ii) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of Board of
Managers who are neither "interested persons" of the Fund as defined in Section
2(a)(19) of the Act nor parties to the proceeding ("disinterested, non-party
members of the Board of Managers"), or (b) an independent legal counsel in a
written opinion. The Fund may, by vote of a majority of the disinterested,
non-party members of the Board of Managers, advance attorneys' fees or other
expenses incurred by officers, members of the Board of Managers, investment
advisers or principal underwriters, in defending a proceeding upon the
undertaking by or on behalf of the person to be indemnified to repay the advance
unless it is ultimately determined that such person is entitled to
indemnification. Such advance shall be subject to at least one of the following:
(1) the person to be indemnified shall provide a security for the undertaking,
(2) the Fund shall be insured against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of the disinterested, non-party members
of the Board of Managers, or an independent legal counsel in a written opinion
shall determine, based on a review of readily available facts, that there is
reason to believe that the person to be indemnified ultimately will be found
entitled to indemnification.
11. MISCELLANEOUS
Anything herein to the contrary notwithstanding, this Agreement shall
not be construed to require, or to impose any duty upon either of the parties,
to do anything in violation of any applicable laws or regulations.
A copy of the Declaration of Fund of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the members of the Board of Managers as
members of the Board of Managers, and is not binding upon any of the members of
the Board of Managers, officers, or shareholders of the Fund individually but
binding only upon the assets and property of the Fund. With respect to any claim
by the Adviser for recovery of that portion of the investment management fee (or
any other liability of the Fund arising hereunder) allocated to a particular
Series, whether in accordance with the express terms hereof or otherwise, the
Adviser shall have recourse solely against the assets of that Series to satisfy
such claim and shall have no recourse against the asset of any other Series for
such purpose.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement
to be executed by their duly authorized officers as of the date first above
written.
JACKSON NATIONAL FINANCIAL
JNL VARIABLE FUND LLC SERVICES, LLC
By: By:
-------------------------------- -----------------------------
Name: Andrew B. Hopping Name Mark D. Nerud
-------------------------------- -----------------------------
Title: President Title: Chief Operating Officer
-------------------------------- -----------------------------
<PAGE>
SCHEDULE A
SERIES
DATED ________
JNL/First Trust The Dow(SM) Target 5 Series
JNL/First Trust The Dow(SM) Target 10 Series
JNL/First Trust The S&P(R) 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
<PAGE>
SCHEDULE B
FEE SCHEDULE
DATED __________
JNL/First Trust The Dow(SM) Target 5 Series
JNL/First Trust The Dow(SM) Target 10 Series
JNL/First Trust The S&P(R) 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
ASSETS FEES
------ ----
$0 to $500 million............................................ .75%
$500 million to $1 billion.................................... .70%
Over $1 billion............................................... .65%
EX-99.23d2
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT is effective this ______ day of _______________, 199___,
by and between JACKSON NATIONAL FINANCIAL SERVICES, LLC., a Michigan limited
liability company and registered investment adviser ("Adviser"), and First Trust
Advisers L.P., an Illinois limited partnership and registered investment adviser
("Sub-Adviser").
WHEREAS, Adviser is the investment manager for the JNL Variable Fund
LLC (the "Fund"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund is authorized to issue separate series, each series
having its own investment objective or objectives, policies and limitations;
WHEREAS, Adviser desires to retain Sub-Adviser as Adviser's agent to
furnish investment advisory services to the series of the Fund listed on
Schedule A hereto ("Series").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Series for the period and on
the terms set forth in this Agreement. Sub-Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
In the event the Adviser designates one or more series other than the
Series with respect to which the Adviser wishes to retain the
Sub-Adviser to render investment advisory services hereunder, it shall
notify the Sub-Adviser in writing. If the Sub-Adviser is willing to
render such services, it shall notify the Adviser in writing, whereupon
such series shall become a Series hereunder, and be subject to this
Agreement.
