JNL(R) VARIABLE FUND LLC
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PROSPECTUS
July 6, 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.
The Fund's Statement of Additional Information (SAI) contains additional
information about the Fund and the Series.
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"Dow Jones", "Dow Jones Industrial Average(SM)", "DJIA(SM)", "The Dow 10(SM)",
and "The Dow 5(SM)" are service marks of Dow Jones & Company, Inc. (Dow Jones).
Dow Jones has no relationship to the Fund, other than the licensing of the Dow
Jones Industrial Average (DJIA) and its service marks for use in connection with
the JNL/First Trust The Dow Target 5 Series and the JNL/First Trust The Dow
Target 10 Series.
DOW JONES DOES NOT:
o Sponsor, endorse, sell or promote the JNL/First Trust The Dow Target 5
Series or the JNL/First Trust The Dow Target 10 Series.
o Recommend that any person invest in the JNL/First Trust The Dow Target 5
Series, the JNL/First Trust The Dow Target 10 Series or any other
securities.
o Have any responsibility or liability for or make any decisions about the
timing, amount or pricing of the JNL/First Trust The Dow Target 5 Series or
the JNL/First Trust The Dow Target 10 Series.
o Have any responsibility or liability for the administration, management or
marketing of the JNL/First Trust The Dow Target 5 Series or the JNL/First
Trust The Dow Target 10 Series.
o Consider the needs of the JNL/First Trust The Dow Target 5 Series or the
JNL/First Trust The Dow Target 10 Series or the owners of the JNL/First
Trust The Dow Target 5 Series or the JNL/First Trust The Dow Target 10
Series in determining, composing or calculating the DJIA or have any
obligation to do so.
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DOW JONES WILL NOT HAVE ANY LIABILITY IN CONNECTION WITH THE JNL/FIRST TRUST THE
DOW TARGET 5 SERIES OR THE JNL/FIRST TRUST THE DOW TARGET 10 SERIES.
SPECIFICALLY,
o DOW JONES DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AND DOW JONES
DISCLAIMS ANY WARRANTY ABOUT:
o THE RESULTS TO BE OBTAINED BY THE JNL/FIRST TRUST THE DOW TARGET 5
SERIES OR THE JNL/FIRST TRUST THE DOW TARGET 10 SERIES, THE OWNERS OF
THE JNL/FIRST TRUST THE DOW TARGET 5 SERIES OR THE JNL/FIRST TRUST THE
DOW TARGET 10 SERIES OR ANY OTHER PERSON IN CONNECTION WITH THE USE OF
THE DJIA AND THE DATA INCLUDED IN THE DJIA;
o THE ACCURACY OR COMPLETENESS OF THE DJIA AND ITS DATA;
o THE MERCHANTABILITY AND THE FITNESS FOR A PARTICULAR PURPOSE OR USE OF
THE DJIA AND ITS DATA;
o DOW JONES WILL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS
IN THE DJIA OR ITS DATA;
o UNDER NO CIRCUMSTANCES WILL DOW JONES BE LIABLE FOR ANY LOST PROFITS OR
INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF DOW
JONES KNOWS THAT THEY MIGHT OCCUR.
THE LICENSING AGREEMENT BETWEEN FIRST TRUST ADVISORS L.P. AND DOW JONES IS
SOLELY FOR THEIR BENEFIT AND NOT FOR THE BENEFIT OF THE OWNERS OF THE JNL/FIRST
TRUST THE DOW TARGET 5 SERIES OR THE JNL/FIRST TRUST THE DOW TARGET 10 SERIES OR
ANY OTHER THIRD PARTIES.
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"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. The JNL/First Trust The
S&P(R) Target 10 Series is not sponsored, endorsed, sold or promoted by Standard
& Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in the Series. Please see the Statement of Additional
Information which sets forth certain additional disclaimers and limitations of
liabilities on behalf of S&P.
"JNL(R)", "Jackson National(R)" and "Jackson National Life(R)" are trademarks of
Jackson National Life Insurance Company.
