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JANUS ASPEN SERIES
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995
GROWTH PORTFOLIO INTERNATIONAL GROWTH PORTFOLIO
AGGRESSIVE GROWTH PORTFOLIO BALANCED PORTFOLIO
WORLDWIDE GROWTH PORTFOLIO SHORT-TERM BOND PORTFOLIO
This Statement of Additional Information pertains to the funds listed
above, each of which is a separate series of Janus Aspen Series, a Delaware
business trust (the "Trust"). Each of these series of the Trust represents
shares of beneficial interest in a separate portfolio of securities and other
assets with its own objective and policies (individually, a "Portfolio" and
collectively, the "Portfolios"). Each Portfolio is managed separately by Janus
Capital Corporation ("Janus Capital").
Shares of the Portfolios may be purchased only by the separate accounts of
insurance companies for the purpose of funding variable life insurance policies
and variable annuity contracts (collectively, "variable insurance contracts")
and by certain qualified retirement plans.
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus dated May 1, 1995, which is incorporated
by reference into this Statement of Additional Information and may be obtained
from your insurance company. This Statement of Additional Information contains
additional and more detailed information about the Portfolios' operations and
activities than the Prospectus.
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JANUS ASPEN SERIES
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
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Investment Policies, Restrictions and Techniques .......................... 3
Investment Objectives ................................................... 3
Portfolio Policies ...................................................... 3
Investment Restrictions Applicable to All Portfolios .................... 3
Investment Policies Applicable to Certain Portfolios .................... 5
Types of Securities and Investment Techniques ........................... 6
Illiquid Securities .................................................. 6
Zero Coupon, Pay-In-Kind and Step Coupon Securities .................. 6
Pass-Through Securities .............................................. 6
Municipal Obligations ................................................ 7
Other Income-Producing Securities .................................... 7
Passive Foreign Investment Companies ................................. 8
Repurchase and Reverse Repurchase Agreements ......................... 8
High-Yield/High-Risk Bonds ........................................... 9
Futures, Options and Other Derivative Instruments .................... 9
Investment Adviser ........................................................ 17
Custodian, Transfer Agent and Certain Affiliations ........................ 19
Portfolio Transactions and Brokerage ...................................... 19
Officers and Trustees ..................................................... 21
Shares of the Trust ....................................................... 24
Net Asset Value Determination ........................................... 24
Purchases ............................................................... 24
Redemptions ............................................................. 24
Income Dividends, Capital Gains Distributions and Tax Status .............. 25
Principal Shareholders .................................................... 25
Miscellaneous Information ................................................. 25
Shares of the Trust ..................................................... 26
Voting Rights ........................................................... 26
Independent Accountants ................................................. 26
Registration Statement .................................................. 26
Performance Information ................................................... 27
Financial Statements ...................................................... 28
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INVESTMENT POLICIES, RESTRICTIONS AND TECHNIQUES
Each Portfolio's investment objective is discussed in the Prospectus and
summarized below. There is no assurance that the Portfolios will achieve their
respective objectives. The investment objectives of the Portfolios are not
fundamental and may be changed by the Trustees without shareholder approval.
INVESTMENT OBJECTIVES
Growth Portfolio is a diversified fund that seeks long-term growth of
capital in a manner consistent with the preservation of capital by investing
primarily in common stocks of issuers of any size. Generally, this Portfolio
emphasizes issuers with larger market capitalizations.
Aggressive Growth Portfolio is a nondiversified fund that seeks long-term
growth of capital in a manner consistent with the preservation of capital by
investing primarily in common stocks. The common stocks held by the Portfolio
will normally have an average market capitalization between $1 billion and $5
billion.
Worldwide Growth Portfolio is a diversified fund that seeks long-term
growth of capital in a manner consistent with the preservation of capital by
investing primarily in common stocks of foreign and domestic issuers of any
size. Worldwide Growth Portfolio normally invests in issuers from at least five
different countries including the United States.
International Growth Portfolio is a diversified fund that seeks long-term
growth of capital by investing primarily in common stocks of foreign issuers of
any size. The Portfolio normally invests at least 65% of its total assets in
issuers from at least five different countries excluding the United States.
Balanced Portfolio is a diversified fund that seeks long-term capital
growth, consistent with preservation of capital and balanced by current income.
The Portfolio normally invests 40-60% of its assets in equity securities
selected primarily for growth potential and 40-60% of its assets in fixed-income
securities.
Short-Term Bond Portfolio is a diversified fund that seeks as high a level
of current income as is consistent with the preservation of capital by investing
primarily in short- and intermediate-term fixed-income securities. It will
normally maintain an average-weighted maturity not to exceed three years.
PORTFOLIO POLICIES
The Prospectus discusses the types of securities in which the Portfolios
will invest, policies of the Portfolios and the investment techniques of the
Portfolios. The Prospectus includes a discussion of portfolio turnover rates.
The following table summarizes the portfolio turnover rates (total purchases or
sales, whichever is less, compared to average monthly value of portfolio
securities) for the fiscal periods indicated. The information below is for
fiscal years ended December 31.
Portfolio Name 1994 1993(1)*
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Growth Portfolio 169% 162%
Aggressive Growth Portfolio 259% 31%
Worldwide Growth Portfolio 217% 57%
International Growth Portfolio 275%(2)* N/A
Balanced Portfolio 158% 126%
Short-Term Bond Portfolio 256% 91%
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* Annualized for periods of less than one year.
(1) September 13, 1993 (inception) to December 31, 1993.
(2) May 2, 1994 (inception) to December 31, 1994.
INVESTMENT RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS
As indicated in the Prospectus, the Portfolios are subject to certain
fundamental policies and restrictions that may not be changed without
shareholder approval. Shareholder approval means approval by the lesser of (i)
more than 50% of the outstanding voting securities of the Trust (or a particular
Portfolio if a matter affects just that Portfolio), or (ii) 67% or more of the
voting securities present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Trust (or a particular Portfolio) are
present or represented by proxy. As fundamental policies, the Portfolios may
not:
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(1) Own more than 10% of the outstanding voting securities of any one
issuer and, as to fifty percent (50%) of the value of the total assets of
Aggressive Growth Portfolio and as to seventy-five percent (75%) of the value of
the total assets of the other Portfolios, purchase the securities of any one
issuer (except cash items and "government securities" as defined under the
Investment Company Act of 1940, as amended (the "1940 Act")), if immediately
after and as a result of such purchase, the value of the holdings of a Portfolio
in the securities of such issuer exceeds 5% of the value of such Portfolio's
total assets. With respect to the other 50% of the value of its total assets,
Aggressive Growth Portfolio may invest in the securities of as few as two
issuers.
(2) Invest more than 25% of the value of their respective assets in any
particular industry (other than U.S. government securities).
(3) Invest directly in real estate or interests in real estate; however,
the Portfolios 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 Portfolios from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other instruments
backed by physical commodities).
(5) Lend any security or make any other loan if, as a result, more than 25%
of a Portfolio's total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt securities or
repurchase agreements).
(6) Act as an underwriter of securities issued by others, except to the
extent that a Portfolio may be deemed an underwriter in connection with the
disposition of its portfolio securities.
As a fundamental policy, each Portfolio 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 such Portfolio.
The Trustees have adopted additional investment restrictions for the
Portfolios. These restrictions are operating policies of the Portfolios and may
be changed by the Trustees without shareholder approval. The additional
investment restrictions adopted by the Trustees to date include the following:
(a) A Portfolio's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of a Portfolio's net assets, may be
warrants that are not listed on the New York or American Stock Exchange.
Warrants acquired by a Portfolio in units or attached to securities shall be
deemed to be without value for the purpose of monitoring this policy.
(b) A Portfolio will not (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions will exceed 5% of the fair market value of a
Portfolio's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (ii) enter into
any futures contracts if the aggregate amount of such Portfolio's commitments
under outstanding futures contracts positions of that Portfolio would exceed the
market value of its total assets.
(c) The Portfolios do not currently intend to sell securities short, unless
they own or have the right to obtain securities equivalent in kind and amount to
the securities sold short without the payment of any additional consideration
therefor, and provided that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(d) The Portfolios do not currently intend to purchase securities on
margin, except that the Portfolios may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin payments
and other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing securities on
margin.
(e) The Portfolios do not currently intend to (i) purchase securities of
other investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (ii) purchase or retain securities
issued by other open-end investment companies. Limitations (i) and (ii) do not
apply to money market funds or to securities received as dividends, through
offers of exchange, or as
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a result of a reorganization, consolidation, or merger. If a Portfolio invests
in a money market fund, Janus Capital will reduce its advisory fee by the amount
of any investment advisory and administrative services fees paid to the
investment manager of the money market fund.
(f) A Portfolio may not mortgage or pledge any securities owned or held by
such Portfolio in amounts that exceed, in the aggregate, 15% of that Portfolio's
net asset value, provided that this limitation does not apply to reverse
repurchase agreements, deposits of assets to margin, guarantee positions in
futures, options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
(g) The Portfolios do not intend to purchase securities of any issuer
(other than U.S. government agencies and instrumentalities or instruments
guaranteed by an entity with a record of more than three years' continuous
operation, including that of predecessors) with a record of less than three
years' continuous operation (including that of predecessors) if such purchase
would cause the cost of a Portfolio's investments in all such issuers to exceed
5% of that Portfolio's total assets taken at market value at the time of such
purchase.