2. Delivery of Documents. Adviser has or will furnish Sub-Adviser with
copies properly certified or authenticated of each of the following:
a) the Fund's Certificate of Formation, as filed with the
Secretary of State of the State of Delware on October 13,
1998, and all amendments thereto or restatements thereof (such
Certificate of Formation, as presently in effect and as it
shall from time to time be amended or restated, is herein
called the "Certificate of Formation");
b) the Fund's Operating Agreement and amendments thereto;
c) resolutions of the Fund's Management Board authorizing the
appointment of Sub-Adviser and approving this Agreement;
d) the Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission
(the "SEC") and all amendments thereto;
e) the Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act") and under the
1940 Act as filed with the SEC and all amendments thereto
insofar as such Registration Statement and such amendments
relate to the Series; and
f) the Fund's most recent prospectus and Statement of Additional
Information (collectively called the "Prospectus").
Adviser will furnish the Sub-Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. Management. Subject always to the supervision of Fund's Management
Board and the Adviser, Sub-Adviser will furnish an investment program
in respect of, and make investment decisions for, all assets of the
Series and place all orders for the purchase and sale of securities,
all on behalf of the Series. In the performance of its duties,
Sub-Adviser will satisfy its fiduciary duties to the Series (as set
forth below), and will monitor the Series's investments, and will
comply with the provisions of Fund's Certificate of Formation and
Operating Agreement, as amended from time to time, and the stated
investment objectives, policies and restrictions of the Series.
Sub-Adviser and Adviser will each make its officers and employees
available to the other from time to time at reasonable times to review
investment policies of the Series and to consult with each other
regarding the investment affairs of the Series. Sub-Adviser will report
to Management Board and to Adviser with respect to the implementation
of such program. Sub-Adviser is responsible for compliance with the
provisions of Section 817(h) of the Internal Revenue Code of 1986, as
amended, applicable to the Series.
The Sub-Adviser further agrees that it:
a) will use the same skill and care in providing such services as
it uses in providing services to fiduciary accounts for which
it has investment responsibilities;
b) will conform with all applicable Rules and Regulations of the
SEC in all material respects and in addition will conduct its
activities under this Agreement in accordance with any
applicable regulations of any governmental authority
pertaining to its investment advisory activities;
c) will place orders pursuant to its investment determinations
for the Series either directly with the issuer or with any
broker or dealer, including an affiliated broker-dealer which
is a member of a national securities exchange as permitted in
accordance with guidelines established by the Management
Board. In placing orders with brokers and dealers, the
Sub-Adviser will attempt to obtain the best combination of
prompt execution of orders in an effective manner and at the
most favorable price. Consistent with this obligation, when
the execution and price offered by two or more brokers or
dealers are comparable Sub-Adviser may, in its discretion,
purchase and sell portfolio securities to and from brokers and
dealers who provide the Sub-Adviser with research advice and
other services. In no instance will portfolio securities be
purchased from or sold to the Adviser, Sub-Adviser or any
affiliated person of either the Fund, Adviser, or Sub-Adviser,
except as may be permitted under the 1940 Act;
d) will report regularly to Adviser and to the Management Board
and will make appropriate persons available for the purpose of
reviewing with representatives of Adviser and the Management
Board on a regular basis at reasonable times the management of
the Series, including, without limitation, review of the
general investment strategies of the Series, the performance
of the Series in relation to standard industry indices,
interest rate considerations and general conditions affecting
the marketplace and will provide various other reports from
time to time as reasonably requested by Adviser;
e) will prepare and maintain such books and records with respect
to the Series's securities transactions and will furnish
Adviser and Fund's Management Board such periodic and special
reports as the Management Board or Adviser may request;
f) will act upon instructions from Adviser not inconsistent with
the fiduciary duties hereunder;
g) will treat confidentially and as proprietary information of
Fund all such records and other information relative to Fund
maintained by the Sub-Adviser, and will not use such records
and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior
notification to and approval in writing by Fund, which
approval shall not be unreasonably withheld and may not be
withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by Fund; and
h) will vote proxies received in connection with securities held
by the Series consistent with its fiduciary duties hereunder.
4. Expenses. During the term of this Agreement, Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage
commission, if any) purchased for the Series.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records
which it maintains for the Fund are the property of the Fund and
further agrees to surrender promptly to the Fund any of such records
upon the Fund's request. Sub-Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Adviser will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a
sub-advisory fee, accrued daily and payable monthly on the average
daily net assets in the Series, excluding the net assets representing
capital contributed by Jackson National Life Insurance Company, in
accordance with Schedule B hereto. From time to time, the Sub-Adviser
may agree to waive or reduce some or all of the compensation to which
it is entitled under this Agreement.