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TABLE OF CONTENTS
About the Series of the Fund
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
More About the Investment Objectives and Risks of All Series
Management of the Fund
Investment Adviser
Investment Sub-Adviser
Portfolio Management
Administrative Fee
Investment in Fund Interests
Redemption of Fund Interests
Tax Status
General
Internal Revenue Services Diversification Requirements
Hypothetical Performance Data for Target Strategies
Financial Highlights
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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 July 1, 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 the 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.
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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 July 1,
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 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 the 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.
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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 July 1, 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 the 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 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;
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 10 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.
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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
July 1, 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 the 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.
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.
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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 July 1, 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 the 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 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:
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.
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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 July 1, 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 the 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.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES 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
(highest to lowest);
o the sub-adviser will allocate approximately equal amounts of the
Target Small-Cap Series to the selected 40 common stocks based on
relative market capitalization;
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.
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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 the 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.
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.
<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 the 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.
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.
<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 the
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.
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.
<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 the 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.
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.
<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 the 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.
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.
<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 the 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.
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.
<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.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE TARGET SERIES.
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;
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.
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.
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;
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.
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.
The S&P Target 10 Series. 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.
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.
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.
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.
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.
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.
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.
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.
Target Series Generally. 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 Target Series to be 100% invested in the prescribed mix of
securities at any time. To the extent that the Target 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 Target 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 Target Series. The percentage
relationship among the number of securities in the Target 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
Target 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 Target Series, new securities will be selected and a new percentage
relationship will be established among the number of securities for the Target
Series.
Certain provisions of the Investment Company Act of 1940 limit the ability of a
Series to invest more than 5% of the Series' total assets in the stock of any
company that derives more than 15% of its gross revenues from securities related
activities (Securities Related Companies). The Fund has applied to the
Securities and Exchange Commission (SEC) for an exemption from this limitation
so that The Dow Target 5, The Dow Target 10, The S&P Target 10 and the Global
Target 15 Series may invest up to 20.5 (for The Dow Target 5 Series), 10.5% (for
The Dow Target 10 and The S&P Target 10 Series) and 6.67% (for the Global Target
15 Series) of the respective Series' total assets in the stock of Securities
Related Companies. Accordingly, until such time as the Fund receives approval of
its exemption request, or other applicable relief, the investment strategies of
The Dow Target 5, The Dow Target 10, The S&P Target 10 and/or the Global Target
15 Series will be subject to modification if the applicable stock selection
methodology for a Series results in the selection of one or more Securities
Related Companies for any such Series. In such an instance, the applicable
Series will only invest up to 5% of its total assets in each applicable
Securities Related Company and will invest its remaining assets in the other
selected companies in approximately equal amounts.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE SECTOR SERIES.
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 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 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.
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 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.
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.
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 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.
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.
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.
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 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.
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 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.
Sector Series Generally. The Sector Series may actively trade securities in
seeking to achieve their objectives. Doing so may increase transaction costs,
which may reduce performance.
DERIVATIVES. The sub-adviser may, but will not necessarily, utilize derivative
instruments, such as options, futures contracts, forward contracts, warrants,
indexed securities and repurchase agreements, for hedging and risk management.
For the Series that invest in stocks of foreign companies, the sub-adviser may
enter into forward contracts to manage the Series' exposure to changes in
foreign currencies associated with the purchase or sale of such stock. This
strategy minimizes the effect of currency appreciation as well as depreciation,
but does not protect against a decline in the underlying value of the hedged
security. In addition, this strategy 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.
Derivative instruments 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.
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."
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 Jackson National Life Insurance Company (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.
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.
PORTFOLIO MANAGEMENT
There is no one individual primarily responsible for portfolio management
decisions for the Series. Investments are made under the direction of a
committee.
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 .15% 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.
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.
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 STRATEGIES
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
illustrates 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 Strategies assumes that each Strategy 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 Strategy and the Target Small-Cap
Strategy 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 Strategies do not represent the results
of actual trading using client assets but were achieved by means of the
retroactive application of strategies that were designed with the benefit of
hindsight. These returns should not be considered indicative of the skill of the
sub-adviser. The returns may not reflect the impact that any material market or
economic factors might have had if the Strategies had been used during the
periods shown to actually manage client assets. During a portion of the period
shown in the table below, the sub-adviser acted as the portfolio supervisor of
certain unit investment trusts which employed strategies similar to the
hypothetical strategies shown below.