(h) The Portfolios do not currently intend to invest directly in oil, gas,
or other mineral development or exploration programs or leases; however, the
Portfolios may own debt or equity securities of companies engaged in those
businesses.
(i) The Portfolios may borrow money for temporary or emergency purposes
(not for leveraging or investment) in an amount not exceeding 25% of the value
of their respective total assets (including the amount borrowed) less
liabilities (other than borrowings). If borrowings exceed 25% of the value of a
Portfolio's total assets by reason of a decline in net assets, the Portfolio
will reduce its borrowings within three business days to the extent necessary to
comply with the 25% limitation. This policy shall not prohibit reverse
repurchase agreements, deposits of assets to margin or guarantee positions in
futures, options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
(j) The Portfolios do not currently intend to purchase any security or
enter into a repurchase agreement, if as a result, more than 15% of their
respective net assets would be invested in repurchase agreements not entitling
the holder to payment of principal and interest within seven days and in
securities that are illiquid by virtue of legal or contractual restrictions on
resale or the absence of a readily available market. The Trustees, or the
Portfolios' investment adviser acting pursuant to authority delegated by the
Trustees, may determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933
("Rule 144A Securities"), or any successor to such rule, Section 4(2) commercial
paper and municipal lease obligations. Accordingly, such securities may not be
subject to the foregoing limitation.
(k) The Portfolios may not invest in companies for the purpose of
exercising control of management.
For purposes of the Portfolios' restriction on investing in a particular
industry, the Portfolios will rely primarily on industry classifications as
published by Bloomberg L.P., provided that financial service companies will be
classified according to the end users of their services (for example, automobile
finance, bank finance and diversified finance are each considered to be a
separate industry). To the extent that Bloomberg L.P. classifications are so
broad that the primary economic characteristics in a single class are materially
different, the Portfolios may further classify issuers in accordance with
industry classifications as published by the Securities and Exchange Commission
("SEC").
INVESTMENT POLICIES APPLICABLE TO CERTAIN PORTFOLIOS
Balanced Portfolio. As an operational policy, at least 25% of the assets of
Balanced Portfolio will normally be invested in fixed-income senior securities,
which include corporate debt securities and preferred stock.
Short-Term Bond Portfolio. As an operational policy, this Portfolio will
not invest in any debt security that, at the time of purchase, causes its
portfolio of debt securities to have a dollar-weighted average, then remaining
term to maturity of three years or more. The portfolio manager will consider the
estimated prepayment date of mortgage-backed securities in computing the
portfolio's maturity.
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TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
ILLIQUID SECURITIES
Each Portfolio may invest up to 15% of its net assets in illiquid
securities (i.e., securities that are not readily marketable). The Trustees of
the Portfolios have authorized Janus Capital to make liquidity determinations
with respect to its securities, including Rule 144A Securities, commercial paper
and municipal lease obligations. Under the guidelines established by the
Trustees, Janus Capital will consider the following factors: 1) the frequency of
trades and quoted prices for the obligation; 2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; 3)
the willingness of dealers to undertake to make a market in the security; and 4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES
Each Portfolio may invest up to 10% of its assets in zero coupon,
pay-in-kind and step coupon securities. Zero coupon bonds are issued and traded
at a discount from their face value. They do not entitle the holder to any
periodic payment of interest prior to maturity. Step coupon bonds trade at a
discount from their face value and pay coupon interest. The coupon rate is low
for an initial period and then increases to a higher coupon rate thereafter. The
discount from the face amount or par value depends on the time remaining until
cash payments begin, prevailing interest rates, liquidity of the security and
the perceived credit quality of the issuer. Pay-in-kind bonds normally give the
issuer an option to pay cash at a coupon payment date or give the holder of the
security a similar bond with the same coupon rate and a face value equal to the
amount of the coupon payment that would have been made.
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), a Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds. Because a Portfolio will
not receive cash payments on a current basis in respect of accrued
original-issue discount on zero coupon bonds or step coupon bonds during the
period before interest payments begin, in some years that Portfolio may have to
distribute cash obtained from other sources in order to satisfy the distribution
requirements under the Code. A Portfolio might obtain such cash from selling
other portfolio holdings which might cause that Portfolio to incur capital gains
or losses on the sale. Additionally, these actions are likely to reduce the
assets to which Portfolio expenses could be allocated and to reduce the rate of
return for that Portfolio. In some circumstances, such sales might be necessary
in order to satisfy cash distribution requirements even though investment
considerations might otherwise make it undesirable for a Portfolio 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 Portfolios 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 Portfolios. The most common
type of pass-through securities are mortgage-backed securities. Government
National Mortgage Association ("GNMA") Certificates are mortgage-backed
securities that evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly by the
borrowers over the term of the loan rather than returned in a lump sum at
maturity. A Portfolio 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,
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regardless of whether or not the mortgagor actually makes the payment. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. government.
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semiannually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest but it is not guaranteed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed
mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. This type of security is guaranteed by FNMA as to timely payment of
principal and interest but it is not guaranteed by the full faith and credit of
the U.S. government.
Except for GMCs, each of the mortgage-backed securities described above is
characterized by monthly payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying mortgage loans. The payments
to the security holders (such as the Portfolios), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as 20 or 30 years, the
borrowers can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will consider
estimated prepayment rates in calculating the average-weighted maturity of a
Portfolio. A borrower is more likely to prepay a mortgage that bears a
relatively high rate of interest. This means that in times of declining interest
rates, higher yielding mortgage-backed securities held by a Portfolio might be
converted to cash and that Portfolio will be forced to accept lower interest
rates when that cash is used to purchase additional securities in the
mortgage-backed securities sector or in other investment sectors. Additionally,
prepayments during such periods will limit a Portfolio'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 guarantor of the security and
interest and principal payments ultimately depend upon payment of the underlying
loans by individuals. Tax-exempt asset-backed securities include units of
beneficial interests in pools of purchase contracts, financing leases, and sales
agreements that may be created when a municipality enters into an installment
purchase contract or lease with a vendor. Such securities may be secured by the
assets purchased or leased by the municipality; however, if the municipality
stops making payments, there generally will be no recourse against the vendor.
The market for tax-exempt asset-backed securities is still relatively new. These
obligations are likely to involve unscheduled prepayments of principal.
MUNICIPAL OBLIGATIONS
The Portfolios 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 a Portfolio 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 Portfolios may purchase
include, but are not limited to, the following types of securities:
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Variable and floating rate obligations. These types of securities are
relatively long-term instruments that often carry demand features permitting the
holder to demand payment of principal at any time or at specified intervals
prior to maturity.
Standby commitments. These instruments, which are similar to a put, give a
Portfolio the option to obligate a broker, dealer or bank to repurchase a
security held by that Portfolio at a specified price.
Tender option bonds. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
Inverse floaters. Inverse floaters are instruments whose interest bears an
inverse relationship to the interest rate on another security. The Portfolios
will not invest more than 5% of their respective assets in inverse floaters.
The Portfolios will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of their portfolios.
PASSIVE FOREIGN INVESTMENT COMPANIES
The Portfolios may purchase the securities of certain foreign investment
funds or trusts called passive foreign investment companies. In addition to
bearing their proportionate share of a Portfolio's expenses, shareholders will
also indirectly bear similar expenses of such funds. Capital gains on the sale
of such holdings will be deemed to be ordinary income regardless of how long a
Portfolio holds its investment. In addition, a Portfolio may be subject to
corporate income tax and an interest charge on certain dividends and capital
gains earned from these investments, regardless of whether such income and gains
are distributed to shareholders.
In accordance with tax regulations, the Portfolios intend to treat these
securities as sold on the last day of a Portfolio's fiscal year and recognize
any gains for tax purposes at that time; losses will not be recognized. Such
gains will be considered ordinary income which a Portfolio will be required to
distribute even though it has not sold the security and received cash to pay
such distributions.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
In a repurchase agreement, a Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
price on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon incremental amount that is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed upon
resale price and marked-to-market daily) of the underlying security or
"collateral." A Portfolio may engage in a repurchase agreement with respect to
any security in which it is authorized to invest. A risk associated with
repurchase agreements is the failure of the seller to repurchase the securities
as agreed, which may cause a Portfolio to suffer a loss if the market value of
such securities declines before they can be liquidated on the open market. In
the event of bankruptcy or insolvency of the seller, a Portfolio may encounter
delays and incur costs in liquidating the underlying security. Repurchase
agreements that mature in more than seven days will be subject to the 15% limit
on illiquid securities. While it does not presently appear possible to eliminate
all risks from these transactions, it is the policy of the Portfolios to limit
repurchase agreements to those parties whose creditworthiness has been reviewed
and found satisfactory by Janus Capital. In addition, the Portfolios currently
intend to invest primarily in repurchase agreements collateralized by U.S.
government securities whose value equals at least 102% of the repurchase
agreement, marked-to-market daily.
