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The information in this Statement of Additional Information is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This Statement of Additional Information is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any
state where the offer is not permitted.
Subject to Completion
Preliminary Statement of Additional Information Dated
September 13, 2000
[JANUS LOGO]
JANUS INVESTMENT FUND
JANUS FUND 2
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 1, 2000
100 Fillmore Street
Denver, CO 80206-4928
(800) 525-3713
Janus Fund 2 is a no-load, diversified mutual fund that seeks
long-term growth of capital in a manner consistent with the
preservation of capital. It invests primarily in common stocks
selected for their growth potential. The Fund may invest in
companies of any size, from larger, well-established companies to
smaller, emerging growth companies.
The Fund is a separate series of Janus Investment Fund, a
Massachusetts business trust.
This Statement of Additional Information is not a Prospectus and
should be read in conjunction with the Fund's Prospectus dated
December 1, 2000, 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.
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Classification, Investment Policies and
Restrictions, and Investment Strategies and
Risks........................................... 2
Investment Adviser.............................. 39
Custodian, Transfer Agent and Certain
Affiliations.................................... 42
Portfolio Transactions and Brokerage............ 44
Trustees and Officers........................... 47
Purchase of Shares.............................. 53
Net Asset Value Determination................ 53
Reinvestment of Dividends and Distributions.. 54
Redemption of Shares............................ 56
Shareholder Accounts............................ 57
Telephone and Web Site Transactions.......... 57
Systematic Redemptions....................... 57
Tax-Deferred Accounts........................... 58
Income Dividends, Capital Gains Distributions
and Tax Status.................................. 60
Miscellaneous Information....................... 61
Shares of the Trust.......................... 61
Shareholder Meetings......................... 62
Voting Rights................................ 62
Master/Feeder Option......................... 63
Independent Accountants...................... 63
Registration Statement....................... 63
Performance Information......................... 64
Appendix A...................................... 65
</TABLE>
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CLASSIFICATION, INVESTMENT POLICIES
AND RESTRICTIONS, AND INVESTMENT
STRATEGIES AND RISKS
--------------------------------------------------------------------------------
CLASSIFICATION
The Fund is a series of the Trust, an open-end, management
investment company. The Investment Company Act of 1940 ("1940
Act") classifies mutual funds as either diversified or
nondiversified, and the Fund is a diversified fund.
INVESTMENT POLICIES AND RESTRICTIONS
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 1940 Act, as amended), 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 25% or more of the value of its total 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).
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(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 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 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.
(b) 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
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of any additional consideration therefor, and provided that
transactions in futures, options, swaps and forward contracts are
not deemed to constitute selling securities short.
(c) 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.
(d) 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.
(e) 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.
(f) 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
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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.
(g) The Fund may not invest in companies for the purpose of
exercising control of management.
Under the terms of an exemptive order received from the
Securities and Exchange Commission ("SEC") the Fund may borrow
money from or lend money to other funds that permit such
transactions and for which Janus Capital serves as investment
adviser. All such borrowing and lending will be subject to the
above limits. The Fund will borrow money through the program only
when the costs are equal to or lower than the cost of bank loans.
Interfund loans and borrowings normally extend overnight, but can
have maximum duration of seven days. The Fund will lend through
the program only when the returns are higher than those available
from other short-term instruments (such as repurchase
agreements). The Fund may have to borrow from a bank at a higher
interest rate if an interfund loan is called or not renewed. Any
delay in repayment to a lending Fund could result in a lost
investment opportunity or additional borrowing costs.
For the purposes of the Fund's policies on investing in
particular industries, the Fund will rely primarily on industry
or industry group classifications published by Bloomberg L.P. To
the extent that Bloomberg L.P. industry classifications are so
broad that the primary economic characteristics in a single
industry are materially different, the Fund may further classify
issuers in accordance with industry classifications as published
by the SEC.
