As filed with the Securities and Exchange Commission on April 17, 2000
1933 Act Registration No. 333-68105
1940 Act Registration No. 811-09121
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
---
Post-Effective Amendment No. 1 [X]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 [X]
---
JNL VARIABLE FUND LLC
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
225 WEST WACKER DRIVE, SUITE 1200, CHICAGO, ILLINOIS 60606
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 338-5801
- --------------------------------------------------------------------------------
Thomas J. Meyer, Esq. with a copy to:
JNL Variable Fund LLC
Vice President & Counsel Blazzard, Grodd & Hasenauer,P.C.
5901 Executive Drive P.O. Box 5108
Lansing, Michigan 48911 Westport, CT 06881
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
- ---
X on May 1, 2000 pursuant to paragraph (b)
- ---
60 days after filing pursuant to paragraph (a)(1)
- ---
on (date)pursuant to paragraph (a)(1)
- ---
75 days after filing pursuant to paragraph (a)(2) on (date) pursuant to
- --- paragraph (a)(2) of Rule 485.
This post-effective amendment designates a new effective date for a
- --- previously filed post-effective amendment.
<PAGE>
JNL VARIABLE FUND LLC
REFERENCE TO ITEMS REQUIRED BY FORM N-1A
Caption in Prospectus or
Statement of Additional
Information relating to
N-1A Item each Item
- --------- ------------------------
Part A. Information Required in a Prospectus Prospectus
- ------- ------------------------------------ ----------
1. Front and Back Cover Pages Front and Back Cover Pages
2. Risk/Return Summary: Investments, About the Series of the Fund
Risks, and Performance
3. Risk/Return Summary: Fee Table Not Applicable
4. Investment Objectives, Principal About the Series of the Fund
Investment Strategies, and Related Risks
5. Management's Discussion of Fund Not Applicable
Performance
6. Management, Organization and Capital Management of the Fund;
Structure Investment in Fund Interests
7. Shareholder Information Investment in Fund Interests;
Redemption of Fund Interests;
Tax Status
8. Distribution Arrangements Not Applicable
9. Financial Highlights Information Financial Highlights
Information Required in a Statement Statement of
Part B. of Additional Information Additional Information
- ------- ------------------------- ----------------------
10. Cover Page and Table Of Contents Cover Page and Table of
Contents
11. Fund History General Information and History
12. Description of the Fund and Its Common Types of Investments and
Investments and Risks Management Practices;
Additional Risk Considerations;
Investment Restrictions
Applicable to All Series
13. Management of the Fund Management of the Fund
14. Control Persons and Principal Holders Management of the Fund
of Securities
15. Investment Advisory and Other Services Investment Advisory and Other
Services
16. Brokerage Allocation and Other Practices Investment Advisory and Other
Services
17. Capital Stock and Other Securities Purchases, Redemptions and
Pricing of Interests;
Additional Information
18. Purchase, Redemption and Pricing of Purchases, Redemptions and
Shares Pricing of Interests
19. Taxation of the Fund Tax Status
20. Underwriters Not Applicable
21. Calculation of Performance Data Performance
22. Financial Statements Financial Statements
Part C.
- -------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Amendment to the Registration Statement.
<PAGE>
JNL(R) VARIABLE FUND LLC
PROSPECTUS
May 1, 2000
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 Fund offers interests in
separate series, which are comprised of two groups - Target Series and Sector
Series.
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.
For more detailed information about the Fund and the Series, see the Fund's
Statement of Additional Information (SAI), which is incorporated by reference
into this prospectus.
<PAGE>
"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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", and "Standard & Poor's 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.
<PAGE>
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
<PAGE>
ABOUT THE SERIES OF THE FUND
JNL/FIRST TRUST THE DOW(SM) TARGET 5 SERIES
INVESTMENT OBJECTIVE. The investment objective of the JNL/First Trust The
Dow(SM) Target 5 Series (The Dow Target 5 Series) is a high total return through
a combination of capital appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The Dow Target 5 Series seeks to achieve its
objective by investing approximately equal amounts in the common stock of the
five companies included in the Dow Jones Industrial Average(SM) (DJIA) which
have the lowest per share price of the companies with the ten highest dividend
yields on or about the business day before each Stock Selection Date. The five
companies will be selected annually, beginning 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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
<PAGE>
JNL/FIRST TRUST THE DOW(SM) TARGET 10 SERIES
INVESTMENT OBJECTIVE. The investment objective of the JNL/First Trust The
Dow(SM) Target 10 Series (The Dow Target 10 Series) is a high total return
through a combination of capital appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The Dow Target 10 Series seeks to achieve its
objective by investing approximately equal amounts in the common stock of the
ten companies included in the Dow Jones Industrial Average(SM) (DJIA) which have
the highest dividend yields on or about the business day before each Stock
Selection Date. The ten companies will be selected annually, beginning 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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
<PAGE>
JNL/FIRST TRUST THE S&P(R) TARGET 10 SERIES
INVESTMENT OBJECTIVE. The investment objective of the JNL/First Trust The S&P(R)
Target 10 Series (S&P Target 10 Series) is a high total return through a
combination of capital appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The S&P Target 10 Series seeks to achieve its
objective by investing approximately equal amounts in the common stocks of 10
companies selected from a pre-screened subset of the stocks listed in The S&P
500 Index. The ten companies will be selected annually, beginning 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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
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.
<PAGE>
JNL/FIRST TRUST GLOBAL TARGET 15 SERIES
INVESTMENT OBJECTIVE. The investment objective of the JNL/First Trust Global
Target 15 Series (Global Target 15 Series) is a high total return through a
combination of capital appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The Global Target 15 Series seeks to achieve
its objective by investing in the common stocks of certain companies which are
components of The Dow Jones Industrial Average(SM) (DJIA), the Financial Times
Industrial Ordinary Share Index (FT Index) and the Hang Seng Index. The Global
Target 15 Series consists of common stocks of the five companies with the lowest
per share stock price of the ten companies in each of The DJIA, the FT Index and
the Hang Seng Index, respectively, that have the highest dividend yields in the
respective index. The fifteen companies will be selected annually, beginning
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. In addition, foreign investing
involves less publicly available information, more volatile or
less liquid securities markets. 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. Foreign accounting may
be less revealing than American accounting practices. Foreign
regulation may be inadequate or irregular. 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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
<PAGE>
JNL/FIRST TRUST TARGET 25 SERIES
INVESTMENT OBJECTIVE. The investment objective of the JNL/First Trust Target 25
Series (Target 25 Series) is a high total return through a combination of
capital appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The Target 25 Series seeks to achieve its
objective by investing 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 25 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 or may depend on the expertise of a few
people 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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE SERIES. The Target 25 Series consists of a
portfolio of 25 common stocks selected through the following six-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.
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.
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.
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.
<PAGE>
JNL/FIRST TRUST TARGET SMALL-CAP SERIES
INVESTMENT OBJECTIVE. The investment objective of the JNL/First Trust Target
Small-Cap Series (Target Small-Cap Series) is a high total return through
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Target Small-Cap Series seeks to achieve
its objective by investing 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 or may depend on the expertise of a few
people 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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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 purchase the selected 40 common stocks for
the Target Small-Cap Series 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.
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. 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.
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.
<PAGE>
JNL/FIRST TRUST TECHNOLOGY SECTOR SERIES
INVESTMENT OBJECTIVE. The objective of the JNL/First Trust Technology Sector
Series (Technology Sector Series) is a high total return through capital
appreciation and dividend income.
PRINCIPAL INVESTMENT STRATEGIES. The Technology Sector Series will invest in a
portfolio of common stocks issued by technology companies.
PRINCIPAL RISKS OF INVESTING IN THE TECHNOLOGY SECTOR SERIES. An investment in
the Technology Sector Series is not guaranteed. As with any mutual fund, the
value of the Technology Sector Series' shares will change and you could lose
money by investing in this Series. A variety of factors may influence its
investment performance, such as:
o Market risk. Because the Technology Sector Series invests in
common stocks of U.S. and foreign companies, it is subject to
stock market risk. Stock prices typically fluctuate more than the
values of other types of securities, typically in response to
changes in a particular company's financial condition and factors
affecting the market in general. For example, unfavorable or
unanticipated poor earnings performance of a company may result
in a decline in its stock's price, and a broad-based market drop
may also cause a stock's price to fall.
o Non-diversification. The Technology Sector Series is
"non-diversified" as such term is defined in the Investment
Company Act of 1940, as amended, which means that 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.
