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JANUS INVESTMENT FUND
100 Fillmore Street
Denver, CO 80206-4923
(800) 525-3713
STATEMENT OF ADDITIONAL INFORMATION
February 18, 1996
GROWTH FUNDS FIXED-INCOME FUNDS
Janus Fund Janus Flexible Income Fund
Janus Twenty Fund Janus Intermediate Government Securities Fund
Janus Enterprise Fund Janus Short-Term Bond Fund
Janus Mercury Fund Janus Federal Tax-Exempt Fund
Janus Worldwide Fund
Janus Overseas Fund
COMBINATION FUNDS
Janus Growth and Income Fund
Janus Balanced Fund
This Statement of Additional Information ("SAI") pertains to the funds
listed above, each of which is a separate series of Janus Investment Fund, a
Massachusetts business trust (the "Trust"). Each of these series of the Trust
represents shares of beneficial interest in a separate portfolio of securities
and other assets with its own objective and policies (individually, a "Fund" and
collectively, the "Funds"). Each Fund is managed separately by Janus Capital
Corporation ("Janus Capital").
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus of each Fund dated February 18, 1996, which is incorporated by
reference into this SAI and may be obtained from the Trust at the above phone
number or address. This SAI contains additional and more detailed information
about the Funds' operations and activities than the Prospectus.
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JANUS INVESTMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
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Investment Policies, Restrictions and Techniques .......................... 3
Investment Objectives ................................................ 3
Portfolio Policies ................................................... 4
Investment Restrictions Applicable to All Funds ...................... 4
Investment Policies Applicable to Certain Funds ...................... 6
Types of Securities and Investment Techniques ........................ 7
Illiquid Investments ............................................ 7
Zero Coupon, Pay-In-Kind and Step Coupon Securities ............. 7
Pass-Through Securities ......................................... 8
Depositary Receipts ............................................. 8
Municipal Obligations ........................................... 9
Other Income-Producing Securities ............................... 9
Repurchase and Reverse Repurchase Agreements .................... 9
High-Yield/High-Risk Securities ................................. 10
Futures, Options and Other Derivative Instruments ............... 10
Investment Adviser ................................................... 17
Custodian, Transfer Agent and Certain Affiliations ................... 19
Portfolio Transactions and Brokerage ................................. 20
Officers and Trustees ................................................ 22
Purchase of Shares ................................................... 25
Net Asset Value Determination ................................... 25
Reinvestment of Dividends and Distributions ..................... 26
Redemption of Shares ................................................. 26
Shareholder Accounts ................................................. 26
Telephone Transactions .......................................... 26
Systematic Withdrawals .......................................... 26
Retirement Plans .......................................................... 27
Income Dividends, Capital Gains Distributions and Tax Status .............. 27
Principal Shareholders .................................................... 28
Miscellaneous Information ................................................. 28
Shares of the Trust .................................................. 29
Voting Rights ........................................................ 29
Independent Accountants .............................................. 29
Registration Statement ............................................... 29
Performance Information ................................................... 30
Financial Statements ...................................................... 31
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INVESTMENT POLICIES, RESTRICTIONS AND TECHNIQUES
Each Fund's investment objective is discussed in the Prospectus and
summarized below. There is no assurance that the Funds will achieve their
respective objectives. The investment objectives of the Funds are not
fundamental and may be changed by the Trustees without shareholder approval.
Investment Objectives
Janus Fund is a diversified fund that seeks long-term growth of capital in
a manner consistent with the preservation of capital by investing primarily in
common stocks of issuers of any size. Generally, this Fund emphasizes issuers
with larger market capitalizations.
Janus Twenty Fund is a nondiversified fund that seeks long-term growth of
capital. Under normal conditions, this Fund concentrates its investments in a
core position of 20-30 common stocks.
Janus Enterprise Fund is a nondiversified fund that seeks long-term growth
of capital by investing primarily in common stocks. The Fund intends to normally
invest at least 50% of its equity assets in securities issued by medium-sized
companies (as defined in the Prospectus).
Janus Mercury Fund is a nondiversified fund that seeks long-term growth of
capital by investing in common stocks of issuers of any size, including larger,
well-established companies and smaller, emerging growth companies.
Janus Worldwide Fund is a diversified fund that seeks long-term growth of
capital in a manner consistent with the preservation of capital by investing in
common stocks of foreign and domestic issuers of any size. Janus Worldwide Fund
normally invests in issuers from at least five different countries including the
United States.
Janus Overseas Fund is a diversified fund that seeks long-term growth of
capital by investing primarily in common stocks of foreign issuers of any size.
The Fund normally invests at least 65% of its total assets in issuers from at
least five different countries excluding the United States.
Janus Growth and Income Fund is a diversified fund that seeks both
long-term capital growth and current income. Janus Growth and Income Fund places
a stronger emphasis on the growth objective and normally invests up to 75% of
its assets in equity securities selected primarily for their growth potential
and at least 25% of its assets in securities selected for their income
potential. In unusual circumstances, the Fund may reduce the growth component of
its portfolio to 25% of its assets.
Janus Balanced Fund is a diversified fund that seeks long-term capital
growth, consistent with preservation of capital and balanced by current income.
Janus Balanced Fund normally invests 40-60% of its assets in securities selected
primarily for growth potential and 40-60% of its assets in securities selected
for their income potential.
Janus Flexible Income Fund is a diversified fund that seeks to maximize
total return consistent with preservation of capital. Total return is expected
to result from a combination of current income and capital appreciation,
although income will normally be the dominant component of total return. Janus
Flexible Income Fund invests in all types of income-producing securities. This
Fund may have substantial holdings of debt securities rated below investment
grade.
Janus Intermediate Government Securities Fund is a diversified fund that
seeks as high a level of current income as is consistent with the preservation
of capital by investing primarily in obligations of the U.S. government, its
agencies and instrumentalities. It will normally maintain an average weighted
maturity of greater than three years and less than ten years.
Janus Short-Term Bond Fund is a diversified fund that seeks as high a level
of current income as is consistent with the preservation of capital by investing
primarily in short- and intermediate-term fixed-income securities. It will
normally maintain an average weighted maturity not to exceed three years.
Janus Federal Tax-Exempt Fund is a diversified fund that seeks as high a
level of current income exempt from federal income tax as is consistent with
preservation of capital. It will normally invest at least 80% of its net assets
in securities whose income is not subject to federal income tax.
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PORTFOLIO POLICIES
The Prospectus discusses the types of securities in which the Funds will
invest, portfolio policies of the Funds and the investment techniques of the
Funds. The Prospectus includes a discussion of portfolio turnover policies.
Portfolio turnover is calculated by dividing total purchases or sales, whichever
is less, by the average monthly value of a Fund's portfolio securities. The
following table summarizes the portfolio turnover rates for the fiscal periods
indicated. The information below is for fiscal years ended October 31.
Fund Name 1995 1994
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Janus Fund 118% 139%
Janus Twenty Fund 147% 102%
Janus Enterprise Fund 194% 193%
Janus Mercury Fund 201% 283%
Janus Worldwide Fund 142% 158%
Janus Overseas Fund 188% 181%(1)
Janus Growth and Income Fund 195% 123%
Janus Balanced Fund 185% 167%
Janus Flexible Income Fund 250% 137%
Janus Intermediate Government Securities Fund 252% 304%
Janus Short-Term Bond Fund 337% 346%
Janus Federal Tax-Exempt Fund 164% 160%
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(1) May 2, 1994 (inception) to October 31, 1994; annualized for periods of less
than one year.
INVESTMENT RESTRICTIONS APPLICABLE TO ALL FUNDS
As indicated in the Prospectus, the Funds are subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or a particular
Fund if a matter affects just that Fund), or (ii) 67% or more of the voting
securities present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Trust (or a particular Fund) are present or
represented by proxy. As fundamental policies, each of the Funds may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to fifty percent (50%) of the value of the total assets for Janus
Twenty Fund, Janus Enterprise Fund and Janus Mercury Fund and as to seventy-five
percent (75%) of the value of the total assets of the other Funds, purchase the
securities of any one issuer (except cash items and "government securities" as
defined under the Investment Company Act of 1940, as amended (the "1940 Act")),
if immediately after and as a result of such purchase, the value of the holdings
of a Fund in the securities of such issuer exceeds 5% of the value of such
Fund's total assets. With respect to the other 50% of the value of their total
assets, Janus Twenty Fund, Janus Enterprise Fund and Janus Mercury Fund may
invest in the securities of as few as two issuers.
(2) Invest more than 25% of the value of their respective assets in any
particular industry (other than U.S. government securities); provided, however,
that for Janus Federal Tax-Exempt Fund this limitation does not apply to
municipal obligations. For the purposes of this limitation only, industrial
development bonds issued by nongovernmental users shall not be deemed to be
municipal obligations. Industrial development bonds shall be classified
according to the industry of the entity that has the ultimate responsibility for
the payment of principal and interest on the obligation.
(3) Invest directly in real estate or interests in real estate; however,
the Funds may own debt or equity securities issued by companies engaged in those
businesses.
(4) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent the Funds from purchasing or selling options, futures, swaps
and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of a Fund's 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) Act as an underwriter of securities issued by others, except to the
extent that a Fund may be deemed an underwriter in connection with the
disposition of portfolio securities of such Fund.
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As a fundamental policy, each Fund may, notwithstanding any other
investment policy or limitation (whether or not fundamental), invest all of its
assets in the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
limitations as such Fund.
The Trustees have adopted additional investment restrictions for the Funds.
These restrictions are operating policies of the Funds and may be changed by the
Trustees without shareholder approval. The additional investment restrictions
adopted by the Trustees to date include the following:
(a) A Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of a Fund's net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by a Fund in units or attached to securities shall be deemed
to be without value for the purpose of monitoring this policy.
(b) A Fund will not (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of a Fund's
net assets, after taking into account unrealized profits and unrealized losses
on any such contracts it has entered into; and (ii) enter into any futures
contracts if the aggregate amount of such Fund's commitments under outstanding
futures contracts positions would exceed the market value of its total assets.
(c) The Funds do not currently intend to sell securities short, unless they
own or have the right to obtain securities equivalent in kind and amount to the
securities sold short without the payment of any additional consideration
therefor, and provided that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(d) The Funds do not currently intend to purchase securities on margin,
except that the Funds may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that margin payments and other
deposits in connection with transactions in futures, options, swaps and forward
contracts shall not be deemed to constitute purchasing securities on margin.
(e) The Funds do not currently intend to (i) purchase securities of other
investment companies, except in the open market where no commission except the
ordinary broker's commission is paid, or (ii) purchase or retain securities
issued by other open-end investment companies. Limitations (i) and (ii) do not
apply to money market funds or to securities received as dividends, through
offers of exchange, or as a result of a reorganization, consolidation, or
merger. If a Fund invests in a money market fund, Janus Capital will reduce its
advisory fee by the amount of any investment advisory and administrative
services fees paid to the investment manager of the money market fund.
(f) A Fund may not mortgage or pledge any securities owned or held by such
Fund in amounts that exceed, in the aggregate, 15% of that Fund's net asset
value, provided that this limitation does not apply to reverse repurchase
agreements, deposits of assets to margin, guarantee positions in futures,
options, swaps or forward contracts, or the segregation of assets in connection
with such contracts.
(g) The Funds do not intend to purchase securities of any issuer (other
than U.S. government agencies and instrumentalities or instruments guaranteed by
an entity with a record of more than three years' continuous operation,
including that of predecessors) with a record of less than three years'
continuous operation (including that of predecessors) if such purchase would
cause the cost of a Fund's investments in all such issuers to exceed 5% of that
Fund's total assets taken at market value at the time of such purchase.
(h) The Funds do not currently intend to invest directly in oil, gas, or
other mineral development or exploration programs or leases; however, the Funds
may own debt or equity securities of companies engaged in those businesses.
(i) The Funds may borrow money for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 25% of the value of their
respective total assets (including the amount borrowed) less liabilities (other
than borrowings). If borrowings exceed 25% of the value of a Fund's total assets
by reason of a decline in net assets, the Fund will reduce its borrowings within
three business days to the extent necessary to comply with the 25% limitation.
This policy shall not prohibit reverse repurchase agreements, deposits of assets
to margin or guarantee positions in futures, options, swaps or forward
contracts, or the segregation of assets in connection with such contracts.
(j) The Funds do not currently intend to purchase any security or enter
into a repurchase agreement if, as a result, more than 15% of their respective
net assets would be invested in repurchase agreements not entitling the holder
to payment of principal and interest within seven days and in securities that
are illiquid by virtue of legal or contractual restrictions on resale or the
absence of a readily available market. The Trustees, or the Funds' investment
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adviser acting pursuant to authority delegated by the Trustees, may determine
that a readily available market exists for securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"),
or any successor to such rule, Section 4(2) commercial paper and municipal lease
obligations. Accordingly, such securities may not be subject to the foregoing
limitation.
(k) The Funds may not invest in companies for the purpose of exercising
control of management.
For the purposes of these investment restrictions, the identification of
the issuer of a municipal obligation depends on the terms and conditions of the
security. When assets and revenues of a political subdivision are separate from
those of the government that created the subdivision and the security is backed
only by the assets and revenues of the subdivision, the subdivision is deemed to
be the sole issuer. Similarly, in the case of an industrial development bond, if
the bond is backed only by assets and revenues of a nongovernmental user, then
the nongovernmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security that would be
treated as an issue of the guaranteeing entity.
For purposes of the Funds' restriction on investing in a particular
industry, the Funds will rely primarily on industry classifications as published
by Bloomberg L.P., provided that financial service companies will be classified
according to the end users of their services (for example, automobile finance,
bank finance and diversified finance are each considered to be a separate
industry). To the extent that Bloomberg L.P. classifications are so broad that
the primary economic characteristics in a single class are materially different,
the Funds may further classify issuers in accordance with industry
classifications as published by the Securities and Exchange Commission ("SEC").
INVESTMENT POLICIES APPLICABLE TO CERTAIN FUNDS
Janus Balanced Fund. As an operational policy, at least 25% of the assets
of Janus Balanced Fund normally will be invested in fixed-income senior
securities, which include debt securities and preferred stock.
Janus Flexible Income Fund. As a fundamental policy, this Fund may not
purchase a non-income-producing security if, after such purchase, less than 80%
of the Fund's total assets would be invested in income-producing securities.
Income-producing securities include securities that make periodic interest
payments as well as those that make interest payments on a deferred basis or pay
interest only at maturity (e.g., Treasury bills or zero coupon bonds).
The Fund will purchase defaulted securities only when its portfolio manager
believes, based upon his analysis of the financial condition, results of
operations and economic outlook of an issuer, that there is potential for
resumption of income payments and that the securities offer an unusual
opportunity for capital appreciation. Notwithstanding the portfolio manager's
belief as to the resumption of income, however, the purchase of any security on
which payment of interest or dividends is suspended involves a high degree of
risk. Such risk includes, among other things, the following:
A. Financial and Market Risks. Investments in securities that are in
default involve a high degree of financial and market risks that can result in
substantial or, at times, even total losses. Issuers of defaulted securities may
have substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about the
condition of such issuers. The market prices of such securities also are subject
to abrupt and erratic movements and above average price volatility, and the
spread between the bid and asked prices of such securities may be greater than
normally expected.
B. Disposition of Portfolio Securities. Although Janus Flexible Income Fund
generally will purchase securities for which its portfolio manager expects an
active market to be maintained, defaulted securities may be less actively traded
than other securities and it may be difficult to dispose of substantial holdings
of such securities at prevailing market prices. Janus Flexible Income Fund will
limit its holdings of any such securities to amounts that its portfolio manager
believes could be readily sold, and its holdings of such securities would, in
any event, be limited so as not to limit the Fund's ability to readily dispose
of its securities to meet redemptions.
C. Other. Defaulted securities require active monitoring and may, at times,
require participation in bankruptcy or receivership proceedings on behalf of the
Fund.
Janus Intermediate Government Securities Fund. As an operational policy,
this Fund will not invest in any debt security that, at the time of purchase,
causes the portfolio of the Fund's debt securities to have a dollar-weighted
average, then remaining term to maturity of less than three years or more than
10 years. The portfolio manager will consider the estimated prepayment date of
mortgage-backed securities in computing the portfolio's
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maturity. The Fund may not invest more than 20% of its net assets in commercial
paper. All commercial paper shall be rated in the highest rating category of a
Nationally Recognized Statistical Rating Organization ("NRSRO") at the time of
purchase.
Janus Short-Term Bond Fund. As an operational policy, this Fund will not
invest in any debt security that, at the time of purchase, causes its portfolio
of debt securities to have a dollar-weighted average, then remaining term to
maturity of three years or more. The portfolio manager will consider the
estimated prepayment date of mortgage-backed securities in computing the
portfolio's maturity.
Janus Federal Tax-Exempt Fund. As a fundamental policy, this Fund will
normally invest at least 80% of its net assets in securities whose income is not
subject to federal income taxes, including the alternative minimum tax.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
Illiquid Investments
Each Fund may invest up to 15% of its net assets in illiquid investments
(i.e., securities that are not readily marketable). The Trustees of the Funds
have authorized Janus Capital to make liquidity determinations with respect to
its securities, including Rule 144A Securities, commercial paper and municipal
lease obligations. Under the guidelines established by the Trustees, Janus
Capital will consider the following factors: 1) the frequency of trades and
quoted prices for the obligation; 2) the number of dealers willing to purchase
or sell the security and the number of other potential purchasers; 3) the
willingness of dealers to undertake to make a market in the security; and 4) the
nature of the security and the nature of marketplace trades, including the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. In the case of commercial paper, Janus Capital will
also consider whether the paper is traded flat or in default as to principal and
interest and any ratings of the paper by an NRSRO. With respect to municipal
lease obligations, Janus Capital will also consider factors unique to municipal
lease obligations including the general creditworthiness of the municipality,
the importance of the property covered by the lease obligation and the
likelihood that the marketability of the obligation will be maintained
throughout the time the obligation is held by a Fund.
Zero Coupon, Pay-In-Kind and Step Coupon Securities
Each Fund may invest up to 10% of its assets in zero coupon, pay-in-kind
and step coupon securities. Zero coupon bonds are issued and traded at a
discount from their face value. They do not entitle the holder to any periodic
payment of interest prior to maturity. Step coupon bonds trade at a discount
from their face value and pay coupon interest. The coupon rate is low for an
initial period and then increases to a higher coupon rate thereafter. The
discount from the face amount or par value depends on the time remaining until
cash payments begin, prevailing interest rates, liquidity of the security and
the perceived credit quality of the issuer. Pay-in-kind bonds normally give the
issuer an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), a Fund must distribute
its investment company taxable income, including the original issue discount
accrued on zero coupon or step coupon bonds. Because a Fund will not receive
cash payments on a current basis in respect of accrued original-issue discount
on zero coupon bonds or step coupon bonds during the period before interest
payments begin, in some years that Fund may have to distribute cash obtained
from other sources in order to satisfy the distribution requirements under the
Code. A Fund might obtain such cash from selling other portfolio holdings which
might cause that Fund to incur capital gains or losses on the sale.
Additionally, these actions are likely to reduce the assets to which Fund
expenses could be allocated and to reduce the rate of return for that Fund. In
some circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might otherwise
make it undesirable for a Fund to sell the securities at the time.
Generally, the market prices of zero coupon, step coupon and pay-in-kind
securities are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates
to a greater degree than other types of debt securities having similar
maturities and credit quality.
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Pass-Through Securities
The Funds may invest in various types of pass-through securities, such as
mortgage-backed securities, asset-backed securities and participation interests.
A pass-through security is a share or certificate of interest in a pool of debt
obligations that have been repackaged by an intermediary, such as a bank or
broker-dealer. The purchaser of a pass-through security receives an undivided
interest in the underlying pool of securities. The issuers of the underlying
securities make interest and principal payments to the intermediary which are
passed through to purchasers, such as the Funds. The most common type of
pass-through securities are mortgage-backed securities. Government National
Mortgage Association ("GNMA") Certificates are mortgage-backed securities that
evidence an undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrowers over
the term of the loan rather than returned in a lump sum at maturity. A Fund will
generally purchase "modified pass-through" GNMA Certificates, which entitle the
holder to receive a share of all interest and principal payments paid and owned
on the mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of
whether or not the mortgagor actually makes the payment. GNMA Certificates are
backed as to the timely payment of principal and interest by the full faith and
credit of the U.S. government.
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semiannually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest but it is not guaranteed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed
mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. This type of security is guaranteed by FNMA as to timely payment of
principal and interest but it is not guaranteed by the full faith and credit of
the U.S. government.
Except for GMCs, each of the mortgage-backed securities described above is
characterized by monthly payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying mortgage loans. The payments
to the security holders (such as the Funds), like the payments on the underlying
loans, represent both principal and interest. Although the underlying mortgage
loans are for specified periods of time, such as 20 or 30 years, the borrowers
can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will consider
estimated prepayment rates in calculating the average weighted maturity of a
Fund. A borrower is more likely to prepay a mortgage that bears a relatively
high rate of interest. This means that in times of declining interest rates,
higher yielding mortgage-backed securities held by a Fund might be converted to
cash and that Fund will be forced to accept lower interest rates when that cash
is used to purchase additional securities in the mortgage-backed securities
sector or in other investment sectors. Additionally, prepayments during such
periods will limit a Fund's ability to participate in as large a market gain as
may be experienced with a comparable security not subject to prepayment.
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts, financing leases, and sales agreements
that may be created when a municipality enters into an installment purchase
contract or lease with a vendor. Such securities may be secured by the assets
purchased or leased by the municipality; however, if the municipality stops
making payments, there generally will be no recourse against the vendor. The
market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
Depositary Receipts
The Funds may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underying securities issued by a foreign issuer.
ADRs, in registered form, are designed for use in U.S. securities markets.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company
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depositary of an unsponsored ADR may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. The Funds may also invest in European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") and in other similar instruments
representing securities of foreign companies. EDRs are receipts issued by a
European financial institution evidencing an arrangement similar to that of
ADRs. EDRs, in bearer form, are designed for use in European securities markets.
GDRs are securities convertible into equity securities of foreign issuers.
Municipal Obligations
The Funds may invest in municipal obligations issued by states, territories
and possessions of the United States and the District of Columbia. Janus Federal
Tax-Exempt Fund may, at times, invest more than 25% of the value of its assets
in industrial development bonds, a type of revenue bond which, although issued
by a public authority, may be backed only by the credit and security of a
private issuer, thus presenting a greater credit risk.
The value of municipal obligations can be affected by changes in their
actual or perceived credit quality. The credit quality of municipal obligations
can be affected by among other things, the financial condition of the issuer or
guarantor, the issuer's future borrowing plans and sources of revenue, the
economic feasibility of the revenue bond project or general borrowing purpose,
political or economic developments in the region where the security is issued,
and the liquidity of the security. Because municipal securities are generally
traded over-the-counter, the liquidity of a particular issue often depends on
the willingness of dealers to make a market in the security. The liquidity of
some municipal obligations may be enhanced by demand features, which would
enable a Fund to demand payment on short notice from the issuer or a financial
intermediary.
Other Income-Producing Securities
Other types of income producing securities that the Funds may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities are
relatively long-term instruments that often carry demand features permitting the
holder to demand payment of principal at any time or at specified intervals
prior to maturity.
Standby commitments. These instruments, which are similar to a put, give a
Fund the option to obligate a broker, dealer or bank to repurchase a security
held by that Fund at a specified price.
Tender option bonds. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
Inverse floaters. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. The
Funds will not invest more than 5% of their respective assets in inverse
floaters.
The Funds will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of their portfolios.
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, a Fund purchases a security and simultaneously
commits to resell that security to the seller at an agreed upon price on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon incremental amount that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security or "collateral." A Fund may
engage in a repurchase agreement with respect to any security in which it is
authorized to invest. A risk associated with repurchase agreements is the
failure of the seller to repurchase the securities as agreed, which may cause a
Fund to suffer a loss if the market value of such securities declines before
they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, a Fund may encounter delays and incur costs in
liquidating the underlying security. Repurchase agreements that mature in more
than seven days will be subject to the 15% limit on illiquid investments. While
it is not possible to eliminate all risks from these transactions, it is the
policy of the Funds to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by Janus Capital.
A Fund may use reverse repurchase agreements 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 or notes. In a reverse
repurchase agreement, a Fund sells
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a portfolio security to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, a Fund will
maintain cash and appropriate liquid assets in a segregated custodial account to
cover its obligation under the agreement. The Funds will enter into reverse
repurchase agreements only with parties that Janus Capital deems creditworthy.
High-Yield/High-Risk Securities
Janus Flexible Income Fund may invest without limit in corporate debt
securities that are rated below investment grade (securities rated BB or lower
by Standard & Poor's Ratings Services ("Standard & Poor's") or Ba or lower by
Moody's Investors Service, Inc. ("Moody's")). Investments in
high-yield/high-risk securities will be less than 35% of each of the other
Fund's net assets in such securities. Lower rated bonds involve a higher degree
of credit risk, which is the risk that the issuer will not make interest or
principal payments when due. In the event of an unanticipated default, a Fund
would experience a reduction in its income, and could expect a decline in the
market value of the securities so affected.
Each Fund may also invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. Because of the size and
perceived demand of the issue, among other factors, certain municipalities may
not incur the costs of obtaining a rating. A Fund's portfolio manager will
analyze the creditworthiness of the issuer, as well as any financial institution
or other party responsible for payments on the security, in determining whether
to purchase unrated municipal bonds. Unrated debt securities will be included in
the 35% limit of each Fund unless its portfolio manager deems such securities to
be the equivalent of investment grade securities.
Futures, Options and Other Derivative Instruments
Futures Contracts. The Funds may enter into contracts for the purchase or
sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income securities.
U.S. futures contracts are traded on exchanges which have been designated
"contract markets" by the CFTC and must be executed through a futures commission
merchant ("FCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain high-grade liquid assets by the Funds' custodian for the benefit of the
FCM. Initial margin payments are similar to good faith deposits or performance
bonds. Unlike margin extended by a securities broker, initial margin payments do
not constitute purchasing securities on margin for purposes of the Fund's
investment limitations. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments for the
benefit of the FCM to settle the change in value on a daily basis. The party
that has a gain may be entitled to receive all or a portion of this amount. In
the event of the bankruptcy of the FCM that holds margin on behalf of a Fund,
that Fund may be entitled to return of margin owed to such Fund only in
proportion to the amount received by the FCM's other customers. Janus Capital
will attempt to minimize the risk by careful monitoring of the creditworthiness
of the FCMs with which the Funds do business and by depositing margin payments
in a segregated account with the Funds' custodian.
The Funds intend to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Funds will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Funds hold positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of a Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
Although a Fund will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to that Fund immediately upon closing out the futures position, while
settle-ment of securities transactions could take several days. However, because
a Fund's cash that may otherwise be invested would be held uninvested or
invested in high-grade liquid assets so long as the futures position remains
open, such Fund's return could be diminished due to the opportunity losses of
foregoing other potential investments.
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A Fund's primary purpose in entering into futures contracts is to protect
that Fund from fluctuations in the value of securities or interest rates without
actually buying or selling the underlying debt or equity security. For example,
if the Fund anticipates an increase in the price of stocks, and it intends to
purchase stocks at a later time, that Fund could enter into a futures contract
to purchase a stock index as a temporary substitute for stock purchases. If an
increase in the market occurs that influences the stock index as anticipated,
the value of the futures contracts will increase, thereby serving as a hedge
against that Fund not participating in a market advance. This technique is
sometimes known as an anticipatory hedge. To the extent a Fund enters into
futures contracts for this purpose, the segregated assets maintained to cover
such Fund's obligations with respect to the futures contracts will consist of
high-grade liquid assets from its portfolio in an amount equal to the difference
between the contract price and the aggregate value of the initial and variation
margin payments made by that Fund with respect to the futures contracts.
Conversely, if a Fund holds stocks and seeks to protect itself from a decrease
in stock prices, the Fund might sell stock index futures contracts, thereby
hoping to offset the potential decline in the value of its portfolio securities
by a corresponding increase in the value of the futures contract position. A
Fund could protect against a decline in stock prices by selling portfolio
securities and investing in money market instruments, but the use of futures
contracts enables it to maintain a defensive position without having to sell
portfolio securities.
If a Fund owns Treasury bonds and the portfolio manager expects interest
rates to increase, that Fund may take a short position in interest rate futures
contracts. Taking such a position would have much the same effect as that Fund
selling Treasury bonds in its portfolio. If interest rates increase as
anticipated, the value of the Treasury bonds would decline, but the value of
that Fund's interest rate futures contract will increase, thereby keeping the
net asset value of that Fund from declining as much as it may have otherwise.
If, on the other hand, a portfolio manager expects interest rates to decline,
that Fund may take a long position in interest rate futures contracts in
anticipation of later closing out the futures position and purchasing the bonds.
Although a Fund can accomplish similar results by buying securities with long
maturities and selling securities with short maturities, given the greater
liquidity of the futures market than the cash market, it may be possible to
accomplish the same result more easily and more quickly by using futures
contracts as an investment tool to reduce risk.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced and prices in the futures market distorted. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by a portfolio manager
still may not result in a successful use of futures.
Futures contracts entail risks. Although the Funds believe that use of such
contracts will benefit the Funds, a Fund's overall performance could be worse
than if such Fund had not entered into futures contracts if the portfolio
manager's investment judgement proves incorrect. For example, if a Fund has
hedged against the effects of a possible decrease in prices of securities held
in its portfolio and prices increase instead, that Fund will lose part or all of
the benefit of the increased value of these securities because of offsetting
losses in its futures positions. In addition, if a Fund has insufficient cash,
it may have to sell securities from its portfolio to meet daily variation margin
requirements. Those sales may be, but will not necessarily be, at increased
prices which reflect the rising market and may occur at a time when the sales
are disadvantageous to such Fund.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to a
Fund will not match exactly such Fund's current or potential investments. A Fund
may buy and sell futures contracts based on underlying instruments with
different characteristics from the securities in which it typically invests -
for example, by hedging investments in portfolio securities with a futures
contract based on a broad index of securities - which involves a risk that the
futures position will not correlate precisely with the performance of such
Fund's investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a Fund's
investments. Futures prices are affected by factors such as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a Fund's investments and its futures positions also may
result from differing levels of demand in the futures
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markets and the securities markets, from structural differences in how futures
and securities are traded, and from imposition of daily price fluctuation limits
for futures contracts. A Fund may buy or sell futures contracts with a greater
or lesser value than the securities it wishes to hedge or is considering
purchasing in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases. If price changes in a Fund's futures positions
are poorly correlated with its other investments, its futures positions may fail
to produce desired gains or result in losses that are not offset by the gains in
that Fund's other investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a Fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, a Fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, such Fund's access to other assets held to cover its futures positions
also could be impaired.
Options on Futures Contracts. The Funds may buy and write put and call
options on futures contracts. An option on a future gives a Fund the right (but
not the obligation) to buy or sell a futures contract at a specified price on or
before a specified date. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price of
the futures contract upon which it is based or the price of the underlying
instrument, ownership of the option may or may not be less risky than ownership
of the futures contract or the underlying instrument. As with the purchase of
futures contracts, when a Fund is not fully invested it may buy a call option on
a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures' price at the expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in that Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, a Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which that Fund is
considering buying. If a call or put option a Fund has written is exercised,
such Fund will incur a loss which will be reduced by the amount of the premium
it received. Depending on the degree of correlation between the change in the
value of its portfolio securities and changes in the value of the futures
positions, a Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
The amount of risk a Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Contracts. A forward contract is an agreement between two parties
in which one party is obligated to deliver a stated amount of a stated asset at
a specified time in the future and the other party is obligated to pay a
specified amount for the assets at the time of delivery. The Funds may enter
into forward contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
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The following discussion summarizes the Funds' principal uses of forward
foreign currency exchange contracts ("forward currency contracts"). A Fund may
enter into forward currency contracts with stated contract values of up to the
value of that Fund's assets. A forward currency contract is an obligation to buy
or sell an amount of a specified currency for an agreed price (which may be in
U.S. dollars or a foreign currency). A Fund will exchange foreign currencies for
U.S. dollars and for other foreign currencies in the normal course of business
and may buy and sell currencies through forward currency contracts in order to
fix a price for securities it has agreed to buy or sell ("transaction hedge"). A
Fund also may hedge some or all of its investments denominated in a foreign
currency against a decline in the value of that currency relative to the U.S.
dollar by entering into forward currency contracts to sell an amount of that
currency (or a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S. dollar)
approximating the value of some or all of its portfolio securities denominated
in that currency ("position hedge") or by participating in options or futures
contracts with respect to the currency. A Fund also may enter into a forward
currency contract with respect to a currency where the Fund is considering the
purchase or sale of investments denominated in that currency but has not yet
selected the specific investments ("anticipatory hedge"). In any of these
circumstances a Fund may, alternatively, enter into a forward currency contract
to purchase or sell one foreign currency for a second currency that is expected
to perform more favorably relative to the U.S. dollar if the portfolio manager
believes there is a reasonable degree of correlation between movements in the
two currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as well
as depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the proceeds of or rates of return on a Fund's foreign
currency denominated portfolio securities. The matching of the increase in value
of a forward contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting a Fund's currency exposure from one foreign
currency to another removes that Fund's opportunity to profit from increases in
the value of the original currency and involves a risk of increased losses to
such Fund if its portfolio manager's projection of future exchange rates is
inaccurate. Proxy hedges and cross-hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which hedged
securities are denominated. Unforeseen changes in currency prices may result in
poorer overall performance for a Fund than if it had not entered into such
contracts.