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INVESTMENT STRATEGIES AND RISKS
Cash Position
As discussed in the Prospectus, when the Fund's portfolio manager
believes that market conditions are unfavorable for profitable
investing, or when he is otherwise unable to locate attractive
investment opportunities, the Fund's investment in cash and
similar investments may increase. Securities that the Fund may
invest in as a means of receiving a return on idle cash include
commercial paper, certificates of deposit, repurchase agreements
or other short-term debt obligations. The Fund may also invest in
money market funds, including funds managed by Janus Capital.
(See "Investment Company Securities" on page 13).
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 have authorized Janus Capital to make liquidity
determinations with respect to certain securities, including Rule
144A Securities, commercial paper and municipal lease obligations
purchased by the Fund. 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 ("NRSRO"). A foreign
security that may be freely traded on or through the facilities
of an offshore exchange or other established
6
<PAGE>
offshore securities market is not deemed to be a restricted
security subject to these procedures.
If illiquid securities exceed 15% of the Fund's net assets after
the time of purchase the Fund will take steps to reduce in an
orderly fashion its holdings of illiquid securities. Because
illiquid securities may not be readily marketable, the portfolio
manager may not be able to dispose of them in a timely manner. As
a result, the Fund may be forced to hold illiquid securities
while their price depreciates. Depreciation in the price of
illiquid securities may cause the net asset value of the Fund to
decline.
Securities Lending
The Fund may lend securities to qualified parties (typically
brokers or other financial institutions) who need to borrow
securities in order to complete certain transactions such as
covering short sales, avoiding failures to deliver securities or
completing arbitrage activities. The Fund may seek to earn
additional income through securities lending. Since there is the
risk of delay in recovering a loaned security or the risk of loss
in collateral rights if the borrower fails financially,
securities lending will only be made to parties that Janus
Capital deems creditworthy and in good standing. In addition,
such loans will only be made if Janus Capital believes the
benefit from granting such loans justifies the risk. The Fund
will not have the right to vote on securities while they are
being lent, but it will call a loan in anticipation of any
important vote. All loans will be continuously secured by
collateral which consists of cash, U.S. government securities,
letters of credit and such other collateral permitted by the
Securities and Exchange Commission and policies approved by the
Trustees. Cash collateral may be invested in money market funds
advised by Janus to the extent consistent with exemptive relief
obtained from the SEC.
Foreign Securities
The Fund may invest without limit in foreign securities either
indirectly (e.g., depositary receipts) or directly in foreign
markets.
7
<PAGE>
Investments in foreign securities, including those of foreign
governments, may involve greater risks than investing in domestic
securities, because the Fund's performance may depend on issues
other than the performance of a particular company. These issues
include:
- CURRENCY RISK. As long as the Fund holds a foreign security,
its value will be affected by the value of the local currency
relative to the U.S. dollar. When the Fund sells a foreign
denominated security, its value may be worth less in U.S.
dollars even if the security increases in value in its home
country. U.S. dollar denominated securities of foreign issuers
may also be affected by currency risk.
- POLITICAL AND ECONOMIC RISK. Foreign investments may be subject
to heightened political and economic risks, particularly in
emerging markets which may have relatively unstable
governments, immature economic structures, national policies
restricting investments by foreigners, different legal systems,
and economies based on only a few industries. In some
countries, there is the risk that the government may take over
the assets or operations of a company or that the government
may impose taxes or limits on the removal of a Fund's assets
from that country.
- REGULATORY RISK. There may be less government supervision of
foreign markets. As a result, foreign issuers may not be
subject to the uniform accounting, auditing and financial
reporting standards and practices applicable to domestic
issuers and there may be less publicly available information
about foreign issuers.
- MARKET RISK. Foreign securities markets, particularly those of
emerging market countries, may be less liquid and more volatile
than domestic markets. Certain markets may require payment for
securities before delivery and delays may be encountered in
settling securities transactions. In some foreign markets,
there may not be protection against failure by other parties to
complete transactions.
