STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000, AS AMENDED MAY 11, 2000
JNL VARIABLE FUND III 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 III LLC
Prospectus, dated May 1, 2000 (the "Prospectus"). 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............................................. 7
Investment Restrictions.................................................... 9
Management of the Fund..................................................... 10
Performance................................................................ 12
Investment Advisory and Other Services..................................... 14
Purchases, Redemptions and Pricing of Interests............................ 18
Additional Information..................................................... 19
Tax Status................................................................. 20
Financial Statements ...................................................... 21
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GENERAL INFORMATION AND HISTORY
JNL Variable Fund III LLC (the "Fund") is a non-diversified, open-end management
company organized as a Delaware limited liability company on January 26, 1999.
The Fund offers interests in the JNL/First Trust The DowSM Target 10 Series (the
"Series").
COMMON TYPES OF INVESTMENTS AND MANAGEMENT PRACTICES
This section describes some of the types of securities the Series may hold in
its portfolio and the various kinds of investment practices that may be used in
day-to-day portfolio management. The 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. The 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. The Series may borrow money from banks for temporary or
emergency purposes in amounts up to 25% of its total assets. To secure
borrowings, the Series may mortgage or pledge securities in amounts up to 15% of
its net assets.
CASH POSITION. The 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, the 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. The 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. The 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, the 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.
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. The 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. The Series may purchase or sell
call and put options on securities and financial indices, and may invest in
futures contracts on financial indices, including interest rates or an index of
U.S. 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 the 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 the 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), the 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. The 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 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. The 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. The 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, the Series may engage in short-term
transactions if such transactions further its investment objective. The 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. The Series may invest
in repurchase or reverse repurchase agreements. A repurchase agreement involves
the purchase of a security by the 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, the 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 the 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. The Series may also lend common stock to broker-dealers and
financial institutions to realize additional income. As a fundamental policy,
the 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) the Series must receive any
dividends or interest paid by the issuer on such securities; (c) the 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) the 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, the 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. The 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. The Series
may also incur expenses in enforcing its rights. If the 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 the 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). SHORT SALES. The 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 the 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.
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.
WARRANTS. The 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.
WRITING COVERED OPTIONS ON SECURITIES. The 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 the Series' investment objective. Call options
written by the 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.
The 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. The Series may also write combinations of covered
puts and covered calls on the same underlying security.
The 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, the 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, the 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.
The 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
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. The use of futures, options,
forward contracts, and swaps (derivative instruments) exposes the Series to
additional investment risks and transaction costs. If the sub-adviser seeks to
protect the 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, the 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 III (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 the Series 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 the Series failed to comply with such restrictions or
limitations, JNL would take appropriate action, which might include ceasing to
make investments in the Fund and/or Series or withdrawing from the state
imposing the limitation. Such restrictions and limitations are not expected to
have a significant impact on the Fund's operations.
INVESTMENT STRATEGY RISKS. The common stock selected for the 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 or 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 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 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 the Series' objective will be achieved or that the
Series will provide for capital appreciation in excess of the Series' expenses.
Because of the contrarian nature of the Series and the attributes of the common
stock which caused inclusion in the portfolio, the Series may not be appropriate
for investors seeking either preservation of capital or high current income. In
addition, the strategy for the Series has underperformed its index in certain
years.
LITIGATION. Certain of the issuers of common stock 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 and could
adversely affect the Series.
Certain of the Series may include the common stock of Microsoft Corporation in
their portfolios. Microsoft Corporation is currently engaged in litigation with
Sun Microsystems, Inc., the U.S. Department of Justice and several state
Attorneys General. The complaints against Microsoft include copyright
infringement, unfair competition and anti-trust violations. The claims seek
injunctive relief and monetary damages. In the action brought against Microsoft
by the U.S. Department of Justice, the United States District Court for the
District of Columbia issued findings of fact that included a finding that
Microsoft possesses and exercised monopoly power. The court also recently
entered an order finding that Microsoft exercised this power in violation of the
Sherman Antitrust Act and various state antitrust laws. The next step in the
litigation will be for the court to determine the penalties against Microsoft.
The possible remedies that could potentially be considered by the court,
according to industry experts, range from a possible breakup of Microsoft to
remedies such as ordering the company to surrender its blueprint, or "source
code," for its Windows operating software. Microsoft has stated that it will
appeal this ruling following the penalties phase and final decree. It is
possible that any remedy could have a material adverse impact on Microsoft,
however, it is impossible to predict the impact that any penalty may have on
Microsoft's business in the future or on the Series.
At any time, litigation may be instituted on a variety of grounds with respect
to the common stock held in the Series portfolio. The Fund is unable to predict
whether any litigation including the above-described litigation, that has been
or will be instituted, might have a material adverse effect on the Fund.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES. The following fundamental policies may not be changed
without the affirmative vote of the majority of the outstanding voting
securities of the Fund. 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.
(1) The Series may not issue senior securities.
(2) The 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 the Series' assets. In
the case of any borrowing, the Series may pledge, mortgage or
hypothecate up to 15% of its assets.
(3) The 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) The Series will not purchase or sell real estate or interests
therein.