The Funds will cover outstanding forward currency contracts by maintaining
liquid portfolio securities denominated in the currency underlying the forward
contract or the currency being hedged. To the extent that a Fund is not able to
cover its forward currency positions with underlying portfolio securities, the
Funds' custodian will segregate cash or high-grade liquid assets having a value
equal to the aggregate amount of such Fund's commitments under forward contracts
entered into with respect to position hedges, cross-hedges and anticipatory
hedges. If the value of the securities used to cover a position or the value of
segregated assets declines, a Fund will find alternative cover or segregate
additional cash or high-grade liquid assets on a daily basis so that the value
of the covered and segregated assets will be equal to the amount of such Fund's
commitments with respect to such contracts. As an alternative to segregating
assets, a Fund may buy call options permitting such Fund to buy the amount of
foreign currency being hedged by a forward sale contract or a Fund may buy put
options permitting it to sell the amount of foreign currency subject to a
forward buy contract.
While forward contracts are not currently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contacts. In such event,
the Funds' ability to utilize forward contracts may be restricted. In addition,
a Fund may not always be able to enter into forward contracts at attractive
prices and may be limited in its ability to use these contracts to hedge Fund
assets.
Options on Foreign Currencies. The Funds may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a Fund may buy put options on
the foreign currency. If the value of the currency declines, such Fund will have
the right to sell such currency for a fixed amount in U.S. dollars, thereby
offsetting, in whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to a Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, a Fund could sustain losses on transactions in foreign
currency options that would require such Fund to forego a portion or all of the
benefits of advantageous changes in those rates.
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The Funds may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, a Fund
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised and the decline in value of portfolio securities will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, a Fund could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow that Fund to hedge the increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium. If exchange rates do not move in the
expected direction, the option may be exercised and a Fund would be required to
buy or sell the underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign currencies, a
Fund also may lose all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
The Funds may write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if that Fund owns
the foreign currency underlying the call or has an absolute and immediate right
to acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currencies held in its portfolio. A
call option is also covered if a Fund has a call on the same foreign currency in
the same principal amount as the call written if the exercise price of the call
held (i) is equal to or less than the exercise price of the call written or (ii)
is greater than the exercise price of the call written, if the difference is
maintained by such Fund in cash or high-grade liquid assets in a segregated
account with the Funds' custodian.
The Funds also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
a Fund owns or has the right to acquire and which is denominated in the currency
underlying the option. Call options on foreign currencies which are entered into
for cross-hedging purposes are not covered. However, in such circumstances, a
Fund will collateralize the option by segregating cash or high-grade liquid
assets in an amount not less than the value of the underlying foreign currency
in U.S. dollars marked-to-market daily.
Options on Securities. In an effort to increase current income and to
reduce fluctuations in net asset value, the Funds may write covered put and call
options and buy put and call options on securities that are traded on United
States and foreign securities exchanges and over-the-counter. The Funds may
write and buy options on the same types of securities that the Funds may
purchase directly.
A put option written by a Fund is "covered" if that Fund (i) segregates
cash not available for investment or high-grade liquid assets with a value equal
to the exercise price of the put with the Funds' custodian or (ii) holds a put
on the same security and in the same principal amount as the put written and the
exercise price of the put held is equal to or greater than the exercise price of
the put written. The premium paid by the buyer of an option will reflect, among
other things, the relationship of the exercise price to the market price and the
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates.
A call option written by a Fund is "covered" if that Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Funds'
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if a Fund holds a call on
the same security and in the same principal amount as the call written and the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written if the difference is maintained by that Fund in cash and high-grade
liquid assets in a segregated account with its custodian.
The Funds also may write call options that are not covered for
cross-hedging purposes. A Fund collateralizes its obligation under a written
call option for cross-hedging purposes by segregating cash or high-grade liquid
assets in an amount not less than the market value of the underlying security,
marked-to-market daily. A Fund would write a call option for cross-hedging
purposes, instead of writing a covered call option, when the premium to be
received from the cross-hedge transaction would exceed that which would be
received from writing a covered call option and its portfolio manager believes
that writing the option would achieve the desired hedge.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or bought, in the case of
a put option, since with regard to certain options, the writer may be assigned
an exercise notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a covered call option,
be
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offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit a Fund to write another put
option to the extent that the exercise price thereof is secured by deposited
high-grade liquid assets. Effecting a closing transaction also will permit a
Fund to use the cash or proceeds from the concurrent sale of any securities
subject to the option for other investments. If a Fund desires to sell a
particular security from its portfolio on which it has written a call option,
such Fund will effect a closing transaction prior to or concurrent with the sale
of the security.
A Fund will realize a profit from a closing transaction if the price of the
purchase transaction is less than the premium received from writing the option
or the price received from a sale transaction is more than the premium paid to
buy the option. A Fund will realize a loss from a closing transaction if the
price of the purchase transaction is more than the premium received from writing
the option or the price received from a sale transaction is less than the
premium paid to buy the option. Because increases in the market of a call option
generally will reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by a Fund.
An option position may be closed out only where a secondary market for an
option of the same series exists. If a secondary market does not exist, the Fund
may not be able to effect closing transactions in particular options and the
Fund would have to exercise the options in order to realize any profit. If a
Fund is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise. The absence of a liquid
secondary market may be due to the following: (i) insufficient trading interest
in certain options, (ii) restrictions imposed by a national securities exchange
("Exchange") on which the option is traded on opening or closing transactions or
both, (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances that interrupt normal operations on an
Exchange, (v) the facilities of an Exchange or of the Options Clearing
Corporation ("OCC") may not at all times be adequate to handle current trading
volume, or (vi) one or more Exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would continue to be exercisable in
accordance with their terms.
A Fund may write options in connection with buy-and-write transactions. In
other words, a Fund may buy a security and then write a call option against that
security. The exercise price of such call will depend upon the expected price
movement of the underlying security. The exercise price of a call option may be
below ("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money")
the current value of the underlying security at the time the option is written.
Buy-and-write transactions using in-the-money call options may be used when it
is expected that the price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-write transactions using
at-the-money call options may be used when it is expected that the price of the
underlying security will remain fixed or advance moderately during the option
period. Buy-and-write transactions using out-of-the-money call options may be
used when it is expected that the premiums received from writing the call option
plus the appreciation in the market price of the underlying security up to the
exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, a Fund's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the difference between that
Fund's purchase price of the security and the exercise price. If the options are
not exercised and the price of the underlying security declines, the amount of
such decline will be offset by the amount of premium received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option
15
<PAGE>
will expire worthless and a Fund's gain will be limited to the premium received.
If the market price of the underlying security declines or otherwise is below
the exercise price, a Fund may elect to close the position or take delivery of
the security at the exercise price and that Fund's return will be the premium
received from the put options minus the amount by which the market price of the
security is below the exercise price.
A Fund may buy put options to hedge against a decline in the value of its
portfolio. By using put options in this way, a Fund will reduce any profit it
might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
A Fund may buy call options to hedge against an increase in the price of
securities that it may buy in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any, realized by such
Fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to that Fund.
Eurodollar Instruments. A Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Fund might use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. A Fund may enter into interest rate swaps,
caps and floors on either an asset-based or liability-based basis, depending
upon whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis (i.e., the two payment streams are
netted out, with a Fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of a Fund's
obligations over its entitlement with respect to each interest rate swap will be
calculated on a daily basis and an amount of cash or high-grade liquid assets
having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds' custodian. If a Fund enters
into an interest rate swap on other than a net basis, it would maintain a
segregated account in the full amount accrued on a daily basis of its
obligations with respect to the swap. A Fund will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of the three
highest rating categories of at least one nationally recognized statistical
rating organization at the time of entering into such transaction. Janus Capital
will monitor the creditworthiness of all counterparties on an ongoing basis. If
there is a default by the other party to such a transaction, a Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Janus Capital has determined that, as
a result, the swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent a
Fund sells (i.e., writes) caps and floors, it will segregate cash or high-grade
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by a Fund. These transactions may in some instances involve the
delivery of securities or other underlying assets by a Fund or its counterparty
to collateralize obligations under the swap. Under the documentation currently
used in those markets, the risk of loss with respect to interest rate swaps is
limited to the net amount of the payments that a Fund is contractually obligated
to make. If the other party to an interest rate swap that is not collateralized
defaults, a Fund would risk the loss of the net amount of the payments that it
contractually is entitled to receive. A Fund may buy and sell (i.e., write) caps
and floors without limitation, subject to the segregation requirement described
above.
Additional Risks of Options on Foreign Currencies, Forward Contracts and
Foreign Instruments. Unlike transactions entered into by the Funds in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain Exchanges, such as the Philadelphia
Stock Exchange and the Chicago Board Options Exchange, subject to SEC
regulation. Similarly, options on currencies may be traded over-the-counter. In
an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost.
16
<PAGE>
Moreover, an option writer and a buyer or seller of futures or forward contracts
could lose amounts substantially in excess of any premium received or initial
margin or collateral posted due to the potential additional margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting a Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
INVESTMENT ADVISER
As stated in the Prospectus, each Fund has an Investment Advisory Agreement
with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4923. Each
Advisory Agreement provides that Janus Capital will furnish continuous advice
and recommendations concerning the Funds' investments, provide office space for
the Funds, pay the salaries, fees and expenses of all Fund officers and of those
Trustees who are affiliated with Janus Capital, and pay all expenses of
promoting the sale of Fund shares other than the cost of complying with
applicable laws relating to the offer or sale of shares of the Funds. Janus
Capital also may make payments to selected broker-dealer firms or institutions
which perform recordkeeping or other services with respect to shareholder
accounts. The minimum aggregate size required for eligibility for such payments,
and the factors in selecting the broker-dealer firms and institutions to which
they will be made, are determined from time to time by Janus Capital. Janus
Capital is also authorized to perform the management and administrative services
necessary for the operation of the Funds.
The Funds pay custodian and transfer agent fees and expenses, brokerage
commissions and dealer spreads and other expenses in connection with the
execution of portfolio transactions, legal and accounting expenses, interest and
taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not affiliated with Janus
Capital, costs of preparing, printing and mailing the Funds' Prospectuses and
Statements of Additional Information to current shareholders, and other costs of
complying with applicable laws regulating the sale of Fund shares. Pursuant to
the Advisory Agreements, Janus Capital furnishes certain other services,
including net asset value determination and fund accounting, recordkeeping, and
blue sky registration and monitoring services, for which the Funds may reimburse
Janus Capital for its costs.
Janus Fund, Janus Twenty Fund, Janus Enterprise Fund, Janus Mercury Fund,
Janus Worldwide Fund, Janus Overseas Fund, Janus Growth and Income Fund and
Janus Balanced Fund have each agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of 1% of the first
$30 million of the average daily net assets of each Fund, .75% of the next $270
million of the average daily net assets of each Fund, .70% of the next $200
million of the average daily net assets of each Fund and .65% of the average
daily net assets of each Fund in excess of $500 million. Janus Capital has
agreed to waive the advisory fee payable by any of these
17
<PAGE>
eight Funds by an amount equal to the amount, if any, that such Fund's normal
operating expenses chargeable to its income account in any fiscal year,
including the investment advisory fee but excluding brokerage commissions,
interest, taxes and extraordinary expenses, exceed the most restrictive
limitation imposed by any state. The Funds believe that the most restrictive
limitation applicable to each Fund is 2.50% of the first $30 million of average
daily net assets, plus 2.00% of the next $70 million of average daily net
assets, plus 1.50% of the balance of the average daily net assets of each Fund
for a fiscal year.
Janus Flexible Income Fund and Janus Short-Term Bond Fund have each agreed
to compensate Janus Capital for its services by the monthly payment of a fee at
the annual rate of .65% of the first $300 million of the average daily net
assets of the Fund, plus .55% of the average daily net assets of the Fund in
excess of $300 million. Janus Intermediate Government Securities Fund has agreed
to compensate Janus Capital for its services by the monthly payment of a fee at
the annual rate of .50% of the average daily net assets of the Fund less than
$300 million and .40% of the average daily net assets of the Fund in excess of
$300 million. Janus Federal Tax-Exempt Fund has agreed to compensate Janus
Capital for its services by the monthly payment of a fee at the annual rate of
.60% of the first $300 million of average daily net assets of the Fund and .55%
of the average daily net assets in excess of $300 million. Janus Capital has
agreed to waive the advisory fee payable by any of these Funds in an amount
equal to the amount, if any, that such Fund's normal operating expenses
chargeable to its income account in any fiscal year, including the investment
advisory fee but excluding brokerage commissions, interest, taxes and
extraordinary expenses, exceed 1% of the average daily net assets for a fiscal
year for Janus Flexible Income Fund and .65% of the average daily net assets for
a fiscal year for Janus Short-Term Bond Fund, Janus Intermediate Government Fund
and Janus Federal Tax-Exempt Fund.
The following table summarizes the advisory fees paid by the Funds and any
advisory fee waivers for the last three fiscal periods of each Fund. The
information below is for fiscal years ended October 31.
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Name Advisory Fees Waiver Advisory Fees Waiver Advisory Fees Waiver
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Janus Fund $69,101,695 -- $61,177,249 -- $48,158,163 --
Janus Twenty Fund $18,127,825 -- $20,307,767 -- $23,522,228 --
Janus Enterprise Fund $ 3,078,635 -- $ 2,094,593 -- $ 1,485,387 --
Janus Mercury Fund $ 7,719,633 -- $ 1,992,568 -- $ 286,632(1) --
Janus Worldwide Fund $11,013,534 -- $ 8,562,262 -- $ 2,852,353 --
Janus Overseas Fund $ 657,146 -- $ 169,279(2) -- N/A N/A
Janus Growth and Income Fund $ 3,703,827 -- $ 3,720,739 -- $ 3,052,429 --
Janus Balanced Fund $ 879,437 -- $ 722,711 -- $ 388,807 --
Janus Flexible Income Fund $ 2,775,005 -- $ 2,659,291 -- $ 2,131,966 $ 41,156
Janus Intermediate Government
Securities Fund $ 179,812(3) $ 179,812 $ 233,103 $ 233,103(3) $ 339,858 $ 118,739
Janus Short-Term Bond Fund $ 307,992 $ 268,791 $ 387,295 $ 300,929 $ 239,160 $ 209,485
Janus Federal Tax-Exempt Fund $ 175,910(3) $ 175,910 $ 170,306 $ 170,306(3) $ 47,982(1)(3) $ 47,982(1)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) May 3, 1993 (inception) to October 31, 1993.
(2) May 2, 1994 (inception) to October 31, 1994.
(3) Fee waiver by Janus Capital exceeded the advisory fee.
The current Advisory Agreements for Janus Growth and Income Fund and Janus
Worldwide Fund became effective on May 15, 1991; the current Advisory Agreements
for Janus Fund, Janus Twenty Fund, Janus Flexible Income Fund and Janus
Intermediate Government Securities Fund became effective on August 7, 1992; the
current Advisory Agreements for Janus Enterprise Fund, Janus Balanced Fund and
Janus Short-Term Bond Fund became effective on August 27, 1992; the current
Advisory Agreements for Janus Mercury Fund and Janus Federal Tax-Exempt Fund
became effective on April 20, 1993; and the current Advisory Agreement for Janus
Overseas Fund became effective on February 10, 1994. Each Advisory Agreement
will continue in effect until June 16, 1996, and thereafter from year to year so
long as such continuance is approved annually by a majority of the Funds'
Trustees who are not parties to the Advisory Agreements or interested persons of
any such party, and by either a majority of the outstanding voting shares or the
Trustees of the Funds. Each Advisory Agreement i) may be terminated without the
payment of any penalty by any Fund or Janus Capital on 60 days' written notice;
ii) terminates automatically in the event of its assignment; and iii) generally,
may not be amended without the approval by vote of a majority of the Trustees of
the affected Fund, including the Trustees who are not interested persons of that
Fund or Janus Capital and, to the extent required by the 1940 Act, the vote of a
majority of the outstanding voting securities of that Fund.
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Funds, are made independently from those for any other account that is or may in
the future become managed by
18
<PAGE>
Janus Capital or its affiliates. If, however, a number of accounts managed by
Janus Capital are contemporaneously engaged in the purchase or sale of the same
security, the orders may be aggregated and/or the transactions may be averaged
as to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by an account or the size of
the position obtained or liquidated for an account. Pursuant to an exemptive
order granted by the SEC, the Funds and other funds advised by Janus Capital may
also transfer daily uninvested cash balances into one or more joint trading
accounts. Assets in the joint trading accounts are invested in money market
instruments and the proceeds are allocated to the participating funds on a pro
rata basis.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a Janus Capital policy regarding personal investing by directors, officers
and employees of Janus Capital and the Funds. The policy requires investment
personnel and officers of Janus Capital, inside directors of Janus Capital and
the Funds and other designated persons deemed to have access to current trading
information to pre-clear all transactions in securities not otherwise exempt
under the policy. Requests for trading authority will be denied when, among
other reasons, the proposed personal transaction would be contrary to the
provisions of the policy or would be deemed to adversely affect any transaction
then known to be under consideration for or to have been effected on behalf of
any client account, including the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Funds to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns
approximately 12% of its voting stock and, by agreement with KCSI, selects a
majority of Janus Capital's Board.
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
Investors Fiduciary Trust Company ("IFTC"), 127 W. 10th Street, Kansas
City, Missouri 64105, is the custodian of the securities and cash of the Funds
maintained in the United States. IFTC is a wholly-owned subsidiary of State
Street Bank and Trust Company ("State Street"), P.O. Box 351, Boston,
Massachusetts 02101. State Street maintains custody of assets held through IFTC.
State Street and the foreign subcustodians selected by it and approved by the
Trustees, have custody of the assets of the Funds held outside the U.S. and cash
incidental thereto. State Street may also have custody of certain domestic and
foreign securities held in connection with repurchase agreements. The custodians
and subcustodians hold the Funds' assets in safekeeping and collect and remit
the income thereon, subject to the instructions of each Fund.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the Funds'
transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the Funds.
For transfer agency and other services, Janus Service receives a fee calculated
at an annual rate of $16 per Fund shareholder account. In addition, the Funds
pay DST Systems, Inc. ("DST"), a subsidiary of KCSI, license fees for the use of
DST's shareholder accounting and portfolio and fund accounting systems, and
postage and forms costs of a DST affiliate incurred in mailing Fund shareholder
transaction confirmations.
The Funds paid the following fees to Janus Service and DST, net of credits,
for the year ended October 31, 1995:
Fund Name Fees to Janus Service Fees and Expenses to DST
- --------------------------------------------------------------------------------
Janus Fund $12,564,931 $ 4,286,877
Janus Twenty Fund $ 5,930,229 $ 1,949,824
Janus Enterprise Fund $ 1,019,823 $ 391,449
Janus Mercury Fund $ 2,143,715 $ 920,911
Janus Worldwide Fund $ 3,051,931 $ 1,096,097
Janus Overseas Fund $ 320,733 $ 156,680
Janus Growth and Income Fund $ 1,300,855 $ 559,834
Janus Balanced Fund $ 281,200 $ 143,038
Janus Flexible Income Fund $ 493,296 $ 491,638
Janus Intermediate
Government Securities Fund $ 84,444 $ 90,949
Janus Short-Term Bond Fund $ 84,583 $ 107,686
Janus Federal Tax-Exempt Fund $ 61,895 $ 74,508
- --------------------------------------------------------------------------------
19
<PAGE>
The Trustees have authorized the Funds to use another affiliate of DST as
introducing broker for certain Fund portfolio transactions as a means to reduce
Fund expenses through a credit against the charges of DST and its affiliates
with regard to commissions earned by such affiliate. See "Portfolio Transactions
and Brokerage." DST charges shown above are net of such credits.
During the fiscal period ended October 31, 1995, IFTC served as the Funds'
transfer agent and Janus Service served as subtransfer agent. Prior to January
1995, IFTC may have been deemed an affiliate of the Funds through a degree of
common ownership. IFTC is no longer affiliated with the Funds. As of January 1,
1996, Janus Service became the direct transfer agent of the Funds and IFTC no
longer serves as transfer agent.
Janus Distributors, Inc. ("Janus Distributors"), 100 Fillmore Street,
Denver, Colorado 80206, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Funds. Janus Distributors is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. Janus Distributors acts
as the agent of the Funds in connection with the sale of their shares in all
states in which the shares are registered and in which Janus Distributors is
qualified as a broker-dealer. Under the Distribution Agreement, Janus
Distributors continuously offers the Funds' shares and accepts orders at net
asset value. No sales charges are paid by investors. Promotional expenses in
connection with offers and sales of shares are paid by Janus Capital.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Funds and
negotiation of its commission rates are made by Janus Capital whose policy is to
obtain the "best execution" (prompt and reliable execution at the most favorable
security price) of all portfolio transactions. The Funds may trade foreign
securities in foreign countries because the best available market for these
securities is often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often higher than
in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to a fund or to a third
party service provider to the fund to pay fund expenses; and research products
or services provided. In recognition of the value of the foregoing factors,
Janus Capital may place portfolio transactions with a broker or dealer with whom
it has negotiated a commission that is in excess of the commission another
broker or dealer would have charged for effecting that transaction if Janus
Capital determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research provided by such broker
or dealer viewed in terms of either that particular transaction or of the
overall responsibilities of Janus Capital. Research may include furnishing
advice, either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling specific securities and
the availability of securities or purchasers or sellers of securities;
furnishing seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative developments,
changes in accounting practices, economic factors and trends and portfolio
strategy; access to research analysts, corporate management personnel, industry
experts, economists and government officials; comparative performance evaluation
and technical measurement services and quotation services, and products and
other services (such as third party publications, reports and analyses, and
computer and electronic access, equipment, software, information and accessories
that deliver, process or otherwise utilize information, including the research
described above) that assist Janus Capital in carrying out its responsibilities.
Research received from brokers or dealers is supplemental to Janus Capital's own
research efforts. Most brokers and dealers used by Janus Capital provide
research and other services described above.
20
<PAGE>
For the year ended October 31, 1995, the total brokerage commissions paid
by the Funds to brokers and dealers in transactions identified for execution
primarily on the basis of research and other services provided to the Funds are
summarized below:
<TABLE>
<CAPTION>
Fund Name Commissions Transactions % of Total Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Fund $ 7,947,369 $5,943,036,032 31.49%
Janus Twenty Fund $ 3,002,918 $2,569,495,725 40.37%
Janus Enterprise Fund $ 441,621 $ 219,728,408 14.74%
Janus Mercury Fund $ 1,632,044 $1,076,951,435 32.11%
Janus Worldwide Fund $ 502,866 $ 240,562,721 5.79%
Janus Overseas Fund $ 15,732 $ 5,827,686 3.02%
Janus Growth and Income Fund $ 637,116 $ 507,553,002 40.09%
Janus Balanced Fund $ 70,634 $ 40,493,032 20.31%
Janus Flexible Income Fund(1) $ 1,877 $ 713,021 3.98%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Most of the securities transactions for this Fund involved dealers acting
as principal.
Note: Funds that are not included in the table did not pay any commissions
related to research for the fiscal year ended October 31, 1995.
Janus Capital may use research products and services in servicing other
accounts in addition to the Funds. If Janus Capital determines that any research
product or service has a mixed use, such that it also serves functions that do
not assist in the investment decision-making process, Janus Capital may allocate
the costs of such service or product accordingly. Only that portion of the
product or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus Capital.
Janus Capital does not enter into agreements with any brokers regarding the
placement of securities transactions because of the research services they
provide. It does, however, have an internal procedure for allocating
transactions in a manner consistent with its execution policy to brokers that it
has identified as providing superior executions and research, research-related
products or services which benefit its advisory clients, including the Funds.
Research products and services incidental to effecting securities transactions
furnished by brokers or dealers may be used in servicing any or all of Janus
Capital's clients and such research may not necessarily be used by Janus Capital
in connection with the accounts which paid commissions to the broker-dealer
providing such research products and services.
Janus Capital may consider sales of Fund shares by a broker-dealer or the
recommendation of a broker-dealer to its customers that they purchase Fund
shares as a factor in the selection of broker-dealers to execute Fund portfolio
transactions. Janus Capital may also consider payments made by brokers effecting
transactions for a Fund i) to the Fund or ii) to other persons on behalf of the
Fund for services provided to the Fund for which it would be obligated to pay.
In placing portfolio business with such broker-dealers, Janus Capital will seek
the best execution of each transaction.
When the Funds purchase or sell a security in the over-the-counter market,
the transaction takes place directly with a principal market-maker, without the
use of a broker, except in those circumstances where in the opinion of Janus
Capital better prices and executions will be achieved through the use of a
broker.
The Funds' Trustees have authorized Janus Capital to place transactions
with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer subsidiary of
DST. Janus Capital may do so if it reasonably believes that the quality of the
transaction and the associated commission are fair and reasonable and if,
overall, the associated transaction costs, net of any credits described above
under "Custodian, Transfer Agent and Certain Affiliations," are lower than those
that would otherwise be incurred.
The following table lists the total amount of brokerage commissions paid by
each Fund for the fiscal periods ending on October 31st of each year:
Fund Name 1995 1994 1993
- --------------------------------------------------------------------------------
Janus Fund $26,219,202 $18,108,124 $15,241,221
Janus Twenty Fund $ 7,647,982 $ 5,747,164 $ 4,925,668
Janus Enterprise Fund $ 2,084,312 $ 1,249,083 $ 1,084,075
Janus Mercury Fund $ 5,712,916 $ 1,221,654 $ 209,097(1)
Janus Worldwide Fund $ 7,493,192 $ 1,125,206 $ 857,147
Janus Overseas Fund $ 568,384 $ 27,846(2) N/A(2)
Janus Growth and Income Fund $ 1,498,178 $ 1,013,550 $ 859,490
Janus Balanced Fund $ 305,855 $ 198,976 $ 139,261
Janus Flexible Income Fund $ 35,138 $ 31,399 $ 26,297
Janus Short-Term Bond Fund $ 6,548 -- --
- --------------------------------------------------------------------------------
(1) May 3, 1993 (inception) to October 31, 1993.
(2) May 2, 1994 (inception) to October 31, 1994.
Note: Funds that are not included in the table did not pay brokerage commissions
because securities transactions for such Funds involved dealers acting as
principals.
21
<PAGE>
Included in such brokerage commissions are the following amounts paid to
DSTS, which served to reduce each Fund's out-of-pocket expenses as follows:
<TABLE>
<CAPTION>
Commission
Paid through DSTS
for the Period Ended Reduction % of Total % of Total
Fund Name October 31, 1995* of Expenses* Commissions+ Transactions+
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus Fund $1,125,368 $844,026 4.29% 3.81%
Janus Twenty Fund $ 378,575 $283,931 4.95% 4.52%
Janus Enterprise Fund $ 96,932 $ 72,699 4.65% 3.61%
Janus Mercury Fund $ 171,777 $128,833 3.01% 2.65%
Janus Worldwide Fund $ 164,193 $123,145 2.19% 1.84%
Janus Overseas Fund $ 2,783 $ 2,087 0.49% 0.45%
Janus Growth and Income Fund $ 98,373 $ 73,780 6.57% 6.87%
Janus Balanced Fund $ 9,143 $ 6,857 2.99% 13.45%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Commission Paid Commission Paid
through DSTS for through DSTS for Reduction
the Period Ended Reduction the Period Ended of Expenses
Fund Name October 31, 1994* of Expenses* October 31, 1993* for that Period*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus Fund $1,067,073 $ 800,305 $1,349,929 $1,012,447
Janus Twenty Fund $ 510,874 $ 383,156 $ 298,824 $ 224,118
Janus Enterprise Fund $ 116,527 $ 87,395 $ 25,476 $ 19,107
Janus Mercury Fund $ 30,019 $ 22,514 $ 4,518(1) $ 3,389
Janus Worldwide Fund $ 57,164 $ 42,873 $ 60,095 $ 45,071
Janus Overseas Fund $ 1,800(2) $ 1,350(2) N/A N/A
Janus Growth and Income Fund $ 15,604 $ 11,703 $ 28,996 $ 21,747
Janus Balanced Fund $ 18,725 $ 14,043 $ 1,139 $ 854
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions is due, in part, to variations among share prices and number
of shares traded, while average price per share commission rates were
substantially the same.
(1) May 3, 1993 (inception) to October 31, 1993.
(2) May 2, 1994 (inception) to October 31, 1994.
Note: Funds that did not execute trades with DSTS during the periods ended
October 31, 1995, October 31, 1994 and October 31, 1993, are not
included in the table.
As of October 31, 1995, certain Funds owned securities of their regular
broker-dealers (or parents), as shown below:
Fund Name Name of Broker-Dealer Value of Securities Owned
- --------------------------------------------------------------------------------
Janus Fund First Chicago $ 45,136,875
Janus Fund Merrill Lynch and Co., Inc. $ 53,929,350
Janus Fund Morgan Stanley Co. $ 40,518,075
Janus Twenty Fund Merrill Lynch and Co., Inc. $135,436,650
Janus Mercury Fund Merrill Lynch and Co., Inc. $ 11,030,625
Janus Worldwide Fund HSBC Holdings PLC $ 14,639,493
Janus Overseas Fund HSBC Holdings PLC $ 1,391,188
Janus Growth
and Income Fund Merrill Lynch and Co., Inc. $ 17,038,500
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years. In August 1992, Janus Venture Fund, Inc. and Janus Twenty Fund, Inc.
(both separate Maryland corporations) and the Janus Income Series (a
Massachusetts business trust comprised of the Janus Flexible Income Fund and
Janus Intermediate Government Securities Fund series) were reorganized into
separate series of the Trust. In general, all references to Trust offices in
this section include comparable offices with the respective predecessor funds,
unless a Trust office was filled subsequent to the reorganization.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4923
Trustee, Chairman and President of Janus Aspen Series. Chairman and
President of Janus Capital. Chairman and Director of IDEX Management, Inc.,
Largo, Florida (50% subsidiary of Janus Capital and investment adviser to a
group of mutual funds) ("IDEX").
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
22
<PAGE>
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Trustee and Executive Vice President of Janus Aspen Series. Chief
Investment Officer, Vice President and Director of Janus Capital. Executive
Vice President and Portfolio Manager of Janus Fund series of the Trust.
Thomas F. Marsico* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Twenty Fund and
Janus Growth and Income Fund series of the Trust. Vice President of Janus
Capital.
James P. Goff* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Enterprise Fund and
Janus Venture Fund series of the Trust. Executive Vice President of Janus
Aspen Series. Vice President of Janus Capital. Formerly, securities analyst
at Janus Capital (1988 to 1992).
Warren B. Lammert* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Venture Fund and
Janus Mercury Fund series of the Trust. Vice President of Janus Capital.
Formerly, securities analyst at Janus Capital (1990 to 1992). Formerly,
Executive Vice President of Janus Balanced Fund.
Ronald V. Speaker* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Flexible Income
Fund and Janus High-Yield Fund series of the Trust. Formerly, Portfolio
Manager of Janus Intermediate Government Securities Fund, Janus Short-Term
Bond Fund and Janus Federal Tax-Exempt Fund series of the Trust. Executive
Vice President of Janus Aspen Series. Vice President of Janus Capital.
Formerly, securities analyst and research associate at Janus Capital (1986
to 1992).
Helen Young Hayes* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Worldwide Fund and
Janus Overseas Fund series of the Trust. Executive Vice President of Janus
Aspen Series. Vice President of Janus Capital. Formerly securities analyst
at Janus Capital (1987 to 1993).
Blaine P. Rollins* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Balanced Fund
series of the Trust. Executive Vice President of Janus Aspen Series.
Formerly, fixed-income trader and equity securities analyst at Janus
Capital (1990-1995).
Sandy R. Rufenacht* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Intermediate
Government Securities Fund and Janus Short-Term Bond Fund series of the
Trust. Executive Vice President of Janus Aspen Series. Formerly, senior
accountant, fixed-income trader and fixed-income research analyst at Janus
Capital (1990-1995).
Scott W. Schoelzel* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Olympus Fund series
of the Trust. Vice President of Janus Capital. From 1991 to 1993, a
Portfolio Manager with Founders Asset Management, Denver, Colorado. Prior
to 1991, a general partner of Ivy Lane Investments, Denver, Colorado (a
real estate investment partnership).
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
23
<PAGE>
Darrell W. Watters* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Federal Tax-Exempt
Fund series of the Trust. Executive Vice President of Janus Aspen Series.