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- TRANSACTION COSTS. Costs of buying, selling and holding foreign
securities, including brokerage, tax and custody costs, may be
higher than those involved in domestic transactions.
Short Sales
The Fund may engage in "short sales against the box." This
technique involves selling either a security that the Fund owns,
or a security equivalent in kind and amount to the security sold
short that the Fund has the right to obtain, for delivery at a
specified date in the future. The Fund may enter into a short
sale against the box to hedge against anticipated declines in the
market price of portfolio securities. If the value of the
securities sold short increases prior to the scheduled delivery
date, the Fund loses the opportunity to participate in the gain.
Zero Coupon, Step Coupon and Pay-In-Kind 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
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
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"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
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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.
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.
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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
manager 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 nor the 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
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municipality stops making payments, there generally will be no
recourse against the vendor. These obligations are likely to
involve unscheduled prepayments of principal.
Investment Company Securities
From time to time, the Fund may invest in securities of other
investment companies, subject to the provisions of Section
12(d)(1) of the 1940 Act. The Fund may invest in securities of
money market funds managed by Janus Capital in excess of the
limitations of Section 12(d)(1) under the terms of an SEC
exemptive order obtained by Janus Capital and the Janus funds.
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 underlying
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 and GDRs are securities that are
typically issued by foreign banks or foreign trust companies,
although U.S. banks or U.S. trust companies may issue them. EDRs
and GDRs are similar to the arrangements of ADRs. EDRs, in bearer
form, are designed for use in European securities markets.
Depositary Receipts are generally subject to the same sort of
risks as direct investments in a foreign country, such as,
currency risk, political and economic risk, and market risk,
because their values
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depend on the performance of a foreign security denominated in
its home currency. The risks of foreign investing are addressed
in some detail in the Fund's prospectus.
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. 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"). The floating rate tends
to decrease the security's price sensitivity to changes in
interest rates. See also "Inverse Floaters."
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In order to most effectively use these investments, the portfolio
manager must correctly assess probable movements in interest
rates. This involves different skills than those used to select
most portfolio securities. If the portfolio manager incorrectly
forecasts such movements, the Fund could be adversely affected by
the use of variable or floating rate obligations.
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. The Fund will not invest more than 5% of its
assets in inverse floaters. Similar to variable and floating rate
obligations, effective use of inverse floaters requires skills
different from those needed to select most portfolio securities.
If movements in interest rates are incorrectly anticipated, the
Fund could lose money or its NAV could decline by the use of
inverse floaters.
STRIP BONDS. Strip bonds are debt securities that are stripped of
their interest (usually by a financial intermediary) after the
securities are issued. The market value of these securities
generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
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.
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High-Yield/High-Risk Bonds
The Fund intends to invest less than 35% of its net assets in
bonds that are rated below investment grade (e.g., bonds rated BB
or lower by Standard & Poor's Ratings Services or Ba or lower by
Moody's Investors Service, Inc.). 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 bonds so affected.
The Fund may also invest in unrated debt bonds of foreign and
domestic issuers. Unrated bonds, while not necessarily of lower
quality than rated bonds, 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 manager will
analyze the creditworthiness of the issuer, as well as any
financial institution or other party responsible for payments on
the bond, in determining whether to purchase unrated municipal
bonds. Unrated bonds will be included in the 35% limit unless the
portfolio manager deems such securities to be the equivalent of
investment grade bonds.
Subject to the above limits, the Fund may 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 about 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:
16
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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.
DISPOSITION OF PORTFOLIO SECURITIES. Although the 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. The Fund will limit holdings of any
such securities to amounts that the portfolio manager believes
could be readily sold, and holdings of such securities would, in
any event, be limited so as not to limit the Fund's ability to
readily dispose of securities to meet redemptions.