A Portfolio may use reverse repurchase agreements to provide cash to
satisfy unusually heavy redemption requests or for other temporary or emergency
purposes without the necessity of selling portfolio securities, or to earn
additional income on portfolio securities, such as Treasury bills or notes. In a
reverse repurchase agreement, a Portfolio 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, a Portfolio will maintain cash and
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Portfolios will enter into reverse
repurchase agreements only with parties that Janus Capital deems creditworthy.
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HIGH-YIELD/HIGH-RISK BONDS
Each of the Portfolios may invest up to 35% of their net assets in
corporate debt securities that are rated below investment grade (securities
rated BB or lower by Standard & Poor's Corporation ("Standard & Poor's") or Ba
or lower by Moody's Investors Services, Inc. ("Moody's")). Lower rated bonds
involve a higher degree of credit risk, which is the risk that the issuer will
not make interest or principal payments when due. In the event of an
unanticipated default, a Portfolio would experience a reduction in its income,
and could expect a decline in the market value of the securities so affected.
Each Portfolio may also invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated securities, may not have as broad a market. Sovereign debt of foreign
governments is generally rated by country. Because these ratings do not take
into account individual factors relevant to each issue and may not be updated
regularly, Janus Capital may treat such securities as unrated debt. Because of
the size and perceived demand of the issue, among other factors, certain
municipalities may not incur the costs of obtaining a rating. A Portfolio's
manager will analyze the creditworthiness of the issuer, as well as any
financial institution or other party responsible for payments on the security,
in determining whether to purchase unrated municipal bonds. Unrated debt
securities will be included in the 35% limit of each Portfolio unless its
manager deems such securities to be the equivalent of investment grade
securities.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Futures Contracts. The Portfolios may enter into contracts for the purchase
or sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income securities.
U.S. futures contracts are traded on exchanges which have been designated
"contract markets" by the CFTC and must be executed through a futures commission
merchant ("FCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain high-grade liquid assets by the Portfolios' custodian or subcustodian
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 Portfolio's investment limitations. If the value of either
party's position declines, that party will be required to make additional
"variation margin" payments for the benefit of the FCM to settle the change in
value on a daily basis. The party that has a gain may be entitled to receive all
or a portion of this amount. In the event of the bankruptcy of the FCM that
holds margin on behalf of a Portfolio, that Portfolio may be entitled to return
of margin owed to such Portfolio only in proportion to the amount received by
the FCM's other customers. Janus Capital will attempt to minimize the risk by
careful monitoring of the creditworthiness of the FCMs with which the Portfolios
do business and by depositing margin payments in a segregated account with the
Portfolios' custodian.
The Portfolios intend to comply with guidelines of eligibility for
exclusion from the definition of the term "commodity pool operator" adopted by
the CFTC and the National Futures Association, which regulate trading in the
futures markets. The Portfolios will use futures contracts and related options
primarily for bona fide hedging purposes within the meaning of CFTC regulations.
To the extent that the Portfolios hold positions in futures contracts and
related options that do not fall within the definition of bona fide hedging
transactions, the aggregate initial margin and premiums required to establish
such positions will not exceed 5% of the fair market value of a Portfolio's net
assets, after taking into account unrealized profits and unrealized losses on
any such contracts it has entered into.
Although a Portfolio will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to that Portfolio immediately upon closing out the futures position,
while settlement of securities transactions could take several days. However,
because a Portfolio's cash that may otherwise be invested would be held
uninvested or invested in high-grade liquid assets so long as the futures
position remains open, such Portfolio's return could be diminished due to the
opportunity losses of foregoing other potential investments.
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A Portfolio's primary purpose in entering into futures contracts is to
protect that Portfolio 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 Portfolio anticipates an increase in the price of stocks,
and it intends to purchase stocks at a later time, that Portfolio could enter
into a futures contract to purchase a stock index as a temporary substitute for
stock purchases. If an increase in the market occurs that influences the stock
index as anticipated, the value of the futures contracts will increase, thereby
serving as a hedge against that Portfolio not participating in a market advance.
This technique is sometimes known as an anticipatory hedge. To the extent a
Portfolio enters into futures contracts for this purpose, the segregated assets
maintained to cover such Portfolio's obligations with respect to the futures
contracts will consist of high-grade liquid assets from its portfolio in an
amount equal to the difference between the contract price and the aggregate
value of the initial and variation margin payments made by that Portfolio with
respect to the futures contracts. Conversely, if a Portfolio holds stocks and
seeks to protect itself from a decrease in stock prices, the Portfolio might
sell stock index futures contracts, thereby hoping to offset the potential
decline in the value of its portfolio securities by a corresponding increase in
the value of the futures contract position. A Portfolio could protect against a
decline in stock prices by selling portfolio securities and investing in money
market instruments, but the use of futures contracts enables it to maintain a
defensive position without having to sell portfolio securities.
If a Portfolio owns Treasury bonds and the portfolio manager expects
interest rates to increase, that Portfolio may take a short position in interest
rate futures contracts. Taking such a position would have much the same effect
as that Portfolio selling Treasury bonds in its portfolio. If interest rates
increase as anticipated, the value of the Treasury bonds would decline, but the
value of that Portfolio's interest rate futures contract will increase, thereby
keeping the net asset value of that Portfolio from declining as much as it may
have otherwise. If, on the other hand, a portfolio manager expects interest
rates to decline, that Portfolio may take a long position in interest rate
futures contracts in anticipation of later closing out the futures position and
purchasing the bonds. Although a Portfolio can accomplish similar results by
buying securities with long maturities and selling securities with short
maturities, given the greater liquidity of the futures market than the cash
market, it may be possible to accomplish the same result more easily and more
quickly by using futures contracts as an investment tool to reduce risk.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced and prices in the futures market distorted. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by a portfolio manager
still may not result in a successful use of futures.
Futures contracts entail risks. Although the Portfolios believe that use of
such contracts will benefit the Portfolios, a Portfolio's overall performance
could be worse than if such Portfolio had not entered into futures contracts if
the portfolio manager's investment judgement proves incorrect. For example, if a
Portfolio has hedged against the effects of a possible decrease in prices of
securities held in its portfolio and prices increase instead, that Portfolio
will lose part or all of the benefit of the increased value of these securities
because of offsetting losses in its futures positions. In addition, if a
Portfolio has insufficient cash, it may have to sell securities from its
portfolio to meet daily variation margin requirements. Those sales may be, but
will not necessarily be, at increased prices which reflect the rising market and
may occur at a time when the sales are disadvantageous to such Portfolio.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to a
Portfolio will not match exactly such Portfolio's current or potential
investments. A Portfolio may buy and sell futures contracts based on underlying
instruments with different characteristics from the securities in which it
typically invests - for example, by hedging investments in portfolio securities
with a futures contract based on a broad index of securities - which involves a
risk that the futures position will not correlate precisely with the performance
of such Portfolio's investments.
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Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a
Portfolio's investments. Futures prices are affected by factors such as current
and anticipated short-term interest rates, changes in volatility of the
underlying instruments and the time remaining until expiration of the contract.
Those factors may affect securities prices differently from futures prices.
Imperfect correlations between a Portfolio'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. A Portfolio may buy or sell futures contracts with a greater
or lesser value than the securities it wishes to hedge or is considering
purchasing in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases. If price changes in a Portfolio's futures
positions are poorly correlated with its other investments, its futures
positions may fail to produce desired gains or result in losses that are not
offset by the gains in that Portfolio'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 seven days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a Portfolio to
enter into new positions or close out existing positions. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, a Portfolio may not be able to promptly liquidate unfavorable
futures positions and potentially could be required to continue to hold a
futures position until the delivery date, regardless of changes in its value. As
a result, such Portfolio's access to other assets held to cover its futures
positions also could be impaired.
Options on Futures Contracts. The Portfolios may buy and write put and call
options on futures contracts. An option on a future gives a Portfolio the right
(but not the obligation) to buy or sell a futures contract at a specified price
on or before a specified date. The purchase of a call option on a futures
contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the futures contract upon which it is based or the price of the
underlying instrument, ownership of the option may or may not be less risky than
ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when a Portfolio is not fully invested it may buy
a call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Portfolio will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in that Portfolio's
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
a Portfolio will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which that
Portfolio is considering buying. If a call or put option a Portfolio has written
is exercised, such Portfolio will incur a loss which will be reduced by the
amount of the premium it received. Depending on the degree of correlation
between the change in the value of its portfolio securities and changes in the
value of the futures positions, a Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Portfolio may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
The amount of risk a Portfolio 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 invoice amount for the assets at the time of delivery. The Portfolios
may enter into forward contracts to purchase and sell government securities,
foreign currencies or other financial instruments. Forward contracts generally
are traded in an interbank market conducted directly between
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traders (usually large commercial banks) and their customers. Unlike futures
contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the Portfolios' principal uses of
forward foreign currency exchange contracts ("forward currency contracts"). A
Portfolio may enter into forward currency contracts with stated contract values
of up to the value of that Portfolio's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency). A Portfolio will exchange
foreign currencies for U.S. dollars and for other foreign currencies in the
normal course of business and may buy and sell currencies through forward
currency contracts in order to fix a price for securities it has agreed to buy
or sell ("transaction hedge"). A Portfolio also may hedge some or all of its
investments denominated in a foreign currency against a decline in the value of
that currency relative to the U.S. dollar by entering into forward currency
contracts to sell an amount of that currency (or a proxy currency whose
performance is expected to replicate or exceed the performance of that currency
relative to the U.S. dollar) approximating the value of some or all of its
portfolio securities denominated in that currency ("position hedge") or by
participating in options or futures contracts with respect to the currency. A
Portfolio also may enter into a forward currency contract with respect to a
currency where the Portfolio is considering the purchase or sale of investments
denominated in that currency but has not yet selected the specific investments
("anticipatory hedge"). In any of these circumstances a Portfolio may,
alternatively, enter into a forward currency contract to purchase or sell one
foreign currency for a second currency that is expected to perform more
favorably relative to the U.S. dollar if the portfolio manager believes there is
a reasonable degree of correlation between movements in the two currencies
("cross-hedge").