The Sub-Adviser represents and warrants that in no event shall the
Sub-Adviser provide similar investment advisory services to any client
comparable to the Series being managed under this Agreement at a
composite rate of compensation less than that provided for herein.
7. Services to Others. Adviser understands, and has advised the Fund's
Management Board, that Sub-Adviser now acts, or may in the future act,
as an investment adviser to fiduciary and other managed accounts, and
as investment adviser or sub-investment adviser to other investment
companies. Adviser has no objection to Sub-Adviser acting in such
capacities, provided that whenever the Series and one or more other
investment advisory clients of Sub-Adviser have available funds for
investment, investments selected for each will be allocated in a manner
believed by Sub-Adviser to be equitable to each. Adviser recognizes,
and has advised Fund's Management Board, that in some cases this
procedure may adversely affect the size of the position that the
participating Series may obtain in a particular security. In addition,
Adviser understands, and has advised Fund's Management Board, that the
persons employed by Sub-Adviser to assist in Sub-Adviser's duties under
this Agreement will not devote their full time to such service and
nothing contained in this Agreement will be deemed to limit or restrict
the right of Sub-Adviser or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
8. Standard of Care and Limitation of Liability. The Sub-Adviser shall
exercise its best judgment and shall act in good faith in rendering the
services pursuant to this Agreement.
9. Indemnification. The Sub-Adviser agrees to indemnify and hold harmless
the Adviser, any affiliated person of the Adviser, and each person, if
any, who, within the meaning of Section 15 of the 1933 Act, controls
("controlling person") the Adviser (all of such persons being referred
to as "Adviser Indemnified Persons") against any and all losses,
claims, damages, liabilities, or litigation (including reasonable legal
and other expenses) to which an Adviser Indemnified Person may become
subject under the 1933 Act, 1940 Act, the Investment Advisers Act of
1940, the Internal Revenue Code, under any other statute, at common law
or otherwise, arising out of the Sub-Adviser's responsibilities as
Sub-Adviser to the Series and to the Fund which (1) may be based upon
any misfeasance, malfeasance, or nonfeasance by the Sub-Adviser, any of
its employees or representatives, or any affiliate of or any person
acting on behalf of the Sub-Adviser, (2) may be based upon a failure to
comply with Section 3 of this Agreement, or (3) may be based upon any
untrue statement or alleged untrue statement of a material fact
contained in the Prospectus, or any amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact known
or which should have been known to the Sub-Adviser and was required to
be stated therein or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance upon
information furnished to the Adviser, the Fund, or any affiliated
person of the Adviser or Fund by the Sub-Adviser or any affiliated
person of the Sub-Adviser; provided, however, that in no case shall the
indemnity in favor of an Adviser Indemnified Person be deemed to
protect such person against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement.
10. Duration and Termination. This Agreement will become effective as to a
Series upon execution or, if later, the date that initial capital for
such Series is first provided to it and, unless sooner terminated as
provided herein, will continue in effect for two years from such date.
Thereafter, if not terminated as to a Series, this Agreement will
continue in effect as to a Series for successive periods of 12 months,
provided that such continuation is specifically approved at least
annually by the Fund's Management Board or by vote of a majority of the
outstanding voting securities of such Series, and in either event
approved also by a majority of the Members of the Fund's Management
Board who are not interested persons of the Fund, or of the Adviser, or
of the Sub-Adviser. Notwithstanding the foregoing, this Agreement may
be terminated as to a Series at any time, without the payment of any
penalty, on sixty days' written notice by the Fund or Adviser, or on
ninety days' written notice by the Sub-Adviser. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities",
"interested persons" and "assignment" have the same meanings of such
terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally; but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought.
12 Notice. Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such
notice.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or effect.
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
will be binding upon and shall inure to the benefit of the parties
hereto.
The name "JNL Variable Fund LLC" and "Members of the JNL Variable Fund
LLC's Management Board" refer respectively to the Fund created by, and
the Members of the Management Board, as members but not individually or
personally, acting from time to time under, the Operating Agreement, to
which reference is hereby made, and to any and all amendments thereto.
The obligations of the JNL Variable Fund LLC entered in the name or on
behalf thereof by any of the Members of the JNL Variable Fund LLC
Management Board, representatives or agents are made not individually
but only in such capacities and are not binding upon any of the
Members, Shareholders or representatives of the Fund personally, but
bind only the assets of the Fund, and persons dealing with the Series
must look solely to the assets of the Fund belonging to such Series for
the enforcement of any claims against Fund.
