JNL VARIABLE FUND III LLC
ANNUAL REPORT
DECEMBER 31, 1999
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[FIRST TRUST LOGO]
JNL/FIRST TRUST THE DOW(SM) TARGET 10 SERIES
FIRST TRUST ADVISORS L.P.
TEAM MANAGEMENT
OBJECTIVE:
The investment objective of the JNL/First Trust The Dow(SM) Target 10 Series is
a high total return through a combination of capital appreciation and dividend
income.
MONEY MANAGER COMMENTARY:
Despite a rising interest rate environment, the second half of 1999 was
generally positive for U.S. stocks. Initially, the stock market suffered through
a correction lasting from mid-July through mid-October as investors digested a
couple of Federal Reserve interest rate hikes and their potential impact of
slowing corporate earnings growth. But the stock market staged an impressive
rally through the end of the year led by technology shares as the nation's
economy remained strong and investors' fears of Y2K subsided. The trading during
the latter part of this period was characterized by heavy investor demand for
early stage growth companies, particularly technology and communications-related
shares, at the expense of value stocks.
The Series returned -10.70% for the period from inception on August 16, 1999
through December 31, 1999 as compared to 4.70% for its benchmark, the Dow Jones
Industrial Average. The Series has been hurt in recent months by substantial
weakness in three of its ten components. Philip Morris has been hit hard (down
35%) due to concerns about the tobacco industry's mounting legal battles.
Caterpillar retreated (down 24%) after announcing significantly lower year over
year third quarter profits and repeatedly warning analysts about 1999 full year
earnings. Goodyear Tire (down 50%) has been punished due to disappointment over
its fourth straight quarter of declining earnings. In addition, Goodyear was
removed from the Dow Jones Index effective November 1, 1999. Of the remaining
seven components of the Series, two posted positive returns for the period, and
only one, General Motors (up 17%), beat the index.
The outlook for U.S. stocks remains bullish as we enter 2000 due in large part
to the booming U.S. economy. While negative factors such as the likelihood of
further Federal Reserve interest rate hikes, lofty valuation levels and the
perceived narrowness of the market may result in a correction sometime during
the next year, the expected continuing strength in U.S. corporate earnings
should ultimately result in higher stock prices.
The Series identifies strong, established companies that are currently out of
favor on Wall Street and likely to rebound. We believe these companies are well
positioned to benefit from either a broadening of the current market rally, or a
rotation out of the speculative, high-tech names that have been leading the
market. Therefore, we expect the Series to perform well going forward and reward
the patient, value-oriented investor.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
JNL/FIRST TRUST THE DOW TARGET 10 SERIES AND THE
DOW JONES INDUSTRIAL AVERAGE
[LINE GRAPH]
JNL/FIRST TRUST THE
INDUSTRIAL AVERAGE DOW TARGET 10 SERIES THE DOW JONES
- ------------------ -------------------- -------------
8/16/1999 .............................. 10000 10000
8/31/1999 .............................. 9790 9814
9/30/1999 .............................. 9370 9380
10/31/1999 ............................. 9220 9742
11/30/1999 ............................. 8920 9970
12/31/1999 ............................. 8930 10470
TOTAL RETURN FOR THE PERIOD
FROM AUGUST 16, 1999* TO
DECEMBER 31, 1999....-10.70%
Past performance is not
predictive of future
performance. Investment
return and principal
value will fluctuate so
that an investor's
shares, when redeemed,
may be more or less than
their original cost.
Performance numbers are
net of all Series
operating expenses, but
do not reflect the
deduction of insurance
charges.
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* Commencement of operations.