OTHER. Defaulted securities require active monitoring and may, at
times, require participation in bankruptcy or receivership
proceedings on behalf of the Fund.
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 consists of 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
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the amount of the agreed upon resale price and marked-to-market
daily) of the underlying security or "collateral." 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 are 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 obtain 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, 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. Using reverse repurchase agreements to earn
additional income involves the risk that the interest earned on
the invested proceeds is less than the expense of the reverse
repurchase agreement transaction. This technique may also have a
leveraging effect on the Fund's portfolio, although the Fund's
intent to segregate assets in the amount of the reverse
repurchase agreement minimizes this effect.
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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 other 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
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<PAGE>
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 other 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
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<PAGE>
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 other 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 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 bonds and the portfolio manager expects 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 bonds in its portfolio. If
interest rates increase as anticipated, the value of the 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 manager expects 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
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<PAGE>
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 manager 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 manager's 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
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<PAGE>
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 the securities markets.
Nevertheless, there is no assurance that a liquid secondary
market will exist for
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<PAGE>
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
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<PAGE>
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
25
<PAGE>
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 or exposed to
foreign currency fluctuations 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 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 manager believes there is a reasonable
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<PAGE>
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 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 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 or whose
value its tied to, 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
other 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 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
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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
projected, 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.
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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, should
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, 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
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maintained by the Fund in cash or other 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 other 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 other 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
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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 other 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 other 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 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 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
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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 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 is secured by other 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
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<PAGE>
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
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<PAGE>
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
34
<PAGE>
underlying security by the amount of the premium paid for the put
option and by transaction costs.
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 other 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-
35
<PAGE>
paying ability of the other party thereto is rated in one of the
three highest rating categories of at least one NRSRO 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 other 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
36
<PAGE>
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 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
37
<PAGE>
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.
38
<PAGE>
INVESTMENT ADVISER
--------------------------------------------------------------------------------
As stated in the Prospectus, the Fund has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Denver,
Colorado 80206-4928. The Advisory Agreement provides that Janus
Capital will furnish continuous advice and recommendations
concerning the Fund's investments, provide office space for the
Fund, and pay the salaries, fees and expenses of all Fund
officers and of those Trustees who are affiliated with Janus
Capital. 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 SAI 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 0.65% of
the Fund's average daily net assets.
The Advisory Agreement is dated September 26, 2000, and it will
continue in effect until July 1, 2002, and thereafter from year
to year so long as such continuance is approved annually by a
majority of the Fund's Trustees who are not parties to the
39
<PAGE>
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 acts as sub-adviser for a number of
private-label mutual funds and provides separate account advisory
services for institutional 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.
Stilwell Financial Inc. ("Stilwell") owns approximately 81.5% of
the outstanding voting stock of Janus Capital. Stilwell is a
publicly traded holding company with principal operations in
financial asset management businesses. Thomas H. Bailey,
President and Chairman of the Board of Janus Capital, owns
approximately 12% of Janus Capital's voting stock and, by
agreement with Stilwell,
40
<PAGE>
selects a majority of Janus Capital's Board, subject to the
approval of Stilwell, which cannot be unreasonably withheld.
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.
The Fund's portfolio manager is not permitted to purchase and
sell securities for his own accounts except under the limited
exceptions contained in the Fund's Code of Ethics ("Code"). The
Fund's Code of Ethics is on file with and available from the SEC
through the SEC Web site at www.sec.gov. The Code applies to
Directors/Trustees of Janus Capital and the Fund, and employees
of Janus Capital and the Trust and requires investment personnel
and officers of Janus Capital, inside Directors/Trustees of Janus
Capital and the Fund and certain other designated employees
deemed to have access to current trading information to pre-clear
all transactions in securities not otherwise exempt under the
Code. Requests for trading authorization will be denied when,
among other reasons, the proposed personal transaction would be
contrary to the provisions of the Code 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
Code subjects such personnel to various trading restrictions and
reporting obligations. All reportable transactions are required
to be reviewed for compliance with the Code. Those persons also
may be required under certain circumstances to forfeit their
profits made from personal trading.