14. Representations and Warranties of the Sub-Adviser.
The Sub-Adviser hereby represents that this Agreement does not violate
any existing agreements between the Sub-Adviser and any other party.
The Sub-Adviser further represents and warrants that it is a duly
registered investment adviser under the Investment Advisers Act of
1940, as amended and has provided to the Adviser a copy of its most
recent Form ADV as filed with the Securities and Exchange Commission.
The Sub-Adviser further represents that is has reviewed the
post-effective amendment to the Registration Statement for the Fund
filed with the Securities and Exchange Commission that contains
disclosure about the Sub-Adviser, and represents and warrants that,
with respect to the disclosure about the Sub-Adviser or information
relating, directly or indirectly, to the Sub-Adviser, such Registration
Statement contains, as of the date hereof, no untrue statement of any
material fact and does not omit any statement of a material fact which
was required to be stated therein or necessary to make the statements
contained therein not misleading.
15. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and the laws of the State of Michigan.
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed as of this ____ day of _________________, 199_.
JACKSON NATIONAL FINANCIAL
SERVICES, LLC
By:
----------------------------------------
Name: Andrew B. Hopping
----------------------------------------
Title: President
----------------------------------------
FIRST TRUST ADVISERS L.P
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
<PAGE>
SCHEDULE A
SERIES
DATED _______
JNL/First Trust The Dow(SM) Target 5 Series
JNL/First Trust The Dow(SM) Target 10 Series
JNL/First Trust The S&P(R) 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
<PAGE>
SCHEDULE B
COMPENSATION
DATED ______
JNL/FIRST TRUST THE DOW(SM) TARGET 5 SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST THE DOW(SM) TARGET 10 SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST THE S&P(R) TARGET 10 SERIES
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST GLOBAL TARGET 15 SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST TARGET 25 SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
<PAGE>
JNL/FIRST TRUST TARGET SMALL-CAP SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST TECHNOLOGY SECTOR SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST PHARMACEUTICAL/HEALTHCARE SECTOR SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST FINANCIAL SECTOR SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST ENERGY SECTOR SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST COMMUNICATIONS SECTOR SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
JNL/FIRST TRUST LEADING BRANDS SERIES
Average Daily Net Assets Annual Rate
$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
EX-99.23h
ADMINISTRATION AGREEMENT
This Agreement is made as of _____________, 1999, between JNL Variable Fund LLC,
a Delaware limited liability company ("Fund"), and Jackson National Financial
Services, LLC, a Michigan limited liability company ("Administrator").
WHEREAS, the Fund is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end management investment company and has
established several separate series of shares ("Series"), with each Series
having its own assets and investment policies; and
WHEREAS, the Fund desires to retain the Administrator to furnish administrative
services to each Series listed in Schedule A attached hereto, and to such other
Series of the Fund hereinafter established as agreed to from time to time by the
parties, evidenced by an addendum to Schedule A (hereinafter "Series" shall
refer to each Series which is subject to this Agreement and all agreements and
actions described herein to be made or taken by a Series shall be made or taken
by the Fund on behalf of the Series), and the Administrator is willing to
furnish such services,
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. SERVICES OF THE ADMINISTRATOR
1.1 Administrative Services. The Administrator shall supervise each Series'
business and affairs and shall provide such services required for effective
administration of such Series as are not provided by employees or other agents
engaged by such Series; provided, that the Administrator shall not have any
obligation to provide under this Agreement any direct or indirect services to a
Series' shareholders, any services related to the distribution of a Series'
shares, or any other services that are the subject of a separate agreement or
arrangement between a Series and the Administrator. Subject to the foregoing, in
providing administrative services hereunder, the Administrator shall:
1.1.1 Office Space, Equipment and Facilities. Furnish without cost to
each Series, or pay the cost of, such office space, office equipment and office
facilities as are adequate for the Series' needs;
1.1.2 Personnel. Provide, without remuneration from or other cost to
each Series, the services of individuals competent to perform all of the Series'
executive, administrative and clerical functions that are not performed by
employees or other agents engaged by the Series or by the Administrator acting
in some other capacity pursuant to a separate agreement or arrangement with the
Series;
1.1.3 Agents. Assist each Series in selecting and coordinating the
activities of the other agents engaged by the Series, including the Series'
custodian, independent auditors and legal counsel;
1.1.4 Board of Managers and Officers. Authorize and permit the
Administrator's directors, officers or employees who may be elected or appointed
as trustees or officers of the Fund to serve in such capacities, without
remuneration from or other cost to the Fund or any Series;
1.1.5 Books and Records. Ensure that all financial, accounting and
other records required to be maintained and preserved by each Series are
maintained and preserved by it or on its behalf in accordance with applicable
laws and regulations; and
1.1.6 Reports and Filings. Assist in the preparation of all periodic
reports by each Series to shareholders of such Series and all reports and
filings required to maintain the registration and qualification of the Series
and the Series' shares, or to meet other regulatory or tax requirements
applicable to the Series, under federal and state securities and tax laws.