These types of hedging minimize the effect of currency appreciation as well
as depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the proceeds of or rates of return on a Portfolio's foreign
currency denominated portfolio securities. The matching of the increase in value
of a forward contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting a Portfolio's currency exposure from one foreign
currency to another removes that Portfolio's opportunity to profit from
increases in the value of the original currency and involves a risk of increased
losses to such Portfolio if its portfolio manager's projection of future
exchange rates is inaccurate. Proxy hedges and cross-hedges may result in losses
if the currency used to hedge does not perform similarly to the currency in
which hedged securities are denominated. Unforeseen changes in currency prices
may result in poorer overall performance for a Portfolio than if it had not
entered into such contracts.
The Portfolios will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that a
Portfolio is not able to cover its forward currency positions with underlying
portfolio securities, the Portfolios' custodian will segregate cash or
high-grade liquid assets having a value equal to the aggregate amount of such
Portfolio's commitments under forward contracts entered into with respect to
position hedges, cross-hedges and anticipatory hedges. If the value of the
securities used to cover a position or the value of segregated assets declines,
a Portfolio will find alternative cover or segregate additional cash or
high-grade liquid assets on a daily basis so that the value of the covered and
segregated assets will be equal to the amount of such Portfolio's commitments
with respect to such contracts. As an alternative to segregating assets, a
Portfolio may buy call options permitting such Portfolio to buy the amount of
foreign currency being hedged by a forward sale contract or a Portfolio 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 contracts. In such event,
the Portfolios' ability to utilize forward contracts may be restricted. In
addition, a Portfolio 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 Portfolio assets.
Options on Foreign Currencies. The Portfolios may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a Portfolio may buy put
options on the foreign currency. If the value of the currency declines, such
Portfolio 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.
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Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Portfolio may buy call options on the foreign
currency. The purchase of such options could offset, at least partially, the
effects of the adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Portfolio from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not move in the
direction or to the extent desired, a Portfolio could sustain losses on
transactions in foreign currency options that would require such Portfolio to
forego a portion or all of the benefits of advantageous changes in those rates.
The Portfolios may also write options on foreign currencies. For example,
to hedge against a potential decline in the U.S. dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates, a
Portfolio 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 diminution in value of portfolio securities will be
offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, a Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow that Portfolio to hedge the
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium. If exchange rates do not move
in the expected direction, the option may be exercised and a Portfolio would be
required to buy or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, a Portfolio also may lose all or a portion of the benefits which
might otherwise have been obtained from favorable movements in exchange rates.
The Portfolios may write covered call options on foreign currencies. A call
option written on a foreign currency by a Portfolio is "covered" if that
Portfolio owns the foreign currency underlying the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currencies held
in its portfolio. A call option is also covered if a Portfolio has a call on the
same foreign currency in the same principal amount as the call written if the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written, if the difference is maintained by such Portfolio in cash or high-grade
liquid assets in a segregated account with the Portfolios' custodian.
The Portfolios also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
a Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option. Call options on foreign currencies which are
entered into for cross-hedging purposes are not covered. However, in such
circumstances, a Portfolio will collateralize the option by segregating cash or
high-grade liquid assets in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Options on Securities. In an effort to increase current income and to
reduce fluctuations in net asset value, the Portfolios 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
Portfolios may write and buy options on the same types of securities that the
Portfolios may purchase directly.
A put option written by a Portfolio is "covered" if that Portfolio (i)
segregates cash not available for investment or high-grade liquid assets with a
value equal to the exercise price of the put with the Portfolios' custodian or
(ii) holds a put on the same security and in the same principal amount as the
put written and the exercise price of the put held is equal to or greater than
the exercise price of the put written. The premium paid by the buyer of an
option will reflect, among other things, the relationship of the exercise price
to the market price and the volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
A call option written by a Portfolio is "covered" if that Portfolio owns
the underlying security covered by the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Portfolios'
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if a Portfolio 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
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than the exercise price of the call written if the difference is maintained by
that Portfolio in cash and high-grade liquid assets in a segregated account with
its custodian.
The Portfolios also may write call options that are not covered for
cross-hedging purposes. A Portfolio collateralizes its obligation under a
written call option for cross-hedging purposes by segregating cash or high-grade
liquid assets in an amount not less than the market value of the underlying
security, marked-to-market daily. A Portfolio 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
exercise price, which will usually exceed the then market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect
a "closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase is
that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit a Portfolio to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit a Portfolio to write another
put option to the extent that the exercise price thereof is secured by deposited
high-grade liquid assets. Effecting a closing transaction also will permit a
Portfolio to use the cash or proceeds from the concurrent sale of any securities
subject to the option for other investments. If a Portfolio desires to sell a
particular security from its portfolio on which it has written a call option,
such Portfolio will effect a closing transaction prior to or concurrent with the
sale of the security.
A Portfolio will realize a profit from a closing transaction if the price
of the purchase transaction is less than the premium received from writing the
option or the price received from a sale transaction is more than the premium
paid to buy the option. A Portfolio will realize a loss from a closing
transaction if the price of the purchase transaction is more than the premium
received from writing the option or the price received from a sale transaction
is less than the premium paid to buy the option. Because increases in the market
of a call option generally will reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Portfolio.
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
Portfolio may not be able to effect closing transactions in particular options
and the Portfolio would have to exercise the options in order to realize any
profit. If a Portfolio 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.
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A Portfolio may write options in connection with buy-and-write
transactions. In other words, a Portfolio may buy a security and then write a
call option against that security. The exercise price of such call will depend
upon the expected price movement of the underlying security. The exercise price
of a call option may be below ("in-the-money"), equal to ("at-the-money") or
above ("out-of-the-money") the current value of the underlying security at the
time the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call options
are exercised in such transactions, a Portfolio's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between that Portfolio'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 a Portfolio's gain will be limited to the
premium received. If the market price of the underlying security declines or
otherwise is below the exercise price, a Portfolio may elect to close the
position or take delivery of the security at the exercise price and that
Portfolio's return will be the premium received from the put options minus the
amount by which the market price of the security is below the exercise price.
A Portfolio may buy put options to hedge against a decline in the value of
its portfolio. By using put options in this way, a Portfolio will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and by transaction costs.
A Portfolio may buy call options to hedge against an increase in the price
of securities that it may buy in the future. The premium paid for the call
option plus any transaction costs will reduce the benefit, if any, realized by
such Portfolio upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to that
Portfolio.
Eurodollar Instruments. A Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Swaps and Swap-Related Products. A Portfolio may enter into interest rate
swaps, caps and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or its liabilities, and will
usually enter into interest rate swaps on a net basis (i.e., the two payment
streams are netted out, with a Portfolio receiving or paying, as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of a Portfolio's obligations over its entitlement with respect to each
interest rate swap will be calculated on a daily basis and an amount of cash or
high-grade liquid assets having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account by the Portfolios'
custodian. If a Portfolio enters into an interest rate swap on other than a net
basis, it would maintain a segregated account in the full amount accrued on a
daily basis of its obligations with respect to the swap. A Portfolio will not
enter into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
one of the three highest rating categories of at least one nationally recognized
statistical rating organization at the time of entering into such transaction.
Janus Capital will monitor the creditworthiness of all counterparties on an
ongoing basis. If there is a default by the other party to such a transaction, a
Portfolio 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,
15
<PAGE>
accordingly, they are less liquid than swaps. To the extent a Portfolio sells
(i.e., writes) caps and floors, it will segregate cash or high-grade liquid
assets having an aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of its obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by a Portfolio. These transactions may in some instances involve
the delivery of securities or other underlying assets by a Portfolio or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that a
Portfolio is contractually obligated to make. If the other party to an interest
rate swap that is not collateralized defaults, a Portfolio would risk the loss
of the net amount of the payments that it contractually is entitled to receive.
A Portfolio 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 Portfolios in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain Exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. Similarly, options on currencies may be traded over-the-counter.
In an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and a buyer or
seller of futures or forward contracts could lose amounts substantially in
excess of any premium received or initial margin or collateral posted due to the
potential additional margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Portfolio'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.