Formerly, municipal bond trader and research analyst at Janus Capital
(1993-1995).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4923
Vice President and General Counsel of Janus Aspen Series. Vice President,
Secretary and General Counsel of Janus Capital. Vice President, General
Counsel and Director of Janus Service and Janus Distributors. Director,
Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4923
Vice President and Chief Financial Officer of Janus Aspen Series. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4923
Treasurer and Chief Accounting Officer of Janus Aspen Series. Director of
Fund Accounting of Janus Capital. Formerly (1990-1991), with The Boston
Company Advisors, Inc., Boston, Massachusetts (mutual fund administration
services).
Kelley Abbott Howes - Secretary
100 Fillmore Street
Denver, CO 80206-4923
Secretary of Janus Aspen Series. Associate Counsel of Janus Capital.
Formerly (1990 to 1994), with The Boston Company Advisors, Inc.
John W. Shepardson# - Trustee
910 16th Street, Suite 222
Denver, CO 80202
Trustee of Janus Aspen Series. Historian.
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Aspen Series. President of HPS Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Aspen Series. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments) since 1987.
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Aspen Series. President and Chief Executive Officer of BC
Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue, Washington
(restaurant chain). Formerly (1982 to 1993), Chairman, President and Chief
Executive Officer of Famous Restaurants, Inc., Scottsdale, Arizona
(restaurant chain).
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
24
<PAGE>
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Aspen Series. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
The Trustees are responsible for major decisions relating to each Fund's
objective, policies and techniques. The Trustees also supervise the operation of
the Funds by their officers and review the investment decisions of the officers
although they do not actively participate on a regular basis in making such
decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Agreement and Declaration of Trust
("Declaration of Trust"), Massachusetts law or the 1940 Act.
The following table shows the aggregate compensation paid to each Trustee
by the Funds described in this SAI and all funds advised and sponsored by Janus
Capital (collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive any pension or retirement from the Funds or the Janus Funds.
<TABLE>
Aggregate Compensation Total Compensation from the
from the Funds for fiscal year Janus Funds for calendar year
Name of Person, Position ended October 31, 1995 ended December 31, 1995**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* -- --
James P. Craig, III, Trustee*+ -- --
John W. Shepardson, Trustee $39,627 $50,826
William D. Stewart, Trustee $37,018 $48,218
Gary O. Loo, Trustee $37,018 $45,633
Dennis B. Mullen, Trustee $37,018 $48,218
Martin H. Waldinger, Trustee $37,018 $48,218
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An interested person of the Funds and of Janus Capital. Compensated by Janus
Capital and not the Funds.
**As of December 31, 1995, Janus Funds consisted of two registered investment
companies comprised of a total of 26 funds. + Mr. Craig became a Trustee as of
June 30, 1995.
PURCHASE OF SHARES
As stated in the Prospectus, Janus Distributors is a distributor of the
Funds' shares. Shares of the Funds are sold at the net asset value per share as
determined at the close of the regular trading session of the New York Stock
Exchange (the "NYSE") next occurring after a purchase order is received and
accepted by a Fund. The Shareholder's Manual Section of the Prospectus contains
detailed information about the purchase of shares.
Net Asset Value Determination
As stated in the Prospectus, the net asset value ("NAV") of Fund shares is
determined once each day on which the NYSE is open, at the close of its regular
trading session (normally 4:00 p.m., New York time, Monday through Friday). The
NAV of Fund shares is not determined on days the NYSE is closed (generally, New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas). The per share NAV of each Fund is determined
by dividing the total value of a Fund's securities and other assets, less
liabilities, by the total number of shares outstanding. In determining NAV,
securities listed on an Exchange, 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. Municipal securities held by
the Funds are traded primarily in the over-the-counter market. Valuations of
such securities are furnished by one or more pricing services employed by the
Funds and are based upon a computerized matrix system or appraisals obtained by
a pricing service, in each case in reliance upon information concerning market
transactions and quotations from recognized municipal securities dealers. Other
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 the exchange rate in effect at the close of the NYSE. Each Fund
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
Trustees.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
25
<PAGE>
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 New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which a Fund's NAV is not calculated. A Fund calculates its NAV per
share, and therefore effects sales, redemptions and repurchases of its shares,
as of the close of the NYSE once on each day on which the NYSE is open. Such
calculation may not take place contemporaneously with the determination of the
prices of the foreign portfolio securities used in such calculation.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
If investors do not elect in writing or by phone to receive their dividends
and distributions in cash, all income dividends and capital gains distributions,
if any, on a Fund's shares are reinvested automatically in additional shares of
that Fund at the NAV determined on the first business day following the record
date. Checks for cash dividends and distributions and confirmations of
reinvestments are usually mailed to shareholders within ten days after the
record date. Any election of the manner in which a shareholder wishes to receive
dividends and distributions (which may be made on the New Account Application
form or by phone) will apply to dividends and distributions the record dates of
which fall on or after the date that a Fund receives such notice. Investors
receiving cash distributions and dividends may elect in writing or by phone to
change back to automatic reinvestment at any time.
REDEMPTION OF SHARES
Procedures for redemption of shares are set forth in the Shareholder's
Manual section of the Prospectus. Shares normally will be redeemed for cash,
although each Fund retains the right to redeem its shares in kind under unusual
circumstances, in order to protect the interests of remaining shareholders, by
delivery of securities selected from its assets at its discretion. However, the
Funds are governed by Rule 18f-1 under the 1940 Act, which requires each Fund to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the NAV of
that Fund during any 90-day period for any one shareholder. Should redemptions
by any shareholder exceed such limitation, a Fund will have the option of
redeeming the excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets to
cash. The method of valuing securities used to make redemptions in kind will be
the same as the method of valuing portfolio securities described under "Purchase
of Shares - Net Asset Value Determination" and such valuation will be made as of
the same time the redemption price is determined.
The right to require the Funds to redeem its shares may be suspended, or
the date of payment may be postponed, whenever (1) trading on the NYSE is
restricted, as determined by the SEC, or the NYSE is closed except for holidays
and weekends, (2) the SEC permits such suspension and so orders, or (3) an
emergency exists as determined by the SEC so that disposal of securities or
determination of NAV is not reasonably practicable.
SHAREHOLDER ACCOUNTS
Detailed information about the general procedures for shareholder accounts
and specific types of accounts is set forth in the Prospectus. Applications for
specific types of accounts may be obtained by calling the Funds at
1-800-525-3713 or writing to the Funds at P.O. Box 173375, Denver, Colorado
80217-3375.
Telephone Transactions
As stated in the Prospectus, shareholders may initiate a number of
transactions by telephone. The Funds, their transfer agent and their distributor
disclaim responsibility for the authenticity of instructions received by
telephone. Such entities will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include,
among others, requiring personal identification prior to acting upon telephone
instructions, providing written confirmation of the transactions and tape
recording telephone conversations.
Systematic Withdrawals
As stated in the Shareholder's Manual section of the Prospectus, if you
have a regular account or are eligible for normal distributions from a
retirement plan, you may establish a systematic withdrawal program. The payments
will be made from the proceeds of periodic redemptions of shares in the account
at the NAV. Depending on the size or frequency of the disbursements requested,
and the fluctuation in value of a Fund's portfolio, redemptions for the purpose
of making such disbursements may reduce or even exhaust the shareholder's
account. Either an investor or their Fund, by written notice to the other, may
terminate the investor's systematic withdrawal program without penalty at any
time.
26
<PAGE>
Information about requirements to establish a systematic withdrawal program
may be obtained by writing or calling the Funds at the address or phone number
shown above.
RETIREMENT PLANS
The Funds offer several different types of tax-deferred retirement plans
that an investor may establish to invest in Fund shares, depending on rules
prescribed by the Code. The Individual Retirement Account ("IRA") may be used by
most individuals who have taxable compensation. Simplified Employee Pension
Plans ("SEPs") and Defined Contribution Plans (Profit Sharing or Money Purchase
Pension Plans) may be used by most employers, including corporations,
partnerships and sole proprietors, for the benefit of business owners and their
employees. In addition, the Funds offer a Section 403(b)(7) Plan for employees
of educational organizations and other qualifying tax-exempt organizations.
Investors should consult their tax advisor or legal counsel before selecting a
retirement plan.
Contributions under IRAs, SEPs, Defined Contribution Plans and Section
403(b)(7) Plans are subject to specific contribution limitations. Generally,
such contributions may be invested at the direction of the participant. The
investment is then held by IFTC as custodian. Each participant's account is
charged an annual fee of $12. There is a maximum annual fee of $24 per taxpayer
identification number.
Distributions from retirement plans are generally subject to ordinary
income tax and may be subject to an additional 10% tax if withdrawn prior to age
591/2. Several exceptions to the general rule may apply. However, shareholders
must start withdrawing retirement plan assets no later than April 1 of the year
after they reach age 701/2. Several methods exist to determine the amount of the
minimum annual distribution. Shareholders should consult with their tax advisor
or legal counsel prior to receiving any distribution from any retirement plan,
in order to determine the income tax impact of any such distribution.
To receive additional information about IRAs, SEPs, Defined Contribution
Plans and Section 403(b)(7) Plans along with the necessary materials to
establish an account, please call the Funds at 1-800-525-3713 or write to the
Funds at P.O. Box 173375, Denver, Colorado 80217-3375. No contribution to an
IRA, SEP, Defined Contribution Plan or Section 403(b)(7) Plan can be made until
the appropriate forms to establish any such plan have been completed.
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
It is a policy of the Funds to make distributions of substantially all of
their respective investment income and any net realized capital gains. Janus
Fund, Janus Twenty Fund, Janus Enterprise Fund, Janus Mercury Fund, Janus
Worldwide Fund and Janus Overseas Fund declare and make annual distributions of
income (if any), Janus Growth and Income Fund and Janus Balanced Fund declare
and make quarterly distributions of income and Janus Flexible Income Fund, Janus
Intermediate Government Securities, Janus Short-Term Bond Fund and Janus Federal
Tax-Exempt Fund declare dividends daily and make monthly distributions of
income. If a month begins on a Saturday, Sunday or holiday, dividends for daily
dividend funds for those days are declared at the end of the preceding month.
Janus Federal Tax-Exempt Fund will use the "average annual method" to determine
the designated percentage of each distribution that is tax-exempt. Under this
method, the percentage of income designated as tax-exempt is based on the
percentage of tax-exempt income earned for each annual period, and may be
substantially different from the Fund's income that was tax-exempt during any
monthly period. Any capital gains realized during each fiscal year ended October
31, as defined by the Code, are normally declared and payable to shareholders in
December. The Funds intend to qualify as regulated investment companies by
satisfying certain requirements prescribed by Subchapter M of the Code.
The Funds may purchase securities of certain foreign corporations
considered to be passive foreign investment companies by the IRS.In order to
avoid taxes and interest that must be paid by the Funds if these instruments are
profitable, the Funds may make various elections permitted by the tax laws.
However, these elections could require that the Funds recognize taxable income,
which in turn must be distributed, before the securities are sold and before
cash is received to pay the distributions.
Some foreign securities purchased by the Funds may be subject to foreign
taxes which could reduce the yield on such securities. The amount of such
foreign taxes is expected to be insignificant. Accordingly, the Funds do not
intend to make the election permitted under section 853 of the Code to pass
through such taxes to shareholders as a foreign tax credit. As a result, any
foreign taxes paid or accrued will represent an expense to each Fund which will
reduce its investment company taxable income as this would increase the taxable
income reported to shareholders and require shareholders to take the credit on
their tax returns, complicating the preparation of such returns.
27
<PAGE>
PRINCIPAL SHAREHOLDERS
As of December 1, 1995, the officers and Trustees of the Funds as a group
owned less than 1% of the outstanding shares of each of the Funds. In addition,
as of December 1, 1995, Charles Schwab & Co. Inc. ("Schwab"), 101 Montgomery
Street, San Francisco, CA 94104-4122, owned of record 5% or more of the
outstanding shares of the Funds, as shown below.
Fund Name Held by Schwab
- --------------------------------------------------------------------------------
Janus Fund 13.96%
Janus Twenty Fund 6.88%
Janus Enterprise Fund 14.32%
Janus Mercury Fund 22.61%
Janus Worldwide Fund 23.41%
Janus Overseas Fund 19.90%
Janus Growth and Income Fund 6.45%
Janus Balanced Fund 20.01%
Janus Flexible Income Fund 33.87%
Janus Intermediate Government Securities Fund 11.74%
Janus Short-Term Bond Fund 10.27%
Janus Federal Tax-Exempt Fund 7.50%
- --------------------------------------------------------------------------------
According to information provided by Schwab, this ownership is by nominee
only and does not represent beneficial ownership of such shares, because they
have no investment discretion or voting power with respect to such shares.
However, the following individuals beneficially owned more than 5% of the
outstanding shares of Janus Intermediate Government Securities Fund through
Schwab accounts: G. Penfield Jennings, 1960 Bayshore Boulevard, Dunedin, FL
34698, owned 5.04% and Lillian Winston Hollander, 10 West 66th Street, Apt. 24D,
New York, NY 19923, owned 5.62%. The following individuals beneficially owned
more than 5% of the outstanding shares of Janus Federal Tax-Exempt Fund through
Schwab accounts: M.R. Godwin and Christine K. Godwin, 567 Stonyridge, Heber
Spring, AZ 72543, owned 6.27%. To the knowledge of the Funds, no other person
owned more than 5% of the outstanding shares of any Fund as of the above date.
MISCELLANEOUS INFORMATION
Each Fund is a series of the Trust, a Massachusetts business trust that was
created on February 11, 1986. The Trust is an open-end management investment
company registered under the 1940 Act. As of the date of this SAI, the Trust
offers 18 separate series, 6 of which are offered by other prospectuses. On June
16, 1986, the Trust assumed all the assets and liabilities of its predecessor
corporation, Janus Fund, Inc., which was incorporated under the laws of Maryland
on September 18, 1968. All references in this SAI to Janus Fund and all
financial and other information about Janus Fund prior to June 16, 1986, are to
the former Janus Fund, Inc.; all references after June 16, 1986 are to the Janus
Fund series of the Trust.
On August 7, 1992, in a tax-free reorganization, the Trust assumed all the
assets and liabilities of i) the Janus Flexible Income Fund and Janus
Intermediate Government Securities Fund series of Janus Income Series, a
separate Massachusetts business trust created on May 28, 1986; and Janus Twenty
Fund, Inc., a Maryland corporation originally incorporated as Janus Value Fund
in 1984. Shareholders received shares of the series of the Trust equal both in
number and net asset value to their shares of the respective predecessor entity.
In connection with the reorganization, Janus Flexible Income Fund and Janus
Intermediate Government Securities Fund changed their fiscal year ends from
December 31 to October 31. All references in this SAI to the Funds, and all
financial and other information about the Funds prior to August 7, 1992, are to
the respective predecessor entities; all references after August 7, 1992, are to
the respective series of the Trust.
Janus Worldwide Fund and Janus Growth and Income Fund were added to the
Trust as separate series on April 29, 1991. Janus Enterprise Fund, Janus
Balanced Fund and Janus Short-Term Bond Fund were added to the Trust as separate
series on August 27, 1992. Janus Mercury Fund and Janus Federal Tax-Exempt Fund
were added to the Trust as separate series on April 20, 1993. Janus Overseas
Fund was added to the Trust as a separate series on April 14, 1994.
Janus Capital reserves the right to the name "Janus." In the event that
Janus Capital does not continue to provide investment advice to the Funds, the
Funds must cease to use the name "Janus" as soon as reasonably practicable.
Under Massachusetts law, shareholders of the Funds could, under certain
circumstances, be held liable for the obligations of their Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Funds and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Funds or the
Trustees. The Declaration of Trust also provides for indemnification from the
28
<PAGE>
assets of the Funds for all losses and expenses of any Fund shareholder held
liable for the obligations of their Fund. Thus, the risk of a shareholder
incurring a financial loss on account of its liability as a shareholder of one
of the Funds is limited to circumstances in which their Fund would be unable to
meet its obligations. The possibility that these circumstances would occur is
remote. The Trustees intend to conduct the operations of the Funds to avoid, to
the extent possible, liability of shareholders for liabilities of their Fund.
Shares Of The Trust
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of one cent per share for each series of
the Trust. Shares of each Fund are fully paid and nonassessable when issued. All
shares of a Fund participate equally in dividends and other distributions by
such Fund, and in residual assets of that Fund in the event of liquidation.
Shares of each Fund have no preemptive, conversion or subscription rights.
Shares of each Fund may be transferred by endorsement or stock power as is
customary, but a Fund is not bound to recognize any transfer until it is
recorded on its books.
Voting Rights
The present Trustees were elected at a meeting of shareholders held on July
10, 1992, with the exception of Mr. Craig who was appointed by the Trustees as
of June 30, 1995. Under the Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his earlier death, resignation,
bankruptcy, incapacity or removal. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act. Therefore, no annual or regular
meetings of shareholders normally will be held, unless otherwise required by the
Declaration of Trust or the 1940 Act. Subject to the foregoing, shareholders
have the power to vote to elect or remove Trustees, to terminate or reorganize
their Fund, to amend the Declaration of Trust, to bring certain derivative
actions and on any other matters on which a shareholder vote is required by the
1940 Act, the Declaration of Trust, the Trust's Bylaws or the Trustees.
Each share of each series of the Trust has one vote (and fractional votes
for fractional shares). Shares of all series of the Trust have noncumulative
voting rights, which means that the holders of more than 50% of the shares of
all series of the Trust voting for the election of Trustees can elect 100% of
the Trustees if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Trustees. Each series of the
Trust will vote separately only with respect to those matters that affect only
that series or if a portfolio's interest in the matter differs from the
interests of other portfolios of the Trust.
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Funds, audit the Funds' annual financial
statements and prepare their tax returns.
Registration Statement
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Funds or such securities, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
29
<PAGE>
PERFORMANCE INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for a Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in such Fund over periods of 1, 5, and 10 years (up to the life of
the Fund). These are the annual total rates of return that would equate the
initial amount invested to the ending redeemable value. These rates of return
are calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). All total return figures
reflect the deduction of a proportional share of Fund expenses on an annual
basis, and assume that all dividends and distributions are reinvested when paid.
The average annual total return of each Fund, computed as of October 31, 1995,
is shown in the table below:
<TABLE>
<CAPTION>
Date Number Average Annual Total Return
Available of Months One Five Ten Life of
Fund Name for Sale in Lifetime Year Years Years Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Janus Fund 2/5/70 309 21.62% 17.27% 15.98% 16.51%
Janus Twenty Fund 5/2/85 126 24.67% 19.54% 15.63% 15.49%
Janus Enterprise Fund 9/1/92 38 15.46% N/A N/A 23.08%
Janus Mercury Fund 5/3/93 30 25.53% N/A N/A 25.73%
Janus Worldwide Fund 5/15/91 53.5 8.89% N/A N/A 17.32%
Janus Overseas Fund 5/2/94 18 11.78% N/A N/A 10.27%
Janus Growth and Income Fund 5/15/91 53.5 24.20% N/A N/A 15.78%
Janus Balanced Fund 9/1/92 38 18.26% N/A N/A 13.38%
Janus Flexible Income Fund 7/2/87 100 15.35% 13.98% N/A 9.29%
Janus Intermediate
Government Securities Fund 7/26/91 51 10.19% N/A N/A 5.84%
Janus Short-Term Bond Fund 9/1/92 38 5.55% N/A N/A 4.01%
Janus Federal Tax-Exempt Fund 5/3/93 30 12.60% N/A N/A 4.56%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Quotations of a Fund's yield are based on the investment income per share
earned during a particular 30-day period (including dividends, if any, and
interest), less expenses accrued during the period ("net investment income"),
and are computed by dividing net investment income by the net asset value per
share on the last day of the period, according to the following formula:
YIELD = 2 [(a-b + 1)6 - 1]
cd
where a = dividend and interest income
b = expenses accrued for the period
c = average daily number of shares outstanding during the period that
were entitled to receive dividends
d = maximum net asset value per share on the last day of the period
The tax-equivalent yield used for Janus Federal Tax-Exempt Fund is the rate
that an investor would have to earn from a fully taxable investment after taxes
to equal the Fund's tax-free yield. Tax-equivalent yields are calculated by
dividing a Fund's yield by the result of one minus a stated federal or combined
federal and state tax rate. If only a portion of a Funds' yield is tax-exempt,
only that portion is adjusted in the calculation. Janus Federal Tax-Exempt Fund
may invest a portion of its assets in obligations that are subject to federal
income tax. When the Fund invests in these obligations, its tax-equivalent yield
will be lower.
The yield for the 30-day period ending October 31, 1995, for the
Fixed-Income Funds is shown below:
Janus Flexible Income Fund 7.39%
Janus Intermediate Government Securities Fund 5.37%
Janus Short-Term Bond Fund 5.81%
Janus Federal Tax-Exempt Fund 5.18%
30
<PAGE>
From time to time in advertisements or sales material, the Funds may
discuss their performance ratings or other information as published by
recognized mutual fund statistical rating services, including, but not limited
to, Lipper Analytical Services, Inc., Ibbotson Associates, Micropal or
Morningstar or by publications of general interest such as Forbes or Money. The
Funds may also compare their performance to that of other selected mutual funds,
mutual fund averages or recognized stock market indicators, including, but not
limited to, the Standard & Poor's 500 Composite Stock Price Index, the Standard
& Poor's Midcap Index, the Dow Jones Industrial Average, the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Government/Corporate 1-3
Year Bond Index, the Lehman Brothers Long Government/Corporate Bond Index, the
Lehman Brothers Intermediate Government Bond Index, the Lehman Brothers
Municipal Bond Index, the Russell 2000 Index and the NASDAQ composite. In
addition, the Funds may compare their total return or yield to the yield on U.S.
Treasury obligations and to the percentage change in the Consumer Price Index.
Janus Worldwide Fund and Janus Overseas Fund may also compare their performance
to the record of global market indicators, such as the Morgan Stanley
International World Index or Morgan Stanley Capital International Europe,
Australia, Far East Index (EAFE Index). Such performance ratings or comparisons
may be made with funds that may have different investment restrictions,
objectives, policies or techniques than the Funds and such other funds or market
indicators may be comprised of securities that differ significantly from the
Funds' investments.
FINANCIAL STATEMENTS
The following audited financial statements for the period ended October 31,
1995 are hereby incorporated into this SAI by reference to the Funds' Annual
Report dated October 31, 1995. A copy of such report accompanies this SAI.
Documents Incorporated by Reference to the Annual Report:
Schedules of Investments as of October 31, 1995
Statements of Operations for the periods ended October 31, 1995
Statements of Assets and Liabilities as of October 31, 1995
Statements of Changes in Net Assets for the periods ended October 31, 1995
and 1994
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Report of Independent Accountants
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this SAI and are not part of the
Registration Statement.
31
<PAGE>
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32
<PAGE>
[LOGO]
JANUS VENTURE FUND
100 Fillmore Street
Denver, CO 80206-4923
(800) 525-3713
STATEMENT OF ADDITIONAL INFORMATION
February 18, 1996
Janus Venture Fund (the "Fund") is a no-load mutual fund that seeks capital
appreciation. The Fund normally invests at least 50% of its equity assets in
securities issued by small-sized companies. Small-sized companies are those who
have market capitalizations of less than $1 billion or annual gross revenues of
less than $500 million. Subject to this policy, the Fund may also invest in
larger issuers. Depending upon its portfolio managers' opinion or prevailing
market, financial and economic conditions, the Fund may at times hold
substantial positions in cash or interest-bearing securities.
The Fund is a separate series of Janus Investment Fund, a Massachusetts
business trust (the "Trust"). Each series of the Trust represents shares of
beneficial interest in a separate portfolio of securities and other assets with
its own objective and policies. The Fund is managed by Janus Capital Corporation
("Janus Capital").
THE FUND HAS DISCONTINUED PUBLIC SALES OF ITS SHARES TO NEW INVESTORS.
HOWEVER, SHAREHOLDERS WHO MAINTAIN OPEN FUND ACCOUNTS ARE PERMITTED TO CONTINUE
TO PURCHASE SHARES OF THE FUND AND TO REINVEST ANY DIVIDENDS AND/OR CAPITAL
GAINS DISTRIBUTIONS IN SHARES OF THE FUND. ONCE A SHAREHOLDER'S FUND ACCOUNT IS
CLOSED, IT MAY NOT BE POSSIBLE FOR THAT SHAREHOLDER TO PURCHASE ADDITIONAL FUND
SHARES. See the "Shareholder's Manual" section of the Prospectus for more
details. The Fund may resume sales of its shares at some future date, although
it has no present intention of doing so.
This Statement of Additional Information ("SAI") is not a Prospectus and
should be read in conjunction with the Fund's Prospectus dated February 18,
1996, which is incorporated by reference into this SAI and may be obtained from
the Trust at the above phone number or address. This SAI contains additional and
more detailed information about the Fund's operations and activities than the
Prospectus.
1
<PAGE>
JANUS VENTURE FUND
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
Investment Policies, Restrictions and Techniques .......................... 3
Investment Objective ................................................. 3
Portfolio Policies ................................................... 3
Investment Restrictions .............................................. 3
Types of Securities and Investment Techniques ........................ 5
Illiquid Securities ............................................. 5
Zero Coupon, Pay-In-Kind and Step Coupon Securities ............. 5
Pass-Through Securities ......................................... 5
Depositary Receipts ............................................. 6
Municipal Obligations ........................................... 6
Other Income-Producing Securities ............................... 7
High-Yield/High-Risk Securities ................................. 7
Repurchase and Reverse Repurchase Agreements .................... 7
Futures, Options and Other Derivative Instruments ............... 8
Investment Adviser ........................................................ 15
Custodian, Transfer Agent and Certain Affiliations ........................ 16
Portfolio Transactions and Brokerage ...................................... 17
Officers and Trustees ..................................................... 19
Purchase of Shares ........................................................ 21
Net Asset Value Determination ........................................ 21
Reinvestment of Dividends and Distributions .......................... 22
Redemption of Shares ...................................................... 22
Shareholder Accounts ...................................................... 22
Telephone Transactions ............................................... 22
Systematic Withdrawals ............................................... 22
Retirement Plans .......................................................... 23
Income Dividends, Capital Gains Distributions and Tax Status .............. 23
Principal Shareholders .................................................... 23
Miscellaneous Information ................................................. 24
Shares of the Trust .................................................. 24
Voting Rights ........................................................ 24
Independent Accountants .............................................. 24
Registration Statement ............................................... 24
Performance Information ................................................... 25
Financial Statements ...................................................... 25
Appendix A ................................................................ 26
Explanation of Rating Categories .......................................... 26
- --------------------------------------------------------------------------------
2
<PAGE>
INVESTMENT POLICIES, RESTRICTIONS AND TECHNIQUES
Investment Objective
As stated in the Prospectus, the Fund's investment objective is capital
appreciation. Realization of income is not a significant investment
consideration and any income realized on the Fund's investments therefore will
be incidental to the Fund's objective. There can be no assurance that the Fund
will, in fact, achieve its objective. The investment objective of the Fund is
not fundamental and may be changed by the Trustees without shareholder approval.
Portfolio Policies
The Prospectus discusses the types of securities in which the Fund will
invest, portfolio policies of the Fund and the investment techniques of the
Fund. The Prospectus includes a discussion of portfolio turnover policies. The
Fund's portfolio turnover rates (total purchases or sales, whichever is less,
compared to average monthly value of portfolio securities) for the fiscal years
ended October 31, 1995 and October 31, 1994, were 113% and 114%, respectively.
Investment Restrictions
As indicated in the Prospectus, the Fund is subject to certain fundamental
policies and restrictions that may not be changed without shareholder approval.
Shareholder approval means approval by the lesser of (i) more than 50% of the
outstanding voting securities of the Trust (or the Fund if a matter affects just
the Fund), or (ii) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities of the Trust
(or the Fund) are present or represented by proxy. As fundamental policies, the
Fund may not:
(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to seventy-five percent (75%) of the value of its total assets,
purchase the securities of any one issuer (except cash items and "government
securities" as defined under the Investment Company Act of 1940, as amended (the
"1940 Act")), if immediately after and as a result of such purchase, the value
of the holdings of the Fund in the securities of such issuer exceeds 5% of the
value of the Fund's total assets.
(2) Invest more than 25% of the value of its assets in any particular
industry (other than U.S. government securities).
(3) Invest directly in real estate or interests in real estate; however,
the Fund may own debt or equity securities issued by companies engaged in those
businesses.
(4) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent the Fund from purchasing or selling options, futures, swaps
and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of its 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) Act as an underwriter of securities issued by others, except to the
extent that the Fund may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund.
As a fundamental policy, the Fund may, notwithstanding any other investment
policy or limitation (whether or not fundamental), invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
limitations as the Fund.
The Trustees have adopted additional investment restrictions for the Fund.
These restrictions are operating policies of the Fund and may be changed by the
Trustees without shareholder approval. The additional investment restrictions
adopted by the Trustees to date include the following:
(a) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of the Fund's net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities shall be deemed
to be without value for the purpose of monitoring this policy.
(b) The Fund will not (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that
3
<PAGE>
do not fall within the definition of bona fide hedging transactions will exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; and (ii) enter into any futures contracts if the aggregate amount of the
Fund's commitments under outstanding futures contracts positions would exceed
the market value of its total assets.
(c) The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short without the payment of any additional consideration
therefor, and provided that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(d) The Fund does not currently intend to purchase securities on margin,
except that the Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments and other deposits
in connection with transactions in futures, options, swaps and forward contracts
shall not be deemed to constitute purchasing securities on margin.
(e) The Fund does not currently intend to (i) purchase securities of other
investment companies, except in the open market where no commission except the
ordinary broker's commission is paid, or (ii) purchase or retain securities
issued by other open-end investment companies. Limitations (i) and (ii) do not
apply to money market funds or to securities received as dividends, through
offers of exchange, or as a result of a reorganization, consolidation, or
merger. If the Fund invests in a money market fund, Janus Capital will reduce
its advisory fee by the amount of any investment advisory and administrative
services fees paid to the investment manager of the money market fund.
(f) The Fund may not mortgage or pledge any securities owned or held by the
Fund in amounts that exceed, in the aggregate, 15% of the Fund's net asset
value, provided that this limitation does not apply to reverse repurchase
agreements, deposits of assets to margin, guarantee positions in futures,
options, swaps or forward contracts, or the segregation of assets in connection
with such contracts.
(g) The Fund does not intend to purchase securities of any issuer (other
than U.S. government agencies and instrumentalities or instruments guaranteed by
an entity with a record of more than three years' continuous operation,
including that of predecessors) with a record of less than three years'
continuous operation (including that of predecessors) if such purchase would
cause the cost of the Fund's investments in all such issuers to exceed 5% of the
Fund's total assets taken at market value at the time of such purchase.
(h) The Fund does not currently intend to invest directly in oil, gas, or
other mineral development or exploration programs or leases; however, the Fund
may own debt or equity securities of companies engaged in those businesses.
(i) The Fund may borrow money for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 25% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If borrowings exceed 25% of the value of the Fund's total assets by
reason of a decline in net assets, the Fund will reduce its borrowings within
three business days to the extent necessary to comply with the 25% limitation.
This policy shall not prohibit reverse repurchase agreements, deposits of assets
to margin or guarantee positions in futures, options, swaps or forward
contracts, or the segregation of assets in connection with such contracts.
(j) The Fund does not currently intend to purchase any security or enter
into a repurchase agreement if, as a result, more than 15% of its net assets
would be invested in repurchase agreements not entitling the holder to payment
of principal and interest within seven days and in securities that are illiquid
by virtue of legal or contractual restrictions on resale or the absence of a
readily available market. The Trustees, or the Fund's investment adviser acting
pursuant to authority delegated by the Trustees, may determine that a readily
available market exists for securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"), or any successor to
such rule, Section 4(2) commercial paper and municipal lease obligations.
Accordingly, such securities may not be subject to the foregoing limitation.
(k) The Fund may not invest in companies for the purpose of exercising
control of management.
For purposes of the Fund's restriction on investing in a particular
industry, the Fund will rely primarily on industry classifications as published
by Bloomberg L.P., provided that financial service companies will be classified
according to the end users of their services (for example, automobile finance,
bank finance and diversified finance are each considered to be a separate
industry). To the extent that Bloomberg L.P. classifications are so broad that
the primary economic characteristics in a single class are materially different,
the Fund may further classify issuers in accordance with industry
classifications as published by the Securities and Exchange Commission ("SEC").
4
<PAGE>
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
Illiquid Investments
The Fund may invest up to 15% of its net assets in illiquid investments
(i.e., securities that are not readily marketable). The Trustees of the Fund
have authorized Janus Capital to make liquidity determinations with respect to
its securities, including Rule 144A Securities, commercial paper and municipal
lease obligations. Under the guidelines established by the Trustees, Janus
Capital will consider the following factors: 1) the frequency of trades and
quoted prices for the obligation; 2) the number of dealers willing to purchase
or sell the security and the number of other potential purchasers; 3) the
willingness of dealers to undertake to make a market in the security; and 4) the
nature of the security and the nature of marketplace trades, including the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. In the case of commercial paper, Janus Capital will
also consider whether the paper is traded flat or in default as to principal and
interest and any ratings of the paper by a Nationally Recognized Statistical
Rating Organization.