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.
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. In addition, foreign investing
involves less publicly available information, more volatile or
less liquid securities markets. 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. Foreign
accounting may be less revealing than American accounting
practices. Foreign regulation may be inadequate or irregular.
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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
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.
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.
<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.
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.
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. In addition, foreign
investing involves less publicly available information, more
volatile or less liquid securities markets. 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.
Foreign accounting may be less revealing than American accounting
practices. Foreign regulation may be inadequate or irregular.
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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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. 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.
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.
<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.
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.
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. In addition, foreign investing
involves less publicly available information, more volatile or
less liquid securities markets.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. Foreign
accounting may be less revealing than American accounting
practices. Foreign regulation may be inadequate or irregular.
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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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. 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.
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.
<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. In addition, foreign investing involves less
publicly available information, more volatile or less liquid
securities markets. 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. Foreign accounting may
be less revealing than American accounting practices. Foreign
regulation may be inadequate or irregular. 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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
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.
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.
<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. In addition, foreign investing
involves less publicly available information, more volatile or
less liquid securities markets. 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. Foreign
accounting may be less revealing than American accounting
practices. Foreign regulation may be inadequate or irregular.
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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
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.
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.
<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. In addition, foreign investing
involves less publicly available information, more volatile or
less liquid securities markets. 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. Foreign
accounting may be less revealing than American accounting
practices. Foreign regulation may be inadequate or irregular.
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.
PERFORMANCE. The performance of the Series will vary from year to year. The
Series' performance figures will not reflect the deduction of any charges that
are imposed under a variable annuity contract.
Performance for the Series has not been included because the Series had not been
in operation for a full fiscal year as of December 31, 1999.
ADDITIONAL INFORMATION ABOUT THE PRINCIPAL INVESTMENT STRATEGIES, OTHER
INVESTMENTS AND RISKS OF THE 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.
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.
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.
<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 AND SECTOR SERIES.
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 been granted by the
Securities and Exchange Commission (SEC) 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.
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 Series sub-adviser must
correctly predict price movements, during the life of the derivative, of the
underlying asset in order to realize the desired results from the investment.
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
pricemovements 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
is 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
stock'sweight in the Index proportionate to its market value.
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 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 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 Series 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 JNFS 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 the Robert Donald Van Kampen family.
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. Inaccordance with the
Administration Agreement, JNFS is responsible for payment of expenses related to
legal, audit, fund accounting, custody, printing and mailing, managers fees 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 has not been in operation for a
full fiscal year. 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>
HYPOTHETICAL COMPARISON OF TOTAL RETURN
<TABLE>
<CAPTION>
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>
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%
1999 -.41% 5.06% -7.28% 8.88% 12.88% 3.49% 20.94% 15.25% 71.34%
</TABLE>
<TABLE>
<CAPTION>
Year DJIA Ibbotson Cumulative
---- ---- -------- ----------
Small-Cap Index Returns
--------- -------------
Index (3)
----- ---
<S> <C> <C> <C>
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%
1999 27.06% 28.96% 37.88%
</TABLE>
(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 12/31/80 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
19.75%, the Target Small-Cap Strategy achieved an average annual total return of
23.03%, the Target 10 Strategy achieved an average annual total return of
19.13%, and the Target 5 Strategy achieved an average annual total return of
20.67%, the S&P Target Strategy achieved an average annual total return of
3.49%and the Global Target 15 Strategy achieved an average annual total return
of 19.61%. 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 17.75%, 15.39%, 18.10% and 18.25%,
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 following table provides selected per interest data for one share of each
Series. The information does not reflect any charges imposed by an Account
investing in interests of the Series. You should refer to the appropriate
Account prospectus for additional information regarding such charges.
The information for each of the periods shown below has been audited by
PricewaterhouseCoopers LLP, independent accountants, and should be read in
conjunction with the financial statements and notes thereto, together with the
report of PricewaterhouseCoopers LLP thereon, in the Annual Report.
<TABLE>
<CAPTION>
JNL/FIRST TRUST JNL/FIRST TRUST THE JNL/FIRST TRUST JNL/FIRST TRUST
THE DOW TARGET DOW TARGET 10 SERIES THE S&P TARGET GLOBAL TARGET 15
5 SERIES 10 SERIES SERIES
------------------ --------------------- ------------------- -------------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
JULY 2, JULY 2, JULY 2, JULY 2,
1999* TO 1999* TO 1999* TO 1999* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999
------------------ --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ...... $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................... 0.06 0.05 0.01 0.11
Net realized and unrealized loss
on investments ........................ (2.27) (1.32) 1.05 (1.12)
--------------- --------------- --------------- ---------------
Total loss from operations ................ (2.21) (1.27) 1.06 (1.01)
--------------- --------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD ............ $ 7.79 $ 8.73 $ 11.06 $ 8.99
=============== =============== =============== ===============
TOTAL RETURN (A) .......................... (22.10) (12.70%) 10.60% (10.10)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 3,852 $ 7,786 $ 9,192 $ 2,034
Ratio of expenses to average net
assets (b) ............................ 0.85% 0.85% 0.85% 0.90%
Ratio of net investment income to
average net assets (b) .................. 2.83% 2.53% 0.16% 3.44%
Portfolio turnover ...................... 40.15% 23.32% 27.91% 80.54%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JNL/FIRST TRUST
JNL/FIRST TRUST JNL/FIRST TRUST PHARMACEUTICAL/
JNL/FIRST TRUST TARGET SMALL-CAP TECHNOLOGY SECTOR HEALTHCARE SECTOR
TARGET 25 SERIES SERIES SERIES SERIES
-------------------- -------------------- -------------------- --------------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
JULY 2, JULY 2, JULY 2, JULY 2,
1999* TO 1999* TO 1999* TO 1999* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ...... $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................... 0.08 (0.02) (0.01) -
Net realized and unrealized loss
on investments ........................ (1.78) 2.40 5.40 (0.26)
--------------- --------------- --------------- ---------------
Total loss from operations ................ (1.70) 2.38 5.39 (0.26)
--------------- --------------- --------------- ---------------
NET ASSET VALUE, END OF PERIOD ............ $ 8.30 $ 12.38 $ 15.39 $ 9.74
=============== =============== =============== ===============
TOTAL RETURN (A) .......................... (17.00)% 23.80% 53.90% (2.60)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 1,858 $ 2,100 $ 7,834 $ 4,046
Ratio of expenses to average net
assets (b) ............................ 0.85% 0.85% 0.85% 0.85%
Ratio of net investment income to
average net assets (b) ................ 2.48% (0.39)% (0.40)% 0.15%
Portfolio turnover ...................... 66.31% 102.50% 55.71% 58.91%
</TABLE>
JNL/FIRST JNL/FIRST
TRUST TRUST ENERGY
FINANCIAL SECTOR SERIES
SECTOR SERIES
----------------- -----------------
PERIOD FROM PERIOD FROM
JULY 2, JULY 2,
1999* TO 1999* TO
DECEMBER 31, DECEMBER 31,
1999 1999
----------------- -----------------
SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ...... $ 10.00 $ 10.00
--------------- ---------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................... 0.02 0.04
Net realized and unrealized loss
on investments ........................ (1.05) 0.23
--------------- ---------------
Total loss from operations ................ (1.03) 0.27
--------------- ---------------
NET ASSET VALUE, END OF PERIOD ............ $ 8.97 $ 10.27
=============== ===============
TOTAL RETURN (A) .......................... (10.30)% 2.70%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 2,496 $ 762
Ratio of expenses to average net
assets (b) ............................ 0.85% 0.85%
Ratio of net investment income to
average net assets (b) ................ 0.73% 0.47%
Portfolio turnover ...................... 61.54% 103.06%
- --------------------------------------------------------------------------------
* Commencement of operations.
(a) Assumes investment at net asset value at the beginning of the period and a
complete redemption of the investment at the net asset value at the end of
the period. Total Return is not annualized for periods less than one year.