16
<PAGE>
INVESTMENT ADVISER
As stated in the Prospectus, each Portfolio has an Investment Advisory
Agreement with Janus Capital, 100 Fillmore Street, Suite 300, Denver, Colorado
80206-4923. Each Advisory Agreement provides that Janus Capital will furnish
continuous advice and recommendations concerning the Portfolios' investments,
provide office space for the Portfolios, pay the salaries, fees and expenses of
all Portfolio officers and of those Trustees who are affiliated with Janus
Capital, and pay all expenses of promoting the sale of Portfolio shares other
than the cost of complying with applicable laws relating to the offer or sale of
shares of the Portfolios. Janus Capital also may make payments to selected
broker-dealer firms or institutions which were instrumental in the acquisition
of shareholders for the Portfolios or other Janus Funds or which performed
services with respect to shareholder accounts. The minimum aggregate size
required for eligibility for such payments, and the factors in selecting the
broker-dealer firms and institutions to which they will be made, are determined
from time to time by Janus Capital. Janus Capital is also authorized to perform
the management and administrative services necessary for the operation of the
Portfolios.
The Portfolios pay custodian and transfer agent fees and expenses,
brokerage commissions and dealer spreads and other expenses in connection with
the execution of portfolio transactions, legal and accounting expenses, interest
and taxes, registration fees, expenses of shareholders' meetings and reports to
shareholders, fees and expenses of Portfolio Trustees who are not affiliated
with Janus Capital and other costs of complying with applicable laws regulating
the sale of Portfolio shares. Pursuant to the Advisory Agreements, Janus Capital
furnishes certain other services, including net asset value determination,
portfolio accounting and recordkeeping, for which the Portfolios may reimburse
Janus Capital for its costs.
Growth Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio,
International Growth Portfolio and Balanced Portfolio have each agreed to
compensate Janus Capital for its services by the monthly payment of a fee at the
annual rate of 1% of the first $30,000,000 of the average daily net assets of
each Portfolio, .75% of the next $270,000,000 of the average daily net assets of
each Portfolio, .70% of the next $200,000,000 of the average daily net assets of
each Portfolio and .65% of the average daily net assets of each Portfolio in
excess of $500,000,000. The advisory fee will be calculated and payable daily.
Janus Capital has agreed to cap the advisory fee of Growth Portfolio, Aggressive
Growth Portfolio, Worldwide Growth Portfolio, International Growth Portfolio and
Balanced Portfolio at the effective rate of Janus Fund, Janus Enterprise Fund,
Janus Worldwide Fund, Janus Overseas Fund and Janus Balanced Fund (the "retail
funds"), respectively. The effective rate of each retail fund is the advisory
fee calculated by such fund on the last day of each calendar quarter. If the
assets of the corresponding retail fund exceed the assets of a Portfolio as of
the last day of any calendar quarter, then the advisory fee payable by that
Portfolio for the following calendar quarter will be a flat rate equal to such
effective rate. The effective rate (annualized) of Janus Fund, Janus Enterprise
Fund, Janus Worldwide Fund, Janus Overseas Fund and Janus Balanced Fund were
0.65%, 0.75%, 0.68%, 0.86% and 0.82%, respectively, for the quarter ended March
31, 1995.
In addition, Janus Capital has agreed to reimburse Growth Portfolio,
Aggressive Growth Portfolio, Worldwide Growth Portfolio, International Growth
Portfolio and Balanced Portfolio by the amount, if any, that such Portfolio's
normal operating expenses chargeable to its income account in any fiscal year,
including the investment advisory fee but excluding brokerage commissions,
interest, taxes and extraordinary expenses, exceed 2.50% of the first
$30,000,000 of average daily net assets, plus 2.00% of the next $70,000,000 of
average daily net assets, plus 1.50% of the balance of the average daily net
assets of each Portfolio for a fiscal year. Mortality risk, expense risk and
other charges imposed by participating insurance companies are excluded from the
above expense limitation.
Short-Term Bond Portfolio has agreed to compensate Janus Capital for its
services by the monthly payment of a fee at the annual rate of .65% of the first
$300,000,000 of the average daily net assets of the Portfolio, plus .55% of the
average daily net assets of the Portfolio in excess of $300,000,000. The fee is
calculated and payable daily. Janus Capital has agreed to waive the advisory fee
payable by the Portfolio in an amount equal to the amount, if any, that the
Portfolio's normal operating expenses chargeable to its income account in any
fiscal year, including the investment advisory fee but excluding brokerage
commissions, interest, taxes and extraordinary expenses, exceed .65% of the
Portfolio's average daily net assets for a fiscal year. Mortality risk, expense
risk and other charges imposed by participating insurance companies are excluded
from the above expense limitation.
17
<PAGE>
The following table summarizes the advisory fees paid by the Portfolios and
any advisory fee waivers for the periods indicated. The information below is for
fiscal years ended December 31.
<TABLE>
<CAPTION>
Period Ended 12/31/94 Period Ended 12/31/93(1)
Portfolio Name Advisory Fees Amount Waived Advisory Fees Amount Waived
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio $173,369 -- $6,304 $6,304(2)
Aggressive Growth Portfolio $109,603 -- $2,573 $2,573(2)
Worldwide Growth Portfolio $157,194 -- $4,834 $4,834(2)
International Growth Portfolio $ 9,008(3) $ 9,008(2)(3) N/A N/A
Balanced Portfolio $ 19,489 -- $1,351 $1,351(2)
Short-Term Bond Portfolio $ 11,530(2) $11,530(2) $ 965 $ 965(2)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) September 13, 1993 (inception) to December 31, 1993.
(2) Fee waiver by Janus Capital exceeded the advisory fee.
(3) May 2, 1994 (inception) to December 31, 1994.
The current Advisory Agreement for International Growth Portfolio became
effective on February 10, 1994. The current Advisory Agreements for the other
Portfolios became effective on June 16, 1993. Each Advisory Agreement will
continue in effect until June 16, 1995, and thereafter from year to year so long
as such continuance is approved annually by a majority of the Portfolios'
Trustees who are not parties to the Advisory Agreements or interested persons of
any such party, and by either a majority of the outstanding voting shares or the
Trustees of the Portfolios. Each Advisory Agreement i) may be terminated without
the payment of any penalty by any Portfolio or Janus Capital on 60 days' written
notice; ii) terminates automatically in the event of its assignment; and iii)
generally, may not be amended without the approval by vote of a majority of the
Trustees of the affected Portfolio, including the Trustees who are not
interested persons of that Portfolio or Janus Capital and, to the extent
required by the 1940 Act, the vote of a majority of the outstanding voting
securities of that Portfolio.
Janus Capital also performs investment advisory services for other mutual
funds, and for individual, charitable, corporate and retirement accounts.
Investment decisions for each account managed by Janus Capital, including the
Portfolios, 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.
Each account managed by Janus Capital has its own investment objective and
policies and is managed accordingly by a particular portfolio manager or team of
portfolio managers. As a result, from time to time two or more different managed
accounts may pursue divergent investment strategies with respect to investments
or categories of investments.
As indicated in the Prospectus, Janus Capital permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a Janus Capital policy regarding personal investing by directors, officers
and employees of Janus Capital and the Portfolios. The policy requires
investment personnel and officers of Janus Capital, inside directors of Janus
Capital and the Portfolios and other designated persons deemed to have access to
current trading information to pre-clear all transactions in securities not
otherwise exempt under the policy. Requests for trading authority will be denied
when, among other reasons, the proposed personal transaction would be contrary
to the provisions of the policy or would be deemed to adversely affect any
transaction then known to be under consideration for or to have been effected on
behalf of any client account, including the Portfolios.
In addition to the pre-clearance requirement described above, the policy
subjects investment personnel, officers and directors/Trustees of Janus Capital
and the Portfolios to various trading restrictions and reporting obligations.
All reportable transactions are reviewed for compliance with Janus Capital's
policy. Those persons also may be required under certain circumstances to
forfeit their profits made from personal trading.
The provisions of the policy are administered by and subject to exceptions
authorized by Janus Capital.
Kansas City Southern Industries, Inc., a publicly traded holding company
whose primary subsidiaries are engaged in transportation and financial services
("KCSI"), owns approximately 83% of Janus Capital. Thomas H. Bailey, the
President and Chairman of the Board of Janus Capital, owns approximately 12% of
its voting stock and, by agreement with KCSI, selects a majority of Janus
Capital's Board.
18
<PAGE>
CUSTODIAN, TRANSFER AGENT AND CERTAIN AFFILIATIONS
Investors Fiduciary Trust Company ("IFTC"), 127 W. 10th Street, Kansas
City, Missouri 64105, as custodian, and United Missouri Bank of Kansas City,
N.A., Tenth and Grand Streets, Kansas City, Missouri 64105, as subcustodian,
have custody of the securities and cash of the Portfolios maintained in the
United States. State Street Bank and Trust Company ("State Street"), P.O. Box
351, Boston, Massachusetts 02101, and the foreign subcustodians selected by it
and approved by the Trustees, have custody of the assets of the Portfolios held
outside the U.S. and cash incidental thereto. State Street may also have custody
of certain domestic and foreign securities held in connection with repurchase
agreements. The custodians and subcustodians hold the Portfolios' assets in
safekeeping and collect and remit the income thereon, subject to the
instructions of each Portfolio.