2. EXPENSES OF EACH SERIES
2.1 Expenses to Be Paid by the Administrator. If the Administrator pays or
assumes any expenses of the Fund or a Series not required to be paid or assumed
by the Administrator under this Agreement, the Administrator shall not be
obligated hereby to pay or assume the same or any similar expense in the future;
provided, that nothing herein contained shall be deemed to relieve the
Administrator of any obligation to the Fund or to a Series under any separate
agreement or arrangement between the parties.
2.1.1 Custody. All charges of depositories, custodians, and other
agents for the transfer, receipt, safekeeping, and servicing of its cash,
securities, and other property;
2.1.2 Shareholder Servicing. All expenses of maintaining and servicing
shareholder accounts, including, but not limited to, the charges of any
shareholder servicing agent, dividend disbursing agent or other agent engaged by
a Series to service shareholder accounts;
2.1.3 Shareholder Reports. All expenses of preparing, setting type,
printing and distributing reports and other communications to shareholders of a
Series;
2.1.4 Prospectuses. All expenses of preparing, setting in type,
printing and mailing annual or more frequent revisions of a Series' Prospectus
and SAI and any supplements thereto and of supplying them to shareholders of the
Series and Account holders;
2.1.5 Pricing and Series Valuation. All expenses of computing a Series'
NAV per share, including any equipment or services obtained for the purpose of
pricing shares or valuing the Series' investment series;
2.1.6 Communications. All charges for equipment or services used for
communications between the Administrator or the Series and any custodian,
shareholder servicing agent, series accounting services agent, or other agent
engaged by a Series;
2.1.7 Legal and Accounting Fees. All charges for services and expenses
of a Series' legal counsel and independent auditors;
2.1.8 Trustees' Fees and Expenses. All compensation of Board of
Managers, all expenses incurred in connection with such Trustees' services as
Board of Managers, and all other expenses of meetings of the Board of Managers
or committees thereof;
2.1.9 Shareholder Meetings. All expenses incidental to holding meetings
of shareholders, including the printing of notices and proxy materials, and
proxy solicitation therefor;
2.1.10 Bonding and Insurance. All expenses of bond, liability, and
other insurance coverage required by law or regulation or deemed advisable by
the Board of Managers, including, without limitation, such bond, liability and
other insurance expense that may from time to time be allocated to the Series in
a manner approved by the Board of Managers;
2.1.11 Trade Association Fees. Its proportionate share of all fees,
dues and other expenses incurred in connection with the Trust's membership in
any trade association or other investment organization;
2.1.12 Salaries. All salaries, expenses and fees of the officers,
trustees, or employees of the Fund who are officers, directors or employees of
the Administrator.