Zero Coupon, Pay-In-Kind and Step Coupon Securities
The Fund may invest up to 10% of its assets in zero coupon, pay-in-kind and
step coupon securities. Zero coupon bonds are issued and traded at a discount
from their face value. They do not entitle the holder to any periodic payment of
interest prior to maturity. Step coupon bonds trade at a discount from their
face value and pay coupon interest. The coupon rate is low for an initial period
and then increases to a higher coupon rate thereafter. The discount from the
face amount or par value depends on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind bonds normally give the issuer an
option to pay cash at a coupon payment date or give the holder of the security a
similar bond with the same coupon rate and a face value equal to the amount of
the coupon payment that would have been made.
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), the Fund must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because the Fund will not
receive cash payments on a current basis in respect of accrued original-issue
discount on zero coupon bonds or step coupon bonds during the period before
interest payments begin, in some years the Fund may have to distribute cash
obtained from other sources in order to satisfy the distribution requirements
under the Code. The Fund might obtain such cash from selling other portfolio
holdings which might cause the Fund to incur capital gains or losses on the
sale. Additionally, these actions are likely to reduce the assets to which Fund
expenses could be allocated and to reduce the rate of return for the Fund. In
some circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might otherwise
make it undesirable for the Fund to sell the securities at the time.
Generally, the market prices of zero coupon, step coupon and pay-in-kind
securities are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates
to a greater degree than other types of debt securities having similar
maturities and credit quality.
Pass-Through Securities
The Fund may invest in various types of pass-through securities, such as
mortgage-backed securities, asset-backed securities and participation interests.
A pass-through security is a share or certificate of interest in a pool of debt
obligations that have been repackaged by an intermediary, such as a bank or
broker-dealer. The purchaser of a pass-through security receives an undivided
interest in the underlying pool of securities. The issuers of the underlying
securities make interest and principal payments to the intermediary which are
passed through to purchasers, such as the Fund. The most common type of
pass-through securities are mortgage-backed securities. Government National
Mortgage Association ("GNMA") Certificates are mortgage-backed securities that
evidence an undivided interest in a pool of mortgage loans. GNMA Certificates
differ from bonds in that principal is paid back monthly by the borrowers over
the term of the loan rather than returned in a lump sum at maturity. The Fund
will generally purchase "modified pass-through" GNMA Certificates, which entitle
the holder to receive a share of all interest and principal payments paid and
owned on the mortgage pool, net of fees paid to the "issuer" and GNMA,
regardless of whether or not the mortgagor actually makes the payment. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. government.
5
<PAGE>
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semiannually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest but it is not guaranteed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed
mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. This type of security is guaranteed by FNMA as to timely payment of
principal and interest but it is not guaranteed by the full faith and credit of
the U.S. government.
Except for GMCs, each of the mortgage-backed securities described above is
characterized by monthly payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying mortgage loans. The payments
to the security holders (such as the Fund), like the payments on the underlying
loans, represent both principal and interest. Although the underlying mortgage
loans are for specified periods of time, such as 20 or 30 years, the borrowers
can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. The Fund's portfolio managers will
consider estimated prepayment rates in calculating the average weighted maturity
of the Fund. A borrower is more likely to prepay a mortgage that bears a
relatively high rate of interest. This means that in times of declining interest
rates, higher yielding mortgage-backed securities held by the Fund might be
converted to cash and the Fund will be forced to accept lower interest rates
when that cash is used to purchase additional securities in the mortgage-backed
securities sector or in other investment sectors. Additionally, prepayments
during such periods will limit the Fund's ability to participate in as large a
market gain as may be experienced with a comparable security not subject to
prepayment.
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor or guarantor of the security and interest
and principal payments ultimately depend upon payment of the underlying loans by
individuals. Tax-exempt asset-backed securities include units of beneficial
interests in pools of purchase contracts, financing leases, and sales agreements
that may be created when a municipality enters into an installment purchase
contract or lease with a vendor. Such securities may be secured by the assets
purchased or leased by the municipality; however, if the municipality stops
making payments, there generally will be no recourse against the vendor. The
market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
Depositary Receipts
The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underying securities issued by a foreign issuer.
ADRs, in registered form, are designed for use in U.S. securities markets.
Unsponsored ADRs may be created without the participation of the foreign issuer.
Holders of these ADRs generally bear all the costs of the ADR facility, whereas
foreign issuers typically bear certain costs in a sponsored ADR. The bank or
trust company depositary of an unsponsored ADR may be under no obligation to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. The Fund may also invest in European Depositary
Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and in other similar
instruments representing securities of foreign companies. EDRs are receipts
issued by a European financial institution evidencing an arrangement similar to
that of ADRs. EDRs, in bearer form, are designed for use in European securities
markets. GDRs are securities convertible into equity securities of foreign
issuers.
Municipal Obligations
The Fund may invest in municipal obligations issued by states, territories
and possessions of the United States and the District of Columbia. The value of
municipal obligations can be affected by changes in their actual or perceived
credit quality. The credit quality of municipal obligations can be affected by,
among other things, the financial condition of the issuer or guarantor, the
issuer's future borrowing plans and sources of revenue, the economic feasibility
of the revenue bond project or general borrowing purpose, political or economic
developments in the region where the security is issued, and the liquidity of
the security. Because municipal securities are generally traded
over-the-counter, the liquidity of a particular issue often depends on the
willingness of dealers to make a market in the security.
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The liquidity of some municipal obligations may be enhanced by demand features,
which would enable the Fund to demand payment on short notice from the issuer or
a financial intermediary.
Other Income-Producing Securities
Other types of income producing securities that the Fund may purchase
include, but are not limited to, the following types of securities:
Variable and floating rate obligations. These types of securities have
variable or floating rates of interest and, under certain limited circumstances,
may have varying principal amounts. Variable and floating rate securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). See also "Inverse Floaters."
Standby commitments. These instruments, which are similar to a put, give
the Fund the option to obligate a broker, dealer or bank to repurchase a
security held by the Fund at a specified price.
Tender option bonds. Tender option bonds are generally long-term securities
that are coupled with the option to tender the securities to a bank,
broker-dealer or other financial institution at periodic intervals and receive
the face value of the bond. This type of security is commonly used as a means of
enhancing the security's liquidity.
Inverse floaters. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. Certain
inverse floaters may have an interest rate reset mechanism that multiplies the
effects of change in the underlying index. Such mechanism may increase the
volatility of the security's market value. Certain variable rate securities
(including certain mortgage-backed securities) pay interest at a rate that
varies inversely to prevailing short-term interest rates (sometimes referred to
as inverse floaters). For example, upon reset the interest rate payable on a
security may go down when the underlying index has risen. The Fund will not
invest more than 5% of its assets in inverse floaters.
The Fund will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of its portfolio.
High-Yield/High-Risk Securities
Investments in high-yield/high-risk securities will be less than 35% of the
Fund's net assets in corporate debt securities that are rated below investment
grade (securities rated BB or lower by Standard & Poor's Ratings Services
("Standard & Poor's") or Ba or lower by Moody's Investors Service, Inc.
("Moody's")). Lower rated bonds involve a higher degree of credit risk, which is
the risk that the issuer will not make interest or principal payments when due.
In the event of an unanticipated default, the Fund would experience a reduction
in its income, and could expect a decline in the market value of the securities
so affected.
The Fund may also invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, Janus Capital may treat such securities as unrated debt. Because of
the size and perceived demand of the issue, among other factors, certain
municipalities may not incur the costs of obtaining a rating. The Fund's
portfolio managers will analyze the creditworthiness of the issuer, as well as
any financial institution or other party responsible for payments on the
security, in determining whether to purchase unrated municipal bonds. Unrated
debt securities will be included in the 35% limit unless the portfolio managers
deem such securities to be the equivalent of investment grade securities.
Repurchase and Reverse Repurchase Agreements
In a repurchase agreement, the Fund purchases a security and simultaneously
commits to resell that security to the seller at an agreed upon price on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon incremental amount that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and
marked-to-market daily) of the underlying security or "collateral." The Fund may
engage in a repurchase agreement with respect to any security in which it is
authorized to invest. A risk associated with repurchase agreements is the
failure of the seller to repurchase the securities as agreed, which may cause
the Fund to suffer a loss if the market value of such securities declines before
they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, the Fund may encounter delays and incur costs in
liquidating the underlying security. Repurchase agreements that mature in more
than seven days will be
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subject to the 15% limit on illiquid investments. While it is possible to
eliminate all risks from these transactions, it is the policy of the Fund to
limit repurchase agreements to those parties whose creditworthiness has been
reviewed and found satisfactory by Janus Capital.
The Fund may use reverse repurchase agreements to provide cash to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities. In a reverse repurchase
agreement, the Fund sells a portfolio security to another party, such as a bank
or broker-dealer, in return for cash and agrees to repurchase the instrument at
a particular price and time. While a reverse repurchase agreement is
outstanding, the Fund will maintain cash and appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. The
Fund will enter into reverse repurchase agreements only with parties that Janus
Capital deems creditworthy.
Futures, Options and Other Derivative Instruments
Futures Contracts. The Fund may enter into contracts for the purchase or
sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income securities.
U.S. futures contracts are traded on exchanges which have been designated
"contract markets" by the CFTC and must be executed through a futures commission
merchant ("FCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain high-grade liquid assets by the Fund's custodian for the benefit of the
FCM. Initial margin payments are similar to good faith deposits or performance
bonds. Unlike margin extended by a securities broker, initial margin payments do
not constitute purchasing securities on margin for purposes of the Fund's
investment limitations. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments for the
benefit of the FCM to settle the change in value on a daily basis. The party
that has a gain may be entitled to receive all or a portion of this amount. In
the event of the bankruptcy of the FCM that holds margin on behalf of the Fund,
the Fund may be entitled to a return of margin owed to the Fund only in
proportion to the amount received by the FCM's other customers. Janus Capital
will attempt to minimize the risk by careful monitoring of the creditworthiness
of the FCMs with which the Fund does business and by depositing margin payments
in a segregated account with the Fund's custodian.
The Fund intends to comply with guidelines of eligibility for exclusion
from the definition of the term "commodity pool operator" adopted by the CFTC
and the National Futures Association, which regulate trading in the futures
markets. The Fund will use futures contracts and related options primarily for
bona fide hedging purposes within the meaning of CFTC regulations. To the extent
that the Fund holds positions in futures contracts and related options that do
not fall within the definition of bona fide hedging transactions, the aggregate
initial margin and premiums required to establish such positions will not exceed
5% of the fair market value of the Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
Although the Fund will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to the Fund immediately upon closing out the futures position, while
settlement of securities transactions could take several days. However, because
the Fund's cash that may otherwise be invested would be held uninvested or
invested in high-grade liquid assets so long as the futures position remains
open, the Fund's return could be diminished due to the opportunity losses of
foregoing other potential investments.
The Fund's primary purpose in entering into futures contracts is to protect
the Fund from fluctuations in the value of securities or interest rates without
actually buying or selling the underlying debt or equity security. For example,
if the Fund anticipates an increase in the price of stocks, and it intends to
purchase stocks at a later time, the Fund could enter into a futures contract to
purchase a stock index as a temporary substitute for stock purchases. If an
increase in the market occurs that influences the stock index as anticipated,
the value of the futures contracts will increase, thereby serving as a hedge
against the Fund not participating in a market advance. This technique is
sometimes known as an anticipatory hedge. To the extent the Fund enters into
futures contracts for this purpose, the segregated assets maintained to cover
the Fund's obligations with respect to the futures contracts will consist of
high-grade liquid assets from its portfolio in an amount equal to the difference
between the contract price and the aggregate value of the initial and variation
margin payments made by the Fund with respect to the futures contracts.
Conversely, if the Fund holds stocks and seeks to protect itself from a decrease
in stock prices, the Fund might sell
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stock index futures contracts, thereby hoping to offset the potential decline in
the value of its portfolio securities by a corresponding increase in the value
of the futures contract position. The Fund could protect against a decline in
stock prices by selling portfolio securities and investing in money market
instruments, but the use of futures contracts enables it to maintain a defensive
position without having to sell portfolio securities.
If the Fund owns Treasury bonds and the portfolio managers expect interest
rates to increase, the Fund may take a short position in interest rate futures
contracts. Taking such a position would have much the same effect as the Fund
selling Treasury bonds in its portfolio. If interest rates increase as
anticipated, the value of the Treasury bonds would decline, but the value of the
Fund's interest rate futures contract will increase, thereby keeping the net
asset value of the Fund from declining as much as it may have otherwise. If, on
the other hand, the portfolio managers expect interest rates to decline, the
Fund may take a long position in interest rate futures contracts in anticipation
of later closing out the futures position and purchasing bonds. Although the
Fund can accomplish similar results by buying securities with long maturities
and selling securities with short maturities, given the greater liquidity of the
futures market than the cash market, it may be possible to accomplish the same
result more easily and more quickly by using futures contracts as an investment
tool to reduce risk.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced and prices in the futures market distorted. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by the portfolio
managers still may not result in a successful use of futures.
Futures contracts entail risks. Although the Fund believes that use of such
contracts will benefit the Fund, the Fund's overall performance could be worse
than if the Fund had not entered into futures contracts if the portfolio
managers' investment judgement proves incorrect. For example, if the Fund has
hedged against the effects of a possible decrease in prices of securities held
in its portfolio and prices increase instead, the Fund will lose part or all of
the benefit of the increased value of these securities because of offsetting
losses in its futures positions. In addition, if the Fund has insufficient cash,
it may have to sell securities from its portfolio to meet daily variation margin
requirements. Those sales may be, but will not necessarily be, at increased
prices which reflect the rising market and may occur at a time when the sales
are disadvantageous to the Fund.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to
the Fund will not match exactly the Fund's current or potential investments. The
Fund may buy and sell futures contracts based on underlying instruments with
different characteristics from the securities in which it typically invests -
for example, by hedging investments in portfolio securities with a futures
contract based on a broad index of securities which involves a risk that the
futures position will not correlate precisely with the performance of the Fund's
investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with the
Fund's investments. Futures prices are affected by factors such as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between the Fund's investments and its futures positions also may
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. The
Fund may buy or sell futures contracts with a greater or lesser value than the
securities it wishes to hedge or is considering purchasing in order to attempt
to compensate for differences in historical volatility between the futures
contract and the securities, although this may not be successful in all cases.
If price changes in the Fund's futures positions are poorly correlated with its
other investments, its futures positions may fail to produce desired gains or
result in losses that are not offset by the gains in the Fund's other
investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three days for some
types of securities, the futures markets can provide superior liquidity to
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the securities markets. Nevertheless, there is no assurance that a liquid
secondary market will exist for any particular futures contract at any
particular time. In addition, futures exchanges may establish daily price
fluctuation limits for futures contracts and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached, it may be impossible
for the Fund to enter into new positions or close out existing positions. If the
secondary market for a futures contract is not liquid because of price
fluctuation limits or otherwise, the Fund may not be able to promptly liquidate
unfavorable futures positions and potentially could be required to continue to
hold a futures position until the delivery date, regardless of changes in its
value. As a result, the Fund's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Fund may buy and write put and call
options on futures contracts. An option on a future gives the Fund the right
(but not the obligation) to buy or sell a futures contract at a specified price
on or before a specified date. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when the Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
future's price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, the Fund will retain the full amount of the option premium which provides
a partial hedge against any increase in the price of securities which the Fund
is considering buying. If a call or put option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between the change
in the value of its portfolio securities and changes in the value of the futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Contracts. A forward contract is an agreement between two parties
in which one party is obligated to deliver a stated amount of a stated asset at
a specified time in the future and the other party is obligated to pay a
specified amount for the assets at the time of delivery. The Fund may enter into
forward contracts to purchase and sell government securities, equity or income
securities, foreign currencies or other financial instruments. Forward contracts
generally are traded in an interbank market conducted directly between traders
(usually large commercial banks) and their customers. Unlike futures contracts,
which are standardized contracts, forward contracts can be specifically drawn to
meet the needs of the parties that enter into them. The parties to a forward
contract may agree to offset or terminate the contract before its maturity, or
may hold the contract to maturity and complete the contemplated exchange.
The following discussion summarizes the Fund's principal uses of forward
foreign currency exchange contracts ("forward currency contracts"). The Fund may
enter into forward currency contracts with stated contract values of up to the
value of the Fund's assets. A forward currency contract is an obligation to buy
or sell an amount of a specified currency for an agreed price (which may be in
U.S. dollars or a foreign currency). The Fund will exchange foreign currencies
for U.S. dollars and for other foreign currencies in the normal course of
business and may buy and sell currencies through forward currency contracts in
order to fix a price for securities it has agreed to buy or sell ("transaction
hedge"). The Fund also may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that currency relative to the
U.S. dollar by entering into forward currency contracts to sell an amount of
that currency (or a proxy currency whose performance is expected to replicate or
exceed the performance of that currency relative to the U.S. dollar)
approximating the value of some or all of its portfolio securities denominated
in that currency ("position hedge") or by participating in options or futures
contracts with respect to the currency. The Fund also may enter into a forward
currency contract with respect to a currency where
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the Fund is considering the purchase or sale of investments denominated in that
currency but has not yet selected the specific investments ("anticipatory
hedge"). In any of these circumstances the Fund may, alternatively, enter into a
forward currency contract to purchase or sell one foreign currency for a second
currency that is expected to perform more favorably relative to the U.S. dollar
if the portfolio managers believe there is a reasonable degree of correlation
between movements in the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as well
as depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the proceeds of or rates of return on the Fund's foreign
currency denominated portfolio securities. The matching of the increase in value
of a forward contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting the Fund's currency exposure from one foreign
currency to another removes the Fund's opportunity to profit from increases in
the value of the original currency and involves a risk of increased losses to
the Fund if its portfolio managers' projection of future exchange rates is
inaccurate. Proxy hedges and cross-hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which hedged
securities are denominated. Unforeseen changes in currency prices may result in
poorer overall performance for the Fund than if it had not entered into such
contracts.
The Fund will cover outstanding forward currency contracts by maintaining
liquid portfolio securities denominated in the currency underlying the forward
contract or the currency being hedged. To the extent that the Fund is not able
to cover its forward currency positions with underlying portfolio securities,
the Fund's custodian will segregate cash or high-grade liquid assets having a
value equal to the aggregate amount of the Fund's commitments under forward
contracts entered into with respect to position hedges, cross-hedges and
anticipatory hedges. If the value of the securities used to cover a position or
the value of segregated assets declines, the Fund will find alternative cover or
segregate additional cash or high-grade liquid assets on a daily basis so that
the value of the covered and segregated assets will be equal to the amount of
the Fund's commitments with respect to such contracts. As an alternative to
segregating assets, the Fund may buy call options permitting the Fund to buy the
amount of foreign currency being hedged by a forward sale contract or the Fund
may buy put options permitting it to sell the amount of foreign currency subject
to a forward buy contract.
While forward contracts are not currently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contacts. In such event,
the Fund's ability to utilize forward contracts may be restricted. In addition,
the Fund may not always be able to enter into forward contracts at attractive
prices and may be limited in its ability to use these contracts to hedge Fund
assets.
Options on Foreign Currencies. The Fund may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Fund may buy put options
on the foreign currency. If the value of the currency declines, the Fund will
have the right to sell such currency for a fixed amount in U.S. dollars, thereby
offsetting, in whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, the Fund could sustain losses on transactions in foreign
currency options that would require the Fund to forego a portion or all of the
benefits of advantageous changes in those rates.
The Fund may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, the Fund
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised and the decline in value of portfolio securities will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Fund could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge the increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium. If exchange rates do not move in the
expected direction,
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the option may be exercised and the Fund would be required to buy or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the writing of options on foreign currencies, the Fund also may
lose all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.
The Fund may write covered call options on foreign currencies. A call
option written on a foreign currency by the Fund is "covered" if the Fund owns
the foreign currency underlying the call or has an absolute and immediate right
to acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currencies held in its portfolio. A
call option is also covered if the Fund has a call on the same foreign currency
in the same principal amount as the call written if the exercise price of the
call held (i) is equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written, if the difference
is maintained by the Fund in cash or high-grade liquid assets in a segregated
account with the Fund's custodian.
The Fund also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
the Fund owns or has the right to acquire and which is denominated in the
currency underlying the option. Call options on foreign currencies which are
entered into for cross-hedging purposes are not covered. However, in such
circumstances, the Fund will collateralize the option by segregating cash or
high-grade liquid assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities. In an effort to increase current income and to
reduce fluctuations in net asset value, the Fund may write covered put and call
options and buy put and call options on securities that are traded on United
States and foreign securities exchanges and over-the-counter. The Fund may write
and buy options on the same types of securities that the Fund may purchase
directly.
A put option written by the Fund is "covered" if the Fund (i) segregates
cash not available for investment or high-grade liquid assets with a value equal
to the exercise price of the put with the Fund's custodian or (ii) holds a put
on the same security and in the same principal amount as the put written and the
exercise price of the put held is equal to or greater than the exercise price of
the put written. The premium paid by the buyer of an option will reflect, among
other things, the relationship of the exercise price to the market price and the
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates.
A call option written by the Fund is "covered" if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Fund's
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if the Fund holds a call
on the same security and in the same principal amount as the call written and
the exercise price of the call held (i) is equal to or less than the exercise
price of the call written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash and high-grade
liquid assets in a segregated account with its custodian.
The Fund also may write call options that are not covered for cross-hedging
purposes. The Fund collateralizes its obligation under a written call option for
cross-hedging purposes by segregating cash or high-grade liquid assets in an
amount not less than the market value of the underlying security,
marked-to-market daily. The Fund would write a call option for cross-hedging
purposes, instead of writing a covered call option, when the premium to be
received from the cross-hedge transaction would exceed that which would be
received from writing a covered call option and its portfolio managers believe
that writing the option would achieve the desired hedge.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or bought, in the case of
a put option, since with regard to certain options, the writer may be assigned
an exercise notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a covered call option,
be offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of
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the same series as the option previously bought. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit the Fund to write another put
option to the extent that the exercise price thereof is secured by deposited
high-grade liquid assets. Effecting a closing transaction also will permit the
Fund to use the cash or proceeds from the concurrent sale of any securities
subject to the option for other investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option,
the Fund will effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing transaction if the price of
the purchase transaction is less than the premium received from writing the
option or the price received from a sale transaction is more than the premium
paid to buy the option. The Fund will realize a loss from a closing transaction
if the price of the purchase transaction is more than the premium received from
writing the option or the price received from a sale transaction is less than
the premium paid to buy the option. Because increases in the market of a call
option generally will reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
An option position may be closed out only where a secondary market for an
option of the same series exists. If a secondary market does not exist, the Fund
may not be able to effect closing transactions in particular options and the
Fund would have to exercise the options in order to realize any profit. If the
Fund is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise. The absence of a liquid
secondary market may be due to the following: (i) insufficient trading interest
in certain options, (ii) restrictions imposed by a national securities exchange
("Exchange") on which the option is traded on opening or closing transactions or
both, (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances that interrupt normal operations on an
Exchange, (v) the facilities of an Exchange or of the Options Clearing
Corporation ("OCC") may not at all times be adequate to handle current trading
volume, or (vi) one or more Exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would continue to be exercisable in
accordance with their terms.
The Fund may write options in connection with buy-and-write transactions.
In other words, the Fund may buy a security and then write a call option against
that security. The exercise price of such call will depend upon the expected
price movement of the underlying security. The exercise price of a call option
may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security at the time
the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or downwards by the
difference between the Fund's purchase price of the security and the exercise
price. If the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset by the amount of premium
received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price and the Fund's return will be the
premium received from the put options minus the amount by which the market price
of the security is below the exercise price.
The Fund may buy put options to hedge against a decline in the value of its
portfolio. By using put options in this way, the Fund will reduce any profit it
might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
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<PAGE>
The Fund may buy call options to hedge against an increase in the price of
securities that it may buy in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any, realized by the Fund
upon exercise of the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the Fund.
Eurodollar Instruments. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. The Fund may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments). The net amount of the excess, if any,
of the Fund's obligations over its entitlement with respect to each interest
rate swap will be calculated on a daily basis and an amount of cash or
high-grade liquid assets having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account by the Fund's
custodian. If the Fund enters into an interest rate swap on other than a net
basis, it would maintain a segregated account in the full amount accrued on a
daily basis of its obligations with respect to the swap. The Fund will not enter
into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
one of the three highest rating categories of at least one nationally recognized
statistical rating organization at the time of entering into such transaction.
Janus Capital will monitor the creditworthiness of all counterparties on an
ongoing basis. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. Janus Capital has determined that, as
a result, the swap market has become relatively liquid. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent the
Fund sells (i.e., writes) caps and floors, it will segregate cash or high-grade
liquid assets having an aggregate net asset value at least equal to the full
amount, accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Fund. These transactions may in some instances involve
the delivery of securities or other underlying assets by the Fund or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the Fund
is contractually obligated to make. If the other party to an interest rate swap
that is not collateralized defaults, the Fund would risk the loss of the net
amount of the payments that it contractually is entitled to receive. The Fund
may buy and sell (i.e., write) caps and floors without limitation, subject to
the segregation requirement described above.
Additional Risks of Options on Foreign Currencies, Forward Contracts and
Foreign Instruments. Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain Exchanges, such as the Philadelphia
Stock Exchange and the Chicago Board Options Exchange, subject to SEC
regulation. Similarly, options on currencies may be traded over-the-counter. In
an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and a buyer or
seller of futures or forward contracts could lose amounts substantially in
excess of any premium received or initial margin or collateral posted due to the
potential additional margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially
14
<PAGE>
permitting the Fund to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
INVESTMENT ADVISER
As stated in the Prospectus, the Fund has an Investment Advisory Agreement
with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4923. The
Advisory Agreement provides that Janus Capital will furnish continuous advice
and recommendations concerning the Fund's investments, provide office space for
the Fund, pay the salaries, fees and expenses of all Fund officers and of those
Trustees who are affiliated with Janus Capital, and pay all expenses of
promoting the sale of Fund shares other than the cost of complying with
applicable laws relating to the offer or sale of shares of the Fund. Janus
Capital also may make payments to selected broker-dealer firms or institutions
which perform recordkeeping or other services with respect to shareholder
accounts. The minimum aggregate size required for eligibility for such payments,
and the factors in selecting the broker-dealer firms and institutions to which
they will be made, are determined from time to time by Janus Capital. Janus
Capital is also authorized to perform the management and administrative services
necessary for the operation of the Fund.
The Fund pays custodian and transfer agent fees and expenses, brokerage
commissions and dealer spreads and other expenses in connection with the
execution of portfolio transactions, legal and accounting expenses, interest and
taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Trustees who are not affiliated with Janus
Capital, costs of preparing, printing and mailing the Fund's Prospectus and
Statement of Additional Information to current shareholders, and other costs of
complying with applicable laws regulating the sale of Fund shares. Pursuant to
the Advisory Agreement, Janus Capital furnishes certain other services,
including net asset value determination and Fund accounting, recordkeeping, and
blue sky registration and monitoring services, for which the Fund may reimburse
Janus Capital for its costs.
The Fund has agreed to compensate Janus Capital for its services by the
monthly payment of a fee at the annual rate of 1% of the first $30 million of
the Fund's average daily net assets, 0.75% of the next $270 million of the
Fund's average daily net assets, 0.70% of the next $200 million of the Fund's
average daily net assets, and 0.65% of the average daily net assets of the Fund
in excess of $500 million. However, Janus Capital has agreed to waive its fee by
an amount equal to the amount, if any, that the Fund's normal operating expenses
chargeable to its income account in any fiscal year, including the investment
advisory fee but excluding brokerage commissions, interest, taxes and
extraordinary expenses, exceed the most restrictive limitation imposed by any
state. The Fund believes that the most restrictive limitation applicable to the
Fund is 2.50% of the first $30 million of average daily net assets, plus 2.00%
of the next $70 million of average daily net assets, plus 1.50% of the balance
of the average daily net assets of the Fund for a fiscal year.
For the fiscal year ended October 31, 1995, the investment advisory fee was
$10,947,796. For the fiscal years ended October 31, 1994, and October 31, 1993,
the Fund incurred investment advisory fees of $10,631,388 and $12,126,462,
respectively. Janus Capital did not waive any portion of its fee in any of these
years.
The current Advisory Agreement became effective on August 7, 1992, and it
will continue in effect until June 16, 1996, and thereafter from year to year so
long as such continuance is approved annually by a majority of the Fund's
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<PAGE>
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party, and by either a majority of the outstanding voting shares or the
Trustees of the Fund. The Advisory Agreement i) may be terminated without the
payment of any penalty by the Fund or Janus Capital on 60 days' written notice;
ii) terminates automatically in the event of its assignment; and iii) generally,
may not be amended without the approval by vote of a majority of the Trustees of
the Fund, including the Trustees who are not interested persons of the Fund or
Janus Capital and, to the extent required by the 1940 Act, the vote of a
majority of the outstanding voting securities of the Fund.
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Fund, are made independently from those for any other account that is or may in
the future become managed by Janus Capital or its affiliates. If, however, a
number of accounts managed by Janus Capital are contemporaneously engaged in the
purchase or sale of the same security, the orders may be aggregated and/or the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by an account or the size of the position obtained or liquidated for an
account. Pursuant to an exemptive order granted by the SEC, the Fund and other
funds advised by Janus Capital may also transfer daily uninvested cash balances
into one or more joint trading accounts. Assets in the joint trading accounts
are invested in money market instruments and the proceeds are allocated to the
participating Funds on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a Janus Capital policy regarding personal investing by directors, officers
and employees of Janus Capital and the Fund. The policy requires investment
personnel and officers of Janus Capital, inside directors of Janus Capital and
the Fund and other designated persons deemed to have access to current trading
information to pre-clear all transactions in securities not otherwise exempt
under the policy. Requests for trading authority will be denied when, among
other reasons, the proposed personal transaction would be contrary to the
provisions of the policy or would be deemed to adversely affect any transaction
known to be under consideration for or to have been effected on behalf of any
client account, including the Fund.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Fund to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns
approximately 12% of its voting stock and, by agreement with KCSI, selects a
majority of Janus Capital's Board.
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
Investors Fiduciary Trust Company ("IFTC"), 127 W. 10th Street, Kansas
City, Missouri 64105, is the custodian of the securities and cash of the Fund
maintained in the United States. IFTC is a wholly-owned subsidiary of State
Street Bank and Trust Company ("State Street"), P.O. Box 351, Boston,
Massachusetts 02101. State Street maintains custody of assets held through IFTC.
State Street and the foreign subcustodians selected by it and approved by the
Trustees, have custody of the assets of the Fund held outside the U.S. and cash
incidental thereto. State Street may also have custody of certain domestic and
foreign securities held in connection with repurchase agreements. The custodians
and subcustodians hold the Fund's assets in safekeeping and collect and remit
the income thereon, subject to the instructions of the Fund.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the Fund's
transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the Fund.
For transfer agency and other services, Janus Service receives a fee calculated
at an annual rate of $16 per Fund shareholder account. In addition, the Fund
pays DST Systems, Inc. ("DST"), a subsidiary of KCSI, license fees for the use
of DST's shareholder accounting and portfolio and fund accounting systems, and
postage and forms costs of a DST affiliate incurred in mailing Fund shareholder
transaction confirmations.
During the fiscal year ended October 31, 1995, the Fund paid the following
fees to Janus Service and DST, net of credits: $2,401,140 to Janus Service and
$791,940 (including out-of-pocket expenses) to DST.
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<PAGE>
The Trustees have authorized the Fund to use another affiliate of DST as
introducing broker for certain Fund portfolio transactions as a means to reduce
Fund expenses through a credit against the charges of DST and its affiliates
with regard to commissions earned by such affiliate. See "Portfolio Transactions
and Brokerage." DST charges shown above are net of such credits.
During the fiscal period ended October 31, 1995, IFTC served as the Fund's
transfer agent and Janus Service serviced as subtransfer agent. Prior to January
1995, IFTC may have been deemed an affiliate of the Fund through a degree of
common ownership. IFTC is no longer affiliated with the Fund. As of January 1,
1996, Janus Service became the direct transfer agent of the Fund and IFTC no
longer serves as transfer agent.
Janus Distributors, Inc. ("Janus Distributors"), 100 Fillmore Street,
Denver, Colorado 80206, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Fund. Janus Distributors is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. Janus Distributors acts
as the agent of the Fund in connection with the sale of its shares in all states
in which the shares are registered and in which Janus Distributors is qualified
as a broker-dealer. Under the Distribution Agreement, Janus Distributors
continuously offers the Fund's shares and accepts orders at net asset value. No
sales charges are paid by investors. Promotional expenses in connection with
offers and sales of shares are paid by Janus Capital.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Fund and
negotiation of its commission rates are made by Janus Capital whose policy is to
obtain the "best execution" (prompt and reliable execution at the most favorable
security price) of all portfolio transactions. The Fund may trade foreign
securities in foreign countries because the best available market for these
securities is often on foreign exchanges. In transactions on foreign stock
exchanges, brokers' commissions are frequently fixed and are often higher than
in the United States, where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to the Fund or to a third
party service provider to the Fund to pay Fund expenses; and research products
or services provided. In recognition of the value of the foregoing factors,
Janus Capital may place portfolio transactions with a broker or dealer with whom
it has negotiated a commission that is in excess of the commission another
broker or dealer would have charged for effecting that transaction if Janus
Capital determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research provided by such broker
or dealer viewed in terms of either that particular transaction or of the
overall responsibilities of Janus Capital. Research may include furnishing
advice, either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling specific securities and
the availability of securities or purchasers or sellers of securities;
furnishing seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative developments,
changes in accounting practices, economic factors and trends and portfolio
strategy; access to research analysts, corporate management personnel, industry
experts, economists and government officials; comparative performance evaluation
and technical measurement services and quotation services, and products and
other services (such as third party publications, reports and analyses, and
computer and electronic access, equipment, software, information and accessories
that deliver, process or otherwise utilize information, including the research
described above) that assist Janus Capital in carrying out its responsibilities.