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JNL/FIRST TRUST THE DOW TARGET 10 SERIES
FINANCIAL STATEMENTS
(in thousands, except net asset value per share)
Statement of Assets and Liabilities
December 31, 1999
ASSETS
Investments (cost $420) $ 410
Cash 22
Receivable:
Dividends and interest 3
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TOTAL ASSETS 435
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LIABILITIES
Payables:
Advisory fees 1
Investment securities purchased 59
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TOTAL LIABILITIES 60
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NET ASSETS $ 375
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NET ASSETS CONSIST OF:
Paid-in capital $ 514
Undistributed net investment income 10
Accumulated net realized loss on (139)
investments
Net unrealized depreciation on investments (10)
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$ 375
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SHARES OUTSTANDING (NO PAR VALUE),
UNLIMITED SHARES AUTHORIZED 42
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NET ASSET VALUE PER SHARE $ 8.93
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Statement of Operations
For the Period Ended December 31, 1999*
INVESTMENT INCOME
Dividends $ 12
Interest 1
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TOTAL INVESTMENT INCOME 13
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EXPENSES
Advisory fees 2
Administrative fees 1
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TOTAL EXPENSES 3
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NET INVESTMENT INCOME 10
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REALIZED AND UNREALIZED LOSS
Net realized loss on investments (139)
Net change in unrealized depreciation
on investments (10)
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NET REALIZED AND UNREALIZED LOSS (149)
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NET DECREASE IN NET ASSETS FROM OPERATIONS $ (139)
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* For the period beginning August 16, 1999 (commencement of operations).
See notes to the financial statements.
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JNL/FIRST TRUST THE DOW TARGET 10 SERIES
Statement of Changes in Net Assets
(in thousands)
PERIOD FROM
AUGUST 16,
1999* TO
DECEMBER 31,
1999
--------------
OPERATIONS
Net investment income ..................... $ 10
Net realized loss on investments .......... (139)
Net change in unrealized depreciation
on investments .......................... (10)
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NET DECREASE IN NET ASSETS FROM OPERATIONS .. (139)
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SHARE TRANSACTIONS(1)
Proceeds from the sale of shares .......... 1,420
Cost of shares redeemed ................... (906)
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NET INCREASE IN NET ASSETS FROM
SHARE TRANSACTIONS ........................ 514
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NET INCREASE IN NET ASSETS .................. 375
NET ASSETS BEGINNING OF PERIOD .............. -
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NET ASSETS END OF PERIOD .................... $ 375
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UNDISTRIBUTED NET INVESTMENT INCOME ......... $ 10
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(1)SHARE TRANSACTIONS
Shares sold ............................... 146
Shares redeemed ........................... (104)
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Net increase .............................. 42
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PURCHASES AND SALES OF INVESTMENT
SECURITIES
(EXCLUDING SHORT-TERM SECURITIES):
Purchases of securities .................. $ 1,396
Proceeds from sales of securities ........ 875
Financial Highlights
PERIOD FROM
AUGUST 16,
1999* TO
DECEMBER 31,
1999
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SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ....... $ 10.00
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INCOME (LOSS) FROM OPERATIONS:
Net investment income .................... 0.24
Net realized and unrealized loss
on investments ......................... (1.31)
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Total loss from operations ................. (1.07)
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NET ASSET VALUE, END OF PERIOD ............. $ 8.93
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TOTAL RETURN (A) ........................... (10.70)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) . $ 375
Ratio of expenses to average net assets
(b) ...................................... 0.85%
Ratio of net investment income to
average net assets (b) ................... 2.58%
Portfolio turnover ....................... 112.42%
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* 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.
See notes to the financial statements.
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JNL/FIRST TRUST THE DOW TARGET 10 SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- ---------------------------------------------------------------
COMMON STOCKS - 90.73%
AUTO MANUFACTURERS - 11.46%
General Motors Corp. 651 $ 47
AUTO PARTS & EQUIPMENT - 4.88%
Goodyear Tire & Rubber Co. 724 20
BANKS - 9.51%
J.P. Morgan & Co. Inc. 308 39
CHEMICALS - 10.00%
E.I. du Pont de Nemours & Co. 614 41
MACHINERY - 7.81%
Caterpillar Inc. 683 32
MANUFACTURING - 21.22%
Eastman Kodak Co. 601 40
Minnesota Mining & Manufacturing 479 47
Co.
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87
OIL & GAS PRODUCERS - 20.00%
Chevron Corp. 444 38
Exxon Mobil Corp. 542 44
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82
TOBACCO - 5.85%
Philip Morris Cos. Inc. 1,036 24
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Total Common Stocks
(cost $ 382) 372
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SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
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SHORT TERM INVESTMENTS - 9.27%
- ------------------------------
MONEY MARKET FUNDS - 9.27%
Dreyfus Cash Management Plus,
5.53% (a) 18,748 $ 19
Dreyfus Government Cash
Management, 18,748 19
5.08% (a)
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Total Short Term Investments
(cost $ 38) 38
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TOTAL INVESTMENTS - 100%
(cost $ 420) $ 410
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(a) Dividend yield changes daily to reflect current market conditions. Rate is
the quoted yield as of December 31, 1999.