(b) Annualized for periods less than one year.
<PAGE>
The following table provides selected per interest data for one interest of each
Series. The information does not reflect any charges imposed by an Account
investing in interests of the Series. You should refer to the appropriate
Account prospectus for additional information regarding such charges.
The information for each of the periods shown below has been audited by
PricewaterhouseCoopers LLP, independent accountants, and should be read in
conjunction with the financial statements and notes thereto, together with the
report of PricewaterhouseCoopers LLP thereon, in the Annual Report.
JNL/FIRST TRUST JNL/FIRST TRUST
LEADING BRANDS COMMUNICATIONS
SECTOR SERIES SECTOR SERIES
----------------- -----------------
PERIOD FROM PERIOD FROM
JULY 2, JULY 2,
1999* TO 1999* TO
DECEMBER 31, DECEMBER 31,
1999 1999
----------------- -----------------
SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ...... $ 10.00 $ 10.00
--------------- ---------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income ................... 0.03 -
Net realized and unrealized loss
on investments ........................ (0.48) 5.09
--------------- ---------------
Total loss from operations ................ (0.45) 5.09
--------------- ---------------
NET ASSET VALUE, END OF PERIOD ............ $ 9.55 $ 15.09
=============== ===============
TOTAL RETURN (A) .......................... (4.50)% 50.90%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 1,673 $ 5,049
Ratio of expenses to average net
assets (b) ............................ 0.85% 0.85%
Ratio of net investment income to
average net assets (b) ................ 0.76% (0.08%)
Portfolio turnover ...................... 98.23% 85.74%
- --------------------------------------------------------------------------------
* Commencement of operations.
(a) Assumes investment at net asset value at the beginning of the period and a
complete redemption of the investment at the net asset value at the end of
the period. Total Return is not annualized for periods less than one year.
(b) Annualized for periods less than one year.
<PAGE>
PROSPECTUS
May 1, 2000
JNL(R) VARIABLE FUND LLC
You can find more information about the Fund in:
o The Fund's STATEMENT OF ADDITIONAL INFORMATION (SAI) dated May 1,
2000, 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).
o The Fund's ANNUAL AND SEMI-ANNUAL REPORTS to shareholders, which
show the Series' actual investments and include financial
statements as of the close of the particular annual or
semi-annual period. The Annual Report also discusses the market
conditions and investment strategies that significantly affected
each Series' performance during the year covered by the report.
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), by electronic request ([email protected]) or by writing
the SEC's Public Reference Section in Washington, D.C., 20549-0102. You can find
out about the operation of the Public Reference Section and copying charges by
calling 1-202-942-8090.
File No.: 811-09121
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
JNL VARIABLE FUND LLC
================================================================================
This Statement of Additional Information (the "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 May 1, 2000. Not all Series described in this Statement of
Additional Information may be available for investment. The Prospectus may be
obtained at no charge 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........................... 27
Management of the Fund..................................................... 29
Performance................................................................ 32
Investment Advisory and Other Services..................................... 33
Purchases, Redemptions and Pricing of Interests............................ 40
Additional Information..................................................... 41
Tax Status................................................................. 42
Financial Statements ...................................................... 43
<PAGE>
GENERAL INFORMATION AND HISTORY
JNL Variable Fund LLC (the "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, the "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. Investors should
realize that investing in foreign securities involves certain special
considerations which are not typically associated with investing in U.S.
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). In addition,
foreign securities purchased by the Series, may be subject to foreign government
taxes, higher custodian fees, higher brokerage commissions and dividend
collection fees. 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 interest holder 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 a 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 Series 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. The Series might experience a loss if the borrowing broker-dealer
or financial institution breaches its agreement with the Series.
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 has been granted 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). The Series to which this
exemptive relief 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. If
the value of the security goes up, the Series will have to buy it back at a loss
to make good on the borrowing.
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.
In addition, emerging markets economies may be based on only a few industries,
may be highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates.
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 not 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. Revocation of the MFN Status would have a severe effect
on the value of the Global Target 15 Series. The performance of certain
companies listed on the Hong Kong Stock Exchange is linked to the economic
climate of China. The renewal of China's MFN Status in May of 1996 has helped
reduce the uncertainty for Hong Kong in conducting Sino-U.S. trade, and the
signing of the agreement on copyright protection between the U.S. and Chinese
governments in June of 1996 averted a trade war that would have affected Hong
Kong's re-export trade. In 1997, China and the U.S. reached a four year
bilateral agreement on textiles, again avoiding a Sino-U.S. trade war. More
recently, the currency crisis which has affected a majority of Asian markets
since mid-1997 has forced Hong Kong leaders to address whether to devaluate the
Hong Kong dollar or maintain its peg to the U.S. dollar. During the volatile
markets of 1998, the Hong Kong Monetary Authority (HKMA) acquired the common
stock of certain Hong Kong issuers listed on the Hong Kong Stock Exchange in an
effort to stabilize the Hong Kong dollar and thwart currency speculations.
Government intervention may hurt Hong Kong's reputation as a free market and
increases concerns that authorities are not willing to let Hong Kong's currency
system function autonomously. This may undermine confidence in the Hong Kong
dollar's peg to the U.S. dollar. Any downturn in economic growth or increase in
the rate of inflation in China or Hong Kong could have a materially adverse
effect on the value of the Global Target 15 Series.
Securities prices on the Hong Kong Stock Exchange, and specifically the Hang
Seng Index, can be highly volatile and are sensitive to developments in Hong
Kong and China, as well as other world markets. For example, the Hang Seng Index
declined by approximately 31% in October, 1997 as a result of speculation that
the Hong Kong dollar would become the next victim of the Asian currency crisis,
and in 1989, the Hang Seng Index dropped 1,216 points (approximately 58%) in
early June following the events at Tiananmen Square. The Hang Seng Index
gradually climbed subsequent to the events at Tiananmen Square but fell by 181
points on October 13, 1989 (approximately 6.5%) following a substantial fall in
the U.S. stock markets. During 1994, the Hang Seng Index lost approximately 31%
of its value. From January through August of 1998, during a period marked by
international economic instability and a global crisis, the Hang Seng Index
declined by nearly 27%. The Hang Seng Index is subject to change, and delisting
of any issues may have an adverse impact on the performance of the Global Target
15 Series, although delisting would not necessarily result in the disposal of
the stock of these companies, nor would it prevent such Series from purchasing
additional common stock. In recent years, a number of companies, comprising
approximately 10% of the total capitalization of the Hang Seng Index, have
delisted. In addition, as a result of Hong Kong's reversion to Chinese
sovereignty, an increased number of Chinese companies could become listed on the
Hong Kong Stock Exchange, thereby changing the composition of the stock market
and, potentially, the composition of the Hang Seng Index.
Exchange Rate Risk. The Global Target 15 Series is comprised
substantially of common stock that are principally traded in foreign currencies
and as such, involve investment risks that are substantially different from an
investment in a fund which invests in securities that are principally traded in
United States dollars. The United States dollar value of the Series' portfolios
and of the distributions from the portfolios will vary with fluctuations in the
United States dollar foreign exchange rates for the relevant currencies. Most
foreign currencies have fluctuated widely in value against the United States
dollar for many reasons, including supply and demand of the respective currency,
the rate of inflation in the respective economies compared to the United States,
the impact of interest rate differentials between different currencies on the
movement of foreign currency rates, the balance of imports and exports of goods
and services, the soundness of the world economy and the strength of the
respective economy as compared to the economies of the United States and other
countries. Exchange rate fluctuations are partly dependent on a number of
economic factors including economic conditions within countries, the impact of
actual and proposed government policies on the value of currencies, interest
rate differentials between the currencies and the balance of imports and exports
of goods and services and transfers of income and capital from one country to
another. These economic factors are influenced primarily by a particular
country's monetary and fiscal policies (although the perceived political
situation in a particular country may have an influence as well--particularly
with respect to transfers of capital). Investor psychology may also be an
important determinant of currency fluctuations in the short run. Moreover,
institutional investors trying to anticipate the future relative strength or
weakness of a particular currency may sometimes exercise considerable
speculative influence on currency exchange rates by purchasing or selling large
amounts of the same currency or currencies. However, over the long term, the
currency of a country with a low rate of inflation and a favorable balance of
trade should increase in value relative to the currency of a country with a high
rate of inflation and deficits in the balance of trade.