Most brokers and dealers used by Janus Capital provide research and other
services described above. For the year ended October 31, 1995, the Fund paid
$1,154,069 of its total brokerage commissions to brokers and dealers in
transactions identified for execution primarily on the basis of research and
other services provided to the Fund on transactions of $489,319,622, which
represents 27.33% of all transactions. Research received from brokers or dealers
is supplemental to Janus Capital's own research efforts.
Janus Capital may use research products and services in servicing other
accounts in addition to the Fund. If Janus Capital determines that any research
product or service has a mixed use, such that it also serves functions that do
not assist in the investment decision-making process, Janus Capital may allocate
the costs of such service or product accordingly. Only that portion of the
product or service that Janus Capital determines will assist it in the
investment
17
<PAGE>
decision-making process may be paid for in brokerage commission dollars. Such
allocation may create a conflict of interest for Janus Capital.
Janus Capital does not enter into agreements with any brokers regarding the
placement of securities transactions because of the research services they
provide. It does, however, have an internal procedure for allocating
transactions in a manner consistent with its execution policy to brokers that it
has identified as providing superior executions and research, research-related
products or services which benefit its advisory clients, including the Fund.
Research products and services incidental to effecting securities transactions
furnished by brokers or dealers may be used in servicing any or all of Janus
Capital's clients and such research may not necessarily be used by Janus Capital
in connection with the accounts which paid commissions to the broker-dealer
providing such research products and services.
Janus Capital may consider sales of Fund shares by a broker-dealer or the
recommendation of a broker-dealer to its customers that they purchase Fund
shares as a factor in the selection of broker-dealers to execute Fund portfolio
transactions. Janus Capital may also consider payments made by brokers effecting
transactions for the Fund i) to the Fund or ii) to other persons on behalf of
the Fund for services provided to the Fund for which it would be obligated to
pay. In placing portfolio business with such broker-dealers, Janus Capital will
seek the best execution of each transaction.
When the Fund purchases or sells a security in the over-the-counter market,
the transaction takes place directly with a principal market-maker, without the
use of a broker, except in those circumstances where in the opinion of Janus
Capital better prices and executions will be achieved through the use of a
broker.
The Fund's Trustees have authorized Janus Capital to place transactions
with DST Securities, Inc. ("DSTS"), a wholly-owned broker-dealer subsidiary of
DST. Janus Capital may do so if it reasonably believes that the quality of the
transaction and the associated commission are fair and reasonable and if,
overall, the associated transaction costs, net of any credits described above
under "Custodian, Transfer Agent and Certain Affiliations," are lower than those
that would otherwise be incurred.
The total amount of brokerage commissions paid by the Fund during the
fiscal year ended October 31, 1995, was $3,920,258. For the fiscal years ended
October 31, 1994, and October 31, 1993, the Fund paid brokerage commissions of
$3,243,457 and $3,850,849, respectively. Included in the brokerage commissions
paid for the fiscal year ended October 31, 1995, was $143,719 paid through DSTS
which served to reduce by $107,789 certain out-of-pocket expenses paid by the
Fund. Included in brokerage commissions paid for the fiscal year ended October
31, 1994 and October 31, 1993, was $116,255 and $50,346 and, respectively, paid
through DSTS which served to reduce by $87,191 and $37,760, respectively,
certain out-of-pocket expenses. Brokerage commissions paid through DSTS for the
1995 fiscal year represented 3.67% of the Fund's aggregate brokerage commissions
for such fiscal year, while 4.38% of the aggregate dollar amount of the Fund's
portfolio transactions involving a commission payment were executed through
DSTS. The difference between commissions paid to DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker. Differences in
the percentage of total commissions versus the percentage of total transactions
is due, in part, to variations among share prices and number of shares traded,
while average price per share commission rates were substantially the same.
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<PAGE>
OFFICERS AND TRUSTEES
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years. In August 1992, Janus Venture Fund, Inc. and Janus Twenty Fund, Inc.
(both separate Maryland corporations) and the Janus Income Series (a
Massachusetts business trust comprised of the Janus Flexible Income Fund and
Janus Intermediate Government Securities Fund series) were reorganized into
separate series of the Trust. In general, all references to Trust offices in
this section include comparable offices with the respective predecessor funds,
unless a Trust office was filled subsequent to the reorganization.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4923
Trustee, Chairman and President of Janus Aspen Series. Chairman and
President of Janus Capital. Chairman and Director of IDEX Management, Inc.,
Largo, Florida (50% subsidiary of Janus Capital and investment adviser to a
group of mutual funds) ("IDEX").
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Trustee and Executive Vice President of Janus Aspen Series. Chief
Investment Officer, Vice President and Director of Janus Capital. Executive
Vice President and Portfolio Manager of Janus Fund series of the Trust.
James P. Goff* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Enterprise Fund and
Janus Venture Fund series of the Trust. Executive Vice President of Janus
Aspen Series. Vice President of Janus Capital. Formerly, securities analyst
at Janus Capital (1988 to 1992).
Warren B. Lammert* - Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Venture Fund and
Janus Mercury Fund series of the Trust. Vice President of Janus Capital.
Formerly, securities analyst at Janus Capital (1990 to 1992). Formerly,
Executive Vice President of Janus Balanced Fund.
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4923
Vice President and General Counsel of Janus Aspen Series. Vice President,
Secretary and General Counsel of Janus Capital. Vice President, General
Counsel and Director of Janus Service and Janus Distributors. Director,
Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4923
Vice President and Chief Financial Officer of Janus Aspen Series. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado.
Glenn P. O'Flaherty - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4923
Treasurer and Chief Accounting Officer of Janus Aspen Series. Director of
Fund Accounting of Janus Capital. Formerly (1990-1991), with The Boston
Company Advisors, Inc., Boston, Massachusetts (mutual fund administration
services).
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
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<PAGE>
Kelley Abbot Howes - Secretary
100 Fillmore Street
Denver, CO 80206-4923
Secretary of Janus Aspen Series. Associate Counsel of Janus Capital.
Formerly (1990 to 1994), with The Boston Company Advisors, Inc.
John W. Shepardson# - Trustee
910 16th Street, Suite 222
Denver, CO 80202
Trustee of Janus Aspen Series. Historian.
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Aspen Series. President of HPS Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Aspen Series. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments) since 1987.
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Aspen Series. President and Chief Executive Officer of BC
Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue, Washington
(restaurant chain). Formerly (1982 to 1993), Chairman, President and Chief
Executive Officer of Famous Restaurants, Inc., Scottsdale, Arizona
(restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Aspen Series. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
The Trustees are responsible for major decisions relating to the Fund's
objective, policies and techniques. The Trustees also supervise the operation of
the Fund by its officers and review the investment decisions of the officers
although they do not actively participate on a regular basis in making such
decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Agreement and Declaration of Trust
("Declaration of Trust"), Massachusetts law or the 1940 Act.
- --------------------------------------------------------------------------------
# Member of the Executive Committee.
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The following table shows the aggregate compensation paid to each Trustee
by the Fund described in this SAI and all funds advised and sponsored by Janus
Capital (collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive any pension or retirement from the Fund or the Janus Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the
from the Fund for fiscal year Janus Funds for calendar year
Name of Person, Position ended October 31,1995 ended December 31, 1995**
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* -- --
James P. Craig, III, Trustee*+ -- --
John W. Shepardson, Trustee $3,607 $4,630
William D. Stewart, Trustee $3,376 $4,399
Gary O. Loo, Trustee $3,376 $4,163
Dennis B. Mullen, Trustee $3,376 $4,399
Martin H. Waldinger, Trustee $3,376 $4,399
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*An interested person of the Fund and of Janus Capital. Compensated by Janus
Capital and not the Fund.
**As of December 31, 1995, Janus Funds consisted of two registered investment
companies comprised of a total of 26 funds.
+Mr. Craig became a Trustee as of June 30, 1995.
PURCHASE OF SHARES
The Fund has discontinued public sales of its shares to new investors. Only
shareholders who maintain open accounts are permitted to continue to make
investments in the Fund and to reinvest any dividends and capital gains
distributions. Once a Fund account is closed, additional investments in the Fund
may not be possible. The Prospectus contains detailed information about the
purchase of shares. Additional information may be obtained directly from the
Fund by writing to the Fund at P.O. Box 173375, Denver, Colorado 80217-3375.
Net Asset Value Determination
As stated in the Prospectus, the net asset value ("NAV") of Fund shares is
determined once each day on which the New York Stock Exchange ("NYSE") is open,
at the close of its regular trading session (normally 4:00 p.m., New York time,
Monday through Friday). The NAV of Fund shares is not determined on days the
NYSE is closed (generally, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas). The per
share NAV of the Fund is determined by dividing the total value of the Fund's
securities and other assets, less liabilities, by the total number of shares
outstanding. In determining NAV, securities listed on an Exchange, 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. Municipal securities held by the Fund are traded primarily in the
over-the-counter market. Valuations of such securities are furnished by one or
more pricing services employed by the Fund and are based upon a computerized
matrix system or appraisals obtained by a pricing service, in each case in
reliance upon information concerning market transactions and quotations from
recognized municipal securities dealers. Other 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 the exchange rate
in effect at the close of the NYSE. The Fund 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 Trustees.
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 New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which the Fund's NAV is not calculated. The Fund calculates its NAV per
share, and therefore effects sales, redemptions and repurchases of its shares,
as of the close of the NYSE once on each day on which the NYSE is open. Such
calculation may not take place contemporaneously with the determination of the
prices of the foreign portfolio securities used in such calculation.
21
<PAGE>
Reinvestment of Dividends and Distributions
If investors do not elect in writing or by phone to receive their dividends
and distributions in cash, all income dividends and capital gains distributions,
if any, on the Fund's shares are reinvested automatically in additional shares
of the Fund at the NAV determined on the first business day following the record
date. Checks for cash dividends and distributions and confirmations of
reinvestments are usually mailed to shareholders within ten days after the
record date. Any election of the manner in which a shareholder wishes to receive
dividends and distributions (which may be made on the New Account Application
form or by phone) will apply to dividends and distributions the record dates of
which fall on or after the date that the Fund receives such notice. Investors
receiving cash distributions and dividends may elect in writing or by phone to
change back to automatic reinvestment at any time.
REDEMPTION OF SHARES
Procedures for redemption of shares are set forth in the Shareholder's
Manual section of the Prospectus. Shares normally will be redeemed for cash,
although the Fund retains the right to redeem its shares in kind under unusual
circumstances, in order to protect the interests of remaining shareholders, by
delivery of securities selected from its assets at its discretion. However, the
Fund is governed by Rule 18f-1 under the 1940 Act, which requires the Fund to
redeem shares solely in cash up to the lesser of $250,000 or 1% of the NAV of
the Fund during any 90-day period for any one shareholder. Should redemptions by
any shareholder exceed such limitation, the Fund will have the option of
redeeming the excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets to
cash. The method of valuing securities used to make redemptions in kind will be
the same as the method of valuing portfolio securities described under "Purchase
of Shares - Net Asset Value Determination" and such valuation will be made as of
the same time the redemption price is determined.
The right to require the Fund to redeem its shares may be suspended, or the
date of payment may be postponed, whenever (1) trading on the NYSE is
restricted, as determined by the SEC, or the NYSE is closed except for holidays
and weekends, (2) the SEC permits such suspension and so orders, or (3) an
emergency exists as determined by the SEC so that disposal of securities or
determination of NAV is not reasonably practicable.
SHAREHOLDER ACCOUNTS
Detailed information about the general procedures for shareholder accounts
and specific types of accounts is set forth in the Prospectus. Applications for
specific types of accounts may be obtained by calling the Fund at 1-800-525-3713
or writing to the Fund at P.O. Box 173375, Denver, Colorado 80217-3375.
Telephone Transactions
As stated in the Prospectus, shareholders may initiate a number of
transactions by telephone. The Fund, its transfer agent and its distributor
disclaim responsibility for the authenticity of instructions received by
telephone. Such entities will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include,
among others, requiring personal identification prior to acting upon telephone
instructions, providing written confirmation of the transactions and tape
recording telephone conversations.
Systematic Withdrawals
As stated in the Shareholder's Manual section of the Prospectus, if you
have a regular account or are eligible for normal distributions from a
retirement plan, you may establish a systematic withdrawal program. The payments
will be made from the proceeds of periodic redemptions of shares in the account
at the NAV. Depending on the size or frequency of the disbursements requested,
and the fluctuation in value of the Fund's portfolio, redemptions for the
purpose of making such disbursements may reduce or even exhaust the
shareholder's account. Either an investor or the Fund, by written notice to the
other, may terminate the investor's systematic withdrawal program without
penalty at any time.
Information about requirements to establish a systematic withdrawal program
may be obtained by writing or calling the Fund at the address or phone number
shown above.
22
<PAGE>
RETIREMENT PLANS
The Fund offers several different types of tax-deferred retirement plans
that an investor may establish to invest in Fund shares, depending on rules
prescribed by the Code. The Individual Retirement Account ("IRA") may be used by
most individuals who have taxable compensation. Simplified Employee Pension
Plans ("SEPs") and Defined Contribution Plans (Profit Sharing or Money Purchase
Pension Plans) may be used by most employers, including corporations,
partnerships and sole proprietors, for the benefit of business owners and their
employees. In addition, the Fund offers a Section 403(b)(7) Plan for employees
of educational organizations and other qualifying tax-exempt organizations.
Investors should consult their tax advisor or legal counsel before selecting a
retirement plan.
Contributions under IRAs, SEPs, Defined Contribution Plans and Section
403(b)(7) Plans are subject to specific contribution limitations. Generally,
such contributions may be invested at the direction of the participant. The
investment is then held by IFTC as custodian. Each participant's account is
charged an annual fee of $12. There is a maximum annual fee of $24 per taxpayer
identification number.
Distributions from retirement plans are generally subject to ordinary
income tax and may be subject to an additional 10% tax if withdrawn prior to age
591/2. Several exceptions to the general rule may apply. However, shareholders
must start withdrawing retirement plan assets no later than April 1 of the year
after they reach age 701/2. Several methods exist to determine the amount of the
minimum annual distribution. Shareholders should consult with their tax advisor
or legal counsel prior to receiving any distribution from any retirement plan,
in order to determine the income tax impact of any such distribution.
To receive additional information about IRAs, SEPs, Defined Contribution
Plans and Section 403(b)(7) Plans along with the necessary materials to
establish an account, please call the Fund at 1-800-525-3713 or write to the
Fund at P.O. Box 173375, Denver, Colorado 80217-3375. No contribution to an IRA,
SEP, Defined Contribution Plan or Section 403(b)(7) Plan can be made until the
appropriate forms to establish any such plan have been completed.
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
It is a policy of the Fund to make distributions of substantially all of
its investment income and any net realized capital gains. Any capital gains
realized during each fiscal year of the Fund ended October 31, as defined by the
Code, are normally declared and payable to shareholders in December. The Fund
intends to qualify as a regulated investment company by satisfying certain
requirements prescribed by Subchapter M of the Code.
The Fund may purchase securities of certain foreign corporations considered
to be passive foreign investment companies by the IRS. In order to avoid taxes
and interest that must be paid by the Fund, if these instruments are profitable,
the Fund may make various elections permitted by the tax laws. However, these
elections could require that the Fund recognize taxable income, which in turn
must be distributed.
Some foreign securities purchased by the Fund may be subject to foreign
taxes which could reduce the yield on such securities. The amount of such
foreign taxes is expected to be insignificant. Accordingly, the Fund does not
intend to make the election permitted under section 853 of the Code to pass
through such taxes to shareholders as a foreign tax credit. As a result, any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income as this would increase the taxable
income reported to shareholders and require shareholders to take the credit on
their tax returns, complicating the preparation of such returns.
PRINCIPAL SHAREHOLDERS
As of December 1, 1995, the officers and Trustees of the Fund as a group
owned less than 1% of the outstanding shares of the Fund. In addition, as of
December 1, 1995, Charles Schwab & Co. Inc. ("Schwab"), 101 Montgomery Street,
San Francisco, CA 94104-4122, owned of record 8.74% of the Fund's outstanding
shares. According to information provided by Schwab, this ownership is by
nominee only and does not represent beneficial ownership of such shares, because
they have no investment discretion or voting power with respect to such shares.
To the knowledge of the Fund, no other person owned more than 5% of the
outstanding shares of the Fund as of the above date.
23
<PAGE>
MISCELLANEOUS INFORMATION
The Fund was originally organized in 1984 as a Maryland corporation. On
August 7, 1992, the Fund was reorganized from a Maryland corporation into Janus
Venture Fund, a separate series of the Trust. Pursuant to this reorganization,
the Trust assumed all the assets and liabilities of Janus Venture Fund, Inc.,
and shareholders received shares of Janus Venture Fund series of the Trust equal
both in number and net asset value to their shares of Janus Venture Fund, Inc.
All references in this SAI to the Fund and all financial and other information
about the Fund prior to August 7, 1992 are to the former Janus Venture Fund,
Inc.; all references after August 7, 1992, are to the Janus Venture Fund series
of the Trust. As the result of the reorganization, the fiscal year end of the
Fund changed from July 31 to October 31. As of the date of this SAI, the Trust
consists of 17 other series, which are offered by separate prospectuses.
Janus Capital reserves the right to the name "Janus." In the event that
Janus Capital does not continue to provide investment advice to the Fund, the
Fund must cease to use the name "Janus" as soon as reasonably practicable.
Under Massachusetts law, shareholders of the Fund could, under certain
circumstances, be held liable for the obligations of the Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Fund and requires that notice of this disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees.
The Declaration of Trust also provides for indemnification from the assets of
the Fund for all losses and expenses of any Fund shareholder held liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring a financial
loss on account of its liability as a shareholder of the Fund is limited to
circumstances in which the Fund would be unable to meet its obligations. The
possibility that these circumstances would occur is remote. The Trustees intend
to conduct the operations of the Fund to avoid, to the extent possible,
liability of shareholders for liabilities of the Fund.
Shares of the Trust
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of one cent per share for each series of
the Trust. Shares of the Fund are fully paid and nonassessable when issued. All
shares of the Fund participate equally in dividends and other distributions by
the Fund, and in residual assets of the Fund in the event of liquidation. Shares
of the Fund have no preemptive, conversion or subscription rights. Shares of the
Fund may be transferred by endorsement or stock power as is customary, but the
Fund is not bound to recognize any transfer until it is recorded on its books.
Voting Rights
The present Trustees were elected at a meeting of shareholders held on July
10, 1992, with the exception of Mr. Craig who was appointed by the Trustees as
of June 30, 1995. Under the Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his earlier death, resignation,
bankruptcy, incapacity or removal. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act. Therefore, no annual or regular
meetings of shareholders normally will be held, unless otherwise required by the
Declaration of Trust or the 1940 Act. Subject to the foregoing, shareholders
have the power to vote to elect or remove Trustees, to terminate or reorganize
the Fund, to amend the Declaration of Trust, to bring certain derivative actions
and on any other matters on which a shareholder vote is required by the 1940
Act, the Declaration of Trust, the Trust's Bylaws or the Trustees.
Each share of the Fund and of each other series of the Trust has one vote
(and fractional votes for fractional shares). Shares of all series of the Trust
have noncumulative voting rights, which means that the holders of more than 50%
of the shares of all series of the Trust voting for the election of Trustees can
elect 100% of the Trustees if they choose to do so and, in such event, the
holders of the remaining shares will not be able to elect any Trustees. The Fund
and each other series of the Trust will vote separately only with respect to
those matters that affect only that series or if a portfolio's interest in a
matter differs from the interests of other portfolios of the Trust.
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Fund, audit the Fund's annual financial
statements and prepare its tax returns.
Registration Statement
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this SAI relates. If further information is desired with
respect to the Fund or such securities, reference is made to the Registration
Statement and the exhibits filed as a part thereof.
24
<PAGE>
PERFORMANCE INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5, and 10 years (up to the life of the
Fund). These are the annual total rates of return that would equate the initial
amount invested to the ending redeemable value. These rates of return are
calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). All total return figures
reflect the deduction of a proportional share of Fund expenses on an annual
basis, and assume that all dividends and distributions are reinvested when paid.
The Fund was made available for public sale on May 2, 1985. The one year,
five year, ten year and lifetime average annual total returns, computed as of
October 31, 1995, for each of those periods, are 19.24%, 19.52%, 17.63% and
17.52%, respectively.
From time to time in advertisements or sales material, the Fund may discuss
its performance ratings or other information as published by recognized mutual
fund statistical rating services, including, but not limited to, Lipper
Analytical Services, Inc., Ibbotson Associates, Micropal or Morningstar or by
publications of general interest such as Forbes or Money. The Fund may also
compare its performance to that of other selected mutual funds, mutual fund
averages or recognized stock market indicators, including, but not limited to,
the Standard & Poor's 500 Composite Stock Price Index, the Standard & Poor's
Midcap Index, the Dow Jones Industrial Average, the Russell 2000 Index and the
NASDAQ composite. In addition, the Fund may compare its total return to the
yield on U.S. Treasury obligations and to the percentage change in the Consumer
Price Index. Such performance ratings or comparisons may be made with funds that
may have different investment restrictions, objectives, policies or techniques
than the Fund and such other funds or market indicators may be comprised of
securities that differ significantly from the Fund's investments.
FINANCIAL STATEMENTS
The following audited financial statements for the period ended October 31,
1995 are hereby incorporated into this SAI by reference to the Fund's Annual
Report dated October 31, 1995. A copy of such report accompanies this SAI.
Documents Incorporated by Reference to the Annual Report:
Schedule of Investments as of October 31, 1995
Statement of Operations for the period ended October 31, 1995
Statement of Assets and Liabilities as of October 31, 1995
Statements of Changes in Net Assets for the periods ended October 31, 1995
and 1994
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Report of Independent Accountants
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this SAI and are not part of the
Registration Statement.
25
<PAGE>
APPENDIX A
Explanation of Rating Categories
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the adviser considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
Standard & Poor's Ratings Services
Bond Rating Explanation
- --------------------------------------------------------------------------------
Investment Grade
AAA Highest rating; extremely strong capacity to pay principal and
interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions
or changing circumstances more likely to lead to a weakened
capacity to pay principal and interest than for higher rated
bonds.
Non-Investment Grade
BB, B, Predominantly speculative with respect to the issuer's capacity
CCC, CC, C to meet required interest and principal payments. BB - lowest
degree of speculation; C - the highest degree of speculation.
Quality and protective characteristics outweighed by large
uncertainties or major risk exposure to adverse conditions.
D In default.
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc.
Investment Grade
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the
high-grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
Non-Investment Grade
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
- --------------------------------------------------------------------------------
Unrated securities will be treated as noninvestment grade securities unless the
portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received ratings from more
than one agency are considered investment grade if at least one agency has rated
the security investment grade.
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[LOGO]
JANUS INVESTMENT FUND
100 Fillmore Street
Denver, CO 80206-4923
(800) 525-3713
STATEMENT OF ADDITIONAL INFORMATION
February 18, 1996
JANUS MONEY MARKET FUND
JANUS GOVERNMENT MONEY MARKET FUND
JANUS TAX-EXEMPT MONEY MARKET FUND
INVESTOR SHARES
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus for the Investor
Shares (the "Shares") of Janus Money Market Fund, Janus Government Money Market
Fund and Janus Tax-Exempt Money Market Fund (individually, a "Fund" and,
collectively, the "Funds"). The Funds are each a separate series of Janus
Investment Fund, a Massachusetts business trust (the "Trust"). Each Fund
represents shares of beneficial interest in a separate portfolio of securities
and other assets with its own objective and policies, and is managed separately
by Janus Capital Corporation ("Janus Capital").
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated February 18, 1996, which is incorporated by reference into this
SAI and may be obtained from the Trust at the above phone number or address.
This SAI contains additional and more detailed information about the Funds'
operations and activities than the Prospectus.
1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
Investment Policies and Restrictions ...................................... 3
Types of Securities and Investment Techniques ............................. 4
Performance Data .......................................................... 7
Determination of Net Asset Value .......................................... 8
Investment Adviser and Administrator ...................................... 8
Custodian, Transfer Agent and Certain Affiliations ........................ 10
Portfolio Transactions and Brokerage ...................................... 10
Officers and Trustees ..................................................... 11
Purchase of Shares ........................................................ 13
Redemption of Shares ...................................................... 13
Shareholder Accounts ...................................................... 13
Retirement Plans .......................................................... 14
Dividends and Tax Status .................................................. 14
Principal Shareholders .................................................... 15
Miscellaneous Information ................................................. 15
Shares of the Trust .................................................. 15
Voting Rights ........................................................ 15
Independent Accountants .............................................. 16
Registration Statement ............................................... 16
Financial Statements ...................................................... 16
Appendix A - Description of Securities Ratings ............................ 17
Appendix B - Description of Municipal Securities .......................... 19
- --------------------------------------------------------------------------------
2
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
As discussed in the Prospectus, the investment objective of each of Janus
Money Market Fund and Janus Government Money Market Fund is to seek maximum
current income to the extent consistent with stability of capital. The
investment objective of Janus Tax-Exempt Money Market Fund is to seek maximum
current income that is exempt from federal income taxes to the extent consistent
with stability of capital. There can be no assurance that a Fund will achieve
its investment objective or maintain a stable net asset value of $1.00 per
share. The investment objectives of the Funds are not fundamental and may be
changed by the Trustees of the Trust (the "Trustees") without shareholder
approval.
INVESTMENT RESTRICTIONS APPLICABLE TO ALL FUNDS
As indicated in the Prospectus, each Fund has adopted certain fundamental
investment restrictions that cannot be changed without shareholder approval.
Shareholder approval means approval by the lesser of (i) more than 50% of the
outstanding voting securities of the Trust (or a particular Fund or particular
class of Shares if a matter affects just that Fund or that class of Shares), or
(ii) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities of the Trust (or a particular
Fund or class of Shares) are present or represented by proxy.
As used in the restrictions set forth below and as used elsewhere in this
SAI, the term "U.S. Government Securities" shall have the meaning set forth in
the Investment Company Act of 1940, as amended (the "1940 Act"). The 1940 Act
defines U.S. Government Securities as securities issued or guaranteed by the
United States government, its agencies or instrumentalities. U.S. Government
Securities may also include repurchase agreements collaterized and municipal
securities escrowed with or refunded with escrowed U.S. government securities.
The Funds have adopted the following fundamental policies:
(1) With respect to 75% of its assets, a Fund may not purchase a security
other than a U.S. Government Security, if, as a result, more than 5% of the
Fund's total assets would be invested in the securities of a single issuer or
the Fund would own more than 10% of the outstanding voting securities of any
single issuer. (As noted in the Prospectus, Janus Money Market Fund and Janus
Government Money Market Fund are currently subject to the greater
diversification standards of Rule 2a-7, which are not fundamental.)
(2) A Fund may not purchase securities if more than 25% of the value of a
Fund's total assets would be invested in the securities of issuers conducting
their principal business activities in the same industry; provided that: (i)
there is no limit on investments in U.S. Government Securities or in obligations
of domestic commercial banks (including U.S. branches of foreign banks subject
to regulations under U.S. laws applicable to domestic banks and, to the extent
that its parent is unconditionally liable for the obligation, foreign branches
of U.S. banks); (ii) this limitation shall not apply to a Fund's investments in
municipal securities; (iii) there is no limit on investments in issuers
domiciled in a single country; (iv) financial service companies are classified
according to the end users of their services (for example, automobile finance,
bank finance and diversified finance are each considered to be a separate
industry); and (v) utility companies are classified according to their services
(for example, gas, gas transmission, electric, and telephone are each considered
to be a separate industry).
(3) A Fund may not act as an underwriter of securities issued by others,
except to the extent that a Fund may be deemed an underwriter in connection with
the disposition of portfolio securities of such Fund.
(4) A Fund may not lend any security or make any other loan if, as a
result, more than 25% of a Fund's total assets would be lent to other parties
(but this limitation does not apply to purchases of commercial paper, debt
securities or repurchase agreements).
(5) A Fund may not purchase or sell real estate or any interest therein,
except that the Fund may invest in debt obligations secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein.
(6) A Fund may borrow money for temporary or emergency purposes (not for
leveraging) in an amount not exceeding 25% of the value of its total assets
(including the amount borrowed) less liabilities (other than borrowings). If
borrowings exceed 25% of the value of a Fund's total assets by reason of a
decline in net assets, the Fund will reduce its borrowings within three business
days to the extent necessary to comply with the 25% limitation. Reverse
repurchase agreements or the segregation of assets in connection with such
agreements shall not be considered borrowing for the purposes of this limit.
3
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(7) Each Fund may, notwithstanding any other investment policy or
restriction (whether or not fundamental), invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and restrictions as that
Fund.
Each Fund has adopted the following nonfundamental investment restrictions
that may be changed by the Trustees without shareholder approval:
(1) A Fund may not invest in securities or enter into repurchase agreements
with respect to any securities if, as a result, more than 10% of the Fund's net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in other securities that are not
readily marketable ("illiquid securities"). The Trustees, or the Fund's
investment adviser acting pursuant to authority delegated by the Trustees, may
determine that a readily available market exists for certain securities such as
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, Section 4(2) commercial paper and municipal
lease obligations. Accordingly, such securities may not be subject to the
foregoing limitation.
(2) A Fund may not invest in the securities of another investment company,
except to the extent permitted by the 1940 Act.
(3) A Fund may not purchase securities on margin, or make short sales of
securities, except for short sales against the box and the use of short-term
credit necessary for the clearance of purchases and sales of portfolio
securities.
(4) A Fund may not invest more than 5% of the value of its total assets in
the securities of any issuer that has conducted continuous operations for less
than three years, including operations of predecessors, except that this shall
not affect the Fund's ability to invest in U.S. Government Securities, fully
collateralized debt obligations, municipal obligations, securities that are
rated by at least one nationally recognized statistical rating organization and
securities guaranteed as to principal and interest by an issuer in whose
securities the Fund could invest.
(5) A Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings or in connection with permitted
short sales.
(6) A Fund may not invest directly in interests in oil and gas or interests
in other mineral exploration or development programs or leases; however, the
Fund may own debt securities of companies engaged in those businesses.
(7) A Fund may not invest in companies for the purpose of exercising
control of management.
For purposes of the Funds' restriction on investing in a particular
industry, the Funds will rely primarily on industry classifications as published
by Bloomberg L.P., subject to the exceptions noted in fundamental restriction
number two above. To the extent that such classifications are so broad that the
primary economic characteristics in a single class are materially different, the
Funds may further classify issuers in accordance with industry classifications
as published by the Securities and Exchange Commission.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
Each of the Funds may invest only in "eligible securities" as defined in
Rule 2a-7 adopted under the 1940 Act. Generally, an eligible security is a
security that (i) is denominated in U.S. dollars and has a remaining maturity of
397 days or less (as calculated pursuant to Rule 2a-7); (ii) is rated, or is
issued by an issuer with short-term debt outstanding that is rated, in one of
the two highest rating categories by any two nationally recognized statistical
rating organizations ("NRSROs") or, if only one NRSRO has issued a rating, by
that NRSRO (the "Requisite NRSROs") or is unrated and of comparable quality to a
rated security, as determined by Janus Capital; and (iii) has been determined by
Janus Capital to present minimal credit risks pursuant to procedures approved by
the Trustees. In addition, the Funds will maintain a dollar-weighted average
portfolio maturity of 90 days or less. A description of the ratings of some
NRSROs appears in Appendix A.
Under Rule 2a-7, a Fund may not invest more than five percent of its total
assets in the securities of any one issuer other than U.S. Government
Securities, provided that in certain cases a Fund may invest more than 5% of its
assets in a single issuer for a period of up to three business days. In the case
of Janus Tax-Exempt Money Market Fund, up to 25% of its assets may be invested
without regard to the foregoing limitations.
Pursuant to Rule 2a-7, each Fund (except Janus Tax-Exempt Money Market
Fund) will invest at least 95% of its total assets in "first-tier" securities.
First-tier securities are eligible securities that are rated, or are issued by
an issuer with short-term debt outstanding that is rated, in the highest rating
category by the Requisite NRSROs or are unrated and of comparable quality to a
rated security. In addition, a Fund may invest in "second-tier" securities which
are eligible securities that are not first-tier securities. However, a Fund
(except for Janus Tax-Exempt Money Market Fund) may not invest in a second-tier
security if immediately after the acquisition thereof the Fund would
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have invested more than (i) the greater of one percent of its total assets or
one million dollars in second-tier securities issued by that issuer, or (ii)
five percent of its total assets in second-tier securities.