See notes to the financial statements.
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NOTES TO THE FINANCIAL STATEMENTS
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NOTE 1. ORGANIZATION
JNL Variable Fund III LLC (the "Fund") is a limited liability company
organized under the laws of Delaware, by a Formation and Operating Agreement
dated February 11, 1999. The Fund is registered with the Securities and Exchange
Commission as a non-diversified fund under the Investment Company Act of 1940
(the "1940 Act"). The Fund consists of the JNL/First Trust The Dow Target 10
Series, which is subadvised by First Trust Advisors L.P. ("First Trust"). The
shares of the Fund are sold to a life insurance company separate account to fund
the benefits of variable annuity policies.
Jackson National Financial Services, LLC ("JNFS"), a wholly-owned
subsidiary of Jackson National Life Insurance Company ("Jackson National"),
serves as investment adviser ("Adviser") for this Series.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Series in the preparation of its financial statements.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
SECURITY VALUATION -- Stocks listed on a national or foreign stock exchange
are valued at the final quoted sale price, or final bid price in absence of a
sale. Stocks not listed on a national or foreign stock exchange are valued at
the closing bid price on the over-the-counter market.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
recorded on the trade date. Dividend income, net of applicable withholding
taxes, is recorded on the ex-dividend date. Interest income, including
level-yield amortization of discounts and premiums, is accrued daily. Realized
gains and losses are determined on the specific identification basis.
REPURCHASE AGREEMENTS -- The Series may invest in repurchase agreements. A
repurchase agreement involves the purchase of a security by the Series and a
simultaneous agreement (generally by a bank or broker-dealer) to repurchase that
security back from the Series at a specified price and date or upon demand.
Securities pledged as collateral for repurchase agreements are held by the
Series custodian bank until the maturity of the repurchase agreement. Procedures
for all repurchase agreements have been designed to assure that the daily market
value of the collateral is in excess of the repurchase agreement in the event of
default.
DISTRIBUTIONS TO SHAREHOLDERS -- No distributions of net investment income
or realized capital gains are required.
FEDERAL INCOME TAXES -- The JNL Variable Fund III LLC is a limited
liability company with all of its interests owned by a single interest, Jackson
National Separate Account-III. Accordingly, the Fund is not considered a
separate entity for income tax purposes, and therefore is taxed as part of the
operations of Jackson National and is not taxed separately. Under current tax
law, interest and dividend income and capital gains of the Fund are not
currently taxable when left to accumulate within a variable annuity contract.
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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NOTE 3. INVESTMENT MANAGEMENT FEES AND TRANSACTIONS WITH AFFILIATES
The Series has an investment advisory agreement with JNFS whereby JNFS
provides investment management and transfer agency services. The Series pays
JNFS a fee, computed daily and payable monthly, based on a specified percentage
of the average daily net assets of the Series as follows:
ASSETS FEES
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$0 to $500 million .75%
$500 million to $1 billion .70%
Over $1 billion .65%
As compensation for their services, the subadviser, First Trust, receives a
fee from JNFS, calculated on the basis of the average daily net assets of each
Series as follows:
ASSETS FEES
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$0 to $500 million .35%
$500 million to $1 billion .30%
Over $1 billion .25%
ADMINISTRATIVE FEE -- In addition to the investment advisory fee, the
Series pays to JNFS an Administrative Fee of .10% of the average daily net
assets. In return for the fee, JNFS provides or procures all necessary
administrative functions and services for the operations of the Series. In
accordance with the agreement, JNFS is responsible for the payment of expenses
related to legal, audit, fund accounting, custody, printing and mailing, trustee
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.
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Shareholders and the Board of Managers of JNL Variable Fund III LLC
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, the related statement of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of JNL/First Trust The Dow Target 10
Series of JNL Variable Fund III LLC (hereafter referred to as the "Series") at
December 31, 1999, and the results of its operations, changes in its net assets
and the financial highlights for the period indicated in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Series' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 1999, by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
January 14, 2000
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