Janus Service Corporation ("Janus Service"), P.O. Box 173375, Denver,
Colorado 80217-3375, a wholly-owned subsidiary of Janus Capital, is the
Portfolios' transfer agent. In addition, Janus Service provides certain other
administrative, recordkeeping and shareholder relations services to the
Portfolios. Janus Service is not compensated for its services, except for
out-of-pocket costs.
The Portfolios pay DST Systems, Inc. ("DST") license fees for the use of
DST's fund accounting systems.
The Portfolios paid the following fees, net of credits, for the year ended
December 31, 1994:
Fees and Expenses
Portfolio Name Fees to IFTC* to DST
- --------------------------------------------------------------------------------
Growth Portfolio $4,903 $ 9,668
Aggressive Growth Portfolio $2,329 $ 5,217
Worldwide Growth Portfolio $7,648 $10,465
International Growth Portfolio(1) $2,239 $ 1,784
Balanced Portfolio $ 767 $ 3,260
Short-Term Bond Portfolio $ 0 $ 3,306
- --------------------------------------------------------------------------------
(1) May 2, 1994 (inception) to December 31, 1994.
* For the period ended December 31, 1994, there was a degree of common
ownership among the Portfolios and IFTC. Accordingly, IFTC may have been
considered an affiliate of the Portfolios during that period.
The Trustees have authorized the Portfolios to use another affiliate of DST
as introducing broker for certain Portfolio transactions as a means to reduce
Portfolio expenses through a credit against the charges of DST and its
affiliates with regard to commissions earned by such affiliate. DST charges
shown above are net of such credits. See "Portfolio Transactions and Brokerage."
PORTFOLIO TRANSACTIONS AND BROKERAGE
Decisions as to the assignment of portfolio business for the Portfolios 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 Advisory Agreements
specifically provide that in placing portfolio transactions for the Portfolios,
Janus Capital may agree to pay brokerage commissions for effecting a securities
transaction in an amount higher than another broker or dealer would have charged
for effecting that transaction as authorized, under certain circumstances, by
the Exchange Act. The Portfolios may trade foreign securities in foreign
countries because the best available market for these securities is often on
foreign exchanges. In transactions on foreign stock exchanges, brokers'
commissions are frequently fixed and are often higher than in the United States,
where commissions are negotiated.
In selecting brokers and dealers and in negotiating commissions, Janus
Capital considers a number of factors, including but not limited to: Janus
Capital's knowledge of currently available negotiated commission rates or prices
of securities currently available and other current transaction costs; the
nature of the security being traded; the size and type of the transaction; the
nature and character of the markets for the security to be purchased or sold;
the desired timing of the trade; the activity existing and expected in the
market for the particular security; confidentiality; the quality of the
execution, clearance and settlement services; financial stability of the broker
or dealer; the existence of actual or apparent operational problems of any
broker or dealer; rebates of commissions by a broker to a Portfolio or to a
third party service provider to the Portfolio to pay Portfolio 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
19
<PAGE>
commission was reasonable in relation to the value of the brokerage and research
provided by such broker or dealer viewed in terms of either that particular
transaction or of the overall responsibilities of Janus Capital. Research may
include furnishing advice, either directly or through publications or writings,
as to the value of securities, the advisability of purchasing or selling
specific securities and the availability of securities or purchasers or sellers
of securities; furnishing seminars, information, analyses and reports concerning
issuers, industries, securities, trading markets and methods, legislative
developments, changes in accounting practices, economic factors and trends and
portfolio strategy; access to research analysts, corporate management personnel,
industry experts, economists and government officials; comparative performance
evaluation and technical measurement services and quotation services, and
products and other services (such as third party publications, reports and
analyses, and computer and electronic access, equipment, software, information
and accessories that deliver, process or otherwise utilize information,
including the research described above) that assist Janus Capital in carrying
out its responsibilities. Research received from brokers or dealers is
supplemental to Janus Capital's own research efforts.
Most brokers and dealers used by Janus Capital provide research and other
services described above. For the year ended December 31, 1994, the total
brokerage commissions paid by the Portfolios to brokers and dealers in
transactions identified for execution primarily on the basis of research and
other services provided to the Portfolios are summarized below:
<TABLE>
<CAPTION>
Portfolio Name Commissions Transactions % of Total Transactions
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio $29,983 $17,949,372 22.7%
Aggressive Growth Portfolio $33,846 $17,436,120 22.5%
Worldwide Growth Portfolio $ 7,463 $ 3,569,460 3.8%
International Growth Portfolio(1) $ 432 $ 167,653 3.4%
Balanced Portfolio $ 1,627 $ 913,868 15.8%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) May 2, 1994 (inception) to October 31, 1994.
Janus Capital may use research products and services in servicing other
accounts in addition to the Portfolios. If Janus Capital determines that any
research product or service has a mixed use, such that it also serves functions
that do not assist in the investment decision-making process, Janus Capital may
allocate the costs of such service or product accordingly. Only that portion of
the product or service that Janus Capital determines will assist it in the
investment decision-making process may be paid for in brokerage commission
dollars. Such allocation may create a conflict of interest for Janus Capital.
Janus Capital does not enter into agreements with any brokers regarding the
placement of securities transactions because of the research services they
provide. It does, however, have an internal procedure for allocating
transactions in a manner consistent with its execution policy to brokers that it
has identified as providing superior executions and research, research-related
products or services which benefit its advisory clients, including the
Portfolios. Research products and services incidental to effecting securities
transactions furnished by brokers or dealers may be used in servicing any or all
of Janus Capital's clients and such research may not necessarily be used by
Janus Capital in connection with the accounts which paid commissions to the
broker-dealer providing such research products and services.
The Advisory Agreements also authorize Janus Capital to consider sales of
Portfolio shares or shares of other Janus funds by a broker-dealer or the
recommendation of a broker-dealer to its customers that they purchase Portfolio
shares as a factor in the selection of broker-dealers to execute Portfolio
transactions. Janus Capital may also consider payments made by brokers effecting
transactions for a Portfolio i) to the Portfolio or ii) to other persons on
behalf of the Portfolio for services provided to the Portfolio 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 Portfolios purchase or sell a security in the over-the-counter
market, the transaction takes place directly with a principal market-maker,
without the use of a broker, except in those circumstances where in the opinion
of Janus Capital better prices and executions will be achieved through the use
of a broker.
The Portfolios' 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.
20
<PAGE>
The following table lists the total amount of brokerage commissions paid by
each Portfolio for the periods indicated:
For the Fiscal Year For the Period
Portfolio Name Ended 12/31/94 Ended 12/31/93(1)
- --------------------------------------------------------------------------------
Growth Portfolio $85,851 $5,847
Aggressive Growth Portfolio $86,296 $1,552
Worldwide Growth Portfolio $33,299 $1,232
International Growth Portfolio $ 987(2) N/A
Balanced Portfolio $ 4,171 $ 507
- --------------------------------------------------------------------------------
(1) September 13, 1993 (inception) to December 31, 1993.
(2) May 2, 1994 (inception) to December 31, 1994.
Included in such brokerage commissions are the following amounts paid to
DSTS, which served to reduce each Portfolio's out-of-pocket expenses as follows:
<TABLE>
<CAPTION>
Commission Commission Paid
Paid Through through DSTS
DSTS for the for the Period Reduction of
Period Ended Reduction of % of Total % of Total Ended Expenses for
Portfolio Name 12/31/94* Expenses* Commissions+ Transactions+ 12/31/93*(1) that Period*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio $2,466 $1,850 2.9% 1.9% $ 24 $ 18
Aggressive Growth Portfolio $2,775 $2,081 3.2% 2.1% N/A N/A
Worldwide Growth Portfolio $ 201 $ 151 0.6% 0.1% N/A N/A
Balanced Portfolio $ 77 $ 57 1.8% 0.9% $ 12 $ 9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The difference between commissions paid to DSTS and expenses reduced
constitute commissions paid to an unaffiliated clearing broker.
+ Differences in the percentage of total commissions versus the percentage of
total transactions are due, in part, to variations among share prices and
number of shares traded, while average price per share commission rates
were substantially the same.
(1) September 13, 1993 (inception) to December 31, 1993.
NOTE:International Growth Portfolio did not execute trades with DSTS during the
periods indicated.
As of December 31, 1994, certain Portfolios owned securities of their
regular broker-dealers (or parents), as shown below:
Portfolio Name Name of Broker-Dealer Value of Securities Owned
- --------------------------------------------------------------------------------
Growth Portfolio Schwab (Charles) Corp. $165,656
Short-Term Bond Portfolio Smith Barney Holdings, Inc. $ 47,750
Short-Term Bond Portfolio The Travelers Inc. $ 99,000
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
The following are the names of the Trustees and officers of the Trust,
together with a brief description of their principal occupations during the last
five years.
Thomas H. Bailey*# - Trustee, Chairman and President
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Trustee, Chairman and President of Janus Investment Fund . Chairman and
President of Janus Capital. Chairman and Director of IDEX Management, Inc.,
Largo, Florida (50% subsidiary of Janus Capital and investment adviser to a
group of mutual funds) ("IDEX").