The provisions of the Code are administered by and subject to
exceptions authorized by Janus Capital.
41
<PAGE>
CUSTODIAN, TRANSFER AGENT AND
CERTAIN AFFILIATIONS
--------------------------------------------------------------------------------
State Street Bank and Trust Company, P.O. Box 0351, Boston,
Massachusetts 02117-0351 is the custodian of the domestic
securities and cash of the Fund. 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. The custodian 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, 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 0.16% of average net assets of the Fund and, in addition
$4 per open shareholder account. In addition, the Fund pays DST
Systems, Inc. ("DST"), a subsidiary of Stilwell, license fees at
the annual rate of $3.06 per shareholder account for the use of
DST's shareholder accounting system. The Fund also pays DST $1.10
per closed shareholder account. The Fund pays DST for the use of
its portfolio and fund accounting system a monthly base fee of
$265 to $1,323 based on the number of Janus funds using the
system and an asset charge of $1 per million dollars of net
assets (not to exceed $500 per month). In addition, the Fund pays
DST postage and forms costs of a DST affiliate incurred in
mailing Fund shareholder transaction confirmations.
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 credits against the
charges of DST and its affiliates with regard to commissions
earned by such affiliate. See "Portfolio Transactions and
Brokerage."
Janus Distributors, Inc., 100 Fillmore Street, Denver, Colorado
80206-4928, a wholly-owned subsidiary of Janus Capital, is a
distributor of the Fund. Janus Distributors is registered as a
42
<PAGE>
broker-dealer under the Securities Exchange Act of 1934 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.
43
<PAGE>
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
44
<PAGE>
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.
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 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 execution 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
45
<PAGE>
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.
46
<PAGE>
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
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, Age 63 - Trustee, Chairman and President*#
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Trustee, Chairman and President of Janus Aspen Series and Janus
Adviser Series. Chairman, Chief Executive Officer, Director and
President of Janus Capital. President and Director of The Janus
Foundation. Director of Janus Distributors, Inc.
Gary O. Loo, Age 60 - Trustee#
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
--------------------------------------------------------------------------------
Trustee of Janus Aspen Series and Janus Adviser Series. President
and Director of High Valley Group, Inc., Colorado Springs, CO
(investments).
Dennis B. Mullen, Age 57 - Trustee
7500 E. McCormick Parkway, #24
Scottsdale, AZ 85258
--------------------------------------------------------------------------------
Trustee of Janus Aspen Series and Janus Adviser Series. Private
Investor. Formerly (1997-1998), Chief Financial Officer-Boston
Market Concepts, Boston Chicken, Inc., Golden, CO (restaurant
chain); (1993-1997), President and Chief Executive Officer of BC
Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
WA (restaurant chain).
--------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
#Member of the Trust's Executive Committee.
47
<PAGE>
James T. Rothe, Age 56 - Trustee
102 South Tejon Street, Suite 1100
Colorado Springs, CO 80903
--------------------------------------------------------------------------------
Trustee of Janus Aspen Series and Janus Adviser Series. Professor
of Business, University of Colorado, Colorado Springs, CO.
Principal, Phillips-Smith Retail Group, Colorado Springs, CO (a
venture capital firm).
William D. Stewart, Age 56 - Trustee
5330 Sterling Drive
Boulder, CO 80302
--------------------------------------------------------------------------------
Trustee of Janus Aspen Series and Janus Adviser Series. President
of MKS Instruments - HPS Products, Boulder, CO (manufacturer of
vacuum fittings and valves).
Martin H. Waldinger, Age 62 - Trustee
4940 Sandshore Court
San Diego, CA 92130
--------------------------------------------------------------------------------
Trustee of Janus Aspen Series and Janus Adviser Series. Private
Consultant. Formerly (1993-1996), Director of Run Technologies,
Inc., a software development firm, San Carlos, CA.