The following discussion of types of securities in which the Funds may
invest supplements and should be read in conjunction with the Prospectus.
PARTICIPATION INTERESTS
Each Fund may purchase participation interests in loans or securities in
which the Funds may invest directly. Participation interests are generally
sponsored or issued by banks or other financial institutions. A participation
interest gives a Fund an undivided interest in the underlying loans or
securities in the proportion that the Fund's interest bears to the total
principal amount of the underlying loans or securities. Participation interests,
which may have fixed, floating or variable rates, may carry a demand feature
backed by a letter of credit or guarantee of a bank or institution permitting
the holder to tender them back to the bank or other institution. For certain
participation interests, a Fund will have the right to demand payment, on not
more than seven days' notice, for all or a part of the Fund's participation
interest. The Funds intend to exercise any demand rights it may have upon
default under the terms of the loan or security, to provide liquidity or to
maintain or improve the quality of the Funds' investment portfolio. A Fund will
only purchase participation interests that Janus Capital determines present
minimal credit risks.
VARIABLE AND FLOATING RATE NOTES
Janus Money Market Fund also may purchase variable and floating rate demand
notes of corporations and other entities, which are unsecured obligations
redeemable upon not more than 30 days' notice. These obligations include master
demand notes that permit investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangements with the issuer of the instrument. The
issuer of these obligations often has the right, after a given period, to prepay
the outstanding principal amount of the obligations upon a specified number of
days' notice. These obligations generally are not traded, nor generally is there
an established secondary market for these obligations. To the extent a demand
note does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid investment.
MORTGAGE- AND ASSET-BACKED SECURITIES
The Funds may invest in mortgage-backed securities, which represent an
interest in a pool of mortgages made by lenders such as commercial banks,
savings and loan institutions, mortgage bankers, mortgage brokers and savings
banks. Mortgage-backed securities may be issued by governmental or
government-related entities or by non-governmental entities such as banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. In
contrast, mortgage-backed securities provide periodic payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the periodic payments and optional prepayments made by the
individual borrowers on their mortgage loans, net of any fees paid to the issuer
or guarantor of such securities. Additional payments to holders of
mortgage-backed securities are caused by prepayments resulting from the sale of
the underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred.
As prepayment rates of individual pools of mortgage loans vary widely, it
is not possible to predict accurately the average life of a particular security.
Although mortgage-backed securities are issued with stated maturities of up to
forty years, unscheduled or early payments of principal and interest on the
underlying mortgages may shorten considerably the effective maturities.
Mortgage-backed securities may have varying assumptions for average life. The
volume of prepayments of principal on a pool of mortgages underlying a
particular security will influence the yield of that security, and the principal
returned to a Fund may be reinvested in instruments whose yield may be higher or
lower than that which might have been obtained had the prepayments not occurred.
When interest rates are declining, prepayments usually increase, with the result
that reinvestment of principal prepayments will be at a lower rate than the rate
applicable to the original mortgage-backed security.
The Funds may invest in mortgage-backed securities that are issued by
agencies or instrumentalities of the U.S. government. The Government National
Mortgage Association ("GNMA") is the principal federal government guarantor of
mortgage-backed securities. GNMA is a wholly-owned U.S. government corporation
within the Department of Housing and Urban Development. GNMA Certificates are
debt securities which represent an interest in one mortgage or a pool of
mortgages which are insured by the Federal Housing Administration or the Farmers
Home Administration or are guaranteed by the Veterans Administration. The Funds
may also invest in pools of conventional
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<PAGE>
mortgages which are issued or guaranteed by agencies of the U.S. government.
GNMA pass-through securities are considered to be riskless with respect to
default in that (i) the underlying mortgage loan portfolio is comprised entirely
of government-backed loans and (ii) the timely payment of both principal and
interest on the securities is guaranteed by the full faith and credit of the
U.S. government, regardless of whether or not payments have been made on the
underlying mortgages. GNMA pass-through securities are, however, subject to the
same market risk as comparable debt securities. Therefore, the market value of a
Fund's GNMA securities can be expected to fluctuate in response to changes in
prevailing interest rate levels.
Residential mortgage loans are pooled also by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FHLMC is a privately managed, publicly chartered
agency created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
participation certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio. The mortgage loans in FHLMC's portfolio are not U.S.
government backed; rather, the loans are either uninsured with loan-to-value
ratios of 80% or less, or privately insured if the loan-to-value ratio exceeds
80%. FHLMC guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs; the U.S. government does not guarantee any aspect of
FHLMC PCs.
The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private shareholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include savings and loan associations, savings banks, commercial banks,
credit unions and mortgage bankers. FNMA guarantees the timely payment of
principal and interest on the pass-through securities issued by FNMA; the U.S.
government does not guarantee any aspect of the FNMA pass-through securities.
The Funds may also invest in privately-issued mortgage-backed securities to
the extent permitted by their investment restrictions. Mortgage-backed
securities offered by private issuers include pass-through securities comprised
of pools of conventional residential mortgage loans; mortgage-backed bonds which
are considered to be debt obligations of the institution issuing the bonds and
which are collateralized by mortgage loans; and collateralized mortgage
obligations ("CMOs") which are collateralized by mortgage-backed securities
issued by GNMA, FHLMC or FNMA or by pools of conventional mortgages.
Asset-backed securities represent direct or indirect participations in, or
are secured by and payable from, assets other than mortgage-backed assets such
as motor vehicle installment sales contracts, installment loan contracts, leases
of various types of real and personal property and receivables from revolving
credit agreements (credit cards). Asset-backed securities have yield
characteristics similar to those of mortgage-backed securities and, accordingly,
are subject to many of the same risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate. The
Funds will use the proceeds of reverse repurchase agreements only 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.
Generally, a reverse repurchase agreement enables the Fund to recover for
the term of the reverse repurchase agreement all or most of the cash invested in
the portfolio securities sold and to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise. In addition, interest costs on the money
received in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. A Fund will enter into such transactions only when it has the intention
of actually acquiring the securities. To facilitate such acquisitions, the
Funds' custodian will segregate cash or high quality liquid assets in an amount
at least equal to such commitments. On delivery dates for such transactions, the
Fund will meet its obligations from maturities, sales of the segregated
securities or from other available sources of cash. If a Fund chooses to dispose
of the right to acquire a when-issued security prior to its acquisition, it
could, as with the disposition of any other portfolio obligation, incur a gain
or loss
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<PAGE>
due to market fluctuation. At the time a Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction as a purchase and thereafter reflect the value of such securities in
determining its net asset value.
MUNICIPAL LEASES
Janus Money Market Fund and Janus Tax-Exempt Money Market Fund may invest
in municipal leases. Municipal leases frequently have special risks not normally
associated with general obligation or revenue bonds. Leases and installment
purchase or conditional sales contracts (which normally provide for title to the
leased asset to pass eventually to the government issuer) have evolved as a
means for governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. The Fund will only purchase municipal leases subject to a
non-appropriation clause when the payment of principal and accrued interest is
backed by an unconditional, irrevocable letter of credit, or guarantee of a bank
or other entity that meets the criteria described in the Prospectus under
"Taxable Investments".
In evaluating municipal lease obligations, Janus Capital will consider such
factors as it deems appropriate, including: (a) whether the lease can be
canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease obligor; (d)
the likelihood that the municipality will discontinue appropriating funding for
the leased property in the event such property is no longer considered essential
by the municipality; (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding; (f) whether the security is backed by a
credit enhancement such as insurance; and (g) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services other
than those covered by the lease obligation. If a lease is backed by an
unconditional letter of credit or other unconditional credit enhancement, then
Janus Capital may determine that a lease is an eligible security solely on the
basis of its evaluation of the credit enhancement.
Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. The ability of issuers of municipal leases to make timely
lease payments may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among federal,
state and local governmental units. Such non-payment would result in a reduction
of income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Fund.
PERFORMANCE DATA
A Fund may provide current annualized and effective annualized yield
quotations based on its daily dividends. These quotations may from time to time
be used in advertisements, shareholder reports or other communications to
shareholders. All performance information supplied by the Funds in advertising
is historical and is not intended to indicate future returns.
In performance advertising, the Funds may compare their Shares' performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., CDC/Wiesenberger, Donoghue's Money Fund
Report or other companies which track the investment performance of investment
companies ("Fund Tracking Companies"). The Funds may also compare their Shares'
performance information with the performance of recognized stock, bond and other
indices, including but not limited to the Municipal Bond Buyers Indices, the
Salomon Brothers Bond Index, the Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, U.S. Treasury
bonds, bills or notes and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Funds may refer to general market
performance over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook").
The Funds may also refer in such materials to mutual fund performance rankings
and other data published by Fund Tracking Companies. Performance advertising may
also refer to discussions of the Funds and comparative mutual fund data and
ratings reported in independent periodicals, such as newspapers and financial
magazines.
Any current yield quotation of the Shares which is used in such a manner as
to be subject to the provisions of Rule 482(d) under the Securities Act of 1933,
as amended, shall consist of an annualized historical yield, carried at least to
the nearest hundredth of one percent, based on a specific seven calendar day
period. The Fund's current yield shall be calculated by (a) determining the net
change during a seven calendar day period in the value of a hypothetical account
having a balance of one share at the beginning of the period, (b) dividing the
net change by the value of the account at the beginning of the period to obtain
a base period return, and (c) multiplying the quotient
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by 365/7 (i.e., annualizing). For this purpose, the net change in account value
would reflect the value of additional Shares purchased with dividends declared
on the original Share and dividends declared on both the original Share and any
such additional Shares, but would not reflect any realized gains or losses from
the sale of securities or any unrealized appreciation or depreciation on
portfolio securities. In addition, the Shares may advertise effective yield
quotations. Effective yield quotations are calculated by adding 1 to the base
period return, raising the sum to a power equal to 365/7, and subtracting 1 from
the result (i.e., compounding).
Janus Tax-Exempt Money Market Fund's tax equivalent yield is the rate an
investor would have to earn from a fully taxable investment in order to equal
such Shares' yield after taxes. Tax equivalent yields are calculated by dividing
Janus Tax-Exempt Money Market Fund's yield by one minus the stated federal or
combined federal and state tax rate. If only a portion of the Shares' yield is
tax-exempt, only that portion is adjusted in the calculation.
The Shares' current yield and effective yield for the seven day period
ended October 31, 1995 is shown below:
Seven-day Effective
Fund Name Yield Seven-day Yield
- --------------------------------------------------------------------------------
Janus Money Market Fund-Investor Shares 5.37% 5.51%
Janus Government Money Market Fund-Investor Shares 5.30% 5.45%
Janus Tax-Exempt Money Market Fund-Investor Shares* 3.48% 3.54%
- --------------------------------------------------------------------------------
*Janus Tax-Exempt Money Market Fund Investor Shares' tax equivalent yield for
the seven day period ended October 31, 1995 was 4.83%.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Shares. Also, Processing Organizations may charge their customers direct
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yield on a class of
Shares is not fixed or guaranteed, and an investment in the Shares is not
insured. Accordingly, yield information may not necessarily be used to compare
Shares with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. In addition, because investments
in the Funds are not insured or guaranteed, yield on the Shares may not
necessarily be used to compare the Shares with investment alternatives which are
insured or guaranteed.
DETERMINATION OF NET ASSET VALUE
Pursuant to the rules of the Securities and Exchange Commission, the
Trustees have established procedures to stabilize each Fund's net asset value at
$1.00 per Share. These procedures include a review of the extent of any
deviation of net asset value per Share as a result of fluctuating interest
rates, based on available market rates, from the Fund's $1.00 amortized cost
price per Share. Should that deviation exceed 1/2 of 1%, the Trustees will
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redemption of Shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per Share as
determined by using available market quotations. Each Fund i) will maintain a
dollar-weighted average portfolio maturity of 90 days or less; ii) will not
purchase any instrument with a remaining maturity greater than 397 days or
subject to a repurchase agreement having a duration of greater than 397 days;
iii) will limit portfolio investments, including repurchase agreements, to those
U.S. dollar-denominated instruments that Janus Capital has determined present
minimal credit risks pursuant to procedures established by the Trustees; and iv)
will comply with certain reporting and recordkeeping procedures. The Trust has
also established procedures to ensure that portfolio securities meet the Funds'
high quality criteria.
INVESTMENT ADVISER AND ADMINISTRATOR
As stated in the Prospectus, each Fund has an Investment Advisory Agreement
with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4923. Each
Advisory Agreement provides that Janus Capital will furnish continuous advice
and recommendations concerning the Funds' investments. The Funds have each
agreed to compensate Janus Capital for its advisory services by the monthly
payment of an advisory fee at the annual rate of .20% of the average daily net
assets of each Fund. However, Janus Capital has agreed to waive .10% of the
advisory fee through June 16, 1996. In addition, the Funds pay brokerage
commissions or dealer spreads and other expenses in connection with the
execution of portfolio transactions.
On behalf of the Shares, each of the Funds has also entered into an
Administration Agreement with Janus Capital. Under the terms of the
Administration Agreements, each of the Funds has agreed to compensate Janus
Capital for administrative services at the annual rate of .50% of the value of
the average daily net assets of the Shares for certain services, including
custody, transfer agent fees and expenses, legal fees not related to litigation,
accounting expenses,
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net asset value determination and Fund accounting, recordkeeping, and blue sky
registration and monitoring services, registration fees, expenses of
shareholders' meetings and reports to shareholders, costs of preparing, printing
and mailing the Shares' Prospectuses and Statements of Additional Information to
current shareholders, and other costs of complying with applicable laws
regulating the sale of Shares. Each Fund will pay those expenses not assumed by
Janus Capital, including interest and taxes, fees and expenses of Trustees who
are not affiliated with Janus Capital, audit fees and expenses, and
extraordinary costs.
The following table summarizes the advisory fees and administration fees
paid by the Shares and any advisory fee waivers for the fiscal period ended
October 31, 1995:
<TABLE>
<CAPTION>
Advisory Fees Advisory Fees Administration
Fund Name Prior to Waiver After Waiver Fees
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Money Market Fund-Investor Shares $ 654,682 $ 327,341 $1,636,704
Janus Government Money Market Fund-Investor Shares $ 124,754 $ 62,377 $ 311,886
Janus Tax-Exempt Money Market Fund-Investor Shares $ 81,412 $ 40,706 $ 203,529
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Advisory Agreements for each Fund became effective on December 9, 1994
and will continue in effect until June 16, 1996, and thereafter from year to
year so long as such continuance is approved annually by a majority of the
Trustees who are not parties to the Advisory Agreements or interested persons of
any such party, and by either a majority of the outstanding voting shares or the
Trustees of the Funds. Each Advisory Agreement i) may be terminated without the
payment of any penalty by any Fund or Janus Capital on 60 days' written notice;
ii) terminates automatically in the event of its assignment; and iii) generally,
may not be amended without the approval of a majority of the Trustees of the
affected Fund, including the Trustees who are not interested persons of that
Fund or Janus Capital and, to the extent required by the 1940 Act, the vote of a
majority of the outstanding voting securities of that Fund.
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Funds, are made independently from those for any other account that is or may in
the future become managed by Janus Capital or its affiliates. If, however, a
number of accounts managed by Janus Capital are contemporaneously engaged in the
purchase or sale of the same security, the orders may be aggregated and/or the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by an account or the size of the position obtained or liquidated for an
account. Pursuant to an exemptive order granted by the SEC, the Funds and other
funds advised by Janus Capital may also transfer daily uninvested cash balances
into one or more joint trading accounts. Assets in the joint trading accounts
are invduted in money market instruments and the proceeds are allocated to the
participating funds on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
is managed in accordance with that objective by a particular portfolio manager
or team of portfolio managers. As a result, from time to time two or more
different managed accounts may pursue divergent investment strategies with
respect to investments or categories of investments.
As indicated in the Prospectus, Janus Capital permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a Janus Capital policy regarding personal investing by directors, officers
and employees of Janus Capital and the Funds. The policy requires investment
personnel and officers of Janus Capital, inside directors of Janus Capital and
the Funds and other designated persons deemed to have access to current trading
information to pre-clear all transactions in securities not otherwise exempt
under the policy. Requests for trading authority will be denied when, among
other reasons, the proposed personal transaction would be contrary to the
provisions of the policy or would be deemed to adversely affect any transaction
then known to be under consideration for or to have been effected on behalf of
any client account, including the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Funds to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns 12% of
its voting stock and, by agreement with KCSI, selects a majority of Janus
Capital's Board.
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CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
United Missouri Bank, N.A., P.O. Box 419226, Kansas City, Missouri
64141-6226, is the Funds' custodian. The custodian holds the Funds' assets in
safekeeping and collects and remits the income thereon, subject to the
instructions of each Fund.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the Funds'
transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the Funds.
The Funds do not pay Janus Service a fee.
Janus Distributors, Inc. ("Janus Distributors"), 100 Fillmore Street,
Denver, Colorado 80206-4923, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Funds. Janus Distributors is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. Janus Distributors acts
as the agent of the Funds in connection with the sale of their shares in all
states in which the shares are registered and in which Janus Distributors is
qualified as a broker-dealer. Under the Distribution Agreement, Janus
Distributors continuously offers the Funds' shares and accepts orders at net
asset value. No sales charges are paid by investors. Promotional expenses in
connection with offers and sales of shares are paid by Janus Capital.
Janus Capital also may make payments to selected broker-dealer firms or
institutions which were instrumental in the acquisition of shareholders for the
Funds or which performed services with respect to shareholder accounts. The
minimum aggregate size required for eligibility for such payments, and the
factors in selecting the broker-dealer firms and institutions to which they will
be made, are determined from time to time by Janus Capital.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Funds and
negotiation of its commission rates are made by Janus Capital whose policy is to
obtain the "best execution" (prompt and reliable execution at the most favorable
security price) of all portfolio transactions.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; and research products or services provided. In recognition of
the value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated a commission
that is in excess of the commission another broker or dealer would have charged
for effecting that transaction if Janus Capital determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall responsibilities of Janus
Capital. These research and other services may include, but are not limited to,
general economic and security market reviews, industry and company reviews,
evaluations of securities, recommendations as to the purchase and sale of
securities, and access to third party publications, computer and electronic
equipment and software. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts.
For the fiscal period ended October 31, 1995, the Funds did not incur any
brokerage commissions. Brokerage commissions are not normally charged on the
purchase and sale of money market instruments.
Janus Capital may use research products and services in servicing other
accounts in addition to the Funds. If Janus Capital determines that any research
product or service has a mixed use, such that it also serves functions that do
not assist in the investment decision-making process, Janus Capital may allocate
the costs of such service or product accordingly. Only that portion of the
product or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus Capital.
Janus Capital may consider sales of Shares by a broker-dealer or the
recommendation of a broker-dealer to its customers that they purchase Shares as
a factor in the selection of broker-dealers to execute Fund portfolio
transactions. Janus Capital may also consider payments made by brokers effecting
transactions for a Fund i) to the Fund or ii) to other persons on behalf of the
Fund for services provided to the Fund for which it would be obligated to pay.
In placing portfolio business with such broker-dealers, Janus Capital will seek
the best execution of each transaction.
10
<PAGE>
When the Funds purchase or sell a security in the over-the-counter market,
the transaction takes place directly with a principal market-maker, without the
use of a broker, except in those circumstances where in the opinion of Janus
Capital better prices and executions will be achieved through the use of a
broker.
OFFICERS AND TRUSTEES
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4923
Trustee, Chairman and President of Janus Aspen Series. Chairman, Director
and President of Janus Capital. Chairman and Director of IDEX Management,
Inc., Largo, Florida (50% subsidiary of Janus Capital and investment
adviser to a group of mutual funds) ("IDEX").
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Trustee and Executive Vice President of Janus Aspen Series. Chief
Investment Officer, Vice President and Director of Janus Capital. Executive
Vice President and Portfolio Manager of Janus Fund series of the Trust.
Sharon S. Pichler* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President of Janus Money Market Fund, Janus Tax-Exempt Money
Market Fund and Janus Government Money Market Fund series of the Trust.
Vice President of Janus Capital. Formerly, Assistant Vice President and
Portfolio Manager at USAA Investment Management Co. (1990-1994).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4923
Vice President and General Counsel of Janus Aspen Series. Vice President,
Secretary and General Counsel of Janus Capital. Vice President, General
Counsel and Director of Janus Service and Janus Distributors. Director,
Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4923
Vice President and Chief Financial Officer of Janus Aspen Series. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4923
Treasurer and Chief Accounting Officer of Janus Aspen Series. Director of
Fund Accounting of Janus Capital. Formerly (1990-1991), with The Boston
Company Advisors, Inc., Boston Massachusetts (mutual fund administration
services).
Kelley Abbott Howes* - Secretary
100 Fillmore Street
Denver, CO 80206-4923
Secretary of Janus Aspen Series. Associate Counsel of Janus Capital.
Formerly (1990 to 1994), with The Boston Company Advisors, Inc.
John W. Shepardson# - Trustee
910 16th Street, Suite 222
Denver, CO 80202
Trustee of Janus Aspen Series. Historian.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
11
<PAGE>
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Aspen Series. President of HPS Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Aspen Series. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments) since 1987.
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Aspen Series. President and Chief Executive Officer of BC
Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue, Washington
(restaurant chain). Formerly (1982 to 1993), Chairman, President and Chief
Executive Officer of Famous Restaurants, Inc., Scottsdale, Arizona
(restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Aspen Series. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
- --------------------------------------------------------------------------------
# Member of the Executive Committee.
The Trustees are responsible for major decisions relating to each Fund's
objective, policies and techniques. The Trustees also supervise the operation of
the Funds by their officers and review the investment decisions of the officers
although they do not actively participate on a regular basis in making such
decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Declaration of Trust,
Massachusetts Law or the 1940 Act.
The Money Market Funds Committee, consisting of Messrs. Craig, Shepardson,
Loo and Waldinger, monitors the compliance with policies and procedures adopted
particularly for money market funds.
The following table shows the aggregate compensation paid to each Trustee
by the Funds described in this SAI and all funds advised and sponsored by Janus
Capital (collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive any pension or retirement benefits from the Funds or the Janus
Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the
from the Funds for fiscal year Janus Funds for calendar year
Name of Person, Position ended October 31, 1995** ended December 31, 1995***
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, Trustee*+ $0 $0
John W. Shepardson, Trustee $0 $0
William D. Stewart, Trustee $0 $0
Gary O. Loo, Trustee $0 $0
Dennis B. Mullen, Trustee $0 $0
Martin H. Waldinger, Trustee $0 $0
- ---------------------------------------------------------------------------------------------------
</TABLE>
*An interested person of the Funds and of Janus Capital. Compensated by Janus
Capital and not the Funds.
**For the fiscal year ended October 31, 1995, Janus Capital paid the Trustees'
expenses.
***As of December 31, 1995, Janus Funds consisted of two registered investment
companies comprised of a total of 26 funds.
+Mr. Craig became a Trustee as of June 30, 1995.
12
<PAGE>
PURCHASE OF SHARES
As stated in the Prospectus, Janus Distributors is a distributor of the
Funds' shares. Shares are sold at the net asset value per share as determined at
the close of the regular trading session of the New York Stock Exchange (the
"NYSE" or the "Exchange") next occurring after a purchase order is received and
accepted by a Fund. A Fund's net asset value is calculated each day that both
the NYSE and the New York Federal Reserve Bank are open. As stated in the
Prospectus, the Funds each seek to maintain a stable net asset value per share
of $1.00. The Shareholder's Manual Section of the Prospectus contains detailed
information about the purchase of Shares.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
If investors do not elect in writing or by phone to receive their dividends
and distributions in cash, all income dividends and capital gains distributions,
if any, on Shares are reinvested automatically in additional Shares of that Fund
at the NAV determined on the first business day following the record date.
Checks for cash dividends and distributions and confirmations of reinvestments
are usually mailed to shareholders within ten days after the record date. Any
election (which may be made on the New Account Application form or by phone)
will apply to dividends and distributions the record dates of which fall on or
after the date that a Fund receives such notice. Investors receiving cash
distributions and dividends may elect in writing or by phone to change back to
automatic reinvestment at any time.
REDEMPTION OF SHARES
Procedures for redemption of Shares are set forth in the Shareholder's
Manual section of the Prospectus. Shares normally will be redeemed for cash,
although each Fund retains the right to redeem Shares in kind under unusual
circumstances, in order to protect the interests of remaining shareholders, by
delivery of securities selected from its assets at its discretion. However, the
Funds are governed by Rule 18f-1 under the 1940 Act, which requires each Fund to
redeem Shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of that Fund during any 90-day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, their Fund will have the
option of redeeming the excess in cash or in kind. If Shares are redeemed in
kind, the redeeming shareholder might incur brokerage costs in converting the
assets to cash. The method of valuing securities used to make redemptions in
kind will be the same as the method of valuing portfolio securities described
under "Determination of Net Asset Value" and such valuation will be made as of
the same time the redemption price is determined.
The right to require the Funds to redeem Shares may be suspended, or the
date of payment may be postponed, whenever (1) trading on the NYSE is
restricted, as determined by the Securities and Exchange Commission, or the NYSE
is closed except for holidays and weekends, (2) the Securities and Exchange
Commission permits such suspension and so orders, or (3) an emergency exists as
determined by the Securities and Exchange Commission so that disposal of
securities or determination of NAV is not reasonably practicable.
SHAREHOLDER ACCOUNTS
Detailed information about the general procedures for shareholder accounts
and specific types of accounts is set forth in the Prospectus. Applications for
specific types of accounts may be obtained by calling the Funds at
1-800-525-3713 or writing to the Funds at P.O. Box 173375, Denver, Colorado
80217-3375.
SYSTEMATIC WITHDRAWALS
As stated in the Shareholder's Manual section of the Prospectus, if you
have a regular account or are eligible for normal distributions from a
retirement plan, you may establish a systematic withdrawal program. The payments
will be made from the proceeds of periodic redemptions of Shares in the account
at the net asset value. Depending on the size or frequency of the disbursements
requested, and the fluctuation in value of the Shares in the Fund's portfolio,
redemptions for the purpose of making such disbursements may reduce or even
exhaust the shareholder's account. Either an investor or their Fund, by written
notice to the other, may terminate the investor's systematic withdrawal program
without penalty at any time.
Information about requirements to establish a systematic withdrawal program
may be obtained by writing or calling the Funds at the address or phone number
shown above.
13
<PAGE>
RETIREMENT PLANS
The Funds offer several different types of tax-deferred retirement plans
that an investor may establish to invest in Shares, depending on rules
prescribed by the Internal Revenue Code of 1986 and the regulations thereunder
(the "Code"). The Individual Retirement Account ("IRA") may be used by most
individuals who have taxable compensation. The Simplified Employee Pension
("SEP") and the Defined Contribution Plans may be used by most employers,
including corporations, partnerships and sole proprietors, for the benefit of
business owners and their employees. In addition, the Funds offer a Section
403(b)(7) Plan for employees of educational organizations and other qualifying
tax-exempt organizations. Investors should consult their tax advisor or legal
counsel before selecting a retirement plan.
Contributions under IRAs, SEPs, Defined Contribution Plans (Profit Sharing
or Money Purchase Pension Plans) and Section 403(b)(7) Plans are subject to
specific contribution limitations. Generally, such contributions may be invested
at the direction of the participant. The investment is then held by Investors
Fiduciary Trust Company ("IFTC") as custodian. Each participant's account is
charged an annual fee of $12, including any account with any of the Janus Funds.
There is a maximum annual fee of $24 per taxpayer identification number.
Distributions from retirement plans are generally subject to ordinary
income tax and may be subject to an additional 10% tax if withdrawn prior to age
591/2. Several exceptions to the general rule may apply. However, shareholders
must start withdrawing retirement plan assets no later than April 1 of the year
after they reach age 701/2. Several methods exist to determine the amount of the
minimum annual distribution. Shareholders should consult with their tax advisor
or legal counsel prior to receiving any distribution from any retirement plan,
in order to determine the income tax impact of any such distribution.
To receive additional information about IRAs, SEPs, Defined Contribution
Plans and Section 403(b)(7) Plans along with the necessary materials to
establish an account, please call the Funds at 1-800-525-3713 or write to the
Funds at P.O. Box 173375, Denver, Colorado 80217-3375. No contribution to an
IRA, SEP, Defined Contribution Plan or Section 403(b)(7) Plan can be made until
the appropriate forms to establish any such plan have been completed.
DIVIDENDS AND TAX STATUS
Dividends representing substantially all of the net investment income and
any net realized gains on sales of securities are declared daily, Saturdays,
Sundays and holidays included, and distributed on the last business day of each
month. If a month begins on a Saturday, Sunday, or holiday, dividends for those
days are declared at the end of the preceding month and distributed on the first
business day of the month. A shareholder may receive dividends in cash or may
choose to have dividends automatically reinvested in a Fund's Shares. As
described in the Prospectus, Shares purchased by wire on a bank business day
will receive that day's dividend if the purchase is effected at or prior to 3:00
p.m. (New York time) for Janus Money Market Fund and Janus Government Money
Market Fund and 12:00 p.m. (New York time) for Janus Tax-Exempt Money Market
Fund. Otherwise, such Shares will begin to accrue dividends on the following
day. Orders for purchase accompanied by a check or other negotiable bank draft
will be accepted and effected as of 4:00 p.m. (New York time) on the day of
receipt and such Shares will begin to accrue dividends on the first bank
business day following receipt of the order. Requests for redemption of Shares
of a Fund will be redeemed at the next determined net asset value. If processed
by 4:00 p.m. (New York time) such redemption will generally include dividends
declared through the day of redemption. However, redemption requests made by
wire that are received prior to 3:00 p.m. (New York time) for Janus Money Market
Fund and Janus Government Money Market Fund and 12:00 p.m. (New York time) for
Janus Tax-Exempt Money Market Fund will result in Shares being redeemed that day
and no dividend will be accrued for such day. Proceeds of such a redemption will
normally be sent to the predesignated bank account on that day, but that day's
dividend will not be received. If shares of a Fund were originally purchased by
check or through an Automated Clearing House transaction, the Fund may delay
transmittal of redemption proceeds up to 15 days in order to ensure that
purchase funds have been collected. Closing times for purchase and redemption of
Shares may be changed for days in which the bond market or the New York Stock
Exchange close early.
Distributions for all of the Funds (except Janus Tax-Exempt Money Market
Fund) are taxable income and are subject to federal income tax (except for
shareholders exempt from income tax), whether such distributions are received in
cash or are reinvested in additional Shares. Full information regarding the tax
status of income dividends and any capital gains distributions will be mailed to
shareholders for tax purposes on or before January 31st of each year. As
described in detail in the Prospectus, Janus Tax-Exempt Money Market Fund
anticipates that substantially all income dividends it pays will be exempt from
federal income tax, although dividends attributable to interest on taxable
investments, together with distributions from any net realized short- or
long-term capital gains, are taxable.
The Funds intend to qualify as regulated investment companies by satisfying
certain requirements prescribed by Subchapter M of the Code.
14
<PAGE>
Some money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security, or
interest rate adjustment features can be used to enhance price stability. If the
structure does not perform as intended, adverse tax or investment consequences
may result. Neither the Internal Revenue Service nor any other regulatory
authority has ruled definitively on certain legal issues presented by structured
securities. Future tax or other regulatory determinations could adversely affect
the value, liquidity, or tax treatment of the income received from these
securities or the nature and timing of distributions made by a portfolio.
PRINCIPAL SHAREHOLDERS
As of December 1, 1995, the officers and Trustees of the Funds as a group
owned less than 1% of the outstanding shares of each of the Funds. To the
knowledge of the Funds, no other person owned more than 5% of the outstanding
Shares of any Fund as of the above date.
MISCELLANEOUS INFORMATION
Each Fund is a series of the Trust, a Massachusetts business trust that was
created on February 11, 1986. The Trust is an open-end management investment
company registered under the 1940 Act. As of the date of this SAI, the Trust
consists of 18 separate series, three of which currently offer two classes of
shares. The Funds were added to the Trust as separate series on December 9,
1994.
Janus Capital reserves the right to the name "Janus." In the event that
Janus Capital does not continue to provide investment advice to the Funds, the
Funds must cease to use the name "Janus" as soon as reasonably practicable.
Under Massachusetts law, shareholders of the Funds could, under certain
circumstances, be held liable for the obligations of their Fund. However, the
Agreement and Declaration of Trust (the "Declaration of Trust") disclaims
shareholder liability for acts or obligations of the Funds and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Funds or the Trustees. The Declaration of Trust
also provides for indemnification from the assets of the Funds for all losses
and expenses of any Fund shareholder held liable for the obligations of their
Fund. Thus, the risk of a shareholder incurring a financial loss on account of
its liability as a shareholder of one of the Funds is limited to circumstances
in which their Fund would be unable to meet its obligations. The possibility
that these circumstances would occur is remote. The Trustees intend to conduct
the operations of the Funds to avoid, to the extent possible, liability of
shareholders for liabilities of their Fund.