Jack R. Thompson*# - Trustee and Senior Vice President
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Trustee and Senior Vice President of Janus Investment Fund . Executive Vice
President and Director of Janus Capital. President and Director of Janus
Service and Janus Distributors. Director of IDEX. Prior to 1990, Secretary
and Treasurer of Janus Investment Fund, Janus Income Series, Janus Twenty
Fund, Inc. and Janus Venture Fund, Inc.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
+ Includes comparable office with various Janus funds that were reorganized
into Janus Investment Fund on August 7, 1992.
21
<PAGE>
James P. Craig* - Executive Vice President
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Investment Fund .
Vice President of Janus Capital.
James P. Goff* - Executive Vice President
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Investment Fund .
Vice President of Janus Capital. Formerly, securities analyst at Janus
Capital (1988 to 1992).
Warren B. Lammert* - Executive Vice President
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Formerly, securities analyst at Janus Capital (1990 to 1992 and 1987 to
1988) and student (1988 to 1989).
Ronald V. Speaker* - Executive Vice President
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Investment Fund .
Vice President of Janus Capital. Formerly, securities analyst and research
associate at Janus Capital (1986 to 1992).
Helen Young Hayes* - Executive Vice President
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Executive Vice President and Portfolio Manager of Janus Investment Fund.
Vice President of Janus Capital. Formerly (1987 to 1993), securities
analyst at Janus Capital.
David C. Tucker* - Vice President and General Counsel
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Vice President and General Counsel of Janus Investment Fund . Vice
President, Secretary and General Counsel of Janus Capital. Vice President,
General Counsel and Director of Janus Service and Janus Distributors.
Formerly (1984 to 1990), with the law firm of Watson, Ess, Marshall and
Enggas, Kansas City, Missouri.
Steven R. Goodbarn* - Treasurer and Chief Financial Officer
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Treasurer and Chief Financial Officer of Janus Investment Fund , Janus
Capital, Janus Service and Janus Distributors. Formerly (1979 to 1992),
with the accounting firm of Price Waterhouse, Denver, Colorado, and Kansas
City, Missouri.
Deborah E. Bielicke* - Assistant Secretary
100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Assistant Vice President and Assistant Secretary of Janus Investment Fund.
Associate Counsel of Janus Capital. Formerly (1990 to 1992), with the law
firm of Watson, Ess, Marshall and Enggas, Kansas City, Missouri.
John W. Shepardson# - Trustee
910 16th Street, Suite 222
Denver, CO 80202
Trustee of Janus Investment Fund . Historian. Formerly (1985 to 1990),
President of Royalston Corporation, Denver, Colorado (oil and gas and real
estate investments).
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
+ Includes comparable office with various Janus funds that were reorganized
into Janus Investment Fund on August 7, 1992.
22
<PAGE>
William D. Stewart# - Trustee
5330 Sterling Drive
Boulder, CO 80302
Trustee of Janus Investment Fund . President of HPS Corporation, Boulder,
Colorado (manufacturer of vacuum fittings and valves).
Gary O. Loo - Trustee
102 N. Cascade, Suite 500
Colorado Springs, CO 80903
Trustee of Janus Investment Fund . President and a Director of High Valley
Group, Inc., Colorado Springs, Colorado (investments) since 1987.
Dennis B. Mullen - Trustee
1601 114th Avenue, SE
Alderwood Building, Suite 130
Bellevue, WA 98004
Trustee of Janus Investment Fund . President and Chief Executive Officer of
BC Northwest, L.P., a franchise of Boston Chicken, Inc., Bellevue,
Washington (restaurant chain). Formerly (1982 to 1993), Chairman, President
and Chief Executive Officer of Famous Restaurants, Inc., Scottsdale,
Arizona (restaurant chain).
Martin H. Waldinger - Trustee
4940 Sandshore Court
San Diego, CA 92130
Trustee of Janus Investment Fund . Private Consultant and Director of Run
Technologies, Inc., a software development firm, San Carlos, California.
Formerly (1989 to 1993), President and Chief Executive Officer of
Bridgecliff Management Services, Campbell, California (a condominium
association management company) and (1984 to 1989) President of Martin
Business Investments Inc., Los Gatos, California (business brokers).
The Trustees are responsible for major decisions relating to each
Portfolio's objective, policies and techniques. The Trustees also supervise the
operation of the Portfolios by their officers and review the investment
decisions of the officers although they do not actively participate on a regular
basis in making such decisions.
The Executive Committee of the Trustees shall have and may exercise all the
powers and authority of the Board except for matters requiring action by the
whole Board pursuant to the Trust's Bylaws or Trust Instrument, Delaware law or
the 1940 Act.
The following table shows the aggregate compensation paid to each Trustee
by the Portfolios and all funds advised and sponsored by Janus Capital
(collectively, the "Janus Funds") for the periods indicated. None of the
Trustees receive pension or retirement benefits from the Portfolios or the Janus
Funds.
Aggregate Compensation Total Compensation
from the Portfolios for from the Janus Funds
fiscal year ended for calendar year ended
Name of Person, Position December 31, 1994 December 31, 1994
- --------------------------------------------------------------------------------
Thomas H. Bailey, Chairman* $ 0 $ 0
Jack R. Thompson, Trustee* $ 0 $ 0
John W. Shepardson, Trustee $50 $39,200
William D. Stewart, Trustee $50 $39,200
Gary O. Loo, Trustee $50 $39,200
Dennis B. Mullen, Trustee $50 $39,200
Martin H. Waldinger, Trustee $50 $39,200
- --------------------------------------------------------------------------------
* An interested person of the Portfolio and of Janus Capital.
- --------------------------------------------------------------------------------
* Interested person of the Trust and of Janus Capital.
# Member of the Executive Committee.
+ Includes comparable office with various Janus funds that were reorganized
into Janus Investment Fund on August 7, 1992.
23
<PAGE>
SHARES OF THE TRUST
NET ASSET VALUE DETERMINATION
As stated in the Prospectus, the net asset value ("NAV") of Portfolio
shares is determined once each day on which the NYSE is open, at the close of
its regular trading session (normally 4:00 p.m., New York time, Monday through
Friday). The NAV of Portfolio shares is not determined on days the NYSE is
closed (generally, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas). The per share NAV of
each Portfolio is determined by dividing the total value of a Portfolio'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 Portfolios are traded primarily in
the over-the-counter market. Valuations of such securities are furnished by one
or more pricing services employed by the Portfolios and are based upon last
trade or closing sales prices or a computerized matrix system or appraisals
obtained by a pricing service, in each case in reliance upon information
concerning market transactions and quotations from recognized municipal
securities dealers. Other securities that are traded on the over-the-counter
market are valued at their closing bid prices. Foreign securities and currencies
are converted to U.S. dollars using the exchange rate in effect at the close of
the NYSE. Each Portfolio will determine the market value of individual
securities held by it, by using prices provided by one or more professional
pricing services which may provide market prices to other funds, or, as needed,
by obtaining market quotations from independent broker-dealers. Short-term money
market securities maturing within 60 days are valued on the amortized cost
basis. Securities for which quotations are not readily available, and other
assets, are valued at fair values determined in good faith under procedures
established by and under the supervision of the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which a Portfolio's NAV is not calculated. A Portfolio 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.
PURCHASES
Shares of the Portfolios can be purchased only by i) the separate accounts
of participating insurance companies for the purpose of funding variable
insurance contracts and ii) certain qualified retirement plans. Shares of the
Portfolios are purchased at the NAV per share as determined at the close of the
regular trading session NYSE next occurring after a purchase order is received
and accepted by Portfolio or its authorized agent. The prospectus for your
insurance company's separate account or your plan documents contain detailed
information about investing in the different Portfolios.
REDEMPTIONS
Redemptions, like purchases, may only be effected through the separate
accounts of participating insurance companies or qualified retirement plans.
Shares normally will be redeemed for cash, although each Portfolio retains the
right to redeem its shares in kind under unusual circumstances, in order to
protect the interests of remaining shareholders, by delivery of securities
selected from its assets at its discretion.
However, the Portfolios are governed by Rule 18f-1 under the 1940 Act,
which requires each Portfolio to redeem shares solely in cash up to the lesser
of $250,000 or 1% of the NAV of that Portfolio during any 90-day period for any
one shareholder. Should redemptions by any shareholder exceed such limitation, a
Portfolio 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 "Shares of the Trust - Net Asset Value Determination"
and such valuation will be made as of the same time the redemption price is
determined.
24
<PAGE>
The right to require the Portfolios 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.
INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX STATUS
It is a policy of the Portfolios to make distributions of substantially all
of their respective investment income and any net realized capital gains, if
any, in June and December of each year. The distribution schedule for each
Portfolio is set forth in the Prospectus. It is also a policy of the Portfolios
to qualify as regulated investment companies by satisfying certain requirements
prescribed by Subchapter M of the Code. In addition, each Portfolio intends to
comply with the diversification requirements of Code Section 817(h) related to
the tax-deferred status of insurance company separate accounts.
All income dividends and capital gains distributions, if any, on a
Portfolio's shares are reinvested automatically in additional shares of that
Portfolio at the NAV determined on the first business day following the record
date.