2.2 Expenses to Be Paid by the Series. Each Series shall bear all expenses of
its operation, except those specifically allocated to the Administrator under
this Agreement or under any separate agreement between such Series and the
Administrator. Expenses to be borne by such Series shall include both expenses
directly attributable to the operation of that Series and the offering of its
shares, as well as the portion of any expenses of the Fund that is properly
allocable to such Series in a manner approved by the Board of Managers of the
Fund ("Board of Managers"). Subject to any separate agreement or arrangement
between the Fund of a Series and the Administrator, the expenses hereby
allocated to each Series, and not to the Administrator, include, but are not
limited to:
2.2.1 Federal Registration Fees. All fees and expenses of registering
and maintaining the registration of the Fund and each Series under the 1940 Act
and the registration of each Series' shares under the Securities Act of 1933
(the "1933 Act");
2.2.2 State Registration Fees. All fees and expenses of qualifying and
maintaining the qualification of the Fund and each Series and of each Series'
shares for sale under securities laws of various states or jurisdictions, and of
registration and qualification of each Series under all other laws applicable to
a Series or its business activities (including registering the Series as a
broker-dealer, or any officer of the Series or any person, as agent or salesman
of the Series in any state), if applicable;
2.2.3 Brokerage Commissions. All brokers' commissions and other charges
incident to the purchase, sale or lending of a Series' securities;
2.2.4 Taxes. All taxes or governmental fees payable by or with respect
to a Series to federal, state or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes;
2.2.5 Nonrecurring and Extraordinary Expenses. Such nonrecurring and
extraordinary expenses as may arise, including the costs of actions, suits, or
proceedings to which the Series is a party and the expenses a Series may incur
as a result of its legal obligation to provide indemnification to the Trust's
officers, Board of Managers and agents;
2.2.6 Investment Advisory Services. Any fees and expenses for
investment advisory services that may be incurred or contracted for by a Series.
3. ADMINISTRATION FEE
3.1 Fee. As compensation for all services rendered, facilities provided and
expenses paid or assumed by the Administrator to or for each Series under this
Agreement, such Series shall pay the Administrator an annual fee as set out in
Schedule B to this Agreement.
3.2 Computation and Payment of Fee. The administration fee shall accrue on each
calendar day; and shall be payable monthly on the first business day of the next
succeeding calendar month. The daily fee accruals for each Series shall be
computed by multiplying the fraction of one divided by the number of days in the
calendar year by the applicable annual administration fee rate (as set forth in
Schedule B hereto), and multiplying the product by the NAV of such Series,
determined in the manner set forth in such Series' then-current Prospectus, as
of the close of business on the last preceding business day on which such
Series' NAV was determined.
4. OWNERSHIP OF RECORDS
All records required to be maintained and preserved by each Series pursuant to
the provisions or rules or regulations of the Securities and Exchange Commission
("SEC") under section 31(a) of the 1940 Act and maintained and preserved by the
Administrator on behalf of such Series are the property of such Series and shall
be surrendered by the Administrator promptly on request by the Series; provided,
that the Administrator may at its own expense make and retain copies of any such
records.
5. REPORTS TO ADMINISTRATOR
Each Series shall furnish or otherwise make available to the Administrator such
copies of that Series' Prospectus, SAI, financial statements, proxy statements,
reports, and other information relating to its business and affairs as the
Administrator may, at any time or from time to time, reasonably require in order
to discharge its obligations under this Agreement.
6. REPORTS TO EACH SERIES
The Administrator shall prepare and furnish to each Series such reports,
statistical data and other information in such form and at such intervals as
such Series may reasonably request.
7. OWNERSHIP OF SOFTWARE AND RELATED MATERIALS
All computer programs, written procedures and similar items developed or
acquired and used by the Administrator in performing its obligations under this
Agreement shall be the property of the Administrator, and no Series will acquire
any ownership interest therein or property rights with respect thereto.
8. CONFIDENTIALITY
The Administrator agrees, on its own behalf and on behalf of its employees,
agents and contractors, to keep confidential any and all records maintained and
other information obtained hereunder which relate to any Series or to any of a
Series' former, current or prospective shareholders, except that the
Administrator may deliver records or divulge information (a) when requested to
do so by duly constituted authorities after prior notification to and approval
in writing by such Series (which approval will not be unreasonably withheld and
may not be withheld by such Series where the Administrator advises such Series
that it may be exposed to civil or criminal contempt proceeding or other
penalties for failure to comply with such request) or (b) whenever requested in
writing to do so by such Series.
9. THE ADMINISTRATOR'S ACTIONS IN RELIANCE ON SERIES' INSTRUCTIONS, LEGAL
OPINIONS, ETC.; SERIES' COMPLIANCE WITH LAWS.