SHARES OF THE TRUST
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of one cent per share for each series of
the Trust. Shares of each Fund are fully paid and nonassessable when issued. All
shares of a Fund participate equally in dividends and other distributions by
such Fund, and in residual assets of that Fund in the event of liquidation.
Shares of each Fund have no preemptive, conversion or subscription rights.
The Trust is authorized to issue multiple classes of shares for each Fund.
Currently, Janus Money Market Fund, Janus Government Money Market Fund and Janus
Tax-Exempt Money Market Fund each offer two classes of shares. The Shares
discussed in this SAI are offered to the general public. A second class of
shares, Institutional Shares, is offered only to clients meeting certain minimum
investment criteria.
VOTING RIGHTS
The present Trustees were elected at a meeting of shareholders held on July
10, 1992 with the exception of Mr. Craig who was appointed by the Trustees as of
June 30, 1995. Under the Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his earlier death, resignation,
bankruptcy, incapacity or removal. Vacancies will be filled by a majority of the
remaining Trustees, subject to the 1940 Act. Therefore, no annual or regular
meetings of shareholders normally will be held, unless otherwise required by the
Declaration of Trust or the 1940 Act. Subject to the foregoing, shareholders
have the power to vote to elect or remove Trustees, to terminate or reorganize
their Fund, to amend the Declaration of Trust, to bring certain derivative
actions and on any other matters on which a shareholder vote is required by the
1940 Act, the Declaration of Trust, the Trust's Bylaws or the Trustees.
Each share of each series of the Trust has one vote (and fractional votes
for fractional shares). Shares of all series of the Trust have noncumulative
voting rights, which means that the holders of more than 50% of the shares of
all
15
<PAGE>
series of the Trust voting for the election of Trustees can elect 100% of the
Trustees if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Trustees. Each series or class of
the Trust will vote separately only with respect to those matters that affect
only that series or class or if the interest of the series or class in the
matter differs from the interests of other series or classes of the Trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Funds, audit the Funds' annual financial
statements and prepare their tax returns.
REGISTRATION STATEMENT
The Trust has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities to which this SAI relates. If further
information is desired with respect to the Funds or such securities, reference
is made to the Registration Statement and the exhibits filed as a part thereof.
FINANCIAL STATEMENTS
The following audited financial statements of the Funds for the period
ended October 31, 1995 are hereby incorporated into this SAI by reference to the
Funds' Annual Report dated October 31, 1995. A copy of such report accompanies
this SAI.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT
Schedules of Investments as of October 31, 1995
Statements of Operations for the period February 15, 1995 to October 31,
1995
Statements of Assets and Liabilities as of October 31, 1995
Statements of Changes in Net Assets for the period February 15, 1995 to
October 31, 1995
Financial Highlights for Investor Shares for the period February 15, 1995
to October 31, 1995
Notes to Financial Statements
Report of Independent Accountants
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this SAI and are not part of the
Registration Statement.
16
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S AND STANDARD AND POOR'S
MUNICIPAL AND CORPORATE BONDS AND MUNICIPAL LOANS
The two highest ratings of Standard & Poor's Ratings Services ("S&P") for
municipal and corporate bonds are AAA and AA. Bonds rated AAA have the highest
rating assigned by S&P to a debt obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. The AA rating may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within that rating category.
The two highest ratings of Moody's Investors Service, Inc. ("Moody's") for
municipal and corporate bonds are Aaa and Aa. Bonds rated Aaa are judged by
Moody's to be of the best quality. Bonds rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. Moody's states that Aa bonds are rated
lower than the best bonds because margins of protection or other elements make
long-term risks appear somewhat larger than Aaa securities. The generic rating
Aa may be modified by the addition of the numerals 1, 2 or 3. The modifier 1
indicates that the security ranks in the higher end of the Aa rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of such rating category.
SHORT-TERM MUNICIPAL LOANS
S&P's highest rating for short-term municipal loans is SP-1. S&P states
that short-term municipal securities bearing the SP-1 designation have a strong
capacity to pay principal and interest. Those issues rated SP-1 which are
determined to possess a very strong capacity to pay debt service will be given a
plus (+) designation. Issues rated SP-2 have satisfactory capacity to pay
principal and interest with some vulnerability to adverse financial and economic
changes over the term of the notes.
Moody's highest rating for short-term municipal loans is MIG-1/VMIG-1.
Moody's states that short-term municipal securities rated MIG-1/VMIG-1 are of
the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG-2/VMIG-2 designation are
of high quality, with margins of protection ample although not so large as in
the MIG-1/VMIG-1 group.
OTHER SHORT-TERM DEBT SECURITIES
Prime-1 and Prime-2 are the two highest ratings assigned by Moody's for
other short-term debt securities and commercial paper, and A-1 and A-2 are the
two highest ratings for commercial paper assigned by S&P. Moody's uses the
numbers 1, 2 and 3 to denote relative strength within its highest classification
of Prime, while S&P uses the numbers 1, 2 and 3 to denote relative strength
within its highest classification of A. Issuers rated Prime-1 by Moody's have a
superior ability for repayment of senior short-term debt obligations and have
many of the following characteristics: leading market positions in
well-established industries, high rates of return on funds employed,
conservative capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 by Moody's have a strong ability for repayment of senior short-term debt
obligations and display many of the same characteristics displayed by issuers
rated Prime-1, but to a lesser degree. Issuers rated A-1 by S&P carry a strong
degree of safety regarding timely repayment. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) designation.
Issuers rated A-2 by S&P carry a satisfactory degree of safety regarding timely
repayment.
FITCH
F-1+ Exceptionally strong credit quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 Very strong credit quality. Issues assigned this rating reflect
an assurance for timely payment only slightly less in degree than
issues rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-1+ and F-1 ratings.
17
<PAGE>
DUFF & PHELPS INC.
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and safety
is just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets
is good. Risk factors are small.
THOMSON BANKWATCH, INC.
TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated
TBW-1.
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external)
than obligations with higher ratings, capacity to service
principal and interest in a timely fashion is considered
adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA, INC.
A1+ Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2 Obligations supported by a good capacity for timely repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
C Obligations for which there is a high risk of default or which
are currently in default.
18
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL SECURITIES
Municipal Notes generally are used to provide for short-term capital needs
and usually have maturities of one year or less. They include the following:
1. Project Notes, which carry a U.S. government guarantee, are issued by
public bodies (called "local issuing agencies") created under the laws of a
state, territory, or U.S. possession. They have maturities that range up to one
year from the date of issuance. Project Notes are backed by an agreement between
the local issuing agency and the Federal Department of Housing and Urban
Development. These Notes provide financing for a wide range of financial
assistance programs for housing, redevelopment, and related needs (such as
low-income housing programs and renewal programs).
2. Tax Anticipation Notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.
3. Revenue Anticipation Notes are issued in expectation of receipt of other
types of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.
4. Bond Anticipation Notes are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds then
provide the money for the repayment of the Notes.
5. Construction Loan Notes are sold to provide construction financing.
After successful completion and acceptance, many projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association ("Fannie Mae") or the Government National Mortgage
Association ("Ginnie Mae").
6. Tax-Exempt Commercial Paper is a short-term obligation with a stated
maturity of 365 days or less. It is issued by agencies of state and local
governments to finance seasonal working capital needs or as short-term financing
in anticipation of longer term financing.
Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:
1. General Obligation Bonds are issued by such entities as states,
counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
2. Revenue Bonds in recent years have come to include an increasingly wide
variety of types of municipal obligations. As with other kinds of municipal
obligations, the issuers of revenue bonds may consist of virtually any form of
state or local governmental entity, including states, state agencies, cities,
counties, authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide additional
security in the form of a debt service reserve fund to be used to make principal
and interest payments. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Housing authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated (see 3 below).
Private Activity Bonds are considered municipal bonds if the interest paid
thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing and health. These bonds are
also used to finance public facilities such as airports, mass transit systems
and ports. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property as security for such
payment.
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While, at one time, the pertinent provisions of the Internal Revenue Code
permitted private activity bonds to bear tax-exempt interest in connection with
virtually any type of commercial or industrial project (subject to various
restrictions as to authorized costs, size limitations, state per capita volume
restrictions, and other matters), the types of qualifying projects under the
Code have become increasingly limited, particularly since the enactment of the
Tax Reform Act of 1986. Under current provisions of the Code, tax-exempt
financing remains available, under prescribed conditions, for certain privately
owned and operated rental multi-family housing facilities, nonprofit hospital
and nursing home projects, airports, docks and wharves, mass commuting
facilities and solid waste disposal projects, among others, and for the
refunding (that is, the tax-exempt refinancing) of various kinds of other
private commercial projects originally financed with tax-exempt bonds. In future
years, the types of projects qualifying under the Code for tax-exempt financing
are expected to become increasingly limited.
Because of terminology formerly used in the Internal Revenue Code,
virtually any form of private activity bond may still be referred to as an
"industrial development bond," but more and more frequently revenue bonds have
become classified according to the particular type of facility being financed,
such as hospital revenue bonds, nursing home revenue bonds, multi-family housing
revenues bonds, single family housing revenue bonds, industrial development
revenue bonds, solid waste resource recovery revenue bonds, and so on.
Other Municipal Obligations, incurred for a variety of financing purposes,
include: municipal leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local governments
and authorities to acquire a wide variety of equipment and facilities such as
fire and sanitation vehicles, telecommunications equipment and other capital
assets. Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase municipal
leases subject to a non-appropriation clause when the payment of principal and
accrued interest is backed by an unconditional irrevocable letter of credit, or
guarantee of a bank or other entity that meets the criteria described in the
Prospectus.
Tax-exempt bonds are also categorized according to whether the interest is
or is not includible in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying the bonds
are or are not deductible in part by banks and other financial institutions, and
according to other criteria relevant for Federal income tax purposes. Due to the
increasing complexity of Internal Revenue Code and related requirements
governing the issuance of tax-exempt bonds, industry practice has uniformly
required, as a condition to the issuance of such bonds, but particularly for
revenue bonds, an opinion of nationally recognized bond counsel as to the
tax-exempt status of interest on the bonds.
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[LOGO]
JANUS INVESTMENT FUND
100 Fillmore Street
Denver, CO 80206-4923
(800) 29JANUS
STATEMENT OF ADDITIONAL INFORMATION
February 18, 1996
JANUS MONEY MARKET FUND
JANUS GOVERNMENT MONEY MARKET FUND
JANUS TAX-EXEMPT MONEY MARKET FUND
Institutional Shares
This Statement of Additional Information ("SAI") expands upon and
supplements the information contained in the current Prospectus for the
Institutional Shares (the "Shares") of Janus Money Market Fund, Janus Government
Money Market Fund and Janus Tax-Exempt Money Market Fund (individually, a "Fund"
and, collectively, the "Funds"). The Funds are each a separate series of Janus
Investment Fund, a Massachusetts business trust (the "Trust"). Each Fund
represents shares of beneficial interest in a separate portfolio of securities
and other assets with its own objective and policies, and is managed separately
by Janus Capital Corporation ("Janus Capital").
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus dated February 18, 1996, which is incorporated by reference into this
SAI and may be obtained from the Trust at the above phone number or address.
This SAI contains additional and more detailed information about the Funds'
operations and activities than the Prospectus.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
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Investment Policies and Restrictions ...................................... 3
Types of Securities and Investment Techniques ............................. 4
Performance Data .......................................................... 7
Determination of Net Asset Value .......................................... 8
Investment Adviser and Administrator ...................................... 8
Custodian, Transfer Agent and Certain Affiliations ........................ 10
Portfolio Transactions and Brokerage ...................................... 10
Officers and Trustees ..................................................... 11
Purchase of Shares ........................................................ 13
Redemption of Shares ...................................................... 13
Retirement Plans .......................................................... 13
Shareholder Accounts ...................................................... 13
Dividends and Tax Status .................................................. 14
Principal Shareholders and Significant Shareholders ....................... 14
Miscellaneous Information ................................................. 15
Shares of the Trust .................................................. 15
Voting Rights ........................................................ 15
Independent Accountants .............................................. 16
Registration Statement ............................................... 16
Financial Statements ...................................................... 16
Appendix A - Description of Securities Ratings ............................ 17
Appendix B - Description of Municipal Securities .......................... 19
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INVESTMENT POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
As discussed in the Prospectus, the investment objective of each of Janus
Money Market Fund and Janus Government Money Market Fund is to seek maximum
current income to the extent consistent with stability of capital. The
investment objective of Janus Tax-Exempt Money Market Fund is to seek maximum
current income that is exempt from federal income taxes to the extent consistent
with stability of capital. There can be no assurance that a Fund will achieve
its investment objective or maintain a stable net asset value of $1.00 per
share. The investment objectives of the Funds are not fundamental and may be
changed by the Trustees of the Trust (the "Trustees") without shareholder
approval.
INVESTMENT RESTRICTIONS APPLICABLE TO ALL FUNDS
As indicated in the Prospectus, each Fund has adopted certain fundamental
investment restrictions that cannot be changed without shareholder approval.
Shareholder approval means approval by the lesser of (i) more than 50% of the
outstanding voting securities of the Trust (or a particular Fund or particular
class of Shares if a matter affects just that Fund or that class of Shares), or
(ii) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities of the Trust (or a particular
Fund or class of Shares) are present or represented by proxy.
As used in the restrictions set forth below and as used elsewhere in this
SAI, the term "U.S. Government Securities" shall have the meaning set forth in
the Investment Company Act of 1940, as amended (the "1940 Act"). The 1940 Act
defines U.S. Government Securities as securities issued or guaranteed by the
United States government, its agencies or instrumentalities. U.S. Government
Securities may also include repurchase agreements collateralized and municipal
securities escrowed with or refunded with escrowed U.S. government securities.
The Funds have adopted the following fundamental policies:
(1) With respect to 75% of its assets, a Fund may not purchase a security
other than a U.S. Government Security, if, as a result, more than 5% of the
Fund's total assets would be invested in the securities of a single issuer or
the Fund would own more than 10% of the outstanding voting securities of any
single issuer. (As noted in the Prospectus, Janus Money Market Fund and Janus
Government Money Market Fund are currently subject to the greater
diversification standards of Rule 2a-7, which are not fundamental.)
(2) A Fund may not purchase securities if more than 25% of the value of a
Fund's total assets would be invested in the securities of issuers conducting
their principal business activities in the same industry; provided that: (i)
there is no limit on investments in U.S. Government Securities or in obligations
of domestic commercial banks (including U.S. branches of foreign banks subject
to regulations under U.S. laws applicable to domestic banks and, to the extent
that its parent is unconditionally liable for the obligation, foreign branches
of U.S. banks); (ii) this limitation shall not apply to a Fund's investments in
municipal securities; (iii) there is no limit on investments in issuers
domiciled in a single country; (iv) financial service companies are classified
according to the end users of their services (for example, automobile finance,
bank finance and diversified finance are each considered to be a separate
industry); and (v) utility companies are classified according to their services
(for example, gas, gas transmission, electric, and telephone are each considered
to be a separate industry).
(3) A Fund may not act as an underwriter of securities issued by others,
except to the extent that a Fund may be deemed an underwriter in connection with
the disposition of portfolio securities of such Fund.
(4) A Fund may not lend any security or make any other loan if, as a
result, more than 25% of a Fund's total assets would be lent to other parties
(but this limitation does not apply to purchases of commercial paper, debt
securities or repurchase agreements).
(5) A Fund may not purchase or sell real estate or any interest therein,
except that the Fund may invest in debt obligations secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein.
(6) A Fund may borrow money for temporary or emergency purposes (not for
leveraging) in an amount not exceeding 25% of the value of its total assets
(including the amount borrowed) less liabilities (other than borrowings). If
borrowings exceed 25% of the value of a Fund's total assets by reason of a
decline in net assets, the Fund will reduce its borrowings within three business
days to the extent necessary to comply with the 25% limitation. Reverse
repurchase agreements or the segregation of assets in connection with such
agreements shall not be considered borrowing for the purposes of this limit.
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(7) Each Fund may, notwithstanding any other investment policy or
restriction (whether or not fundamental), invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and restrictions as that
Fund.
Each Fund has adopted the following nonfundamental investment restrictions
that may be changed by the Trustees without shareholder approval:
(1) A Fund may not invest in securities or enter into repurchase agreements
with respect to any securities if, as a result, more than 10% of the Fund's net
assets would be invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in other securities that are not
readily marketable ("illiquid investments"). The Trustees, or the Fund's
investment adviser acting pursuant to authority delegated by the Trustees, may
determine that a readily available market exists for certain securities such as
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, Section 4(2) commercial paper and municipal
lease obligations. Accordingly, such securities may not be subject to the
foregoing limitation.
(2) A Fund may not invest in the securities of another investment company,
except to the extent permitted by the 1940 Act.
(3) A Fund may not purchase securities on margin, or make short sales of
securities, except for short sales against the box and the use of short-term
credit necessary for the clearance of purchases and sales of portfolio
securities.
(4) A Fund may not invest more than 5% of the value of its total assets in
the securities of any issuer that has conducted continuous operations for less
than three years, including operations of predecessors, except that this shall
not affect the Fund's ability to invest in U.S. Government Securities, fully
collateralized debt obligations, municipal obligations, securities that are
rated by at least one nationally recognized statistical rating organization and
securities guaranteed as to principal and interest by an issuer in whose
securities the Fund could invest.
(5) A Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings or in connection with permitted
short sales.
(6) A Fund may not invest directly in interests in oil and gas or interests
in other mineral exploration or development programs or leases; however, the
Fund may own debt securities of companies engaged in those businesses.
(7) A Fund may not invest in companies for the purpose of exercising
control of management.
For purposes of the Funds' restriction on investing in a particular
industry, the Funds will rely primarily on industry classifications as published
by Bloomberg L.P., subject to the exceptions noted in fundamental restriction
number two above. To the extent that such classifications are so broad that the
primary economic characteristics in a single class are materially different, the
Funds may further classify issuers in accordance with industry classifications
as published by the Securities and Exchange Commission.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
Each of the Funds may invest only in "eligible securities" as defined in
Rule 2a-7 adopted under the 1940 Act. Generally, an eligible security is a
security that (i) is denominated in U.S. dollars and has a remaining maturity of
397 days or less (as calculated pursuant to Rule 2a-7); (ii) is rated, or is
issued by an issuer with short-term debt outstanding that is rated, in one of
the two highest rating categories by any two nationally recognized statistical
rating organizations ("NRSROs") or, if only one NRSRO has issued a rating, by
that NRSRO (the "Requisite NRSROs") or is unrated and of comparable quality to a
rated security, as determined by Janus Capital; and (iii) has been determined by
Janus Capital to present minimal credit risks pursuant to procedures approved by
the Trustees. In addition, the Funds will maintain a dollar-weighted average
portfolio maturity of 90 days or less. A description of the ratings of some
NRSROs appears in Appendix A.
Under Rule 2a-7, a Fund may not invest more than five percent of its total
assets in the securities of any one issuer other than U.S. Government
Securities, provided that in certain cases a Fund may invest more than 5% of its
assets in a single issuer for a period of up to three business days. In the case
of Janus Tax-Exempt Money Market Fund, up to 25% of its assets may be invested
without regard to the foregoing limitations.
Pursuant to Rule 2a-7, each Fund (except Janus Tax-Exempt Money Market
Fund) will invest at least 95% of its total assets in "first-tier" securities.
First-tier securities are eligible securities that are rated, or are issued by
an issuer with short-term debt outstanding that is rated, in the highest rating
category by the Requisite NRSROs or are unrated and of comparable quality to a
rated security. In addition, a Fund may invest in "second-tier" securities which
are eligible securities that are not first-tier securities. However, a Fund
(except for Janus Tax-Exempt Money Market Fund) may not invest in a second-tier
security if immediately after the acquisition thereof the Fund would
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have invested more than (i) the greater of one percent of its total assets or
one million dollars in second-tier securities issued by that issuer, or (ii)
five percent of its total assets in second-tier securities.
The following discussion of types of securities in which the Funds may
invest supplements and should be read in conjunction with the Prospectus.
PARTICIPATION INTERESTS
Each Fund may purchase participation interests in loans or securities in
which the Funds may invest directly. Participation interests are generally
sponsored or issued by banks or other financial institutions. A participation
interest gives a Fund an undivided interest in the underlying loans or
securities in the proportion that the Fund's interest bears to the total
principal amount of the underlying loans or securities. Participation interests,
which may have fixed, floating or variable rates, may carry a demand feature
backed by a letter of credit or guarantee of a bank or institution permitting
the holder to tender them back to the bank or other institution. For certain
participation interests, a Fund will have the right to demand payment, on not
more than seven days' notice, for all or a part of the Fund's participation
interest. The Funds intend to exercise any demand rights they may have upon
default under the terms of the loan or security, to provide liquidity or to
maintain or improve the quality of the Funds' investment portfolio. A Fund will
only purchase participation interests that Janus Capital determines present
minimal credit risks.
VARIABLE AND FLOATING RATE NOTES
Janus Money Market Fund also may purchase variable and floating rate demand
notes of corporations and other entities, which are unsecured obligations
redeemable upon not more than 30 days' notice. These obligations include master
demand notes that permit investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangements with the issuer of the instrument. The
issuer of these obligations often has the right, after a given period, to prepay
the outstanding principal amount of the obligations upon a specified number of
days' notice. These obligations generally are not traded, nor generally is there
an established secondary market for these obligations. To the extent a demand
note does not have a seven day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid investment.
MORTGAGE- AND ASSET-BACKED SECURITIES
The Funds may invest in mortgage-backed securities, which represent an
interest in a pool of mortgages made by lenders such as commercial banks,
savings and loan institutions, mortgage bankers, mortgage brokers and savings
banks. Mortgage-backed securities may be issued by governmental or
government-related entities or by nongovernmental entities such as banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. In
contrast, mortgage-backed securities provide periodic payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the periodic payments and optional prepayments made by the
individual borrowers on their mortgage loans, net of any fees paid to the issuer
or guarantor of such securities. Additional payments to holders of
mortgage-backed securities are caused by prepayments resulting from the sale of
the underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred.
As prepayment rates of individual pools of mortgage loans vary widely, it
is not possible to predict accurately the average life of a particular security.
Although mortgage-backed securities are issued with stated maturities of up to
forty years, unscheduled or early payments of principal and interest on the
underlying mortgages may shorten considerably the effective maturities.
Mortgage-backed securities may have varying assumptions for average life. The
volume of prepayments of principal on a pool of mortgages underlying a
particular security will influence the yield of that security, and the principal
returned to a Fund may be reinvested in instruments whose yield may be higher or
lower than that which might have been obtained had the prepayments not occurred.
When interest rates are declining, prepayments usually increase, with the result
that reinvestment of principal prepayments will be at a lower rate than the rate
applicable to the original mortgage-backed security.
The Funds may invest in mortgage-backed securities that are issued by
agencies or instrumentalities of the U.S. government. The Government National
Mortgage Association ("GNMA") is the principal federal government guarantor of
mortgage-backed securities. GNMA is a wholly-owned U.S. government corporation
within the Department of Housing and Urban Development. GNMA Certificates are
debt securities which represent an interest in one mortgage or a pool of
mortgages which are insured by the Federal Housing Administration or the Farmers
Home Administration or are guaranteed by the Veterans Administration. The Funds
may also invest in
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pools of conventional mortgages which are issued or guaranteed by agencies of
the U.S. government. GNMA pass-through securities are considered to be riskless
with respect to default in that (i) the underlying mortgage loan portfolio is
comprised entirely of government-backed loans and (ii) the timely payment of
both principal and interest on the securities is guaranteed by the full faith
and credit of the U.S. government, regardless of whether or not payments have
been made on the underlying mortgages. GNMA pass-through securities are,
however, subject to the same market risk as comparable debt securities.
Therefore, the market value of a Fund's GNMA securities can be expected to
fluctuate in response to changes in prevailing interest rate levels.
Residential mortgage loans are pooled also by the Federal Home Loan
Mortgage Corporation ("FHLMC"). FHLMC is a privately managed, publicly chartered
agency created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. FHLMC issues
participation certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio. The mortgage loans in FHLMC's portfolio are not U.S.
government backed; rather, the loans are either uninsured with loan-to-value
ratios of 80% or less, or privately insured if the loan-to-value ratio exceeds
80%. FHLMC guarantees the timely payment of interest and ultimate collection of
principal on FHLMC PCs; the U.S. government does not guarantee any aspect of
FHLMC PCs.
The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private shareholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include savings and loan associations, savings banks, commercial banks,
credit unions and mortgage bankers. FNMA guarantees the timely payment of
principal and interest on the pass-through securities issued by FNMA; the U.S.
government does not guarantee any aspect of the FNMA pass-through securities.
The Funds may also invest in privately-issued mortgage-backed securities to
the extent permitted by their investment restrictions. Mortgage-backed
securities offered by private issuers include pass-through securities comprised
of pools of conventional residential mortgage loans; mortgage-backed bonds which
are considered to be debt obligations of the institution issuing the bonds and
which are collateralized by mortgage loans; and collateralized mortgage
obligations ("CMOs") which are collateralized by mortgage-backed securities
issued by GNMA, FHLMC or FNMA or by pools of conventional mortgages.
Asset-backed securities represent direct or indirect participation in, or
are secured by and payable from, assets other than mortgage-backed assets such
as motor vehicle installment sales contracts, installment loan contracts, leases
of various types of real and personal property and receivables from revolving
credit agreements (credit cards). Asset-backed securities have yield
characteristics similar to those of mortgage-backed securities and, accordingly,
are subject to many of the same risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed upon price on an agreed upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate. The
Funds will use the proceeds of reverse repurchase agreements only 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.
Generally, a reverse repurchase agreement enables the Fund to recover for
the term of the reverse repurchase agreement all or most of the cash invested in
the portfolio securities sold and to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise. In addition, interest costs on the money
received in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. A Fund will enter into such transactions only when it has the intention
of actually acquiring the securities. To facilitate such acquisitions, the
Funds' custodian will segregate cash or high quality liquid assets in an amount
at least equal to such commitments. On delivery dates for such transactions, the
Fund will meet its obligations from maturities, sales of the segregated
securities or from other available sources of cash. If a Fund chooses to dispose
of the right to acquire a when-issued security prior to its acquisition, it
could, as with the disposition of any other portfolio obligation, incur a gain
or loss due to market fluctuation. At the time a Fund makes the commitment to
purchase securities on a when-issued
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or delayed delivery basis, it will record the transaction as a purchase and
thereafter reflect the value of such securities in determining its net asset
value.
MUNICIPAL LEASES
Janus Money Market Fund and Janus Tax-Exempt Money Market Fund may invest
in municipal leases. Municipal leases frequently have special risks not normally
associated with general obligation or revenue bonds. Leases and installment
purchase or conditional sale contracts (which normally provide for title to the
leased asset to pass eventually to the government issuer) have evolved as a
means for governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. A Fund will only purchase municipal leases subject to a
non-appropriation clause when the payment of principal and accrued interest is
backed by an unconditional irrevocable letter of credit, or guarantee of a bank
or other entity that meets the criteria described in the Prospectus under
"Taxable Investments."
In evaluating municipal lease obligations, Janus Capital will consider such
factors as it deems appropriate, including: (a) whether the lease can be
canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease obligor; (d)
the likelihood that the municipality will discontinue appropriating funding for
the leased property in the event such property is no longer considered essential
by the municipality; (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding; (f) whether the security is backed by a
credit enhancement such as insurance; and (g) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services other
than those covered by the lease obligation. If a lease is backed by an
unconditional letter of credit or other unconditional credit enhancement, then
Janus Capital may determine that a lease is an eligible security solely on the
basis of its evaluation of the credit enhancement.
Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. The ability of issuers of municipal leases to make timely
lease payments may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among federal,
state and local governmental units. Such non-payment would result in a reduction
of income to the Funds, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the net
asset value of a Fund.
PERFORMANCE DATA
A Fund may provide current annualized and effective annualized yield
quotations based on its daily dividends. These quotations may from time to time
be used in advertisements, shareholder reports or other communications to
shareholders. All performance information supplied by the Funds in advertising
is historical and is not intended to indicate future returns.
In performance advertising, the Funds may compare their Shares' performance
information with data published by independent evaluators such as Morningstar,
Inc., Lipper Analytical Services, Inc., or CDC/Wiesenberger, Donoghue's Money
Fund Report or other companies which track the investment performance of
investment companies ("Fund Tracking Companies"). The Funds may also compare
their Shares' performance information with the performance of recognized stock,
bond and other indices, including but not limited to the Municipal Bond Buyers
Indices, the Salomon Brothers Bond Index, the Lehman Bond Index, the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. The Funds may refer to general
market performance over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook").
The Funds may also refer in such materials to mutual fund performance rankings
and other data published by Fund Tracking Companies. Performance advertising may
also refer to discussions of the Funds and comparative mutual fund data and
ratings reported in independent periodicals, such as newspapers and financial
magazines.
Any current yield quotation of the Shares which is used in such a manner as
to be subject to the provisions of Rule 482(d) under the Securities Act of 1933,
as amended, shall consist of an annualized historical yield, carried at least to
the nearest hundredth of one percent, based on a specific seven calendar day
period. Current yield shall be calculated by (a) determining the net change
during a seven calendar day period in the value of a hypothetical account having
a balance of one Share at the beginning of the period, (b) dividing the net
change by the value of the account at the beginning of the period to obtain a
base period return, and (c) multiplying the quotient by 365/7 (i.e.,
annualizing).
7
<PAGE>
For this purpose, the net change in account value will reflect the value of
additional Shares purchased with dividends declared on the original Share and
dividends declared on both the original Share and any such additional Shares,
but will not reflect any realized gains or losses from the sale of securities or
any unrealized appreciation or depreciation on portfolio securities. In
addition, the Shares may advertise effective yield quotations. Effective yield
quotations are calculated by adding 1 to the base period return, raising the sum
to a power equal to 365/7, and subtracting 1 from the result (i.e.,
compounding).
Janus Tax-Exempt Money Market Fund's tax equivalent yield is the rate an
investor would have to earn from a fully taxable investment in order to equal
such Shares' yield after taxes. Tax equivalent yields are calculated by dividing
Janus Tax-Exempt Money Market Fund's yield by one minus the stated federal or
combined federal and state tax rate. If only a portion of the Shares' yield is
tax-exempt, only that portion is adjusted in the calculation.
The Shares' current yield and effective yield for the seven-day period
ended October 31, 1995 is shown below:
<TABLE>
<CAPTION>
Seven-day Effective
Fund Name Yield Seven-day Yield
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Janus Money Market Fund - Institutional Shares 5.82% 5.99%
Janus Government Money Market Fund - Institutional Shares 5.75% 5.92%
Janus Tax-Exempt Money Market Fund - Institutional Shares* 3.87% 3.94%
- -----------------------------------------------------------------------------------------
</TABLE>
*Janus Tax-Exempt Money Market Fund Institutional Shares' tax-equivalent yield
for the seven-day period ended October 31, 1995 was 5.37%.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Shares. Also, Processing Organizations may charge their customers direct
fees in connection with an investment in a Fund, which will have the effect of
reducing the Fund's net yield to those shareholders. The yield on a class of
Shares is not fixed or guaranteed, and an investment in the Shares is not
insured. Accordingly, yield information may not necessarily be used to compare
Shares with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. In addition, because investments
in the Funds are not insured or guaranteed, yield on the Shares may not
necessarily be used to compare the Shares with investment alternatives which are
insured or guaranteed.
DETERMINATION OF NET ASSET VALUE
Pursuant to the rules of the Securities and Exchange Commission, the
Trustees have established procedures to stabilize each Fund's net asset value at
$1.00 per Share. These procedures include a review of the extent of any
deviation of net asset value per Share as a result of fluctuating interest
rates, based on available market rates, from the Fund's $1.00 amortized cost
price per Share. Should that deviation exceed 1/2 of 1%, the Trustees will
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redemption of Shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends and utilizing a net asset value per Share as
determined by using available market quotations. Each Fund i) will maintain a
dollar-weighted average portfolio maturity of 90 days or less; ii) will not
purchase any instrument with a remaining maturity greater than 397 days or
subject to a repurchase agreement having a duration of greater than 397 days;
iii) will limit portfolio investments, including repurchase agreements, to those
U.S. dollar-denominated instruments that Janus Capital has determined present
minimal credit risks pursuant to procedures established by the Trustees; and iv)
will comply with certain reporting and recordkeeping procedures. The Trust has
also established procedures to ensure that portfolio securities meet the Funds'
high quality criteria.
INVESTMENT ADVISER AND ADMINISTRATOR
As stated in the Prospectus, each Fund has an Investment Advisory Agreement
with Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4923. Each
Advisory Agreement provides that Janus Capital will furnish continuous advice
and recommendations concerning the Funds' investments. The Funds have each
agreed to compensate Janus Capital for its advisory services by the monthly
payment of an advisory fee at the annual rate of .20% of the average daily net
assets of each Fund. However, Janus Capital has agreed to waive .10% of the
advisory fee through June 16, 1996. In addition, the Funds pay brokerage
commissions or dealer spreads and other expenses in connection with the
execution of portfolio transactions.