The following table sets forth, for the periods indicated, the range of
fluctuation concerning the equivalent U.S. dollar rates of exchange and end of
month equivalent U.S. dollar rates of exchange for the United Kingdom pound
sterling and the Hong Kong dollar:
Foreign Exchange Rates: Range of Fluctuations in Foreign Currencies
- --------------- ------------------------------------- --------------------------
ANNUAL PERIOD UNITED KINGDOM POUND STERLING/U.S. HONG KONG/U.S. DOLLAR
DOLLAR
- --------------- ------------------------------------- --------------------------
1983 0.616 - 0.707 6.480 - 8.700
- --------------- ------------------------------------- --------------------------
1984 0.671 - 0.864 7.774 - 8.050
- --------------- ------------------------------------- --------------------------
1985 0.672 - 0.951 7.729 - 7.990
- --------------- ------------------------------------- --------------------------
1986 0.643 - 0.726 7.768 - 7.819
- --------------- ------------------------------------- --------------------------
1987 0.530 - 0.680 7.751 - 7.822
- --------------- ------------------------------------- --------------------------
1988 0.525 - 0.601 7.764 - 7.912
- --------------- ------------------------------------- --------------------------
1989 0.548 - 0.661 7.775 - 7.817
- --------------- ------------------------------------- --------------------------
1990 0.504 - 0.627 7.740 - 7.817
- --------------- ------------------------------------- --------------------------
1991 0.499 - 0.624 7.716 - 7.803
- --------------- ------------------------------------- --------------------------
1992 0.498 - 0.667 7.697 - 7.781
- --------------- ------------------------------------- --------------------------
1993 0.630 - 0.705 7.722 - 7.766
- --------------- ------------------------------------- --------------------------
1994 0.610 - 0.684 7.723 - 7.750
- --------------- ------------------------------------- --------------------------
1995 0.610 - 0.653 7.726 - 7.763
- --------------- ------------------------------------- --------------------------
1996 0.583 - 0.670 7.732 - 7.742
- --------------- ------------------------------------- --------------------------
1997 0.584 - 0.633 7.708 - 7.751
- --------------- ------------------------------------- --------------------------
1998 0.584 - 0.620 7.735 - 7.749
- --------------- ------------------------------------- --------------------------
1999 0.597 - 0.646 7.746 - 7.775
- --------------- ------------------------------------- --------------------------
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.
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 41), 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 Life Distributors, Inc., Treasurer (1/98 to present)
Jackson National Financial Services, LLC, President and 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)
Jackson National Life Distributors, Inc., Chief Financial Officer and Vice
President (7/97 to present)
National Planning Corporation, Director (6/97 to present)
Jackson National Financial Services, Inc., CEO and President (7/97 to 5/98)
Countrywide Credit, Executive Vice President (3/92 to 6/94)
JOSEPH FRAUENHEIM (Age65), 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 51) 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 (8/82 to
present)
THOMAS J. MEYER (Age 53) 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 58), 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 59), 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 (Age33) 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 Life Distributors, Inc., Chief Operating Officer (7/97 to
present)
Jackson National Life Distributors. Inc., Vice President, Assistant Treasurer
(1/98 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, Vice President - Fund Accounting &
Administration (1/00 to present)
Jackson National Life Insurance Company, Assistant Vice President - Mutual Fund
Operations (5/97 to 12/99)
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)
SUSAN MIN (Age 28) 5901 Executive Drive, Lansing, MI 48911
Assistant Secretary of the Fund and each of the other funds in the Fund Complex
Jackson National Financial Services, LLC, Secretary (1/00 to present)
Jackson National Life Insurance Company, Senior Attorney (1/00 to present)
Goldman, Sachs & Co., Associates (10/99 to 12/99)
Van Eck Associates Corporation, Staff Attorney (9/97 to 10/99)
*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 $5,000 for each meeting of a fund in the Fund Complex that they
attend. The disinterested Managers received the following compensation for
services as a Manager during the fiscal year ended December 31, 1999:
AGGREGATE COMPENSATION FROM PENSION OR RETIREMENT
ADVISER BENEFITS ACCRUED AS PART OF
MANAGER FUND EXPENSES
Joseph Frauenheim $16,000 0
Richard McLellan 16,000 0
Peter McPherson 16,000 0
As of April 1, , 2000, the officers and Managers of the Fund, as a group, owned
less than 1% of the then outstanding interests of the Fund. To the extent
required by applicable law, JNL will solicit voting instructions from owners of
variable annuity contracts. All interests 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 interests which it is entitled to vote
in the same proportion as the voting instructions given by variable contract
owners, on the issues presented, including interests which are attributable to
JNL's interest in the Fund.
PERFORMANCE
A Series' historical performance may be shown in the form of total return. This
performance measure is 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. 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.
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. Jackson National Financial Services, LLC (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. JNFS is a wholly owned subsidiary of Jackson
National Life Insurance Company (JNL), which is in turn wholly owned by
Prudential plc, a life insurance company in the United Kingdom.
JNFS acts as investment adviser to the Series 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%
The fee paid by the Fund to JNFS pursuant to the Investment Advisory and
Management Agreement for the fiscal year ended December 31, 1999 was $92,915.
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 the Robert Donald Van Kampen family. 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, , 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 Series have entered into a Sub-License
Agreement with First Trust under the terms of which the Series 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 the 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 accordance with the Administration Agreement, JNFS is responsible for the
payment of expenses related to legal, audit, fund accounting, custody, printing
and mailing, managers fees 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 Series' 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 Series.
JNFS is the transfer agent and dividend-paying agent for each Series of the
Fund.
INDEPENDENT ACCOUNTANTS. The Series' independent accountants,
PricewaterhouseCoopers LLP, 203 North LaSalle, 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.
During the period indicated, the Series paid the following amounts in
brokerage commissions.
Fiscal year ended
December 31, 1999
-----------------
JNL/First Trust The Dow sm Target 5 Series* .............. $3,645
JNL/ First Trust The Dow sm Target 10 Series* ............ 4,657
JNL/ First Trust The S&P(R)Target 10 Series* ............. 5,086
JNL/First Trust Global Target 15 Series * ................ 8,480
JNL/First Trust Target 25 Series* ........................ 3,820
JNL/First Trust Target Small-Cap Series* ................. 4,238
JNL/First Trust Technology Sector Series* ................ 4,178
JNL/First Trust Pharmaceutical/Healthcare Sector
Series* .................................................. 4,638
JNL/First Trust Financial Sector Series* ................. 2,708
JNL/First Trust Energy Sector Series* .................... 2,525
JNL/First Trust Leading Brands Sector Series* ............ 2,752
JNL/First Trust Communications Sector Series* ............ 3,222
* Commenced operations on July 2, 1999.
As of December 31, 1999, the following Series owned securities of one
of the Fund's regular broker/dealers:
<TABLE>
<CAPTION>
Amount of
Series Broker/Dealer Shares Owned
------ ------------- ------------
<S> <C> <C>
JNL/First Trust Financial Sector Series Morgan Stanley & Co. Inc. 110,917
JNL/First Trust Financial Sector Series Merrill Lynch Pierce, Fenner & Smith 96,526
JNL/First Trust The Dowsm Target 10 Series J.P. Morgan Securities, Inc. 807,108
</TABLE>
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. Employees subject to the
Code of Ethics may invest in securities for their own investment accounts,
including securities that may be purchased or held by the Trust.
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 INTERESTS. 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 under the Investment Company Act of 1940, as amended, 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.
INTEREST HOLDER 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 the Separate Account,
the Fund is disregarded as an entity for purposes of federal income taxation.
Jackson National Life, through the 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
The financial statements of the JNL Variable Fund LLC for the period
ended December 31, 1999 are incorporated by reference from the Fund's Annual
Report to interest holders which is available at no charge upon written or
telephone request to the Fund at the address and telephone number set forth on
the front page of this Statement of Additional Information.
<PAGE>
JNL VARIABLE FUND LLC
PART C
OTHER INFORMATION
Note: Items 23-30 have been answered with respect to all investment portfolios
(Series) of the Registrant.