(5) The 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) The Series may invest in repurchase agreements and warrants
and engage in futures and options transactions and securities
lending.
The Series is not 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 the Series in any particular industry
or group 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 the 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)
MICHAEL BOUCHARD** (Age 44), 344 Fairfax, Birmingham, MI 48009
Member of the Board of Managers of the Fund and each of the other funds in the
Fund Complex
Sheriff, Oakland County, Michigan (1/99 to present)
Senator State of Michigan (1991 to 1999)
DOMINIC D'ANNUNZIO** (Age 62), 100 Siena Way, Unit 1204, Naples, FL 34119
Member of the Board of Managers of the Fund and each of the other funds in
the Fund Complex
Acting Commissioner of Insurance for the State of Michigan, (8/97 to 5/98)
Acting Commissioner of Insurance for the State of Michigan, (1/90 to 5/90)
Acting Manager of Michigan State Accident Fund (9/89 to 12/89)
Deputy Commissioner of the Office of Financial Analysis and Examinations
(4/89 to 8/97)
Deputy Commissioner of the Office of Market Standards (1/87 to 4/89)
MICHELLE ENGLER** (Age 42), 2520 Oxford Drive, Lansing, MI 48911
Member of the Board of Managers of the Fund and each of the other funds in the
Fund Complex
First Lady of the State of Michigan (1991 to present)
Chair, Michigan Community Service Commission (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)
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.
**New member of the Board of Managers as of May 11, 2000.
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 PENSION OR RETIREMENT
FROM ADVISER BENEFITS ACCRUED AS PART OF
MANAGER FUND EXPENSES
Joseph Frauenheim* $16,000 0
Richard McLellan* 16,000 0
Peter McPherson* 16,000 0
*Member of the Board of Managers that served on the Board until May 11, 2000.
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 insurance or variable annuity contracts. All interests of the Series
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
The Series' historical performance may be shown in the form of total return.
This performance measure is described below. Performance advertised for the
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
the 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 the Series. The 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 the 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 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 the Series include
general market conditions, operating expenses and investment management.
The 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. Shares of the
Series are redeemable at the then current net asset value, which may be more or
less than original cost.
<PAGE>
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 the 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 the 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 the 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. The Series
is obligated to pay JNFS the following fees:
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 $2,911.
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 the 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 the Series. First Trust's address is 1001 Warrenville Road,
Lisle, Illinois 60532. First Trust is a limited partnership with one limited
partner, Grace Partners of Dupage L.P., and one general partner, Nike Securities
Corporation. Grace Partners of Dupage L.P. is a limited partnership with one
general partner, Nike Securities Corporation, and a number of limited partners.
Nike Securities Corporation is an Illinois corporation controlled by the Robert
Donald Van Kampen family. Pursuant to a Sub-Advisory Agreement with JNFS, First
Trust is responsible for selecting the investments of the Series consistent with
the investment objectives and policies of the 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 the Series with
discretionary investment services. Specifically, First Trust is responsible for
supervising and directing the investments of the Series in accordance with the
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 the 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 the 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 the 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 the 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 the
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 the Series the following fees:
ASSETS FEES
$0 to $500 million ........................................... .35%
$500 million to $1 billion ................................... .30%
Over $1 billion .............................................. .25%
LICENSE AGREEMENTS. JNFS, JNL and the Fund have entered into a Sub-License
Agreement with First Trust under the terms of which the Fund and JNL are
permitted to use and refer to certain copyright, trademark and proprietary
rights and trade secrets of Dow Jones & Company.
ADMINISTRATIVE FEE. The Series pays to JNFS an Administrative Fee of .10% of the
average daily net assets of the Series. In return for the fee, JNFS provides or
procures all necessary administrative functions and services for the operation
of the Series. In accordance 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 the Series. The 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 the Series. 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 the Series.
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 the 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 the Series may be effected on foreign securities exchanges. In
transactions for securities not actively traded on a foreign securities
exchange, the 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.
The 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. The
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 the 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 the 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 the 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 10 Series* $1,059
- --------------------------------------------------------------------------------
* Commenced operations on August 16, 1999.
As of December 31, 1999, the following Series owned securities of one
of the Fund's regular broker/dealers:
Amount of
Series Broker/Dealer Shares Owned
------ ------------- ------------
JNL/First Trust The Dow(SM)
Target 10 Series J.P. Morgan Securities, Inc. 39,000
CODE OF ETHICS. To mitigate the possibility that the 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 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 the 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. The 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.
The Fund may suspend the right of redemption for the 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 the 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 the Series represents an equal
proportionate interest in the 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 the Series,
interest holders are entitled to share pro rata in the net assets of the Series
available for distribution to interest holders. Each issued and outstanding
interest in the Series is entitled to participate equally in dividends and
distributions declared by the Series, and in the net assets of the Series
remaining upon liquidations or dissolution after outstanding liabilities are
satisfied. The interests of the Series, when issued, are fully paid and
nonassessable. They have no preemptive, conversion, cumulative dividend or
similar rights. They are freely transferable. Interests in the 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 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.
INTERESTHOLDER 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.
The 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 the Series.
FINANCIAL STATEMENTS
The financial statements of the JNL/First Trust The Dow sm Target 10 Series 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.