48
<PAGE>
John H. Schreiber, Age 31 - Executive Vice President*
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Executive Vice President and Portfolio Manager of Janus Fund 2.
Assistant Portfolio Manager of Janus Fund. Formerly (August
1997-November 2000), equity research analyst at Janus Capital.
Formerly (June 1995-August 1997), equity analyst at Fidelity
Investments.
Thomas A. Early, Age 45 - Vice President and General Counsel*
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Vice President and General Counsel of Janus Aspen Series and
Janus Adviser Series. Vice President, General Counsel and
Secretary of Janus Capital, Janus Distributors, Inc. and The
Janus Foundation. Vice President, General Counsel, Secretary and
Director of Janus Service Corporation and Janus Capital
International, Ltd. Vice President and General Counsel of Janus
International (Asia) Limited and Janus International (UK)
Limited. Director of Janus World Funds Plc and Janus Capital
Trust Manager Limited. Formerly (1997-1998), Executive Vice
President and General Counsel of Prudential Investments Fund
Management LLC, Newark, NJ. Formerly (1994-1997), Vice President
and General Counsel of Prudential Retirement Services, Newark,
NJ.
--------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
49
<PAGE>
Steven R. Goodbarn, Age 43 - Vice President and Chief Financial Officer*
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Vice President and Chief Financial Officer of Janus Aspen Series
and Janus Adviser Series. Vice President of Finance, Treasurer
and Chief Financial Officer of Janus Capital. Vice President of
Finance, Treasurer, Chief Financial Officer and Director of Janus
Service Corporation, Janus Distributors, Inc., Janus Capital
International, Ltd., Janus International (Asia) Limited and Janus
International (UK) Limited. Director of Janus World Funds Plc.
and Janus Capital Trust Manager Limited. Formerly (May
1992-January 1996), Treasurer of Janus Investment Fund and Janus
Aspen Series.
Bonnie M. Howe, Age 35 - Vice President*
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Vice President of Janus Aspen Series and Janus Adviser Series.
Vice President and Assistant General Counsel of Janus Capital and
Janus Service Corporation.
Kelley Abbott Howes, Age 35 - Vice President and Secretary*
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Vice President and Secretary of Janus Aspen Series and Janus
Adviser Series. Vice President and Assistant General Counsel of
Janus Capital and Janus Service Corporation. Vice President of
Janus Distributors, Inc.
--------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
50
<PAGE>
Glenn P. O'Flaherty, Age 42 - Treasurer and Chief Accounting Officer*
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Treasurer and Chief Accounting Officer of Janus Aspen Series and
Janus Adviser Series. Vice President of Janus Capital. Formerly
(1991 to 1997), Director of Fund Accounting, Janus Capital.
Heidi J. Walter, Age 33 - Vice President*
100 Fillmore Street
Denver, CO 80206-4928
--------------------------------------------------------------------------------
Vice President of Janus Aspen Series and Janus Adviser Series.
Vice President and Assistant General Counsel of Janus Capital and
Janus Service Corporation. Formerly (1995-1999), Vice President
and Senior Legal Counsel at Stein Roe and Farnham Incorporated.
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 Trust's Executive Committee shall have and may exercise all
the powers and authority of the Trustees except for matters
requiring action by all Trustees pursuant to the Trust's Bylaws
or Agreement and Declaration of Trust, Massachusetts law or the
1940 Act.
--------------------------------------------------------------------------------
*Interested person of the Trust and of Janus Capital.
51
<PAGE>
The following table shows the aggregate compensation earned by
and 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 receives any pension or retirement benefits from the
Fund or the Janus Funds.