On behalf of the Shares, each of the Funds has also entered into an
Administration Agreement with Janus Capital. Under the terms of the
Administration Agreements, each of the Funds has agreed to compensate Janus
Capital for administrative services at the annual rate of .15% of the value of
the average daily net assets of the Shares for certain services, including
custody, transfer agent fees and expenses, legal fees not related to litigation,
accounting expenses,
8
<PAGE>
net asset value determination and fund accounting, recordkeeping, and blue sky
registration and monitoring services, registration fees, expenses of
shareholders' meetings and reports to shareholders, costs of preparing, printing
and mailing the Shares' Prospectuses and Statements of Additional Information to
current shareholders, and other costs of complying with applicable laws
regulating the sale of Shares. Each Fund will pay those expenses not assumed by
Janus Capital, including interest and taxes, fees and expenses of Trustees who
are not affiliated with Janus Capital, audit fees and expenses, and
extraordinary costs. For at least the period ending June 16, 1996, Janus Capital
has agreed to waive a portion of the administration fee, and accordingly the
effective rate for calculating the administration fee payable by the Shares will
be .05% for that period.
The following table summarizes the advisory fees and administration fees
paid by the Shares for the period from April 14, 1995 to October 31, 1995:
<TABLE>
<CAPTION>
Advisory Advisory Administration Administration
Fees Prior Fees After Fees Prior Fees After
Fund Name to Waiver Waiver to Waiver Waiver
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus Money Market Fund - Institutional Shares $219,620 $109,810 $164,715 $ 54,905
Janus Government Money Market Fund - Institutional Shares $ 26,850 $ 13,426 $ 20,138 $ 6,712
Janus Tax-Exempt Money Market Fund - Institutional Shares $ 1,210 $ 605 $ 907 $ 302
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Advisory Agreements for each Fund became effective on December 9, 1994
and will continue in effect until June 16, 1996, and thereafter from year to
year so long as such continuance is approved annually by a majority of the
Trustees who are not parties to the Advisory Agreements or interested persons of
any such party, and by either a majority of the Funds' outstanding voting shares
or the Trustees. Each Advisory Agreement i) may be terminated without the
payment of any penalty by any Fund or Janus Capital on 60 days' written notice;
ii) terminates automatically in the event of its assignment; and iii) generally,
may not be amended without the approval of a majority of the Trustees of the
affected Fund, including the Trustees who are not interested persons of that
Fund or Janus Capital and, to the extent required by the 1940 Act, the vote of a
majority of the outstanding voting securities of that Fund.
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Funds, are made independently from those for any other account that is or may in
the future become managed by Janus Capital or its affiliates. If, however, a
number of accounts managed by Janus Capital are contemporaneously engaged in the
purchase or sale of the same security, the orders may be aggregated and/or the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by an account or the size of the position obtained or liquidated for an
account. Pursuant to an exemptive order granted by the SEC, the Funds and other
funds advised by Janus Capital may also transfer daily uninvested cash balances
into one or more joint trading accounts. Assets in the joint trading accounts
are invested in money market instruments and the proceeds are allocated to the
participating funds on a pro rata basis.
Each account managed by Janus Capital has its own investment objective and
is managed in accordance with that objective by a particular portfolio manager
or team of portfolio managers. As a result, from time to time two or more
different managed accounts may pursue divergent investment strategies with
respect to investments or categories of investments.
As indicated in the Prospectus, Janus Capital permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a Janus Capital policy regarding personal investing by directors, officers
and employees of Janus Capital and the Funds. The policy requires investment
personnel and officers of Janus Capital, inside directors of Janus Capital and
the Funds and other designated persons deemed to have access to current trading
information to pre-clear all transactions in securities not otherwise exempt
under the policy. Requests for trading authority will be denied when, among
other reasons, the proposed personal transaction would be contrary to the
provisions of the policy or would be deemed to adversely affect any transaction
then known to be under consideration for or to have been effected on behalf of
any client account, including the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Funds to various trading restrictions and reporting obligations. All
reportable transactions are reviewed for compliance with Janus Capital's policy.
Those persons also may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation, information processing
and financial services ("KCSI"), owns approximately 83% of Janus Capital. Thomas
H. Bailey, the President and Chairman of the Board of Janus Capital, owns
approximately 12% of its voting stock and, by agreement with KCSI, selects a
majority of Janus Capital's Board.
9
<PAGE>
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
United Missouri Bank, N.A., P.O. Box 419226, Kansas City, Missouri
64141-6226, is the Funds' custodian. The custodian holds the Funds' assets in
safekeeping and collects and remits the income thereon, subject to the
instructions of each Fund.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the Funds'
transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the Funds.
The Funds do not pay Janus Service a fee.
Janus Distributors, Inc. ("Janus Distributors"), 100 Fillmore Street,
Denver, Colorado 80206, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Funds. Janus Distributors is registered as a broker-dealer
under the Securities Exchange Act of 1934 (the "Exchange Act") and is a member
of the National Association of Securities Dealers, Inc. Janus Distributors acts
as the agent of the Funds in connection with the sale of their shares in all
states in which the shares are registered and in which Janus Distributors is
qualified as a broker-dealer. Under the Distribution Agreement, Janus
Distributors continuously offers the Funds' shares and accepts orders at net
asset value. No sales charges are paid by investors. Promotional expenses in
connection with offers and sales of shares are paid by Janus Capital.
Janus Capital also may make payments to selected broker-dealer firms or
institutions which were instrumental in the acquisition of shareholders for the
Funds or which performed services with respect to shareholder accounts. The
minimum aggregate size required for eligibility for such payments, and the
factors in selecting the broker-dealer firms and institutions to which they will
be made, are determined from time to time by Janus Capital.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Funds and
negotiation of its commission rates are made by Janus Capital whose policy is to
obtain the "best execution" (prompt and reliable execution at the most favorable
security price) of all portfolio transactions.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; and research products or services provided. In recognition of
the value of the foregoing factors, Janus Capital may place portfolio
transactions with a broker or dealer with whom it has negotiated a commission
that is in excess of the commission another broker or dealer would have charged
for effecting that transaction if Janus Capital determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research provided by such broker or dealer viewed in terms of
either that particular transaction or of the overall responsibilities of Janus
Capital. These research and other services may include, but are not limited to,
general economic and security market reviews, industry and company reviews,
evaluations of securities, recommendations as to the purchase and sale of
securities and access to third party publications, computer and electronic
equipment and software. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts.
For the period from April 14, 1995 to October 31, 1995, the Funds did not
incur any brokerage commissions. Brokerage commissions are not normally charged
on the purchase and sale of money market instruments.
Janus Capital may use research products and services in servicing other
accounts in addition to the Funds. If Janus Capital determines that any research
product or service has a mixed use, such that it also serves functions that do
not assist in the investment decision-making process, Janus Capital may allocate
the costs of such service or product accordingly. Only that portion of the
product or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus Capital.
Janus Capital may consider sales of Shares by a broker-dealer or the
recommendation of a broker-dealer to its customers that they purchase Shares as
a factor in the selection of broker-dealers to execute Fund portfolio
transactions. Janus Capital may also consider payments made by brokers effecting
transactions for a Fund i) to the Fund or ii) to other persons on behalf of the
Fund for services provided to the Fund for which it would be obligated to pay.
In placing portfolio business with such broker-dealers, Janus Capital will seek
the best execution of each transaction.
10
<PAGE>
When the Funds purchase or sell a security in the over-the-counter market,
the transaction takes place directly with a principal market-maker, without the
use of a broker, except in those circumstances where in the opinion of Janus
Capital better prices and executions will be achieved through the use of a
broker.
OFFICERS AND TRUSTEES
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street
Denver, CO 80206-4923
Trustee, Chairman and President of Janus Aspen Series. Chairman, Director
and President of Janus Capital. Chairman and Director of IDEX Management,
Inc., Largo, Florida (50% subsidiary of Janus Capital and investment
adviser to a group of mutual funds) ("IDEX").
James P. Craig, III*# - Trustee and Executive Vice President
100 Fillmore Street
Denver, CO 80206-4923
Trustee and Executive Vice President of Janus Aspen Series. Chief
Investment Officer, Vice President and Director of Janus Capital. Executive
Vice President and Portfolio Manager of Janus Fund series of the Trust.
Sharon S. Pichler* - Executive Vice President and Portfolio Manager
100 Fillmore Street
Denver, CO 80206-4923
Executive Vice President of Janus Money Market Fund, Janus Tax-Exempt Money
Market Fund and Janus Government Money Market Fund series of the Trust.
Vice President of Janus Capital. Formerly, Assistant Vice President and
Portfolio Manager at USAA Investment Management Co. (1990-1994).
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street
Denver, CO 80206-4923
Vice President and General Counsel of Janus Aspen Series. Vice President,
Secretary and General Counsel of Janus Capital. Vice President, General
Counsel and Director of Janus Service and Janus Distributors. Director,
Vice President and Secretary of Janus Capital International Ltd.
Steven R. Goodbarn* - Vice President and Chief Financial Officer
100 Fillmore Street
Denver, CO 80206-4923
Vice President and Chief Financial Officer of Janus Aspen Series. Vice
President of Finance, Treasurer and Chief Financial Officer of Janus
Service, Janus Distributors and Janus Capital. Director of IDEX and Janus
Distributors. Director, Treasurer and Vice President of Finance of Janus
Capital International Ltd. Formerly (1979 to 1992), with the accounting
firm of Price Waterhouse LLP, Denver, Colorado.
Glenn P. O'Flaherty* - Treasurer and Chief Accounting Officer
100 Fillmore Street
Denver, CO 80206-4923
Treasurer and Chief Accounting Officer of Janus Aspen Series. Director of
Fund Accounting of Janus Capital. Formerly (1990-1991), with The Boston
Company Advisors, Inc., Boston Massachusetts (mutual fund administration
services).
Kelley Abbott Howes* - Secretary
100 Fillmore Street
Denver, CO 80206-4923
Secretary of Janus Aspen Series. Associate Counsel of Janus Capital.
Formerly (1990 to 1994), with The Boston Company Advisors, Inc.
John W. Shepardson# - Trustee
910 16th Street, Suite 222
Denver, CO 80202
Trustee of Janus Aspen Series. Historian.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
11
<PAGE>
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Aspen Series. President of HPS Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade Avenue, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Aspen Series. President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments) since 1987.
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Aspen Series. President and Chief Executive Officer of BC
Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue, Washington
(restaurant chain). Formerly (1982 to 1993), Chairman, President and Chief
Executive Officer of Famous Restaurants, Inc., Scottsdale, Arizona
(restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Aspen Series. Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company).
- --------------------------------------------------------------------------------
# Member of the Executive Committee.
The Trustees are responsible for major decisions relating to each Fund's
objective, policies and techniques. The Trustees also supervise the operation of
the Funds by their officers and review the investment decisions of the officers
although they do not actively participate on a regular basis in making such
decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Declaration of Trust,
Massachusetts Law or the 1940 Act.
The Money Market Funds Committee, consisting of Messrs. Craig, Shepardson,
Loo and Waldinger, monitors the compliance with policies and procedures adopted
particularly for money market funds.
The following table shows the aggregate compensation paid to each Trustee
by the Funds described in this SAI and all funds advised and sponsored by Janus
Capital (collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive any pension or retirement benefits from the Funds or the Janus
Funds.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from the
from the Funds for fiscal year Janus Funds for calendar year
Name of Person, Position ended October 31, 1995** ended December 31, 1995***
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman* $0 $0
James P. Craig, Trustee*+ $0 $0
John W. Shepardson, Trustee $0 $0
William D. Stewart, Trustee $0 $0
Gary O. Loo, Trustee $0 $0
Dennis B. Mullen, Trustee $0 $0
Martin H. Waldinger, Trustee $0 $0
- ---------------------------------------------------------------------------------------------------
</TABLE>
*An interested person of the Funds and of Janus Capital. Compensated by Janus
Capital and not the Funds.
**For the fiscal year ended October 31, 1995, Janus Capital paid the Trustees'
expenses.
***As of December 31, 1995, Janus Funds consisted of two registered investment
companies comprised of a total of 26 funds.
+Mr. Craig became a Trustee as of June 30, 1995.
12
<PAGE>
PURCHASE OF SHARES
As stated in the Prospectus, Janus Distributors is a distributor of the
Funds' shares. Shares are sold at the net asset value per share as determined at
the close of the regular trading session of the New York Stock Exchange (the
"NYSE" or the "Exchange") next occurring after a purchase order is received and
accepted by a Fund. A Fund's net asset value is calculated each day that both
the NYSE and the New York Federal Reserve Bank are open. As stated in the
Prospectus, the Funds each seek to maintain a stable net asset value per share
of $1.00. The Shareholder's Guide Section of the Prospectus contains detailed
information about the purchase of Shares.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
If investors do not elect in writing or by phone to receive their dividends
and distributions via wire transfer, all income dividends and capital gains
distributions, if any, on Shares are reinvested automatically in additional
Shares of that Fund at the NAV determined on the first business day following
the record date. Any such election (which may be made on the Application or by
phone) will apply to dividends and distributions the record dates of which fall
on or after the date that a Fund receives such notice. Investors receiving
distributions and dividends via wire transfer may elect in writing or by phone
to change back to automatic reinvestment at any time.
REDEMPTION OF SHARES
Procedures for redemption of Shares are set forth in the Shareholder's
Guide section of the Prospectus. Shares normally will be redeemed for cash (via
wire), although each Fund retains the right to redeem Shares in kind under
unusual circumstances, in order to protect the interests of remaining
shareholders, by delivery of securities selected from its assets at its
discretion. However, the Funds are governed by Rule 18f-1 under the 1940 Act,
which requires each Fund to redeem Shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed such
limitation, their Fund will have the option of redeeming the excess in cash or
in kind. If Shares are redeemed in kind, the redeeming shareholder might incur
brokerage costs in converting the assets to cash. The method of valuing
securities used to make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Determination of Net Asset Value"
and such valuation will be made as of the same time the redemption price is
determined.
The right to require the Funds to redeem Shares may be suspended, or the
date of payment may be postponed, whenever (1) trading on the NYSE is
restricted, as determined by the Securities and Exchange Commission, or the NYSE
is closed except for holidays and weekends, (2) the Securities and Exchange
Commission permits such suspension and so orders, or (3) an emergency exists as
determined by the Securities and Exchange Commission so that disposal of
securities or determination of NAV is not reasonably practicable.
RETIREMENT PLANS
The Funds offer tax-deferred retirement plans for rollover accounts in
excess of $250,000. The Individual Retirement Account ("IRA") may be used by
individuals who meet the above requirement.
Contributions under IRAs are subject to specific contribution limitations.
Generally, such contributions may be invested at the direction of the
participant. The investment is then held by Investors Fiduciary Trust Company
("IFTC") as custodian. Each participant's account is charged an annual fee of
$12, including any account with any of the Janus Funds. There is a maximum
annual fee of $24 per taxpayer identification number.
Distributions from retirement plans are generally subject to ordinary
income tax and may be subject to an additional 10% tax if withdrawn prior to age
591/2. Several exceptions to the general rule may apply. However, shareholders
must start withdrawing retirement plan assets no later than April 1 of the year
after they reach age 701/2. Several methods exist to determine the amount of the
minimum annual distribution. Shareholders should consult with their tax advisor
or legal counsel prior to receiving any distribution from any retirement plan,
in order to determine the income tax impact of any such distribution.
To receive additional information about IRAs along with the necessary
materials to establish an account, please call the Funds at 1-800-525-3713 or
write the Funds at P.O. Box 173375, Denver, CO 80217-3375. No contribution to
any IRA can be made until the appropriate forms to establish any such plan have
been completed.
SHAREHOLDER ACCOUNTS
Detailed information about the general procedures for shareholder accounts
is set forth in the Prospectus. Applications to open accounts may be obtained by
calling the Funds at 1-800-29JANUS or writing to the Funds at 100 Fillmore
Street, Denver, Colorado 80206-4923, Attention: Extended Services.
13
<PAGE>
DIVIDENDS AND TAX STATUS
Dividends representing substantially all of the net investment income and
any net realized gains on sales of securities are declared daily, Saturdays,
Sundays and holidays included, and distributed on the last business day of each
month. If a month begins on a Saturday, Sunday or holiday, dividends for those
days are declared at the end of the preceding month and distributed on the first
business day of the month. A shareholder may receive dividends via wire transfer
or may choose to have dividends automatically reinvested in a Fund's Shares. As
described in the Prospectus, Shares purchased by wire on a bank business day
will receive that day's dividend if the purchase is effected at or prior to 3:00
p.m. (New York time) for Janus Money Market Fund and Janus Government Money
Market Fund and 12:00 p.m. (New York time) for Janus Tax-Exempt Money Market
Fund. Otherwise, such Shares will begin to accrue dividends on the first bank
business day following receipt of the order. Requests for redemption of Shares
will be redeemed at the next determined net asset value. Redemption requests
made by wire that are received prior to 3:00 p.m. (New York time) for Janus
Money Market Fund and Janus Government Money Market Fund and 12:00 p.m. (New
York time) for Janus Tax-Exempt Money Market Fund will result in Shares being
redeemed that day. Proceeds of such a redemption will normally be sent to the
predesignated bank account on that day, but that day's dividend will not be
received. Closing times for purchase and redemption of Shares may be changed for
days in which the bond market or the New York Stock Exchange close early.
Distributions for all of the Funds (except Janus Tax-Exempt Money Market
Fund) are taxable income and are subject to federal income tax (except for
shareholders exempt from income tax), whether such distributions are received
via wire transfer or are reinvested in additional Shares. Full information
regarding the tax status of income dividends and any capital gains distributions
will be mailed to shareholders for tax purposes on or before January 31st of
each year. As described in detail in the Prospectus, Janus Tax-Exempt Money
Market Fund anticipates that substantially all income dividends it pays will be
exempt from federal income tax, although dividends attributable to interest on
taxable investments, together with distributions from any net realized short- or
long-term capital gains, are taxable.
The Funds intend to qualify as regulated investment companies by satisfying
certain requirements prescribed by Subchapter M of the Internal Revenue Code of
1986.
Some money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security, or
interest rate adjustment features can be used to enhance price stability. If the
structure does not perform as intended, adverse tax or investment consequences
may result. Neither the Internal Revenue Service nor any other regulatory
authority has ruled definitively on certain legal issues presented by structured
securities. Future tax or other regulatory determinations could adversely affect
the value, liquidity, or tax treatment of the income received from these
securities or the nature and timing of distributions made by a portfolio.
PRINCIPAL SHAREHOLDERS AND SIGNIFICANT SHAREHOLDERS
As of December 1, 1995, the Fund's officers and Trustees as a group owned
less than 1% of the outstanding Shares.
As of December 1, 1995, the following institutions owned more than 5% of
Janus Money Market Fund - Institutional Shares:
<TABLE>
<CAPTION>
Institution Address Ownership %
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
GE Capital 570 Lexington Avenue, 11th Floor, 5.47%
New York, NY 10022-6824
Western Digital Corporation 8150 Irvine Drive, Irvine, CA 92718 7.94%
Pacificare of California 5995 Plaza Drive, Cypress, CA 90630-5028 24.12%
Wells Fargo Institutional Trust 45 Fremont Street, San Francisco, CA 94105-2204 9.82%
Janus Fund* 100 Fillmore Street, Denver, CO 80206-4923 6.93%
Janus Mercury Fund* 100 Fillmore Street, Denver, CO 80206-4923 6.93%
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</TABLE>
14
<PAGE>
As of December 1, 1995, the following institutions owned more than 5% of
Janus Government Money Market Fund Institutional Shares:
<TABLE>
<CAPTION>
Institution Address Ownership %
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<S> <C> <C>
Western Digital Corporation 8105 Irvine Drive, Irvine, CA 92718 35.23%
Rio Properties, Inc. P.O. Box 14160, Las Vegas, NV 89114-4160 15.56%
Janus Venture Fund* 100 Fillmore Street, Denver, CO 80206-4923 5.97%
Janus Mercury Fund* 100 Fillmore Street, Denver, CO 80206-4923 14.91%
Janus Worldwide Fund* 100 Fillmore Street, Denver, CO 80206-4923 13.42%
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</TABLE>
As of December 1, 1995, Thomas F. Marsico, 100 Fillmore Street, Denver, CO
80206-4923, owned 41.66% and The Gap, Inc., 900 Cherry Avenue, San Bruno, CA
94066-3909, owned 58.34% of Janus Tax-Exempt Money Market Fund - Institutional
Shares.
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*These shareholders own 5% or less of the total shares (Institutional Shares and
Investor Shares combined) of the Fund in compliance with Section 12(d)(1) of the
1940 Act.
MISCELLANEOUS INFORMATION
Each Fund is a series of the Trust, a Massachusetts Business Trust that was
created on February 11, 1986. The Trust is an open-end management investment
company registered under the 1940 Act. As of the date of this SAI, the Trust
consists of 18 separate series, three of which currently offer two classes of
Shares. The Funds were added to the Trust as separate series on December 9,
1994.
Janus Capital reserves the right to the name "Janus." In the event that
Janus Capital does not continue to provide investment advice to the Funds, the
Funds must cease to use the name "Janus" as soon as reasonably practicable.
Under Massachusetts law, shareholders of the Funds could, under certain
circumstances, be held liable for the obligations of their Fund. However, the
Agreement and Declaration of Trust (the "Declaration of Trust") disclaims
shareholder liability for acts or obligations of the Funds and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Funds or the Trustees. The Declaration of Trust
also provides for indemnification from the assets of the Funds for all losses
and expenses of any Fund shareholder held liable for the obligations of their
Fund. Thus, the risk of a shareholder incurring a financial loss on account of
its liability as a shareholder of one of the Funds is limited to circumstances
in which their Fund would be unable to meet its obligations. The possibility
that these circumstances would occur is remote. The Trustees intend to conduct
the operations of the Funds to avoid, to the extent possible, liability of
shareholders for liabilities of their Fund.
SHARES OF THE TRUST
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of one cent per share for each series of
the Trust. Shares of each Fund are fully paid and nonassessable when issued. All
shares of a Fund participate equally in dividends and other distributions by
such Fund, and in residual assets of that Fund in the event of liquidation.
Shares of each Fund have no preemptive, conversion or subscription rights.
The Trust is authorized to issue multiple classes of shares for each Fund.
Currently, Janus Money Market Fund, Janus Government Money Market Fund and Janus
Tax-Exempt Money Market Fund each offer two classes of shares. The Shares
discussed in this SAI are offered only to individual, institutional and
corporate clients meeting certain minimum investment criteria. A second class of
shares, Investor Shares, is offered to the general public.
VOTING RIGHTS
The present Trustees were elected at a meeting of the Trust's shareholders
held on July 10, 1992, with the exception of Mr. Craig who was appointed by the
Trustees as of June 30, 1995. Under the Declaration of Trust, each Trustee will
continue in office until the termination of the Trust or his earlier death,
resignation, bankruptcy, incapacity or removal. Vacancies will be filled by a
majority of the remaining Trustees, subject to the 1940 Act. Therefore, no
annual or regular meetings of shareholders normally will be held, unless
otherwise required by the Declaration of Trust or the 1940 Act. Subject to the
foregoing, shareholders have the power to vote to elect or remove Trustees, to
terminate or reorganize their Fund, to amend the Declaration of Trust, to bring
certain derivative actions and on any other matters on which a shareholder vote
is required by the 1940 Act, the Declaration of Trust, the Trust's Bylaws or the
Trustees.
15
<PAGE>
Each share of each series of the Trust has one vote (and fractional votes
for fractional shares). Shares of all series of the Trust have noncumulative
voting rights, which means that the holders of more than 50% of the shares of
all series of the Trust voting for the election of Trustees can elect 100% of
the Trustees if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Trustees. Each series or class of
the Trust will vote separately only with respect to those matters that affect
only that series or class or if the interest of the series or class in the
matter differs from the interests of other series or classes of the Trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202, independent accountants for the Funds, audit the Funds' annual financial
statements and prepare their tax returns.
REGISTRATION STATEMENT
The Trust has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, with respect to the securities to which this SAI relates. If further
information is desired with respect to the Funds or such securities, reference
is made to the Registration Statement and the exhibits filed as a part thereof.
FINANCIAL STATEMENTS
The following audited financial statements of the Funds for the period
ended October 31, 1995 are hereby incorporated into this SAI by reference to the
Funds' Annual Report dated October 31, 1995. A copy of such report accompanies
this SAI.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT
Schedules of Investments as of October 31, 1995
Statements of Operations for the period February 15, 1995 to October 31,
1995
Statements of Assets and Liabilities as of October 31, 1995
Statements of Changes in Net Assets for the period February 15, 1995 to
October 31, 1995*
Financial Highlights for Institutional Shares for the period April 14, 1995
to October 31, 1995
Notes to Financial Statements
Report of Independent Accountants
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this SAI and are not part of the
Registration Statement.
- --------------------------------------------------------------------------------
*Transactions in fund shares for the period April 14, 1995 to October 31, 1995.
16
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S AND STANDARD & POOR'S
MUNICIPAL AND CORPORATE BONDS AND MUNICIPAL LOANS
The two highest ratings of Standard & Poor's Ratings Services ("S&P") for
municipal and corporate bonds are AAA and AA. Bonds rated AAA have the highest
rating assigned by S&P to a debt obligation. Capacity to pay interest and repay
principal is extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in a
small degree. The AA rating may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within that rating category.
The two highest ratings of Moody's Investors Service, Inc. ("Moody's") for
municipal and corporate bonds are Aaa and Aa. Bonds rated Aaa are judged by
Moody's to be of the best quality. Bonds rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. Moody's states that Aa bonds are rated
lower than the best bonds because margins of protection or other elements make
long-term risks appear somewhat larger than Aaa securities. The generic rating
Aa may be modified by the addition of the numerals 1, 2 or 3. The modifier 1
indicates that the security ranks in the higher end of the Aa rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of such rating category.
SHORT TERM MUNICIPAL LOANS
S&P's highest rating for short-term municipal loans is SP-1. S&P states
that short-term municipal securities bearing the SP-1 designation have a strong
capacity to pay principal and interest. Those issues rated SP-1 which are
determined to possess a very strong capacity to pay debt service will be given a
plus (+) designation. Issues rated SP-2 have satisfactory capacity to pay
principal and interest with some vulnerability to adverse financial and economic
changes over the term of the notes.
Moody's highest rating for short-term municipal loans is MIG-1/VMIG-1.
Moody's states that short-term municipal securities rated MIG-1/VMIG-1 are of
the best quality, enjoying strong protection from established cash flows of
funds for their servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG-2/VMIG-2 designation are
of high quality, with margins of protection ample although not so large as in
the MIG-1/VMIG-1 group.
OTHER SHORT-TERM DEBT SECURITIES
Prime-1 and Prime-2 are the two highest ratings assigned by Moody's for
other short-term debt securities and commercial paper, and A-1 and A-2 are the
two highest ratings for commercial paper assigned by S&P. Moody's uses the
numbers 1, 2 and 3 to denote relative strength within its highest classification
of Prime, while S&P uses the numbers 1, 2 and 3 to denote relative strength
within its highest classification of A. Issuers rated Prime-1 by Moody's have a
superior ability for repayment of senior short-term debt obligations and have
many of the following characteristics: leading market positions in
well-established industries, high rates of return on funds employed,
conservative capitalization structure with moderate reliance on debt and ample
asset protection, broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and well established access to a range of
financial markets and assured sources of alternate liquidity. Issuers rated
Prime-2 by Moody's have a strong ability for repayment of senior short-term debt
obligations and display many of the same characteristics displayed by issuers
rated Prime-1, but to a lesser degree. Issuers rated A-1 by S&P carry a strong
degree of safety regarding timely repayment. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus (+) designation.
Issuers rated A-2 by S&P carry a satisfactory degree of safety regarding timely
repayment.
FITCH
F-1+ - Exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 - Very strong credit quality. Issues assigned this rating reflect
an assurance for timely payment only slightly less in degree than
issues rated F-1+.
F-2 - Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-1+ and F-1 ratings.
17
<PAGE>
DUFF & PHELPS INC.
Duff 1+ - Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and safety
is just below risk-free U.S. Treasury short-term obligations.
Duff 1 - Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- - High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
Duff 2 - Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets
is good. Risk factors are small.
THOMSON BANKWATCH, INC.
TBW-1 - The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a timely
basis.
TBW-2 - The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for issues rated
TBW-1.
TBW-3 - The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external)
than obligations with higher ratings, capacity to service
principal and interest in a timely fashion is considered
adequate.
TBW-4 - The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
IBCA, INC.
A1+ - Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit
feature, a rating of A1+ is assigned.
A2 - Obligations supported by a good capacity for timely repayment.
A3 - Obligations supported by a satisfactory capacity for timely
repayment.
B - Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
C - Obligations for which there is a high risk of default or which
are currently in default.
18
<PAGE>
APPENDIX B
DESCRIPTION OF MUNICIPAL SECURITIES
Municipal Notes generally are used to provide for short-term capital needs
and usually have maturities of one year or less. They include the following:
1. Project Notes, which carry a U.S. government guarantee, are issued by
public bodies (called "local issuing agencies") created under the laws of a
state, territory, or U.S. possession. They have maturities that range up to one
year from the date of issuance. Project Notes are backed by an agreement between
the local issuing agency and the Federal Department of Housing and Urban
Development. These Notes provide financing for a wide range of financial
assistance programs for housing, redevelopment, and related needs (such as
low-income housing programs and renewal programs).
2. Tax Anticipation Notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.
3. Revenue Anticipation Notes are issued in expectation of receipt of other
types of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.
4. Bond Anticipation Notes are issued to provide interim financing until
long-term financing can be arranged. In most cases, the long-term bonds then
provide the money for the repayment of the Notes.
5. Construction Loan Notes are sold to provide construction financing.
After successful completion and acceptance, many projects receive permanent
financing through the Federal Housing Administration under the Federal National
Mortgage Association ("Fannie Mae") or the Government National Mortgage
Association ("Ginnie Mae").
6. Tax-Exempt Commercial Paper is a short-term obligation with a stated
maturity of 365 days or less. It is issued by agencies of state and local
governments to finance seasonal working capital needs or as short-term financing
in anticipation of longer term financing.
Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:
1. General Obligation Bonds are issued by such entities as states,
counties, cities, towns, and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
2. Revenue Bonds in recent years have come to include an increasingly wide
variety of types of municipal obligations. As with other kinds of municipal
obligations, the issuers of revenue bonds may consist of virtually any form of
state or local governmental entity, including states, state agencies, cities,
counties, authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide additional
security in the form of a debt service reserve fund to be used to make principal
and interest payments. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Housing authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated (see 3 below).
3. Private Activity Bonds are considered municipal bonds if the interest
paid thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing and health. These bonds are
also used to finance public facilities such as airports, mass transit systems
and ports. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property as security for such
payment.
19
<PAGE>
While, at one time, the pertinent provisions of the Internal Revenue Code
permitted private activity bonds to bear tax-exempt interest in connection with
virtually any type of commercial or industrial project (subject to various
restrictions as to authorized costs, size limitations, state per capita volume
restrictions, and other matters), the types of qualifying projects under the
Code have become increasingly limited, particularly since the enactment of the
Tax Reform Act of 1986. Under current provisions of the Code, tax-exempt
financing remains available, under prescribed conditions, for certain privately
owned and operated rental multi-family housing facilities, nonprofit hospital
and nursing home projects, airports, docks and wharves, mass commuting
facilities and solid waste disposal projects, among others, and for the
refunding (that is, the tax-exempt refinancing) of various kinds of other
private commercial projects originally financed with tax-exempt bonds. In future
years, the types of projects qualifying under the Code for tax-exempt financing
are expected to become increasingly limited.
Because of terminology formerly used in the Internal Revenue Code,
virtually any form of private activity bond may still be referred to as an
"industrial development bond," but more and more frequently revenue bonds have
become classified according to the particular type of facility being financed,
such as hospital revenue bonds, nursing home revenue bonds, multi-family housing
revenue bonds, single family housing revenue bonds, industrial development
revenue bonds, solid waste resource recovery revenue bonds, and so on.
Other Municipal Obligations, incurred for a variety of financing purposes,
include: municipal leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local governments
and authorities to acquire a wide variety of equipment and facilities such as
fire and sanitation vehicles, telecommunications equipment and other capital
assets. Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase municipal
leases subject to a non-appropriation clause when the payment of principal and
accrued interest is backed by an unconditional irrevocable letter of credit, or
guarantee of a bank or other entity that meets the criteria described in the
Prospectus.
Tax-exempt bonds are also categorized according to whether the interest is
or is not includible in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying the bonds
are or are not deductible in part by banks and other financial institutions, and
according to other criteria relevant for Federal income tax purposes. Due to the
increasing complexity of Internal Revenue Code and related requirements
governing the issuance of tax-exempt bonds, industry practice has uniformly
required, as a condition to the issuance of such bonds, but particularly for
revenue bonds, an opinion of nationally recognized bond counsel as to the
tax-exempt status of interest on the bonds.
20