Item 23. Exhibits
(a) Certificate of Formation of Registrant dated October 15, 1998,
incorporated by reference to Registrant's Registration Statement filed
with the Securities and Exchange Commission on November 30, 1998.
(b) Operating Agreement of Registrant, incorporated by reference to
Pre-Effective Amendment No. 2 to Registrant's Registration Statement
filed with the Securities and Exchange Commission on May 25, 1999.
(c) Not Applicable
(d) (1) Investment Advisory and Management Agreement between Registrant and
Jackson National Financial Services, LLC dated May 14, 1999,
incorporated by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement filed with the Securities and
Exchange Commission on May 25, 1999.
(2) Form of Investment Sub-Advisory Agreement between Jackson National
Financial Services, LLC and First Trust Advisors L.P., incorporated by
reference to Pre-Effective Amendment No. 1 to Registrant's Registration
Statement filed with the Securities and Exchange Commission on April
20, 1999.
(e) Fund Participation Agreement between Registrant, Jackson National Life
Insurance Company and Jackson National Separate Account - I dated May
14, 1999, incorporated by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement filed with the Securities and
Exchange Commission on May 25, 1999.
(f) Not Applicable
(g) Delegation, Custody and Information Services Agreement between the
Registrant and Boston Safe Deposit and Trust Company dated May 14,
1999, incorporated by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement filed with the Securities and
Exchange Commission on May 25, 1999.
(h) Administration Agreement between Registrant and Jackson National
Financial Services, LLC dated May 14, 1999, incorporated by reference
to Pre-Effective Amendment No. 2 to Registrant's Registration Statement
filed with the Securities and Exchange Commission on May 25, 1999.
(i) Opinion of Counsel, attached hereto.
(j) Consent of Auditors, attached hereto.
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) (1) The Registrant's Code of Ethics, attached hereto.
(2) First Trust Advisors, L.P. Code of Ethics, attached hereto.
Item 24. Persons controlled by or under Common Control with Registrant.
Jackson National Separate Account - I
Jackson National Separate Account III
Jackson National Separate Account V
Jackson National Separate Account VI
JNLNY Separate Account I
JNLNY Separate Account II
Item 25. Indemnification.
Article IV of the Registrant's Operating Agreement provides
that each of its Managers and Officers (including persons who
serve at the Registrant's request as managers, directors,
officers or trustees of another organization in which the
Registrant has any interest as a shareholder, creditor or
otherwise) (each, a "Covered Person") shall be indemnified by
the Registrant against all liabilities and expenses that may
be incurred by reason of being or having been such a Covered
Person, except that no Covered Person shall be indemnified
against any liability to the Registrant or its shareholders to
which such Covered Person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
such Covered Person's office.
The foregoing indemnification arrangements are subject to the
provisions of Section 17(h) of the Investment Company Act of
1940.
Insofar as indemnification by the Registrant for liabilities
arising under the Securities Act of 1933 may be permitted to
managers, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
manager, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such manager, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
In addition to the above indemnification, Jackson National
Life Insurance Company extends its indemnification of its own
officers, directors and employees to cover such persons'
activities as officers, managers or employees of the
Registrant, and by separate agreement Jackson National Life
Insurance Company has agreed to indemnify managers of the
Registrant who are not interested persons of the Registrant or
its investment adviser.
Item 26. Business and Other Connections of Investment Adviser.
Incorporated herein by reference from the Prospectus and
Statement of Additional Information relating to the Trust are
the following: the description of the business of Jackson
National Financial Services, LLC (JNFS) contained in the
section entitled "Management of the Fund" of the Prospectus,
and the biographical information pertaining to Messrs.
Hopping, Frauenheim, Meyer, Fritts, McLellan, McPherson and
Nerud and Ms. Min, contained in the section entitled
"Management of the Fund" and the description of JNFS contained
in the section entitled "Investment Advisory and Other
Services" of the Statement of Additional Information.
Directors and Officers of JNFSLLC:
Name Address Principal Occupation
Andrew B. Hopping 5901 Executive Drive President, Managing
Lansing, MI 48911 Board Member
(3/98 to Present)
Mark D. Nerud 5901 Executive Drive Chief Financial Officer,
Lansing, MI 48911 Managing Board Member
(3/98 to Present)
Susan S. Min 5901 Executive Drive Secretary
Lansing, MI 48911 (1/00 to Present)
First Trust Advisors L.P., file No. 801-39950, the sub-adviser
of the series of the Fund, is primarily engaged in the
business of rendering investment advisory services. Reference
is made to the most recent Form ADV and schedules thereto on
file with the Commission for a description of the names and
employment of the directors and officers of the sub-adviser
and other required information
Item 27. Principal Underwriters.
Not Applicable.
Item 28. Location of Accounts and Records
Certain accounts, books and other documents required to be
maintained pursuant to Rule 31a-1(b)(4), (5), (6), (7), (9),
(10), and (11) are in the physical possession of the
Registrant at 5901 Executive Drive, Lansing, Michigan 48911;
certain accounts, books and other documents required to be
maintained pursuant to Rule 31a-1(b)(4), (5), (6), (7), (9),
(10), and (11) are in the physical possession of the
Registrant at 225 West Wacker Drive, Suite 1200, Chicago,
Illinois 60606; all other books, accounts and other documents
required to be maintained under Section 31(a) of the
Investment Company Act of 1940 and the Rules promulgated
thereunder are in the physical possession of Boston Safe
Deposit and Trust Company, One Boston Place, Boston,
Massachusetts 02108.
Item 21. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund has duly caused this Pre-Effective Amendment to be signed
on its behalf by the undersigned, duly authorized, in the City of Lansing and
the State of Michigan on the 17th day of April, 2000.
JNL VARIABLE FUND LLC
By: /s/ Andrew B. Hopping*
--------------------------
Andrew B. Hopping
President, CEO and Manager
Pursuant to the requirements of the Securities Act, this Pre-Effective
Amendment has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Andrew B. Hopping * President, CEO and April 17, 2000
- -------------------------- Manager ---------------
Andrew B. Hopping
/s/ Robert A. Fritts * Vice President, April 17, 2000
- -------------------------- Treasurer, CFO and --------------
Robert A. Fritts Manager
/s/ Joseph Frauenheim * Manager April 17, 2000
- --------------------------- --------------
Joseph Frauenheim
/s/ Richard McLellan * Manager April 17, 2000
- --------------------------- --------------
Richard McLellan
/s/ Peter McPherson * Manager April 17, 2000
- --------------------------- --------------
Peter McPherson
/s/ Thomas J. Meyer April 17, 2000
- --------------------------- --------------
* Attorney In Fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as managers of JNL
VARIABLE FUND LLC, a Delaware limited liability company, which has filed or will
file with the Securities and Exchange Commission under the provisions of the
Securities Act of 1933 and Investment Company Act of 1940, as amended, various
Registration Statements and amendments thereto for the registration under said
Acts of the sale of shares of beneficial interest of JNL Variable Fund LLC,
hereby constitute and appoint Andrew B. Hopping, Thomas J. Meyer and Robert P.
Saltzman, his attorney, with full power of substitution and resubstitution, for
and in his name, place and stead, in any and all capacities to approve and sign
such Registration Statements and any and all amendments thereto and to file the
same, with all exhibits thereto and other documents, granting unto said
attorneys, each of them, full power and authority to do and perform all and
every act and thing requisite to all intents and purposes as he might or could
do in person, hereby ratifying and confirming that which said attorneys, or any
of them, may lawfully do or cause to be done by virtue hereof. This instrument
may be executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names as of the
dates set forth below.
/s/ Andrew B. Hopping April 4, 2000
- ----------------------------------- -----------------
Andrew B. Hopping Date
/s/ Robert A. Fritts April 4, 2000
- ----------------------------------- -----------------
Robert A. Fritts Date
/s/ Joseph Frauenheim April 4, 2000
- ----------------------------------- -----------------
Joseph Frauenheim Date
/s/ Richard McLellan April 4, 2000
- ----------------------------------- -----------------
Richard McLellan Date
/s/ Peter McPherson April 4, 2000
- ----------------------------------- -----------------
Peter McPherson Date
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
- ------ -----------
23. (i) Opinion of Counsel, attached hereto as EX-99.i LEGAL OPININ.