[TO BE FILED BY AMENDMENT]
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
from the Fund for from the Janus Funds for
fiscal year ending calendar year ended
Name of Person, Position October 31, 2000** December 31, 2000***
------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas H. Bailey, Chairman and Trustee* $0 $0
James P. Craig, Trustee*+ $0 $0
William D. Stewart, Trustee $0 $
Gary O. Loo, Trustee $0 $
Dennis B. Mullen, Trustee $0 $
Martin H. Waldinger, Trustee $0 $
James T. Rothe, Trustee $0 $
</TABLE>
*An interested person of the Fund and of Janus Capital. Compensated by Janus
Capital and not the Fund.
**The Fund had not commenced operations as of October 31, 2000. The estimated
aggregate compensation for the Fund's first fiscal period (December 1, 2000
through October 31, 2001) is as follows: Thomas H. Bailey: $0; James P.
Craig: $0; William D. Stewart: $ ; Gary O. Loo: $ ; Dennis B. Mullen:
$ ; Martin H. Waldinger: $ ; and James T. Rothe: $ .
***As of December 31, 2000, Janus Funds consisted of three registered investment
companies comprised of a total of 49 funds.
+Mr. Craig resigned as a Fund Trustee on September , 2000.
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PURCHASE OF SHARES
--------------------------------------------------------------------------------
Shares of the Fund 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 the 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 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). As stated in the Prospectus, the NAV of Fund shares is
not determined on days the NYSE is closed (generally, New Year's
Day, Presidents' Day, Martin Luther King 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
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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 an
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.
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 payment 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. Changes to distribution
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options must be received at least three days prior to the record
date to be effective for such date. Investors receiving cash
distributions and dividends may elect in writing or by phone to
change back to automatic reinvestment at any time.
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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 some or all of its shares in kind under unusual
circumstances, in order to protect the interests of remaining
shareholders, or to accommodate a request by a particular
shareholder that does not adversely affect the interest 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.
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SHAREHOLDER ACCOUNTS
--------------------------------------------------------------------------------
Detailed information about the general procedures for shareholder
accounts and specific types of accounts is set forth in the
Prospectus and on our Web site. Applications for specific types
of accounts may be obtained by calling the Fund at
1-800-525-3713, writing to the Fund at P.O. Box 173375, Denver,
Colorado 80217-3375 or by visiting our Web site at janus.com.
TELEPHONE AND WEB SITE TRANSACTIONS
As stated in the Prospectus, shareholders may initiate a number
of transactions by telephone and via our Web site. The Fund, its
transfer agent and its distributor disclaim responsibility for
the authenticity of instructions received by telephone and the
Web site. Such entities will employ reasonable procedures to
confirm that instructions communicated by telephone and the Web
site are genuine. Such procedures may include, among others,
requiring personal identification prior to acting upon telephone
and Web site instructions, providing written confirmation of
telephone and Web site transactions and tape recording telephone
conversations.
SYSTEMATIC REDEMPTIONS
As stated in the Shareholder's Manual section of the Prospectus,
if you have a regular account or are eligible for distributions
from a retirement plan, you may establish a systematic redemption
option. 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 redemption option without penalty at any time.
Information about requirements to establish a systematic
redemption option may be obtained by writing or calling the Fund
at the address or phone number shown above or by visiting our Web
site at janus.com.
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TAX-DEFERRED ACCOUNTS
--------------------------------------------------------------------------------
The Fund offers several different types of tax-deferred accounts
that an investor may establish to invest in Fund shares,
depending on rules prescribed by the Code. Traditional and Roth
Individual Retirement Accounts may be used by most individuals
who have taxable compensation. Simplified Employee Pensions 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. Education IRAs allow
individuals, subject to certain income limitations, to contribute
up to $500 annually on behalf of any child under the age of 18.
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
adviser or legal counsel before selecting a tax-deferred account.
Contributions under Traditional and Roth IRAs, Education 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 Investors Fiduciary
Trust Company as custodian. Each participant's account is charged
an annual fee of $12 per taxpayer identification number no matter
how many tax-deferred accounts the participant has with Janus.