9.1 The Administrator may at any time apply to an officer of the Fund for
instructions, and may consult with legal counsel for a Series or with the
Administrator's own legal counsel, in respect of any matter arising in
connection with this Agreement; and the Administrator shall not be liable for
any action taken or omitted to be taken in good faith and with due care in
accordance with such instructions or with the advice or opinion of such legal
counsel. The Administrator shall be protected in acting upon any such
instructions, advice, or opinion and upon any other paper or document delivered
by a Series or such legal counsel which the Administrator believes to be genuine
and to have been signed by the proper person or persons, and the Administrator
shall not be held to have notice of any change of status or authority of any
officer or representative of the Fund, until receipt of written notice thereof
from the Fund.
9.2 Except as otherwise provided in this Agreement or in any separate agreement
between the parties and except for the accuracy of information furnished to each
Series by the Administrator, each Series assumes full responsibility for the
preparation, contents, filing and distribution of its Prospectus and SAI, and
full responsibility for other documents or actions required for compliance with
all applicable requirements of the 1940 Act, the Securities Exchange Act of
1934, the 1933 Act, and any other applicable laws, rules and regulations of
governmental authorities having jurisdiction over such Series.
10. SERVICES TO OTHER CLIENTS
Nothing herein contained shall limit the freedom of the Administrator or any
affiliated person of the Administrator to render administrative or shareholder
services to other investment companies, to act as administrator to other
persons, firms, or corporations, or to engage in other business activities.
11. LIMITATION OF LIABILITY REGARDING THE TRUST
The Administrator shall look only to the assets of each Series for performance
of this Agreement by the Fund on behalf of such Series, and neither the Board of
Managers of the Fund nor any of the Trust's officers, employees or agents,
whether past, present or future shall be personally liable therefor.
12. INDEMNIFICATION BY SERIES
Each Series shall indemnify the Administrator and hold it harmless from and
against any and all losses, damages and expenses, including reasonable
attorneys' fees and expenses, incurred by the Administrator that result from (i)
any claim, action, suit or proceeding in connection with the Administrator's
entry into or performance of this Agreement with respect to such Series; or (ii)
any action taken or omission to act committed by the Administrator in the
performance of its obligations hereunder with respect to such Series; or (iii)
any action of the Administrator upon instructions believed in good faith by it
to have been executed by a duly authorized officer or representative of the Fund
with respect to such Series; provided, that the Administrator shall not be
entitled to such indemnification in respect of actions or omissions constituting
negligence or misconduct on the part of the Administrator or its employees,
agents or contractors. Before confessing any claim against it which may be
subject to indemnification by a Series hereunder, the Administrator shall give
such Series reasonable opportunity to defend against such claim in its own name
or in the name of the Administrator.
13. INDEMNIFICATION BY THE ADMINISTRATOR
The Administrator shall indemnify each Series and hold it harmless from and
against any and all losses, damages and expenses, including reasonable
attorneys' fees and expenses, incurred by such Series which result form (i) the
Administrator's failure to comply with the terms of this Agreement with respect
to such Series; or (ii) the Administrator's lack of good faith in performing its
obligations hereunder with respect to such Series; or (iii) the Administrator's
negligence or misconduct or its employees, agents or contractors in connection
herewith with respect to such Series. A Series shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
misconduct on the part of that series or its employees, agents or contractors
other than the Administrator, unless such negligence or misconduct results from
or is accompanied by negligence or misconduct on the part of the Administrator,
any affiliated person of the Administrator, or any affiliated person of an
affiliated person of the Adminsitrator.. Before confessing any claim against it
which may be subject to indemnification hereunder, a Series shall give the
Administrator reasonable opportunity to defend against such claim in its own
name or the name of the Series.
14. EFFECT OF AGREEMENT
Nothing herein contained shall be deemed to require the Fund or any Series to
take any action contrary to the Fund Instrument or By-laws of the Fund or any
applicable law, regulation or order to which it is subject or by which it is
bound, or to relieve or deprive the Board of Managers of their responsibility
for and control of the conduct of the business and affairs of the Series or the
Fund.
15. TERM OF AGREEMENT
The term of this Agreement shall begin on the date first above written with
respect to each Series listed in Schedule A on the date hereof and, unless
sooner terminated as hereinafter provided, this Agreement shall remain in effect
through January 4, 2001. With respect to each Series added by execution of an
Addendum to Schedule A, the term of this Agreement shall begin on the date of
such execution and, unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect to the date two years after such execution.