The returns shown below for the Target Strategies are not a guarantee of future
performance and should not be used to predict the expected returns on a Target
Strategy. In fact, each hypothetical Target Strategy underperformed its
respective index in certain years.
<PAGE>
<TABLE>
<CAPTION>
HYPOTHETICAL COMPARISON OF TOTAL RETURN
Year Target 25 Target 10 Target 5 Global Target S&P S&P 500 FT Index Hang Seng
Strategy Strategy Strategy Target 15 Small-Cap Target Index Index
Strategy Strategy Strategy
- ----------- ----------- --------------- ---------- ------------- ------------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1979 27.68% 13.01% 9.84% 44.70% 40.78% 43.17% 18.22% 3.59% 77.99%
1980 26.45% 27.90% 41.69% 52.51% 61.97% 54.15% 32.11% 31.77% 65.48%
1981 8.52% 7.46% 3.19% 0.03% -9.46% -10.59% -4.92% -5.30% -12.34%
1982 30.83% 27.12% 43.37% -2.77% 51.26% 38.21% 21.14% 0.42% -48.01%
1983 32.09% 39.07% 36.38% 15.61% 31.04% 20.01% 22.28% 21.94% -2.04%
1984 5.55% 6.22% 11.12% 29.88% -1.10% 16.34% 6.22% 2.15% 42.61%
1985 41.89% 29.54% 38.34% 54.06% 50.81% 43.49% 31.77% 54.74% 50.95%
1986 25.01% 35.63% 30.89% 38.11% 23.35% 21.81% 18.31% 24.36% 51.16%
1987 14.41% 5.59% 10.69% 17.52% 14.94% 9.16% 5.33% 37.13% -6.84%
1988 27.18% 24.75% 21.47% 24.26% 23.19% 20.35% 16.64% 9.00% 21.04%
1989 22.98% 26.97% 10.55% 15.98% 26.10% 39.62% 31.35% 20.07% 10.59%
1990 -0.82% -7.82% -15.74% 3.19% 1.08% -5.64% -3.30% 11.03% 11.71%
1991 37.67% 34.20% 62.03% 40.40% 59.55% 24.64% 30.40% 8.77% 50.68%
1992 15.14% 7.69% 22.90% 26.64% 27.81% 24.66% 7.62% -3.13% 34.73%
1993 15.22% 27.08% 34.01% 65.65% 22.47% 42.16% 9.95% 19.22% 124.95%
1994 9.73% 4.21% 8.27% -7.26% 2.11% 8.17% 1.34% 1.97% -29.34%
1995 36.69% 36.85% 30.50% 13.45% 41.65% 25.26% 37.22% 16.21% 27.52%
1996 28.53% 28.35% 26.20% 21.00% 34.96% 26.61% 22.82% 18.35% 37.86%
1997 30.69% 21.68% 19.97% -6.38% 16.66% 61.46% 33.21% 14.78% -17.69%
1998 1.83% 10.59% 12.36% 13.50% 1.85% 53.85% 28.57% 12.32% -2.60%
</TABLE>
Year DJIA Ibbotson Cumulative
Small-Cap Index Returns
Index (3)
- --------- ---------- -------------- ---------------
1979 10.60% 43.46% 30.73%
1980 21.90% 30.88% 39.72%
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 18.03% -7.38% 9.25%
(1) The Target 25 Strategy, the Target Small-Cap Strategy, the Target 10
Strategy, the Target 5 Strategy and the Global Target 15 Strategy for any given
period were selected by applying the respective strategy as of the close of the
prior period.