The custodian reserves the right to change the amount of this fee
or to waive it in whole or in part for certain types of accounts.
Distributions from tax-deferred accounts may be subject to
ordinary income tax and may be subject to an additional 10% tax
if withdrawn prior to age 59 1/2 or used for a nonqualifying
purpose. Additionally, shareholders generally must start
withdrawing retirement plan assets no later than April 1 of the
year after they reach age 70 1/2. Several exceptions to these
general rules may apply and several methods exist to determine
the amount and timing of the minimum annual distribution (if
any). Shareholders should consult with their tax adviser or legal
counsel prior to
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receiving any distribution from any tax-deferred account, in
order to determine the income tax impact of any such
distribution.
To receive additional information about Traditional and Roth
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, write to the Fund at P.O.
Box 173375, Denver, Colorado 80217-3375 or visit our Web site at
janus.com. No contribution to a Traditional or Roth 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.
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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 declares and
makes annual distributions of income (if any). The Fund intends
to qualify as a regulated investment company by satisfying
certain requirements prescribed by Subchapter M of the Code.
Accordingly, the Fund will invest no more than 25% of its total
assets in a single issuer (other than U.S. government
securities).
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.
The Fund may from year to year make the election permitted under
Section 853 of the Code to pass through such taxes to
shareholders, who will each decide whether to deduct such taxes
or claim a foreign tax credit. If such election is not made,
foreign taxes paid or accrued will represent an expense to the
Fund which will reduce its investment company taxable income.
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MISCELLANEOUS INFORMATION
--------------------------------------------------------------------------------
The 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 24 separate series,
three of which currently offer three classes of shares.
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
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power as is customary, but the Fund is not bound to recognize any
transfer until it is recorded on its books.
SHAREHOLDER MEETINGS
The Trust does not intend to hold annual shareholder meetings.
However, special meetings may be called for a specific Fund or
for the Trust as a whole for purposes such as electing or
removing Trustees, terminating or reorganizing the Trust,
changing fundamental policies, or for any other purpose requiring
a shareholder vote under the 1940 Act. Separate votes are taken
by the Fund only if a matter affects or requires the vote of only
the Fund or the Fund's interest in the matter differs from the
interest of other portfolios of the Trust. As a shareholder, you
are entitled to one vote for each share that you own.
VOTING RIGHTS
The present Trustees were elected at a meeting of shareholders
held on July 10, 1992, with the exception of Mr. Rothe who was
appointed by the Trustees as of January 1, 1997. Under the
Declaration of Trust, each Trustee will continue in office until
the termination of the Trust or his earlier death, retirement,
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.
As mentioned above in "Shareholder Meetings," 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
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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.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve the Fund's objective
by investing all of the Fund's assets in another investment
company having the same investment objective and substantially
the same investment policies and restrictions as those applicable
to the Fund. Unless otherwise required by law, this policy may be
implemented by the Trustees without shareholder approval.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, 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.
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PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
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.
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.,
("Lipper") Ibbotson Associates, Micropal or Morningstar, Inc.
("Morningstar") or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Mutual Funds Magazine,
Kiplinger's or Smart Money. The Fund may also compare its
performance to that of other selected mutual funds (for example,
peer groups created by Lipper or Morningstar), mutual fund
averages or recognized stock market indicators, including, but
not limited to, the S&P 500 Index, the Dow Jones Industrial
Average 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.
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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 Janus Capital 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
<TABLE>
<S> <C>
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, CCC, CC, C........... Predominantly speculative with
respect to the issuer's capacity 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.
</TABLE>
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MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C>
BOND RATING EXPLANATION
----------------------------------------------------------------
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.
</TABLE>
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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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[JANUS LOGO]
1-800-525-3713
PO Box 173375 Denver, CO 80217-3375
janus.com
[CODE]