23.(j) Consent of Auditors, attached hereto as EX-99.j AUDIT
OPININ.
23.(p)(1) The Registrant's Code of Ethics, attached hereto as
EX-99.p1 CODE ETH
23.(p)(2) First Trust Advisors, L.P. Code of Ethics, attached hereto
as EX-99.p 2 CODE ETH
April 3, 2000
Board of Managers
JNL Variable Fund LLC
5901 Executive Drive
Lansing, MI 48911
Re: Opinion of Counsel - JNL Variable Fund LLC
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of Post-Effective Amendment No. 1 to a
Registration Statement on Form N-1A with respect to JNL Variable Fund LLC.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. JNL Variable Fund LLC ("Fund") is an open-end management
investment company.
2. The Fund is created and validly existing pursuant to the
Delaware Laws.
3. All of the prescribed Fund procedures for the issuance of the
interests have been followed, and, when such interests are
issued in accordance with the Prospectus contained in the
Registration Statement for such interests, all state
requirements relating to such Fund interests will have been
complied with.
<PAGE>
Board of Managers
JNL Variable Fund LLC
Page 2
4. Upon the acceptance of purchase payments made by interest
holders in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable
law, such interest holders will have legally-issued, fully
paid, non-assessable interests of the Fund.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By:/s/ Raymond A. O'Hara III
-------------------------------------
Raymond A. O'Hara III
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated January 14, 2000, relating to the
financial statements and financial highlights which appear in the December 31,
1999 Annual Report to Shareholders of JNL Variable Fund LLC, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights" and "Independent
Accountants" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
203 North Lasalle Street
Chicago, Illinois 60601
April 7, 2000
CODE OF ETHICS
JACKSON NATIONAL FINANCIAL SERVICES, LLC
JNL SERIES TRUST
JNL VARIABLE FUND LLC
JNL VARIABLE FUND III LLC
JNL VARIABLE FUND V LLC
JNLNY VARIABLE FUND I LLC
JNLNY VARIABLE FUND II LLC
PURPOSE
The Board of Directors of Jackson National Financial Services, LLC, the
Board of Trustees of the JNL Series Trust (the "Trust"), and the Board
of Managers of each of the JNL Variable Fund LLC, the JNL Variable Fund
III LLC, the JNL Variable Fund V LLC, the JNLNY Variable Fund I LLC,
and the JNLNY Variable Fund II LLC (each a "Fund", collectively the
"Funds") have adopted this Code of Ethics ("Code") in accordance with
the provisions of Rule 17j-1 under the Investment Company Act of 1940
("Act"). Its purpose is to govern the personal investment activities of
those persons who are involved in, or who are in a position to gain
information regarding, investment recommendations and decisions with
respect to the portfolio activities of the Trust or a Fund. Each such
person is hereby required to conduct his or her personal securities
transactions in accordance with this Code and in such a manner as to
avoid any actual or potential conflict of interest or any abuse of such
person's position of trust and responsibility. Further, no such person
shall take inappropriate advantage of his or her position with the
Trust or a Fund; and each such person shall be under a duty at all
times to place the interests of the shareholders of the Trust or a
Fund, as applicable, before his or her own interests.
SECTION 1 - DEFINITIONS
(a) "Access person" means any trustee, officer, or advisory person of the
Trust or a Fund; and any employee of the Trust or a Fund or of any
company in a control relationship to the Trust or a Fund, who, in
connection with his regular functions or duties, obtains information
regarding the purchase or sale of a Security by the Trust or a Fund,
and any natural person in a control relationship to the Trust or a Fund
who obtains information concerning recommendations made to the Trust or
a Fund with regard to the purchase or sale of a Security.
However, a person does not become an Access person simply by virtue of
the following:
(i) normally assisting in the preparation of public reports, or
receiving public reports, but not receiving information about
current recommendations or trading; or
(ii) a single instance of obtaining knowledge of current
recommendations or trading activity, or infrequently and
inadvertently obtaining such knowledge.
The Compliance officer shall determine those persons who are Access
persons of the Trust or a Fund.
(b) "Advisory person" means any employee of the Trust or a Fund or of any
company in a control relationship to the Trust or a Fund, or any
natural person in a control relationship to the Trust or a Fund, who,
in connection with his or her regular functions or duties makes or
participates in the purchase or sale of a Security by the Trust or a
Fund, or whose functions relate to the making of any recommendations or
providing information or advice to the Trust or a Fund with respect to
such purchases or sales.
(c) A "Security held or to be acquired" by the Trust or a Fund means any
Security which, within the most recent 15 days, (i) is or has been held
by the Trust or a Fund, as applicable, or (ii) is being or has been
considered by the Trust or a Fund, as applicable.
(d) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, except that the determination of direct or
indirect beneficial ownership shall apply to all Securities which an
Access person has or acquires.
(e) "Control" means the power to exercise a controlling influence over the
management or policies of the Trust or a Fund, unless such power is
solely the result of an official position with the Trust or a Fund.
(f) "Disinterested person" means a trustee of the Trust or a member of the
Board of Managers of a Fund who is not an "interested person" of the
Trust or Fund, as applicable, within the meaning of Section 2(a)(19) of
the Act.
(g) "Purchase or sale of a Security" includes, inter alia, the writing of
an option to purchase or sell a Security.
(h) "Security" shall have the meaning set forth in Section 2(a)(36) of the
Act, except that it shall not include shares of registered open-end
investment companies, Securities issued by the Government of the United
States, short term debt Securities which are "Government Securities"
within the meaning of Section 2(a)(16) of the Act, bankers'
acceptances, bank certificates of deposit, commercial paper, and such
other money market instruments as may be designated by the applicable
Board.
(i) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
(j) "Personal investment transaction" means a transaction by an Access
person for the direct or indirect purchase or sale of a Security in
which such Access person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership.
(k) "Compliance officer" means an officer of the Trust or a Fund, as
applicable, responsible for administering this Code.
SECTION 2 - PROHIBITED PURCHASES AND SALES
(a) It is a policy of the Trust and each Fund that information with respect
to current portfolio transactions of the Trust or Fund, as applicable,
be kept confidential. No Access person shall take personal advantage of
any information concerning prospective or actual portfolio transactions
in any manner which might prove detrimental to the interests of the
Trust or Fund.
(b) No Access person shall use his position to gain personal benefit
through work relationships. No such person shall attempt to cause the
Trust or a Fund to purchase, sell or hold a particular security when
that action may reasonably be expected to create a personal benefit to
the Access person.
(c) No Access person shall, in connection with the purchase or sale,
directly or indirectly, by such person of a Security held or to be
acquired by the Trust or a Fund:
(i) Employ any device, scheme or artifice to defraud the Trust or
a Fund;
(ii) Make to the Trust or a Fund any untrue statement of a material
fact or omit to state to the Trust or a Fund a material fact
necessary in order to make the statements made, in light of
the circumstances under which they are made, not misleading;
(iii) Engage in act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Trust or a
Fund; or
(iv) Engage in any manipulative practice with respect to the Trust or a
Fund.
(d) No Access person shall engage in a Personal investment transaction with
respect to any Security which to his or her actual knowledge at the
time of such transaction:
(i) is being considered for purchase or sale by the Trust or a
Fund, as applicable, or any other investment company for whom
the investment adviser to the Trust or a Fund or any of its
sub-advisers serves as investment adviser; or
(ii) is the subject of a pending buy or sell order by the Trust or
a Fund or any other investment company for which the
investment adviser or any of its sub-advisers serves as
investment adviser.
(e) No Advisory person shall:
(i) engage in any Personal investment transaction for the
acquisition of a Security in an initial public offering;
(ii) profit from the purchase and sale, or sale and purchase, of
the same (or equivalent) Securities within 60 calendar days.