(2) The total return shown does not take into consideration any sales charges,
commissions, expenses or taxes. Total return assumes that all dividends are
reinvested semi-annually (with the exception of the FT Index and the Hang Seng
Index from 12/31/77 through 12/31/86, during which time annual reinvestment was
assumed), and all returns are stated in terms of the United States dollar. Based
on the year-by-year returns contained in the table, over the 20 full years
listed above, the Target 25 Strategy achieved an average annual total return of
21.25%, the Target Small-Cap Strategy achieved an average annual total return of
24.39%, the Target 10 Strategy achieved an average annual total return of
19.57%, and the Target 5 Strategy achieved an average annual total return of
21.70% and the Global Target 15 Strategy achieved an average annual total return
of 21.32%. 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 17.61%, 16.00%, 17.28% and 17.94%,
respectively. Although each Strategy seeks to achieve a better performance than
its respective index as a whole, there can be no assurance that a Strategy 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
July 6, 1999
JNL(R) VARIABLE FUND LLC
You may find more information about the Fund in the Fund's SAI dated July 6,
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>
JNL(R) VARIABLE FUND LLC
<PAGE>
PROSPECTUS
July 6, 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 Series:
JNL/First Trust The Dow(SM) Target 10 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.
The Fund's Statement of Additional Information (SAI) contains additional
information about the Fund and the Series.
<PAGE>
"Dow Jones", "Dow Jones Industrial Average(SM)", "DJIA(SM)" and "The Dow 10(SM)"
are service marks of Dow Jones & Company, Inc. (Dow Jones). Dow Jones has no
relationship to the Fund, other than the licensing of the Dow Jones Industrial
Average (DJIA) and its service marks for use in connection with the JNL/First
Trust The Dow Target 10 Series.
DOW JONES DOES NOT:
o Sponsor, endorse, sell or promote the JNL/First Trust The Dow Target 10
Series.
o Recommend that any person invest in the JNL/First Trust The Dow Target 10
Series or any other securities. o Have any responsibility or liability for
or make any decisions about the timing, amount or pricing of the JNL/First
Trust The Dow Target 10 Series.
o Have any responsibility or liability for the administration, management or
marketing of the JNL/First Trust The Dow Target 10 Series.
o Consider the needs of the JNL/First Trust The Dow Target 10 Series or the
owners of the JNL/First Trust The Dow Target 10 Series in determining,
composing or calculating the DJIA or have any obligation to do so.
- --------------------------------------------------------------------------------
DOW JONES WILL NOT HAVE ANY LIABILITY IN CONNECTION WITH THE JNL/FIRST TRUST THE
DOW TARGET 10 SERIES. SPECIFICALLY,
o DOW JONES DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AND DOW JONES
DISCLAIMS ANY WARRANTY ABOUT:
o THE RESULTS TO BE OBTAINED BY THE JNL/FIRST TRUST THE DOW TARGET 10
SERIES, THE OWNERS OF THE JNL/FIRST TRUST THE DOW TARGET 10 SERIES OR
ANY OTHER PERSON IN CONNECTION WITH THE USE OF THE DJIA AND THE DATA
INCLUDED IN THE DJIA;
o THE ACCURACY OR COMPLETENESS OF THE DJIA AND ITS DATA;
o THE MERCHANTABILITY AND THE FITNESS FOR A PARTICULAR PURPOSE OR USE OF
THE DJIA AND ITS DATA;
o DOW JONES WILL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS
IN THE DJIA OR ITS DATA;
o UNDER NO CIRCUMSTANCES WILL DOW JONES BE LIABLE FOR ANY LOST PROFITS OR
INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF DOW
JONES KNOWS THAT THEY MIGHT OCCUR.
THE LICENSING AGREEMENT BETWEEN FIRST TRUST ADVISORS L.P. AND DOW JONES IS
SOLELY FOR THEIR BENEFIT AND NOT FOR THE BENEFIT OF THE OWNERS OF THE JNL/FIRST
TRUST THE DOW TARGET 10 SERIES OR ANY OTHER THIRD PARTIES.
- --------------------------------------------------------------------------------
"JNL(R)", "Jackson National(R)" and "Jackson National Life(R)" are trademarks of
Jackson National Life Insurance Company.