Thereafter, in each case this Agreement shall continue in effect with respect to
each Series from year to year, subject to the termination provisions and all
other terms and conditions hereof; provided, such continuance with respect to a
Series is approved at least annually by vote or written consent of the Board of
Managers, including a majority of the Board of Managers who are not interested
persons of either party hereto ("Disinterested Board of Managers"); and provided
further, that neither party has terminated the Agreement in accordance with
Section 17. The Administrator shall furnish any Series, promptly upon its
request, such information as may reasonably be necessary to evaluate the terms
of this Agreement or any extension, renewal or amendment thereof.
16. AMENDMENT OR ASSIGNMENT OF AGREEMENT
Any amendment to this Agreement shall be in writing signed by the parties
hereto; provided, that no such amendment shall be effective unless authorized on
behalf of any Series (i) by resolution of the Board of Managers, including the
vote or written consent of a majority of the Disinterested Board of Managers, or
(ii) by vote of a majority of the outstanding voting securities of such Series.
This Agreement shall terminate automatically and immediately in the event of its
assignment; provided, that with the consent of a Series, the Administrator may
subcontract to another person any of its responsibilities with respect to such
Series.
17. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time by either party hereto, without the
payment of any penalty, upon at least sixty days' prior written notice to the
other party; provided, that in the case of termination by any Series, such
action shall have been authorized (i) by resolution of the Board of Managers,
including the vote or written consent of the Disinterested Board of Managers, or
(ii) by vote of a majority of the outstanding voting securities of such Series.
18. USE OF NAME
Each Series hereby agrees that if the Administrator shall at any time for any
reason cease to serve as administrator to a Series, such Series shall, if and
when requested by the Administrator, thereafter refrain from using the name
"Jackson National Financial Services, LLC" or the initials "JNFS" in connection
with its business or activities, and the foregoing agreement of each Series
shall survive any termination of this Agreement and any extension or renewal
thereof.
19. INTERPRETATION AND DEFINITION OF TERMS
Any question of interpretation of any term or provision of this Agreement having
a counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretation thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC validly issued pursuant to the 1940 Act. Specifically, the terms
"vote of a majority of the outstanding voting securities," "interested persons,"
"assignment" and affiliated person," as used in this Agreement shall have the
meanings assigned to them by section 2(a) of the 1940 Act. In addition, when the
effect of a requirement of the 1940 Act reflected in any provision of this
Agreement is modified, interpreted or relaxed by rule, regulation or order of
the SEC, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
20. CHOICE OF LAW
This Agreement is made and to be principally performed in the State of Illinois,
and except insofar as the 1940 Act or other federal laws and regulations may be
controlling, this Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of Illinois.
21. CAPTIONS
The captions in this Agreement are included for convenience of reference only
and in no way define or delineate nay of the provisions hereof or otherwise
affect their construction or effect.
22. EXECUTION ON COUNTERPARTS
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
seals to be hereunto affixes, as of the day and year first above written.
JNL VARIABLE FUND LLC
Attest: By:
--------------------------------- ----------------------------
Thomas J. Meyer Andrew B. Hopping
Secretary President
JACKSON NATIONAL FINANCIAL
SERVICES, LLC
Attest: By:
--------------------------------- ----------------------------
Amy D. Eisenbeis Mark D. Nerud
Secretary Chief Financial Officer
<PAGE>
SCHEDULE A
SERIES
DATED ____________-, 1999
JNL/First Trust The Dow(SM) Target 5 Series
JNL/First Trust The Dow(SM) Target 10 Series
JNL/First Trust The S&P(R) 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
<PAGE>
SCHEDULE B
COMPENSATION
DATED _______________, 1999
Series Fee
------ ---
JNL/First Trust The Dow(SM) Target 5 Series .10%
JNL/First Trust The Dow(SM) Target 10 Series .10%
JNL/First Trust The S&P(R) Target 10 Series .10%
JNL/First Trust Global Target 15 Series .20%
JNL/First Trust Target 25 Series .10%
JNL/First Trust Target Small Cap Series .10%
JNL/First Trust Technology Sector Series .10%
JNL/First Trust Pharmaceutical/Healthcare Sector Series .10%
JNL/First Trust Financial Sector Series .10%
JNL/First Trust Energy Sector Series .10%
JNL/First Trust Leading Brands Sector Series .10%
JNL/First Trust Communications Sector Series .10%