Any profits realized on such short term trades shall be
disgorged to the appropriate Series of the Trust or Fund, or
as otherwise determined by the appropriate Board;
(iii) receive any gift or other thing of more than de minimis value
from any person or entity that does business with or on behalf
of the Trust or a Fund;
(iv) serve on the board of directors of any publicly traded
company, unless prior authorization therefor by the applicable
Board has been given after a determination by the Board that
such service is consistent with the interests of the Trust or
a Fund and its shareholders. Where such approval is given,
such Advisory person is prohibited, during the period of such
service and for a 6 month period thereafter from (1) engaging
in any communication regarding such company with any other
Advisory person, and (2) causing any Series with respect to
which he or she is an Advisory person to purchase any security
issued by such company; or
(v) participate in any consideration of whether the Trust or a
Fund should invest in securities of an issuer in which such
Advisory person has invested through a private placement
without disclosing such investment of the Advisory person to
the other participants. Under such circumstances, the decision
to purchase securities of the issuer by the Trust or a Fund
shall be subject to the independent review by appropriate
Advisory persons (or corresponding personnel of the investment
adviser or appropriate sub-adviser) having no personal
interest in the matter.
SECTION 3 - EXEMPTED TRANSACTIONS
(a) The prohibitions of Sections 2(d) and 2(e) of this Code shall not apply to:
(i) Purchases or sales effected in any account over which the
Access person has no direct or indirect influence or control.
(ii) Purchases or sales of Securities which are non-volitional on
the part of either the Access person or the Trust or a Fund,
as applicable.
(iii) Purchases which are part of an automatic dividend reinvestment
plan.
(iv) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its Securities,
to the extent such rights were acquired from such issuer, and
sales of such rights so acquired.
(v) Purchases or sales which are only remotely potentially harmful
to the Trust or a Fund because they would be very unlikely to
affect a highly institutional market, or clearly are not
related economically to the Securities to be purchased, sold
or held by the Trust, as determined by the Board of Trustees.
(b) The prohibitions of Sections 2(d), 2(e)(iii), 2(e)(iv), and 2(e)(v) of this
Code shall not apply to:
(i) Purchases or sales of Securities which are not eligible for
purchase or sale by the Trust or a Fund.
SECTION 4 - COMPLIANCE PROCEDURES
(a) No Access person, except a Disinterested person, shall engage in a
Personal investment transaction unless such transaction has been
submitted to, and approved by, the Compliance officer in advance of the
transaction. The Compliance officer shall make all such approvals only
after making a determination that the proposed transaction would not be
inconsistent with this Code. For purposes of the preceding sentence,
the prohibitions of Section 2(d) shall be applied without regard to the
requirement of actual knowledge contained in such Section. In the case
of a proposed Personal investment transaction for the acquisition by an
Advisory person of a Security in a private placement, the Compliance
officer shall confer with appropriate representatives of the investment
adviser to determine whether such investment opportunity should be
reserved for the Trust or a Fund, as applicable; and the Compliance
officer shall not approve such transaction if it appears to him or her,
after appropriate inquiry, that (1) the opportunity should be reserved
for the Trust or a Fund; or (2) such opportunity has been offered to
the Advisory person by virtue of his or her position with the Trust or
a Fund.
(b) Every Access person, other than a Disinterested person, shall direct
each broker through whom he or she engages in any Personal investment
transaction to supply the Compliance officer with duplicate copies of
(1) all confirmations of such transactions, and (2) periodic statements
of all securities accounts. Such directives shall require the broker to
transmit such duplicate copies within five days after the original has
been transmitted to such Access person.
(c) Every Access person, other than a Disinterested person, shall report to
the Compliance officer the information described in Section 4(e) of
this Code with respect to every Personal investment transaction engaged
in by such Access persons provided, however, that an Access person
shall not be required to make a report with respect to transactions
effected for any account over which such person does not have any
direct or indirect influence, or Security transactions which are not
eligible for purchase or sale by the Trust or a Fund, as applicable.
(d) A Disinterested person need only report a transaction in a Security if
such Disinterested person, at the time of that transaction, knew or, in
the ordinary course of fulfilling his official duties as a trustee of
the Trust or member of the Board of Mangers of a Fund, should have
known that, during the 15-day period immediately preceding or after the
date of the transaction, such Security was purchased or sold by the
Trust or a Fund or was being considered by the Trust or a Fund or its
investment adviser for purchase or sale by the Trust or a Fund, as
applicable.
(e) Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates
was effected, and shall contain the following information:
(i) The date of the transaction, the title and the number of
shares, and the principal amount of each Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(iii) The price at which the transaction was effected; and,
(iv) The name of the broker, dealer or bank with or through whom
the transaction was effected.
(f) Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he has
any direct or indirect beneficial ownership in the Security to which
the report relates.
(g) Each Advisory person shall disclose all securities holdings in which he
or she has a direct or indirect beneficial ownership to the Compliance
officer (1) upon commencement of employment, and (2) thereafter on an
annual basis.
(h) Each Access person shall certify annually that such Access person:
(i) has read and understands this Code;
(ii) recognizes that he or she is subject thereto;
(iii) has complied with all requirements thereof; and
(iv) has disclosed or reported all Personal investment transactions
required to be disclosed or reported pursuant to the
requirements thereof.
(i) The Compliance officer shall formulate and implement procedures to
carry out the provisions of this Code, including the adoption of
appropriate questionnaires and reporting forms reasonably designed to
provide sufficient information to determine whether any provisions of
this Code are violated. Such procedures shall include procedures
reasonably necessary to monitor the Securities trading activities of
Access persons after approval of Personal investment transactions
pursuant to Section 4(a) of this Code. The Compliance officer shall
prepare an annual report to the Board of Trustees (1) summarizing the
existing procedures concerning personal investing by Access persons,
including any changes made to such procedures during the period covered
by the report; (2) identifying any violations requiring significant
remedial action during such period; and (3) identifying any recommended
changes in existing procedures based upon the Trust's experience under
this Code, evolving industry practices, or developments in applicable
laws or regulations.
(j) Any person becoming aware of a violation or an apparent violation of
this Code of Ethics shall report such matter to the appropriate Board.
SECTION 5 - SANCTIONS
The Board shall review any violation or apparent violation of this Code of
Ethics and may adopt and apply whatever sanctions it may determine appropriate
in respect of such violation, including, inter alia, a letter of censure or
suspension or termination of the employment of the violator.
SECTION 6 - RECORD MAINTENANCE
The Trust shall, at its principal place of business, maintain records in the
following manner:
(a) A copy of this Code of Ethics and any Code of Ethics adopted pursuant
to Rule 17j-1 under the Act which within the past five years has been
in effect, shall be preserved in an easily accessible place;
(b) A record of any violation of this Code of Ethics, and of any action
taken as a result of such violation, shall be preserved in an easily
accessible place for a period of not less than five years following the
end of the fiscal year in which the violation occurs;
(c) A copy of each report made by an Access person pursuant to this Code of
Ethics shall be preserved for a period of not less than five years from
the end of the fiscal year in which it is made, the first two years in
an easily accessible place;
(d) A list of all persons who are, or within the past five years have been,
required to make reports pursuant to this Code of Ethics shall be
maintained in an easily accessible place; and
(e) A copy of such prior clearance procedure for securities transactions as
the Compliance officer shall from time to time determine.
SECTION 7 - INVESTMENT ADVISERS
Personnel of the Investment Adviser or any Investment Sub-Adviser of the Trust
or a Fund who are "Access persons" may, as an alternative to complying with the
foregoing provisions of this Code, comply with the requirements of a code of
ethics adopted pursuant to Rule 17j-1 under the Act by such Investment Adviser
or Investment Sub-Adviser; provided that:
(a) Such code of ethics meets the requirements of Rule 17j-1 under the Act;
(b) Such code of ethics applies to the activities of the Access person as
they relate to the Trust; and
(c) Such Investment Adviser or Investment Sub-Adviser submits a report to
the appropriate Board on a quarterly basis, which report shall (1)
identify the Access persons associated with it that are relying on this
Section 7; (2) certify that the conditions of Section 7(a) and 7(b)
have been met at all times during the period covered by the report; and
(3) either certify that no violation of such code of ethics by any such
Access person has occurred during the period covered by the report, or
identify all such violations. The report shall be accompanied by
appropriate documentation.
Rev. 2-99
FIRST TRUST ADVISORS L.P.