<PAGE>
TABLE OF CONTENTS
About the JNL/First Trust The Dow(SM) Target 10 Series
Investment Objective
Principal Investment Strategies
Principal Risks of Investing in the The Dow Target 10 Series
Additional Information About the Principal Investment Strategies, Other
Investments and Risks of The Dow Target 10 Series
Management of the Fund
Investment Adviser
Investment Sub-Adviser
Portfolio Management
Administrative Fee
Investment in Fund Interests
Redemption of Fund Interests
Tax Status
General
Internal Revenue Services Diversification Requirements
Hypothetical Performance Data for Target Strategies
Financial Highlights
<PAGE>
ABOUT THE 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 July 1, 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 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 the 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;
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.
The stocks in The Dow Target 10 Series are not expected to reflect the entire
DJIA nor track the movements of The DJIA.
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 Dow Target 10
Series to be 100% invested in the prescribed mix of securities at any time. To
the extent that The Dow Target 10 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
Dow Target 10 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 Dow Target 10 Series. The percentage
relationship among the number of securities in The Dow Target 10 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 Dow
Target 10 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 Dow Target 10 Series, new securities will be selected and a new percentage
relationship will be established among the number of securities for The Dow
Target 10 Series.
The sub-adviser may, but will not necessarily, utilize derivative instruments,
such as options, futures contracts, forward contracts, warrants, indexed
securities and repurchase agreements, for hedging and risk management.
Derivative instruments 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 investment objectives and policies of The Dow Target 10 Series are not
fundamental and may be changed by the Board of Managers of the Fund, without
interest holder approval.
Certain provisions of the Investment Company Act of 1940 limit the ability of a
Series to invest more than 5% of the Series' total assets in the stock of any
company that derives more than 15% of its gross revenues from securities related
activities (Securities Related Companies). The Fund has applied to the
Securities and Exchange Commission (SEC) for an exemption from this limitation
so that The Dow Target 10 Series may invest up to 10.5% of the Series' total
assets in the stock of Securities Related Companies. Accordingly, until such
time as the Fund receives approval of its exemption request, or other applicable
relief, the investment strategy of The Dow Target 10 Series will be subject to
modification if the stock selection methodology for the Series results in the
selection of one or more Securities Related Companies. In such an instance, the
Series will only invest up to 5% of its total assets in each applicable
Securities Related Company and will invest its remaining assets in the other
selected companies in approximately equal amounts.
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.
DESCRIPTION OF INDEX. The stocks included in The Dow Jones Industrial
Average(SM) 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 portfolio of The Dow Target 10 Series consists of the common stocks of
companies listed on the DJIA Except as previously described, the publisher of
the DJIA has not granted the Fund or the Fund's investment adviser a license to
use its index. The Dow Target 10 Series is not designed or intended to result in
prices that parallel or correlate with the movements in the DJIA and it is
expected that their prices will not parallel or correlate with such movements.
The publisher of the DJIA has not participated in any way in the creation of the
Fund of the Series or in the selection of stocks in the Series.
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."
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 The Dow Target 10 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.
LEGISLATION. At any time after the date of the Prospectus, legislation may be
enacted that could negatively affect the common stock in The Dow Target 10
Series or the issuers of such common stock. Further, changing approaches to
regulation may have a negative impact on certain companies represented in The
Dow Target 10 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 Jackson National Life Insurance Company (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 The Dow Target 10 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. The fee 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 The Dow Target 10 Series. Once the average net assets of the
Series exceed specified amounts, the fee is reduced with respect to such excess.
The Dow Target 10 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 The Dow Target 10 Series. 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 Dow Target 10 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.
Under the terms of the Sub-Advisory Agreement between First Trust and JNFS,
First Trust manages the investment and reinvestment of the assets of The Dow
Target 10 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 the 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, stated
as an annual percentage of the net assets of The Dow Target 10 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 The Dow Target 10 Series.
PORTFOLIO MANAGEMENT
There is no one individual primarily responsible for portfolio management
decisions for the Series. Investments are made under the direction of a
committee.
ADMINISTRATIVE FEE
In addition to the investment advisory fee, The Dow Target 10 Series pays to
JNFS an Administrative Fee of .10% 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 the Series. The 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 Dow
Target 10 Series is managed by a sub-adviser who manages publicly available unit
investment trusts having similar names and investment objectives. While 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 is
not otherwise directly related to any publicly available unit investment trust.
Consequently, the investment performance of publicly available unit investment
trusts and any corresponding Series may differ substantially.