Foreign securities such as those purchased by the Portfolios may be subject
to foreign government taxes which could reduce the yield on such securities. The
Portfolios do not intend to make the election permitted under section 853 of the
Code. As a result, any foreign taxes paid or accrued will represent an expense
to the Portfolio which will reduce its investment company taxable income.
Because shares of the Portfolios can only be purchased through variable
insurance contracts or qualified plans, it is anticipated that any income
dividends or capital gains distributions will be exempt from current taxation if
left to accumulate within such contracts or plans. See the prospectus for the
separate account of the related insurance company or the plan documents for
additional information.
PRINCIPAL SHAREHOLDERS
The officers and Trustees of the Portfolios cannot directly own shares of
the Portfolios without purchasing an insurance contract through one of the
participating insurance companies. As a result, such officers and Trustees as a
group own less than 1% of the outstanding shares of each Portfolio. As of
January 31, 1995, all of the outstanding shares of the Portfolios were owned by
certain insurance company separate accounts and by Janus Capital, which provided
seed capital for the Portfolios. The percentage ownership of each entity is as
follows:
<TABLE>
<CAPTION>
Record Owners as of January 31, 1995
American Life of Lincoln Western Janus
Portfolio Name Aetna Skandia Virginia Benefit Reserve Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio * * 81.65% * 10.81% N/A
Aggressive Growth Portfolio 40.50% * 45.90% * 10.30% N/A
Worldwide Growth Portfolio * * 76.45% * 17.43% N/A
International Growth Portfolio N/A N/A N/A N/A 68.15% 31.82%
Balanced Portfolio * 6.84% N/A 20.94% 68.30% N/A
Short-Term Bond Portfolio * 20.32% N/A N/A 77.11% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Insurance company owned less than 5%.
The shares held by the separate accounts of each insurance company,
including shares for which no voting instructions have been received, will be
voted by each insurance company in proportion to instructions received from
contract owners.
MISCELLANEOUS INFORMATION
The Trust is an open-end management investment company registered under the
1940 Act and organized as a Delaware business trust, which was created on May
20, 1993. The Trust Instrument permits the Trustees to issue an unlimited number
of shares of beneficial interest from an unlimited number of series of shares.
Currently, the Trust is offering eight series of shares, known as "Portfolios."
Additional series may be created from time to time.
25
<PAGE>
SHARES OF THE TRUST
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $.001 per share for each series of the
Trust. Shares of each Portfolio are fully paid and nonassessable when issued.
All shares of a Portfolio participate equally in dividends and other
distributions by such Portfolio, and in residual assets of that Portfolio in the
event of liquidation. Shares of each Portfolio have no preemptive, conversion or
subscription rights.
VOTING RIGHTS
A participating insurance company issuing a variable insurance contract
will vote shares in the separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations, a participating insurance company is required
to request voting instructions from policy owners and must vote shares in the
separate account, including shares for which no instructions have been received,
in proportion to the voting instructions received. Additional information may be
found in the participating insurance company's separate account prospectus.
The Portfolios' Trustees are responsible for major decisions relating to
each Portfolio's policies and objectives; the Trustees oversee the operation of
each Portfolio by its officers and review the investment decisions of the
officers. In approving the use of a single combined prospectus, the Trustees
considered the possibility that one Portfolio might be liable for misstatements
in the Prospectus regarding information concerning another Portfolio.
The present Trustees of the Trust were elected by the initial trustee of
the Trust on May 25, 1993, and were approved by the initial shareholder on May
25, 1993. Under the Trust Instrument, each Trustee will continue in office until
the termination of the Trust or his earlier death, resignation, bankruptcy,
incapacity or removal. Vacancies will be filled by a majority of the remaining
Trustees, subject to the 1940 Act. Therefore, no annual or regular meetings of
shareholders normally will be held, unless otherwise required by the Trust
Instrument or the 1940 Act. Subject to the foregoing, shareholders have the
power to vote to elect or remove Trustees, to terminate or reorganize their
Portfolio, to amend the Trust Instrument, to bring certain derivative actions
and on any other matters on which a shareholder vote is required by the 1940
Act, the Trust Instrument, the Trust's Bylaws or the Trustees.
Each share of each series of the Trust has one vote (and fractional votes
for fractional shares). Shares of all series of the Trust have noncumulative
voting rights, which means that the holders of more than 50% of the shares of
all series of the Trust voting for the election of Trustees can elect 100% of
the Trustees if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any Trustees. Each series of the
Trust will vote separately only with respect to those matters that affect only
that series.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 950 Seventeenth Street, Suite 2600, Denver, Colorado
80202, independent accountants for the Portfolios, audit the Portfolios' annual
financial statements and prepare their tax returns.
REGISTRATION STATEMENT
The Trust has filed with the SEC, Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
securities to which this Statement of Additional Information relates. If further
information is desired with respect to the Portfolios or such securities,
reference is made to the Registration Statement and the exhibits filed as a part
thereof.
26
<PAGE>
PERFORMANCE INFORMATION
The Prospectus contains a brief description of how performance is
calculated.
Quotations of average annual total return for a Portfolio will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in such Portfolio over periods of 1, 5, and 10 years (up to the life
of the Portfolio). 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 Portfolio
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid. The average annual total return of each Portfolio,
computed as of December 31, 1994, is shown in the table below.
<TABLE>
<CAPTION>
Average Annual Total Return
Date Number of ----------------------------------------
Available Months in Five Ten Life of
Portfolio Name for Sale Lifetime One Year Years Years Portfolio
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio 9/13/93 15.5 2.76% N/A N/A 4.89%
Aggressive Growth Portfolio 9/13/93 15.5 16.33% N/A N/A 27.84%
Worldwide Growth Portfolio 9/13/93 15.5 1.53% N/A N/A 15.85%
International Growth Portfolio 5/2/94 8 N/A N/A N/A (2.80%)*
Balanced Portfolio 9/13/93 15.5 0.84% N/A N/A 6.22%
Short-Term Bond Portfolio 9/13/93 15.5 0.92% N/A N/A 0.95%
- -------------------------------------------------------------------------------------------------
</TABLE>
* Total return for the period from the Portfolio's inception (May 2, 1994).
Quotations of a Portfolio's yield are based on the investment income per
share earned during a particular 30-day period (including dividends, if any, and
interest), less expenses accrued during the period ("net investment income"),
and are computed by dividing net investment income by the net asset value per
share on the last day of the period, according to the following formula:
YIELD = 2 [(a-b + 1)6 - 1]
cd
where a = dividend and interest income
b = expenses accrued for the period
c = average daily number of shares outstanding during the period
that were entitled to receive dividends
d = maximum net asset value per share on the last day of the
period
The yield for the 30-day period ending December 31, 1994, for the
Short-Term Bond Portfolio was 6.49%.
From time to time in advertisements or sales material, the Portfolios may
discuss their performance ratings or other information as published by
recognized mutual fund statistical rating services, including, but not limited
to, Lipper Analytical Services, Inc., Ibbotson Associates, Micropal or
Morningstar or by publications of general interest such as Forbes or Money. The
Portfolios may also compare their performance to that of other selected mutual
funds, mutual fund averages or recognized stock market indicators, including,
but not limited to, the Standard & Poor's 500 Composite Stock Price Index, the
Standard & Poor's Midcap Index, the Dow Jones Industrial Average, the Lehman
Brothers Government/Corporate Bond Index, the Lehman Brothers
Government/Corporate 1-3 Year Bond Index, the Lehman Brothers Long
Government/Corporate Bond Index, the Lehman Brothers Intermediate Government
Bond Index, the Lehman Brothers Municipal Bond Index, the Russell 2000 Index and
the NASDAQ composite. In addition, the Portfolios may compare their total return
or yield to the yield on U.S. Treasury obligations and to the percentage change
in the Consumer Price Index. Worldwide Growth Portfolio and International Growth
Portfolio may also compare their performance to the record of global market
indicators, such as the Morgan Stanley International World Index or Morgan
Stanley Capital International Europe, Australia, Far East Index (EAFE Index).
Such performance ratings or comparisons may be made with funds that may have
different investment restrictions, objectives, policies or techniques than the
Portfolios and such other funds or market indicators may be comprised of
securities that differ significantly from the Portfolios' investments.
27
<PAGE>
FINANCIAL STATEMENTS
The following audited financial statements for the period ended December
31, 1994 are hereby incorporated into this Statement of Additional Information
by reference to the Portfolios' Annual Report dated December 31, 1994. A copy of
such report accompanies this Statement of Additional Information.
DOCUMENTS INCORPORATED BY REFERENCE TO THE ANNUAL REPORT:
Schedules of Investments as of December 31, 1994
Statements of Operations for the period ended December 31, 1994
Statements of Assets and Liabilities as of December 31, 1994
Statements of Changes in Net Assets for the periods ended December 31, 1994
and 1993
Financial Highlights for each of the periods indicated
Notes to Financial Statements
Report of Independent Accountants
The portions of such Annual Report that are not specifically listed above
are not incorporated by reference into this Statement of Additional Information
and are not part of the Registration Statement.
28