INVESTMENT COMPANY CODE OF ETHICS
I. STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics is being adopted by First Trust Advisors L.P. (the
"Company"), in recognition of the fact that the Company owes a duty at
all times to place the interests of investors in investment companies
for which the Company provides investment advisory services first. In
recognition of such duty it is the Company's policy that the personal
securities transactions and other activities of Company personnel be
conducted consistent with this Code of Ethics and in such a manner as
to avoid any actual or potential conflict of interest or any abuse of
an individual's position of trust and responsibility that could occur
through such activities as "insider trading" or "frontrunning"
investment company securities trades. It is also the Company's policy
that Company personnel should not take inappropriate advantage of their
position with respect to investment companies for which the Company
provides investment advisory services and that such personnel should
avoid any situation that might compromise, or call into question, their
exercise of fully independent judgment in the interest of investors in
investment companies for which the Company provides investment advisory
services.
II. DEFINITIONS
For Purposes of this Code of Ethics:
A. "Company" shall mean First Trust Advisors L.P.
B. "Investment Company" shall mean any investment company for which the
Company provides investment advisory services.
C. "Investor" shall mean any investor of any Investment Company.
D. "Access Person" shall mean any partner, officer or employee of the
Company who makes, participates in or obtains information regarding the
purchase or sale of securities for an Investment Company's portfolio or
whose functions or duties as part of the ordinary course of his
business relate to the making of any recommendation regarding the
purchase or sale of securities for an Investment Company and includes
all personnel listed in the Company's form ADV.
E. "Investment Person" shall mean any officer or employee of the
Company who makes, participates in or executes decisions regarding the
purchase or sale of securities for an Investment Company's portfolio.
III. PROHIBITED PRACTICES
In furtherance of the policies set forth in paragraph I above, the
following practices shall be prohibited:
A. No Investment Person shall purchase any security during the initial
public offering of such security.
B. No Investment Person shall purchase any security in a private
placement transaction unless the purchase has been approved in writing
and in advance by the Compliance Department. In considering whether to
approve any such transaction, the Compliance Department shall take into
account, among other factors, whether the investment opportunity should
be reserved for any existing or proposed Investment Company and its
Investors and whether the opportunity is being offered to an individual
by virtue of his position. Any Investment Person who has been
authorized to acquire securities in a private placement shall disclose
that investment to the Compliance Department before he takes part in a
subsequent consideration of any Investment Company's investment in that
issuer, and the decision to include securities of such issuer in an
Investment Company shall be subject to independent review by General
Counsel of the Company.
C. No Access Person shall purchase or sell any security on a day during
which there is "buy" or a "sell" order from an Investment Company for
that security until such order is executed or withdrawn. No Investment
Person shall purchase or sell a security within seven days before or
after that security is bought or sold by an Investment Company. Any
profits realized on transactions prohibited by this Section shall be
disgorged.
D. No Investment Person shall profit from the purchase and sale, or
sale and purchase, of the same (or equivalent) securities within 30
days. Any profits realized on transactions prohibited by this Section
shall be disgorged.
E. No Investment Person shall serve on the Board of Directors of a
publicly traded company absent prior authorization of the Compliance
Department upon a determination that board service would be consistent
with the interests of Investment Companies and their investors and the
establishment of appropriate "Chinese wall" procedures by the
Compliance Department.
F. Any provision of this Code of Ethics prohibiting any transaction by
an Access Person or Investment Person shall prohibit any transaction in
which such person has, obtains or disposes of any beneficial ownership
interest.
IV. COMPLIANCE PROCEDURES
In order to effectuate and monitor the foregoing policies and
prohibitions, all Access Persons and Investment Persons shall be
required to comply with the following procedures:
A. The securities trading personnel of the Company shall provide the
Compliance Department with a daily summary of buy and sell orders
entered by, on behalf of, or with respect to Investment Companies.
B. Each Access Person shall direct any firms at which he maintains
brokerage accounts to provide on a timely basis duplicate copies of
confirmations of all personal securities transactions and periodic
statements for all securities accounts to the Compliance Department.
The Compliance Department shall date stamp all duplicate copies of
personal securities transactions and account statements upon receipt.
C. Each Access Person shall disclose all personal securities holdings
to the Compliance Department both upon commencement of employment with
the Company and within 15 days of the end of each calendar year by
submitting the form attached to this Code of Ethics as Exhibit A.
D. Within 15 days following the end of each calendar year, each Access
Person shall certify to the Company that he has read and understands
this Code of Ethics and recognizes that he is subject to it and that he
has complied with the requirements of this Code of Ethics by submitting
the form attached hereto as Exhibit B.
E. Within 10 days following the end of each calendar quarter, each
Access Person shall report to the Compliance Department all personal
securities transactions effected during such quarter by submitting the
form attached hereto as Exhibit C.
F. Any provision of this Code of Ethics requiring an Access Person or
Investment Person to report securities transactions or securities
positions to the Company shall require the reporting of any transaction
or position in which such person has, acquires or disposes of any
beneficial ownership interest.
G. The requirements of Section IV(B), IV(C), IV(D) and IV(E) shall be
deemed to be complied with by any Access Person who complies with
substantially similar requirements contained in the Nike Securities
L.P. Unit Investment Trust Code of Ethics.
V. EXEMPTIONS
The following transactions shall be exempted from the provisions of
Article III and, in the case of paragraph A and C, Article IV of this
Code of Ethics:
A. The purchase or sale of U.S. government securities, money market
instruments or mutual funds.
B. The purchase or sale of shares of issuers whose shares are traded on
a national or foreign securities exchange and which have a market
capitalization of at least $1 billion.
C. Purchases which are part of an automatic dividend reinvestment plan
or which involve no investment decision by the purchaser.
VI. SANCTIONS
Upon discovery of a violation of this Code of Ethics, including either
violations of the enumerated provisions or the general principles
provided, the Company may impose such sanctions as it deems
appropriate, including, inter alia, a fine, letter of censure or
suspension or termination of the employment of the violator.
<PAGE>
EXHIBIT A
FIRST TRUST ADVISORS L.P.
ACCESS/INVESTMENT PERSON
SECURITIES HOLDINGS REPORT
Name of Access/Investment Person:
-------------------------------------
Date:
-------------------------------------------------
I hereby certify that as of , I had a
beneficial ownership interest in no securities other than those
set forth below.
Issuer # of shares/principal amount Market Value
OR
I hereby certify that as of , I had a
beneficial ownership interest in no securities other than
those set forth on the attached brokerage account statements.
OR
I hereby certify that as of , I had a
beneficial interest in no securities.
--------------------------------------
Signature
<PAGE>
EXHIBIT B
FIRST TRUST ADVISORS L.P.
ACCESS/INVESTMENT PERSON
CODE OF ETHICS CERTIFICATION
I, , hereby certify that I have read, and
understand the FIRST TRUST ADVISORS L.P. Code of Ethics. Furthermore, I
certify that I have complied with its provisions during the preceding
year.
----------------------------------- ------------------
Signature Date
<PAGE>
EXHIBIT C
FIRST TRUST ADVISORS L.P.
ACCESS/INVESTMENT PERSON
QUARTERLY TRANSACTION REPORT
Name of Access/Investment Person:
------------------------------------------
Date:
---------------------------------
I hereby certify that during the calendar quarter ended
, I had a beneficial ownership interest in the following
securities transactions:
Type Type Issuer # of shares/ $ amount
of Transaction of Security principal amount
OR
I hereby certify that during the calendar quarter ended , I
had a beneficial ownership interest in no securities transactions
other that those set forth on the attached brokerage account
confirmations.
OR
I hereby certify that during the calendar quarter ended , I
had a beneficial ownership interest in no securities transactions.
-----------------------------------------
Signature
<PAGE>
CODE OF ETHICS DISTRIBUTION LIST
ACCESS PERSONS
MARK BRADLEY
W. SCOTT JARDINE
WILLIAM WEBB
RICHARD OLSON
CODE OF ETHICS DISTRIBUTION LIST
INVESTMENT PERSONS
JAMES BOWEN
CHARLES BRADLEY
ROBERT BREDEMEIER
SUSAN BRIX
ROBERT CAREY
JON ERICKSON
FRANK FICHERA
DAVID FIELD
SCOTT HALL
RON MCALISTER
DAVE MCGAREL
CARLOS NARDO
JOHN PHILLIPS
PETER SHANNON
RICHARD SWAITEK