The net asset value per interest of The Dow Target 10 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 the 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.
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.
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.
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 The Dow Target 10 Series in
order to meet these diversification requirements. See the SAI for more specific
information.
<PAGE>
HYPOTHETICAL PERFORMANCE DATA FOR THE TARGET STRATEGY
As of the date of this Prospectus, The Dow Target 10 Series had not commenced
investment operations. However, certain aspects of the investment strategies for
The Dow Target 10 Series can be demonstrated using historical data. The
following table illustrates the hypothetical performance of the investment
strategies used by The Dow Target 10 Series and the actual performance of the
DJIA. The table also shows how performance varies from year to year.
The information for the Target Strategy assumes that the Strategy 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 returns shown below for the Target Strategy does not represent the results
of actual trading using client assets but were achieved by means of the
retroactive application of a strategy that was designed with the benefit of
hindsight. These returns should not be considered indicative of the skill of the
sub-adviser. The returns may not reflect the impact that any material market or
economic factors might have had if the Strategy had been used during the periods
shown to actually manage client assets. During a portion of the period shown in
the table below, the sub-adviser acted as the portfolio supervisor of certain
unit investment trusts which employed strategies similar to the hypothetical
strategy shown below.
The returns shown below for the Target Strategy are not a guarantee of future
performance and should not be used to predict the expected returns on the Target
Strategy. In fact, the hypothetical Target Strategy underperformed its
respective index in certain years.
<PAGE>
HYPOTHETICAL COMPARISON OF TOTAL RETURN
Target 10
Year Strategy DJIA
---- -------- ----
1979 13.01% 10.60%
1980 27.90% 21.90%
1981 7.46% -3.61%
1982 27.12% 26.85%
1983 39.07% 25.82%
1984 6.22% 1.29%
1985 29.54% 33.28%
1986 35.63% 27.00%
1987 5.59% 5.66%
1988 24.75% 16.03%
1989 26.97% 32.09%
1990 -7.82% -0.73%
1991 34.20% 24.19%
1992 7.69% 7.39%
1993 27.08% 16.87%
1994 4.21% 5.03%
1995 36.85% 36.67%
1996 28.35% 28.71%
1997 21.68% 24.82%
1998 10.59% 18.03%
(1) The Target 10 Strategy for any given period was selected by applying the
strategy as of the close of the prior period.
(2) The total return shown does not take into consideration any sales charges,
commissions, expenses or taxes. Total return assumes that all dividends are
reinvested semi-annually, 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 10 Strategy achieved an average
annual total return of 19.57%. In addition, over this period, the Strategy
achieved a greater average annual total return than that of the DJIA, which was
17.28%. Although the Strategy seeks to achieve a better performance than the
DJIA as a whole, there can be no assurance that the Strategy will achieve a
better performance.
<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
July 6, 1999
JNL(R) VARIABLE FUND LLC
You may find more information about the Fund in the Fund's SAI dated July 6,
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>
29
STATEMENT OF ADDITIONAL INFORMATION
JULY 6, 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 July 6, 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................................... 9
Investment Restrictions Applicable to All Series................. 26
Management of the Fund........................................... 28
Performance...................................................... 31
Investment Advisory and Other Services........................... 32
Purchases, Redemptions and Pricing of Interests.................. 38
Additional Information........................................... 39
Tax Status....................................................... 40
Financial Statements ............................................ 41
<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. The Series to which
this exemptive relief will apply are the JNL/First Trust The Dow(SM) Target 5
Series, the JNL/First Trust The Dow(SM) Target 10 Series, the JNL/First Trust
The S&P(R) Target 10 Series, and the JNL/First Trust Global Target 15 Series.
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 or selling 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 the 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 certain 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 objective 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 Target Series 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 Series may be
involved in the manufacture, distribution and sale of tobacco products. Pending
litigation proceedings against such issuers in the United States and abroad
cover a wide range of matters including product liability and consumer
protection. Damages claimed in such litigation alleging personal injury (both
individual and class actions), and in health cost recovery cases brought by
governments, labor unions and similar entities seeking reimbursement for health
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 Series. 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
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
ANNUAL PERIOD UNITED KINGDOM POUND STERLING/U.S. HONG KONG/U.S. DOLLAR
DOLLAR
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
1983 0.616 - 0.707 6.480 - 8.700
- ---------------------------------------- ------------------------------------- -------------------------------------
1984 0.671 - 0.864 7.774 - 8.050
- ---------------------------------------- ------------------------------------- -------------------------------------
1985 0.672 - 0.951 7.729 - 7.990
- ---------------------------------------- ------------------------------------- -------------------------------------
1986 0.643 - 0.726 7.768 - 7.819
- ---------------------------------------- ------------------------------------- -------------------------------------
1987 0.530 - 0.680 7.751 - 7.822
- ---------------------------------------- ------------------------------------- -------------------------------------
1988 0.525 - 0.601 7.764 - 7.912
- ---------------------------------------- ------------------------------------- -------------------------------------
1989 0.548 - 0.661 7.775 - 7.817
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
ANNUAL PERIOD UNITED KINGDOM POUND STERLING/U.S. HONG KONG/U.S. DOLLAR
DOLLAR
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
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
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
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 may 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 benefited stocks which investors believe will benefit from greater
investor and issuer activity. Major determinants of future earnings of these
companies are the direction of the stock market, investor confidence, equity
transaction volume, the level and direction of long-term and short-term interest
rates, and the outlook for emerging markets. Negative trends in any of these
earnings determinants could have a serious adverse effect on the financial
stability, as well as on the stock prices, of these companies. Furthermore,
there can be no assurance that the issuers of the 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 25% of the value of a Series' assets. In the
case of any borrowing, a Series may pledge, mortgage or
hypothecate up to 15% 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)
Jackson National Life Insurance Company, Vice President and Controller
THOMAS J. MEYER (Age 52) 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 57), 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 58), 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.
The officers of the Fund and the Managers who are "interested persons" as
designated above receive no compensation from the Fund. Disinterested Managers
will be paid $4,000 for each meeting of a fund in the Fund Complex that they
attend. It is estimated that the disinterested Managers will receive the
following compensation for services as a Manager during the fiscal year ended
December 31, 1999:
<TABLE>
<CAPTION>
PENSION OR RETIREMENT
AGGREGATE COMPENSATION FROM BENEFITS ACCRUED AS PART OF TOTAL COMPENSATION FROM
TRUSTEE FUND* TRUST EXPENSES FUND AND FUND COMPLEX*
------- ----- -------------- ----------------------
<S> <C> <C> <C>
Joseph Frauenheim $2,666.66 0 $16,000
Richard McLellan 2,666.66 0 16,000
Peter McPherson 2,666.66 0 16,000
</TABLE>
* The Fund does not directly compensate the disinterested Managers. The
disinterested Managers are compensated by JNFS pursuant to the Administration
Agreement between the Fund and JNFS. (See "Administrative Fee").
As of May 24, 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.
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' interests are sold
at net asset value. Returns and net asset value will fluctuate. Interests 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, 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%
LICENSE AGREEMENTS. JNFS, JNL and the Fund have 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.
JNL has also entered into a License Agreement with Standard & Poor's(R). The
JNL/First Trust The S&P Target 10 Series is not sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
(S&P). S&P makes no representation or warranty, express or implied, to the
owners of the Series or any member of public regarding the advisability of
investing in securities generally or in the Series particularly or the ability
of the S&P 500 Index to track general stock market performance. S&P's only
relationship to the Licensee is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which are determined, composed and
calculated by S&P without regard to the Licensee or the Series. S&P has no
obligation to take the needs of the Licensee or the owners of the Series into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Series or the timing of the issuance or sale of the Series or
in the determination or calculation of the equation by which the Series is to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Series.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE SERIES, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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 .15% 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. Subject to best execution,
broker/dealers may be selected 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. JNFS' Code complies, 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 interests of each Series and divide or combine such interests into a
greater or lesser number of interests without thereby changing the proportionate
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 Fund's
interests voting for election of Managers can elect all the Managers if they so
choose. Then, the remaining interest owners would not be able to elect any
Managers.
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.
